Good morning, everyone. My name is Manuela Ramírez, Financing and IRO for Grupo Energía Bogotá. Welcome to our first quarter results call. This conference is being recorded. The presentation we will see today was sent yesterday and is uploaded in our investor section of our webpage. In the right corner of your screen, you can ask questions at any time in the Q&A section, or raise your hand and we will allow your question in due order. Please state your full name and the company that you represent so we can easily identify you. Now let me introduce you to Jorge Tabares, our CFO, who will lead the call today. Good morning, Jorge.
Morning, Manuela. Good morning, everyone, thanks for your interest in our performance in the first quarter of 2023. We'll go over the typical agenda. I highlight encouraging to make questions at any time. Go ahead. Next. The results of the company in the quarter were very positive. All business segments contributed to that performance. The EBITDA in the quarter reached COP 2.6 billion. These figures are in Colombian billions, so that will be like COP 2.6 trillion in U.S. jargon. Growing 21.8% when we normalize. Basically, we account for the main normalization effect is the Enel extraordinary dividend that we include in our adjusted EBITDA, but also some adjustments associated with Vanti and our ISA transmission business in Peru.
Two main segments that contribute to our energy transmission and energy distribution with 33% and 34% increase, but you see that gas transportation and gas distribution also have double digits growth. Energy transmission, which is supporting these numbers in a big way, is our significant portion of our strategy defined back in 2020. The execution of the strategy is showing results here. By geography in the bottom, Colombia contributed to 74% of the EBITDA during the quarter. Mainly Peru and Brazil with 26%. The net debt to EBITDA at the end of the quarter was 3.6 x, well within the 4x that we consider is appropriate or efficient in the long run.
Both ROE and ROA have a slight decrease. This is associated with the fact that we paid for the Brazilian Quantum acquisition at the end of November of 2022, but we didn't capture the returns as we only captured one month during 2022. Those metrics will normalize as we move forward during the year. We'll show you details on revenues, operating income, and EBITDA in the next pages. Significant growth, in addition to the contribution from growing segments associated with both organic and inorganic performance or execution. We also have, as these numbers are in Colombian pesos, the benefit of that currency diversification during the quarter. The peso depreciated 23% against the U.S. dollar. Some of the Colombian pesos figures here capture that benefit. In terms of CapEx, in U.S. dollars, it increases 6.5% during the quarter, reaching $86 million.
In the right of the page, on the macroeconomics, which also benefit our results, I will highlight that the PPI in Colombia still is at a high level, at 12.5%, but coming down from an 18% over the last year, the calendar year 2022. The PPI in the U.S. is also showing some moderation. During the quarter, just measuring the quarter, it went down almost by 40%. This figure here is year-over-year. Next. In terms of relevant information that is capturing those numbers, on the administrative angle, but looking for efficiency, we are merging three of the businesses we have. The most important one is the acquisition of Elecnorte, which we acquired as a standalone, and now we are merging into our transmission business. Our dividend to our shareholders that the general assembly approved was a 13.5% increase.
We just got an affirmation of our international rating by Moody's. Associated with that affirmation, they changed our outlook from stable to negative, and this is a direct consequence of what happened with the District of Bogotá, whose outlook was changed also in the last month. We will get into details. The Ministry of Energy published a decree for consultation establishing new guidelines for the energy sector, and this is the government reaction to what originally was proposed as President Petro taking over some of the regulatory mandate of the CREG, the regulatory commission here in Colombia, that was stopped by a court, and now they moved to a more administrative and more normalized action, which is a decree by the Ministry of Mines and Energy. Transmission, a key driver for our growth. Three key elements here.
One is we started getting revenue recognition for the Colectora project. This is an extremely important project for the energy transition in Colombia. We are making very solid progress on the consultation with the communities. Some of you may remember that we have 233 consultations, communities with we have to agree with. We are less than 5% left to agree with some of the communities. Some new communities that we added to the list by the Ministry of Vivienda, the housing ministry, we have agreed also already with two of them, and nine of them are making progress also. We expect to finalize the consultation process during the second quarter of this year.
