A high level of economic performance is a priority for Promigas, so that it can meet its commitment to reimburse its shareholders and interest groups adequately and consolidate the position it holds and which identifies it as an energy holding company in Colombia and the rest of Latin America.
To build society, we seek financial excellence through a sustainable growth model which adds value for our shareholders and all interest groups. Our target is always to achieve our strategic objectives and to consider the economic and regulatory context in each of the sectors or markets in which we operate.
Our management focuses on improving profitability and growth, on maintaining a sound financial position and stable liquidity, and on achieving regulatory visibility and efficiency in order, on the one hand, to offer shareholders an attractive and sustainable reimbursement and, on the other, to be a leader in gas transportation and distribution and in the distribution and marketing of gas and electricity.
Due to slower growth in both advanced and emerging economies, 2019 witnessed a downturn in the world economy, compared to the previous year. 2019 was marked by the trade war between China and the United States, Boris Johnson’s victory in the general elections in the United Kingdom, social tensions in Latin American countries and a generalized strengthening of the dollar, all of which have led to a fall in economic growth expectations for 2020 and 2021.
2019 saw a downturn in the United States economy, the driving force for which continues to be household consumption, since it has been the base for constant growth in recent years. This consumption increased even in 2019, a year when business investment weakened, exports faced strong headwinds, and housing stagnated.
However, this behavior is not surprising if it is remembered that the unemployment figure, which has been very low in the last fifty years, ended 2019 at 3.4%. In monetary policy terms, the Federal Reserve continued the adjustment cycle that began in 2015 and continued until the summer of 2018. The high level of uncertainty, the downturn in business investment and the recession in the manufacturing sector, combined with low inflation, convinced members of the Federal Reserve Board that monetary policy should have been more expansive. Since then, the FED has increased treasury bond purchases in order to increase reserves and has lowered the target interest rate on three occasions, thereby reversing almost all of the 2018 increases, and it closed 2019 in the 1.50% - 1.75% range. The twelve-month inflation figure remained within the Banco de la República target range of 2% - 4% during 2019, although it closed the year at 3.80%, which was higher than the central goal. This behavior can principally be explained by the increase in food prices as a result of supply issues and the effect of the foreign exchange pass-through; in other words, the transmission from depreciation to inflation. Despite this, Banco de la República kept the interest rate at the same 4.25% throughout 2019, even when inflation approached the upper limit of the target range. Despite the above, the Colombian economy grew by 3.3% during 2019, 70 basic points up on 2018 growth. The sectors behind this growth in GDP were activities related to trade and transportation, public administration and defense, and financial and insurance operations. On the other hand, the sector which limited growth was construction, specifically because of the downturn in the buildings subsector.
Last year, the average international Brent crude price was 10% down on the average for the previous year, mainly due to lower economic growth prospects and the downturn in manufacturing activities, which were partly offset by lower commercial tensions and an expected cut in production by the Organisation of Petroleum Exporting Companies (OPEP). Brent crude began 2019 at USD 54 per barrel, with an upward trend that took it to USD 75 per barrel in April; however, the trend was downwards in the second half of the year, a reflection of weak expansion in the global economy.
Against this tense international background, the average Colombian currency exchange rate was COP 3,281, a devaluation of 11% compared to the average for 2018.
In 2019, the average natural gas consumption in Colombia was 970 MMSCFD
The sector with the highest consumption was non-regulated industrial, with a 48% share, followed by thermoelectric (22%), regulated (24%) and VNG (6%). The thermoelectric sector was 3% down, since the non-availability figure for electricity transmission infrastructure in 2018 had been higher and the thermoelectric dispatch figure was accordingly higher, especially by gas plants on the coast. However, residential sector consumption was 3% up, due to growth in new settlements in recent years.
A figure of over 9.6 million regulated users in the country was reached in 2019. 80% of these users are in the interior, 17% are on the coast, and the remaining 3% in isolated areas. The total number of users rose by 448,797 in the year from December 2018 to December 2019, a 5% increase on the previous year.
Not only do we identify, evaluate and carry out new business opportunities, we also reinforce our current services in order to guarantee our sustainability and ensure that the growth horizons and strategic units defined in corporate Strategic Planning are achieved.
