The future of Colombia’s energy sector

Embracing liquefied natural gas and improving reliability will be vital for Colombia, says Ricardo Roa

March 9, 2015

World Finance speaks to Ricardo Roa, CEO of Empresa de Energia Bogota, on improving Colombia’s energy subsidies and infrastructure investment needs.

Colombia’s energy industry is flourishing, but still developing. It also offers a lot of untapped future potential. With me now to speak about the electricity sector is Ricardo Roa from Empresa de Energia Bogota, one of the leading electricity companies in the country.

World Finance: Well Ricardo, how is the Colombian energy sector structured and how do you fit in in this?

Ricardo Roa: Since 1991, Colombia’s public utilities system and structure has undergone a structural reform. By 1994, laws 142 and 143 were introduced that formed the basis of the structural reform. Since then, the sector has been articulated at three points.

The first of these is the Ministry of Mines and Energy, which governs the policies and establishes the long-term plans for the whole sector. There is also the Energy and Gas Regulation Commission, which establishes the rules and sets out each of the roles that agents should play while also focusing on quality and price for the end user.

Moreover, there is an inspection, monitoring and surveillance body called the Superintendency of Domestic Public Utilities, which oversees operators and guarantees the supply to the end user.

Consequently, we can say that we now have an infrastructure and regulations that are substantially adequate to provide for the future development of these services in Colombia.

World Finance: Your core business is in transmission and investment in electricity in Colombia, but how well developed is the industry in terms of infrastructure, inclusion and regulation?

Ricardo Roa: There is very good performance in terms of the infrastructure for transporting gas, and transmitting electricity.

The planning is done by the Bioenergy Planning Unit that also invites the three major players in the national transmission system to public tender, to participate in these expansions.

This week and this month, it will be defining the delivery of three very important projects to reinforce the entire national transmission system and ensure the possibility to provide for the country’s future energy supply. These projects amount to around $1.1bn.

Our company has submitted projects to the government amounting to around $2.3bn to guarantee reliability in the supply and transportation of gas. In this respect, we are awaiting some regulatory signals that favour these types of investments associated with providing reliability and guaranteeing a future supply of this energy input for the country.

World Finance: What challenges does the sector face and how are you addressing them?

Ricardo Roa: The most important point at the moment is the discussion about the matter of reliability.

In Colombia, we have two situations because of the availability of hydroelectric power: when there is no water, we have to switch the thermal power plants to gas in the main.

We have to regulate these priorities to fulfil the demand for gas at these critical times. This is a matter that has to be regulated and that we have to make progress on.

It is also important to establish alternatives and other substitutes for gas and hydroelectricity, such as liquefied natural gas for import or export, and other types of services that are still unregulated such as the storage of gas or some ‘peak shaving’ plants that we have defined to fulfil the demand if there is a need to ration gas.

World Finance: The electricity sector uses a system of cross-subsidies. How does that work exactly and why is it important?

Ricardo Roa: In Colombia we follow a system that promotes a constitutional principle of solidarity and distribution of income. It is a way for those who have more to contribute so that those who have less can use these types of electricity, gas, water and sewerage services.

Strata 1 and 2, which are the lowest in the national economy, can receive a grant of up to 60 percent of the cost of the service. Strata 3 and 4 do not receive a grant, they pay the full amount and users at strata 5 and 6, industry and commerce, provide a 20 percent contribution, a surcharge for the services that is used to compensate the need to fulfill the demands of the users that have low resources.

However, we have to raise awareness about the appropriate use of these grants and their focus. A much more efficient and rational State policy is needed. The policy needs to be much more focused on the vast needs still present in large parts of the country, where there are users who still do not even have enough to pay for their own consumption needs.

In other words, consumption for which the user is obliged to pay the full service price.

World Finance: What sort of investment potential is there in the industry?

Ricardo Roa: Well, as I mentioned before, there is still an awful lot to do in terms of the reliability of the provision of the gas transportation service.

There are many, some two or three million, people in the country who still do not have electricity, and much less have natural gas as an efficient, clean and very economical fuel for those living on low resources.

There is great potential here and in the possibilities our country offers as the power hub between Central America and South America, to be able to take the huge gas reserves in Venezuela and Peru and transport them across our electricity grids and gas networks to users in Central America who consume these services in an inefficient and costly manner.

World Finance: How big an issue is fraud an corruption in the Colombian energy industry and how do you deal with this?

Ricardo Roa: Fortunately the electricity sector in Colombia is well regulated; transactions between agents are very transparent.

Agents have been working in the market for many years and have created a culture of transparency, in terms of information, in the market. This has almost entirely prevented any incidents whatsoever relating to corruption or fraud of any nature in this sector.

World Finance: What is your strategy for future growth?

Ricardo Roa: The plan within our strategy is to have shares in companies within four years. These would be businesses that are already operating related to gas transportation and distribution in Mexico, electricity transmission and distribution in countries such as Brazil and Chile.

We also hope to develop our most important project in Peru called Contugas. To this end, we believe that an important element in guaranteeing the commercial operation and feasibility of this network of pipelines that we have developed in Peru could be the installation of a thermal power plant with a capacity of 250-500 megawatts.

This would facilitate the feasibility and operation of this network and consequently, the commercial operation of greater activity that would allow us to offer the service not only to 26,000 customers as we do now, but to at least 50,000.

We have another important goal, which is Cálidda. Cálidda is a company established ten years ago that distributes gas in Lima, and in which we hope to very quickly reach a growth rate of 100,000 customers per year to gain 1.5 million customers by 2024.