Something that may have not noticed, that the national planning law, which was approved a couple of weeks ago, includes an article that allows the ANLA, the environmental agency, to, in parallel, receive the environmental impact assessment, before the finalization of the previous consultations that we have to do. We think that this is going to be a great benefit for the timeline of the project. Perhaps a six to eight months improvement or advance in the schedule of the project without diminishing or affecting in any way the rights of the communities to do the consultations. We also have in our transmission business, the positive impact of the San Juan asset that we acquired last year, and also for a new technology development that we applied, the SmartValve, on Termocandelaria, which is also now being remunerated.
Plus the contribution from the Elecnorte acquisition, which was closed around mid-year of 2022. We continue making progress on the regulatory front on the TGI. We expect that the conversion to pesos will happen here in the next couple of months. The overall framework will allow us to recover some of the hedging cost of that exchange rate risk that the resolutions create on TGI. It also fixes the Resolution 070 of 2009, fixes some of the shortfalls that Resolution 175 had in terms of recognizing value for some of the assets that will reach 20 years useful life over the next years. This only will have impact starting in 2026 for TGI. It also updated the calculation of the WACC, raising it to 11.88%. This is about 100 basis points increase. Also a positive, both for TGI and for Promigas, that we have a 15% stake in the company.
Finally, Cálidda signed COP 150 million with Corporación Andina de Fomento, CAF, to continue the penetration of the gas in the Lima area. Next. Terms of operating income increases by 41% over the quarter, and you see the revenues increase on the bottom left. Again, contribution from most of the businesses, mainly, again, the transmission piece increasing significantly. You see also here highlighted the COP 301 trillion benefit from the FX. This is mainly the U.S.-denominated investments that contribute to the peso statements. Operating, we have COP 199 billion, which is also quite solid. When we look at the operating cost, some of them are affected also by the inflationary and indexation effects that the revenues are affected by, and those increased by 39.7%. When the net margin, in terms of pesos, it increases due to this difference between COP 569 billion and COP 337 billion in the bottom of the page.
On the administrative expenses, though, we have a more controlled situation, 18.6% increase, with a reduction in both natural gas distribution and energy transmission. Some of the increases that you see on natural gas transportation and energy distribution also are affected by indexation. The margins, as you will see, are roughly in line. Next. The EBITDA, perhaps one of the most important highlights of our results. From the 4.8% as I mentioned before, this is the normalization. The COP 296 billion is the normalization that I mentioned also. Measuring it from that base, is that we are growing COP 467 billion, and you see all business segments contributing significantly, with, on a relative basis, power transmission delivering the most. 38% of that EBITDA comes from controlled companies. When you look at the controlled companies on the bottom right, they are increasing by a much tighter factor than our non-controlled businesses, increasing by 41%.
Again, across the line growth, which reflects the health of the portfolio overall. In terms of dividend from associates, which basically we got all the dividends for the year approved in the first quarter, they are increasing by 12.6%. Again, a healthy number, reaching COP 1.617 during the quarter. We'll see more details about operator performance. This is, of course, a result of the strong revenue. Next. Go to the next page, please. In net income, here we have on the financial revenue, it's significant increases both in financial revenue and financial expenses. The financial revenue compensating, to an extent, the increase in financial expenses associated with the macro environment. Despite having 52% of the total debt in fixed rate, especially the inflation and the labor software combination, and the exchange rate, causes this 91% increase in financial expenses.
In the financial revenue we are capturing there, the impact of part of the TGI bond repurchase. During the quarter, the company acquired about $15 million of their bond, generating a positive impact of about $700,000 during the quarter. Going to the equity method, this 13% increase, I think, is not worthy given that Enel, which is the biggest contributor, had a flat quarter compared to 2022. Here you see again, the strategy demonstrating results, the impact in Argo. This is the impact of the acquisitions we have made, both Rialma III and the Quantum acquisitions are also showing in this COP 84 billion here that is captured. In the Promigas, which is the only one reducing, we have a base effect. Last year, the company had an indemnification from insurance. When that part of the reduction is a one-off from the base.
