One of my best friends for many years was a Cuban fellow named Miguel Cárdenas who left the island much later than the Mariel boatlift, and somehow ended up in Ohio. At first he did very well for himself, but eventually got in trouble and lost his US residency privileges and was returned to Cuba. I was able to talk to him a couple of times after he was back in Cuba, but also stayed in touch with his family.

Once I visited Miguel when he was in Cali (long before I lived in Colombia) where his sister, an official in the Cuban government, was allowed to travel. At the time, a rendezvous in a third country was the only way they could meet. His sister, who had achieved a prominent position in the agriculture ministry, eventually left and resettled in Miami. She now tells me that her quality of life working at Walmart in Miami is much better than when she was a government bureaucrat in Havana. Because of her position, she was one of the first Cubans allowed to have an internet connection and actually had a Facebook account before everyday Cubans even had internet.

After Miguel was back in Cuba, he got in an auto accident, and was in pretty bad shape. This was around 2011. I remember getting a call from his sister (she was still in Cuba). Miguel was in the hospital, but there was no medicine, no bandages, no supplies, and and she asked me to find these items in the US and send them to her in Cuba for his treatment. What many people don’t realize is that medicines and food can be sent to Cuba from the United States, and that in any case, the US trade embargo does not prevent commerce in medical goods-or any products from any other countries. Cuban hospitals, like Cuban grocery stores are empty because their totalitarian, communist system is a failure.

My friend died shortly after I spoke to his sister, before I was able to ship medical supplies for his treatment. The “revolucionario” Cuban medical system cannot provide basic supplies; not because of any US embargo—remember during the COVID pandemic, all the supplies were coming from China?—but because the Cuban economic, political and health systems are BANKRUPT.

“There is all the difference in the world between treating people equally and attempting to make them equal.”—F.A. Hayek

Is this Francia’s idea of “vivir sabroso?”

Colombia’s Vice President Francia Marquez was in Cuba last week, where she continued to trash Colombia’s health system and pour accolades on the Cuban system.

“We are proposing a health reform where it is once again administered by the State. Of course, this is not going to be easy because there is a very strong dispute. It is taking away the business of the elite and private sectors that have turned health into a commodity and not a fundamental right. The preventive health that you (Cubans) have maintained as a central axis is what we want to do in Colombia today,” said Vice President Márquez.

Francia Márquez en ?? dijo que estamos proponiendo una reforma a la salud donde el Estado recupere su manejo y que se le quite a las “élites”que se han enriquecido. Alaba el sistema cubano y busca que aprendamos de su experiencia.

Es una vergüenza. pic.twitter.com/jwrxzav5D0

— Ani Abello (@ANIABELLO_R) February 13, 2023

Colombia has a mix of public and private hospitals and clinics, with many doctors in private and specialty practice. Doctors have a choice of participating in public or private healthcare plans or participating in no plans at all. The vast majority of doctors participate in the country’s EPS system.

In Colombia, clinics, or points of care where patients are seen, are called IPS – Institución proveedor de Salud, or health providing institution, in English. Colombians with formal employment choose from a number of health plans, called EPS – Entidad proveedor de Salud, which serve as intermediaries. EPS plans may be private businesses, for example the insurance giant Sura, or they may be government owned, like the city of Bogotá’s Capital Salud. Some EPS systems are poorly managed, corrupt and insolvent, others are very well managed. Doctors and IPS facilities can choose to accept one or more EPS plans, or accept none. Most accept multiple EPS providers. Some EPS providers are notoriously slow payers.

Colombians below a certain income level also qualify for Sysben subsides designed to allow those of the lowest income levels to access the same health care benefits as the rest. Victims of auto accidents are also covered by mandatory SOAT insurance, which covers death, injury, lost wages, and physical therapy due to vehicular accidents.

Colombian President Gustavo Petro presents his proposal for reworking the Colombian health system (photo

Higher income Colombians may also pay cash for services, or purchase a private, prepaid medical plan that usually, but not always, sits atop an EPS plan. The government mandates that all employees and independent contractors participate in EPS. There is also a worker’s compensation system called ARL that covers workplace accidents.

