27 Jun

Medellín City Councilman Daniel Carvalho Talks To Me About The EPM Crisis, Medellín Governance & Colombia Unrest

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Investors want to know what’s going on with EPM. The Medellín city-owned multinational utility has been thrown into turmoil under current mayor Daniel Quntero. Since the mayor, now facing a recall campaign to throw him out, took office, EPM has gone through four CEOs-one has now threatened litigation against the mayor, another resigned under a cloud of false credentials. The entire board of directors resigned, being replaced by the mayor with a corporate board of kindergarten teachers and neighborhood activists, and even the utility’s largest labor union has come out in support of the utility’s professional management.

Finance Colombia has repeatedly offered the mayor an opportunity for an interview, or even to comment, but through his press secretary, he has always declined. City council member Daniel Carvalho has not in the past been aligned with any of the groups traditionally opposed to the mayor, such as traditional political parties or the Antioquia region’s traditional business elite. Still, the independent councilman and civil engineer has said enough is enough, and that the mayor’s mismanagement is putting Colombia’s second largest enterprise and Medellín’s single largest municipal revenue source at grave risk.

Carvalho was kind enough to sit down with Finance Colombia’s executive editor Loren Moss for an in-depth interview, below. The video interview is conducted in Spanish, English transcript follows below:

Finance Colombia: The situation we have with the metropolitan government, the City Hall and EPM. There is a huge concern on what’s happening, and I want to understand your point of view. We’ve had four managers in the last year, and the investors ask us if EPM is in danger or not, if EPM has the capacity to respond for their bonds and debts and I want your opinion the uncertainty, not only on the management, but we also had SINPRO here in our interviews, but what is happening with Hidroituango. As a councilman of Medellin, I want your opinion on the biggest concern of the situation here, between EPM and the city of Medellin, its owner.

Daniel: EPM, as you know, it’s said that EPM is the crown jewel of Medellin, right? It means that it’s a public company that is very successful and provides resources to Medellin. It’s not very common, you know that the last forty years, the trend to the neoliberalism was about that if public sector is not being efficient for managing companies and services, sell it to the private sector, right? That’s the story in the west. EPM didn’t do that. It wasn’t sold to the private sector, it was kept as public and achieved success, but why?

I think that is why I tell you this story, because EPM allowed the private sector to teach the company how to work efficiently. That learning, that rule on how to make a public company be successful and not driven by the political interests of the moment, is what we call the corporate governance, those are the game rules, the company should work in a determined way, not what the mayor in charge orders, and that’s what we’ve been building for 50 or 60 years in EPM, and it has become  the second largest public company in Colombia after Ecopetrol, and I think that EPM is one of the exemplar public companies of Latin America. I don’t have reference of another one that is equal to it.

Finance Colombia has repeatedly offered the mayor an opportunity for an interview, or even to comment, but through his press secretary, he has always declined

So, the successful story of EPM has been based on mostly in the comprehension of the fact that being public it can’t be managed as the politicians often do. Besides, in the last 20 years, EPM has had a big expansion in the international market, so before EPM technically provided services to each municipality, it has grown in Colombia. We already have Aguas de Urabá, we have a lot of other subsidiaries. We just acquired Electricaribe, but we have also grown as a multinational. That has been interesting, and at least a third of the profits of EPM comes from businesses abroad, so we can see a history of success in EPM.

Now, when one jumps to the international market, and you go to make business, sometimes you win, sometimes you lose. Every job requires effort, nothing guarantees success in investment. There are examples in Panama, in Mexico for bad investments, also in Chile, there are mistakes, but it’s also part of the game of investing. I invest, that’s how it is.

Many years ago the idea came of ​​doing Hidroituango, a project that had been on the plate for 40-50 years, and just 15 years ago was when it’s started. The concession was given 10 years ago. It’s the biggest project in Colombia, providing 15-20% of the energy that Colombia needs, and everything was doing great, until such thing happened, right?

