Colombia: International Investments Review 1999

Last Updated: 17 March 1999

A special report prepared by Ricardo Fandiño De la Calle

Foreign investment in Colombia has grown steadily and consistently every year during this decade since 1991. This trend is a result of a series of changes that have been adopted in the legal framework, starting with the Constitution, as well with laws and other regulations that have opened Colombia to foreign investment by allowing and encouraging such investments in almost every sector of the economy without much restrictions, and also by establishing that foreign investors in Colombia will be granted the same treatment provided to Colombian national investors.

With the above in consideration and taking into account that Colombia has plenty of attractive natural resources such as oil, gas, carbon and emeralds to be exploited and a poor domestic infrastructure (i.e. toll roads, telecommunications, energy plants, railroads, etc.) that requires project finance investments in order to rise to acceptable levels that will allow the Government to provide its citizens with the proper services they require, Colombia projects itself as a very good option for long term high profitable business and therefore for international investors in 1999. Following is a description of the main business and investments attractions for next year.


The Bogotá Telecommunications Company

At the beginning of September 1998, the Bogotá Telecommunications Company (Empresa de Telecomunicaciones de Bogotá, "ETB") the biggest local telephone company in Colombia, which has installed more than two million telephone lines connected around the Country's capital and owns the biggest share of the local telephony market as well as handles the biggest traffic of long distance calls in Colombia, began the process of its privatization. This includes the sale process of the first package of shares that the District holds in ETB, which amounts up to approximately 98% of the total shares. Initially it is estimated that 51% of the shares of the ETB will be sold to a foreign strategic investor, the target purchasers being the major telecom operators in the world. The privatization of E.T.B. is to be considered the second biggest privatization in South America, following the privatization of Telebras in Brazil.

In Colombia every process that implies the total or partial sale of shares or mandatory convertible bonds held by the Nation or the municipalities in companies, in favor of private parties, is required to follow the procedures established in Law 226 of 1995 which is the Colombian privatization law. Said law foresees some basic principles that must be observed during a privatization process, such as (i) the publicity and transparency of the process, and (ii) the freedom to concur to the respective process in order to promote the democratization of the property in Colombia.

In accordance with Law 226, the consulting consortium that the ETB has chosen must develop the necessary tasks in order to (i) sell the shares of the District in the ETB ; (ii) sell the shares to the sector solidario in compliance with law ; (iii) design the strategy for selling the percentage of the shares that are not sold initially ; (iv) structure a sale process that maximizes the value of the ETB and (v) provide a strategic operator to the ETB for which the consulting consortium must among other tasks promote the selling of the ETB through a road show. It is expected that the consulting consortium will have a maximum term of seven months counted as from October 1998, to carry out the duties imposed by the ETB and that at the end of such term the determined percentage of shares that the District holds in the ETB will be sold.

Power & Energy

In regards to the power and energy sector, the Government has begun implementing the mechanism aimed at securing a strategic investor in fourteen (14) electricity distribution companies in Colombia, among which are the distribution companies of the Departments of Antioquia, Cundinamarca, Boyaca, Tolima, Caldas and Santander. The above taking into account the successful privatization of Corporación Eléctrica de la Costa Atlántica, ("Corelca") and its nine affiliated electricity distribution companies of the Atlantic Coast.

Part of the privatization of Corelca was carried out on August 4th, when the Colombian Government awarded to a consortium composed by Houston Industries from USA and Electricidad de Caracas from Venezuela, the right to capitalize up to 65% of Electrocaribe and Electrocosta, two of the five business units in which Corelca and its nine distribution companies were reorganized. The consortium's proposal of $1,438,752,381,000 pesos approximately (USD$1.049.300 million) exceeded in $305,000,000,000 pesos the minimum price established by the Government to capitalize said companies.

The process for the sale of the 14 electricity distribution companies, has started with the procedure by means of which the Government will elect the consulting consortium that will advise and structure the sale process of the electricity distribution companies ; the initial deadline for the presentation of proposals was established for January 8, 1999.

Also, in energy related businesses, the past administration, enacted Resolution 051 of April 14, 1998, by means of which the Government will award in different bidding processes the execution of the projects for the Reference Expansion Plan for the National Transmission System of energy.