Doctors generally make a good living in Colombia, though the pay is not exorbitant. You might see a typical doctor making between the equivalent of $40,000-$60,000 USD which in Colombia is quite a bit. Specialists and aesthetic surgeons can make quite a bit more, with owners of successful practices pulling in several hundred thousand dollars per year, but this is the tiny exception. In Cuba? $32 USD per month.

No health system is perfect. In the US, there is groundbreaking treatment, but heartbreaking prices. Canada and the UK claim to offer “free” health care, which of course is not free, but disguised through taxation, and patients often have to wait years suffering painful conditions before treatment. Treatment may also be rationed based on cost and staffing limitations.

In Colombia there are several inadequacies, but the biggest is an unequal availability of services based on geography. Bogotá, Medellín and Cali all boast world class hospitals, and many modern specialized treatment centers. MRI, CAT scans, even PET scans are available. Many foreigners come to Colombia for knee replacements, back surgery, and of course, cosmetic surgery. The cost of the entire procedure might be less than the co-pay plus deductible in the patient’s home country.

On the other hand, travel to rural regions of Colombia, or tertiary cities, and it is a different story. Not only is there a lack of facilities, but a lack of medical professionals, especially specialists. Add to this a high incidence of corruption in regional EPS providers and local governments. This stark inequality means that in the same country, one may receive world-class treatment, or practically no treatment at all based on a combination of one’s income and geography.

Meanwhile, there is no shortage of medicines or durable medical supplies. Pharmacies are plentiful and well stocked, and most medicines are affordable. The government maintains a list of critical medicines and has measures in place to assure that these critical medicines are available and affordable.

Marquez has been explicit in her desire to destroy the concept of healthcare as a business in Colombia. But fortunately, it is unlikely that she will ever get the chance. Grocery stores and pharmacies in Colombia are full, and there are mobile phones in every pocket in Colombia, because they are provisioned by businesses. Overall, Colombia has an excellent electrical grid compared to many other Latin American countries, and much of the electricity is provided by private businesses. Even the utilities like EPM or EEB that have government involvement are indirectly owned and must follow corporate government best practices. For example, petroleum giant Ecopetrol is between 80-90% owned by the Colombian government, but because a minority of shares are traded on the New York Stock Exchange (NYSE: EC), the company must behave as a corporate citizen and cannot be treated by the Colombian government as a sinecure for friends and cronies. Voluntarily trading on the NYSE, the company, its employees and directors are subject to US securities law.

The good news

Leftist President Gustavo Petro, formerly a militant guerilla, would surely love to have an entirely government-controlled health system—an entirely government controlled economy if his wishes came true—but fortunately Colombia has enough institutionalism to prevent a Venezuela-style usurpation, or Cuban style “revolución,” though groups like the FARC and ELN did try.

Petro wants to get some kind of reform passed, and that still may be difficult. However, the president has pledged via the country’s official presidential website that:

“Complementary plans, prepaid medicine or health policies will continue to function normally and will not be affected by the project.”

This is critical. And let us also be clear, one of President Petro’s stated objectives to provide an equal basic level of care throughout the country is a very good thing. This is something the country currently lacks. People in Tumaco or Catatumbo do not have the same access to healthcare as people in the south of Cali or the north of Bogotá. However, increasing the quantity of health care throughout the country, should not come at the expense of the quality of health care.

Colombia is in fact a very unequal country, and this inequality should be addressed by creating more opportunities, providing better, more universal education, and yes, challenging the pretty awful class hierarchy that exists in Colombian society. However, Friedrich August Von Hayek admonished us all that:

Even the striving for equality by means of a directed economy can result only in an officially enforced inequality—an authoritarian determination of the status of each individual in the new hierarchical order.

Headline photo: Vice President of Colombia, Francia Márquez Mina (left) with Cuban President Miguel Díaz Canel (Photo: Colombian Government) during her visit last week.