Who’s responsible? I don’t know. I’ve no idea. I’m a civil engineer, I was there before and after the internal failure, so I don’t know, the paperwork [investigation] is being done, right? Despite that, the problem of Hidroituango arrived in a very particular moment. Three years ago, during the presidential campaign, immediately it became an issue of interest for the political debate, because a bunch of politicians from Antioquia had ties to EPM. I mean Sergio Fajardo, Anibal Gaviria; so it became a political thing, and when things become too political, they stop being transparent.

That political earthquake was beneficial for some people to say that EPM was carrying 20 years of bad management, corruption, and blaming people, starting with Daniel Quintero, who used it to build and idea, so the people were upset for the collapse of the Hidroituango tunnel, so they felt that speech made by Daniel Quintero called them out in a very unfair way. He never presented data, he just accused them of corruption.

I asked the management of EPM, and there is no single complaint of corruption. In 10 years, there isn’t, so [Quintero] created a campaign on it, and after winning, he keeps the same speech about EPM being badly managed and that he will arrive and save it. That’s what he says. What I think is behind it and it’s different, is that in the last 20 years, in Medellin there was a political coup. I mean, the parties that were used to being in power; a different style arrived, much more technocratic, transparent, more citizen-oriented, and that was the base for what we know as the Medellin Miracle, the physical and social transformation, partly financed by EPM’s money.

That movement removed the people who were on top before, for example Luis Perez, who was the mayor before Fajardo, and had a number of scandals in EPM. We hadn’t seen such a season at EPM since Luis Perez, so those political and economic groups who were substituted in Medellin kept growing in the rest of Antioquia, and now with Daniel Quintero, supporting them in disguise, because they know a traditional politician doesn’t win in Medellin, who wins is a young independent politician, so they supported Daniel Quintero, and since he won, now they want to go for the revenge.

“Lucky for us, EPM is such a solid company, loved and respected, with a committed staff that has continued to protect the company from the government…”

They want to destroy what was done in 20 years, not only today, but in retrospect destroy the story that was built in Medellin and the world, on how we left the barbarian age of the 90’s. So it’s also a political, economic and historic struggle to rewrite the success story of the city and EPM, so they’re behind. According to me, there is a revenge and a big opportunity to take over the power again of such a big profitable company that manages huge resources, and particularly, the Hidroituango project, which demands billions and billions of pesos, so there is a lot of money, and it must be such a project of interest, so according to me that’s what they want, recover this and get their revenge.

Lucky for us, EPM is such a solid company, loved and respected, with a committed staff that has continued to protect the company from the government, and as you said, in a year and a half it has had four managers already, if their intentions aren’t the most reliable ones, then it’s also because they are not good managers. They pretend to blame the opposition, but we have to remember is that the first manager was appointed and dumped by him [Quintero], and the manager is suing today, so it’s supposed to be our fault, Fajardo’s fault, the opposition’s fault, He [Quintero] creates the problems himself, I call him the pyro bomber.

Finance Colombia: Something I want to ask, EPM is a multi-billion-dollar company, and in general, even though the city owns it, the board of EPM, the managers have been professionals, engineers, experts in electric energy, or public service, but something I saw when the board was replaced, there were many people, I guess they are honorable, but just a few seem qualified for corporate management. If you criticize his decision, he says you must be controlled by Group Antioquia. I personally don’t know anyone there.

Daniel: And you’re compromised by Bancolombia!

Finance Colombia: I don’t have any leverage with them, I wish! If they want to come to us and advertise or something, that would be good, but we have no ties to anyone. We’ve contacted the mayor many times, as well as with you, with SINPRO as well, where Olga Lucia Arango gave her point of view. But what concerns me is that the last person who resigned was only experienced running a micro-business, he was in charge of some small positions here and there but he didn’t have enough experience in leadership of any company, so how would he deal with a multinational company?

