Colombia’s national government has contracted five parametric agricultural insurance policies covering 14,402 smallholder farmers across Sucre, Córdoba, Cundinamarca, Meta and Chocó, with protection extending to as many as 41,600 people in farming households. The policies provide up to $20.14 million in coverage against drought and excess rainfall as Colombia prepares for the anticipated effects of El Niño in the second half of 2026.

The policies took effect August 1, 2026, giving participating departments a financial mechanism designed to respond more quickly when severe weather thresholds are reached.

“Preparing for El Niño means acting before disasters strike. Through this collaboration between the national government, the five participating departments and international partners, we are providing smallholder farmers with the financial protection they need to manage climate risks and protect their livelihoods.” – Lucy Inés García Montes, Governor of Sucre

The initiative is led by the Ministry of Agriculture and Rural Development (MADR) and FINAGRO, in coordination with the governments of the five participating departments.

The program was delivered through the Tripartite Agreement Programme, a public-private partnership involving the Insurance Development Forum (IDF), the United Nations Development Programme (UNDP) and Germany’s Federal Ministry for Economic Cooperation and Development (BMZ), with financing channeled through the InsuResilience Solutions Fund (ISF).

How parametric insurance works

Unlike conventional agricultural insurance, which generally requires an assessment of physical losses before a claim can be paid, the policies use a satellite-derived Water Balance Index monitored at the municipal level.

The index compares current conditions with historical data to identify periods of severe drought or excess rainfall. When predetermined thresholds are exceeded, payments are triggered automatically, potentially allowing affected farmers to receive financial support without waiting for individual loss assessments.

The product was co-designed by MADR with an IDF-member consortium comprising Guy Carpenter, Swiss Re, AXA Climate, Munich Re, insurtech company Raincoat and Colombian insurer La Previsora.

The consortium members and ISF co-financed the initiative, while the first-year premium was jointly funded by the Colombian government and ISF.

First departmental use of parametric insurance

The program represents the first use of parametric insurance by departmental governments in Colombia as a tool for agricultural risk management, according to the organizations involved.

For participating departments, the coverage is intended to provide a source of rapid financing following severe climate events while reducing reliance on emergency public funds. The initiative is also designed to establish the technical, legal and financial foundations for expanding parametric agricultural insurance to additional departments.

José Fernando Sánchez, senior vice president of Guy Carpenter Colombia and an IDF member, said the consortium’s participation demonstrated the potential of public-private collaboration to protect livelihoods and strengthen Colombia’s insurance market.

Dr. Annette Detken, head of the InsuResilience Solutions Fund, said climate-risk insurance can help smallholder farmers and rural communities recover more quickly from drought and excess rainfall.

The UNDP worked with MADR and FINAGRO to integrate the insurance policies into Colombia’s broader agricultural risk-management framework. Its work included supporting product development and strengthening the institutional capacity of departmental governments to adopt parametric insurance.

The program comes as Colombia seeks to strengthen financial tools for managing agricultural exposure to increasingly volatile weather conditions. By using predefined climate indicators rather than conventional claims assessments, parametric coverage is designed to provide liquidity soon after a qualifying event and help farmers maintain their livelihoods and productive capacity.

Building a model for climate-risk financing

The five policies cover farmers in departments with different agricultural profiles and climate exposures, creating a multi-region test of how satellite-based insurance can operate within Colombia’s decentralized agricultural risk-management system.

The initiative’s backers say the experience could provide a foundation for scaling parametric insurance to other parts of the country, while building local government capacity to identify, finance and manage climate risks.

For smallholder farmers, the immediate benefit is financial protection against weather events that can damage crops and undermine household income. For governments and insurers, the program offers a way to shift part of the financial burden of climate-related agricultural losses away from emergency response and toward pre-arranged risk financing.

The Insurance Development Forum is a public-private partnership co-chaired by UNDP and the World Bank Group that brings insurance expertise together with public policy and development priorities to strengthen resilience to disasters.

Headline photo by Frank Meriño via Pexels)

As Abelardo de la Espriella took the oath of office as Colombia’s president on August 7, the US Department of State announced that Washington intends to provide $1 billion USD in security assistance to his new government, capping a stunning reversal in a bilateral relationship that a year earlier had produced sanctions against a sitting Colombian president, a revoked visa, and a call from the presidential palace for American soldiers to disobey their commander-in-chief.

A US Presidential Delegation led by Acting Attorney General Todd Blanche represented the United States at de la Espriella’s August 7 inauguration in Cali, a city in Colombia’s conflict-scarred southwest that hosted the ceremony instead of the traditional venue in Bogotá. In a statement titled “A New Era in U.S.-Colombia Relations,” the State Department said the delegation “demonstrates US commitment to reinvigorating the US-Colombia relationship and deepening of our shared security and economic partnership,” and that the $1 billion package is intended “as a cornerstone of this renewed partnership.”

