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WE GROW IN A PROFITABLE AND SUSTAINABLE MANNER

WE GROW IN TERMS OF PROFIT AND RETURN FOR OUR SHAREHOLDERS

ECONOMIC PERFORMANCE

We foster the envisaged yield and sustainable growth by effectively identifying opportunities and managing investments and resources in line with risk levels.

Promigas pursues financial excellence through a sustainable growth model which adds value not only to our shareholders but also to all interest groups for building society.

Our target is always to guarantee that we achieve our strategic goals while taking into account the economic and regulatory context of every sector or market where we operate.

Our management focuses on improving profitability and growth, maintaining a sound financial position and liquidity, and achieving efficiency and legal and regulatory visibility, in order to have an attractive and sustainable return for our investors, and to be a leader in gas infrastructure and transportation and also in gas and electricity distribution and marketing in Colombia and Latin America.

STRATEGIC TRANSPORTATION BUSINESS GROUP

The corporate strategy objective is portfolio sustainability, and we succeed in achieving our strategic focuses by developing new businesses and growing the economic, social and environmental value of our existing businesses.

2020 saw the culmination of the 100 Mpcd expansion project when operations commenced on the Paiva-Caracolí gas pipeline and at the new Paiva Compressor Station, in Bolívar province, and these operations, together with the Jobo-Majaguas gas pipeline, which has been available since 2019, have enabled transportation capacity to be increased from the fields in the lower Magdalena valley, which are connected at Jobo, in Córdoba province, to the principal consumption centers on the Atlantic coast.

We also officially started the ‘open season’ process for the 300 km Jobo-Transmetano gas pipeline project, with an investment of approximately USD 400 million. This will incorporate new gas reserves in the lower Magdalena valley and on the coast, in order to meet demand in the interior.

Promigas ended the year with a maximum transportation capacity of 951.7 Mpcd and a volume transported figure of 346.8 Mpcd, one per cent down on the previous year because the propagation of the COVID-19 virus forced the national government to adopt health and lockdown measures, which resulted in an 11 per cent fall in gas consumption in non-thermal sectors, compared to 2019.

However, in the first quarter of 2020, thermal dispatches from the coast increased, due to low hydroelectric generation, and this led to increased energy prices, while sector gas consumption was 12 per cent up on the year before.

Promigas - Gas transportation by sector

The daily average volume transported in 2020 by Promioriente, Transmetano and Transoccidente was 112 million cubic feet and was the result of an operation that neither stopped functioning nor reduced its level of excellence because of the problems facing the country and the world due to the spread of COVID-19.

Guided by the principles of solidarity and business responsibility and in order to help the country in the difficult situation caused by the pandemic, the transportation companies began negotiations with their customers in late March, before CREG Resolution 042 of 2020 was issued, with a view to modifying commercial conditions in existing contracts and making them temporarily more flexible, in order to find solutions that were mutually beneficial to customers and the company in view of the effects of the COVID-19 pandemic.

Natural gas transportation companies

PROMIORIENTE

One highlight of 2020 was the execution by Promioriente of investments in complementary geotechnics as part of the Mitigation of Threat, Vulnerability and Risk Project for the Gibraltar-Bucaramanga gas pipeline, in view of new climatic events.

A further highlight, and a positive result of Promioriente commercial management, was the new 6 Mpcd contract with Ecopetrol, which means that the contracted capacity is 17 per cent up on the 2019 year-end figure.

Fitch Ratings confirmed the Promioriente long- and short-term AA+(col) and F1+(col) ratings, respectively, based on the stable operational cash flow generation established in the structure of its contracts.

TRANSMETANO
Transmetano implemented various strategies in line with preserving the integrity of its infrastructure and maintaining its levels of operational excellence. Notable among these are: (i) the Vinus project, which is carried out in conjunction with the company that holds the highway concession in the area and aims to resolve interferences between highway infrastructure megaprojects (4G networks) and the trunk gas pipeline; and (ii) preliminary engineering for reducing the risk caused by third parties infringing on the gas pipeline right of way in the Primavera sector.

