Good day, ladies and gentlemen, and thank you all for joining us for this Colbún Third Quarter 2020 Earnings Conference Call. As a reminder, today's session is being recorded, and all lines are in a listen-only mode, but you will have the opportunity to ask questions after the prepared remarks. To get us started today, I am pleased to turn the floor over to Mr. Sebastián Moraga. Please go ahead, sir.
Hello to everyone, welcome to Colbún's third quarter 2020 earnings review call. My name is Sebastián Moraga. I am the company's CFO, and joining me today are Miguel Alarcón, our Deputy CFO, and Soledad Errázuriz, and Isidora Zaldívar from the investor relations team. I hope that you have received our earnings report and an earnings review presentation that we have prepared to complement the analysis of our figures. Otherwise, you can download them at the investors section of our website. Agenda for today on slide three is as follows. We will begin talking about the highlights of this quarter to then analyze in detail this quarter results. After that, we will provide an update on our growth opportunities. Following the presentation, there will be time to participate in a Q&A session. Please go to slide number four to review the highlights of this quarter.
First, regarding the COVID-19 pandemic contingency, the company's power plants are operating normally, and Colbún has taken actions considering two priority focuses. First, to protect the health of personnel, suppliers, and our surrounding communities. Related to this, home office was established for all the positions that can carry out their function with this mode. This corresponds to 98% of our headquarters employees. Secondly, for positions with functions in which an on-site attendance is critical, this working mode is maintained, but with the necessary safeguards. Also, to ensure the continuity and security of the energy supply, measures were adopted to ensure the procurement of the necessary supplies for the correct operation of all power plants. Power plants maintenance were postponed after assessing in the cases that it didn't risk the operational continuity and integrity of each generation unit.
Regarding the impact of COVID-19 on energy demand, there is still uncertainty about the magnitude and length of this contingency. Energy demand in Chile has decreased approximately 2% during the third quarter of this year compared to same quarter 2019. While in Peru, there was a decrease of approximately 4%. In August of this year, Colbún and Walmart Chile extended their energy supply contract. The contract will be supplied with 100% of renewable energy for 330 GWh a year for a six-year period. The agreement also includes the installation of nine charging stations for electric cars and supermarkets in the metropolitan region and other regions of the country. In September of this year, Colbún announced the acquisition of 100% of Efizity, a company focused on energy solutions in the national market, with the purpose of enhancing the company's value proposition by incorporating solutions related to energy management.
Efizity is a company specialized in energy services, which aims to improve competitiveness of its customers by promoting energy efficiency through innovative solutions. Today, Efizity holds a diversified client portfolio in the industrial, mining, real estate, retail, educational, hospitality, and health sectors, among others. Finally, regarding company's transmission assets, in September of this year, the board of directors agreed to carry out a process that involves the invitation of actors with experience in power, infrastructure, and financial transmission industries in order to explore their interest and the conditions in which its possible participation could be agreed either as a strategic partner, acquiring a majority position, or acquiring up to all the shares of its subsidiary in Colbún Transmisión. Now, please go to slide number five to review the main consolidated figures of the company.
Consolidated EBITDA for this quarter reached $175 million, decreasing 2% compared to the $179 million posted in the third quarter of 2019, mainly explained by the lower operating income recorded during the period. This effect was partially offset by lower raw materials and consumable use costs in Chile and lower fixed expenses, especially those denominated in local currency, driven by the exchange rate depreciation compared to the same quarter of last year. Consolidated profits reached $62 million, 14% higher than the $55 million in profit in the third quarter of 2019, mainly explained by the lower non-operating losses recorded. Financial investments totalized $966 million, and net debt to EBITDA ratio is at 1.2x . The average long-term financial debt interest rate in U.S. dollars is 3.9%.
Colbún has a total installed capacity of 3,811 MW, comprised of 2,188 in thermal units, 1,614 in hydro units, and 9 MW from the PV plant. In terms of transmission assets, it owns 899 kilometers of transmission lines and 27 substations. Now I will turn to Soledad, who will speak about the main drivers of this quarter's results.
Thank you, Sebastián, and hello to everyone. Now please continue to slide seven for our physical sales and generation balance analysis in Chile. Total generation of the period increased 37% compared to the same quarter of last year, reaching 3.5 TWh , mainly due to, first, a higher gas generation driven by additional contracts that allowed to operate with the two combined cycles during the quarter. Second, a higher coal generation due to the lower availability of Santa Maria during the third quarter of 2019, explained by the major maintenance schedule and the finding of a failure in the steam turbine. Last, due to a higher hydro generation explained by more favorable hydrological conditions. These effects were partially offset by a lower wind generation, mainly due to the expiration of the San Pedro power plant contract in May 2020.
Physical sales during the quarter reached 3.5 TWh , 19% higher than the third quarter of 2019, due to, first, higher sales to the spot market, mainly explained by higher generation during the quarter. Second, higher sales to unregulated clients due to new contracts entering into force in that segment. Those effects were partially offset by lower sales to regulated clients, driven by the expiration of the contract with Saesa in December 2019, and by a lower energy demand driven by the state of emergency currently declared. Spot market balance during this quarter recorded net sales for 787 GW h, compared with the net purchases for 338 GW h in the same quarter of last year, mainly as a result of the higher generation during the quarter. Please continue to slide eight to analyze the EBITDA from the generation business in Chile for the quarter.
EBITDA of the generation business in Chile reached $141 million this quarter, decreasing 3% compared to the third quarter of 2019. The lower EBITDA this quarter is mainly explained by the lower operating income recorded during the period. This effect was partially offset by lower costs of raw materials and consumables used, and by lower fixed expenses, especially those denominated in local currency as a result of the depreciation of the exchange rate compared to the third quarter of 2019. Please continue to slide nine to analyze the EBITDA from the transmission business for this quarter. EBITDA of the transmission business reached $19 million this quarter, increasing 7% compared to the $17 million EBITDA recorded in the third quarter of 2019, mainly explained by an increase in operating income driven by an increase in the national segment income.
That mainly due to the commissioning of enhancement and expansion projects of the company's current transmission assets and by tariff revenues reassessment corresponding to the period March 2019 and January 2020. Now please continue to slide 10 for our physical sales and generation balance analysis in Peru. Total generation of the period decreased 12% compared to the same quarter of last year, reaching 1 TWh , driven by, first, the lower plant availability explained by the gas turbine scheduled maintenance on August 2020 for 10 days. Second, the court request to stop operating three days during July, given the lower system energy demand. Physical sales during this quarter reached 1 TWh , decreasing 12% compared to the third quarter of 2019.
The decrease is mainly explained by lower sales to the spot market, driven by the maintenance performance on August, and as a consequence of the court's request not to dispatch for three days in July due to the lower system energy demand. The decrease is also explained by lower sales to customers under contract, mainly due to a state of emergency decreed by the Peruvian government due to COVID-19 pandemic, and to lower sales to regulated clients due to the expiration of the CUS contract in December 2019. Spot market balance during this quarter recorded net sales of 342 GW h, compared to the net sales of 430 GWh during the same quarter of the previous year, due to the lower generation of the period. Please continue to slide 11 to analyze the EBITDA in Peru for this quarter.
EBITDA in Peru reached $16 million, in line with the EBITDA recorded in the third quarter of 2019. Please continue to slide 12 for the consolidated non-operating income and net income analysis. Non-operating income this quarter presented losses of $25 million, lower than the losses of $34 million in the same quarter of last year. The lower losses are mainly explained by a positive effect of the exchange rate variation on temporary balance sheet items in local currency during the quarter, while that effect was negative in the third quarter of 2019.
This effect was partially offset by the lower financial income earned during the period, driven by lower interest rates applicable to cash surpluses at local and international levels. The company recorded this quarter profits of $62 million, 14% higher than the $55 million profits of the same quarter of last year. The higher profit is mainly explained by the lower non-operating losses recorded, already explained. Continuing with the conference call, please continue to slide number 14, where Sebastián will give you an update on the status of our growth opportunities.
Regarding our growth opportunities in Chile, we have focused our growth in renewables based on three pillars. First, developing a pipeline of projects. Regarding the incorporation of renewable energy from variable sources, up to this date, Colbún has been able to complete a portfolio of locations for wind and solar projects, which are in different stages of studies and development. Horizonte, a wind farm of 607 MW located in the Atacama region. Diego de Almagro Sur 1 and 2, two PV projects of an overall capacity of 230 MW located in the Atacama region. The total investment amount approved for this project is $147 million. Machicura, a PV project of 9 MW located in Maule region. Total investment approved for this project is $7 million. Inti Pacha, a PV project of 486 MW located in Antofagasta region. Jardín Solar, a PV project of 537 MW located in Tarapacá region.
