On August 20, Colombia’s state-controlled oil company, Ecopetrol, finalized the purchase of a majority stake in electricity transmission company ISA from the government for US$ 3.67 billion. Ecopetrol is Colombia’s largest company and accounts for more than 60% of domestic oil production. The purchase stands to bolster the company’s diversification and support its goal to incorporate 400 MW of renewable energy generation by 2023. Colombia’s finance ministry announced it will monetize the dollars from the sale of its shares in ISA. The Colombian peso, which had depreciated significantly in recent weeks amid rising global uncertainty, has recovered, with the USD exchange rate falling below 3,800 for the first time since mid-July.
Our View
The purchase of ISA will bolster the stability of Ecopetrol by reducing its dependence on oil production and increasing its regional diversification. By facilitating a shift toward greater renewable energy production, the purchase also stands to accelerate new business opportunities for B2B and B2G firms. The FX stability brought by the government’s sale of its shares in ISA is well timed, as Colombia’s peso has struggled to regain lost ground in recent weeks. Nonetheless, we expect to see continued fluctuations in the peso/USD exchange rate as global uncertainty remains high. For 2021, we forecast an average COP:USD exchange rate of 3,705.
Business Implications
B2B and B2G firms should monitor new opportunities in Colombia’s renewable energy sector arising from the energy diversification plans of Ecopetrol and others, such as Grupo Energía Bogotá. The recent appreciation of the peso will also provide some relief to multinational clients in Colombia. However, firms should expect continued shifts in the exchange rate in 2021, as well as create and revisit contingency plans for more volatility in the exchange rate.
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