MANAGEMENT REPORT
2019
Confidential
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Board of Directors
Luisa Fernanda Lafaurie
Carolina España Orlandi
Juan Alberto Londoño Martínez
Germán Quintero Rojas
Rodrigo Galarza Naranjo
Luis Fernando Perdigón
Mauricio Cabrera Galvis
Julio Andrés Torres García
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Table of Contents MESSAGE FROM THE PRESIDENCY ...... 1 1. FDN, THE DEVELOPMENT BANK THAT PROMOTES INFRASTRUCTURE ...... 3 1.1. Impact and sustainability ...... 11 1.1.1. Sectors ...... 11 1.2. Promotion of infrastructure standards ...... 19 1.2.1. Commission of Experts and Intersectoral Commission on Transportation Infrastructure ...... 19 1.2.2. Interinstitutional agreements and international alliances ...... 20 1.2.3 Standards and methodologies ...... 21 1.3. National and international recognition of FDN ...... 21 2. GOVERNMENT STRUCTURE ...... 23 3. FINANCIAL EVOLUTION OF FDN ...... 29 4. BUSINESS ARCHITECTURE ...... 33 4.1. Business Process ...... 33 4.2. Human Talent ...... 35 4.3. Information Technologies ...... 40 5. EXCELLENCE IN RISK MANAGEMENT ...... 43 5.1. Risk Management System ...... 43 5.2. Integrity, Transparency and Compliance ...... 51 5.3. Internal Control System (SCI) ...... 52 6. REGULATORY ASPECTS ...... 53 6.1. Operations with partners and managers ...... 53 6.2. Judicial contingencies and impact ...... 55 6.3. Anti-corruption and citizen service plan ...... 60 6.4. Document management ...... 60 6.5. Compliance with intellectual property and copyright regulations ...... 62 6.6. Certifications ...... 62 6.7. Free circulation of invoices ...... 62 6.8. Coexistence Committee ...... 62 6.9. Supply chain ...... 62 6.10. Subsequent events ...... 63 ANEXOS ...... 63
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Anexo 1. Indicadores corporativos 2019 ...... ¡Error! Marcador no definido. Anexo 2. Detalle proyectos de estructuración en el subsector transporte ..... ¡Error! Marcador no definido. Annex 3. Detail of former FEN projects in execution ...... 72 Annex 4. Inter-institutional agreements in force signed in years prior to 2019 ...... 74 Anexo 5. Metodologías para preparación de proyectos ...... ¡Error! Marcador no definido. Anexo 6. Comités internos ...... ¡Error! Marcador no definido. Anexo 7. Categorías generacionales ...... ¡Error! Marcador no definido. Anexo 8. Informe anual de gobierno corporativo FDN 2019 ...... ¡Error! Marcador no definido. Anexo 9. ART. 446 del código de comercio ...... ¡Error! Marcador no definido. Anexo 10. Atención de PQRS...... ¡Error! Marcador no definido. Índice de Tablas ...... ¡Error! Marcador no definido. Índice de Gráficos ...... ¡Error! Marcador no definido.
We thank all the employees who were part of the preparation of the 2019 Management Report
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MESSAGE FROM THE PRESIDENCY
2019 was a year of great opportunity and impact for FDN. From an internal perspective, in 2019 we began to migrate towards an income structure more in line with our corporate purpose: interest as the main source of income, which we will consolidate in 2020. In 2019 we almost doubled the total portfolio we had as of December 2018, reaching $2.35 trillion; and in parallel, we prepaid $2.67 trillion corresponding to ordinary bonds issued in 2017, which constituted the majority of our treasury investments. This return was motivated by the decrease in past, present and future projects due to the repercussions of the corruption scandal at the Odebrecht construction company, the ruling of the arbitration court for the Ruta del Sol II project and the fiscal restrictions that make it difficult for the government to launch large infrastructure programs. All of the above forces us to make an evaluation of our business strategy, including, among others, methods of financing, the way of building our project pipeline or the emphasis on each of our business lines.
On the other hand, in order to find our path, we start from the conviction that the liquidity of the projects and companies in the infrastructure sector are a very valuable asset for the development of the country. In my opinion, liquidity, understood as the possibility of investing knowing that there is a market where investments can be easily traded, is the best way to attract world-class investors. Creating new products that invite more and more sectors, projects and investors is how we at FDN work constantly to make our market more liquid every day.
Restrictions on access to capital have always been the main causes of countries' infrastructure deficits. Our 1991 Political Constitution allowed us to break this cycle. The development of the electricity, communications, road and port sectors, etc., has come hand in hand with the engaging of private capital and progress in the way this type of opportunities is financed in the world. We have already reaped the rewards and have a good base of world-class investors.
Colombia has been doing well and the world political and economic situation has made investors and financiers of the world consider us as an option for their businesses. I would like to make special mention of the recent entry of portfolio investors into the road sector as a foothold for more investments in Colombia. The possibility of having access to capital at the service of our country's development is an opportunity that we must embrace and face with enthusiasm, optimism and professionalism.
Structuring! We know that for projects to be financeable it is necessary to have a first-class structuring. We are also convinced that structuring is a discipline that can be replicated in all infrastructure sectors. Our mission then is to make our knowledge available to central and local governments for an ideal development of our infrastructure that contributes to the competitiveness of the country and to reduce the gaps.
