By: Cristian Halaby
In Colombia, public enterprises have played a crucial role in the country’s economic and social development. However, in recent years, political decisions have diverted these companies from their original mission, affecting their efficiency and ultimately harming society. This phenomenon, which we could call “The Entrepreneurial State,” is clearly observed in the cases of Ecopetrol and EPM.
Ecopetrol, the largest state-owned company in Colombia, has been a pillar in the country’s energy sector. Its mission has always been the exploration, production, transportation, refining, and commercialization of hydrocarbons. Despite this, we have recently seen how political decisions have impacted its performance and focus. For example, the strategy of energy transition and the suspension of hydrocarbon exploration contracts have generated uncertainty and a significant decline in the value of its profits and shares.
Furthermore, in recent days, Ecopetrol was presented with a great opportunity to invest in a joint venture with Occidental Petroleum, something that was approved by the board of directors and then discarded by the government. Although the transition to clean energy is necessary, decisions must be made with a technical and business approach, not a political one. This is how Ecopetrol has lost market capitalization and management capacity.
Empresas Públicas de Medellín (EPM) has been an example of efficiency in providing public services, generating development for Colombia, Medellín, and Antioquia. Historically, it has been seen as a highly efficient public company that has also become a multinational, delivering significant economic benefits to the city of Medellín to develop its infrastructure and social programs, among other things. This works extremely well as long as efficiency and productivity are the focus of the administration: it is also important for society that the cost of regulated businesses is not higher than the value generated from the prices paid by consumers.
In recent years, EPM has suffered from a systematic attack on its good corporate governance culture when politicians like Daniel Quintero Calle have appropriated its actions for political purposes, to which the society of Medellín has reacted with a true sense of ownership.
However, the recent decision to sell its stake in Tigo UNE has generated controversy; some people agree, and others do not; but what is concerning is that a true business case developed by experts within the organization has not been presented to demonstrate the convenience of selling or not selling. The second controversial issue is that the funds obtained from this sale will be allocated to projects that are not aligned with EPM’s original mission. It is mentioned that these resources going to EPM would be invested in entrepreneurship funds, scholarships, and a waste transfer station, something that will become obsolete when Colombia presents a good plan for source separation in households.
The question then is whether these resources will yield more returns for the EPM shareholder if invested in Tigo, invested in non-missionary programs, or if they should be used to increase the company’s capital. This decision could divert resources that should be reinvested in the company to improve the quality of public services and investments in EPM’s productive businesses so that in the future, profits and transfers to the city through dividends will grow even more. In 2023, EPM reported consolidated revenues of COP 37.53 trillion.
Political decisions can be costly for society when they are not aligned with economic and business objectives. In the case of Ecopetrol, the uncertainty generated by political decisions has affected its market value and its ability to attract investments.
In the case of EPM, the sale of Tigo UNE could weaken the company’s ability to fulfill its mission of providing quality public services. Additionally, the debt of these companies is a concerning aspect.
According to a report by the Comptroller General of the Republic, Ecopetrol and EPM are the decentralized entities with the highest levels of debt in Colombia. This situation could limit their capacity for investment and long-term growth, affecting their sustainability and efficiency.
The State, as a shareholder in these public companies, must behave as a professional investor. This means that it must account for the profits and dividends generated by these companies and not use them as petty cash to finance political projects or as platforms for proselytizing. Decisions should be in line with business development and not influenced by short-term political interests.
In other countries, we have seen how political intervention in public companies can lead to failure. For example, in Venezuela, the state-owned PDVSA has suffered a dramatic drop in production due to political interference. In contrast, public companies in countries like Norway have been successful thanks to technical and autonomous management. Equinor, the Norwegian state-owned energy company, has managed to balance state participation with efficient business management, generating significant income and contributing to the country’s well-being.
It is crucial to maintain a balance between state participation and business autonomy for the well-being of society. Decisions must be made with a technical and business approach, not a political one. Only in this way can we ensure that our public companies continue to be efficient and fulfill their mission of serving society.
Furthermore, it is necessary to understand that state companies can be sold when the business case warrants it, and as long as this sale allows for a leap forward in the services and benefits to society. A few years ago, President Juan Manuel Santos decided to sell ISAGEN to the business fund Brookfield Asset Management for COP 6.48 trillion under the pretext of building Colombia’s 4G highways; following his example, EPM sold its stake in the same company for COP 1.28 trillion, citing among other reasons the transfer of COP 600 billion for the 80th Street Metro. (https://www.sinpro.org.co/noticias-1/807-que-paso-con-el-dinero-deventa-de-isagen.html)
In no case did the nation or EPM intend to use these funds from productive assets in other productive assets. Today, neither the 4G highways nor the 80th Street Metro has been completed, but the resources have been invested in other things, becoming pocket money. Meanwhile, ISAGEN is an even more profitable company, generating returns for visionary foreign investors.
Recommendations:
- Implement policies that minimize political interference in public companies.
- Promote transparency and accountability in the management of these companies.
- Establish independent control and supervision mechanisms that ensure business decisions are made based on technical and economic criteria.
- Promote the professionalization of management in public companies, ensuring that executives are selected based on their experience and ability, and not on their political connections.
In conclusion, the “Entrepreneurial State” is a phenomenon that can have negative consequences for the efficiency and sustainability of public companies in Colombia. It is essential to take measures to ensure that these companies can operate autonomously and efficiently, for the benefit of all society.
Note: Colombia should be alerted to the possible arrival of Jorge Carrillo as president of ISA, the man who almost destroyed EPM and who is a pawn of Daniel Quintero, is now being called upon to destabilize energy transmission in the country.
About Cristian Halaby: He is a Colombian businessman, lawyer, and commentator known for his insights on economic and political matters, particularly concerning public enterprises and state involvement in business in Colombia. He often writes and comments on the intersection of politics, business, and governance, focusing on how political decisions impact public companies and the broader economic landscape.
Halaby has been involved in various sectors, including legal consulting and business development, and is recognized for his advocacy of transparent and efficient management of state-owned enterprises. His work often highlights the challenges and opportunities facing Colombia’s public enterprises, like Ecopetrol and Empresas Públicas de Medellín (EPM), and he advocates for minimizing political interference to ensure these companies can operate efficiently and sustainably.
Beyond his professional work, Cristian Halaby is a vocal critic of certain political actions that he perceives as detrimental to the economic and social development of Colombia. He is also a regular contributor to various media outlets where he shares his perspectives on contemporary issues facing the country.