A delegation built around security and counternarcotics

Secretary of State Marco Rubio did not travel to Cali, but the delegation Washington sent was heavy with counternarcotics and security officials, according to ColombiaOne and Local 10 News. Alongside Blanche, the group included Drug Enforcement Administration (DEA) Administrator Terry Cole; US Representative Mario Diaz-Balart of Florida; Sara Carter, director of the Office of National Drug Control Policy; Hugo Guevara of the US Embassy in Bogotá; Cliff Sims, national security adviser to Vice President JD Vance; Viviana Bovo of the State Department’s Bureau of Western Hemisphere Affairs; Joseph M. Humire, deputy assistant secretary of war for Americas security affairs; and Chris Jarvis of Joint Task Force Vulcan, which targets transnational criminal organizations.

“Yesterday was the start of a new friendship and partnership working as a team in the fight against drug trafficking and furthering our relationship in countering threats to our national security and public safety,” Blanche wrote in a statement carried by Local 10 News.

Cole struck a similarly pointed tone. “DEA is ready to stand shoulder to shoulder with Colombia again,” he said in a statement cited by Local 10 News. “We will hunt down those who profit from cocaine, corruption, violence, and terror. There will be no safe haven, no protected trafficking route, and no immunity for those who poison our communities.”

The turnaround stands in sharp contrast to where the relationship stood barely 10 months earlier. On October 24, 2025, the US Treasury’s Office of Foreign Assets Control (OFAC) added outgoing President Gustavo Petro to its Specially Designated Nationals and Blocked Persons List — known in Colombia as the Lista Clinton (Clinton List), after the 1995 executive order that created it — under Executive Order 14059, which targets foreign persons involved in the global illicit drug trade. OFAC simultaneously designated Petro’s wife, Verónica Alcocer; his son, Nicolás Petro; and his interior minister, Armando Benedetti, according to a Federal Register notice of the action and Finance Colombia’s own reporting at the time. It marked the first time OFAC had designated a sitting, democratically elected head of state of a country long considered a close US ally.

The sanctions followed a September 15, 2025, presidential determination naming Colombia a “major drug transit country or major illicit drug producing country” that had “failed demonstrably” to meet its counternarcotics obligations — the first time Colombia had been placed on that list in more than 25 years.

Relations deteriorated further that same September, when Petro, addressing a pro-Palestinian rally near the United Nations General Assembly in New York, told a crowd: “I ask all the soldiers of the United States’ army, don’t point your rifles against humanity,” and urged them to “disobey the orders of Trump.” The State Department revoked his visa within hours, saying on social media that Petro had “urged US soldiers to disobey orders and incite violence,” according to CBS News. Petro dismissed the punishment, writing on social media that “international law grants me immunity to go to the UN and that there should be no reprisals for my free opinion, because I am a free person,” and noting that as a dual Colombian-European citizen he did not need a US visa, according to Al Jazeera.

Tensions eased only gradually. Petro traveled to Washington for a meeting with President Trump on February 2, 2026, in what CNN described at the time as a shift “from clash to dialogue” after a year of confrontation. Petro remained on the SDN list, and was still lobbying for his own removal from it as late as early July 2026, when he asked Trump by phone to lift the designation on him and his family — a request Trump said he would look into, according to ColombiaOne.

An election fought over the US relationship

De la Espriella, a 48-year-old lawyer and political outsider known to supporters as “El Tigre,” defeated Historic Pact candidate Iván Cepeda in a June 21 runoff, a race Trump endorsed publicly. Petro initially alleged the vote had been manipulated, a claim dismissed by international observers and Colombia’s electoral authorities before he conceded, according to Al Jazeera. The run-up to the inauguration was marked by violence, including a truck bombing near a police station in Cúcuta on August 1 that wounded eight police officers and three civilians, six days before de la Espriella took office, according to Al Jazeera. No group claimed responsibility; dissident factions of the demobilized FARC, the National Liberation Army (ELN), and the Clan del Golfo criminal group are all active in the border region. Security was tightened further ahead of the ceremony itself, held under armored vehicles, soldiers, and vehicle checkpoints in Cali, according to Al Jazeera.

At his swearing-in, de la Espriella broke with Petro’s negotiated-peace strategy toward armed groups, declaring that “the option of dialogue is completely exhausted” and pledging to “relentlessly defeat narco-terrorism.” He also committed Colombia to joining the Shield of the Americas, the US-backed regional counter-cartel coalition that grew out of a March 2026 summit hosted by the Trump administration, and pledged to strengthen state-run Ecopetrol (NYSE: EC) and pursue “responsible and sustainable fracking” to shore up the country’s oil and gas reserves.

