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:

The president attended the kickoff of the effort to increase the operational capacity of El Dorado with the Vice President Germán Vargas Lleras, Minister of Transport, Natalia Abello; Aerocivil Director, Gustavo Alberto Lenis; the President of the National Infrastructure Agency, Luis Fernando Andrade, and directors of concessionaires operating in the main air terminal.

He recalled that despite the difficulties experienced during the first phase of expansion of El Dorado, it was delivered successfully and the administration immediately began talking about new projects to meet future demand for passengers and cargo.

“And since then, four years ago we were already thinking about how we were going to expand the airport and increasingly, thinking big, more like what we have done with our other infrastructure,” he said.

Santos said that in the next two years, the government will undertake projects in 39 airports in 20 different departments, costing 2.8 billion pesos—not including major works in airports like those serving the cities of Barranquilla and Cali.

He explained that Colombia has a great opportunity to further benefit economically from growth in the tourism sector, by ensuring that the airports meet the growing demand for services.

The President noted that the El Dorado airport works are an important step “in the design of an increasingly competitive country…,the competition is tougher and therefore we must always be a step ahead and not a step behind to bring more investment, to generate more employment and more well-being.”

He stressed that what was seen Wednesday in the capital’s terminal “also will be repeated in many more airports, because it is not only El Dorado. We are making huge efforts in many other airports in major cities, an investment of nearly 3 billion pesos, 2.8 billion.”

In addition to the expansion and renovation of El Dorado, the administration also announced that plans were underway for an expansion of the current airport, located in Salitre, Bogota, to a second location, perhaps connected by train or tram, in Facatativa, just west of the capital city, and that the second part of the airport – El Dorado 2, could be operating in as little as 5 years.

If this goes forward, Bogotá would in some respects be following the example set by Medellin, which added a second, larger and modern airport, 40 minutes outside of the city in the exurb of Rionegro, and turning the older Enrique Olaya Herrera Airport into a general aviation and domestic regional airport.

Infrastructure Works

At the same ceremony, President Santos referred to the large investments being made in infrastructure throughout Colombia.

“This morning the Vice President explained how the green light was given to a project in Buenaventura, the largest port between Mulaló and Loboguerrero that will improve the country’s competitiveness. So one can go around the country, [naming] works that are being put in place. ”

Similarly, Santos outlined the main aviation projects being developed through the rest of Colombia.

“I will give some examples: in Barranquilla, airport investment will be 350 billion pesos. They are going to repave the entire runway, and they are going to remodel the entire passenger terminal, an airport that today is a good airport, is going to be an airport comparable to any airport worldwide,” he said.

Santos also stated that “in Cali, investment will be 234 billion pesos, to increase the number of gates and expand the passenger terminal, among other works.”

As for the capital of Chocó, he added that “there will be an airport fit for a good city like Quibdo, right now they don’t have one.”

“Two weeks ago, I told the Chocoanos that even the President could not travel on his plane to Quibdo (the capital city of Chocó) because the airport does meet the appropriate standards. Let’s make the airport—not only the airport, but other development in Quibdo around the airport, that will generate economic dynamics, create jobs and a great economic benefits. That investment is going to be 180 billion pesos,” said Santos.

The President went on to say that in “the other extreme, in the Amazon, [the airport serving the border city of] Leticia will get investment of 143 billion pesos. Imagine what that means for an airport in Leticia? What we are making is an enormous effort to elevate the level and quality of our infrastructure. Not just the highways, we emphasize the highways because that’s the greatest investment in our history, perhaps the most ambitious infrastructure project in all of America, taking place right now, in Colombia.”

“Since the first stage of the fourth generation (4G) highway concessions, totaling about 12 billion pesos, is already contracted and being executed, Colombia will see construction work over the next three or four years everywhere.” He said the second wave of 4G highway concessions have already been contracted.

”Dr. Juan Martín, I believe, is a witness: We have done all of this in a way that I believe has no complaints from any of the bidders or contractors, with regards to the transparency in the awarding of these monumental works.  We have taken this care from the beginning so that nobody would have the slightest doubt about the transparency with which these works were awarded.”

President Santos announced his desire that the highway construction continues at a pace of at least 300km per year (2 lanes each way), a rate he said that Spain maintained at the height of their public works boom roughly a decade ago.

Headline photograph: President Santos in Bogotá’s El Dorado International Airport, flanked by 2 airport employees. Photo credit: Efraín Herrera