TRANSOCCIDENTE
Transoccidente operated uninterruptedly during 2020, despite problems caused by the COVID-19 emergency, and maintained the level of excellence in managing and operating the gas pipeline. The company began to execute the project to change the reception station metering system, in order to bring it into line with the updated metrological control method for gas metering systems.

LNG SPEC LNG

SPEC LNG continued to be a vital asset for the national electricity generation system, especially during the second quarter, when reservoir levels in the country fell to 32 per cent (the lowest in the last 25 years). It enabled the principal thermoelectric plants in the country to access international LNG markets at historically low prices, and this was reflected in a lower average price on the national energy exchange (50 per cent) in comparison with the situation when the last El Niño phenomenon occurred, in 2015, when reservoir levels were between 40 and 50 per cent.

As a consequence, SPEC LNG delivered 13,076 million cubic feet of natural gas (MPC) to the National Transportation System over a period of 210 non-consecutive days in 2020, thus setting a record since its operations began.

COMPREHENSIVE SOLUTIONS FOR INDUSTRY PROMISOL

Promisol continued to offer companies in the hydrocarbons sector and the industrial sector reliable and competitive solutions, thanks to its various business units that build gas pipelines, generate energy, treat hydrocarbons, and carry out preventive and corrective maintenance on natural gas transportation infrastructure.

Its operation was affected by the various lockdown and prevention measures adopted by the Colombian government from March onwards in connection with the COVID-19 pandemic. Because of the state of emergency, energy consumption by Zonagen customers fell, and the Zona Bananera and Coast-Interior Bidirectionality construction projects with TGI had to be postponed, although both are expected to be carried out in 2021.

STRATEGIC DISTRIBUTION BUSINESS GROUP

The companies related to Promigas, which have maintained their commitment to sustainable growth, have achieved greater coverage in their areas of influence and continue to render a high-quality service.

By connecting 244,000 new natural gas distribution users, we have passed the five-million landmark in Colombia and Peru. As far as electricity is concerned, we have over 400,000 users connected to our distribution networks, a figure that is higher than the target we set.

Despite the situation, the goal of continuing to expand the benefits of domestic natural gas followed its course in the area of influence. Distribution companies in Colombia connected 115,486 users and continued to deliver natural gas to a total of 3.8 million users in 873 cities and towns in the country, which corresponds to 38 per cent of the total market. On the international market, the Promigas share in Peru resulted in 129,029 new users being connected, making a total of 1,169,208 natural gas service beneficiaries.

GEN Distribution companies succeeded in overcoming the challenges posed by COVID-19 during 2020. One of these challenges was to find mechanisms for reactivating gas consumption in the different markets served: the VNG and commercial sectors were the worst affected. A further challenge lay in stimulating residential demand sustainability, since this was affected by users’ ability to pay, due to around 87 per cent of customers being in income brackets 1 and 2.

We consolidated our leading position in the Peruvian sector of the market by acquiring 100 per cent of Gascop (nowadays Promigas Peru), and we reinforced our gas distribution business in the north through Quavii by connecting 36,000 new users, thanks to which, together with the growing demand in the fishing sector, we achieved an 84 per cent growth in volume, compared to 2019. Meanwhile Cálidda, the distribution company that serves the Lima and Callao market, achieved a 90 per cent coverage figure and exceeded one million users.

SURTIGAS

Surtigas continues to attract new customers to the gas service which, at the year end, benefited 824,713 users. It reached 23 new towns, thus totaling 208 towns served at December 2020. In order to go on boosting sustainable mobility, it arranged for 45 heavy cargo vehicles to enter service, and expects another 20 to do the same in 2021.

In June 2020, Surtigas received ratification of its national long- and short-term AAA and F1+ ratings, respectively. Fitch Ratings also confirmed the AAA rating for the Surtigas COP 200,000 million Ordinary Bonds issue.