The Minister of Finance, José Antonio Ocampo, spoke out in support of the decision made by the Ecopetrol Board of Directors assembly following Carlos Gustavo Cano’s departure from that position.

Ocampo emphasized that in order to enhance “Colombia’s largest corporation,” the national government, which holds more than 88% of Ecopetrol, elected new Board members with the highest levels of expertise. “I support the election of Saúl Kattan as Chairman of Ecopetrol’s Board of Directors. His professionalism ensures that the oil company moves towards a responsible transition that will allow the company’s economic growth and the country’s fiscal stability,” the Minister said in a tweet.

Confusion

What was the chronology of these odd events? Concerning Carlos Cano’s appointment, replaced not even 24 hours later, José Antonio Ocampo explained that “yesterday a decision was prematurely announced and today it was announced what had been decided in that board, and furthermore, it must be remembered that the board is chaired by someone chosen by the government of the day”. In other words, the board’s meeting was still in progress when the news on Carlos Cano was made.

The minister stated that after selecting a new board of directors for Ecopetrol on Monday, October 24, the assembly convened on Thursday, October 27 and Friday, October 28 to conduct its first meeting. Ocampo added that Cano was not held in low regard and that as his appointment had not yet been confirmed, he had not actually lost his position.

But according to Reuters, who cited two people with knowledge of the negotiations, Colombia’s President Gustavo Petro opposed the nomination of Cano, which led to its revocation. Something that Carlos Cano also denounced himself in a letter published in Semana. “I regret to inform you that when this decision of the Board was made public, President Petro raised his voice of protest and disapproval, and, through several of his immediate collaborators, ordered the members of the board who are close to him, and also those who are not, to advance in this morning’s session my dismissal as president of the board after 24 hours of my appointment as such,” said Cano’s message.

“When this action was submitted to the board, in a divided vote, the decision was reached, induced by the president to remove me from that position, without any reason other than my proven independence from the government.”

The right decision?

What motivated the board of directors – or President Petro – to change its mind so abruptly in favor of the new Chairman Saúl Kattan? According to President Petro, who worked with him while he was the mayor of Bogotá and clearly steered the appointment, Kattan has reportedly enhanced the value of businesses like Grupo Energía Bogotá and ETB (Empresa de Telecomunicaciones de Bogotá) when he managed them. “The rights of minority shareholders shall always be respected. The guideline of the president of the republic for the action of his representatives in the new board of directors is to increase the value of Ecopetrol,” commented the President on its social media.

1. Ecopetrol configura como cualquier otra empresa su junta directiva de acuerdo a la participación accionaria, la mayoría de acciones es del Estado

2. La nueva junta directiva está conformada por personas que ya han aumentado el valor de empresas como EEB y ETB.

— Gustavo Petro (@petrogustavo) October 28, 2022

By appointing a familiar face as head of the Board of Directors of Ecopetrol, could it be that Gustavo Petro, who is openly anti-oil, is trying to manipulate the decisions made in the state oil company? When the newly elected President visited the company’s facilities in Meta in August, he claimed that “clean energy,” which he considers to be “affordable” and does not harm the environment, will be the state-owned oil company’s destiny in the following decades. Petro pointed out that the country’s energy portfolio must be diversified, and renewable energy production must be increased. Only the upcoming weeks can reveal if this is Petro’s goal in appointing Saúl Kattan.

In all cases, this reverse action, according to Citigroup, “sends the wrong message and challenges the board of directors’ independence, which may justify investors risk aversion that has translated into an implied equity risk for Ecopetrol.”

New board members

A few days before after Carlos Cano’s replacement, Ecopetrol had already announced significant changes in its Board of Directors. During an extraordinary general shareholder’s meeting held on October 24, the petroleum company appointed as non-independent representatives Mónica de Greiff Lindo, the only woman nominated by President Gustavo Petro and the first female representative at the table in the company’s history, and Gonzalo Hernández Jiménez, an economist from Universidad Javeriana, with a master’s degree and doctorate in economics from the University of Massachusetts, Amherst.

