This article main purpose is to present briefly the principal aspects of the legal system in Colombia for all those who want to invest in matters related with electric energy for first time.
Colombia is a country located in South America and has borders with Venezuela, Brazil, Peru, Ecuador and Panama. Its special location implies that the country has diversity of sources of electric energy production as the water, oil, gas, sun, and wind among others. Historically, electricity supplies mainly depend on hydroelectric production, making the country vulnerable during the strong dry seasons. Therefore, it is necessary the implementation of new plants or solutions based on different technologies such as the thermic, solar or wind with the aim of ensuring a constant supply and lowering prices of energy.
*Geovisor del IDEAM – 2020
This need has been identified by the government and foreign investors. During the last years, Colombia has developed an attractive market for investments in matter of electricity, taking into account renewable energy, energy efficiency and energy transition targets. Currently, the regulatory framework regulates topics as energy self-production, investment tax incentives and aids to the production of energy with renewable sources.
As an example, the investment tax incentives are deducted of the income tax (impuesto a la renta), accelerated the depreciation of assets (depreciación acelerada de activos), exemption VAT tax (IVA) and customs duties (arancelario). In our opinion the country should have more tax incentives than those provided by the law 1715 of 2014.
Electricity markets differ from others due to the fact it involves the trading of a commodity that cannot currently be easily stored, and that is produced using a large variety of generating installations, including through distributed generation and only can be deliver through girds or networks. For that reason, it is not possible to allow full freedom for market participants, being a regulated field.
In Colombia there are different ways to commercialize energy depending of multiple factors such as the qualification of users or the use of public networks. The investors must be careful because the rules of the market are several and complex. Therefore, having a legal advice from a law firm specialized in energy is essential to ensure the business.
The legal system in Colombia is the civil law, namely the system is based on the superiority of written law derived from fundamental normative principles given by the “The constitution”. Laws in Colombia are statutes created by a legislative body, and in relation with matters of energy ones of the most important laws are the Law 142 of 1994, Law143 of 1994, Law 1715 of 2014 and Law 1955 of 2019.
Due to the fact that the energy sector is highly regulated. There are a lot of rules and different laws that have to be regulated by administrative authorities through decrees and resolutions, these authorities regulated the different dispositions according to their functions detailing how the laws should be applied. In general terms the “Ministerio de Minas y Energía – MME” is the authority in charge of directing the sector, the “Unidad de Planeación Minero Energética – UPME” makes the plaining to the grid and the production, the “Comsión de Regulación de Energía eléctrica y Gas – CREG” ensures the competition in the market, and the “Superintendencia de Servicios Públicos Domiciliarios – SPPD” and the “Superintendencia de industria y comercio – SIC” are in charge of surveillance and sanctions to all market participants.
On the one hand, being advised in administrative law is necessary because most of the rules came from administrative authorities; additionally, in Colombia the electricity is considered a public service. This knowledge is important because the foreign investor must know for example, what the applicable regulation is, and how to discuss the administrative acts that regulate its activity.
Colombian Constitution established that the government is the one who must guarantee the provision of the service, however, the provision of the service can be realized through private undertakings. That means existing competition in the sector and foreign investment are allowed but at the same time the government can modify market conditions.
In relation with the business, besides the administrative law, is important to have knowledge and advice in commercial law. Commercial law regulates aspects as: The Competition at the market, that supervise behaviors of abuse of a dominant position, anti-competitive behaviors, antitrust, barriers to entry, and unfair competition. Also, the investor have to take in account the rules for incorporate a legal entity, which includes the bylaws, board of directors, certificated of incorporation, conflict of interest, dividends, general meeting of shareholders, fiduciary duties, mergers and acquisitions among others commercial transaction from the daily operations of the entity.
On the other hand, for the development of projects the investors must count with knowledge at environmental law, land use law, contractual law, social law, among many other aspects. In conclusion, the advice to the foreign investor must be complete, for which the contact with a local law firm (as Estudio Legal Hernandez) with recognized experience in the sector is highly recommended.
If you are interested in obtaining more information and legal advice, do not hesitate to write to us at email@example.com or directly to our ELH team.
Energy Director ELH
Associate Lawyer ELH