They also are capturing here the reduction in the regulatory WACC. This is before it was increased, as I mentioned, to 11.88%. Basically what was in place during the quarter that should improve with this increase that I mentioned. Both ISA managed Peruvian businesses and Vanti increasing also. In others, this were the other portion of the Brazilian acquisition showing. Some of you may remember that we acquired the Quantum assets, the Brookfield assets with Argo, and also Gebbras. Gebbras acquired about a third of the asset, and now is showing here some of the results from a very small base. Now we're showing COP 33 billion in this quarter. Go to the next. No changes here in the debt. We have, as I mentioned, and also note, notably, 3.6x net debt to EBITDA.
We are basically have fully addressed the 2023 maturities and are very actively working in the rollover of those two maturities of 2024, the syndicated loan for GEB, the COP 319 billion, and the syndicated loan from Contugas, which is GEB guaranteed for COP 355 billion. We expect in the next couple of quarters to address this and make a decision about our path forward, in the next month or so to finalize the negotiation and start the regulatory approval process. Our cash position at the end of the quarter was solid at $401 million. Next. On the CapEx, as I mentioned, we were roughly in line with previous year, increasing to $86 million. Cálidda and Colombia Transmission are the bulk of that, both increasing. We are very actively moving forward our ample portfolio of transmission projects in Colombia.
When you see the profile, 2023 is going to be the peak of our current CapEx profile, and it goes down significantly in the next couple of years, with Cálidda and Colombia Transmission being the bulk of that CapEx program. That should allow us to continue being active on the M&A front, in order to put our cash flow to good use, in the execution of the strategy. Next. With that, I'll open for questions. Again, we consider this a very solid year, is the strategy showing results, the diversification of the portfolio, benefiting, both our shareholders and our cash flow generation to support our debt. Brazil delivering results for us. Manuela, with that, I'll pass it to you, for Q&A.
Thank you, Jorge. Thank you very much, everyone. Remember, you can ask your questions by writing in the Q&A section in the top of your screen. You can also raise your hand, and we will unmute your microphone so you can ask it live. We have some questions already in the chat. We have four questions regarding to El Niño phenomenon that is probably coming to Colombia, from Roberto Paniagua from Casa de Bolsa. I'll start reading them. Thank you, Roberto. Enel Emgesa strategy to manage reservoir level facing up to a future El Niño, and also Enel and Emgesa, due to the low-term electric participation in its generation matrix, which is the strategy to benefit from El Niño? I will pass that question to Juan Ricardo, our CEO, who is here to give us his perspective from this El Niño phenomenon. Good morning, Juan Ricardo.
Manuela, that is part of the strategy from Enel, they don't disclose it. They've run the company through many El Niños, and you can see their results. Enel has the capabilities of buying gas on the secondary market. They, at the same time, operate in the spot market, taking positions long and short. They always mix how they play the game in all the dimensions. They have their contracts, which are medium to long-term, and those contracts, they have about between 80% and 90% already of the energy guaranteed in another contract. They usually, in a pretty strategic way, are able to subcontract the generation of energy before these events occur, in order to mitigate those risks.
From the point of view of their ability to supply the energy at the cost that they have set in their business plan, I don't think there is much risk whatsoever. They usually have been able to benefit by having positions on gas. What is going to be the key dimension going forward on El Niño is the availability of that gas, which at the moment, there is not enough supply, and there is not an obvious way on how the 100 million cu ft needed per day are going to be coming from. That is the determining factor on who is going to benefit and how much all along the energy production chain, and that is not known at the moment by anybody.
Couple of additional comments there. The probability of El Niño, basically everybody follows the same source, which is NOAA. The probability is certainly increasing. The range of outcomes is still not very clear until about a quarter before. There is still uncertainty if there is going to be El Niño or not. The forecasters are not so good at forecasting the intensity of El Niño. Talking about El Niño situation, we still have uncertainty if that's going to happen or not. From the Emgesa perspective, the key always is to ensure that they can fulfill the contracts and generate the electricity that they have sold in advance. The reservoir levels that we are seeing currently allows them to forecast that they will be able to do that as they have done in the previous years.
