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Message from the CEO​



It is thanks to the constant hard work of our staff and in response to the trust deposited in us that we have pleasure in presenting the “2019 Management Report”, which illustrates the good results and achievements made by Promigas and its companies.


National and international context   
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​2019 witnessed a downturn in the world economy, due to reduced growth in both advanced and emerging economies. In fact, the United States economy recorded a downturn despite household consumption being the principal driving force. 

Against this tense international background, the average exchange rate for the Colombian peso was COP 3,281 to the dollar, a devaluation of 11% with respect to the 2018 figure. 2019 was marked by uncertainty over the trade dispute between China and the United States, the downturn in the world economy, reduced investor appetite for risk, and the increase in demand for dollars as a safety net.​


The average price of Brent crude on the international market was 10% down on the previous year and, although it reached a peak of USD 75 per barrel in April, it maintained a downward trend in the second half of the year, which was reflected in a weak expansion in global economic activities. Despite this, the Colombian economy grew by 3.3 %.2 
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The efforts of sector agents and the national government in the last two decades are reflected in the dynamics of natural gas coverage figures: seven of every ten Colombians now enjoy the benefits of having access to this fuel. 

Proven reserves currently stand at 3.8 Tpc with an R/P factor of 9.8 years, not counting new supply alternatives such as offshore deposits, non-conventional deposits or LNG imports. It is estimated that the Caribbean Sea blocks could hold between 7 and 30 Tpc of gas, with a further 5.9 Tpc in the Pacific Ocean. 

To the above could be added a further figure of between 4 and 24 Tpc from non-conventional deposits in the Magdalena Medio and Catatumbo regions, if the respective authorizations are granted. An optimistic scenario could therefore arise, if offshore and onshore potential materializes, that would lead to a true leap forward in sector competitiveness. 

Promigas has contributed by making the necessary investments in transportation infrastructure and increasing its ability to face up to new challenges and meet needs deriving from discoveries and production at new fields in the south of Colombia’s Caribbean region and from the decline in traditional fields. ​ ​

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​​Our activities

In 2019, we transported 50% of Colombia’s natural gas through our gas pipeline network of more than 3,000 km. As part of our commitment to operation safety and continuity, our carriers achieved reliability figures of over 99.9%.   

We served more than 3.7 million users in 13 Colombian provinces in 2019, with a 38% share of the domestic market, and almost 1.1 million users in Peru, a figure that represents 93% of the Peruvian market

Also in 2019, we regasified a total of 5,837 MMSCFD at our LNG terminal in Cartagena, and since this enabled us to meet the needs of thermal generators on the Caribbean coast, it illustrates the fundamental backup we provide for the national electricity system. One important fact has been the arrival of a new partner for SPEC, namely Dutch firm Royal Vopak, whose LNG experience will allow us to progress our business plan and consolidate and extend SPEC operations toward new initiatives.​

​Similarly, we finetuned our operation in Peru in 2019 by consolidating our presence in the northern part of the country through a new gas distribution concession in Piura which will involve an investment of USD 230 million, has an initial commitment of 64,000 new users representing 250,000 beneficiaries, and will provide 33 MMSCFD to serve the industrial, commercial and VNG sectors. Together with our current operations and investments, this makes Promigas the leading company in Peru in the field of mass natural gas usage.

With the commissioning of the new Jobo -Cartagena gas pipeline and the corresponding compression stations, we finalized and commenced operations on the first stage of the project to expand our transportation capacity by 100 MMSCFD. This project sees Promigas anticipating the decline in the La Guajira fields through new sources of gas from other fields in the southern part of the Caribbean region. 

We would like to highlight the underwater directed horizontal drilling crossing of the Dique Canal and Correa channel, a major work in the hydrocarbons industry that was executed in 2019 using Colombian engineering as part of the 100 MMSCFD Project and is 3.4 km long and 112 meters deep, and involved an investment of COP 72,000 million. It is believed to be the longest crossing in Latin America and the eighth longest in the world.​






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One feature of 2019 was that we consolidated our presence in Peru by inaugurating a new gas distribution concession in the Piura region, in the north of the country, which will involve investments totaling USD 230 million. The initial commitment is 64,000 new users, representing over 250,000 beneficiaries, and a volume of 33 MMSCFD to serve the industrial, commercial and VNG sectors. Together with our current operations and investments in the country, this makes Promigas the leading mass supplier of natural gas in Peru.  

