Economic Performance
In the search for financial excellence, through a sustainable growth model that adds value not only for our shareholders but also to all stakeholders and for building society, our aim is to ensure fulfillment of our strategic objectives, taking into consideration the economic and regulatory context of each sector or market where we operate.
Our management focuses on improving profitability and growth, maintaining a solid financial position and liquidity, achieving efficiency and legal and regulatory visibility in order to provide our investors attractive and sustainable returns and to become leaders in infrastructure and gas transportation, as well as in the distribution and commercialization of gas and electric power in Colombia and Latin America.
During 2021, we experienced an increase in revenues as a result of the reactivation of the economy, which drove the revenues of gas and electric power transportation, distribution and commercialization and loan placements of Brilla (NBF); an increase of the contracted capacity of Promigas with the initiation of the contract with Canacol for 100 MMSCFD starting on December 1, 2020, and a 16 % devaluation of the Colombian peso,
which had a positive effect on transportation revenues, whose rates are tied to the dollar.
We are aware that fulfillment of the budget in accordance with regulatory changes is a key factor for the continuous growth of our economic performance, taking into consideration the changes in the regulatory methods for setting gas transportation rates and the rates applied for the regulatory useful life at each transporter.
Through the creation of new businesses and the continuous improvement of existing ones, Promigas ensures sustainable economic growth, and with our positive performance we demonstrate our capacity to continue consolidating our operations.
Transportation Strategic Business Group
Transportation SBG
We maintained the reliable and safe operation of our natural gas transportation, despite the challenges posed by the climate situation, the health emergency and public order issues.
At the corporate level, our service continuity remained at 100%
Promigas
Despite a slight recovery in consumption following the pandemic, overall volumes decreased due to higher rainfall in the coastal region, which produced a decrease in the market share of thermal power generators.
The volume transported by Promigas during 2021 totaled 328,3 MMSCFD to 5% reduction compared to transported volume in 2020.
The reduction is mainly due to the high water levels at reservoirs in Colombia, which increased production by hydroelectric power plants, and a consequent 18% reduction in gas consumption by thermal power plants.
Transported volumes for industry displayed a recovery of consumption in 2021 compared to 2020, following recovery from the effects of the health emergency and mandatory preventive lock-downs, as well as the stabilization of consumption at Refinería de Cartagena.
The other transportation companies achieved a 2% increase in transported volumes compared to 2020.
This increase was achieved despite a major emergency that took place in early August at the Gibraltar-Bucaramanga gas pipeline of Promioriente, one of the largest emergencies of the last two years. This emergency produced the interruption of the gas transportation service starting in early August. Service was reestablished on December 15, following repairs and the design and construction of a provisional bypass.
To ensure the sustainable and profitable economic growth of each of the affiliates that belong to the transportation business, several activities were carried out during 2021 that contributed to the outstanding consolidated economic performance of Promigas, always with the aim of continuously improving such performance. The following are some highlights at the affiliates: :
Transmetano
Progress in execution of the Vinus project developed jointly with the company that owns the highway concession in the area, aimed at resolving any interference of the highway infrastructure mega-projects (4G highways) with the gas pipeline section.
In a sample of 192 companies, including 26 companies representing the sector, it achieved the highest rating in terms of best workplace environment practices.
Transoccidente
Performance of the Meléndez contract focused on meeting the established indicators.
Promioriente
Construction of a temporary bypass that enabled the recovery of the operation.
Negotiations with Ecopetrol for new firm capacity contracts.
Liquefied Natural Gas (LNG)
SPEC LNG
In 2021, the SPEC LNG terminal was available for providing storage and regasification services 100% of the time, which provides backing for customers and for the reliability of the country’s energy network. Regasified volume decreased substantially compared to 2020 due to high water volumes for hydroelectric generation, which affected spot energy prices, and consequently regasification volumes.
However, the Company’s budget was exceeded by 125%, thanks to the identification of potential cost and expense savings and better coordination and optimization of scheduled maintenance executed by FSRU Hoegh Grace and the use of on-board tanks, which helps reduce the amount of boil-off gas.
Integrated Solutions for Industry Promisol
Promisol offers integrated solutions for industry and provides design, construction, operation and maintenance services.
It also has energy generation capacity of 47.2 MW of electrical and 73.2 MW of thermal energy.
In 2021, at Promisol:
Construction of the Promigas Zona Bananera gas pipeline began, involving 52 km of 10” pipes, of which 33 km, were built. Completion is expected in 2022.