In this report you will be surprised by the wide range of sectors where, and the ways in which, FDN has participated: from highways to mass transportation, including the Bogotá metro; from renewable energy to advice on engaging new capital to energy distribution on the Caribbean coast; from senior debt to bond issues for non-traditional investors; from hospitals to schools, including urban renewal projects; from advice to direct investment; from supporting the infrastructure
1 experts committee to participating in best practices in project preparation; in short, countless ways to support the sector's liquidity!
Therefore, we are confident that a careful, consistent and focused strategy throughout the life cycle of the projects is the contribution that the FDN team makes to the development of the country. Following this vision, we invite you to read our management report where we want to share with you the work of which we are very proud.
To conclude, I am sure that the achievements set out here belong to all of us, and that the challenges for this 2020 encourage us to continue working as a team. All of the above would not be possible if we did not have a team of honest employees dedicated to building the country that we all dream of.
I am grateful for the dedication, commitment and trust of our employees, shareholders, clients, investors and those strategic allies who have encouraged us in our daily work to achieve our objectives. A special mention goes out to Francisco Gómez who was the person in charge of coordinating the teams for most of 2019.
I would like to thank each of the members of the Board of Directors for giving us their vote of confidence and having a clear objective to contribute to the transformation of Colombia. I receive this objective as part of my work and I am very happy to be part of the FDN team.
Francisco Lozano Gamba FDN President
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1. FDN, THE DEVELOPMENT BANK THAT PROMOTES INFRASTRUCTURE
Since its foundation, FDN was created to respond to the financing needs of infrastructure projects, including the 4G program, the most ambitious in Colombia's history; it also included within its corporate purpose the capacity to offer consulting services, and thus prepare projects that can be financed, with reliable payment sources, adequate risk allocation and mitigating factors, in an appropriate institutional and regulatory environment, under market conditions, allowing private parties to participate in their execution.
Given the experiences of recent years and in line with the needs of the sector, we have begun to consolidate a comprehensive vision of infrastructure and the impact that we can generate. By the end of 2019, we have a portfolio with which we are able to participate in different project stages: providing advisory services, directly financing projects and offering financial alternatives through the treasury and the capital market, and investing directly in infrastructure bonds. In addition, since December 2018, FDN has been strengthening its capacity to invest equity in projects and companies in the sector through INFRAMCO1, an affiliate of FDN.
Therefore, our business model (Chart 1) supports the development of our mission, to achieve our corporate vision and to strengthen our value proposal.
Mission
“We are the Development Bank that promotes infrastructure for the transformation and well-being of the country.”
Vision
“To be the best financial ally for the development of the country's infrastructure.”
Value Proposal
“To offer innovative and specialized advisory and financing services and products that allow the mobilization of resources and facilitate the participation of the private sector in the development of infrastructure in Colombia.”
1 Infraestructura Asset Management Colombia (INFRAMCO) was incorporated in December 2018. 3
Pre-investment Investment Exploitation
Planning Comprehensive Awarding Preconstruction Construction Reversion structuring
Pre-Investment Technical, Legal and Financial Generation of Structuring STRUCTURING Fund Structuring of debt issues in the new sources of AND Studies and CM Refinancing payment CONSULTING Programs through Capital through CM Advice for debt collection Markets (CM)
Senior and Funding Line in THROUGH Subordinated Pesos CREDIT Loan Refinancing
Guarantees Liquidity Facility
THROUGH TREASURY Fixed-Income AND FX trading desk CAPITAL Trading Desk
MARKET Money Market Distribution desk PROJECTFINANCING DIRECT Investment in infrastructure bonds INVESTMENT ASSET Investment in the capital of projects or MANAGEMENT companies in the sector
Chart 1. FDN Business Model
Development of Bankable and High-Quality Initiatives to Achieve Engagement of Private Entities
The development of initiatives under the modality of Public-Private Partnerships (PPP) and the hybrid variants developed by FDN2, have been the main mechanisms through which we have achieved the implementation of projects needed for the country. This requires quality structuring, which allows for the generation of trust in the private stakeholders that participate in their execution. In the case of infrastructure, this is the responsibility of the financiers (both the financial sector and the sponsors of the concessionaires) and the constructors who execute the works, as well as the legal advisors and investment banks, among others, who analyze the structure of the projects and guarantee their quality.
Political interest is fundamental in order to develop projects; however, the lack of resources for structuring is a generalized restriction that makes it difficult to develop ideas and progress towards their feasibility. This restriction even prevents the beginning of the first studies to explore the alternatives to cover the identified needs. The studies are a key element to develop a structuring that contemplates the technical, legal, financial, environmental, social and property aspects of the project, which allows for the structuring to be comprehensive and to contribute to improve the contractual management of public entities, while the studies allow the identification, assessment, assignment and proposal of mitigation mechanisms of the foreseeable risks of the project.
Aware of this need and seeking to solve the lack of resources to develop studies, as a first initiative we are setting up a pre-investment fund, which has its own capital and third parties to co-finance the implementation of studies, and thus make viable and structure the projects. This pre-investment
2 It refers to a concession model where part of the payment of the civil work is made for milestones and not for service availability. This results in lower financing costs for the project, maintaining the benefits and risk allocation of the traditional PPP scheme. 4 fund will be key to the development of the initiatives and will be a source of projects that, in the future, can eventually be structured and financed by FDN.