Security package now, economic dialogue to follow

Under the State Department’s framework, the $1 billion package — which still requires action by the US Congress — is aimed at strengthening Colombia’s security forces against Foreign Terrorist Organizations and Transnational Criminal Organizations, expanding coca eradication and cocaine interdiction, freezing and prosecuting the finances behind armed groups, tightening border-security coordination, and rebuilding state presence in territory once controlled by armed groups.

The State Department said the two governments will also launch a Bilateral Prosperity Dialogue aimed at stabilizing Colombia’s economy, strengthening its energy sector, and exploring critical mineral investment, alongside efforts to connect Colombian small and medium enterprises in agribusiness, manufacturing, and tech services to US buyers and supply chains. Washington also committed to contributing to relief funds for potential El Niño-related flooding and drought, to modernizing Colombia’s digital, port, and energy infrastructure, and to advancing bilateral cooperation on civil nuclear energy.

Congressional approval of the $1 billion security package remains the first test of whether Friday’s pledges translate into disbursed assistance — and of how durable the “new era” proves once the inauguration goodwill fades.

Grupo Cibest, the Medellín-based financial holding company that owns Bancolombia (NYSE: CIB), has cut its 2026 economic growth forecast for Colombia to 2.6% from 2.9%, warning that the economy is losing traction as its main growth engines tire, inflation reaccelerates, and the public finances deteriorate.

The downgrade came in the bank’s mid-year update of economic projections, prepared by its economic, sectoral, and market research division under research director Laura Clavijo. The team framed 2026 as a year of macroeconomic stabilization shadowed by mounting medium-term challenges, with risks tilted to the downside for growth and to the upside for inflation and interest rates.

Growth concentrated in consumption and public spending

According to the report, gross domestic product expanded 2.2% year over year in the first quarter of 2026, and just 0.6% from the previous quarter in seasonally adjusted terms, undershooting the bank’s earlier expectations. Grupo Cibest attributes the slowdown to the exhaustion of the two drivers that carried the post-pandemic recovery: private consumption and public spending. The bank had earlier shown Colombia’s economy accelerating into the second quarter, but its NowCast model has since held growth estimates near 2.6%.

“In sum, the Colombian economy moves through 2026 in an environment of converging risks that challenges progress on structural gains.” — Grupo Cibest economic research team

The research team expects private consumption growth to ease to 2.8% in 2026 from 3.5% in 2025, pressured by high interest rates and inflation, even as remittances and a resilient labor market continue to support household spending. Public spending is projected to grow about 6.0%, after 8.4% in 2025, helped by the activation of the escape clause in the Regla Fiscal (Fiscal Rule), which gives the government more room to run an elevated deficit. Fixed investment is forecast to rise 3.5%.

The expansion would be uneven across sectors. Mining is expected to keep contracting, falling about 5.3% on lower coal and oil extraction, while construction declines 1.6% amid high financing costs and a difficult housing market. Manufacturing growth depends largely on household demand, and services, led by entertainment, remain the principal driver of the economy. On the external side, the bank sees exports growing 2.9% and imports 6.3%, narrowing the goods trade gap relative to prior forecasts.

Inflation reaccelerates, central bank turns more restrictive

The report describes a fresh setback in the inflation cycle that will slow convergence toward the central bank’s target. Consumer inflation rose to 5.84% in May from 5.10% at the close of 2025, and Grupo Cibest expects it to climb to roughly 6.4% by the end of 2026, driven by widespread price indexation, this year’s minimum-wage increase, and inflationary inertia. A strong El Niño event, recently declared, poses an additional upside risk through food and energy supply shocks, with the bank estimating a severe episode could add 0.7 to 1.9 percentage points to annual inflation. Pressures are most persistent in services, which make up close to half of the consumption basket.

Against that backdrop, the Banco de la República (Colombia’s central bank) has interrupted its rate-cutting cycle and shifted to a more contractionary stance, having already moved to lift rates earlier in the year amid inflationary pressure. Grupo Cibest projects the policy rate will reach 12.75% by the end of 2026, an additional 150 basis points from current levels and a level not seen since February 2024, and stay elevated through much of 2027 before a gradual normalization that would bring it toward 7.0% by 2030. Twelve-month inflation expectations stand at 5.5% and 24-month expectations at 4.3%, both above the central bank’s 2.0% to 4.0% tolerance range.