The target of corporate strategy is portfolio sustainability, and by carrying out new business activities and growing the economic, social and environmental value of existing business, we boost strategy.
Since it was not significantly affected by any external events, gas pipeline operational stability was maintained, thus enabling it to render a continuous service and generate the revenue budgeted.
Fitch confirmed the AA+ (Col) rating for Promioriente, based on its cash flow stability, the strength of its transportation infrastructure, the stability of its credit metrics and its long-term capital structure, thus enabling it to have high levels of financial flexibility for absorbing contingencies.
For 2020, Transmetano has succeeded in contracting an additional 106 MMSCFD in total through firm and interruptible agreements. As a result of implementing the new commercial policy, which commenced on January 1, 2020, it proved possible to retain capacities in other modalities with a renewal risk.
The Yarumito deviation was built and commissioned, resulting in the Sebastopol-Medellín gas pipeline now being outside the area affected by mass earth movements in the Aburrá Valley metropolitan area. This deviation enables risks associated with a land instability incident to be mitigated.
On a total of 148 days in 2019, SPEC regasified 5,837 MMSCF of gas, in total, which was injected into the National Gas Transportation System on the Atlantic coast. Thus, by meeting thermal requirements and carrying out scheduled and emergency maintenance on electricity infrastructure lines, SPEC has become a fundamental backup for the National Electricity System.
In the course of the year, SPEC received six LNG ships containing a total of 355,154 m3. LNG is received by means of a ship-to-ship operation, using cryogenic hoses. Operations have been carried out successfully and within the permitted unloading times.
Integrated solutions for industryPROMISOL
It also made progress on consolidating its construction business, with over 355 km laid, and it led the works involved in the underwater crossing of El Dique Canal.
Distribución de gas natural
A further seven towns and villages were served, for a total of 185 and a coverage figure of 96% in its zone, with 805,457 users connected by the end of the year. Under an agreement between Canacol and Promigas, a start was made on the Sahagún gasification project, which will benefit a total of 735 homes.
GdODuring the year, GdO constructed 404 km of network serving 11 new towns and villages, for a coverage figure of 90% and a total of 1,183.55 users. It continued to graduate the distribution charge defined in CREG Resolution 197 of 2017 for its beneficiaries.
GASES DEL CARIBEThis company and its affiliates served a further seven towns and villages last year, meaning that they now have a presence in 231 towns and villages in their area of influence, 65 in the Gases de La Guajira zone, and 61 in that of Efigas. By the year-end they had an accumulated total of 1,021,153 users and had increased gas sales to 1,362 Mm3 as a result of better management on the secondary market.
CÁLIDDACálidda received approval from Osinergmin for the full plan, and the new rate came into force on August 7, 2019. In the course of the year, it connected 7 new towns and villages for a total of 30 and 191,331 new users, making an accumulated total of 952,547.
Quavii met its commitment with the Peruvian Government to connect 87,000 users by the end of the year. It managed to increase its coverage to 45% by virtue of constructing 118,204 new rings, for an accumulated total of 194,130.
It has 32 tanks for virtual transportation from the plant to regasification stations, eight of them acquired in 2019.
It was awarded the Business Creativity 2019 prize by the Peruvian University of Applied Sciences for operating the virtual LNG gas pipeline for mass natural gas usage in northern Peru. This is one of the most prestigious prizes in the country.
CEO serves 38 of the 42 municipalities in Cauca province, in southwest Colombia, plus five corporate customers in other regions. A notable feature of its operation is the 51% fall in the public lighting portfolio overdue by more than 90 days and the 1.94% drop in other portfolio overdue by more than 90 days.
CEO developed new installed power business (2,594 MW), achieving results that were 70% up on the previous year, and it also managed to exceed the target set by 34.5%. Similarly, its solar energy generation projects exceeded
370 MWh, with installed power rising from 187 kWp to 583 kWp, a growth figure of over 200%.
The construction revenue and cost, which are reported as having the same value under current accounting regulations, was up because of the change in accounting policy, with the result that for 2019 not only capitalizations made are reported but also progress on projects during the year, which was not included in 2018.
Costs and expenses were up by 10% as a result of the annual increase in labor expenses, the change in the methodology for calculating the contribution to the Superintendency of Domestic Public Services, which increased the cost base on which the 1% rate applies by including financial expenses, maintenance of the SAP S4HANA administration service that was being reported in the project, and the growth in insurances due to the higher value of assets to be insured.