As part of our service offer, in FDN we carry out studies and develop comprehensive structuring (technical, legal, financial), where new tools and methodologies have been applied to improve the profile of the initiatives, seeking to achieve international standards and thus, attract world-class investors and financiers to successfully carry out their execution.
As of 2019, and as a complement to the comprehensive structuring, we are able to provide advice for the collection of public debt that may be required by projects that, due to the size of the investment and consequently of the financing, cannot be the object of a typical PPP. In the last year we have specialized in developing financial analyses, so that these offer support to public entities for decision making in order to achieve greater value generation. Additionally, we can advise on mergers and acquisitions (M&A), initially oriented to the public sector.
In line with the importance of having structuring that gives a seal of quality to the projects, in FDN we have worked hand in hand with Bogotá Capital District, in structuring projects where we have been able to contribute our technical knowledge and also acquire experience that we have replicated in other cities in the country and we will surely be able to replicate in many other municipalities in Colombia. During 2019, we carried out studies and structuring in the sub-sectors of transportation, energy, social infrastructure and urban and territorial renewal, and we are proud to know that we were the strategic allies of Bogotá Capital District to achieve the award of two key projects for the city of Bogotá: (i) The First Line of the Bogotá Metro (PLMB) and (ii) the concession of the Bosa Hospital; projects that positively impact the mobility and well-being of the people of Bogotá. Additionally, we structured the expansion of the infrastructure of the TransMilenio System to Soacha in its II and III phases, which has an important impact on mobility to achieve access to the city of Bogotá.
Another typically essential ingredient for a successful PPP or hybrid project is the existence of a predictable and timely source of payment or revenue to the concessionaire. That is why FDN has devoted significant effort to understanding how national or local governments can generate new sources of funding for projects. We are able to advise them at different stages and with different products and services (e.g., indebtedness, securitization of future flows, investment banking, among others), thus closing the FDN's participation in the entire project cycle. The use of mechanisms such as the residual value of concessions or the securitization of future flows allows the nation to obtain resources in advance, which become a source of payment and financing for the development of other infrastructure initiatives, in scenarios of high fiscal restriction that limit the allocation of resources for project development.
Project Financing through Credit Products, Treasury and Capital Market
Another of the pillars that have contributed to the development of infrastructure has been project financing through different credit products, such as senior debt, bank guarantees, funding line in pesos and liquidity facility, which have allowed the participation of other national and international financiers in project financing, achieving an increase in the number of financing entities, making the sector more liquid and competitive, that is, we continue working to reduce barriers to project
5 financing. During 2019, we made disbursements of COP$1.7 trillion and commitments for COP$1.4 trillion.
In addition to the credit products, we complemented our portfolio by offering the service of structuring the issuance of debt securities, which allows us to expand the base of financiers and attract new resources, opening up other possibilities to traditional financing. In 2019, we advised for the first time a securitization, in this case to achieve the financing of the renovation of the fleet of the Calle 80 yard (TransMilenio, Bogotá), called TMAS1 which had the quality of being the first sustainable bond issued in Colombia by an issuer that does not belong to the financial sector. The amount of the issue was $131.35 billion, achieving a AAA (col) rating issued by Fitch Ratings. It is important to highlight that this issue included a liquidity line from FDN, which was a key factor in improving the rating and being able to successfully carry out the placement. This first issue was supported by the World Bank, which has been supporting this type of initiative, allowing the promotion of the local capital market for the financing of infrastructure projects. In this project, the importance of a comprehensive business strategy became evident, since after being structured by FDN, the financing mechanism was also advised.
We consider one of our objectives to make the infrastructure capital market more dynamic, and that is why we also make direct investments through securities issued in the sector. This also rewards us by diversifying our investment portfolio, seeking greater profitability. We know that with our dedication and enthusiasm we will be able to generate confidence in all those interested in investing and supporting structured issues to finance projects in the sector. In line with the above, in 2019 we participated in the two issues to renew the TransMilenio fleet, TMAS1 (co-structured by FDN, as mentioned above, and for a value of $131 billion) and BMP SUR (structured by Corficolombiana, for a value of $497 billion). In the first issue, our participation was 9.12% and in the second issue, BMP SUR, it was 6.03%.
Another of our challenges is to support the expansion of currencies of the financing sources, so we are developing products to minimize the exchange risk, as it happened with the implementation of the novated Forward, a product that provides coverage and minimizes counterparty risk since the forward is settled and compensated through the Central Counterparty Risk Chamber (CRCC).
In more advanced project stages, where the risk level is lower and concessionaires seek alternatives for refinancing debts and reducing financing costs, FDN can participate through credit and capital market products, making the debt cost structure more efficient as the projects advance in their construction stage or enter into operation and maintenance.
Investment in the Capital of Projects or Companies in the Infrastructure Sector
To complete the life cycle of infrastructure projects, at the end of 2018 FDN set up the affiliate Infraestructura Asset Management S.A.S. (INFRAMCO). This affiliate is able to make investments in assets or companies in the infrastructure sector through the private equity fund Coinversión Equity Infraestructura Colombia (FCP) whose investors are all the Colombian private pension funds, FDN, and INFRAMCO, with an interest of 80%, 19% and 1%, respectively.