GdO

As a result of the joint commitment and efforts of every area of the company, GdO succeeded in connecting 39,151 new users and constructing 14,765 rings, thus achieving a 91 per cent coverage figure in its area of influence. At the 2020 year end, GdO had a 12 per cent share of natural gas service beneficiaries in Colombia. As part of its sustained effort to continue generating wellbeing in the area, it arranged for 52 heavy cargo vehicles to enter service, and expects another 24 to do the same in 2021.

In April 2020, Fitch Ratings confirmed the national long- and short-term AAA and F1+ ratings, respectively. It also confirmed the AAA ratings for the GdO COP 200,000 million and COP 300,000 ordinary bond issues, thereby ratifying the company’s strong business situation, stability, and adequate liquidity position.

GASES DEL CARIBE AND AFFILIATES

Gases del Caribe and its affiliated companies Efigas and Gases de la Guajira reached the figure of 1,794,608 users in 2020.

66,274 beneficiaries were connected to the natural gas service during the year in La Guajira, Cesar, Magdalena, Atlántico, Bolívar, Caldas, Risaralda and Quindío provinces. The coverage figures for the areas served by Gases del Caribe, Efigas and Gases de La Guajira are 90 per cent, 85 per cent and 86 per cent, respectively.

EXPANSION IN PERU

We consolidated our leading position in the natural gas sector of the Peruvian market by making an investment of USD 22.8 million (COP 85,000 million) to acquire 100 per cent of Gascop (nowadays Promigas Peru), a company that pioneered natural gas for the industrial and vehicles market in the north of the country.

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 resulting from the agrarian strike, volume was 84 per cent up on 2019, due, among other reasons, to growing demand in the fishing industry. Storage capacity at Coischo station was increased, with a view to meeting this growing fishing industry demand. This project included the installation of forced vaporizers, which increase efficiency in the current regasification process. The second VNG cock was connected to the Quavii network in the town of Chimbote, and testing continued on sections dedicated to LNG before execution of the green corridor project continued.

Gasnorp continued to execute the schedule during the period, in order to comply with the initial POC in April 2021. Work began on the Sullana station, the inauguration of which was attended by Lieutenant Osinergmin, the mayor and municipal manager. Construction work on the Piura and Talara stations was scheduled to commence in January 2021, as also was construction of the gas pipeline that will connect the whole Piura region.

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 it passed the figure of one million users. It reported 93,385 new connections in 2020 and achieved a year-end total of 1,046,067 users in Lima and Callao, ten per cent up on the total accumulated users in the previous year. As it continued with its mass usage plan, it penetrated four new towns and closed the year serving 34. It distributed 7,353 million m3 of natural gas, 75 per cent of it to generators.

Some of the major landmarks during the year are listed below:

Launch of thenon-banking financing model in Peru in December
Start of the Brilla digital transformation project
Definition of Brilla strategy for the next ten years
Growth in the micro-insurance portfolio

ELECTRICITY DISTRIBUTION - CEO

CEO reached a total of 409,393 accumulated users during the year, 3 per cent up on the previous year. It ended the period with a commercial loss indicator of 12.6 per cent, which is in excess of the parameters defined in the Management Contract. In commercial terms, the company managed to strengthen the portfolio management process, since it reported improvements in its indicators.

Users in income brackets 1, 2, 3 and 4 who were unable to pay were offered the possibility of deferring payment instalments between February and July at 0 per cent interest rates, while those who paid promptly were granted discounts.

NON-BANKING FINANCE – BRILLA

2020 was marked by the COVID-19 pandemic, which caused lockdowns that affected commercial development in the non-banking finance business, with placements partially suspended for four months. Similarly, due to rising unemployment, adjustments were made to the business risk profiles, in order to guarantee their sustainability.

