Emcali is the public company that provides water, energy and telecom services to two million people in and around Cali, Colombia and good jobs at good wages to nearly 3,000 public workers. These workers are virtually 100 percent organized and belong to SINTRAEMCALI, a public service union fighting a long-standing battle against the privatization of the company.
SINTRAEMCALI took desperate measures in December 2001 to prevent privatization: The union occupied the administrative tower of Emcali on Christmas Day, after the government announced its plan to sell and concession the company. The workers demanded guarantees against privatization along with repair of the public systems that had been destroyed and neglected in preparation for privatization. For 35 days, the union occupied the tower, and reached an agreement with the government on January 29, 2002, after several days of high-tension police posturing in Cali and Bogotá.
At the time, the agreement was a victory for SINTRAEMCALI and for the community using its services, but the price has been high. Two activists affiliated with SINTRAEMCALI have been assassinated since the tower occupation ended, two members of the union’s leadership have narrowly escaped abduction and a former union president has been constantly followed by armed men.[1]
Nonetheless, the national government agreed not to privatize Emcali and not to raise the rates for public services beyond those charges included in the 2002 budget. No disciplinary measures would be taken against any worker, and all workers would be paid their salaries for the period of occupation of the Emcali tower. Finally, a new mayor in Cali agreed to convene a public hearing to inform citizens about the finances of the enterprise and the future of Emcali. But the IDB still wants Emcali sold, and the drama is not yet over.
Emcali was established in 1961, as the city of Cali grew. As demand for services increased, Emcali expanded in scope; by the 1980s, the company had become an important source of graft for local politicos and unscrupulous entrepreneurs. At the time, Emcali was run by a Liberal Party sect under the thumb of retired Senator Gustavo Balcazar, and while sitting on its board of directors, city council members routinely helped themselves to 15-percent-or-so “commissions” for the awarding of lucrative contracts. Before illicit enrichment became a punishable crime in Colombia, board members turned wealthy overnight without ever confronting awkward questions about the spontaneous origins of their personal fortunes.
Until the mid 1990s, these individual thefts were not enough to break the company, but between 1993 and 1998, under a new set of Conservative Party cronies, the pilferage turned to plunder. Emcali began to issue large contracts for small services, with corresponding kickbacks to the appropriate board and council members. Two journalists who tried to expose the corruption received death threats and were forced to flee the city.[2]
For the authorities at Emcali, the real long-term bribery bonanzas came in the form of two endless streams of unsupervised financing. The first was a proposed water treatment plant, financed originally with a $75 million loan from the government of Japan. The credit was awarded in 1986 and the plant was to be built in four years. Fifteen years and $154 million later, it has yet to open. The donor government set the minimum standard for subsequent ransacking by insisting that its own companies do the design work with little oversight. The Emcali board obligingly hired the Nitogoi Consortium, which delivered the initial study more than a year late and was fully compensated for an alleged cost overrun of $1 million.
In what later became a pattern, the same plant design studies were done repeatedly by different consulting firms (one of which simply changed the cover on the previous study and collected its fees), while security and lighting contracts for the same services were also issued and paid several times over.
Despite the redundant studies, the water treatment plant was, in the end, poorly located so that in the unlikely event that it ever does open, it will treat only 30 percent of the effluent issuing from the city of Cali. And the site chosen was a dump that had to be cleared by a private contractor, although the personnel of Emcali were willing and equipped to do the work. Not surprisingly, the contractor made an impossibly large number of dumping trips per day, and was paid roughly five times the going rate per cubic meter of moving garbage.
The second source of auxiliary income for the already affluent at Emcali was the phantom power generation plant, Termoemcali. While the World Bank and the IDB looked on, providing expensive technical assistance and expert advice on regulatory regimes governing the privatization and concessioning of energy assets, the finances of Termoemcali ran right off the rails. Emcali owned 43 percent of the plant, InterGen, a U.S. subsidiary of Bechtel, held the majority share of 54 percent, and the Corporación Financiera del Pacífico held the remaining 3 percent. When this deal closed, InterGen announced that the complex financing package reflected the investors’ “creative use of financial tools,” and the IDB posted the news that Termoemcali set a new standard for a “more competitive cost of power to Emcali.”