Mónica de Greiff Lindo is a lawyer with a specialization in administrative law, holds a doctorate from the Universidad del Rosario, and is considered, according to Colombian media, close to Petro and his administration, which could reinforce the President’s control over the company. Gonzalo Hernández Jiménez was also appointed by Petro’s administration.

As an economist from Colombia’s Universidad de Los Andes and a financial researcher, Saúl Kattan holds expertise in business negotiations, productivity increases, and strategic planning. He has worked in both the public and private sectors.

Besides Carlos Cano and Saúl Kattan, Ecopetrol also added five new persons as independent representatives, who are Gabriel Mauricio Cabrera, director of the firm Cabrera & Bedoya, Investment Bankers, Sandra Ospina Arango, electrical engineer with a degree in mathematics and physics from Universidad del Valle, Luis Santiago Perdomo, business administrator of the Colegio de Estudios Superiores de Administración (CESA) , Esteban Piedrahíta Uribe, economist from Harvard University and rector of Universidad ICESI, and Sergio Restrepo Isaza, business administrator from Universidad EAFIT.

With the appointments of Gonzalo Hernández Jiménez, Gabriel Mauricio Cabrera, Mónica de Greiff, Saúl Kattan and Sandra Ospina, it means that a total of five affiliates to Gustavo Petro are now in the Board of Directors of Ecopetrol. This undeniably sends a message concerning the president’s strategy with the company, as part of the “Energy that Transforms” plan for 2040, focused on the development of renewable energies.

The Fourth Administrative Court ruling was based upon irregularities in the sale process initiated by the city, which owns 86.4% of the telecom that offers landline phone service, mobile plans, cable television, and internet connectivity. The Peñalosa administration said that the decision was also handed down because the process fails to show the direct relationship between the sale of ETB and the financing of the mayor’s development plan for the capital.

Dalila Hernández, legal secretary for the mayor’s office, said that the city plans to file an appeal within the next 10 days to challenge the ruling. “The debate is not over, and we will be waiting for a second opportunity when the final ruling on the matter will be determined,” said Hernández.

The city kickstarted the sale in May and, according to Reuters, hoped to have its shares in ETB sold by October for upward of $775 million USD. The mayor’s office said the funds will be invested in social initiatives under its “Bogotá Better for All” development campaign.

The city plans to appeal the ruling within 10 days. “The debate is not over,” said Dalila Hernandez, legal secretary for the Peñalosa administration. (Credit: Alcaldía Mayor de Bogota)

According to José Alejandro Herrera, the city’s finance secretary, today’s court “decision compromises the financing” of all these plans, which include the construction of 18 new schools and kindergartens, six hospitals, 16 centers intended to help people with disabilities, and two cultural centers.

The proposed sale of a controlling stake in an emblematic Bogotá company has been controversial in the capital. ETB, a firm with a history that dates back more than 130 years, has long been a reliable source of revenue for the city, and several organizations have fought against the plan to sell a valuable asset to fund the agenda of an unpopular mayor.

Advocates at Unidos Revocamos a Penalosa (United to Revoke Peñalosa), a leading group campaigning to remove the mayor from office by formally triggering a re-election, have been outspoken critics of Peñalosa’s privatization plan for ETB.

An op-ed on the organization’s website, written by group member and National University political scientist Sergio Fernández, claimed that selling the telecom now would prevent the capital from continuing to reap the financial benefits of the sizable investments it made in the past to help bolster ETB.

“The history of privatizations has been a story of how the state makes large investments in strategic sectors to later sell the public assets and leave the profits in private hands,” wrote Fernández. “In short, socializing investment and privatizing profits.”

To raise capital for the city, Peñalosa, who is one of mayors in Colombia facing “revocation” campaigns under a law passed in 2015 to prevent them from fulfilling their entire term in office, has also worked to sell a 20% stake in publicly controlled energy utility Empresa de Energía de Bogotá (EEB).

