ICBC contributes $108.3 million to $650 million syndicated loan for 2.4GW Ituango Hydropower Plant Construction Project (Linked to Project ID#54637)

On December 29, 2017, Empresas Públicas de Medellín (EPM) — a state-owned company in Colombia — signed a $1 billion loan agreement (the "IDB Invest Loan") with the Inter-American Investment Corporation ("IDB Invest"), the private sector division of the InterAmerican Development Bank. The IDB Invest Loan has an A/B structure in which the IDB Group funded a $300 million tranche (“tranche A”) and a group of international commercial banks and institutional investors from North America, Europe and Asia (CDPQ, KFW IPEX, BNP Paribas, ICBC, Sumitomo Mitsui, BBVA and Banco Santander) funded a $650 million tranche (“tranche B”). All members of the lending syndicate — including ICBC — that participated in tranche B reportedly contributed $108.3 million. ICBC’s contribution is captured via Project ID#54365. Additionally, the IDB Invest Loan included $50 million of resources from the China Co-Financing Fund for Latin America and the Caribbean, which is managed by IDB Invest). Tranche A and the $50 million portion financed by the China Co-Financing Fund for Latin America and the Caribbean (captured via Project ID#54637) have a total term (maturity) of 12 years and a grace period of 4 years, and tranche B has terms of 8 and 12 years. The loan proceeds will be disbursed gradually over a 4-year disbursement period. Interest on the IDB Invest Loan will accrue at a rate of LIBOR plus 2.125% and 2.75% payable semi-annually in arrears. EPM may voluntarily prepay the IDB Invest Loan at any time. All payment obligations under the IDB Invest Loan rank in all respects at least pari passu in priority of payment with all other present and future unsecured and unsubordinated external indebtedness of the borrower. The IDB Invest Loan provides for certain financial covenants, which are: the net debt to Adjusted EBITDA ratio must be greater than 4.0 and the interest coverage ratio to be less than 3.0. As of June 30, 2019, the total outstanding balance under this loan was Ps.1,398,234 million The purpose of the project is to build a 2,400 MW (2 GW) hydropower facility and dam over the Cauca River — the second largest river in the country — in the northern region of Antioquia. The project consists of a 79 km long reservoir with a flood area of 3,800ha and an active capacity of 980 million cubic meters, and a 225 meter high earth-core rock-filled embankment dam with a volume of 20 million cubic meters. The dam will have a controlled spillway with a design flow of 22,600 cubic meters a second. The powerhouse will be underground with eight 300MW generating units, each driven by a headrace tunnel equipped with Francis turbines and vertical shaft synchronous generators. Water will be fed to the turbine chambers through eight tunnels. There will be two separate tunnels as well, for returning the water to the Cauca River. The hydraulic head of the power plant will be 197m. A 500kV main substation will be built outside the dam to transmit the power generated from the underground powerhouse. Upon completion, the Ituango hydropower plant will represent approximately 18 percent of the country’s total installed power capacity, and generate approximately 13,900 GWh of renewable electricity per year. A consortium formed by the Camargo Correa (a Brazilian company), Colombians Conconcreto, and Coninsa is responsible for project implementation. Construction began in September 2011 and the project was originally scheduled to reach completion by the end of 2013. However, as of June 30, 2019, the project had achieved a physical progress rate of 72.7%. However, this project stalled in 2018 due to a geological event. To understand what happened, it is important to know how a dam is built. This process involves the construction of different tunnels to divert the water while raising the dam. As the project neared completion, EPM closed two of the three tunnels it had built. Then, on April 28, 2018 a landslide near the site blocked the remaining tunnel. With rain and new landslides, water rose to critical levels. That led EPM to what would be only one of a series of hard decisions: on May 10, 2018, the company flooded the dam’s turbine rooms to release the pressure being exerted on the structure by the river. Water levels were reduced, but all the equipment that had already been installed suffered irreversible damage. Two days later, one of the sealed tunnels ceded the pressure, unblocked and caused flash floods downstream. Over 113,000 people living downstream of the dam have already been evacuated, due to the risk of a collapse. Even today, the risk of new landslides from nearby mountains still remain, which could potentially compromise the integrity of the entire project. The attempt to save the dam includes the construction of a new project tunnel to reduce the levels of the flooded river, which would take several months. On December 12, 2018, IDB Invest granted EPM a waiver for its non-compliance with certain environmental covenants under the loan agreement caused by ‘the Ituango Contingency’. EPM and IDB Invest subsequently began negotiating an amendment to the loan agreement to revise the environmental covenants.

Additional details

1. Empresas Públicas de Medellín (EPM) was established on November 18, 1955 as a residential public utilities company which, initially, only served the inhabitants of Medellin. 2. AidData has estimated the all-in interest rate for tranche B by adding 2.4375% (the midpoint between 2.125% and 2.75%) to the average 6-month LIBOR rate in December 2017 (1.768%). 3. AidData has estimated the maturity length of tranche B by taking the midpoint between 8 years and 12 years. 4. The loan contract from China Co-Financing Fund for Latin America and the Caribbean can be accessed in its entirety via https://www.dropbox.com/s/0koyuusbo0jl5sk/Resoluci%C3%B3n%20N%C2%B0%201%20de%20la%20Gaceta%20de%20la%20Alcald%C3%ADa%20de%20Medell%C3%ADn%2C%2002-01-2018.pdf?dl=0. 5. The IDB Loan identification number is 3818C/OC-CO. The IDB Invest loan identification number is 11794-04. The identification number for the loan from China Co-Financing Fund for Latin America and the Caribbean is 3818/CH-CO.

Number of official sources

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Number of total sources

19