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According to the fund's regulations, the fund will compulsorily co-invest with CDPQ3, one of the most important players worldwide in the infrastructure sector, with whom FDN has strategically allied to invest its resources in our country.
Through this vehicle, long-term capital investments in infrastructure can be made, providing equity for the projects, freeing up the capacity of the sponsors that participate in infrastructure, and in parallel, FDN develops experience and knowledge in the investment process and asset management of the sector. At the end of 2019, INFRAMCO had registered investments of $24.5 billion.
Product and Business Development
Following our path, in FDN we have an area specialized in developing new products and business lines that generate benefits for the sector and for our businesses. During the year 2019, our main developments were:
• Underwriting: this product arises as a tool to eliminate gaps in the local market and to make viable, encourage and mitigate the risk of placing debt securities related to the infrastructure sector in the Colombian public securities market. With this product, the bond market with local ratings below AAA is developed, allowing new issuers and investors to benefit from the conditions that the Colombian public securities market offers and to increase investment alternatives by bringing new options to the market, both in terms of sectors and in terms of risk and profitability. • Liquidity Facility for 4G Infrastructure Projects: in 2019, in addition to the uses that in previous years the liquidity line had had, the possibility that projects could obtain the liquidity necessary to cover tax obligations (income tax) generated by the income of the DR's (Collection Difference) was included, thus mitigating an additional liquidity risk. • Liquidity Facility for Renewable Energy Generation Projects: with the objective of promoting the development of projects for the generation of Non-Conventional Renewable Energy Sources (NCRES), FDN structured a new liquidity line that is available to generators from 2020. With this product, FDN seeks to facilitate the financing of these projects under the project finance scheme, providing financial support and improving the credit quality of the projects by granting liquidity instruments in order to meet their financial obligations in a timely manner. Additionally, it covers the risk of non-compliance on energy purchase and sale agreements, especially long-term auction agreements carried out by the National Government, and makes the development of new projects viable by optimizing the cost of capital required. • FONDES: The National Fund for Infrastructure Development - FONDES, is a stand-alone trust fund created by Law 1687/2013 with the objective of encouraging the development of infrastructure in Colombia through different uses, such as (i) to finance FDN for the fulfillment of its corporate purpose, (ii) to finance and/or invest in infrastructure projects or companies, (iii) to invest in mixed or official public service companies. The Ministry of Finance and Public Credit (MHCP), together with FDN, has been working with the objective of putting FONDES into operation and thus benefiting the infrastructure sector in Colombia with the active participation of this new vehicle and the incorporation of its resources
3 Caisse de Depót du Placement du Quebec 7
directly within the different alternatives and opportunities offered by the sector in the Colombian economy. • Other Product Initiatives under Study: at the same time, FDN is analyzing other products through which it hopes to (i) close market gaps, (ii) attract new capital and/or mobilize a greater amount of resources, and (iii) encourage the development of infrastructure in Colombia by incorporating and encouraging the participation of different actors. Along these lines, products that have already been successfully used at the global level are case studies for FDN: a. Subordinated debt: has been widely used in other countries to finance infrastructure projects given the benefit it generates in the capital structure. However, this product is not offered on a large scale in Colombia and through it, FDN seeks to (i) make a greater number of projects viable, (ii) offer a source of higher risk financing that aligns interests with project sponsors and (iii) develop a new financing instrument with a differentiated risk-return profile that allows attracting new participants.
The product serves to optimize the equity contribution requirements while maintaining a reasonable debt profile, based on the income generation of the projects and their associated risk.
b. Long-term foreign exchange coverage: an alternative to boost the financing of infrastructure projects in Colombia is the access to new sources of financing or long- term investment from foreign agents. This requires the development of products that mitigate the foreign exchange risk for projects or the project risk for international agents. FDN has been working on this type of initiatives so that project sponsors can access sources of financing in dollars, thus expanding the resources available for the development of the infrastructure sector in our country.
FDN Growth and Profitability
As we mentioned, 2019 was a year of great impact, which implied the need to make a turnaround in strategy, and therefore initiate the review of the five-year projections for the project pipeline, financial closures, disbursements, portfolio balances and profitability, and take measures beyond those related to the mission business, such as developing alternatives to build a financing mechanism that allows FDN to adapt to market and resource conditions in accordance with the evolution of the business. In November 2019, the ordinary bond that had been issued in 2017 for $2.67 trillion was returned to the FONDES Special Account administered by the Ministry of Finance and Public Credit. In FDN, we decided to rethink the strategy for financing our operations, mainly for the following reasons: (i) the rate of commitments and disbursements that we expected did not occur, and therefore these resources were not being used in our financing operations, but were being managed through the treasury; (ii) the liquidity projections that we had for the year 2020 did not estimate the use of all these resources; and (iii) a rate increase had been stipulated for the month of December 2019, so this measure had to be taken to protect the balance sheet. The return of the ordinary bond challenged us to find a financing mechanism that would give us the flexibility to raise funds according to the needs of the business and to market conditions.