Even after completing a sale of this large chunk, in a move that was approved by the city council late last year and the mayor said could fetch up to $1.4 billion USD, Bogotá would continue to be the controlling stakeholder of EEB. But as with the proposal to find a buyer for ETB, this decision was met with controversy and added momentum to the campaign to remove Peñalosa from office.

(Photo credit: Jared Wade)

“The fourth auction is part of the second stage of the equity divestment plan and the purpose is to offer publicly, in Colombia and/or abroad, the shares that were not acquired during the first, second and third auctions,” said Ecopetrol in a statement.

The public offering of its EEB shares will take place before the start of common stock trading in the Colombian Stock Exchange — Bolsa de Valores de Colombia — on February 15, “in accordance with the provisions set forth in the divestment regulation and the applicable addenda,” said Ecopetrol.

Full documentation concerning the offer (in Spanish) is available on Ecopetrol’s website. The firm’s divestment plan was approved by Colombia’s government in November 2014.

“The third auction is part of the second stage of the equity divestment plan and the purpose is to offer publicly, in Colombia and/or abroad, the shares that were not acquired during the first and second auctions,” said Ecopetrol in a statement.

The public offering of its EEB shares will take place before the start of common stock trading in the Colombian Stock Exchange — Bolsa de Valores de Colombia — on December 6, “in accordance with the provisions set forth in the divestment regulation and the applicable addenda,” said Ecopetrol.

Full documentation concerning the offer (in Spanish) is available on Ecopetrol’s website. The firm’s divestment plan was approved by Colombia’s government in November 2014.

The area is currently dominated by industrial activity, with some 80% of the buildings being warehouses, production plants, or other commercial structures. Of the 3,000 planned residences in a development initiative that covers 20 hectares, the mayor’s office said that 584 of them are a priority project.

More two hectares of the area, a small triangular area emerging from the intersection of Avenida Las Americas and Avenida NQS, will go to parks and malls, while nearly three hectares will become public spaces. At least three hectares will become roadways (or be the the site where existing roads are improved).

An aerial view of the planned development area, the Triangulo de Bavaria in Bogotá’s Puente Arnanda neighborhood. (Credit: Bogota.gov)

The area is both active and popular, as it sits nearby both the massive Corferias conference and exhibition grounds and the renowned Paloquemao food market that fills tables in the capital everywhere from humble kitchens to five-star restaurants.

“We will benefit about 10,000 people by developing residential areas in the city center and thus preventing more citizens from moving to sectors outside of the capital,” said Peñalosa.

Peñalosa has noted the difficulty of combatting the economic forces that are pushing more and more people to the outskirts of the Bogotá. Congestion, lack of transportation, housing prices, cost of living, and other factors are leading many to move up north or to the west of the capital where life is more affordable but fewer jobs exist. Peñalosa says that once people leave, it is harder to help them because social, training, and other initiatives that he can enact within the city limits don’t stretch beyond Bogotá’s borders.

So this project is a part of Enrique Peñalosa’s larger plan to bring more development to the capital and encourage the human capital to stay. Now in office for around a year, he ran on a campaign to encourage development and improve transportation infrastructure in a city of more than eight million that is plagued by constant traffic congestion.

Last month, Peñalosa announced his plan to break ground an elevated metro and expand the current Transmilenio bus system. The mega-project is budgeted to cost $4.77 billion USD and be completed by 2022.

Last week, the mayor also got final approval from the city council to sell a 20% stake in the city-controlled utility Empresa de Energía de Bogotá (EEB). In an upcoming sale of the lucrative and highly profitable company, the mayor is seeking to bring in some $1.3 billion USD that he then plans to use to fund eight transportation projects. Citizens, employee funds, and the pension funds will have the first option to buy a portion of the shares.

