Country Studies

Colombia Report

Summary

TABLE OF CONTENTS

1. The Colombian Energy Sector
2. MDB investments in the Energy Sector
3. Main Conclusions

1. The Colombian Energy Sector

Colombia is a country with vast energy resources, as seen in table 1. Additionally, in the 1990s it has been firming up its position as an energy exporter.

TABLE 1. POTENCIAL ENERGY RESOURCES IN COLOMBIA

SOURCE: MinMinas

The main characteristics of the Colombian energy system are as follows:

The energy sector has played a fundamental role in the country’s economy. Between 1980 and 1990, the sector’s share in GDP rose from 3% to close to 5.7%, due to an 11% increase in production, especially of coal and petroleum, and energy-related mineral exports increased their share in total exports four-fold, going from 8% in 1980 to nearly 45% in 1990.

In primary energy resource production the largest share pertains to petroleum (47.58%), followed by coal (29.45%). Both resources are basically exported, at a rate of 51% of total production in the case of petroleum and 82% in the case of coal. They have represented the largest source of foreign exchange for the country in recent years.

In terms of domestic supply of primary energy resources, petroleum has the largest share (45.6%), followed by natural gas (13.62%), wood (13.12%) and water energy (10.47%). The supply of fuel is thus mostly based on non-renewable resources.

The share of wood is fairly high, and is even comparable to that of natural gas . In terms of weight, the material used in 1996 totaled 12033.6 KTON. Use is inefficient and it is estimated that losses during consumption total 10424.6 KTON.

The structure of secondary fuel production is as follows: gasoline has a share of 24.1%, electrical energy 19.42% and Diesel Oil 17.2%. Except for Fuel Oil, secondary fuels are used basically for domestic consumption.

Among secondary fuels, the greatest share in domestic supply corresponds to motor gasoline (47.58%), followed by electrical energy (18.0%) and Diesel Oil (17.8%).

Imports of motor gasoline are fundamental for the country’s supply. In 1996, 18.41% of the gasoline used was imported, and represented 90.17% of energy imports in 1996. That is to say, despite the country’s being a petroleum exporter, its refining capacity is not sufficient to guarantee self-supply of gasoline.

The natural gas market is developing under the Plan for Mass Use of Natural Gas. Demand efforts have concentrated on steam generation of electricity and on residential usage for cooking and water heating.

Privatization of all subsectors and increased competition at most stages, especially in generation of electricity.

The Colombian electricity system is based on waterpower (79.08%) followed by steam generation (16.51%) and self-production (4.41%).

Electricity consumption is inefficient, basically in the residential sector, where 30.6% is used for cooking and 15.6% for water heating.

Measures to achieve rational energy use have not been very successful. At present, the electricity system shows a high level of losses (21%) in distribution and consumption (35%). In addition there is a potential for co-generation that has been estimated as 420 MW of capacity to be installed.

The government has replaced its traditional role as conductor of business, with that of planner, regulator and oversight authority for the energy system. Thus it has restructured institutionally, creating new units and eliminating others, although it is still in a transition period.

Instability in the rules of the game, particularly at tax level, which has curbed foreign investment.

Participation of private sector in subsectors, but concentrating on gas, petroleum, electricity.

Level of poverty, rates and coverage.

Financing of projects in the 1960s, ‘70s and ‘80s, depending on the Government budget and on multilateral bank loans. Current indebtedness implies that the World Bank is the country’s chief creditor.

Financing of projects in 1990 centered on credits with Financiera Energética Nacional, private banks and the capital market.

Deficient rate policies in the energy sector, based primarily on political criteria, with economic criteria being secondary. At present the traditional system of subsidies is being dismantled.

Deficient coverage, particularly in rural areas and areas with higher poverty levels.

Serious environmental and social impacts linked to energy projects, especially to construction of hydroelectric plants and with petroleum sector activities.

Great alternative energy potential, which has not been explored and exploited except occasionally, basically in the case of solar water heaters. Deficient policies to foster use.

Following we list the characteristics of each of the subsectors constituting the Colombian energy system.

HYDROCARBONS

Exploration and exploitation: of the reserves existing in the country, 20% belong to ECOPETROL, 79% to associations and 1% to concessions.

Transport: at the end of 1993 there were 5.371 Km. of oil pipelines, with diameters between 4 and 24 inches. Of this total, 2231 Km. belonged to Ecopetrol, 811 Km. to the associations and 2329 Km. to private companies. There are also 2470 Km. of multi-use pipelines.

Refining : ECOPETROL (323 KB per day)

Distribution : Private companies and small government participation through TERPEL

NATURAL GAS

Proven reserves 220.8 Gm³ and probable additional estimated reserves of 96.9 Gm³ (at 1996)

Production : 9360.5 Mm³ in 1996 through association agreements with ECOPETROL.

Transport : ECOPETROL as only wholesale distributor.

Distribution : 100 municipalities covered, with 1130525 facilities nationwide, managed by private and mixed government-private companies, which distribute in areas awarded exclusively for providing the service.

ELECTRICITY

Generation : 1996 nominal installed capacity was 11044.9 MW and effective was 10600.5 MV. Privatization as a clear trend.

Transmission: 100% of the 500 kV lines and 72% of 230kV lines are in the hands of ISA, a government-owned company.

Distribution : public and with difficulties for privatization due to financial, technical and administrative weakness of the majority of the distributing companies. Private sector participation has focused above all on subcontracting of certain activities.