A Horizontally Directed Drilling (HDD) unit was acquired, based on which a new business line was launched with the latest technology to meet construction technical specifications.
It reached agreements to satisfaction for US$ 7,9 millon with Ecopetrol to settle the contract for the gas compression at the Ballena station, and with Montecz to settle pending construction contracts.
Its Bonga-Mamey plant was available: 97.4% (contractual minimum 95%). Gas treated and delivered to the Promigas transportation system: 33,59
MMSCFD.
It performed 5.702 work orders for maintenance on Promigas gas pipelines, with 98,2% effectiveness.
Power generation during the year totaled
268,7 GWh/year with accumulated plant availability of
96,3%
Distribution Strategic Business Group
Distribution SBG
Jointly with our related companies, we work on fulfilling the commitment of maintaining sustainable growth, for achieving greater coverage in our areas of influence, and providing high-quality service.
The distributors in Colombia connected 136.528 customers, y
and benefit with the natural gas service a total of 3,97 million users in 890 districts in the country.
Promigas has also consolidated a substantial market share of the natural gas sector in Peru, where in 2021 it connected 304.214 new users, for an overall total of 1,4 million families.
Additionally, Promigas provides electric power service to 423.633 users in the department of Cauca through CEO.
Overall, through our companies we serve 5,9 millons customersdistributed in 949 districts in Colombia and Peru.
During 2021, the reactivation of demand for natural gas in Colombia and Peru continued, reaching sales of close to 12 billion,3 up 10% compared to 2020. Of this total, 67% of sales were in Peru and 33% in Colombia. Demand for electric power in the department of Cauca was above 1,000 GWh, a 1% change compared to 2020, which reflects a reduction of losses at CEO and the stabilization of demand.
To ensure sustainable and profitable economic growth at each affiliate belonging to the Distribution Business, a series of activities were carried out during the year:
We worked actively on the
optimization of the businesses, the growth of Brilla and the consolidation of the Energy Services unit, to move forward in the implementation of the defined strategy.
A digital transformation was initiated to optimize business processes,
searching for synergies and efficiencies, to enable our timely reaction to our customers’ needs.
In 2021, the portfolio of major customers was broadened, several solar parks were launched, with 11.415 MWh in operation and 6.096 MWp under construction at year-end.
One of the solutions implemented to adapt to the payment capacity of customers and obtain better information on consumption behavior was advanced measurement of 1.300 users with prepaid
services and
7,000
with smart services, for an overall total of 40.295 customers.
At Brilla, a new sales portal was launched that enables access to credit without the need for physical documents. Critical digital and credit risk capabilities were strengthened, and strategies were deployed to achieve greater depth of users, and a new corporate relations model was defined, among others. The loan portfolio increased by 35% by year-end.
On the regulatory front, ongoing efforts were made in the process of updating distribution rates, which will generate COP 57,300 millions in overall additional
revenues over the five-year rate period for GdO, Surtigas, Efigas and Gases de La Guajira. The rate-setting process began with the submission of documentation in September 2020, at which time the administrative proceedings were initiated, and to date close to 10 requests for information have been addressed.
The activities performed during 2021 produced the following achievements aimed at improving the economic performance of Promigas and its affiliates:We demonstrated that we had the resilience and capacity to continuously provide our services despite the health emergency and the national protests, which especially affected the southwest region of Colombia.FITCH confirmed its credit rating at AAA with stable outlook for GdO and Surtigas, and CEO was rated for the first time, at AAA.
Early stage start-up of Piura was achieved, to the benefit of 3.684 users at year-end 2021.
Optimization of the corporate management model by consolidating Promigas Perú: three companies with centralized management and a unified strategy.
A new identify and structure was defined for the Brilla business. The results of the implementation of the business model in Peru exceeded expectations. Additionally, as part of the implementation of the strategy, initiatives were deployed that enabled early capturing of value by deepening users and increasing their profitability.
Electric Power Distribution CEO
Brilla
During the year, the defined growth strategy was implemented at Brilla, as part of the corporate strategic planning of Promigas. In order to reach its maximum business potential, Brilla focused on reinventing itself under a digital model; accelerating the development of critical capabilities related to credit risk; implementing a new operating model, and strengthening of the corporate relations model. These growth drivers will enable a more competitive business that fulfills the needs of the current market.