Yesterday, with 32 votes in favor and 12 against, the plenary of the city council of Bogotá approved Mayor Enrique Peñalosa’s plan to sell 20% of public utility Empresa de Energia de Bogota (EEB). The mayor is seeking to raise raise up to 4 trillion Colombian pesos (roughly $1.4 billion USD) for the local government to invest in new infrastructure, especially highways and a regional train.

Last week, the finance commission of the city council approved the mayor’s initiative seeking funds to build the highways that he says 10 million people urgently need to improve productivity and reduce contamination in the capital. With the approval, citizens, employee funds, and the pension funds will have the first option to buy a portion of the shares.

Photo: EEB is involved in electricity, energy, and infrastructure projects, and has long been one of the most reliable revenue sources for the capital. (Credit: EEB)

Though many citizens have vocally opposed the move, Bogotá will still retain its majority share in the public utility — with a stake of around 56% — even after the selloff. The next step of the process will be the publication in a national newspaper to let the public know about the price of each share of EEB and the deadline for the investment within a local broker.

Bogotá has been expanding rapidly in recent decades as millions of people have come to the capital looking for a better way of life away from the rural war against armed groups. This has exacerbated the massive, constant traffic problems in a city with more than 1.5 million cars on the streets.

Bogotá remains one of the biggest cities in the world without an underground or elevated metro system, and a commuter restriction — which uses a license-plate restriction to prohibit cars from trafficking city roads two workdays each week — has done little to truly ease the congestion. This fall, Peñalosa unveiled a $4.8 billion USD plan to build an elevated metro and expand the existing Transmileno bus system, but much of this remains a half-decade away from completion.

“[The funds] will become a spearhead to financially leverage multiple works that are not only contemplated within the development plan but that will be vital to update the battered transport infrastructure in the capital,” said Juan Martín Caicedo Ferrer, president of the Colombian Chamber of Infrastructure.

The incoming revenue may also help alleviate concern about the city’s finances. Fitch Ratings said recently that the city’s debt is under pressure, which could constrain its ability to receive credit from international sources. After a one-notch downgrade this summer, Bogotá now has a BBB rating from Fitch, just two notches above junk status. Standard and Poor’s has the city at a BBB-, while Moody’s has assigned it Baa2.

The Bogota city council is also expected to vote on another proposal as soon as today. The board of directors of EEB is proposing to sell several investments that it considers to have no strategic importance to its plan for growth in the coming years.

If it receives that authorization, EEB is expected to attempt to raise more than a trillion Colombian pesos (approximately $339 million USD) to focus on the gas and energy business.

The mayor’s plan would give citizens, employee funds, and pension funds the first option to buy a portion of the shares. The share price has yet to be be announced.

The mayor of Colombia’s capital has explained that the money will be used for at least eight infrastructure projects aimed at easing the city’s onerous traffic problems. Incoming funds would go towards the construction of new roads and a regional train to connect Bogotá with outlying towns where millions of people live and work.

Throughout the capital’s history, there have been ongoing and contentious debates against selling any public property, generally including strong opposition from unions and labor-focused political parties. Some of the politicians at the city council have declared that the sale of the 20% of the EEB is something of a personal business for the mayor Peñalosa, who in previous years was accused of receiving benefits from contractors during the construction of the city’s Transmilenio bus system.

Some of the voters against the sale argued that the EEB has been the only public company consistently sending profits to the city for the last two decades. So selling another portion of it will only further reduce the public earnings in the future.

The privatization of these shares also follows the national government’s decision, led by President Juan Manual Santos, to sell public utility Isagen earlier this year in January. Also in an effort to fund infrastructure works, President Santos sold the Medellín-based power company for some $2 billion USD to Brookfield Asset Management, which is headquartered in Toronto.

Recent polls have shown that Peñalosa’s initiative is supported by most of the city council members, however. That means that even with the union criticism and some council members voting against the sale, it likely will be approved.

“The sale of the shares of the EEB means that the city will have immediate resources without new debt and will help to protect its ratings in the international agencies,” said Camilo Silva, co-founder of the firm Valora Inversiones.

