Pay so as not to turn off Colombia: the crisis in the electric power sector – Sectors – Economy

As with other sectors of the economy, Electricity has a supply chain where trading companies sell energy to Colombiansafter previously buying from the generators, paying the ‘tolls’ to the transporters (transmitters and distributors), billing the users and temporarily assigning the subsidies to those who benefit from them, assuming portfolio risks and commercial losses, among others.

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Thus, to face the burdens and responsibilities assigned to them by law and regulation, they must have substantial capital. In short, the resellers are the face of the service and, if the income from the sale of electricity is insufficient (half or a third) to cover the costs, finance the subsidies and settle other processes, they can go bankrupt. Today that risk is latent.

Why this situation of the commercialization of electrical energy in Colombia? There are several reasons.

Unlike any product, Electricity is an essential public service, and the State must guarantee its access and continuityfor which there are different instruments.

(Also read: How the El Niño phenomenon influences the increase in energy rates).

The country has about 16 million users of electricity, and 75 percent (that is, 12 million) belong to strata 1, 2, and 3., to which the payment of a part of their bill is subsidized. Marketers are the vehicle between the State and users to channel said aid and receive the contributions paid by users of strata 5, 6 and commercial to participate with their financing.

As these are not enough to cover all the subsidies, the deficit is temporarily assumed by the marketers of their own capitalwhile the Government pays them (they usually realize lags of 4 or 5 months past due and even more on some occasions) with resources from the General Budget of the Nation (PGN).

By 2023, notwithstanding the item approved in the PGN, there is still a deficit of 2.3 trillion pesosamount that should be included in the budget addition project to avoid significant impacts on the most vulnerable users in the country.

In addition to these State aids, in 2020, the Energy and Gas Regulation Commission (Creg), the sector’s supervisory body, issued the so-called ‘tariff option’, a rule that consists of not transferring the real costs of the service in the moment caused but in a later period, gradually, and thus soften immediate and abrupt increases in rates in order to temporarily alleviate the impacts on users.

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In practice, it is a price precision fund, like the one for gasoline, but with the big difference that this is not in charge of the State, but of the marketing companies.

In the past, this price precision fund operated smoothly, but in recent years, various events such as the covid-19 pandemic -when electricity rates in Colombia were frozen for about 9 months-, some regulatory adjustments, a global inflation and more recently the Pact for Tariff Justice, have resulted in the difference between costs and income from the sale of energy at a price lower than the real is so great that the traders have a significant liquidity problem.

The accounts do not give and, in fact, several companies can enter a state of inviability and financial insolvencywhich leaves us with a systemic risk for the sector, which calls into question the continuity and quality of the service for all Colombians.

Regarding the measures implemented, there is relief in the rates: from last September to May, the rate option and the Agreement for Rate Justice helped the average costs for users for each kilowatt consumed by companies affiliated with the Association Colombiana de Distribuidores de Energía Eléctrica (Asocodis), which serve 99 percent of users in Colombia, have increased by 5.1 percent, much lower than the CPI, which in the same period was 8.8 percent.

This, however, has represented an enormous cost for the marketerswhich until last April accumulated balances to be recovered by tariff option (4.6 trillion pesos) and by subsidies delivered to users, together with debts of official users and public lighting: a sum close to 6 trillion pesos that could increase by the end of the year to close to 10 trillion.

Because? Due to the El Niño phenomenon and, with it, increases in the prices of the energy market, which is where marketers go to buy part of the energy that supplies the consumption of Colombians.

Given that the trading companies financially support the entire service provision chain, the balances of 6 trillion pesos (or 10 trillion) to be recovered are gigantic when compared to their annual income for carrying out their task, close to 3 trillion pesos.

That is, the balances to be recovered are equivalent to between 2 and 3 years of income, depending on the month in which the situation is analyzed.. Given this scenario, can the marketers that serve Colombians be viable when they are owed what they would receive in income for 2 and 3 years?

Companies advocate for efficient and competitive rates and defend users, as is their raison d’être. But once the rates must allow a balance between this efficiency and the guarantee in the future provision of the servicecontributing to increase coverage and improve the quality of service, among others.

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And that is only possible with sustainable and efficient companies, whether public, private or mixed. In this way, we will move firmly towards a just energy transition that benefits the whole of society.

Structural solutions are urgently needed, based on the studies and the proposed and recommended proposals, so that they can recognize and pay the companies what is owed and avoid a ‘not paying turns off Colombia or, in other words, ‘paying does not turn off’ the country.

JOSE CAMILO MANZUR