From the gas requirements to turn on the thermal plants, the backup plants in the system in Colombia, the good news there is that TGI has capacity to supply the center of the country, thermal plants, if the gas is available. That creates actually an upside to TGI because in the previous El Niño, the company transported, at the peak moment, about 200 million cu ft/ day to supply those thermal plants. Our infrastructure is key to be able to deliver the gas to the system. Go ahead, Manuela.
Thank you. We have a similar question, for TGI. You already spoke a little bit about gas. What are the impacts? How much may be the variation in volumes and prices during El Niño, and what is the preparation and strategy for TGI to benefit from El Niño? Are we doing something additionally?
There is no fixed price. It's only going to be the quantity, it's going to be depending on the gas. All the gas that is needed by all the thermoelectrics, all 100%, we have the capability of guaranteeing the transportation, and that's what we've been working on. We have all the models that each and every one of the thermoelectrics could have access to the transport of the gas. It's the discussion on how the gas is going to be made available, but it's going to become critical. There are 50 million cu ft/ day that can be brought from the northern coast of Colombia, either from the Canacol wells or from Spec regasification. There are still close to 100 that it is a question mark if there is going to be a source available.
We had a meeting yesterday with Ecopetrol is going to be key, and at the point they are ready when there is enough information. I think Jorge made a point that is critical. These are really fat tail distributions, so the variance is enormous. There is no way anyone can assure if there is going to be an El Niño at this point in time. Late in June, the data is reliable enough that the tails become thinner, and you can say something with some certainty. At this point in time, literally, we don't know what is going to happen. We have prepared the models to make sure that we can supply the center of the country with all the transport they need. We are on the discussions on where the gas is going to be made available if it were to be needed.
There is not enough information at this point, and there is a probability that if it were to occur, it would be mostly at the beginning of next year, not in September as it was thought last month. The probabilities have moved, and it's more skewed towards February next year than it is in September this year.
Okay.
The availability of electricity is not in question because if gas cannot be supplied, those thermal plants need to have fuel oil.
Fuel oil.
As backup and contracted. The critical point there is price, and that's where gas comes into play and will have a significant benefit to moderate the price increases. Some of you may remember last El Niño, at some point, the price went up to COP 1,700/ kWh for a few days. The key for us, and we were trying to cooperate with Ecopetrol and everybody else, is to make sure that fuel oil is not used, but gas can moderate the price increases during El Niño. We'll benefit from the transportation, but at the same time benefit the overall system with lower prices.
Thank you, both. The last question from Roberto. Hoping that nothing happens, but which will be the possible impacts on total volumes with exposures to volcanic activity in Nevado del Ruiz?
We have modeled that in detail. There is a lot of information. There is a famous Colombian volcanologist that has drawn all the different impacts of the different events that could occur, particularly mudslides. None of our infrastructure is in the area of serious impact. There are a couple of towers that are at the border of a mudslide, but the size that is estimated that would reach them can barely have an impact on any of them. There is no infrastructure by the group that would be impacted or that is thought to be at risk, and the same is for Enel. The company that is at the most risk is CHEC, and it's mostly the distribution infrastructure in the area.
For that, we are putting all our teams at the disposal of the government in case they need support to guarantee the operations as we already dealt when there was this dramatic mudslide, and the way the system works is everybody operates with all the extra supplies and their emergency teams to be at the disposal of the government in order to operate immediately in the region. That's what we are focusing in being able to put availability of all transformers and all infrastructure that we have in our storage, so we can help out in case anything were to happen. From the point of view of us having any assets at risk, in this situation, we are fortunate enough not to be in the area of any influence or any significant risk.
