© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Cartagena de Indias, October 14&15th The Colombian Power Market Achievements and Challenges Achievements and Challenges

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Contents  The Country  The Reform  The System  The Operation  The Market  Colombian Market Challenges  Regional Market Challenges

© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The Country

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Colombia is a country with large cities, and cultural diversity Population (2003 P)44.5 million Size 1.1 million square kilometers (Aprox. twice the size of France) Cities over a million inhabitants Bogotá, Medellín, Cali, Barranquilla (8 cities over inhabitants) GDP, per capitaUS$ 1,881 Sources: EIA, IGAC, and Statistics and Planning Agencies of Colombia. Economy 7th economy in America and 5th economy in Latin America Gross Domestic Product GDP 82.2 Thousand Million dollars

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Colombia has outstanding figures in the global context l Varieties of orchids (3.500) l Emeralds producer l Amphibious (583 species) l Species of Birds (1815 species) l Flowers exports l Three-dimensional books l Biggest open pit coal mine l Most important gold museum l Largest peace meeting (11 mill.) 1 st l Mulberries l Species of butterflies (14.000) l Agricultural exports to USA 2 nd l Coffee producer l Country in biodiversity l Banana exports l Lingerie exports 3 rd l Water producer, 4500 micro basins and 1200 rivers l Species of mammals (456) l Coal exports l Nickel exports l Palm oil 4 th

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Colombia is a country with abundant natural resources and outstanding personalities Source: l 30% is Amazonic jungle l The only South American country with two oceans l Longest coast over the Caribbean Sea l Second in population in South America l The Sierra Nevada is the tallest coastal mountain (5.775 m) l Nobel Prize Laureate García Márquez, Artist F. Botero, sport stars JP Montoya and S. Botero, NASA scientist R. Llinás, Andrés Jaramillo Scientist, singers Shakira and Juanes,... l Inventions Hakim valve, Iron Gas, babies Passmaker… l Cartagena has been awarded by UNESCO as World Cultural Heritage Some Facts

© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The Reform

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P In 1994 Congress approved aggressive changes that redefined the role of the Government, as well as the industry fundamentals. Policies Regulation Surveillance Non owner July of 1994 Public Services Law Electricity Law BASIC OBJECTIVES Changes in the Government role Reliability Quality Efficient prices Coverage Improve Promote Competence Attract Private Investors

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The reform allowed the electricity sector to adapt to an economy market, according to Global Trends National Interconnection Constitutional Reform El Niño Supply cuts Act SSPP Act Electric Low Reliability State Monopoly Low private investment Non-direct subsidies State as Owner Users paying costs of inefficiency All activities: Monopoly Before Reliable operation Market (competition) High private investment (USD $ 7,000 Million) Direct subsidies to Demand State as Consolidate Regulator and Policy Maker Agents assume inefficiencies Regulated natural monopolies After Market Launch – July 20th El Niño No supply cuts Attacks against national grid Increase in Constraints Decision CAN 536

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P MarketCoordination A comprehensive governance scheme was also completed. Control & Survillance SystemOperation Regulation Planning Policies Ministry of Minning & Energy Minning and Energy Planning Agency National Regulatory Commission of Energy and Gas National Operation Council Utilities Superintendency Advisory Trading CommitteeCAC Presidency Ministries M&E and Treassury DNP Ministry M&E Presidency

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The industry was unblunded into regulated monopolies and activities under competition. DISTRIBUTION GENERATION CUSTOMERS TRANSMISSION TRADING OPERATION ADMINISTRATION International Electricity Transactions (TIE) Wholesale Energy Market National Dispatch Centre

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The generation market counts with competitive mandatory pool and bilateral financial contracts. COMPETITIVE MARKET END USERS (Freedom for choosing traders and contracting) WHOLESALE MARKET (Only the utilities and other agents authorized by article 15 of the Act 142/94) LONG TERM (Financial Contracts) SHORT TERM (Pool)