2021 was a year marked by the country’s economic reactivation and by major challenges faced for the recovery of the business following 2020, a year impacted by the pandemic. Through the deployment of several strategies to capture value, a total figure of loan placements of
COP 961,491 million was achieved, of which 95% was for people from socioeconomic levels 1, 2 and 3, which reflects growth of 113% compared to 2020, and the number of beneficiaries increased by 12%, contributing to the progress of over 4.1 million users since the program was first launched.
Corporate economic and financial performance Financial statements
Promigas maintained its resilience and commitment, with the support of the recovery of the economy and energy supplies in Colombia and Peru, amidst a year marked by uncertainty and the breakout of new COVID-19 variants. By playing a leading role through our regasification, natural gas transportation and distribution and electric power infrastructures, we obtained outstanding results that were above budget.
The following are the main figures of the 2021 Balance Sheet and Income Statement, compared to 2020:
Total Assets increased by 11% mainly due to the 21 % increase in the Other Assets item.
This was due to better results from related companies through the equity method, mainly at the distributors, driven by the end of the lock-down towards the end of 2020 and the normalization of industrial activities during 2021.
The year also reflects the mandatory application of IFRS 15 (Revenues from Contracts with Customers) for performance of the concession contracts between Gases del Pacífico and Gases del Norte del Perú, concession-holder affiliates of Promigas, and the Peruvian government as grantor, which led to the recognition of a margin associated with the construction activities performed; and the capitalization of the companies Gases del Pacífico for
USD 16 million, Gases del Norte del Perú for
USD 33 million and Promigas Perú for
USD 5 million; all the above in the framework of the investment plan for the mass use of natural gas in Peru.
The financial asset arising from application of the accounting provisions of IFRIC 12, regarding the transportation and distribution concessions, reflects a change arising from the periodic updating of operating and macroeconomic figures. Additionally, an adjustment was made to the weighted average cost of capital (WACC) used to discount the fair value of the gas pipeline at the end of the concession.
The increase in Concession assets was due to performance of important projects that assure the reliability of the gas transportation service, which include: the Zona Bananera gas pipeline, rehabilitation of lines 20A and 20E, 20” Paiva-Caracolí gas pipeline, San Mateo-Mamonal loop, HCA Riohacha Bypass, Bonda Palermo Bypass, upgrade to the Caracolí compressor, and the Sincelejo solution, among others.
Total liabilities increased by 7% as a result of the 16% currency devaluation during the year, which affected long-term debt in the amount of USD 240 million, related to two bond issues, one in 2019 for USD 210 million, and another in 2020 for USD 30 million. The increase due to currency exchange fluctuations is naturally hedged through investments made abroad, which are also carried under assets in terms of US dollars. The increase in current liabilities arises from the transfer from long-term to short-term of 2015 bond series that come due in March 2022.
Equity increased by 16% as a result of the profits reported by the Company in 2021.Income statement
Aware of the direct and indirect impact of the global health situation on our customers’ activities, we will continue to develop programs to support them and to facilitate their soon return to normality. In 2021, operating revenues increased by 9% compared to the previous year, thanks to the normalization of industrial activities during the year following the health emergency that took place in 2020, and the behavior of the exchange rate.
During 2021, the Colombian currency devalued by 16%, which had a positive impact on transportation revenues, given that the rates of Promigas are denominated in dollars.
The affiliates’ results produced a 21% increase through the equity method, as a result of the growth reported at Cálidda, arising from better results of the distribution business, higher volumes invoiced in the industrial and power generation segments, and at Gases del Caribe thanks to better results of the NBF and commercialization business.
Income by the equity method of the controlled companies remained constant compared to the previous year. Even though significant increases were reported by Gases del Norte del Perú, thanks to progress in the investment plan and its consequent IFRS 15 margin, as well as at Surtigas, GDO, CEO, Transmetano and Promisol, these were offset by the results of Gases del Pacífico, Promioriente and SPEC: Gases del Pacífico, due to the implementation in 2020 of IFRS 15, generated a retroactive profit associated with its intense construction activities in previous years; Promioriente, due to lower revenues from the emergency that occurred at the Gibraltar-Chitagá section on the Gibraltar-Bucaramanga gas pipeline, which affected service from August 3 to December 15; and at SPEC due to lower gasification revenues.