Thank you, Juan Ricardo. We have some questions from Andrés Duarte from Corficolombiana. Hello, did the government participate in the natural gas prospects mentioned by TGI? Are you expecting its participation onwards?
We have a very constructive conversation with the government in this regard. They've been always extremely generous, open-minded, having transparent discussions. We feel there is a significant agreement on the strategic value of gas going forward. There is clear quite a bit of evidence that existing contracts could significantly improve the supply. If you've seen the legislation that has already been approved in the Senate regarding fracking, for example, it is very clear it excludes all non-conventional methods like the ones that could be used in old coal mines, and there is a lot of evidence, significant amounts of methane in those coal mines, and all of that could be brought to market once those legislations are enacted.
We believe there is a very constructive dialogue with very clear routes that would strengthen the gas supply in Colombia, and we are, on that sense, quite optimistic and grateful of how open the discussions have been and how constructive the government has been so far in this whole subject. You can see it in the proposed modification of the 175 Resolution. That is for consultations as the 702, Resolution 702, when a lot of the issues that were of our concern are being resolved. It shows the constructive, objective, technical discussion that has been carried out between the institutions, in order to come up with what I believe are good options for the country.
The TGI prepared with the support of Tomás González and CREE, his consultancy firm, a very detailed analysis of where the energy needs to come from in Colombia to fulfill the demand, and gas has a very key role, at least for the next 25 years. The conversation is quite constructive because we have data, and we have published that. That report is actually available through TGI, and that is what is allowing us to have a number-based conversation, which we think in energy is critical not to create narratives that are not supported by numbers and by aspirations. The key aspiration of every energy system is to be fulfillment of the demand at a cost-effective price, and gas has a key role to play.
Thank you, Jorge. This is also from Andrés. Can you please comment on the yearly reduction observed in dividends coming from Enel, Promigas, and EMSA? Afterwards, comment on the yearly growth of dividends from REP, Transmantaro, Vanti, and Argo Energia.
The key thing is that Enel, as you may recall, had the write-off of the Termocartagena asset. This is about COP 380 billion in the last quarter. That one-off impacted the results of the company, but the base operating results were much better than that. That is what is creating the reduction in Enel case. Promigas, as I mentioned, they had a significant claim to the insurance companies, and that was paid last year. The base has a payment of a claim that makes it, when you look at the observed dividend coming from Promigas. What we show here was the net income of Promigas, but the dividend from Promigas, I don't think is going down. EMSA is not material, so I don't think it's worth talking about EMSA. I'm reading here, yearly growth from dividend from REP, Transmantaro, Vanti, and Argo Energia.
Please comment on the yearly increase. On the Argo Energia case, which is the one that has changed the most, it was the two acquisitions. One is the acquisition that was closed by mid-year, Rialma III. That was a very interesting and positive business development as we managed to close the transaction without competition because of our credibility in the market in Brazil. Both Peruvian businesses are benefiting from the organic growth, plus when we show the numbers here, plus the exchange rate benefit. Those are the main numbers impacting the dividends.
Thank you, Jorge. Can you please comment on your main forecast by country discriminating organic and inorganic growth?
We look a lot at the quantity and price, and we are benefiting from both, basically across the operations. In Peru, we are still connecting, although at a lower pace, but we're still connecting a lot of new clients, and the actual climate conditions have also supported more consumption from thermal plants. In Peru, we benefit from quantities, new clients being connected, and also the thermal plants, and also more conversions. The government is actually supporting a program to convert more vehicles to natural gas with a significant positive impact on the environment. On price is the indexation that we have. Unfortunately, inflation, unfortunately for the macro environment, inflation continues to be high and we benefit from that also in the Peruvian business.
You may remember that Cálidda, which is the key business in Peru, had a tariff renewal last year, and that tariff increase captures the investments that were made during the last five years at the time of the reset of the tariff. At some point, the tariff was going to increase about 17%, given that we are being paid for the investments made in the last five years. Brazil, is inorganic, as we have mentioned now a few times, is the benefits of Rialma III for the full year, and of course, the most important one, which is the Quantum acquisition. Remember that the total acquisition cost was about $860 million, and we are going to have the results from that. Colombia, basically, is what we're showing this quarter, that is going to deliver results.
Basically, the Colombian impact, again, is the inorganic strategy plus the indexation that we are allowed to capture in our transmission business, plus the UPME assets, not the old assets. The UPME auction assets are U.S. dollar based, so we have benefited so far by the depreciation of the currency. That should come down a little bit over the If the exchange rate maintains at the current 4,500-ish level. Less material, but we are also capturing, in Guatemala, tariff increases, peajes, as we go through the regulatory, as we navigate the regulatory system, and close the gap between the physical completion of the project, with about 92%, and the revenue that we get from the total expected revenue, which is now about 62%- 63%.
We're closing that gap and continue working on that, which is basically the recognition by the regulator about some assets that are capable or in full operation by now.
Thank you. Before I ask the next questions, I remind everyone you can ask your questions at any time, in the Q&A section, in the chat, in your upper part of the screen. You can also raise your hand if you want to talk to us and ask your question live. Please comment, also from Andrés, from Corficolombiana. Please comment on how costs have evolved discriminating between indexation and volume.
In the tables and all the numbers that we have published, you can get all the details. In general, what we are seeing is, as you are pointing perhaps, is the combination of, yes, we have indexation in our revenue, but we also have some indexation in our cost. The most important one to differentiate is in Cálidda, in which there is a pass through, so it's just a short-term working capital impact. It doesn't have an impact on margins. Nothing different from the previous explanation of having price and cost indexed, mostly aligned, and quantities fortunately increasing across the board, given both the health of the economies and also the extra capacity or extra connections that we are doing, both mainly in Cálidda, in which we're connecting much more clients.
Thank you, Jorge. We have a question from Rahul. Rahul, you can unmute your phone now.
Thank you. Thank you, Jorge, Manuela. I just had one quick question. This was on all the draft decrees that were published after Petro tried to take over CREG, and then there was a draft decree published on spot prices on how distribution companies should enter into longer term PPAs. Do you think the whole issue has settled, and how do you think this will impact GEB and Enel Colombia? I just wanted your thoughts on this, because that was the main issue we discussed last conference call, and it seems to have died down a bit.
Thank you, Rahul, for your question. Juan Ricardo, do you want to comment?
On that regard, Rahul, I think there is every time more evidence that there is some speech that is done for the bases. If you look at the ministers and the people executing the policies, all of them are people that are quite reliable, open-minded. They have always had their door opens to look at the issues in depth. We feel quite confident that at the end, the technical reasonable solution to the different issues that arise are resolved, as you've seen with the later regulations that have been enacted in a reasonable, objective way. On that, we are pretty, I would say, confident on the people that are leading those discussions. The political street discussions, we try to listen the least possible in order not to get distracted.
If you look at what is being done, I think is what you would expect in any objective discussion on trying to solve the issues that arise. The last solution, based on the dramatic increase of the production price index, there was an agreement that they didn't correspond to any reality or any material expense that companies were really incurring. It became a windfall for exogenous reasons that were not under anybody's control. It made sense to come up to an agreement on how to resolve that. So far, every issue has been solved the same way, we feel confident on the way going forward.
Rahul, perhaps in the way you asked the question, you are right in the sense that perhaps the urgency, is not what it was, from the government perspective, what it was three or four months ago. The overall energy regulatory framework is working. There is one element that is being addressed, which needs to be addressed, which is the balance between supply and demand and more supply coming to market. Of course, in any market, if you have more supply, prices will go down. Colombia has significant challenges or moving forward, the different projects, especially the wind and solar projects that are being developed in the north of the country, in Guajira, and what we see recently is the government focusing on trying to help some of those projects move forward.
We can say that from our Colectora consultations, in which they have supported us to come to agreement with some communities that were perhaps having some very high expectations from their demands perspective, about what an agreement could look like. That will be key. We have seen signals from some important players in those projects, companies that are trying to develop those projects, that they are having major difficulties in moving forward the project. You saw the president, even last week, made some comments about the government needing to actually support the development of those projects, in order to have a real energy transition as opposed to a narrative.
I think the shift towards supply and helping projects move forward, specifically coming from words from the president in an industry meeting last week, is a positive signal that in my mind, recognize the importance of having more supply and ensuring that supply, at the end of the day, reduces the prices. The conversation on the spot prices, which is perhaps the most important one, probably will not go away. We feel that there may be technical ways of moderating or addressing those spot prices without damaging the total structure and the price signals of the energy generation matrix. The long-term contracts for the distribution, those are associated with very small distribution companies, so they don't really have a material impact on the overall market structure. From the list that you mentioned, that's perhaps some more elements to add. Manuela.
If I may have one last thing. The National Plan that was enacted as legislation a week ago, it has an article that will allow us to bring to market Colectora sooner than we were expecting. If you can now begin all the approval of the environmental licenses and permits, while you can still advance the consultations with the communities. They were one after the other, which created significant delays, and one community could held the whole process of approval of licenses. The government made that significantly more flexible. You can present some of the documents licenses not at the beginning, but throughout the approval process. It's a significant change in regulation that has been brought by the government in order to facilitate what Jorge correctly addresses, which is the need for more supply. That is going to be the determining factor going forward.
Understood.
Thank you.
Sorry, Manuela, I have one more question.
Sure.
This is on TGI mainly, but it seems like most of the new contracts that TGI is getting is all three-month contracts, and we're not signing the seven, eight-year long-term contracts anymore. Is this linked to the gases of life in Colombia? There's a huge contract cliff coming in 2024 where I think a third of the contracts expire. Is this now going to move to a short-term contract market, or can we see some long-term contracts in the future?
Rahul, are you talking specifically about TGI?
Yes.
Sorry. Go on.
Yeah. Is it specific to TGI, the contracts? It's going to depend a lot on Ecopetrol. We actually brought exactly that same question yesterday to Ecopetrol's president, and it's going to depend on the signals they give everybody with regards to the availability of gas supply. That's the big question mark. We cannot answer that yet. We ask, and we believe the government would benefit enormously by giving clear signals on the availability of gas in the medium to long term. That hasn't happened yet. We'll see. We brought that up, and Ecopetrol was very constructive on looking into the issue in detail, and they see the benefit of giving better signals. We are not certain. I guess they need their time to come up with their strategy.
From the TGI perspective, there is one thing I think worth noting, is that we are not expecting for TGI to sign long-term contracts in a material way because there is capacity. For people to reserve capacity on TGI, they don't have the need at this point. Because we have 40% of unutilized capacity. The take-or-pay that were put in place 15 years ago, were at the timing with the country gas production was at a peak. We are seeing volumes relatively stable, so the actual utilization and people paying for transportation, we are getting those revenues. If there are better signals from long-term availability of gas, that's an upside for us.
We expect, and we expected for a long time that the take-or-pay were going to go away, and it's normal life cycle of a hydrocarbons pipeline that once you get peak utilization, the take-or-pays go away, and people just pay for the use.
Understood. The financing strategy for that asset will also change, where without long-term contracts, getting into long-term debt will also be tough. That's it?
I think the base cash flow, which is actually associated with the utilization, is relatively stable because the gas producers have managed to continue shipping gas at the level like 550,000 cu ft/ day. That is relatively stable. The cash flow visibility is still there for quite a few years.
Yeah, understood. Thank you very much, Jorge and Manuela and Juan.
Thank you, Rahul.
Thank you, Rahul. We have one question in the chat from Andrés Duarte from Corficolombiana, and it is: Have you observed better debt conditions lately discriminate bonds from bank credit?
A few things. The international banks that were impacted by some tightening of regulatory capital requirements in the U.S., that is addressed, and now they have more capacity. Still we do not see the appetite for long, long term. three to five years is where they are. You see that Ecopetrol recently took a five-year loan. Conditions in terms of margins are relatively stable. A little bit more capital, and spreads, relatively stable but have not come down. The spreads are roughly at the level that Ecopetrol closed. I think where we see a lot of appetite is in the international bond market. People wanting to invest in emerging markets, and Colombia is in the list.