Fitch Ratings analysts said recently that the city’s debt is under pressure, which could constrain its ability to receive credit from international sources. After a one-notch downgrade this summer, Bogotá now has a BBB rating from Fitch. Standard and Poor’s has the city at a BBB-, while Moody’s has assigned it Baa2.

Photo Credit: Grupo Energia de Bogotá

During the 2 days, senior level executives shared their experiences and learned about the opportunities and challenges facing the Andean capital markets. With over 55% of the audience being borrowers, issuers, investors and government officials and 45% attending from financial institutions, law firms and rating agencies, the 2016 event was an ideal place to engage in real business opportunities and meet prospective clients.

Colombian Finance Minister Mauricio Cardenas

Colombian Finance Minister Mauricio Cardenas opened day 1 to a room full of delegates sharing his insights into prospects for Colombian growth in 2016, and how Colombia is positioned within Latin America and the global economic community. Carlos Blanco, Director General, Debt and Public Treasury, Peruvian Ministry of Finance and Economy provided details of financing strategies to support GDP growth in Peru.

Day 2 shifted focus to infrastructure, project finance and the Colombian 4G program. Clemente del Valle, the president of Financiera de Desarrollo Nacional (Fedesarrollo) opened the day, followed by a keynote speech from Luis Fernando Andrade, President, Agencia Nacional de Infraestructura (ANIF).

Also speaking this year were representatives from Andino Investment Holding, Grupo Argos, ISA, BlackRock, Porvenir, Old Mutual and Empresa de Energía de Bogotá.

To become a sponsor in 2017 contact Francisco Vasconcelos in the United Kingdom at +44 (0) 777 284 7624 or via email at  Francisco.Vasconcelos@GFCConferences.com.

Finance Colombia participated in Bonds, Loans, & Derivatives 2016 as a media partner.

After a series of debates in Congress and conflicting positions between Colombian political parties, the Colombian government has announced the official auction date for companies interested in buying the majority percentage of Isagen shares (BVC:ISAGEN) held by the national government. The companies that are participating in the negotiation must make an offer on January 13 of 2016.

Above photo: Isagen’s Sogamoso Hydroelectric Dam (Photo courtesy Isagen)

Isagen is a power generation and distribution company headquartered in Medellin, with regional offices in Bogota, Cali and Barranquilla. The Colombian government controls Isagen, owning 57.61% of the shares. The City of Medellin, through Empresas Públicas de Medellin (EPM) owns 13.14%, Grupo Energia de Bogotá (EEB), 76.52% owned by the city of Bogotá owns 2.52%, and the rest of the shares are owned by institutional and retail investors.

Isagen ownership (click graph to enlarge)

Isagen ownership at the beginning of Q4, 2015  (Details in appendix below). Graphic by Finance Colombia of data provided by Isagen

Isagen is the third largest generator of energy in Colombia with 16% of the country’s grid (National Interconnected System (SIN) capacity. In addition, It has an installed capacity of 3,032 megawatts (MW) from five hydroelectric plants, and one thermoelectric plant. Isagen has a market capitalization of $9.32 trillion pesos ($2.85 billion USD). There are 2.73 billion shares outstanding, and 728.53 million are issued publicly. Friday, the shares closed at $3,420 COP ($1.05 USD per share).

In 2014 the Santos administration announced its intention to sell the national government’s stake in Isagen in order to fund the country’s ambitious multibillion-(US) dollar highway modernization and upgrade project, known as 4G.   The government announced the auction date for May 15, 2015, but opposition parties with diverse motives in Colombia’s congress and a group of activists filed legal actions attempting to block the sale, resulting in delays and court battles that the executive branch has apparently won.

President Santos discusses Isagen from Santa Marta, where he attended the presentation of new municipal water resources. (Photo courtesy of the Presidencia de Colombia)

“Hopefully the opponents will not resort to dishonest arguments that these resources are sold to cover fiscal ‘holes.’ It has been said in every possible way that the resources are going to Financiera de Desarrollo Nacional (FDN-Colombia’s capital projects treasury), and will leverage the great infrastructure investments that we need, and that the country is modernizing like never before, and these resources are very important at this moment,” said President Juan Manuel Santos.