Los Junquillos, a wind farm of 265 MW located in Biobío region. Additionally, at the end of this quarter, Colbún holds a portfolio of locations for other wind and solar projects, which are in early stages of development. For more details on this slide, you can refer to the latest earnings reports available at our website. The company does not rule out the purchase of renewable assets in operation. Finally, the third pillar of our growth in renewables is acquiring energy from third parties. Regarding the transmission business, Colbún has several projects for the expansion and enhancement of the company's current transmission assets, with a total award and investment value of approximately $34 million.
In terms of our international expansion strategy, as we have mentioned before, we continue searching for growth opportunities in selected countries of the region in order to maintain a leading position in the power generation business and to diversify our sources of income. This concludes Colbún's third quarter of 2020 results review. Thanks for listening, and now we are open to answer your questions.
Mr. Moraga, thank you. Thank you, Soledad, for your remarks as well. Now, ladies and gentlemen, if you would like to ask a live question over your telephone line, simply press star and one on your telephone keypad. Pressing star and one will place your line into a queue, and I will open your lines one at a time. Also, a friendly reminder that if you're joining us today on a speakerphone, please return to your handset prior to pressing star and one to be certain that your signal does reach our equipment.
Once again, ladies and gentlemen, if you would like to ask a live question over your phone, simply press star and one on your telephone keypad at this time. We'll take just a few moments to allow everyone a chance to signal. Once again, ladies and gentlemen, that is star and one if you would like to ask a live question of the management team. Gentlemen, we do have a signal from the phone audience. Mr. Rodrigo Mora with Moneda, please go ahead.
Hi. Good morning, everyone. Do you hear me?
Yes, Rodrigo. Hi.
Thank you for the presentation. I have a couple of questions. The first one is related to the action to factor the accounts receivable. If you please give some details about this transaction. The second one is related to the hydro condition for this melting season. If you please give us more color about these hydrology conditions. The third question is related to the ability of Argentinian gas for this summertime.
Rodrigo. Yes, sure. Let's take one by one, right? This is Miguel. First of all, regarding the stabilization mechanism financing, as you know, over the past month, we've been working a financing solution for the accounts receivable generated by the mechanism I just explained with IDB, Inter-American Development Bank, and also a commercial bank. The financing mechanism is saying that the structure of a true sale, that would mean that we would sell the account receivable without any recourse to Colbún or other generation companies that can participate into a facility. T hat financing is still underway, still in progress, and we expect to close this financing by year-end. Apart from that, I think we cannot provide any more details about, of course, the financing terms and conditions, since this is still something being currently structured.
Okay.
Do you want to go to the next question, or do you have a follow-up?
Yes.
Okay.
Yes.
Regarding the next question, Rodrigo, as you know, in terms of the hydrological year, meaning from April to March, we are a bit below what is an average year in the different basins of the company, being the one most affected, the Aconcagua Basin, as has been the case in the previous years. In terms of reservoir levels, basically, we're seeing similar levels that we saw last year. For example, the Colbún reservoir is currently 426 meters above sea level, which is four meters high compared to the same period last year.
Finally, as you mentioned, according to a third melting forecast published by [inaudible] some three weeks ago, we see that there's an average exceedance probability for the system that is lower than the one registered in the same forecast, the same report in 2019. That means that we expect greater water inflows than the ones from the same period last year.
Sorry, could you repeat the situation at Aconcagua Valley, please?
Yes. Just bear in mind that I'm making figures in comparison to an average year, not the previous year.
Okay.
I said that compared to an average year, the basin most affected is the Aconcagua Basin, and the least affected, of course, is the Chapo Basin, which actually presents a [inaudible] and surplus, 0.4% surplus.
Over a normal year?
Yes, an average year.
In Aconcagua?
No, sir, in the Chapo. In Aconcagua, it's-
Okay.
Close to 40% below.
At the south of region.
Yes. The northern part is the one mostly affected. Close to 40% in Aconcagua.
40% less than a normal year.
Yes. All of these figures, Rodrigo, nevertheless, are reported in our earnings report, separated by basin.
Okay. Perfect. The situation in Maule, Laja and Biobío?
Again, [crosstalk] .
0.4% less than a normal year?
Chapo is 0.4% over a normal year. It's better than a normal year.
Over a normal year.
Yes. The Aconcagua is 40% below a normal year.
Yeah
In between, I would say also in between those figures. Again, not to take everybody's time, I think we can either go in a separate call or you can refer to the earnings report that we published a couple of days ago.
Okay.
Regarding gas, you also asked about gas, right?
Yes.
So-
The availability of gas for this summertime from Argentina.