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Incentive payment for long-term reliability Regulated income Based on availability Service Quality (Short-term balance, Frecuency) The market also includes other commercial transactions, which complement both the pool and the long-term bilateral contracts. ELECTRICITY MARKET Generation Control Market, Penalties for Deviations Capacity Charge National and Regional Grids Payment based on cost Security generation

© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The Electrical System

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P A system able to supply the demand with efficient and reliable conditions 44.8 TWh/yearEnergy Demand (2002) Installed Capacity [GW] Reserve [GW] Peak Demand [GW] 10,725 kmTransmission kV 1,449 kmTransmission 500 kV 621 MW International Interconnections Capacity

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P … even under critical situations like the El Niño drought of Hydro: 24 plants Thermal Units: 103 plants Hydro (65%) Thermal (35%)

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Investors have been attracted to do businesses within the market scheme. EvolutionIn

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Until 1998, there were 50 years of continuous growth in the electricity demand. From 2000, the growth has restarted. 8 Millon of End Users

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The electricity demand is highly correlated with economic growth (92% correlation factor between 1995 and 2003). Year growth rates

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The electricity demand is highly correlated with economic growth (92% correlation factor between 1995 and 2003). Quarterly growth rates

© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The Operation

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P However, the transmission grid has suffered many terrorist attacks since 1999 (1,726) Number of Attacks against the high voltage National Grid System

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Despite the attacks, no overall blackouts have affected the country, only 0.1% of the National Demand has been rationed by this cause. Non-served demand as a percentage of the annual electricity demand Terrorism

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Frequency Deviations One Each Sixty Days Meta 2003: var/mes

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Indicadores de la Operación N° de veces Meta One Each Six Days Voltage Deviations

© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The Market

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Market transactions (pool + contracts) in September reached 137% of total demand, showing increasing liquidity. Hedging

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Wholesale transactions in 2002 reached nearly US$ 2,500 Million Long Term Contracts Payments to the grid Pool Purchases Capacity Payments Constraints

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Currently, more than 30% of the demand is traded between suppliers and Non-Regulated Consumers, under the free market Freedom for choosing supplier. Prices and conditions negotiated with supplier. 1 MW 0.5 MW or 270 MWh/mes 0.1 MW or 55 MWh/mes

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Regulated Users have also switched from the incumbent supplier: more than 2,500 (~2% total demand) new frontiers of aggregated users have registered to the market. Regulated formula. However, freedom for choosing supplier with some limitations.

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Pool price reflects market conditions. Contract prices have allowed pool price volatility hedging.

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P In 5 years, the tariff for regulated consumers reflects the benefits of competition in the market. Average tariff for Regulated Consumers

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Compared to other Latin American Countries, Colombia shows the lowest non-subsidized tariffs for end consumers. Tariff for end-consumers (Dec. 2000) Planning National Department

© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Colombian Market Challenges

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Market Challenges q Implementing Financial Derivatives q Fast recovering of damaged Transmission Network maintaining market conditions

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Market Challenges  Maintain a competitive market that supports the country economic growth q Power Sector development by balancing:  Market Economy and  Social Policies

© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Regional Market Challenges

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Ecuador-Colombia q Ecuador and Colombia Markets have been operating totally coordinated since March Transactions have risen more than 50 million dollars. That represent around 10 percent of the Ecuadorian demand and 4 percent of Colombian demand.

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Market Challenges q Increase Market Integration with Neighbour Countries:  Consolidate the Andean Electricity Market  Harmonizing regulation and implement coordinated operation and commercial transactions between Venezuela and Colombia (2004)  Interconnection and TIE Peru-Ecuador (2004)  Implementing Bilateral Contracts for International trading  Bolivia-Peru Interconnection studies (2004)  Linking integrated markets of CAN and SIEPAC  Interconnection Panama-Colombia ( )  MERCOSUR

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P Where we want to go? Andean Market Central American Market (SIEPAC) MERCOSUR Market Latin American Market

APEx Colombia The Colombian Power Market © Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P COLOMBIA A leading power market in a country full of opportunities

© Todos los derechos reservados por Interconexión Eléctrica S.A. E.S.P The Colombian Power Market Achievements and Challenges