According to industry executives, the hydroelectric initiative located in the Metropolitan Region is one of the most expensive investments in this area: each megawatt of installed capacity already costs US$ 4.7 million, four times more than Ralco.

Energy Minister comes out in support of Alto Maipo in the face of new complications, stressing that it is “important for the government”.

A headache. The Alto Maipo hydroelectric project, led by AES Gener, has not stopped making news, but bad news. In addition to the aggressive public opposition to the initiative from the beginning, there was a 22% cost overrun of the original budget, the departure of the partner Antofagasta Minerals, of the Luksic group, and now a dispute with the Constructora Nuevo Maipo consortium, made up of the German Hochtief and the Italian CMC Di Ravenna, which in turn has complicated the relationship with the banks financing the project.

In the midst of this bleak outlook, the hydroelectric initiative located in the mountain range of the Metropolitan Region won the backing of the government. Energy Minister Andrés Rebolledo told “El Mercurio” that “Alto Maipo is important for the government because it contributes a significant amount of renewable energy to the matrix and is located close to consumption centers, which reduces the length of the transmission line that must be built to inject its energy into the system”.

However, the portfolio holder points out that this project is not vital for the country’s energy supply. “Today the country’s electricity system is well supplied and there is sufficient capacity to cover the demand of the coming years, with plants of different technologies,” he says.

Rebolledo argues that since March 2014 to date a total of 4,927 MW have been added in both conventional and non-conventional plants, both thermal and hydroelectric, while investments in the sector have grown 56% over the previous period for a total amount of US$ 16 billion. “In other words, the Chilean electricity system has sufficient security and flexibility,” he says.

1,500 workers laid off and part of the construction work paralyzed

Last June 7, Alto Maipo decided to terminate the contract with the construction company CNM. According to Miguel González, leader of the industrial assembly, construction and civil works union Sinami, this meant the dismissal of 1,500 workers and the partial stoppage of work sites.

AES Gener’s idea is that the project’s other contractor, Strabag, will be in charge of the entire project and eventually increase its current shareholding in the hydroelectric plant, according to industry executives. This European firm became the owner of the hydroelectric plant in January of this year, acquiring a 7% stake, in an operation in which AES Gener bought the part of Minera Los Pelambres (Antofagasta Minerals) and renegotiated the terms of the energy supply contract, all of which implied AES Gener disbursing US$ 117 million in addition to the US$ 400 million already invested in the initiative by the US capital firm, to which must be added the financing provided by the banking consortium.

53% progress and investment of US$ 2,490 million

With 53% progress on the project, there are few who doubt that Alto Maipo will be completed. But whether it is profitable is another matter. “Indeed, the electricity market has changed in recent years, and today there are initiatives that are lower in price,” says Systep partner and UC academic Hugh Rudnick.

An industry executive explains that the cost of Alto Maipo is US$ 4.7 million per megawatt of installed capacity, almost four times more than Ralco. This makes it one of the most expensive electricity projects in Chile’s history, according to the former head of the National Energy Commission, María Isabel González.

According to AES Corp’s 2016 annual report, the project has a cost overrun of more than 22% of the original US$2.05 billion budget. In other words, it already amounts to US$ 2,490 million to build a 531 MW plant, with a plant factor of 49%, considered low for a hydroelectric plant.

But Rudnick points out that Alto Maipo already has its energy contracted (with Antofagasta Minerals’ Los Pelambres), so it could pass the profitability test. According to electricity sector executives, the renegotiation with the Luksic group would contemplate a tariff of US$ 90 per MW/h, generating a rate of return of 7% for AES Gener, “which is not bad in these times”.

Moreover, “the initiative is at a stage of no return, which means that it is better to continue investing than to lose what has been invested,” says an industry executive.

Even so, the new stumbling block could mean delays and more costs. The financial sector comments that this is why the consortium of banks would have stopped the extra financing that such a delay entails. Analysts consider it highly likely that AES Gener will try to add another partner to the project or sell its stake, either to Strabag or to another company.

According to industry professionals, there is interest from European, Brazilian and Asian firms in the hydroelectric initiative, but this alternative could mean that the controlling company would make a loss, since it would obtain less than what it has invested in the project so far.

When consulted by AES Gener, the company said it had no information on the matter. Strabag was contacted by e-mail on Friday and at the time of going to press had not yet responded to “El Mercurio’s” requests.

Legal flank: arbitrators to be appointed in the next few days

In addition to all these problems, there is now a legal flank. CNM and Alto Maipo (AES Gener) will go to international arbitration under the guidelines of the International Chambers of Commerce (ICC). In this fight, the construction company is represented by the law firm Pellegrini & Cía and the electricity company by Claro & Cía. The corresponding arbitrators will be appointed in the next few days.

According to those involved in the process, two years ago the CNM consortium detected problems of “rock explosion” while building the tunnels. After two expert appraisals, this construction company decided to suspend work in the tunnels on May 4, due to safety risks to the workers, but continued with work in other areas. On June 7, Alto Maipo attempted to collect the US$76 million guarantee bond from CNM, thus closing the contract. This movement was stopped by means of a precautionary measure filed by CNM before the 8th Civil Court of Santiago. This was followed by international arbitration.