March 2021 – @alvaroriosroca – We agree with the sentiment in the region to keep state-owned energy companies and the decision to do so is a sovereign decision of each country. However, if it is decided to keep them, it is so that they become solid long-term strategic pillars. To this end, it is essential to shield them from the political power of the day.
History repeats itself and a large number of governments over the years have used these companies as: 1) a source of employment for political cronies and relatives, 2) to make them subsidize and win votes through populism, 3) to force them to invest in unprofitable or unprofitable and visible projects for electoral purposes; 4) corruption and a source of revenue to maintain the political machinery of the government in power; 5) etc., etc., etc.
The above makes them uncompetitive, leaving them without corporate governance, without management, without technology and with poor results. The State’s coffers must then come to their rescue and/or they must be privatized, most of the time at the price of a dead chicken. Petrobras is on this path, privatizing many assets and PDVSA is already doing it under the table. We do not want this to happen. Institutionalizing them and shielding them from political power is the path we demand.
Shielding them and allowing them to act in a corporate, competitive and independent manner brings a high value for the countries. 1) They can compete and break price and market control agreements that are sometimes agreed upon by the private sector. 2) They can support very fragile Ministries of Energy in their decisions, 3) They can participate (alone or associated) in strategic and profitable projects where the private sector does not wish to participate, 4) They can generate profits that stay in the countries, 5) They can associate, diversify and internationalize, and much more.
How can they be shielded? The boards of directors should be composed of state and independent members. Better results are observed when independents are in the majority on the board of directors. This board should choose the president of the company from a list of three candidates suggested by a human resources company with clearly established requirements. This gives it a corporate governance that does not necessarily respond to the designs and whims of the political power of the day.
They should not have social characteristics (make them subsidize) and their contribution to the State should be through the payment of dividends and taxes. They should not ask permission from the governments in power to buy, sell, associate and/or invest in businesses they consider profitable. Listing on the stock exchanges is a shield. These are tasks of the president, his board of directors and management team and not of the political power of the day.
As far as possible, they should be freed from the State in terms of contracting and procurement processes, mergers or associations so that they become competitive and dynamic. They should be allowed to remunerate the salaries of their executive, managerial and professional staff according to their objectives (meritocracy).
Colombia’s state-owned energy companies meet many of these objectives and the results are there for all to see. Interconexión Eléctrica SA (ISA) is a highly successful and competitive mixed capital electric company with operations and partnerships in Colombia, Panama, Peru, Chile, Brazil, Argentina and Bolivia. It is publicly traded and has a variety of subsidiaries in other industries and technology companies (ICT’s). Its profits rose 25.7% in 2020 reaching 571 MMUSD.
Ecopetrol has presence in Colombia, USA (shale), Brazil and Mexico. It is listed on the stock exchange and shares ventures with many companies. In 2020 it obtained profits of 473 MMUS when state-owned and private oil companies report meager or negative results.
Ecopetrol, ISA and also EPM, Energia de Bogota, are companies managed with efficiency, meritocracy, competitiveness and far away from political management. It is worthwhile to analyze and take their example.
- Current Managing Partner of Gas Energy Latin America and former Minister of Hydrocarbons of Bolivia.