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MESSAGE FROM THE PRESIDENT

We at Promigas have always been interested in good energy. Ever since we took our first steps, we have been conscious of the great responsibility we have and the impact we make on society, and encouraged by this, we have boosted progress in the regions where we have a presence in Colombia and Peru. Today we present this “2020 Management Report”, which shows the good results achieved by Promigas and its companies.

The worldwide economy contracted and the world entered the worst recession since the Second World War. Given the serious distortions of domestic supply and demand, of trade and finances, per capita income was affected in every region, resulting in a significant drop in household incomes.

Resilience, planning, the regulated nature of our business, the stability of the contracts we have with our customers and the flexibilization we introduced enabled us, in these hard times, to keep up good performance levels and even to exceed what was budgeted in 2020.

In a year of many challenges, we worked hard to guarantee business sustainability and to adapt to the new reality and the health emergency. We prepared ourselves for facing the challenges that COVID-19 brought in the short and medium terms and, thanks to our staff and our robust business infrastructure, we achieved operational continuity as we took our natural gas and electricity services to our customers and users in 2020 without interruptions.

Promigas and its companies committed themselves to a comprehensive self-care and health management strategy. 75 per cent of our employees thus worked from home, which brought with it the challenge of maintaining communication and a fluid interaction, managing the everyday operation, and with this, developing and reinforcing our digital platforms in order to ensure a normal operation and to guarantee the provision of gas and electricity services.

SUSTAINABILITY AND INNOVATION

Promigas restated its commitment to go on taking development and wellbeing to all society and to seeking a better future at all times.

We allocated over 22,000 million pesos to helping our communities cope with the economic and social effects of the health crisis and to strengthening the health system, and we donated medical and hospital equipment to 23 hospitals in eight provinces in Colombia and Peru and delivered over 122,000 humanitarian aid packages to more than 500 communities in our areas of influence.

On the question of sustainability, it is with great satisfaction that we highlight the fact that we were selected for inclusion in S&P Global’s Sustainability Yearbook 2021 for our strength in the economic, social, environmental and governance fields, enabling us to score 83 per cent in the sustainability evaluation.

We were also chosen in 2020 as one of the ten companies with the best private social investment index by the United States Agency for International Development (USAID) and Semana Sostenible. And the Global Compact granted us the highest award in good sustainable development practices for our “Tropical Dry Forest, a Challenge for Conserving Biodiversity” project.

The Ministry of Science, Technology and Innovation recognized us as the leading Business Research, Development and Innovation (RDI) Unit in Colombia’s Oil and Gas Sector.

We will continue to innovate in order to build a sustainable future where our energy services play a leading role and enable us to continue to look for undertakings aimed at decarbonizing our business, to operate more safely and efficiently, and to diversify our portfolio of services.

OUR MANAGEMENT

The Corporate Strategic Plan, which set out the route we will follow for the next ten years, was completed in 2020. The goal is to maximize the natural gas and electricity transportation and distribution business, to explore opportunities on new markets, and to increase the value for our shareholders, based around our experience as a leading and sustainable company in Colombia and Peru.

In a year full of uncertainties, we recorded high continuity levels for our customers - over 99.8 per cent at corporate level - and this enabled us to maintain corporate standards and achieve good financial performance, even in such hard times for the sector and for the economy in general.

Natural gas transportation figures show that we transported 458 Mpcd, 48 per cent of the total volume in Colombia. And as far as natural gas distribution is concerned, we connected 244,000 new users, taking the total number of beneficiaries in Colombia and Peru to more than five million.

With electricity we topped 400,000 users connected to distribution networks and also exceeded the targets set.

Conscious of the difficulties people were facing, we established a temporary flexibilization policy for gas transportation contracts, the financing of natural gas billing, Brilla and other areas, in order to support our customers and users in income brackets 1, 2, 3 and 4.

The successful completion of our gas transportation infrastructure expansion program saw the Promigas gas pipeline achieve a new capacity of 951 Mpcd in the system. This was due to the recent commissioning of the so-called 100 Mpcd Project (the biggest expansion project in the company’s history), which involved the construction of 230 km of large-diameter trunk pipeline, the construction of a new, 7,800 HP turbo-compressor station, the 15,000 HP expansion of an existing compressor station, and the crossing of El Dique Canal using a directed horizontal drilling process, a major
16-inch work in the hydrocarbons industry that is 3.4 km long and became the longest such crossing in Latin America and the eighth longest in the world.

We continued to support energy security in the country, especially in the first months of 2020 when reservoir levels were at 32 per cent, the lowest figure for 20 years. It was because of this critical scenario that our LNG regasification terminal reported its highest operating figures, since it received 14 methane tankers with around 690,000 cubic meters of LNG and delivered more than 13,000 million cubic feet of natural gas to the principal thermal plants in the country, thereby helping to ensure that gas for thermal generation provided the necessary backup for up to 22 per cent of the country’s energy demand.

These Promigas investment projects brought great benefits in all areas where the work was done by creating more than 4,000 direct and indirect jobs, and the country was provided with the necessary infrastructure for exploiting to the maximum the new natural gas potential on the southern part of the Caribbean coast, specifically in Bolívar, Sucre and Córdoba provinces.

We consolidated our leading position in the sector on the Peruvian market by acquiring 100 per cent of Gascop (now Promigas Peru), a company that pioneered the marketing of natural gas for the industry and vehicles market in the north of the country, through an investment of USD 22.8 million (85,000 million pesos). We strengthened our gas distribution business in the north through Quavii by connecting 36,000 new users, and despite the restrictions imposed because of the pandemic and the agrarian strike, volume was 84 per cent up on 2019, due, among other things, to increased demand in the fishing sector. Meanwhile Cálidda, the distribution company that serves the Lima and Callao market, achieved a coverage figure of 90 per cent by executing investments totaling USD 70 million and exceeding a million users.