Construction revenues decreased due to lower investment in 2021 compared to 2020, when the expansion project for 100 MMSCFD was completed and major progress was made in the HCA Riohacha Bypass Project. On the other hand, performance of projects planned for 2021 was affected by rescheduling due to the health and economic emergency, as a result of which many projects were put off to later years, without compromising service integrity or continuity, such as: Ciénaga Bypass, Bonda-Tasajera Bypass, HCA Luruaco Bypass, and Repelón branch. The main highlights during 2021 include construction of the Zona Bananera gas pipeline and the continuation of projects from the previous year, such as: Canacol gas pipeline, HCA Riohacha Bypass, Rehabilitation of 20A and 20E and Mamonal-Paiva gas pipeline, among others. According to IFRS 15, investments related to construction of concessions are recognized as revenue, in this case reflecting the same amount as its associated cost, because the nature of this concession is different from the concessions we operate in Peru.
The increase in costs and expenses was a result of the following events that took place: annual wage adjustments; additional training due to normalization of activities at the end of the year; acquisition of vaccines for employees and their families, both at Promigas and its related companies; increase in the number of PCR tests; specialized consulting related to projects to venture into new countries; additional preventive maintenance work on the gas pipelines due to normalization of activities when the lock-downs ended; and an increase in the annual all-risk insurance policy.
The increase in depreciation and amortization arises from the capitalizations made during 2020, such as Jobo-Paiva, Paiva-Mamonal, Jobo-Majaguas, San Mateo Loop, HCA Riohacha Bypass, Paiva compression station, and other smaller ones, as well as the capitalizations made during 2021 of the Zona Bananera gas pipeline, Rehabilitation of lines 20A 20E, 20” Paiva-Caracolí gas pipeline, and additions to the San Mateo-Mamonal Loop and the HCA Riohacha Bypass, among others. Additionally, during the year allowances were made for dismantling and impairment associated with the gas pipeline on the El Doctor-Tucurinca Bridge, and a section of the Jobo-Cartagena gas pipeline, among others.
The income from financial assets, related to the gas pipeline concessions, reflects the respective annual adjustment from updating the macroeconomic variables and the average weighted cost of capital (WACC).
Other revenues increased due to recognition of interest on loans made to related companies, which were disbursed in November 2020 for COP 324 billion, and their monetary adjustments.
The increase in other expenses was due to an increase in financial expenses recognized in 2021 on a higher average debt balance; the 2021 inflation adjustments on the bonds issued in November 2020 tied to UVR, and lower interest capitalizations compared to the previous year. However, it should be noted that the average rate on debt in 2021 is lower than in 2020.
The Income Tax increased due to the lower tax benefit of 40% from the legal stability contract, because less investments were made due to the health emergency (execution of 44 %), which were transferred to future years.
Consolidated financial statements
Promigas and its affiliates maintained their resilience and commitment, with the support of the recovery of the economy and energy supplies in Colombia and Peru, amidst a year marked by uncertainty and the breakout of new COVID-19 variants. By playing a leading role through our regasification, natural gas transportation and distribution and electric power infrastructures, we obtained outstanding results that were above budget.
The following are the consolidated financial results at December 31, 2021, compared to December 31, 2020:
Total Assets increased by 13% due to growth in concession construction, based on the progress made in the investment projects performed at Gases del Norte del Perú and Gases del Pacífico and their corresponding IFRS 15 margins. Other Assets increased at Promigas due to higher income from the equity method and the capitalizations made in Gases del Norte de Perú, Gases del Pacífico and Promigas Perú.
The financial asset arising from application of the accounting provisions of IFRIC 12, regarding the transportation and distribution concessions, reflects a change arising from the periodic updating of operating and macroeconomic figures. Additionally, an adjustment was made to the weighted average cost of capital (WACC) used to discount the fair value of the gas pipeline at the end of the concession.
Total liabilities increased by 12%, mainly in the long-term. This increase was due to the 16 % devaluation rate on the dollar-denominated debt of Promigas for USD 240 million, and the consolidated debt of Peru. At Gases del Norte de Perú, the increase in liabilities was due to the financial obligations taken on to finance the investment plan with the aim of starting up commercial operations in 2022 and increase new user penetration. Long-term liabilities increased at Surtigas due to the change in its debt profile, in which new and existing loans were transferred to long-term to finance Brilla, producing an increase of
COP 133,214 million, which is in line with our strategic plan of increasing the potential of the non-bank financing business.
Liabilities at SPEC increased by recording the allowance for Boil-Off Gas according to the amount generated in 2021 (the obligation of replacing gas belonging to the Thermal Group that is lost or that evaporates), and from updating the cost of the allowance on BOG from
USD 4.95/MMBTU to USD 5.21/MMBTU under the Market Index and/or Market Survey methodology applied to natural gas.