Fiscal deterioration the main vulnerability

Grupo Cibest singles out the fiscal front as the principal source of macroeconomic vulnerability. The bank projects a Central National Government deficit of about 6.5% of GDP in 2026, above the 5.3% the Ministerio de Hacienda (Finance Ministry) laid out in its Marco Fiscal de Mediano Plazo (Medium-Term Fiscal Framework) in early June. The research team considers the official framework optimistic, particularly on inflation and primary spending, and estimates the primary deficit will near 3.2% of GDP rather than the official 2.1%.

Revenue performance has been strong: tax collection reached roughly 139.3 trillion COP by May, up 9.4% year over year and surpassing the targets set by the national tax authority, DIAN. But high budget execution and spending rigidity have made the required adjustment difficult, with commitments through May reaching 259.8 trillion COP, about 27.5 trillion COP above plan. To hit its fiscal target, the government would need to cut some 33.2 trillion COP from the 2026 budget, which the bank calls improbable given recent execution. As a result, gross public debt could rise to 65.9% of GDP, approaching 66%, and the heavier reliance on local-currency bond issuance to cover financing needs would keep upward pressure on yields. Grupo Cibest argues the absence of structural adjustment reinforces the need for a tax reform raising close to 1.6% of GDP to stabilize the debt trajectory. The fiscal picture echoes recent warnings from rating agencies, including Fitch’s view that revised deficit targets heighten fiscal uncertainty.

External accounts improve, peso firms

The external picture is more favorable. The bank estimates the current account deficit will narrow to 2.3% of GDP in 2026 from 2.4% in 2025, well below the pre-pandemic decade average, before widening gradually toward 3.3% over the medium term. The improvement reflects stronger exports, favorable commodity prices led by oil, and record remittance inflows that have climbed to near 4.0% of GDP. The bank sees Brent crude averaging $86 USD per barrel in 2026.

The Colombian peso has appreciated 9.2% so far this year, supported by capital flows returning to Latin America, the central bank’s rate-hike cycle, strong remittances, and expectations around the change of government. Grupo Cibest revised its average exchange rate forecast down to 3,635 COP per dollar and expects the currency to trade between 3,400 and 3,650 COP per dollar in the second half, with the trajectory hinging on credible signals of fiscal consolidation. The bank had earlier flagged a firmer peso after the currency’s appreciation in April.

Stabilization, with conditions

For the medium term, Grupo Cibest expects growth to stabilize around potential, near 2.6% to 2.7% annually through 2030, with the unemployment rate averaging 9.0% in 2026, and credit growth moderating to 1.9% in real terms while loan quality holds near a 3.9% non-performing ratio. The bank notes that a new administration, after Colombia confirmed a change of government on June 21, could improve investor expectations to the extent it advances a more market-oriented agenda, though it cautions that high interest rates will continue to weigh on private investment in capital-intensive sectors such as mining and construction.

The report ties its outlook to the persistence of converging risks. “In sum, the Colombian economy moves through 2026 in an environment of converging risks that challenges progress on structural gains,” the research team wrote, pointing to the loss of momentum in growth drivers, persistent inflationary pressures, significant fiscal deterioration, and more restrictive financial conditions.

Medellín-based utility EPM is urging Colombians to reduce electricity and water consumption as forecasts point to a severe El Niño weather phenomenon that could affect the country through early 2027.

In two recent statements, EPM General Manager John Maya Salazar warned that the probability of El Niño exceeds 90% and said both the intensity and duration of the event could place pressure on Colombia’s water reservoirs and hydroelectric generation system.

El Niño is a naturally occurring climate pattern marked by the warming of surface waters in the central and eastern Pacific Ocean. This shift in ocean temperatures can disrupt normal weather systems around the world. In Colombia, El Niño typically reduces rainfall and leads to drier-than-average conditions that can strain reservoirs and reduce the country’s ability to generate hydroelectric power.

“We have a very high probability, more than 90%, of an El Niño phenomenon, and a very high probability that it will be severe both in intensity and duration,” – John Maya Salazar

Maya called on Colombians to adopt more responsible consumption habits, emphasizing that water and electricity rationing can only be avoided if households and businesses reduce unnecessary consumption.

“The rational use of energy and water is the only way to avoid rationing,” he said.

Image courtesy EPM – (translated by Finance Colombia)

Recent reports from IDEAM, Colombia’s national weather agency, and XM, the national grid operator, show that reservoir levels feeding the country’s hydroelectric system have dropped significantly as Colombia enters what forecasters are calling a potentially severe El Niño cycle. Authorities say that if dry conditions continue, they could put extra pressure on electricity generation and water supplies in several regions.

Hydroelectric generation supplies the majority of Colombia’s electricity, making reservoir management a critical issue during periods of below-average rainfall.