We continue to support the use of fuels that have a low environmental impact, such as VNG, and from this perspective we celebrated the commissioning of 40 trash compactors and 120 trucks and mini-trucks in Promigas areas of influence. Over 2,000 buses and 400 heavy transportation vehicles now run on compressed gas.

We also fostered new business based on renewable energies, which is a growth vector in our corporate planning. 3.16 MWp of the 5 MWp contracted began operating during the year, thereby completing 15.7 MWp of total capacity, a figure that is 47 per cent up on 2019.

In the non-banking financing area, we placed COP 450,706 million in loans through Brilla and we began operations in Peru. COP 10,762 million in EBITDA was generated in insurance.

We officially started the open-season process for the Jobo-Transmetano gas pipeline project, a work 300 km long and involving an investment of approximately USD 400 million to incorporate new gas reserves in the lower Magdalena valley and on the coast for meeting demand in the interior.

FINANCIAL RESULTS

In March and April 2020 we unveiled a financing strategy for obtaining COP 1.3 billion, which enabled us to guarantee the operation and meet investment commitments in the face of possible market limitations. This was part of a responsible austerity plan aimed at making savings on costs and expenses, in order to mitigate the effects of measures adopted against COVID-19.

One notable feature was the reopening of the bond issue on the international capitals market for Senior bonds with a 3.75 per cent coupon and 2029 expiry date, issued in October 2019. USD 120 million were obtained in response to an initial issue of USD 100 million, which was oversubscribed more than eight times and reached a total of USD 818 million (Bid to cover: 8x).

In November 2020 we placed ordinary bonds worth COP 599,999 million under the local capitals market issue and placement program. Demand reached COP 1.04 billion; in other words, 1.75 times the initial amount offered. The final rates in the A5 and D25 series awarded were the lowest for issues on the local market in 2020.

Our access to local and international banking and to capitals markets, based on our investment-grade credit ratings, has guaranteed that the necessary funds will be available for our operations and investments in Colombia and Peru, even in the midst of the pandemic.

The Promigas financial statements reflect a consolidated EBITDA of COP 1.9 billion and a net profit of COP 1.1 billion, representing 133 per cent of the 2020 budget.

Promigas received a ratification of its Baa3 international rating by Moody’s and of its local AAA and international BBB- ratings by Fitch Ratings, both with stable perspective. Fitch Ratings reconfirmed the AAA (Col) and F1+ (Col) ratings with stable perspective for Surtigas and Gases de Occidente. The AAA national rating is highest on the country scale for issuers with the lowest default risk expectation in relation to other issuers.

For the eighth consecutive year we received the IR recognition by the Colombian Stock Exchange that is granted to 32 local companies noted for their transparency and good practices in their relationships with shareholders and investors.

We will continue to work toward optimizing our corporate debt profile by improving the term and other conditions, so that we can transmit these benefits to our integrated results, together with a firm commitment to maintain the aforementioned ratings.

PROSPECTS

We will work with passion and commitment to achieve our ambition of being the best energy company in the region, a diversified one in terms of types of energy and geography, one that is part of the whole process, from origin to capturing the full value of the final user. We will therefore explore new markets and investment opportunities, both in Colombia and elsewhere, enshrined at all times in the principles of sustainability and innovation and with the goal of creating the greatest value for society.

Or aims for 2021 in terms of gas transportation are to continue to work on coast-interior interconnection and bidirectionality in the Barranquilla-Ballena gas pipeline, make progress on connecting minor fields belonging to several of our customers, make a start on the Jobo-Transmetano project, and construct and commission the new gas pipeline in the Banana Zone.

Similarly, with our affiliate SPEC LNG, we will continue to work on reinforcing the only regasification terminal in the country, based around its potential, the experience gained in four years of operation, and development opportunities offered by liquefied natural gas.

We will continue to reinforce our businesses through a bigger share in non-conventional renewable energies, as defined in our corporate strategy. This is why we have identified 195 MWp in new energy service opportunities, and these provide us with a big impetus to continue working in this segment.

We hope that demand for the transportation service will pick up in 2021, especially for VNG, since this halted because of the pandemic. We will continue to develop incentives for a greater use of VNG in the cargo transportation sector and in mass transportation systems. We will also continue to support sustainable mobility in natural gas transportation.

Innovation will continue to be a key process throughout our management, and we hope to set in motion the first phase of the Augmented Reality project at our Caracolí Compressor Station in 2021.

We reiterate our commitment to the Global Compact and its principles, which are enshrined in four major subjects: human rights, anticorruption, labor standards, and the environment. As far as the latter is concerned, we support the Caring for Climate initiative by directing our activities and processes toward mitigating the impacts and effects of climate change. We are also committed to the Sustainable Development Goals. We believe that our management supports the targets set by the United Nations for 2030, and we have established contributing to SDG 7, 8, 9, 11, 13 and 15 as a priority for us.

Our robust natural gas and electricity transportation and distribution infrastructure, together with our regasification infrastructure, will continue to serve Colombia and Peru and support their reconstruction of the post-COVID economy. Our efforts will continue to be directed toward achieving the best results for our shareholders and interest groups.

In this, our integrated report, you will find details of our management and our results, which we trust will have provided a suitable response to the value promises we made to our interest groups.

​MESSAGE FROM THE PRESIDENT

SUSTAINABILITY AND INNOVATION

​​​OUR MANAGEMENT​

FINANCIAL RESULTS​

The Promigas financial statements reflect a consolidated EBITDA of COP 1.9 billion and a net profit of COP 1.1 billion, representing 133 per cent of the 2020 budget.​

​PROSPECTS