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Special report by EPM Group


(Amounts in millions of Colombian Pesos)

This report on the 2013 economic relations between Empresas Públicas de Medellín E.S.P. (EPM), its affiliates and subsidiaries is presented in compliance with Article 29 of Law 222 of 1995.

During 2013, EPM followed its growth strategy based on sustainability as a business goal. In that year alone, it increased its international market share with the incorporation of a subsidiary company, EPM Chile S.A, and the acquisition of the company Tecnología Intercontinental S.A. de C.V. (TICSA), through its subsidiary, EPM Capital México S.A. It also reinforced the sanitation business with the acquisition of the company EMVARIAS.

At the fiscal year-end, EPM Group comprised EPM, as the parent company, and 55 subordinate companies (21 foreign and 17 national). The consolidated operating income rose to $12,986,466; the operating profit was $2,508,651; and the EBITDA was $3,793,063.

Important operations of EPM Group companies

Incorporation of the company EPM Chile S.A. and the acquisition of Parque Eólico Pacífico S.A. and Parque Eólico La Cebada S.A.

In February 2013, the company EPM Chile S.A. was incorporated with contributions by EPM and EPM Inversiones. In December 2013, the capitalization rose to $61,658.

In March 2013, this subsidiary acquired 100% of the Chilean companies: Parque Eólico La Cebada S.A. and Parque Eólico Los Cururos Ltda. (previously known as Parque Eólico Pacífico). These two companies are working on the construction of a 109.6 MW wind farm, in the Coquimbo region, to the North of Chile. The amount of the transaction was $31,803 million.

Acquisition of the Empresas Varias de Medellín S.A. E.S.P.

On November 1, 2013, EPM acquired 99.90% of the shes of Empresas Varias de Medellín S.A. E.S.P. (EMVARIAS) for $34,490. The corporate purpose of this subsidiary is to provide the municipal garbage collection services, mainly solid waste, and complementary activities in public areas such as: transportation, street cleaning, recycling, lawn mowing, and tree lopping. This company is the largest player in public sanitation service provision in the Aburrá Valley.

Acquisition and liquidation of the Panamanian company Espíritu Santo Energy S. de R.L.

In January 2013, EPM and EPM Inversiones acquired the Panamanian company Espíritu Santo Energy S. de R.L. for $35,465, which in turn was the owner of 99.99% of the shares of Espíritu Santo Colombia S.A.S. E.S.P. The latter was the owner of the rights to carry out the hydroelectric project Espíritu Santo in Colombia. The project will produce approximately 600 MW, on the Cauca River watershed in the north region of Antioquia.

On October 8, 2013, the liquidation of the company Espíritu Santo Energy S. de R.L. was registered before the Fifth Notary Public of the Republic of Panama by means of a public deed. A surplus of $4,335 was received.

In the session held on November 29, 2013, the General Shareholders Assembly of Espíritu Santo Colombia S.A.S. E.S.P. (in liquidation) approved the liquidation accounts and surplus distribution for $2,928.

Liquidation of EPM Ituango S.A. E.S.P.

In an extraordinary session on January 11, 2013, the Shareholders Assembly of EPM Ituango S.A. E.S.P. decided to transfer the contract position it had with Hidroeléctrica Ituango S.A., in the BOOMT contract, to Empresas Públicas de Medellín E.S.P for the construction, operation, maintenance, and transfer of the Ituango project to EPM.

By private document signed on January 19, 2013, EPM Ituango S.A. E.S.P. (in liquidation) transferred its contractual position to Empresas Públicas de Medellín, as a contractor in the BOOMT contract, as well as the other contracts that composed the project. As a result, the transferor agreed to assume the procedural, substantive, and patrimonial legal aspects of all the legal actions, pre-trial conciliations, injunctions, as well as the extra-contractual civil liability, in which EPM Ituango S.A. E.S.P. may act as the plaintiff, defendant, the convening or convened party for a conciliation, and defendant in the complaints related to the execution of Ituango hydroelectric project, which is currently in process.

In order to execute the aforementioned transference, EPM Ituango S.A. E.S.P. (in liquidation), by means of a private document dated February 7, 2013, sold to Empresas Públicas de Medellín E.S.P. all the assets related to the project, due on January 11, 2013. These assets were being used by EPM Ituango S.A. E.S.P. to execute the BOOMT contract. It was agreed that, from that date on, Empresas públicas de Medellín E.S.P. was the owner and, therefore, the responsible for the obligations and duties of the owner of each of the assets. The liquidation of EPM Ituango S. A. E.S.P. was registered before the Medellín Chamber of Commerce on January 13, 2014; thus, the company was completely brought to an end.

EPM-Millicom merger framework agreement

On October 1, 2013, the Board of Directors of UNE and EPM approved the final negotiation documents that enabled the UNE-Millicom merger. Once this framework agreement was executed, it was submitted for approval before the Colombian governmental and regulatory authorities, such as: the Superintendency of Industry and Commerce, the Superintendency of Financial Institutions, the Superintendency of Companies, the National Television Authority, and the General UNE Bondholders’ Meeting. According to the schedule, the final approval for the merger will be ready in the first semester of 2014. Once the regulatory authorities approve the merger, EPM will no longer participate in the equity method and the consolidation of UNE and its subsidiaries.

Capitalization of Tecnología Intercontinental S.A. de C.V.

During 2013, capital contributions for $105,439 and loans that totaled $97,609 were transferred to EPM Capital Mexico S.A. de C.V. in order to acquire 80% of the stock of the company Tecnología Intercontinental S.A. de C.V. (TICSA). This holding is composed of 13 companies; 11 of them are devoted to the design, construction, operation, and start-up of wastewater treatment plants (WWTP). During its 22 years of experience, it has developed 250 residential, industrial and municipal wastewater treatment plant projects. It is currently in charge of the operation of 9 plants with Mexican operating organizations, and it is building 4 projects more. As a result, the processing capacity reached more than 11 cubic meters of wastewater per second (11,000 liters per second). The amount of the transaction totaled $217,732 million.

Other operations

In 2013, the following companies were capitalized: Hidroecológica del Teribe S. A. (HET) for $154,625, to reach a 99.9% shareholding; and Aguas de Malambo for $7,555, reaching a shareholding percentage of 84%. In the case of Electrificadora de Santander E.S.P. (ESSA), the stocks of the minority shareholders were bought for $1,352, reaching a total shareholding of 74.04%.

The following liquidations were carried out: CENS Inversiones S.A, a profit of $8,587 was obtained as a result of the surplus distribution. For ESSA Capital S.A, the surplus distribution meant a $96 profit.

The other operations with subsidiaries are listed in Note 15 (Debtors, net), Note 18 (Equity Investments, net), Note 38 (Non-operating Income items, net), Note 40 (Operations with financially related parties), and Note 41 (Operations with related parties).

In 2013, no other operations with any other entities were performed and no important decisions were made or refrained due to the influence or in benefit of the subsidiary companies that would have enough significance to be listed in this management report.

Article 446 of the Commercial Code

In compliance with Section 3, Article 446, of the Commercial Code, the following information is presented:

In 2013, EPM paid its management group $40,456 in salaries and other benefits, $502 for severance payments and interests, and $481 for scholarship assistance. It includes payments to those who do not hold management positions but who were appointed temporarily. The amounts deposited in the severance payment fund are not considered.

The remaining information is contained in Note 32 (Profits), Note 37 (Administrative Expenses), Note 12 (Value Conversions in Foreign Currency), and Note 18 (Equity Investments, net).

Last update: March 12, 2014. Visitor No 467