Now the new person appointed as his replacement, I think he is also someone of respect, at least he is a civil engineer, but I think he has a lot of connections inside the government, he’s had many positions in the government, but I don’t see a lot of experience as a leader, as an executive. The board, I mean there are kindergarten teachers, and I come from a family of teachers, which is good and respectable, but what I don’t see is any qualified people with a resume of being executive leaders of any big companies, from Medellin or any other parts of the country. In general, big companies, should have people who know what they’re doing. So I want your opinion there, if we have as we say in English, checks and balances, to maintain the independence of EPM if that’s the case, why? And if not, what can we do?

Daniel: What I really see them doing is destroying that balance. When the board was changed, let’s remember they resigned, which was appointed by the mayor, then they put in a whole new board. The vice-presidents of EPM, who are solid, have also been starting to change, so I think they are dismantling what had been done with the corporate governance: how to manage certain things, how to choose a board. I think they are dismantling what had allowed EPM to be successful, and be an efficient public company, which is odd nowadays, they are deleting what we had achieved.

What did the mayor say when he fired the manager, his friend? He said “I need a manager that is more according to my orders,” so that applies for the vice-presidents as well, which becomes…We go backwards, without corporate governance, where the politician is the most powerful and the one that does it all. Now, what can we do and what are we doing? First, from the political matter, you see, the latest manager, why did he have to leave? Because the political oversight proved that he was lying on his resume, which is related to the political oversight in telling the mayor: “you can’t do anything you want here,” and on the other hand, there is citizen oversight, where a lot of people investigate, for instance SINPRO, the union; who knows better the inside of EPM than the union? So I think that bad actions of Daniel Quintero in general and in EPM have awakened the citizens.

Finally, I must say it as well, EPM has a story, institutional knowledge and public servants that help guarantee the respect and continuity of the good practices. I hope, and I’m convinced that EPM will survive this bad moment, but in order to achieve that it’s the work of all of us to tell the mayor to be careful, telling the mayor he can’t do what he wants.

Finance Colombia: When we scheduled this interview, it was all before the recent events of the last month, nationally. And we have a situation, there is a polarization in politics today. I, as a North American have seen this happening as well, but also in the Americas. In Peru we have from the right wing against another from the left wing, and so on. Now that the people rejected this tax reform, obviously the country is facing a deficit, a void, a problem that is putting Colombia’s international credit in danger, and there are many Colombians out in the streets that don’t understand what that implicates for the Peso. To look beyond financing, it will also be more expensive to buy goods.

So my question is, what can the government do in Medellin, in the international field as well, we have elections next year—I’ve seen as you said on Twitter, a change in the attitude, obviously a change in the police as well, but what can the national government? Because Colombia has to prepare a tax package one way or another, so what can be done to clarify the situation and advance forward?

Daniel: The first thing we have to know is that these protests are not only because of the tax reform, let’s remember that you were here in 2019 when there were protests already, in the beginning of 2020 as well, and the only thing that tamped it down was Coronavirus. So I think the tax reform was just a lighting up of what was coming already, so the people are in the streets because of a lot of things, right? The people feel bad about the government, they feel the inequity in Colombia is huge, nowadays people are more educated, cooperative, demanding. Look, an easy example: I was born in 1979 in the very dangerous Medellin. When I was young, before moving to France, I never went to a protest, we were afraid of being murdered. This generation is not afraid anymore. So we are using our citizenship that wasn’t being utilized before. I just want you to understand that the protests are not only because of the tax reform, and what has been happening has only increased the rage!

“When I was young, before moving to France, I never went to a protest, we were afraid of being murdered. This generation is not afraid anymore.”

I think there are 70 missing people, 20 or 30 deaths, that isn’t because of the tax reform, it’s because of the bad management. What can the government do? I understand the need for the reform. This would be the third reform in three years, so it’s like: We can understand the need of the reform, but when they tell you that you have to give more, but on the other hand you see the money flying away, you don’t feel it’s right. Besides, they announced a billion-dollar purchase of war elements, 10-12 million in aircraft, people are starving, the health crisis, there are not enough vaccines, businesses are closing, people are losing their jobs, buying 10 billion pesos in war material is necessary?