In the development of our strategy we have managed to exceed the budgeted profits for the year and we continue in the search to achieve profitable and sustainable growth over time, and with an
8 impact on the country's development, which we measure through the strategic indicators and goals that we define for each year. This measurement is made through four dimensions:
• Generate a pipeline for the sector through structured projects or those in the structuring process. • Achieve growth in terms of portfolio and commitments. • Promote diversification, which allows reducing the dependence of projects in a single sub- sector. • Balance the first three indicators by seeking profitability on equity that has, year after year, a growing trend.
Table 1. 2019 Strategic Indicators.
Real PptoProp. Real Ejec. Vs. Ppto Meta INDICADORESINDICATORS Exec. Vs. Prop. Dic.Dec. 20182018 2019 2019 2019 2022 GeneraciónProject Pipeline de Pipeline Generation de proyectos
NúmeroNumber deof projectsproyectos structured estructurados and in y en procesostructuring de estructuraciónprocess (accumulated (Acumulados since 2014) desde 18 22 20 91% 56 2014) CrecimientoGrowth
SaldosPortfolio de balances cartera (billones (COP trillion) de COP) 1,301.30 1,881.88 2,352.35 124.9%124,9% 12,7
CompromisosUndisbursed commitments no desembolsados (COP trillion) (billones de COP) 3,623.62 6,026.02 3,503.50 58.1%58,1% 8
DiversificaciónDiversification PercentagePorcentaje concentration concentración on en roads carreteras 57,35%57.35% 59% 58% 102% 53% 193% RentabilidadProfitability ROAE 4,37%4.37% 6,16%6.16% 6,44%6.44% 104.48%104,48% 11,70%
In terms of project pipeline generation, at the end of 2019 FDN had 20 structured projects or projects in structuring process. Although this year the target for this indicator was set at 22 projects, the situation of change in local governments reduced the possibilities of increasing this number. The two projects that added to this indicator in 2019 were the structuring of the Cali, Yumbo, Jamundí and Palmira commuter train, and the study with Empresa de Renovación Urbana de Bogotá (ERU) for the Public-Private Partnership of the new District Administrative Center (CAN), meeting the target for this indicator by 91%.
With regard to growth in the project finance business, we achieved significant results in portfolio balances as a result of the progress of projects and the greater disbursement requirements that occurred during the year. We also maintained a greater participation in non-road projects, which allows us to generate new capacities and greater knowledge in sub-sectors other than 4G, supporting the gaps closing in other types of infrastructure.
The net portfolio increased from $1.3 trillion in 2018 to almost $2.35 trillion at the end of 2019. This implied a growth of 81% compared to the previous year, and a 125% compliance with the budget of
9 net portfolio balances which was defined at $1.88 trillion. The evolution of this net portfolio by sector is presented in Chart 2.
Evolution of Net Portfolio Balances by Sector 2016 - 2019 (Figures in trillions) $2,50 $2,00
Trillions $1,50 $1,00 $0,50 $- 2016 2017 2018 2019
CarreterasRoads DesarrolloDevelopment y transporte and Urban Transport urbano EnergíaEnergy OtrosOther Sectorssectores
Chart 2. Evolution of net portfolio balances by sector 2016 - 2019 FDN
As for the commitment balance indicator, this reflects the double effect of a faster pace of disbursements during 2019 and the postponement of financial closures that depended on the normalization of 4G project schedules by ANI, and of negotiations of financing documents in transactions approved in the 2019 period, which took a longer time to complete. As a result, the balance of commitments shows 58.1% compliance with the budget.
With regard to diversification, which is measured based on the historical commitment from 2014 to 2019, the result for closure was 58% concentration on roads, compared to a budget of 59%, maintaining the path so that by 2022 we will reach a concentration on roads of 55%. This result is largely explained by commitments to financial institutions, with the funding line in pesos. As a result, the historical commitment of FDN closed in 2019 with $4.6 trillion on roads and $3.2 trillion in other sectors, as detailed in Table 2.
Table 2. Accumulated Commitments
Commitments Total 2014 – 2019 (Trillion Pesos) Interest Roads (includes liquidity line + guarantees) 4.61 58% Other sectors 1.28 16% Financial Institutions 1.47 19% Debt funds 0.16 2% Equity Strategy 0.37 5% Total 7.90
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Finally, the profitability indicator, ROAE, had, by the end of 2019, a result of 6.44% against a budget of 6.16%, achieving an improvement over the 2018 result of 4.37%. Operating income was 94% fulfilled, mainly explained by the treasury income that represents 50% of the total income, which was 86% fulfilled due to the change in investment strategy that was carried out from April onwards to make, in November, the return to the FONDES Special Account of $2.67 trillion corresponding to the ordinary bond issued by FDN in 2017.
In terms of infrastructure financing, there was a 105% overcompliance, explained by higher portfolio disbursements ($300 billion), which generated higher portfolio interest income of $31 billion. Operating expenses were executed by 89.7% and the items in which better execution was achieved were personnel expenses, fees and general expenses, for a value of $13.059 billion. This led FDN to obtain a profit of $111.767 billion, thus achieving 101.9% compliance with the approved budget for the year.