We adhere to best corporate governance practices as we pursue our activities, promoting an ethical, transparent business culture. The Colombian Stock Exchange recognized us in 2019 as one of the issuers with the best information divulgence and corporate governance standards, which serve to finetune our total commitment to investors. Similarly, for the seventh consecutive year we won IR (or IR Issuer) Recognition, and award which the Colombian Stock Exchange makes to 32 companies that are noted for their transparency and their good shareholder relationship practices. 


In line with our commitment to climate change and to reducing greenhouse gases, we foster the use of new sources of clean, less-contaminating energies.​​




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​​​​Thus it was that in 2019 we entered into important commercial agreements to carry out photovoltaic solar energy projects in Cartagena, Cali and Popayán, thereby progressing in our aim to enter the non-conventional renewable energies sector. As far as sustainable mobility is concerned, together with our affiliates we succeeded in playing an active role in introducing natural gas-powered buses on the mass transportation systems in Barranquilla, Cartagena and Cali, and we foster green VNG transportation in heavy-duty freight vehicles along the logistic Buenaventura-Cali-Bogotá and Barranquilla-Cartagena-Bogotá corridors. ​
Our Center for Energy and Gas Research and Innovation has been granted Level 3 Global Innovation Management Institute (GIMI) certificationmaking us the first company in Latin America to receive this award and thereby validating the fact that our management model and system are suitable for contributing to business growth.

We reiterate our commitment to the Global Compact initiative and its principles, which are enshrined in four major issues: human rights, anticorruption, labor standards, and environment. As far as this latter is concerned, we support the ‘Caring for Climate’ initiative by guiding our activities and processes towards mitigating the impacts and effects of climate change. ​




We support worldwide initiatives aimed at improving air quality.


In addition to our commitment to the Global Compact, the work Promigas carried out through its Foundation 

This is why, in 2019, we officially launched the Promigas Center for Energy and Gas Research and Innovation, which brings together 12 of our companies and focuses on project research and development, in order to assist energy transformation in the country on its path to a more sustainable future where gas will play a leading role. It is also why, that same year, with our subsidiary GdO, we promoted air quality measurements in Cali, which produced interesting results in terms of days and areas where the highest concentrations of particulate material occurred, citizen education and communication proposals, and the implementation of strategies to encourage the use of vehicles that run on other sources of energy, such as natural gas.

​supports the United Nations Development Programme’s (UNDP) Sustainable Development Goals (SDG), especially Goal 4: “Ensure inclusive and equitable quality education and promote lifelong learning alternatives for all”. 


Over a period of twenty years working in the field of education, we have forged more than a hundred alliances with the public and private sectors, enabling us to reach 2,137 public schools in the country, 84% of them in Colombia’s Caribbean region and the remaining 16% in other parts of the country, 46% of the total in rural areas. The programs we have executed have enabled us to impact the skills of 21,866 teachers and managers and to influence the learning experience for 1,615,231 students. In addition to this is the influence we have achieved over public education policies in the region, such as by becoming directly involved in drawing up the Ten-Year Education Plan for Barranquilla. Through its knowledge management line, which is recognized and certified both nationally and internationally, the Foundation has made more than 70 publications available to the academic community.​




Regulation​


In 2019, the Ministry of Mines and Energy formed an expert Energy Transformation Commission, with the task of drawing up a road map for modernizing the country’s energy sector. The results were received in early 2020 and we are now in the process of reviewing them so that we can express our opinion in focus groups that concern us, as established by this commission. 

As far as the regulatory framework for transportation is concerned, we continue to create opportunities for discussion and analysis and, after a four-year delay, we are waiting for CREG to issue the new transportation rate calculation methodology for the next five-year period. Similarly, we are also still waiting for CREG to issue a Resolution approving values relating to the as-new replacement cost and the cost of keeping in service certain assets belonging to Promigas and its companies. ​


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Our distributors continue to await pronouncements by CREG so that they can register rating files and obtain approval of definitive natural gas distribution charges, which are now overdue by 15 years. Similarly, the update of the gas marketing methodology that has been in force since 2003 and which should be updated for five-year periods is still pending. 
As far as electricity generation is concerned, our affiliate CEO has received approval of distribution income for the next five-year period, which recognizes the investment plan for the 2019-2023 five-year period and the loss reduction program. 