To date, the plant has yet to produce a single kilowatt of power, although Emcali has disbursed over $70 million for its services. And since it’s a phantom plant, it’s not surprising that it had an imaginary investor. The Corporación Financiera del Pacífico was actually chartered in the Cayman Islands and by 2000 had been liquidated. Presumably the Corporación disappeared because it ran out of officers: The president, vice-president, chief operating officer and technical manager were all censured and fined by the superintendent of the Colombian banking system in 1999 for lack of verifiable assets and incompliance with their fiduciary duties.
The beginning of the end for Emcali came in 1998, during the continuing sell-off of public assets, when the national government “intervened” the company for the purpose of dividing up the remaining spoils. Using the company’s now untenable financial condition as an excuse to cut personnel costs, management dismissed unionized workers through a “voluntary retirement” program that the selected volunteers claimed was coercive, while hiring scores of clients, relatives and associates on external contracts in repayment for political favors.[3]
To prepare the reluctant retirees for life without jobs, the IDB funded imaginary microenterprise training through two Colombian NGOs. Details on the grant are not publicly available because the amount of funding involved was less than $750,000, but apparently the idea was to lure nearly 800 public employees out the door into an urban economy with open unemployment over 18 percent by offering them short-term small business training, valued at less than a thousand dollars per person. This particular development plan is known at the IDB, on the one hand, as “modernizing the state,” and on the other as “strengthening the competitiveness of microenterprises.” It has been financed under similar monikers throughout the hemisphere, and remarkably, doesn’t seem to work for anybody anywhere.
The Emcali case is especially disturbing because the board of directors now firing public workers had pillaged the company in the first place. The increasing debt burden created by unnecessary borrowing, contracting and theft allowed the manager of Emcali and the mayor of the city to assert that an infusion of private capital was needed to continue operation and that therefore the company had to be sold. The 35-day SINTRAEMCALI occupation and the government agreement not to privatize the company followed.
Enter the IDB, once again. In July 2002, auditors for the Bank found that Emcali was financially unsalvageable and must be sold. This would mean further dismissals and more sidewalk entrepreneurs, although competition is increasingly keen for unoccupied squares of cement near high-volume foot traffic in Cali. The new manager of Emcali and SINTRAEMCALI argued that the company’s disappointing balance sheet for 2001 did not display continuing losses, but rather realistic one-time adjustments that had to be made to reflect accurately the dimensions of previous thefts. The operating costs of Emcali were under control, according to the first honest manager to run the company in a very long time, and credit for payment of existing debt had already been negotiated. Nevertheless, the IDB is pushing for privatization and has reserved funds for that purpose.
Curious. If Emcali is such a losing proposition, why are private companies so eager to buy it? And who will the government and the IDB choose to manage the sale? Now there is a promising career opportunity. Since the Colombian President has just sprung the Cali Cartel kingpins from jail, they might be in the running. They certainly have the experience necessary for this sort of thing. And they probably had a stake in it before, given the fact that anyone who vocally opposed privatization turned up either dead or seriously threatened, which is the way the Cartel tends to conduct business negotiations. In the near future, we can probably expect the inauguration of a new regulatory commission to oversee the operations of a privatized Emcali. Rumors suggest that, as places on the commission will be limited, a certain amount of unbecoming pushing and shoving among current and former city council members hoping to be chosen has already begun.
ABOUT THE AUTHOR
Beatrice Edwards is a research analyst based in Washington, D.C. who monitors the multilateral development banks for Public Services International. http://www.world-psi.org
NOTES
1. Ferney-Voltaire,“Keeping Services Public: SINTRAEMCALI’s campaign in Colombia to stop privatisation,” France, October, 2002.
2. Edgar Buitrago Rico and Orlando Marín Cifuentes of Revista Valle 2000 were both anonymously threatened as they attempted to investigate corruption at Emcali.
3. In October 2002, the new comptroller for the cit of Cali, Amparo Cardona Echeverry, filed charges against the former director general of Emcali, Juan Fernando Burgos, managers and current and former board members for unnecessary contracting, negligence and embezzlement.