Maya also addressed EPM’s plans to increase the operating level of the Hidroituango reservoir to its design elevation of 420 meters above sea level.

According to Maya, EPM’s original environmental license permits operation at the 420-meter level. However, restrictions imposed following the project’s contingency events limited operations to a lower elevation. With those restrictions lifted, EPM is now carrying out the environmental work required before gradually increasing the reservoir level.

“We are complying with regulations and environmental requirements,” Maya said, as he rejects suggestions that EPM would raise the reservoir before completing required vegetation removal and forestry management activities.

The company expects that work to be completed by September, after which reservoir levels can begin increasing in accordance with environmental regulations.

Raising the reservoir level would give the system more room to maneuver when dry conditions hit during El Niño, which would help support power generation if rainfall stays low.

Maya is an electrical engineer with nearly four decades of professional experience who assumed leadership of EPM on January 1, 2024. He previously served as Executive Vice President of Projects and Engineering and Executive Vice President of Business Management at the Medellín-based utility.

The combination of conservation efforts and increased reservoir capacity forms part of EPM’s strategy to maintain energy security during what could become one of Colombia’s most challenging climate periods in recent years.

Above photo: EPM General Manager John Maya Salazar shares the utility’s recommendations on water and electricity consumption.. (Photo: EPM )

The National Oceanic and Atmospheric Administration (NOAA) and the Climate Prediction Center (CPC) have confirmed that ENSO-neutral conditions are currently present in the equatorial Pacific Ocean. However, technical indicators suggest a rapid transition, with a 61% probability of El Niño emerging between May and July 2026. For international investors and executives operating in Colombia, this shift indicates a looming period of increased operational costs, specifically within the energy and agricultural sectors.

The El Niño Southern Oscillation (ENSO) is a recurring climate pattern involving changes in the temperature of waters in the central and eastern tropical Pacific Ocean. During El Niño, trade winds weaken, allowing warm water to move toward the west coast of South America. Conversely, La Niña is characterized by stronger trade winds and cooler ocean temperatures. These fluctuations disrupt global atmospheric circulation, altering rainfall and temperature patterns across the planet.

In Colombia, the effects of these phenomena are distinct and significant. El Niño typically results in a sharp decrease in precipitation and a rise in average temperatures. Because Colombia relies on hydroelectricity for more than 60% of its total power generation, extended dry periods lead to lower reservoir levels. This forces the grid to rely on more expensive thermal generation fueled by natural gas and coal, which historically drives up spot market electricity prices for industrial and residential consumers.

“There is a 25% probability that the index reaches or exceeds +2.0°C during the Northern Hemisphere winter,” according to the National Oceanic and Atmospheric Administration.

The current technical diagnostic from NOAA shows that while the sea surface temperature index in the Niño-3.4 region was recently -0.2°C, the easternmost indices have already moved into positive territory. Furthermore, the equatorial subsurface temperature index has increased for five consecutive months. This accumulation of ocean heat is a primary driver behind the high probability of El Niño persistence through the end of 2026. Some models, including those from the European Centre for Medium-Range Weather Forecasts (ECMWF), suggest a 25% chance of a “strong” or “very strong” event, where temperatures exceed the 2.0°C anomaly threshold.

The Ministerio de Minas y Energía and the Comisión de Regulación de Energía y Gas (CREG) are monitoring these developments closely. A strong El Niño would place additional stress on a natural gas system already facing structural supply constraints. Reduced hydroelectric output coupled with a potential deficit in gas supply could lead to significant energy price volatility. In past events, such as the 2015-2016 cycle, these conditions resulted in substantial financial pressure on the national utility system and necessitated emergency conservation measures.

Agricultural productivity is equally at risk. The Instituto de Hidrología, Meteorología y Estudios Ambientales (IDEAM) has identified the Caribbean and Andean regions—including departments such as La Guajira, Magdalena, and Antioquia—as highly vulnerable. During El Niño, these areas face increased risks of forest fires, water scarcity, and crop failure. For agribusinesses and exporters, this translates to disrupted planting cycles and higher production costs for staples like corn, potatoes, and vegetables, which can fuel domestic food inflation.

Conversely, when La Niña is in effect, Colombia faces the opposite extreme. The cooling of the Pacific leads to excessive rainfall, which can cause devastating landslides and flooding in mountainous terrain. While La Niña can replenish reservoirs, it often damages infrastructure and logistics networks, complicating the transport of goods to port. The current transition out of a La Niña phase provides a brief window of ENSO-neutral stability, which the CPC estimates has an 80% chance of lasting through June 2026.