Colombia’s highway network has been a weak link in the country’s transportation infrastructure, and has held back economic development, especially compared to the countries Colombia competes with economically, like México and Brasíl. For example, Medellín and Bogotá are only 260 miles apart (419km), but road travel can easily take over 10 hours, much of the trip over two-lane, low-speed roads. None of Colombia’s major cities have internal or outerbelt freeways. Bogotá and Cartagena have infamous traffic problems. Away from the major cities, connectivity can be even more challenging, making freight transport notoriously expensive. Colombia’s very limited heavy rail network is mostly dedicated to coal and bulk transport.

“Isagen is an asset that produces a dividend, a profit, but that profit is very low compared with what that same money, belonging to Colombians, can render, for example, leveraging the financing of large highways, large projects that the country needs,” said Santos while attending an event opening new municipal water wells in the Atlantic coastal city of Santa Marta. “Nobody has any conspiracy regarding Isagen. The energy can be provided by the public sector or the private sector without affecting a single electricity user, because energy is a very highly regulated industry. What affects Colombians is the regulation, and not who supplies the energy.”

Isagen produces 16.4% of Colombia’s electrical consumption.

According to President Santos, the 4G highways modernization project is the most ambitious construction and modernization project in the history of the country, and will generate dozens of thousands of jobs in rural areas of the country, and will feed economic growth during construction, operation, and maintenance phases.

Minister of Transport Natalia Abello says the sale of Isagen is key to the success of the 4G highway modernization project. (Photo courtesy Mintransporte)

“To invest the resources from the sale of Isagen in infrastructure will have more economic and social benefits because they will contribute to the financing of the highways by private enterprise, where they will not require public backing to operate, but require capital investment by consessionaries in the construction phase. In 2016, for what we expect from private initiatives, these resources will be very important,” said Minister of Transport Natalia Abello in a statement.

For the auction that was to be held in May of 2015, the minimum bid was set at $3,399 Colombian pesos (COP). At that price, the minimum value of Isagen would have been $6.48 billion COP. At the time, there were seven potential bidders that had indicated interest. In December, President Santos’ cabinet, the Consejo de Ministros revised the valuation to $4,130 pesos per share; an increase of 21.5%

On Monday, December 28, Minhacienda, the Ministry of Public Finance and Credit said that two companies have submitted monetary guarantees required to participate in Wednesday’s auction: BRE Colombia Investments LP, an investment fund of Canada’s Brookfield Asset Management, and Consorcio del Pacifico (Pacific Consortium), an entity owned by Chile based electrical generator Colbún.

Brookfield Asset Management is a Canadian company that focuses on property, renewable energy, infrastructure and private equity in North and South America, Australia, Asia, and Europe. Brookfield Asset Management currently has over $225 billion USD in assets under management.

Colbún SA is a Chilean electrical producer with an installed generation capacity of 3,278 megawatts. Colbun has no activities in the Colombian electricity sector, but in Chile it operates 15 hydroelectric plants, 7 thermal plants and 17 substations. According to Colbún General Manager Thomas Keller Lippold, “Colbún S.A. has analyzed and studied Isagen´s history, (¨due diligence¨) and it is prequalified to make an offer.”

Another company that considered making an offer for Isagen but apparently has dropped out, was Engie, a French energy company active in electrical generation and distribution, natural gas and renewable energy, across 15 countries, including Canada, Portugal, Italy, Belgium, the Netherlands, Chile and the USA. As of publication, the company has not formalized its intention to make an offer to the government of Colombia.

Isagen-owned power generation facilities in Colombia

Chart data courtesy Wikipedia

Construction during 2014 on Rotor 1 of Isagen’s Sogamoso Hydroelectric Facility (Photo courtesy Isagen).

Current significant shareholders in Isagen: