Colombian state-controlled electricity-grid operator Interconexion Electrica, or ISA, will see its net profit rise in 2009 from the previous year as interest rates are lower in the three main countries where it operates.
“We will have net profit much higher than last year,” Luis Fernando Alarcon, the company’s chief executive, said in a recent interview in Medellin. “What impacts more is the lower financial costs.”
ISA’s business in particular has a low risk since the company agrees with power generators and with distribution companies on take-or-pay contracts. ISA charges the same amount regardless of the electricity it transports. So revenues are fixed ahead of time and vary little over time.
Since the cost of operating a transmission network is rather low compared with the investment it requires, the main expenses for the company are the cost of capital and the servicing of its debts, Alarcon said.
In the three main countries where ISA operates–Colombia, Brazil and Peru–interest rates plunged in the past year, as the central banks enforced expansive monetary policies to support domestic demand.
“In Brazil, our bonds are tied to the (wholesale inflation index) IGP-M, which has been negative this year,” Alarcon said. In Colombia, ISA sold bonds tied to inflation, which fell to 2.72% in the 12 months through October from 7.67% in the full 2008.
“One would expect inflation pressures to keep rather low during next year,” Alarcon said.
Even if inflation is higher in 2010 than during this year, ISA will get more revenue for the new projects due to start operations, said Johanna Castro, a market analyst with local brokerage Corredores Asociados.
In late 2008, the company found difficulties financing its projects as a result of the world’s credit crunch. In an interview in November 2008, Alarcon said the company might have to delay some investment for lack of financing.
However, the situation started returning to normal in the first quarter of this year, and now finding financing is not a problem, he said.
The company was then able to bid for new projects in Brazil and in Peru, where it will borrow more money in both countries. ISA will inject equity in its Peruvian unit.
ISA is developing projects worth a total US$1.8 billion mainly in Brazil and Peru.
The company bid for the construction and the operation of an 800-kilometer transmission grid in Guatemala. The company is also planning to build an interconnection with Panama, which is worth $400 million and will be ready in 2014.
“The idea is to connect Central America with the Andean region,” he said. “There is a lot of business opportunities because of the potential of hydropower in countries like Colombia, where there is a lot of rain and high mountains.”
Power generated from hydroelectric plants is much cheaper than from oil-fired plants used by the majority of Central American countries.
Shares of ISA Friday rose 0.3% to COP12,140, while the benchmark IGBC stock index ended almost unchanged.