For the international business community, the significance of these weather cycles extends to macro-economic stability. Persistent dry weather can impact GDP growth by raising the cost of basic services and reducing agricultural output. Strategic planning for 2026 and 2027 must account for these climatic variables. Meteorologists at Colorado State University note that El Niño also tends to reduce hurricane activity in the Atlantic, which may provide some relief for coastal logistics, but the primary threat remains the inland hydrological deficit.

As the Ministerio de Ambiente y Desarrollo Sostenible activates preventive mechanisms, companies are encouraged to review their energy procurement strategies and water management protocols. The next comprehensive diagnostic update from NOAA is scheduled for May 14, 2026, which will provide further clarity on the intensity of the projected warming trend. Understanding the mechanics of the ENSO cycle is no longer a matter of environmental interest but a necessity for risk mitigation in the Colombian market.

Satellite sea surface temperature departure in the Pacific Ocean for the month of October 2015, where darker orange-red colors are above normal temperatures and are indicative of El Niño. (Image credit: NOAA)

Headline photo: the Pacific Ocean from Guachalito Beach, Chocó, Colombia (photo © Loren Moss)

Traders and transport operators have suspended a 19-day blockade at the Rumichaca International Bridge, the primary land crossing between Colombia and Ecuador. The protest, catalyzed by a 50% tax imposed by the Ecuadorian government on Colombian goods, was lifted to accommodate travel and commerce during the Semana Santa holiday period. Despite the suspension of the strike, the regional business community reports that significant economic damage and diplomatic tensions persist.

Ecuador’s President Daniel Noboa (photo: Carlos Silva/Presidencia de la República)

The closure of the border crossing created a substantial disruption in binational economic activity. Estimates from the Cámara de Comercio de Ipiales in Nariño, Colombia indicate that losses reached approximately $5 million USD per day due to freight remaining stationary in the border zone. The Comité Gremial de Trabajadores de la Frontera de Ipiales stated that while the reopening is a responsible gesture for the high-traffic holiday season, current tariff policies continue to threaten hundreds of direct and indirect jobs linked to foreign trade.

The Governor of Nariño, Luis Alfonso Escobar, criticized the trade barriers implemented by the administration of Ecuadorian President Daniel Noboa. Governor Escobar argued that such measures inadvertently encourage illicit activities in the region. He emphasized that instead of facilitating formal commerce, high tariffs drive trade toward illegality, undermining regional security efforts. To mitigate the conflict, the Comunidad Andina de Naciones (CAN) has initiated high-level dialogues. Diplomatic delegations led by Colombian Deputy Minister of Foreign Affairs Juana Castro and her Ecuadorian counterpart, Alejandro Dávalos, held a virtual working group to address pending issues in trade, transport, energy, and hydrocarbons.

“Decisions adopted without considering the reality of our communities have put at risk the livelihood of merchants, transporters, foreign trade workers, and thousands of people who live from binational exchange,” stated the Comité Gremial de Trabajadores de la Frontera de Ipiales.

Diplomatic friction has extended into the energy sector. President Noboa claimed that in 2017, Ecuador assisted Colombia during a potential blackout by charging 1.6 cents USD per kWh, whereas in 2024, Colombia charged an average of 28 cents USD per kWh during Ecuador’s hydroelectric crisis. In response, the Colombian Minister of Mines and Energy, Edwin Palma, clarified that prices during the 2023-2024 El Niño phenomenon reflected the actual costs of production and distribution, particularly when fossil fuel-powered thermoelectric plants using fuel oil and diesel were activated.

The ongoing trade dispute has impacted more than 5,500 companies over the past two months. Diana Marcela Morales, the Colombian Minister of Commerce, Industry, and Tourism, confirmed scheduled meetings with Ecuadorian officials to de-escalate the conflict and establish fair, transparent rules. Concurrently, the Ministerio de Comercio, Industria y Turismo has moved to protect domestic industries by implementing new tariffs on steel and ceramics from countries without existing free trade agreements. These measures aim to counter market distortions and protect a sector that employs more than 50,000 people while promoting circular economy practices and reducing CO2 emissions.

Above photo: Border between Ecuador & Colombia looking towards Ipiales, Colombia (Photo: Cancillería de Colombia)

The rationing will primarily affect Colombia’s Caribbean region, encompassing departments such as Bolívar, Magdalena, La Guajira, Cesar, Córdoba, Sucre, San Andrés, and Atlántico. This recently planned restriction will mostly impact industrial sectors, with thermal power plants in the Caribbean facing significant reductions in gas availability. Residential and small commercial consumers are expected to remain unaffected in the short term, according to the Ministry of Mines and Energy.

The planned maintenance of the Spec LNG regasification plant in Cartagena—a critical facility for liquefied natural gas (LNG) processing—directly influences the gas rationing decision. Maintenance is typically conducted annually and is mandated under Decree 1073 of 2015. However, this year’s maintenance is notable due to the decreased gas reserves and high demand.

