The following are some highlights of the company’s activities in 2006:

Promigas expanded its operations in other countries, through the fuel-sector firms in which it has an interest.

·         GNC continued to internationalize its operations, acquiring shares of ECOMEX S.A. de C.V. in Mexico and establishing Chilena de Gas Natural (CGN) in Chile, in conjunction with Gasco S.A., which is a local natural gas distributor.  GNC is now operating in three Latin American countries, including Peru where it initiated businesses in 2005.

·         In addition, Organización Terpel acquired 100% of Lutexca, a company that distributes liquid fuels in Ecuador owned by to Chevron-Texaco.

Thanks to the dedication and effort of our personnel, in June, Promigas was certified by the ICONTEC with ISO 14001:2004 and OHSAS 18001:2000 by ICONTEC, for its environmental management and occupational health and safety systems used in the design, construction, operation and maintenance of its natural gas transmission and distribution systems.  These certifications confirm our commitment to environmental conservation and guarantee the quality of our services to shareholders, clients, suppliers and the entire community.

In June, as a result of an initiative lead by Promigas, an agreement was signed between Fundación Promigas, Gases del Caribe, Surtigas, Gases de Occidente and Gases de La Guajira and the World Bank for a donation of US $5 million to extend the benefits of natural gas to lower income communities in Colombia. With this accomplishment, forty-percent of the cost of residential connections will be subsidized for 35,000 families, (income brackets 1 and 2); 22,000 of which reside in the Caribbean coast and 13,000 in southwest Colombia.

In addition, Promigas shared its experience at the XXIII World Gas Conference in the Netherlands, presenting a position paper entitled “The Massive Use of Natural Gas in Colombia:

A Successful Experience”.   The paper describes how, through a combined effort between institutions, regulation and private enterprise, coupled with innovative schemes, Colombia has managed to provide residential natural gas service to low-income communities, using a  model that is worthy of duplication.  The conference is one of the most important events in the natural gas sector worldwide which summons more than four thousand delegates from 82 countries. The paper presented by Promigas was recognized as the most outstanding, among 600 entries in the competition.

To the above we sum the results of a corporate governance study conducted by the Colombian Stock Exchange among a sample of 335 companies in the country, which rated Promigas within the best for its good corporate governance practices.

Natural Gas Consumption in Colombia and Our Role in the Sector

As in the past years, the natural gas sector registered a positive balance of nearly a 12 % of increase in consumption of 720 MCFD.  Residential and vehicle natural gas were the sectors that registered the most growth in 2006.

For the second year in a row, users rated natural gas as the best residential public utility in Colombia.   The satisfaction survey conducted annually by the Superintendent of Public Utilities shows a rating of 77.5 % of satisfaction. 

In 2006, Promigas transmitted 328.18 MCFD through its network of gas pipelines on the Caribbean coast. This volume accounts for 45 % of all natural gas consumed in the country.

Coverage of Users

There was a particularly important increase in coverage.  Thanks to the investments made by the distribution companies, natural gas was available to nearly 344,000 new users.  Currently, more than 4,100,000 homes in Colombia are connected to natural gas; this is 9 % more than in 2005.  According to the last official census, over 44 % of the Colombian population enjoys the benefits of this public utility.

The natural gas distribution companies in our investment portfolio continued to expand their operations to include new clients.  In fact, 125,112 new users were connected to natural gas in 2006. This is equivalent to 36 % of the total nationwide: 53 % are on the Caribbean coast and 47 % in western Colombia.

Thanks to this growth, the gas distribution companies in which Promigas has an interest now serve 1,519,963 households, benefiting nearly 7.0 million people in their areas of influence.  It is important to note that 88 % of these users are in the low income brackets.

Natural Gas as Automotive Fuel

The market for natural gas as an automotive fuel continues to expand at a fast pace.  One hundred new service stations were built in 2006 and the national network now includes 239.   Most of this growth (74%) is due to the industry’s response to the conversion trend. In 2006, more than 75,000 automotive vehicles in Colombia were converted to natural gas.  This is a record number and represents an increase of 69 % with respect to 2005.   The natural-gas-powered fleet of vehicles in Colombia has grown to 168,000.

GNC S.A. maintained its leadership in the sale for natural gas as automotive fuel.   New players are constantly entering the market however, GNC S.A. accounted for 49 % of the volume of gas sold. This was accomplished through a network of 114 service stations in 26 cities, which accounts for 47.7 % of the service stations in the country. 

Financial Statements

The company reported $130,638 million in net profits. This is 4 % more than was budgeted for 2006. Profits were influenced by the growth in operational income (up by 10.8% compared to 2005) and the increase in revenue originated by profits and dividends from the companies included in our portfolio of investments (13.3% more than the year before).

Prospects

If favorable economic conditions continue worldwide and if Colombia maintains its present levels of investment, consumption and trade, in addition to price stability, even for oil, we believe current growth can be sustained, bringing significant returns to the society as a whole.  

One of the foremost challenges in our sector is to improve the capacity of natural gas production on a short and medium-term level, so as not to slow the demand. As to long-term prospects for production, the government has done an excellent job of assigning more exploration contracts than were assigned in previous periods.  We believe this is a step in the right direction which will produce the desired results.

With the proper signals and a growing supply, Promigas believes it can increase its transmission capacity to satisfy its clients.

Internationalization has been one of our corporate objectives. Important steps toward the accomplishment of this objective are evident by the operations begun in Latin American countries by the companies in which we are shareholders. Promigas is a growing company, and we are certain that its management efforts in these past years will be rewarded through international business that will generate added growth, particularly in new markets.

We also predict success for our companies in the fuel sector, GNC and Terpel, with their plans for expansion in neighboring countries.

Promigas will continue to do its best to offer a top-quality service to increase its operations, and to give its shareholders added value. Through a united effort, customary at Promigas, we can and will achieve the goals set.  Every member of the company is dedicated to pursuing our goal to consolidate Promigas as a world-class organization.