Natural gas, naturally better

 

We provide a public service and natural gas service in itself is not an easily traded commodity abroad.
 

Currently, Colombia is a producer and not only are we self-sufficient, we also export. We export because, amazingly, many people don’t believe it but in western Venezuela there is no gas – it’s all in the east. So Colombia sells Venezuela gas through the field located in La Guajira Department.
 

Natural gas is a relatively new resource in Colombia. When the first fields were discovered, which were only found by coincidence when looking for crude oil, they discovered natural gas in La Guajira and other small field elsewhere. But the La Guajira field was the most important and the one that launched the development of the natural gas market in Colombia. 

 

 

In the beginning, gas was mostly used for industry and for some thermal generation. Around the 1970s, a mass use program started, taking advantage of the fact that there were resources, especially along the Atlantic coast. From there, the government began increasing the use of gas, and in the last 15 years the growth and extension of natural gas for residential use has been extremely successful – mainly due to the alliances and the collaborative work between the government and the private sector. 
 

Nowadays and in just 15 years – which is a very short period of time for a sector that requires a good deal of maturity as well as a change in mindset for its use to be accepted and widespread – we have 6.5 million homes on natural gas. That means nearly 30 million people, if you take that on average there are 5 people living in each home. That is quite impressive growth, basically because the government established a subsidy scheme that enabled low-income users (here in Colombia people are classified in six social strata, where numbers one and two are the poorest) to have access to the service.
 

Aside from obvious economic benefits, this also affected our forests. You see, natural gas in homes is used mainly for cooking. And in the areas where lowest strata live, oftentimes there are no public services. So, these people have to use wood or other highly contaminating fuels for cooking. There have been various studies on the impact of natural gas here, and among the benefits it brings is a reduction in mortality rates and pulmonary diseases among housewives and children, who before were breathing in all the wood smoke. 
 

So that is an extremely important one of the many benefits natural gas has brought to the poor.
 

The government devised an interesting scheme in which the wealthy, high social strata pay a special contribution and those funds go towards subsidizing services for the lower strata. This also happens in other utilities like electricity and water. This was a fundamental step.
 

In the case of Bogota, for example, gasoline [used for cooking in some homes] was replaced. This gasoline had been a serious social problem because it comes in little bottles, it’s highly flammable and dangerous, and the number of accidents it caused in Bogota was enormous. Natural gas helped solve this problem that was most widespread in the lower classes. 
 

So, natural gas has had a tremendous, positive social impact on the country. 

 

 

Two years ago, production and demand statistics were released at the same time, and the former surpassed the latter. Today, we’re producing around 800 million cubic feet a day, of which 200-250 million are exported.  From a certain perspective, we’re guaranteed gas in the long term. They are also considering building regasification plants on the Atlantic coast to allow Colombia to import gas in the future. 
 

Moreover, we’ve got a lot of big players around here, many of whom are exploring for gas. They’re even exploring for shale gas, which definitely changed the face of the sector on a global scale. We know that for the U.S. presently gas use is a priority, and certainly that must be driving technology for new uses forward. This, of course, benefits and contributes to the entire sector worldwide.

 

 

Historically, Valle del Cauca has been a very prosperous region. Our agricultural sector has always been successful, with a number of large sugar cane producers exporting to the U.S. and other countries. 
 

However, it’s also been an area of conflict; we’ve still got some guerrilla warfare going on in the mountains in the Pacific region. For a time we also had problems with drug trafficking, and I must say that in a way that affected the optimism and confidence of the businesspeople and general population. At one moment, Valle del Cauca passed through a period of stagnation that also affected our political leaders. Nevertheless, since a few years ago, because we fought drug trafficking so earnestly, the region has made a comeback.
 

This region has produced many leaders, many of whom have left the department and gone not only to other parts of Colombia but also abroad. Fortunately, many are returning. The “vallecaucano” wants to return to Valle del Cauca – they are coming back and it’s noticeable. In fact, it’s breathing new life and optimism into the area.

This is all a result of having motivated people who have two leaders that bring people together and unite them, and who have managed to get everyone on the same path. This change has been fundamental in bringing Valle del Cauca back, because the department has been and I believe it will continue to be a leader and very important region for the country.

Gases de Occidente was established in 1992 and when it turned 20, it was present in 16 municipalities – five in northern Valle del Cauca and 11 in the valley. Please tell us a little more about the company’s history.

Gases de Occidente is a fusion of two companies – Gas del Norte del Valle and Gases de Occidente, which only served Cali.
 

Gas de Norte del Valle offered services through an exclusive service contract given to the company by the Ministry of Mines back in the day, to work in the municipalities in the north of the valley. Originally, those two companies had their own set of shareholders; however, bit by bit, Promigas – our biggest shareholder – bought up the two firms. 
 