Gas Supply Shortfall and Import Strategy

The Colombian Natural Gas Association (Naturgas), represented by its president Luz Stella Murgas, has emphasized the urgency of sourcing gas imports from neighboring countries to counter declining internal reserves. According to Murgas, increasing gas imports is the only viable option to avoid mid- to long-term shortages. Colombia’s domestic reserves have seen accelerated depletion, raising alarms within the industry and highlighting a critical need for regulatory adjustments.

Colombia’s reliance on hydroelectric power sources—which account for approximately 70% of national electricity—compounds the situation. Reservoir levels dropped significantly due to the El Niño phenomenon, which concluded in April 2024. Although reservoirs have since begun recovering, their current levels remain below optimal. As of October 20, Ecopetrol reported reservoir levels at 53.64% capacity, a figure that remains insufficient as the country anticipates a dry season with lower-than-average rainfall beginning in December.

The increased reliance on thermal power plants to compensate for lower hydroelectric output has put additional strain on natural gas supplies. The Ministry of Mines and Energy indicated that imported gas volumes have been insufficient to meet this demand surge, leading to the current shortage. In response, the ministry has proposed regulatory “enablers” to facilitate gas imports, a policy adjustment aimed at stabilizing market conditions, according to Minister Andrés Camacho.

Rationing Details and Implications for the Industrial Sector

The rationing strategy includes staged reductions in gas supply to major industrial consumers over the four-day period, with planned volumes of:

• October 31 – November 1: 84.6 million cubic feet
• November 2: 75.7 million cubic feet
• November 3: 60.3 million cubic feet
• November 4: 72.4 million cubic feet

These allocations are part of a broader inventory management approach aimed at maintaining energy system balance. However, experts have raised concerns that these volumes may fall short of meeting the region’s rising industrial demand, especially in the Caribbean.

Broader Energy Policy and Economic Impact

The rationing decision highlights the complex intersection of Colombia’s energy policies, supply dynamics, and environmental factors. The Caribbean region’s high concentration of energy-intensive industries is expected to feel the brunt of the rationing’s indirect effects on electricity stability. While this measure remains temporary, the government’s exploration moratorium and current reserve limitations suggest a challenging outlook for Colombia’s energy sector.

The Ministry of Mines and Energy’s gas rationing strategy illustrates the critical need for policy adaptations to mitigate shortfalls and ensure energy security in the face of fluctuating internal resources and environmental variables. As the situation evolves, the government will face mounting pressure from industrial stakeholders and the public to develop more resilient energy policies.

In another shift: El Niño who? The little boy has almost been forgotten already. Yesterday’s news. Reservoir levels, according to XM, are still only at 39.5%, but that is a long way above the 27% critical threshold seen previously, and all eyes are now on La Niña.

When it rains in Colombia, it really rains.

When pushed by colleagues about “rainy London,” I discovered that even in a normal weather pattern, Medellín receives 6x the rainfall of London. La Niña is a whole new level.

From Fedesarrollo, we saw data this week for an April improvement in retail confidence (15.3%) while industrial confidence (-3.4%) was little changed month-over-month. For choice, there was a better beat to the future outlook while both numbers were well up on April 2023. Last week we also saw a modest increase in consumer confidence (-11.4%) from the -13% in March. These numbers continue to move around month to month.

From the National Administrative Department of Statistics (DANE), we had the latest import data (March) and there was another decline of 18.8% to $4.8 billion USD. Across the board — from agriculture to manufactured goods to raw materials — there were sizable declines. And despite exports also struggling in March, the trade deficit improved to $686 billion US versus just over $1 billion USD 12 months ago. Again, this is a reflection of declining domestic demand.

READ MORE: Petro’s Reform Plans Stagnate as Colombia Sits at an Impasse

Ecopetrol was also in the news this week. Moody’s Ratings lowered its rating from ba3 to b1 and raised the outlook from negative to stable due to the increased debt requirements and cash flow situation. Reserves were also a slight concern. Also, Finance Minister Ricardo Bonilla made mention of increasing production to 1 million bpd — which would be a 30% increase from where we are today. We have heard this for years, since the days of former President Iván Duque and ex-Ecopetrol head Felipe Bayon, and it still seems fanciful. It would be most welcome news but Colombia, no doubt, but for several years now, the industry simply isn’t coming up with the new reserves it would require and needs to move on from the obsession with oil.

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Though the El Niño weather phenomenon that began last year has significant consequences for the nation — particularly with water reservoirs near Bogotá falling to alarming levels — the New York-based rating agency noted in a recent report that the major electric generation firms have “successfully weathered low hydrology conditions…with only moderate impacts on profitability and liquidity,” largely due to their “high-quality diversified asset bases, healthy cash flow generations and adequate leverage.”