These included adjustments to the allocation and use of credit, in order to be more rigorous when granting it, and evaluating localities with a view to determining their portfolio risk and offering users refinancing and restructuring plans.

CORPORATE ECONOMIC AND FINANCIAL MANAGEMENT

Financial Statements

Promigas demonstrated its resilience during the economic and health emergency caused by the pandemic by carrying out continuous follow-up exercises on critical variables and by planning activities in detail, all of which enabled it to obtain satisfactory results.

The principal General Balance Sheet and Profit and Loss Statement figures for the year 2020, compared to those presented in 2019, are shown below.

Equity grew by 20 per cent, thanks to the results the company posted in the year, and was 40 per cent up on the year before.

The 16 per cent increase in Assets is mainly due to the increase in Other Assets from the reporting, using the participation method, of distribution company profits and loans granted to affiliated companies as part of the corporate financing strategy, plus the increase in Financial Assets from the annual adjustment generated in the accounting entries of concessions and in Current Assets from the temporary investments balance.

In Other Assets, the participation method results of companies in the distribution sector were up by 86 per cent. This was due to the compulsory application of IFRS 15 (revenue from ordinary activities under contracts with customers) pursuant to concession agreements between Promigas affiliate concessionaires Gases del Pacífico and Gases del Norte del Perú (GASNORP) and the Peruvian state as grantor.

This regulation sets out parameters for recognizing the asset and the revenue, the latter subject to the performance obligations of the concession holders summarized under construction items, on the one hand, and operation and maintenance items, on the other. In the specific case of infrastructure construction, a profit margin was recognized that is calculated technically and revised periodically, and this resulted in a net revenue causation of COP 242,969 million at Gases del Pacífico (2018-2020) and COP 32,922 million at GASNORP (2020). These revenues do not generate cash movements in the said companies.

Elsewhere, loans totaling COP 324,100 million were disbursed to affiliates as a result of the local currency bond issue in November. There were other significant transactions in 2020, such as the USD 22 million prepayment for future capitalizations to Gases del Pacífico and the acquisition of GASCOP shares for USD 4.9 million.

Financial Assets increased as a consequence of the annual adjustment relating to the updating of operating and macroeconomic figures, and the weighted average capital cost (WACC).

The rise in Assets under Concession was due to important projects from the previous year continuing, such as the Jobo-Majaguas, Mamonal-Paiva 20” and Paiva-Caracolí gas pipelines and the Paiva, Caracolí and Filadelfia compressor stations, as well as other investments, like the HCA Bypass in Riohacha and the Rehabilitation of the 20A and 20E lines.

Total Liabilities were 13 per cent up, mainly long-term ones. There were two bond issues in 2020, aimed at optimizing the debt profile and improving credit conditions. The first, in October, was a USD 120 million international bond issue, in which Promigas has a 25 per cent share (USD 30 million) and its co-issuer, Gases del Pacífico, 75 per cent (USD 90 million). The second was in November and consisted of a COP 600,000 million bond issue. These funds were used for executing the investment plan and prepayment of debt, and COP 324,100 million were paid in loans to affiliated companies such as CEO, Surtigas, Gases de Occidente, Promisol and Transmetano.

Profit and Loss Statement

Income Tax increased due to the lower 40 per cent tax benefit on the legal stability contract, since lower investments were made because of the lockdown. 

Amid all the volatility and uncertainty in 2020, Promigas focused its efforts on analyzing the most critical variables and mitigating their impact. This enabled it to grow Operating Revenue by 14 per cent, mainly due to the volume transported in the first quarter of the year, when thermal dispatches from the coast increased, and the higher exchange rate during the year. This was counterbalanced in part by the impacts of the health and economic emergency caused by COVID-19.

Construction Revenue fell in 2020 because fewer investments were made during the year, mainly because they were reprogramed as a consequence of the health and economic emergency and due to the bigger investments made in 2019, when the 100 MPCD expansion project came to an end. In accordance with IFRS 15, investments associated with the construction of concessions is recorded as revenue, in this case reflecting the value of the associated cost, since the nature of the concession differs from those we operate in Peru.

