Hidroituango : Mother Nature Bites Back

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THE STORY THAT GOT BIG IN A HURRY

There is no force on earth like that of Mother Nature, she goes where she wants, does what she wants and mankind can only try and work in unison but never fully control her, history is littered with such cases of failed attempts to do so and the lady has to be treated with respect, to not do so is to take unnecessary risks. Over the past couple of weeks the name of Hidroituango here in Antioquia has dominated the news, politicians have been pushed off the front pages just two weeks from the first round of Presidential elections, potential tragedy taking precedent - what ten days ago appeared no more than a set back has now turned into a full blown crisis with the revelation yesterday by the head of EPM that the dam wall of Colombia's largest ever hydro-electric project could breakwith presumably catastrophic circumstances ensuing - here a quick look at what is occurring at this key component of Colombia’s future energy supply. HISTORY Colombia is one of the global leaders when it comes to alternative energy owing to its massive hydro-electric program, this has been growing for decades and has now arrived at a point where depending on the season 70-80% of total energy supply can come from the massive reservoirs that are dotted around the country, the combination of the Andean mountains and plentiful rainfall provide for a perfect environment. For the time being that will continue to be the dominant source in the sustainable space as the solar sector plays catch up, Celsia is doing admirable work pushing forward with their solar farms but Colombia is decades behind when it should be a dominant player - legislation as ever moves at a snails pace in Bogotaá. Against this background the push into Hydro logically continues and Hidroituango is set to become the largest project to date and will provide when at full capacity ~17% of the total energy demand of Colombia, an enormous undertaking which will have an installed capacity of 2,400MW, the restraining wall is 225m in height and the reservoir will run to 79km but as we move towards the final phase of construction things have gone astray, Mother Nature has shown her teeth, she is displeased and has placed 10,000s of the local population in danger along the river Cauca which in any given rainy season can be problematic, in May 2018 it is worse than usual. Whilst the full capacity will not be realized for some time there was a hope to get 300MW on line by the end of the year, that is no longer going to occur. IN A HURRY ? Whilst initially Mother Nature was blamed for events that have occurred over the past week there is clearly more to it at this point and there have been accusations with regards to errors in the execution of the construction of this mammoth project which have apparently compounded the situation....with the caveat that investigations have yet to take place and there are conflicting reports as to the series of events here is a broad summary of what has occurred. The filling of the reservoir had been taking place over recent months with no cause for concern however it is ‘alleged’ there was a rush to finish the project and fill the reservoir ahead of schedule thereby bringing vital revenues to the local Governors office. Where it gets complicated and where the blame game is sure to start is that whilst the majority shareholder in the project is the Governors office the company in charge of the project is EPM, the massive, highly successful, energy producer owned by the Medellín Mayors office, and they are the ones having to face the public. With the arrival of the winter rains which have been heavier than expected the concerns started to rise along with the water level as they already sealed two auxiliary tunnels as part of the filling process with a landslide also sealing another option - whilst the dam itself is yet to be finished the decision was made to fill it as fast as possible and utilize the spillways at the top, this also failed at the first attempt. In short luck has been in short supply. Amid comments from EPM such as ‘There are forces within the mountain we don’t understand’ what engineers were forced to do as an emergency measure was to use the machine room to evacuate excess water, a measure which will likely have caused extensive damage to the machinery itself however at that point in time it was the only option, this would remove 2000m3 of water per second but that force coursing through the machine room can only cause damage. On Wednesday even this measure ran into issues as debris filled the machine room and the torrent of water found the next best exit, the access tunnels used by transport - the situation resolved itself after a few hours however workers were evacuated on mass and again as of yet un calculated damage was caused. Now we are back it appears to the plan to fill the reservoir as quickly as possible in order to utilize the slipways at the top to relieve the pressure however this will take days still. And that is where we were until yesterday when EPM started to talk about the integrity of the dam wall, towns have been evacuated downstream, 4 provinces are on alert, there is already size-able damage alongside the riverbank and as of yet no solution. The images are disturbing and with the Governor having described the situation as an ‘impasse’ there is widespread consternation that the priority is money and business before the suffering communities. The national Government have now been called in to help and the mining minister has already made it clear that it is EPM who have to answer the questions. THOUGHTS IN BRIEF Who will take the blame ? This will be a blame game of massive dimensions, the Governors Office, EPM, The Mayor’s Office, Contractors - it is favourite game here in Colombia, a brief glance at Ruta del Sol II or the collapsed bridge at Chirajara tells us that it will months if not years. Impact on Energy Supply ? This is hard to determine, fortunately Colombia is not short of energy and Acolgen stated that for the next three years Colombia has no need for Hidroituango's capacity and as we are enjoying abundant rain filling reservoirs the impact won't be noticed however all this is assuming the project is finished come 2019. What if we get the worst case scenario and the project doesn't come on line for years ? At that point the Government, who have already held their energy auctions and for which EPM needs to be accountable for their part, may have to shuffle around some pieces in order to guarantee supplies a few years down the road. Impact on EPM ? The Medellín sugar daddy that provides a large cheque to invest every year and has helped drive the city forward could be set for some leaner times but much of this will depend on : (1) The extent of the damage caused (2) The quality of insurance taken out and its coverage (3) The number of guaranteed contracts it has signed with the Government and how much it costs to replace that supply via purchases in the spot market - as we recall during El Niño energy suppliers suffered having to replace cheap hydro supply via the spot market where prices spiked. Impact on the sector ? The only real concern here is a similar one to that seen after the Odebrecht scandal and its effect on 4G financing, the next company who needs $1 billion of financing for a project will likely find themselves jumping through a few more hoops with the banks who in theory could be facing provisions if things don't get organized. ANLA and any other licensing authorities are also likely to be even more rigorous when it comes to future projects. Impact on Medellin ? It is hard to overstate the importance that the revenues of EPM have played in the resurgence of Medellin as a city, every year there is a sizeable cheque handed over to the Mayor's office which have helped pay for the infrastructure projects that have helped transform the city - could those days be over for the time being. This project cost around US$4.2bn a large part of which was borrowed from a consortium of banks dotted around the world, the repayment terms are generous however the money has to be repaid regardless of whether Hidroituango is producing energy. EPM time to privatise ? Colombia suffers from a phenomena called the ‘Patria Boba’ under which when new administrations arrive in power they replace every senior official at the various companies, federations etc under their control - EPM is the Jewel in the Crown of Medellin but it is one of the few companies of this magnitude that remains 100% in public hands here in Colombia. There are those reading this blog who will be horrified to hear such a suggestion however is it time that 20% of the company was sold into the market which would presumably bring a higher level of oversight as well as continuity whilst retaining 80% of the dividends for the city ? The Human Cost Speaking today the Mayor of Medellin was correct in pointing out the one bit of good news in all of this it is that there has been no loss of life either at the reservoir as workers bravely battle the problem or along the banks of the River Cauca, contingency plans have been carried out, communities are vigilant and that is helping greatly. However with all that said there has been flooding and destruction even at this stage and as ever it is those with the least who suffer the most and most concerning thing with the comments of the EPM boss yesterday is that there could be far worse to come - all of us here in Colombia will be hoping and praying that the crisis abates long before that.