I'm not sure if gas is going to be available or not at this point, Rodrigo, because currently we are in negotiations with local suppliers for potentially this summer period and for the first quarter of next year. Having said that, you have to recall first that these agreements need approval from the government, since they work as export licenses. More important than that, because of the current marginal cost level, which is, let's say, at $30 per megawatt-hour on average, at this point, at least, and considering also the melting forecast I just described, I don't see a particular need for nominating gas, at least up to this point.
This, of course, is dynamic and might evolve in the upcoming weeks. Again, the message is that we're currently under negotiations to see if gas is going to be available, and after that, if we decide or not to nominate that gas.
The decision is not made until now?
Yes. It is not, because on one side, we are still negotiating potential agreements, while on the other, it is not clear, at least to me, if that gas is needed or not, considering the marginal cost level and the potential improvement in water inflows.
Yeah. Okay, you are expecting that the average marginal cost of the first quarter 2021 will be, on average, $30 per megawatt hour?
No, Rodrigo. I'm making the comment from the summertime, for the upcoming months. For the first quarter of next year, I think it's safe to assume, as has been in the past, that the system and Colbún will need gas for the combined cycles, and we're working in the most efficient way to source that gas. That's still under development. I'm not trying to make a forecast on the marginal cost for the first quarter of 2021.
Okay. May I ask you a last question?
Sure.
Related to the Colbún transmission business, when the board will make a decision about the alternatives that the company's exploring at the market?
Yes. Regarding that point, first of all, Rodrigo, as you recall, it was back in September 8, when we published this essential fact stating the board's decision that was to agree to carry out a process that involved inviting those actors, local, international, in order to see potential alternatives regarding our transmission assets. Right? In terms of the status, I can say a few things. First of all, is that the process has generated high interest from national and international potential investors. We, of course, cannot further comment on details about which parties are the ones that already have signed documentation in order to access for more information.
The discussion at this point with those parties have been on the assets' technical, operational, and financial information and the progress into those areas. Unfortunately, to your question, Rodrigo, we cannot provide further details on the process or timeframes involved on when do we expect to reach a decision. It's going according to our schedule.
Okay. Miguel, just only one question related to yesterday or the lower chamber, Chile approved the idea, the closure of all coal power plant by 2025. I would like to have the impression of Colbún on the impact that Colbún will have to have, maybe legal actions that Colbún will have to take against the Chilean state in case this law would approve.
Yes, Rodrigo, we are following, of course, that discussion with a lot of interest. I would say that it's too soon to maybe discuss what you're asking, because that's still something that needs to go through different stages along the way, and the actual decision and the conclusion might change along the way. Having said that, of course that we've been part of the decarbonization process led by the Ministry of Energy.
We have participated in the decarbonization table along with the other generators. We, of course, I would say as a general idea, we agree with the concerns and arguments presented by the Ministries of Energy and Environment, as well as the CNE. Other than that, of course, at least I cannot comment about potential consequences and impact for Colbún about this issue, because as I mentioned, this is still a process in progress, and the final outcome cannot be anticipated at this time.
You understand that the shareholder at the next shareholder meeting will demand to the board that in case that the Chilean parliament approved this law to closure a coal power plant at the end of 2025, the shareholder will demand to the board take class action against the Chilean state, right?
I understand, Rodrigo.
Rodrigo-
Both of them. Yes, please, go ahead.
Rodrigo, good afternoon. This is Sebastián. We obviously cannot comment what supposedly will happen on the future shareholders meeting, Rodrigo. Whatever the shareholders demand. The time will come. We'll see what happens at the shareholders meeting. We cannot advance or give any thoughts on what could happen. We cannot cover your concerns in this conference call, Rodrigo.
Okay. Thank you.
Ladies and gentlemen, once again to our listening audience, that is star and one on your telephone keypad, if you would like to ask a question or need clarification on anything covered in today's meeting. Gentlemen, we'll give just another moment or two for everyone to signal with star and one. Mr. Alarcón and Mr. Moraga, we have no signals from the phone audience. Gentlemen, I will turn it back to you for any additional or closing remarks.
Okay. I would like to take this opportunity to thank you for attending our third quarter conference call. It was great being with you, and hopefully we'll see you on our next conference call meeting when we have our closing figures for the year 2020. I wish you a very good afternoon and a happy weekend. Take care, and bye-bye to everyone.
Ladies and gentlemen, this does conclude today's Colbún conference call. Thank you all for your attendance. You may now disconnect your lines, and we hope that you enjoy your weekend.