The increase in depreciation and amortization was due to the capitalization of projects relating to the 100 MMSCFD expansion project.
Financial asset revenue reflects the annual adjustment for updating macroeconomic variables and the weighted average capital cost (WACC).
The behavior of other revenue and other expenditure is due mainly to the effect of revaluation / devaluation during the year on the loan and the rental in dollars of the Hocol plant with Promisol, as well as on the USD 125 million syndicated loan paid in October and on the USD 210 million bond issue the same month. Additionally, the difference on exchange on dividends decreed in dollars by Cálidda was reported in May. The higher debt balance in 2019 is reflected in a higher financial expense for the year.
Income tax was down because of the 40% tax benefit under the legal stability contract applicable to the acquisition of productive fixed assets and the difference on exchange caused by the bonds issued.
Current assets were 12% up, mainly in Surtigas accounts receivable for higher non-banking financing marketing and placement revenue, at Cálidda due to higher volumes invoiced and the better rate, and at Promigas due to higher invoicing in December.
Assets under concession were up due to the continuing execution of major investments associated with the 100 MMSCFD expansion project (Jobo-Majaguas gas pipeline, Mamonal-Paiva 20” and Paiva-Caracolí, and Paiva, Caracolí and Filadelfia compression stations), and investments made in commissioning Quavii.
There was a variation in financial assets generated by virtue of International Financial Reporting Interpretation Committee (IFRIC) accounting regulation 12, which governs the transportation and distribution concession, due to the periodic updating of operational and macroeconomic figures. The weighted average capital cost (WACC), which is used for disconnecting the market value of the gas pipeline at the end of the concession, was also adjusted.
Having regulated businesses implies carrying out our operations in the context of applicable legal regulations. Correct adherence to legal obligations is ensured by our Internal Control and Risk Management System, which guarantees that laws, rules and regulations are complied with.
No fines or sanctions were imposed on Promigas in 2019 for failing to comply with laws or regulations. Similarly, the saving in judicial awards made in favor of Promigas was COP 9,153,385,315; however, the sum of COP 3,498,700,229 was paid under awards which were against the company and a settlement agreement.
Overall, including both Promigas and the affiliated companies for which it renders back office administration services, 34 proceedings were concluded in 2019,
22 of them resulting in favorable awards and the remaining 12 in unfavorable ones.
Three of our affiliates were penalized. The Superintendency of Domestic Public Services imposed a sanction on Surtigas for failure to adhere to CREG Resolution 059 of 2012. Since the company does not agree with what is stated in the said administrative act, it will file the appeals established in the law by the legal deadlines stipulated therefor, with a view to getting the sanction revoked.
GdO is currently involved in motions to set aside relating to an administrative decision by the Superintendency of Domestic Public Services to impose a fine under the terms of CREG Resolution 059 of 2012.
DIAN imposed a sanction on SPEC for the alleged ineffectiveness of two withholding at source declarations for 2016. The value of the sanction was approximately USD 86,000.
Natural gas transportation
Remuneration for assets that have reached the end of the regulatory useful life:
To date, the expert Tipiel S.A. has provided appraisals of those assets which have reached the end of their regulatory useful life. We are waiting for CREG to issue a resolution approving sums relating to the ‘replacement as new’ cost and the cost of keeping the following assets operating:
Natural gas distribution
Transformation MissionThe Ministry of Mines and Energy invited the Energy Transformation Mission to draw up a road map that will guide energy modernization in the country. This map will be designed by a group of twenty Colombian and international experts who were chosen for their experience and their knowledge of the focal points defined for the Mission, and results are expected in 2020. The five focal points established are as follows:
Natural gas auction The natural gas supply marketing process began in June 2019 with publication of the “Total Production Available for Firm Sale (PTDVF)”, which producers report. Bilateral negotiations commenced later, and these concluded with the signing of long-term contracts. A relevant factor during this process was the Ecopetrol auction for the Cusiana and Cupiagua fields, which culminated in a weighted average price for Cupiagua of USD 5.80 / MBTU for 2021, and for Cusiana a price of USD 4.70 / MBTU for 2020 and USD 5.76 / MBTU for 2021.