In 2004, the two companies merged and we hope to end this year with 900,000 customers. Growth has been huge. It really didn’t make much sense for there to be two companies in the same region; it was neither optimal nor efficient, but since the merger the two companies have grown significantly.  From zero 15 years ago to 900,000 users today, you can calculate just how much we’ve grown. Moreover, nearly 90% of industry has converted to gas. That’s an important contribution to the FTA. Besides its other infrastructure, this region holds gas as another resource and input that make it attractive to any industry or investor. 
 

We’re the number two distributor in terms of users in Colombia, after Bogota. Medellin has greater growth potential but we’re growing steadily along and we’re going to try to keep our advantage. 

 

 

It’s extremely important to us that the business be regulated, because it is the business that lends long-term stability to the company and it disperses the risk.  This is a region with a low level of unsatisfied basic necessities. Although there is poverty, it is in fact one of the regions with the largest middle class. In a way, this acts as a guarantee for the company that the majority of our users in the lower social strata have long-term stability. 
 

All of this implies that we will have a long-term and lasting relationship with our customers; it’s a life-long relationship we have as a public service. If you look at it from our point of view, every day we’re in the kitchen with the families, every morning they turn on the stove and there we are. We bring quality of life to our users.

Now I’m going to take you back to the issue you were speaking about before – social responsibility.
 

We believe that our being socially responsible is what guarantees the long term. Our customers must feel we’re part of the family, we have to earn their trust so that when that son in that family leaves and marries, he’ll also consume gas and will be our future client. Our relationship is very long-term – it’s practically lifelong if the gas doesn’t run out or if he opts for another type of fuel. The idea is that we establish a reciprocal relation of trust with our users. We trust them and they trust us. Our strategy is based on that, and from there comes another type of business we have started, called Brilla.

 

 

We would like the entire Valle del Cauca population to benefit from this product. But to be clear, Brilla is a business, not a kind of charity or anything. But it is an inclusive business because we’re including the base of the pyramid that forms the region’s economy. We’re giving them the opportunity to access products through a line of finance – products that will improve their lifestyle. We have a selection of products – we don’t lend money for luxury items but rather for important and necessary things like refrigerators, construction materials, computers – things that social strata 1 and 2 in Colombia, and especially in this region where family income is rarely higher than US$600 a month, truly need access to.

These people have very tight budgets and they form part of the unbanked sector. Banks don’t reach that type of client because they aren’t able to do a credit history check and it’s very expensive for a bank to give a loan or do an evaluation on someone whose income limits them to a 1 million peso loan, and then follow up on payment. 
 

We have a long-term relationship with our customers. As soon as he or she connects, we finance them without any kind of requirements – all they have to do is bring their ID card and we connect their gas and lend them the money they need to have gas service for six years. We don’t demand anything – it’s simply a matter of them coming, saying they want gas, they take it and then they pay it back over six years.  The customers’ reaction has been excellent. Our customers “behave” better than the banks’ customers. I tell the users: “I trust you, I’ll lend you money over six years. Take it and connect to the gas line.”

 

 

Exactly. If the customer stops paying the we cut off service, it’s a golden rule. But because we provide a quality and safe service, they trust us and pay on time. Once the six years are up, and we see that the customer has paid punctually throughout that time, we’ll tell him, continue paying the same rate you were paying for the installation – before we lent you a million pesos and you paid it back on time. Now, take another million and buy whatever it is you need and pay it back with your gas bills.
 

Now, that customer hasn’t got access to any other line of credit, or else they’re outside the banking sector through money-lenders and usurers that charge what we in Colombia call “drop by drop”; they charge by day at rates up to 10% daily. We give them the chance to have a kind of “credit card” through their gas bills. Besides offering special opportunities to our customers, Brilla is also a job generator. Because we need a sales team to go home to home, we’ve created more than 350 jobs in Valle del Cauca.

 

We’re quite interested in energy and we’d like to boost the industrial sector. There’s still much to be done in that sector. We have to raise awareness among industry in the region, where coal burning produces a lot of contamination and smog. Awareness is on the rise and last year we replaced nearly 300 tons of coal with gas. This, of course, greatly reduced carbon monoxide emissions. 
 

Alongside this, we’re also taking a stance on the ecological issue in the region. We’re coming up on saturation in the region; today 75% of our customers are connected – there is still a good number of people who have the service available but they’ve still not connected. We still have room for growth.  Although we’re a public service and we’re actually a monopoly in gas distribution, there are substitutes, such as propane gas, electric, and even wood in some rural areas.
 

We certainly have to work towards gaining greater coverage; we’d like to reach 100% of the department’s municipalities. There are still six unconnected ones. We have to review the regulations and work with the government to see how we can reach those places because they’re really far from the roads and cities. On the other hand, I think Brilla is only just getting started. Even though the figures are already big – 150,000 people are on the Brilla plan – there’s still huge potential to grow. We’re constantly innovating, seeking new products and new services that translate into better quality of life for our users. 

 

 

Natural gas is definitely the most economical of the four. However, the issue at hand is the cost of connection because the customer has to pay for that, and so that can become a hurdle. Once the customer is paying just the service, the low cost of gas isn’t the only advantage – it also lends him peace of mind because it’s always there at the turn of a knob. That is certainly a competitive advantage.
 