At FDN we follow up, through the corporate indicators board, on the objectives of our strategic map, which by the end of 2019 was 103% compliant. The results are shown in Annex 1. 1.1. Impact and Sustainability
At the risk of repeating information presented in the previous section, we would like to share with you our vision of the impact we have had as a result of our work, on each of the sectors we serve. At FDN, our vision is to be the best financial ally for the development of infrastructure, and although we have achieved significant growth in our service portfolio and our products, as well as in the evolution we have had as an organization, our premise is the generation of impact on development. Therefore, we would like to share with you what for us is an essential part of our raison d'être: to generate transformation and well-being in the country.
Additionally, from the development of our role we have achieved a better perspective of the current state of the environment in which our business is developed and from our experience we can generate not only contributions at a technical level, but we are able to promote changes that facilitate the evolution of the sector, because we know the gaps first-hand and we have a professional, specialized and committed team that is able to apply best practices, standards and learning in the different stages of the projects.
After achieving an important progress in the 4G concessions program, and being aware that a program of these dimensions is not expected in the future, at FDN we must strive to achieve a better preparation of projects so that they are welcomed and attractive to the market. We can also identify and make viable sources of payment that encourage the creation of new initiatives and promote regulatory changes that make the scheme under which projects are currently developed more efficient, among many others that we can lead and thus complement what we have done from our missionary businesses to contribute to the development of infrastructure. 1.1.1. Sectors Even though the aforementioned challenges have existed for years, in 2019 we managed to continue participating in road, transportation, urban mobility, energy, ports, and health and educational infrastructure projects, in an environment that, although with opportunities for
11 improvement, requires the participation of different stakeholders to make the projects viable and on our part, to continue participating actively, combining technical capabilities, service and product portfolios, being a link between the public and private sectors, promoting high standards and generating a positive impact for infrastructure.
4G Road Program
As we explained at the beginning of the chapter, part of the motivations that resulted in the creation of FDN was to support as a priority the financing process of 4G road concessions. This program began to have financial closures in 2016 with 8 projects, 2 more projects achieved their definitive financial closure in 2017, 4 in 2018 and 5 in 2019, for a total of 19 definitive financial closures at the end of 2019. FDN has participated directly in 11 of these projects through its senior debt products, multi-purpose subordinated facility and equity guarantees, making us currently the individual financier with the largest amount of commitments approved for the program.
At the end of 2019, the value of the financial closures of the 19 projects (16 definitive closures and 3 partial financings) was estimated at $25 trillion, of which the international banking has a 33% share, the local banks have 27%, FDN contributes with 14%, debt funds with 10% and the remaining 16% comes from institutional investors. It should be noted that the projects in which we are currently participating as financiers have a reasonable deadline to complete the works schedule on time, as agreed in the concession agreements.
Notwithstanding the financial closures that have already been achieved, the speed with which the program was expected to be developed has not been as expected, since some 4G projects have presented delays in their implementation, mainly due to difficulties in property management, in the processing of environmental licenses and other technical difficulties for the construction of the works.
About 6 4G projects could reach their definitive financial closure in 2020. These closures require approximately $7.75 trillion in debt and FDN plans to participate in 3 or 4 projects, with an estimated amount of up to $1.4 trillion.
Transportation and Urban Mobility
As part of the subsectors with the greatest potential, the transportation and urban mobility sector is one of those that has achieved significant development in recent years. Both the National Government and regional governments have begun to explore initiatives and allocate resources to improve this type of infrastructure, improve equipment and develop mechanisms to optimize mobility logistics, responding to the needs of users and increasingly emphasizing the importance of having projects structured with quality.
The challenges and needs in the transportation and urban mobility sector in terms of structuring projects for the coming years is mainly focused on strengthening the sector institutionally, developing projects for access and urban passages, implementing a reengineering of public transport systems and incorporating the new vision of logistics embodied in the CONPES 3982.
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During 2019 we actively participated in structuring, financing and capital market businesses in this sector. In structuring, we were awarded the First Line of the Bogotá Metro (PLMB) and the extension of TransMilenio Soacha phases II and III, in which we also participated as financiers. During 2019 we began the implementation of the technical, legal and financial structuring of the following projects: (i) La Dorada - Chiriguaná Railway Corridor, (ii) Cali, Yumbo, Jamundí and Palmira Suburban Train, and (iii) Structuring of the Integrated Public Transportation System (SITP) of the Barranquilla metropolitan area.
The Intermodal Transportation Master Plan (PMTI) corresponds to a commitment led by the National Government that began in 2013 and aimed at developing a strategic vision of the country's infrastructure and transportation needs. This plan, which has had continuity under the new government, had three phases developed by the end of 2019, with the participation of FDN.
In the first phase (2015), a methodology was proposed to identify infrastructure needs and build a pipeline of projects with a national scope and a 2035 horizon, including all modes of transportation. This exercise resulted in a pipeline of more than 200 projects, with an estimated investment cost of $210 trillion. It also made a first analysis of the sources of payment in order to develop this pipeline.
In the second phase (2016), and in view of the fiscal limitations of the national government, a prioritization of projects was carried out based on criteria of socioeconomic profitability and accessibility, which concluded with a selection of 65 projects for the first decade, and an estimated value of $49 billion. Likewise, solutions were proposed for access to urban areas, a scheme of management of logistic corridors to complement logistic operations and infrastructure, and to advance in the search for new resources for the development of the projects, in particular property charges and the residual value of concessions.