This conversation was first published in Finance Colombia

People won’t understand how it is more important to buy a warplane than propose aid to the people. The government has that problem, and besides they don’t have full legitimacy and just one year left. I think they have to make a call to a reform, maybe not so ambitious, but that generates consensus, followed by austerity measures, not towards social investment, but the functioning expense, because people don’t understand either that a senator makes 30 million pesos a month. There is a lot of waste, so the solution is not only technical or economical, is a technical and political solution, it has to count on the support of political forces so the people can be calmed, knowing it’s necessary and it’s fair.

Finance Colombia: And they haven’t done that until now. When they try to sell it they screw up talking about $1,800 peso (40 cents US) eggs.

Daniel: It’s been dumb. The egg thing has become the symbol of the people’s disagreement. If you don’t know how much an egg is worth!

Finance Colombia: How can you put that on people?

Daniel: The people are right by being upset, and the worst is that they withdrew the reform, and the president showed up yesterday calling his allied forces to discuss this. Same with the same. We’re walking towards the same mistake, and the people will remain upset.

Finance Colombia: The opposite, I think we have the same problem in the US. In the las 2-3 administrations, it was like “that was Trump’s fault, that was Obama’s fault” but when you go back to Reagan, who was a Republican, and Tip O’Neill who was In the Congress, they were opponents but were able to negotiate everything, and close deals without being friends. So, what they have to do is negotiate with their opponents.

Daniel: That’s politics, talk to the people who think differently.

Finance Colombia: That leads me to my other question, here, you are very well known, but for our readers; we have 30% in Colombia, but mostly abroad, they are investors in  Colombian companies, in EPM, sovereign bonds, they look for opportunities here in Medellin. Who is Daniel Carvalho? Tell us so the readers and the people abroad understand your position on city council and your story, and political affiliations: He is with Quintero, or with Petro, or with Uribe? So the people understand your point of view and who you are.

Daniel: I’m Daniel Carvalho Mejia, I’m 42 years old, born and raised in Medellin, I got a civil engineering degree. After that I moved to Paris, where I studied a specialization in urbanism and sustainable development, and after 8 years there, I came back to Medellin, precisely because urbanism was emerging here.

I arrived in…I was never interested in politics, but when I returned to Colombia, I understood that Medellin had transformed thanks to the political will. So I got the importance of politics, I got involved into a bunch of causes, since today politics is more about causes than ideologies; I got involved into environmental causes, sports and culture as well. So that, plus my academic profile gave me recognition in the city, which made me realize that those causes I stood up for had no representation in the local political field, no one was speaking about it, so I said, why not?

Why not me? So, since I never had had any party affiliation, I got into an independent movement, I ran the cheapest campaign, collected signatures. I spent 10 million pesos ($3500 USD), a social media-based campaign. I won 6 years ago, and I won a second time, what I’ve done is to take the technical knowledge as a street activist to the Council, let’s say I have an interesting profile because it combines—I mean, it’s weird that people have this hair, yes, but I also have a diploma from the University of Paris. It’s a street and academic mix in me, and if I had to define myself ideologically, I’d say I’m a centrist person. I don’t fall into extreme positions because I think they cause huge damage, they produce violence, so I consider myself a centrist ideologically. That’s my quick resume.

Finance Colombia: Excellent, so, you won a seat for specific district?

Daniel: In Medellin we work for the whole city, there are no districts.

Finance Colombia: Alright.

Daniel: What do I do? I focus on specific issues, those like sustainability, cultural creativity, diversity, gender equity…and football issues.

Finance Colombia: (the two football clubs based in Medellín) Nacionál or Medellin?

Daniel: Medellin!

Finance Colombia: We won’t tell my (Nacionál super-fan) mother-in-law then! Thanks a lot for your time, I hope this isn’t your last time in Finance Colombia.

Photos courtesy Daniel Carvalho

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