Participation Method revenue for the controlled companies increased, due to the implementation of IFRS 15 at Gases del Pacífico and Gases del Norte del Perú, resulting in a profit of $275,891MM associated with their intensive construction activity. $250,587MM of this are recorded directly as participation in these (foreign) companies and $25,304MM indirectly, through the participation in Surtigas (national).

Costs and Expenses fell as a result of the lower portfolio provisions recorded and lower financial interest due to the lower portfolio balance in the non-banking financing business. Meanwhile, because of the health emergency, a corporate program called “Responsible Austerity, Grade III” was established, with a view to preparing us to face one of the most difficult contingencies in the whole world. Without sacrificing our usual quality and safety standards in all our operations, relevant savings in excess of COP 70,000 million were made at corporate level, relating principally to labor expenses, travelling, advisory services and fees, services, publicity and events, and postponing non-priority operational and maintenance activities at administrative headquarters and stations until 2021.

The increase in Depreciation and Amortization relates to the December 2019 capitalization of the Jobo-Paiva gas pipeline and the Paiva and Caracolí compressors. Further capitalizations of projects relating to the 100 MPCD expansion (such as Jobo-Majaguas, Mamonal-Paiva and Paiva-Caracolí) were made in 2020.

The Financial Assets revenue, relating to the gas pipeline concessions, reflects the annual adjustment for updating macroeconomic variables and the weighted average capital cost (WACC).

Other Revenue increased because of the higher cash and investments balance during 2020 and because interest was recorded on loans made to affiliated companies.

The increase in Other Expenses was due to higher financial expenses being recorded in 2020 because of the bigger average debt balance and less interest being capitalized, compared to the previous year. However, it should be stressed that the average debt rate in 2020 was almost two points lower than the year before. Additionally, a credit accounting adjustment was made in 2019 for higher estimated income caused.

Consolidated Financial Statements

Promigas and its affiliated companies demonstrated their resilience during the health and economic emergency caused by the pandemic through continuous follow-up exercises on critical variables and by means of detailed planning of activities that enabled them, ultimately, to obtain satisfactory results.

The consolidated financial results at December 31, 2020 are presented below, with a comparison to those presented at December 31, 2019:

Current Assets were 21 per cent up, principally because of higher cash and temporary investment balances at Promigas due to funds from the bond issues, and also at Gases del Pacífico and Gases del Norte del Perú due to funds received for starting construction work on the Piura project.

The increase in Assets under Concession was due to the continuation from the previous period of important projects at Promigas, such as the Jobo-Majaguas, Mamonal-Paiva 20” and Paiva-Caracolí gas pipelines, among other investments.

The variation in Financial Assets, generated by virtue of the IFRIC 12 accounting regulation which governs the transportation and distribution concession, is a result of the periodic updating of operational and macroeconomic figures. The weighted average capital cost (WACC), which is used to deduct the market value of the gas pipeline at the end of the concession, was also adjusted.

Total Liabilities were 9 per cent up, principally long-term ones. In October there was a USD 120 million international bond issue, in which Promigas has a 25 per cent share (USD 30 million) and its co-issuer, Gases del Pacífico, 75 per cent (USD 90 million). In November, Promigas made a COP 600,000 million bond issue on the local market. These funds were used for optimizing the debt payment profile, from short- to long-term, and to finance projects already being executed and expansion projects for 2020 and 2021.

Consolidated Profit and Loss Statement

Amid the volatility and uncertainty in 2020, Promigas and its affiliated companies focused their efforts on analyzing the most critical variables and mitigating their impact, which enabled Operating Income to grow by 6 per cent. This is mainly explained by the following:

Transportation companies:

Promigas: Higher volumes transported in the first quarter of 2020 due to increased thermal dispatches from the coast, and a higher Representative Market Exchange Rate (TRM).

