XM and ECP: a controversy

The ‘deal of the year’ continues to generate discussion. This time, the topic is XM’s role in Ecopetrol’s (NYSE: EC) plans.

Companies in the electricity market are expectant about XM’s role under ECP’s leadership, Portafolio reported.

Concerns have to do with the future of this sector, especially regarding the integration of regulated and non-regulated activities of a conglomerate such as Ecopetrol, which will be in charge of a large part of the power transmission business, and which simultaneously has more than 85% of the natural gas supply for thermal generation plants.

Acolgen, Andeg, Asocodis and Asoenergía recommended that XM be divested so there is balance in the market for all agents.

The associations said that maintaining Corporate Governance is not a sufficient measure to ensure the management of eventual conflicts of interest.

“XM will have conflicts of interest in issues such as resource information management in the energy chain and the natural gas sector,” they said.

The associations said that the spin-off of XM as the electricity system operator is key to guarantee independence and neutrality for the market and demand, in the management of accounts, use of resources and information between XM, ISA, Ecopetrol or any investor.

“It is evident the problems of keeping the Electricity Market Operator as part of the largest energy group in the country, competitor in several activities of the sector, main supplier of natural gas for thermal generation agents, the largest non-regulated user in the country, and owner of a good part of the transmission network, among others,” analyst Alejandro Lucio said.

ECP representatives reminded that the oil company is only a self-generator of energy, which means that the power generated is for its internal consumption.

“Ecopetrol is clear that it is only a self-generator, not a generator, meaning that its solar parks and any wind farms it may have in the future will be to cover its electricity needs in fields, refineries and other assets in Colombia,” they said.

Bottom-Line: The Colombian State specializes in conflicts of interest, especially when the national treasury is the beneficiary. There is a low probability of anything changing in either the short or medium term.

ECP is a self-generator at present, and current regulation prevents anything different, but the company has shown its intention to bet on renewable energies in the energy transition, which could turn it into an important generator in the medium and long term.

Colombian authorities should work on this issue, as concerns are starting to grow in the energy sector.