Bogotá Metro System

The Financial Fund for Development Projects- FONADE (Fondo Financiero de Proyectos de Desarrollo), established December 18, 1998, as the deadline for the presentation of proposals by the different consortiums that wish to act as advisors for FONADE and the District, in regards to the bidding process for the construction of the First Line of the Metro System in Bogotá. Gómez Pinzón is closely following the whole process of the Bogotá Metro System since it is participating as local legal counsel to one of the bidders for the advisory contract. It is expected that the awarding of said advisory contract will take place in the first months of 1999.

The chosen consortium will have to structure the bidding process from the technical, financial and legal perspectives in order to make the project attractive to the potential international companies interested in the construction of the First Line of the Bogotá Metro. Notwithstanding, it is important to point out that according to Colombian legislation, the bidding process for the construction of the Bogotá Metro System, will be ruled by Law 80 of 1993, which is the Colombian Statute for Public Contracting and that it foresees as one of its main principles the transparency of the process, at the same time that it imposes the duty of an objective selection of the contractor.

The cost of the First Line of the Metro is estimated at USD$3.041 million, of which the Nation will provide up to 70% and the District the remaining 30%. According to a study contracted by FONADE, the First Line will have an extension of approximately 29,34 Kms. with 23 passenger stations located 1000 meters or so from each other.

Cali Metro System

At the beginning of the second semester 1998, the central Government agreed with the city of Cali, that the Nation would provide 66% of the total cost of construction of the Cali Metro System, leaving the remaining 34% to be assumed directly by the city. The estimated cost of the construction of the Cali Metro is USD$640 million. The project will consist of 23.5 Km and will transport approximately 2.000.000 passengers per year when it enters into operation in the year 2005.

Additionaly, the World Bank is currently studying the possibility to finance part of the project, which means that according to Article 13 of Law 80 of 1993, the bidding process could follow the rules of the World Bank in this regard.

On the other hand, the city of Cali has already started implementing the bidding process, by hiring a legal firm that initially is in charge of preparing the legal documents needed for the opening of the bidding process. It is expected that the bidding process will be opened at the beginning of the second semester of 1999.


Besides the major transaction of the sale of the ETB, regarding the telecommunications sector at the moment the Ministry of Communications of Colombia is working on a new Telecommunications Law which will replace the existing Decree 1900 of 1990, which has been in many aspects, surpassed by the latest technology developments in telecom. One of the main purposes of this new law is to establish clear parameters of competition and offer legal and regulatory stability to foreign and local investors. This Law is expected to be presented before Congress for its debates on the next legislature beginning in March of 1999.

As for specific transactions that await in the Colombian telecom sector for 1999, there are four major businesses that will be developed next year, (i) the Social Telephone Plan, which seeks to cover more than seven thousand telecom non-exploited regions in Colombia, (ii) the establishment and granting of licenses for Personal Communications System (PCS), (iii) the establishment of Local Multipoint Distribution System (LSDM), and (iv) the awarding of several local licenses for cable television, including those for the major cities in Colombia as well as for the licenses in the three regions in which Colombia was divided for such purpose.

Other Transactions

The Colombian Ministry of Transportation, through its different entities, such as the National Institute of Highways and Roads-Invias, the Colombian Railroads Company, Ferrovías and the National Civil Aeronautic Unit- Aerocivil, will open several concessions and privatization processes, with the purpose of granting in concession to private parties the construction, operation and maintenance of numerous projects, among which are : (i) the toll road concession of the Malla Vial del Caribe highway with an approximate cost of USD$250-300 million, which will follow the legal parameters and use the model of Concession Contract developed by our firm in the El Vino - Tobia Grande- Puerto Salgar toll road concession, (ii) the construction of the La Línea Tunnel, in conjunction with the government of three Departments, with an approximate cost of USD$400 million, (iii) the concession of the Atlantic Region Railroad, which foresees funds provided by the Nation of up to USD$120 million, and (iv) the privatization of the Bogotá, Medellín and Cali airports.

The content of this article is intended to provide a general guide but specialist advice should be sought about your specific circumstances.

Ricardo Fandiño De la Calle
Carrera 9 No. 73-24 Pisos 1,2,3 y 5
Santafe de Bogota, Colombia

Telephone : 571- 3107055/ 5066
Facsimile : 571- 3106646/6657

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