In the third phase, within the framework of the PMTI III (2018 and 2019), we accompanied the definition of a legal, institutional, technical and financial scheme to implement the National Valuation Contribution (CNV), in order to find new sources of resources for the infrastructure projects previously prioritized in the Plan. Together with the National Government, the Cartagena - Barranquilla corridor was selected as a pilot project, for which it is estimated that revenues could reach approximately $596 billion, with a total of 59,956 property units that are part of the project's area of influence. We also conducted a legal analysis of the residual value mechanism of concessions, which was accompanied by an initial valuation of possible assets for the fund. The residual value of concessions scheme was presented to the National Government and it was decided to implement it in Colombia. The Fund for Alternative Sources of Payment for the Development of Infrastructure (FIP) was created in law 2010/2019 (economic growth law), which has the purpose of administering and managing resources that may be used as a source of payment for the development of infrastructure projects, including resources derived from collections of national construction of valuation and resources from the residual value of concessions.
Regarding the development of urban mobility infrastructure, we completed the first studies for the following projects: the AV. 80 Mass Transport corridor in Medellin, the Sustainability of the SITP in Bogotá, the integral validation of the Modal Integration Centers (CIM) of Calle 80 and Autopista Norte in Bogotá, the re-engineering of the SITP in Bogotá and the study to find alternatives to minimize evasion in the TransMilenio system.
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In financing, during 2019 we participated in the financial closure for the construction of phases II and III of TransMilenio in Soacha and to support the Transcaribe mass transport system in Cartagena.
On the other hand, from the Capital Market, as previously mentioned, we carried out the co- structuring of an issuance in the local market to finance the renewal of the fleet of the Calle 80 lot of the TransMilenio system in Bogotá through the TMAS-1 securitization, whose underlying asset was the future cash flows in which the economic rights of the fleet provision concession agreements signed between TransMilenio S.A. and the SI2018 concessionaire are materialized. We can proudly point out that this is the first sustainable bond issued in Colombia by an issuer that does not belong to the financial sector. Having the sustainable bond seal means that the issuance simultaneously complies with the principles of green bonds and social bonds promoted by the International Capital Market Association - ICMA4. As a result of the renewal of the fleet, this project will generate environmental and social benefits, both for the renewal of the combustion technology, and for the use of adaptations to achieve the inclusion of vulnerable population, respectively.
The mobility subsector represents one of the most promising for FDN due to the needs raised, the political will to develop projects, and because from our portfolio we can participate in any stage of the project. Additionally, we already have the experience, lessons learned and the highest standards to replicate in projects in the main cities of the country.
Details of the projects in which we participate in structuring can be found in Annex 2.
Energy
The search for diversification alternatives led us to explore the needs and projects related to the energy sector, with emphasis on the non-conventional renewable energy subsector, because Colombia is one of the last countries in the region to diversify its matrix with this type of energy, which is more affordable and sustainable. Since 2016, we have been working to support the diversification of the Colombian energy matrix, firstly as advisors to the Ministry of Mines and Energy (MME), for the design of the so-called Program for the Incorporation of Renewable Energies (PER), whose objective was to define the country's integral vision of clean energies and to establish the bases of public policy and the regulatory framework necessary to attract the investment that the country requires in terms of renewable energies, and secondly as financiers of the projects that result from the public auction processes promoted by the MME or those resulting from bilateral negotiations.
In 2019, FDN's Board of Directors approved the financing of two solar power operations, which are the first of their kind to be financed under the project finance scheme. At the end of December, the negotiation of the credit documents for those projects was at an advanced stage and they are expected to be signed in the first quarter of 2020.
4 The improvement in air quality is due to the replacement of existing buses (which met Euro II - III standards), with a fleet of natural gas buses that meet Euro VI standards, generating a decrease in the city's pollution as a result of reductions in CO2 emissions and other pollutants, which will have a positive impact on the health of Bogotá's population, due to the possible reduction in diseases caused by high levels of pollution.
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Likewise, we are in discussions with the concessionaires of the projects awarded in the first successful auction of Non-Conventional Renewable Energy held by the MME in October 2019, in order to participate as financiers. This auction resulted in 8 projects with a capacity of 1.4 GW and an estimated investment of $5 trillion.
Given that in the short and medium term it has been estimated that there are projects with relative progress in their identification and feasibility for 4.7 GW and investments between $8 and $12 trillion, we have made progress in the design of specialized products for this type of project, including liquidity lines and subordinated debt.
It should be noted that projects of this kind have an impact on the country's environmental sustainability, given their contribution to the energy transition in times when climate change demands it. These types of solutions represent not only a potential in projects to be financed, but also allow for the generation of an impact on the transformation and well-being of the country, as stated in our mission.
On the other hand, in our work as financial advisors, we are currently working with Electricaribe S.A. E.S.P. in Liquidation (ECA) to define, structure and implement the solution that is most appropriate to achieve continuity in the provision of electricity service in the areas served by that company, taking into account the protection of the rights of users and creditors. The Electricaribe process is currently in its final stage, with the awarding scheduled, at the time of this report, for February 28, 2020.