In it’s analysis, it expanded upon the dynamics that have been shaping the sector in recent months.

“Throughout 2023, El Niño placed considerable strain on Colombia’s predominantly hydroelectric-based electricity generation, which accounted for approximately 74% of the total energy produced throughout the year,” stated Fitch Ratings

“From December onward, the water flow into the nation’s dams has been declining, culminating in a record low in March 2024 at 45.6% below the historical average for the month. Data from XM Compañía de Expertos en Mercados S.A. E.S.P. (XM) indicates that the storage capacity of hydroelectric reservoirs hit 17,360Gwh/month. By April, the water levels in these reservoirs were at 28.6%, marginally over the critical 27% mark that could trigger energy rationing.”

It pointed toward Medellín-based public utility EPM’s ability to add 600MW online last fall when it brought two more units online at its Ituango mega-dam.

“This addition propelled Ituango as the country’s top hydro project in energy output, cushioning the rise in daily energy spot prices which averaged, 659COP/Kwh during 2H23, compared to 412COP/Kwh in 1H23,” noted the rating agency. “Termocandelaria Power S.A. increased capacity at the Termocandelaria plant to 555MW from its combined cycle project. Between January and April 2024, total generation in Colombia reached 27,521Ghw, 37% of which came from non-renewable sources, compared to 14% during the same period in 2023. Meteorological forecasts signal increased precipitation from May onwards.”

Looking more broadly, Fitch stated that Enel Colombia and Isagen, along with EPM, “adhere to cautious contracting strategies that enable them to reduce reliance on higher-priced spot market energy purchases” and “have created a cushion that has allowed them to cope with the ongoing drought conditions in 2024 and fulfill their firm energy obligations.”

With this backdrop and forecasters continuing to expect the El Niño period to soon be in the rearview mirror, Fitch expects even more investment into capacity-expanding initiatives this year.

“Colombian electric generation companies’ capex plans are focused on boosting installed capacity amid concerns that current energy supplies may not keep up with demand,” wrote Fitch Ratings. “EPM is prioritizing the completion of its Ituango hydroelectric project. Key components of this initiative include sealing the right-hand tunnel of the obstructed Auxiliary Diversion System and the anticipated launch of units 5 to 8 by 2027, which are expected to contribute an additional 1,200 megawatts of capacity. Enel Colombia and Isagen are setting their sights on advancing renewable energy initiatives, encompassing both solar and wind projects. However, some of these projects have been experiencing notable setbacks due to environmental permitting issues and negotiations with local communities.”

Photo: Hidroituango hydroelectric dam. (Credit: EPM)

While this was slightly better than expected, the positive difference is likely not enough to radicalize the central bank into taking more drastic measures at the end of the month. Fedesarrollo continues to anticipate a year-end CPI rate of of 5.51% — but we are already at 3.34% year-to-date.

The complications related to El Niño may be disappearing into the rearview mirror, but La Niña is now on the horizon — and won’t be helpful when it comes to inflation. Even thought we have been falling for 13 straight months — and 12 months ago we were at 12.82% — Banco de la República is behind the curve.

Along the same lines, Fedesarrollo’s forecast for an year-end overnight interest rate of 8.25% is also looking optimistic given the conservative nature of the central bank.

El Niño, as mentioned, is gradually leaving us. This has helped energy reservoir levels rise from 28.0% to 34.5%, and while water rationing continues in Bogotá, consumption has fallen. Next up, also as mentioned, is La Niña and the expectation for heavy rainfall.

In terms of economic inflows, international tourism continues to boom, with 1.6 million visitors arriving in the first quarter of 2024, an increase of 7.6%. While Bogotá had the most visitors, there is no question that Medellín and Cartagena are drawing the most tourists. The main visitors thus far in 2024, accounting for 26.6%, are from the United States. Given the criminal news emanating from Medellín, in particular, in recent months, most are welcome but many are not — including those disparaging referred to as the “passport bros.”

Ecopetrol’s first quarter results were released this week as well, and thye were, as expected, negative year-over-year. Production was slightly down, however it was the decrease in the price of Brent oil and the stronger performance of the Colombian peso that did the damage.

Ricardo Roa, chief executive officer of Ecopetrol, has been under some political pressure recently, but he has no intention of stepping down. Instead Roa is concentrating on 2025 and the anticipated shortfall in gas supply. Venezuela is prepared to sell at a favorable price — but first the pipeline needs a lot of work. Additionally, given that the United States has reimposed its embargo, permission will need to be sought from Washington.

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