COAL

Metallurgical coal: mined by small or medium private companies, by tunnel mining. For domestic consumption.

Heating coal: open-air mining by large and medium companies. A large percentage of the coal mined is exported.

Domestic transport: on trucks or barges.

 

2. MDB investments in the Energy Sector

Over the last 50 years the MDBs have had projects in Colombia. As can be seen in tables 2 and 3, the energy sector has been attracting a large portion of those resources. Close to 40% of the total amount requested has been allocated to projects in this sector, but with a marked trend toward concentrating those loans in the electricity subsector. This is reflected in its importance and incidence in the country’s foreign debt. In the case of coal there are only two loans, one of which also benefits mining for extraction, transportation and use of other minerals, while in the petroleum and gas sector their action has been almost nil.

TABLE 2. COLOMBIA - DISTRIBUTION OF IDB LOANS 1961-1995 (in thousands of dollars)

TABLE 3. COLOMBIA -AMOUNTS APPROVED BY IBRD 1949-1997 ENERGY SECTOR

Current MDB loan trends are as follows:

Public sector loans have moved from loans for projects to loans affecting the entire sector, geared primarily to institutional restructuring

Increase in loans to private investors, especially in the gas subsector and in steam generated power, through IFC (World Bank group) or directly with the IDB

Absence of projects related to development and use of alternative energy. Only the Rational Energy Use project includes a feasibility study for construction of a geothermal energy plant, through a nonreimbursable credit

Decrease in electricity sector loans, but not marked

The following private sector projects were identified

TermoValle I with IDB financing (US$ 32 million)

Promigas three-year expansion plan with IFC financing

 

Similarly, table 4 shows the projects currently underway in the public sector.

TABLE 4. MDB LOANS

3. Main Conclusions

The MDBs are concerned with the economic-financial sustainability of the energy sector and believe that the way to ensure such sustainability is by attracting private capital to press for economic gains. This position extends to the Colombian government, leaving generation and distribution to private agents.

Privatization is being undertaken in a such a way that the government continues to lose out in the process. The appropriateness of privatization must be verified in each case, which is not what is happening at present, judging by the results of this process. It is important to remember that privatization is a tool and not an objective in and of itself.

Private investment has fostered two phenomena: steam power projects with a short-term view and centralization of service, leaving the outermost areas without coverage. This may be contrary to environmental sustainability policies, since it derives from the short-term perspective of investors. Neither the government or the MDBs have clear solutions for these trends ensuing from privatization.

Environmental sustainability is secondary and is focused on emission of particles and gases into the atmosphere, forgetting that in the Colombian case the environmental problem deriving from energy sector activities is much broader and generally more serious in terms of the social aspects.

The attitude of both the government and the MDBs vis-à-vis the environmental aspects is highly SANITARY but not very environmental. That is to say, pollution control technologies are seen as the solution, but in reality what is needed are strategies covering economic, social, political and technical aspects.Truly committed action toward decreasing the environmental and social impacts of energy projects requires efforts on the supply side (energy sources) and on the demand side (rational use of energy, energy efficiency). There are also actions at the technical, cultural and social levels. Only if this is taken into account can we hope to find a viable and sustainable solution.

The rate structure in Colombia is deficient. As a result, the MDBs have pressured for elimination of subsidies. The government has maintained a different position due to the political consequences such a decision would imply. Restructuring is important, with a reorganization in the distribution of fuel subsidies.

Despite the planning developments, it is clear that the economic sustainability of each project does not guarantee the sustainability of each subsector, much less of the entire energy sector.

A lack of effectiveness was found in programs for rational use of energy and energy efficiency.

LPG and, more so, NG have been taking on an increasingly important role. Both the government and the MDBs focus their environmental polices and efficient energy use on these fuels, leaving aside the fact that the two are nonrenewable sources and can only be considered as transitional sources.

The strategies delineated to decrease wood consumption, both at government and bank level, leave aside the social factors linked to the use of this fuel, such as its nonexistent monetary cost, its availability and its renewability. It is important to strengthen strategies such as energy tree plantations and the conversion of wood-burning stoves to increase efficiency during use.

The bank obviously gives loans to megaprojects. But it is not clear whether there are ways to access credits related to aiding grassroots energy development projects (local actions). This is important since the national projects generally do not set a priority for providing service to small communities, but instead focus on large consumer centers and populations having greater payment capacity. Thus there is a big gap at the local level. It is only at local level that things like coverage and service quality can be resolved, while it is very difficult to make the right decisions for the country at national level.

There are no incentives geared to use of renewable energy, either on the part of banks or of the Colombian government.

 

Generally the local level is not seen as a generator of solutions. It is clear that the communities are the ones most familiar with their own problems. Community participation and organization processes must be synergized. To do so it is important to clarify the mechanisms for disbursement of resources deriving from royalties, or from MDB loans, for self-management of projects by the communities.

 

Taking this into account the following subjects should be dealt with in further depth in the Colombian case:

Alternative sources of energy potential

Energy efficiency potential

Rural energy policy

Share of energy in the Colombian family basket and influence of rate policy on same

Potential for community self-managed energy projects

Main environmental problems deriving from energy projects, with development of an agenda including areas to be resolved

Ethics and sustainability of the Colombian energy sector

Spaces for community participation in energy sector decision-making, existing and to be created

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The Multilateral Development Banks Energy Project
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