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Bogota 2015 Blog: Court Blocks Colombia from Selling Energy Firm

Sogamoso dam in Colombia. (Image: Colombia's Vice Presidency)

Wednesday, June 10, 2015

On June 1, a Colombian court dealt a blow to the country's Ministry of Finance when it blocked the sale of Isagen, a state-owned power company, arguing that the sale would be against the public interest. The ministry argued in its May 21 plea that such a ruling would be "perverse" and devalue other state-owned shares since it will discourage investors and cause them to look elsewhere. Colombia’s export revenues are down $3 billion so far this year due to lower oil prices, and blocking the sale of Isagen prevents the Colombian government from raising some much-needed funds—more than $2 billion—for infrastructure projects.

Isagen plays a significant role in national power generation, considering Colombia’s focus on hydroelectric power. The firm is focused on power generation, construction, and commercialization of energy solutions, and is connected to the Ministry of Mines and Energy. Currently, the company operates seven power plants in the departments of Antioquia, Tolima, Santander, and Caldas. The composition of their energy source is approximately 90 percent hydroelectric power and 10 percent thermal, with a total installed capacity of 3,032 megawatts. Moreover, potential for further development fits in well with the country’s national development plan, which has a focus on clean energy.

In July 2013, Colombian Minister of Finance Mauricio Cárdenas announced the government was planning on selling 57.6 percent of its stake in Isagen for $2.4 billion, the proceeds of which would be immediately deployed for infrastructure projects. As Cárdenas stated, “The funds are indispensable for the country to make a great leap.” Shares were initially offered to employees, pensioners, and employment funds at around $1 per share; investors stood ready to bid on shares and the outlook was strong.

Following the announcement, civil society groups mobilized to prevent the privatization of Isagen, arguing that the rise in energy prices was due to the privatization. Investors maintained their interest, but the selling was delayed.

Due to mounting pressure, Cárdenas postponed the auction again in August 2014. Shares of Isagen dropped 14 percent and investors started to pull out. The project was taken up again in March of this year, when Isagen announced that the government would sell its controlling stake by May 19, again, for an estimated $2 billion. This was halted when the Council of State court suspended the sale, arguing that the government was selling its stake for too little.

Blocking the sale has implications for the value of other public enterprises but also sends a strong message for investors to avoid Colombia. The sale of the government’s controlling stake in Isagen would be a significant boon for the development of critical infrastructure deficiencies and a boost to Colombia's competitiveness.

Christian Gómez, Jr. is director of energy at Council of the Americas and coordinates the activities of the Council’s Energy Action Group.