Our strategy is focused on turning that portion we finance (the connection) into an added value for the customer, because first of all, having gas raising the value of the home. It’s not the same selling a house with natural gas as one without gas. Secondly, through the Brilla plan, the customer can come to see that by paying off the loan he’s opened up new credit possibilities. So, the connection fee is also, in a way, an advantage rather than just an additional expense. There is another important aspect that differentiates our product and that is the quality, the security and our entire social responsibility system. In a way, it is how we assure our customers that we’re an ally and part of the family, and that we’re here for the long haul.

 

 

Our strategy is one of trust. If you want to earn the trust of your customers, you have to provide a secure, reliable and quality service. Those certifications back us up and verify that we provide a quality service, that we’re responsible with our suppliers and with our collaborators. The certifications also ensure we stay on our toes.

 

 

Our policy is that it’s more important to be than to know. For us, people are important. Colloquially put: we like working with good folk. That’s a slogan we use and try to keep in the company. We’re more concerned about a person’s emotional intelligence, though we do of course care about their competency as well. I think our idea is that people should come and work happily at Gases and that is what makes people work well, with dedication, and that they do their job well because they want to and not because they’re forced to. And that’s probably what makes us a “Great Place to Work”. 

 

 

I believe we’re a company that can offer long-term benefits with dispersed risk with our base of regulated users. We think long-term, about being sustainable and profitable. Our social responsibility system, which is the basis of our corporate strategy, while though it doesn’t guarantee, it does serve as a tool to try to be sustainable and enduring.

We’ve enjoyed healthy growth rates, every year we innovate with the aim of guaranteeing long-term stability for and with our customers. 

 

 

In developing countries, environmental issues are often relegated to second place and everyone concentrates most on productivity. This is what is happening in China and other Asian countries, because firstly there is an urgent need to create jobs.  Right now, Colombia is considered the third economy in Latin America and I think this is a landmark moment because we’re already thinking like a developed country.
 

We have to raise awareness that growth must be in balance with our environment, which once again leads us to the issue of sustainability. I think that as long as our businesspeople are socially responsible – not only in matters of environment but in terms of all of our surroundings – we will be able to guarantee long-term sustainability. 

 

 

The U.S. is the leader, it sets the standard in everything. In energy it has always led; in petroleum it is definitively a huge power with such enormous economic sway that it sets the standard for the rest of the world, starting with Latin America. I think that the matter of shale gas today is one that has changed the mold of risks and the energy strategies for the entire world. Such an abundance of this resource will bring about a change not only in the U.S., despite the fact that it is a commodity not easily traded internationally. The mere fact that technology will develop for uses as well as storage and transport, will convert shale gas into a more tradeable good and more globalized commodity.
 

It’s important that we be taken into consideration in these policies. Although natural gas is still a relatively new industry in Colombia and despite the fact that we still have a long way to go in developing from a regulatory perspective, the fact that the U.S. is not only involved but also very participative creates a lot of opportunities for Colombia – and the whole world – in this sector.

 

 

Since the inception of this company, we’ve been socially responsible from the point of view of all of our relationships with the interest groups with whom we are associated. We always strive to be transparent, ethical and go the extra mile to improve our surroundings. 
 

Developed countries don’t have the same problems that developing or emerging countries like Colombia can have. Our company, investors and all of our management team have always management socially responsible companies in our relations with our interest groups and in the improvement of our environment. As one continues along a path full of obstacles, the best thing one can do is behave decently and try to improve the path to make it more sustainable.
 

Along our path we find hurdles such as poverty. Our customers are poor and we feel it’s our duty to contribute to improving the situation, because if that improves, we advance along our path towards sustainability. One of the big problems we’ve seen in our region and in our country is education. The quality of education is quite poor and we’re convinced that education, as our board director says, is everything.
 

It’s been proven everywhere that educated people earn higher salaries than uneducated people. Therefore, as our company grows, we’ve contributed resources to a foundation through which we’re supporting projects to improve education in this region. It’s a very global ideal – together with our shareholders we work on the Atlantic coast and we’re also in this part of the country. But in our specific case, we have a program with the foundation called “Reading Schools”. 
 

It’s not our intention to take over this area for the state government. What we want to do is contribute because there are definitely problems that the state has not been able to resolve and so we want to lend a hand. Based on studies, we’ve found that the quality of education bears heavily on literacy rates among children. There are many reasons – poor diets and nutritional deficiency, teachers with poor methodological training…
 

There are many problems in education, but once a child learns to read, learning becomes much easier at the primary and secondary levels. Reading comprehension is a hugely important factor in improving education. We’ve been working at this in the “Reading Schools” programs, and we go to public schools in poor areas and donate libraries. However, we also give the teachers support so they can see how the program links to the families and to the teachers so they can teach the pupils through stories, teach them to read, get them into the habit of reading, and above all, help the children to actually voluntarily acquire the habit.