State energy companies – the Colombian model


Alvaro RiosIt is well known that the reforms which were initiated from the late 1980s and through the ’90s in the majority of Latin American and Caribbean countries led to the implementation of a series of measures to achieve structural changes, mainly in the economic area.

In the earlier decades, particularly in the 1970s, the strategic sectors of the Latin American economies, including – of course – energy, were characterized in almost all of the countries of the region by the following:

  • State companies predominated and, therefore, investments were mainly of a public nature
  • Vertical integration in segments of the electricity and oil industries
  • Prices and tariffs were structured both politically and economically
  • Different states were standards, regulatory and business focused
  • Sub-regional energy integration was boosted by governments and with public investment.

The objectives of the structural reforms, therefore, were:

  • Stimulate competition and the opening of investments to the private sector
  • Privatizations and/or capitalizations with transfers of public companies to the private sector
  • Vertical disintegration in order to achieve competitive segments
  • Market-based, economic and competitive tariffs and prices
  • Creation of autonomous and impartial regulatory bodies
  • States that are basically normative
  • Regional integration fostered through private activity, with harmonization of sub-regional regulatory frameworks promoted by governments.

Some countries such as Colombia, Costa Rica, Mexico, Venezuela and Brazil, did not wisely follow the roadmap outlined in the previous paragraph, principally in relation to the privatization of their state energy companies. In this article an analysis is offered of the Colombian case that decidedly did not opt for privatization or capitalization; instead within the process of structural reforms companies were driven to compete under the same rules as those the private sector.

For state energy companies to be able to compete, a profound change was necessary in their administration and operation, in order to give them management autonomy and efficiency in their daily tasks. In effect this amounted to a re-engineering, so that projects could be managed in a more competitive and transparent manner, thus becoming subjects of credit – to the merit of the projects and their cash-flows – and operating more closely with the company management  and as far away as possible from political management. In this way they would have to justify their budgets and contribute with taxes, and hand over the profits to the shareholder – which is the state. This task, which seems simple, is in fact rather complicated; especially if we apply the wise proverb: “What belongs to everyone belongs to no one.”

As a product of these reforms, Colombia has today various examples of state companies, which by maintaining the principles of efficiency, good corporate governance, rationality of investments and projects, and efficiency and business competitiveness, have contributed significantly to the energy development of the country and the region, with savings to the state. Several of them also have become internationalized or about to do so.

ISA, for example, is a majority state-owned business group, that has been a major player in the electricity sector since 1994, when its social objective was modified and the re-engineering process was started. Today it is present in the electricity sector of all the countries of the Andean Community (Comunidad Andena, CAN) and has started to enter Brazil, and it is also present in the studies and projects that are being promoted by SIEPAC in Central America. It is also involved in telecommunications and natural gas projects in Colombia and the sub-region. The profits of ISA were approximately US$93 million in 2005 following major investments at the regional level.

Another example is that of Empresas Públicas de Medellín (EPM), which also broadened its investment portfolio and now not only participates in the generation and distribution of electricity, but also in telecommunications and other public activities. ISAGEN is another state company in the electricity sector following this same line of dynamism, as is Empresa Electrica de Bogota, just to name a few of the state companies of Colombia.

A similar dynamic has also occurred in Colombia’s oil industry, through the restructuring of the state-owned ECOPETROL.

There can be no doubt that the country, in entering a phase of structural changes, has opted to maintain a different option with efficient and competitive state companies. This is a model that is worth analyzing for companies in other countries in the region.

The ideas and opinions presented in this article as those of the author and do not necessarily represent the position of OLADE or its member countries.