SPEC: SPEC: Increased revenue from the regasification service and higher average TRM compared to 2019, which affected the conversion of results in dollars to pesos.

Gas Distribution Companies:
Gases de Occidente: Growth in gas business due to higher average residential sector consumption and tariff increase, as well as new customers and sales to Termovalle.

Gases del Pacífico: Volumes 84 per cent up, boosted by the industrial segment, which includes the fishing sector.

Gases del Norte del Perú: The Enel pipeline rental agreement commenced on August 1, 2020 (in 2019 there was no revenue).

Electricity Distribution Companies:
CEO: In December 2019, CREG approved the distribution charge update.

The fall in Construction Revenue (and Cost) at companies in Colombia was the result of lower investments being made in 2020, mainly due to the rescheduling of these because of the health and economic emergency but also because bigger investments were made in 2019 in order to complete the Promigas 100 MPCD expansion project. Meanwhile, construction revenue at companies abroad increased in 2020 due to the obligatory application of IFRS 15 at our concessions in Peru, which resulted in a net revenue causation of COP 242,969 million at Gases del Pacífico (2018-2020) and COP 32,922 million at GASNORP (2020) as profit margin on the construction activity. This revenue did not generate any cash movements at the said companies.

Costs and Expenses increased as a result of regulatory commitments relating to the introduction of the new tariff at CEO, the effect of the higher Representative Market Exchange Rate (TRM) on costs at Gases del Pacífico, and the recording of operating expenses at Gases del Norte del Perú for 2020. However, because of the situation that arose due to the health emergency, these increases were largely offset by the corporate ‘Responsible Austerity Grade III’ program and, without sacrificing the customary quality and safety standards in all our operations, relevant savings of more than COP 70,000 million were made at corporate level, mainly relating to labor expenses, traveling, advisory services and fees, services, publicity and events, as well as by transferring non-priority operating activities and maintenance activities at administrative centers and stations to 2021.

The increase in Depreciation, Amortization and Provisions relates to recording the higher portfolio deterioration resulting from the lockdown imposed by the government because of COVID-19 at companies such as Gases de Occidente, Surtigas, Gases del Pacífico, Cálidda and CEO.

Financial Assets revenue increased at Promigas, Transmetano, Promioriente, GdO and Surtigas because of the annual adjustment of macroeconomic and operating variables.

Other Revenue increased because of the higher Cash and Investments balance in 2020 and the recording of interest on loans made to companies linked to Promigas.

Other Expenses also increased because of the higher debt balance in 2020 at Promigas and Quavii due to the aforementioned joint bond issue in dollars.

Income Tax increased at Promigas due to the lower 40 per cent tax benefit under the legal stability contract, since fewer investments were made because of the lockdown. On the other hand, higher taxes were recorded at Quavii and Gases del Norte del Perú, since revenue was up in 2020.

Financial information disclosure and control systems

Promigas implemented internal controls and procedures for administering business risks, preserving the effectiveness and efficiency of operations, and ensuring reliability and opportunity in the information we present to our interest groups.

We continually verify and evaluate internal performance and effectiveness with respect to financial reports. These evaluations include analyzing the design and effectiveness of controls which mitigate risks associated with the generation of financial information, and they are also orientated toward guaranteeing the integrity of such information.

The monitoring methods we have established in our internal control system guarantee, in a reasonable manner, that no deficiencies occurred in these controls during 2020 that could have impeded the adequate registering, processing, summarizing and presenting of our financial information. Similarly, we have not been aware of any fraud, willful errors or manipulations that might have affected the quality of this information.

​WE GROW IN A PROFITABLE AND SUSTAINABLE MANNER

WE GROW IN TERMS OF PROFIT AND RETURN FOR OUR SHAREHOLDERS​

ECONOMIC PERFORMANCE ​

​STRATEGIC TRANSPORTATION BUSINESS GROUP