With respect to the Natural Gas Supply Plan, it is expected that UPME will issue the definitive project towards the end of the first half of the year and that this will be taken on board by the Ministry of Mines and Energy for adjusting and establishing the associated regulatory matters.



Our subsidiariess

​​Our distributors continue to become involved in other lines of business in order to increase the value offer to customers, examples including new solar energy projects and promoting the use of environment-friendly energies. 

When Surtigas connected its user number 800,000 in the town of Mompox, it achieved a total coverage figure of 96% in Bolívar, Sucre and Córdoba provinces, where it carries out its operations. 

In Peru, Quavii has reinforced its activities and met its commitment with the Peruvian Government to connect

87,000 users by the end of the year. We would like to highlight the 2019 Business Creativity Prize, one of the most prestigious in the country, which was awarded by the Peruvian University of Applied Sciences for the operation of the LNG virtual gas pipeline to provide for the mass use of natural gas in the north of Peru. 

In terms of electricity distribution, CEO consolidated the solar energy business and carried out the first coverage expansion project in Colombia, with smart measurement and a user prepayment service. It was recognized for this by the Superintendency of Domestic Public Services for Best User Service Practices in the Strategy for Fostering Citizen Participation category.  ​

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We would like to highlight an important landmark, that Promioriente has achieved 25 years of taking progress to Santander, the region where it is the leading utilities and social impact company.

Transmetano, meanwhile, has continued to contribute to progress in Antioquia by leading activities and alliances with public and private institutions for developing the natural gas market in the region and converting major industries and vehicles to natural gas. 

Promisol, with its 355 km network, has advanced towards its goal of consolidating its construction business by leading the Dique Canal underwater crossing project. 

SPEC LNG, the LNG import and regasification terminal, has ratified its high operation and maintenance quality standards by achieving positive results in the worldwide evaluation of major LNG, that is carried out by terminals where operations are planned. ​



Financial results


Because of our activities in 2019, Promigas net profit was 11,84% up, the share value rose by 49%, and budget compliance was 105%. Due to operation commencing on the first phase of the 100 MMSCFD Expansion Project, Promigas offset the decline in the La Guajira fields with gas from the fields in Córdoba and Sucre and thus minimized the impact that this would have had on revenue.

Our successful arrival on international markets and the major uptake of the bonds we issued have been a significant landmark in the company’s 45 years of history and, since these open the door to a new chapter of financing strategies, they encourage us to have an even greater presence on those markets, especially if we consider future growth in our current operations in Peru and the projected expansion of the company in the medium term. Our

USD 400 million bond issue was oversubscribed 6.5 times, with a 3.75% coupon, the lowest for a corporate issuer. 

We have retained our AAA rating for issues in Colombia and our BBB- international rating, and we obtained a second international investment-grade rating (Baa3) from Moody’s. Our affiliates GdO and Surtigas also had their AAA ratings ratified, and Promioriente retained its AA+ rating from Fitch Ratings.​


Outlooks

In 2019 we made progress on bringing the organizational structure and culture into line and we laid the foundations for structuring and implementing a new strategic plan in 2020 that will set out the necessary growth horizons.  

In 2020, in both Colombia and Peru, we will conclude expansion projects that are currently in progress. In Colombia, with the Cartagena-Barranquilla gas pipeline, we will finalize the second phase of the 100 MMSCFD Project which will, effectively, enable us to deliver a further 100 MMSCFD to the natural gas transportation system, especially on the Atlantic Coast. In Peru, after being awarded the gas distribution concession for the Piura region, we will begin in 2020 to build the 300 km gas pipeline and will start partial commercial operation in three cities in the region. Together with progress on connections by Quavii, this will allow us to finetune our business in the country. 

We continue to explore markets and to look for opportunities to invest, so that we can expand our current business or undertake new business ventures both in Colombia and elsewhere, enshrined at all times in sustainability principles and with the goal of generating greater benefits for our interest groups.  



SWe will continue to strengthen our presence in non-conventional renewable energies and in biomethane. In conjunction with our subsidiaries, we will make investments in commissioning photovoltaic solar energy projects in the country and we will continue to support sustainable mobility through the use of natural gas in heavy-duty freight vehicles and in mass passenger transportation systems.   





We share our detailed results in this, our integrated 2019 management report, in order to meet the information expectations of our interest groups, help provide a better understanding of our activities, and promote, as always, a long-term, mutually-beneficial relationship. 
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