We talked to many banks a couple of weeks ago. Some of them highlighted that the new reality is that Eastern Europe, which was a significant pool of emerging market basket, is basically out of the picture, unfortunately, for the Russian invasion. Because of that, emerging market as Colombia, despite some volatility, some jitters and some noise, they look through it, and they are willing to invest in solid companies in Colombia as part of that emerging markets strategy. Rate levels are still a bit high. Inflation in the U.S. have started to come down, as you know for sure. That should at some point translate into better rate conditions, but availability, both in the banks and capital markets is there. We are seeing less clarity, I guess, in the local markets.
Given the size of the money we need, local markets are still not enough in any case. We may tap on the local markets for TGI as the company converts to peso. For, I may say, high-quality names like ours, there is bank appetite from local banks also. Yes, overall, better liquidity, and the terms have not come down yet but are slowly are relaxing. Manuela, I don't know if you want to add something to that.
No, just complete appetite. There is not an issue of appetite. It's been just a matter of costs, which we hope to see better conditions. We don't see any more questions. If anyone wants to raise their hand, if there is anything that hasn't been answered. I see one hand raised. Andrés, you can unmute your microphone now. Thank you for your question. Andrés Duarte from Corficolombiana .
Hello. Thank you. Congratulations for the results. Good luck for the rest of the year. One short question. You mentioned on the presentation that there's a new revenue recognition for the Colectora project. I just wanted to understand, is this some sort of a financial asset, sort of accounting treatment for this project? Why are you recognizing a revenue from a project that hasn't ended? Thank you.
The way the Colombian regulation works, given that these are long-term projects with long-term financing, the revenue stream is guaranteed regardless if the project is in operation or not, as long as the delays are due because of force majeure. Only when events occur that allow you to explain why the project hasn't come into operation, then you have the income that has been agreed upon UPME's invitation, and that is the case with Colectora. There is nothing that we have done that would cause the delays. All the delays are because of decisions either of the government or the communities, and those are things that are totally beyond your control. That is the way the electricity transmission projects in Colombia are being designed, and those risks are taken by the government, by the system as a whole, to be more exact.
Thank you. Yeah.
From the accounting perspective. Yes, there are two ways of addressing that. We have consistently recognizing that cash flow as revenue, on the basis that we have the right for that money. It's not a cuenta por pagar, an account payable, but it's revenue, and that's the way we have accounted for that for a while consistently. Because of that, you see margins improving as we don't have cost for the project, but we have deployed some of the capital early on. The capital deployment is not as big, but at some point it catches up, and it stabilizes margins.
Thank you. Okay.
We don't have any more questions. I hope you feel better, Andrés, if you have a flu.
Yeah.
We are always open for your questions. You can write to us to ir@geb.com.co. We will answer your questions or schedule a call at any time. I will give the word now to Juan Ricardo to see if he has some final words regarding what we expect for the rest of the year. We have one minute, we thank everyone for their contribution and participation in the call. Juan Ricardo.
We highly appreciate your questions and the fact that you are here. We are very optimistic on how the company is doing. We believe that our choices of investment and the strategic plan is going quite well. On that regard, we are just focusing on implementing strategy as we've been doing so far. We believe with very positive results. We are quite optimistic in Peru. We hope that we can get some upsides there for Contugas. That would be a significant change on the history of that asset. On the rest, all of them are in the right direction. The only one that has some challenges, as already Jorge explained, is TGI. The conversations have been quite fruitful, and we are going to continue working hand by hand with the government to do what is best for the growth of the market.
We all agree that gas is going to be key for the transition, we are going to still be working hard on making sure that works out well.
Thank you. Thank you, everyone. We'll see you next quarter or before if you need to. Bye.
Thank you very much.
Bye bye. Have a great day.
Bye everyone.