Aware of the direct and indirect impact of the global health situation on our customers’ activities, we will continue to develop programs to support them and to facilitate their soon return to normality. The above drove the 8% increase in operating revenues, particularly at the distributors:
Gas Distributors:Gases de Occidente: Increase in gross profit due to better results of the natural gas business as a result of growth in sold volumes.Surtigas:Higher profits in the natural gas business, NBF and materials and services.Gases del Caribe: Better results of the commercialization business and NBF, and lower impairment due to an adjustment in the policies for calculating the allowance on accounts receivable.Calidda: Greater invoice volume in the industrial and power generation segment, and an increase in the number of installations due to the greater number of users connected at year-end 2021.Promigas Perú:Better results thanks to growth in revenues of natural gas consumption due to greater sales volumes.Gases del Norte del Perú:Better results in the concession construction business as a result of higher Capex and improved operating results.
Electric Power Distributors:Occidente:Greater gross profit in the distribution business thanks to an increase in level 1 rates, and lower impairment due to improved collections of accounts receivable, lower exposed balances and exclusion of the COVID-19 parameters.Transporters:Promigas:
Higher revenues from gas transportation due to a higher exchange rate in 2021.Promisol:
Revenues from settlement of the contract between Promisol and Montecz and recognition of the second phase of invoicing with Ecopetrol from settlement of the Venezuela gas contract (USD 4.1 million).Transmetano:
Higher revenues from gas transportation due to a higher exchange rate in 2021.
Slight increase in construction revenue (and cost) due to recognition of concession construction at Gases del Norte de Perú, which was partly offset by the reduction at Gases del Pacífico, where a retroactive item was recognized in 2020 upon implementation of the IFRS 15 standard for prior periods, which consequently produced a reduction in 2021.
Costs and expenses increased as a result of the normalization of economic activities after the lock-down ended, and the performance of activities that were postponed or not carried out in 2020, such as maintenance, travel expenses, services and others. The above is the result of the health emergency and the corporate program named “Responsible Austerity” implemented in 2020 to achieve savings and to counteract the lower revenues. For this reason, AO&M expenses increased at Surtigas, Gases de Occidente and Compañía Energética de Occidente, as well as at the companies in Peru. However, the program mentioned above continued in 2021, and significant savings were achieved compared to the 2021 budget. Promigas also received specialized consulting services related to projects to venture into other countries, in line with our strategic plan.
Depreciation, amortization and provisions increased at Promigas due to the capitalizations made towards the end of 2020 and during 2021, and due to the allowances on impairment, dismantling and abandonment of the El Doctor-Tucurinca gas pipeline, and sections of the Jobo-Cartagena gas pipeline, among others. This increase was offset by lower impairment allowances recognized in 2021 compared to 2020 at Gases del Caribe, Compañía Energética de Occidente and Gases de Occidente, thanks to greater recovery of accounts receivable.
Income from financial assets increased at Promigas, Transmetano, Promioriente, Gases de Occidente, and Surtigas due to the adjustment of macroeconomic and operating variables.
Other Revenues increased due to the settlement of the contract between Promisol and Montecz and recognition of the second phase of invoicing at Ecopetrol for settlement of the Venezuela gas contract (USD 4.1 million), and due to recognition at Promigas of interest on loans made to related companies, which were disbursed in November 2020 for COP 324 billion, and their monetary adjustments.
The income tax increased at Promigas due to the lower tax benefit of 40% from the legal stability contract, because less investments were made due to the health emergency. Deferred taxes at Gases del Norte de Perú increased because it began application of IFRS 15 in December 2020.
Financial Reporting Disclosure and Control Systems
At Promigas, we implement internal controls and procedures to manage business risks, maintain the effectiveness, efficacy and efficiency of the operations, and assure the reliability and timeliness of the information we present to our stakeholders.
We permanently verify and assess the performance and effectiveness of the internal controls on financial reporting.
Such assessments include the analysis of the design and effectiveness of the controls that mitigate the risks associated with the preparation of financial reports, which are additionally aimed at assuring their integrity.
The monitoring mechanisms we have established in our internal control system provide reasonable assurance that during 2021 there were no deficiencies that would have prevented the adequate recognition, processing, summarizing and presentation of the financial reports. Additionally, we have no knowledge of any fraud, misleading statements or manipulation that could have affected the quality of this information.Economic value created and distributed
2021 (millions of Colombian pesos)