The progress in the process of engaging investor(s) for the local distribution and regional transmission system, as well as for the activity of commercialization of electricity served by Electricaribe has been significant during 2019. On April 4, 2019, the Regulations for the Submission of Binding Offers and Disposal of Shares of Electricaribe were published, thus formally initiating the process. These regulations incorporate the new guidelines of the National Government to “increase the participation, competitiveness and likelihood of success of the solution” that allows engaging one or several investors with the financial muscle and experience required to face the financial and operational situation of the company, and to ensure the electricity distribution service in the Caribbean region.
In order to promote the process, FDN’s team and its advisors conducted a national and international Roadshow, presenting the main elements of the transaction in visits to potential interested investors. Similarly, we attended all market consultations prior to the end of the pre-qualification process and the asset, through the different means provided for that purpose. As a result of the efforts made with the interested parties, 6 potential investors were pre-qualified on May 31, 2019.
In order for the pre-qualified investors to prepare their firm offer for the acquisition of the total or partial market served by Electricaribe, together with the advisory team, we are coordinating the due diligence process, dealing with the respective consultations, and making the management presentations and technical visits together with the company's management team. Additionally, for the approval of the National Development Plan Law 2018-2022, together with the advisory team, we accompanied the National Government in the preparation of the regulatory decrees, with which two fundamental elements are defined for the transaction, (i) the regulatory scheme of transition applicable to the operation of Electricaribe and (ii) the mechanism of assumption of pension liabilities and the Business Fund by the National Government.
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FDN maintains some agreements in force in the energy sector, which are not being performed and which correspond to the former Financiera Energética Nacional - FEN, which are listed in Annex 3.
Social Infrastructure
Seeking to generate alternative models for the development of the works and to ensure the physical and economic sustainability of the projects over time, during 2019 we advanced in the structuring of social projects in two highly deficient sectors: health and education. Convinced of the importance of having a suitable structuring and taking into account that the needs in these sectors are not limited to a deficit in coverage but also to the precariousness and technological backwardness in the existing one, the projects structured in FDN integrate a technical solution incorporating the development of an innovative model that facilitates engaging private parties and that allows the promotion of good practices and efficiencies, and facilitates financial sustainability. Thus, at the end of 2019 we achieved a historic milestone for the country with the first successful awarding through the PPP modality for this type of infrastructure. The Bosa hospital, which is included in the Hospital Infrastructure Program of the city of Bogotá, was awarded in December 2019 to the Spanish plural structure called INORIN Consortium, made up of Grupo Ortiz and INCOT, one of the four pre-qualified bidders. With this structuring process, the Capital District saved $122 billion (December 2018 pesos) in its awarding, that is, nearly 11.5% over the official budget. The design and construction stage of the hospital is 42 months and the operation and maintenance stage will be 15 years. This hospital provides the city with 215 beds, with services of low, medium and high complexity; it is oriented to chronic patients and benefits around 400,000 people from the localities of Bosa, Kennedy, Puente Aranda and Fontibón, attending population of strata 1, 2 and 3, and population of scarce resources that are not affiliated to the mandatory health plan. The CAPEX for this project is $212.84 billion pesos and the future terms are $1.04 trillion at May 2019 prices.
As part of this hospital infrastructure program, FDN will continue working in 2020 to complete the structuring of the Usme Hospital, which it expects to be awarded in mid-February 2020. This project will have 221 beds with infant-nursery and perinatal orientation, and will provide medium and high complexity services. The CAPEX for this project is $265.297 billion pesos and the future terms are $280 billion pesos at June 2019 prices.
On the other hand, the Santa Clara Hospital + CAPS will be developed by the Centro Oriente E.S.E. Sub-network, under the DBOT modality (Design-Build-Operate-Transfer) for a period of five years. It will have 314 beds and will specialize in chronic diseases, providing services of medium and high complexity. The CAPEX for this project is $389.066 billion pesos and the future terms are $510 billion at June 2019 prices.
Similarly, FDN will be structuring the Instituto Materno Infantil and Simón Bolívar hospitals under the Public-Private Partnership (PPP) scheme. The studies and products corresponding to the integral structuring are in the completion stage and in the first quarter of 2020 the final versions are expected to be delivered to the Secretariat of Health in Bogotá so that, depending on fiscal availability, the validation and approval procedures can be initiated.
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Moving on to educational infrastructure, in compliance with Inter-Administrative Agreement 0857/2015 signed with the Ministry of National Education - MEN, the national educational infrastructure program is being structured through the Public Private Partnership (PPP) scheme, which consists of the construction, operation and maintenance (not including pedagogical services) of 21 schools in Medellín and Barranquilla for the implementation of the full school day, which will benefit around 22,000 students.
The project is divided into 13 schools in Medellín and 8 schools in Barranquilla. A total of 564 educational classrooms and 247 complementary spaces such as sports courts, laboratories and libraries, among others, will be built. The projects will be financed with contributions from the Nation and contributions from the Territorial Entities (Medellín and Barranquilla).
In October 2019, the Ministry of National Education (MEN) asked FDN to review the structure of the transaction already delivered (the Ministry of Education being the grantor), carrying out a budget analysis and legal feasibility so that the certified territorial entities are the grantors of the agreements and not the MEN, as originally planned. The result of the analysis and feasibility will give the guidelines for the activities that must be carried out in the reorganization of the transaction structure.
Urban and Territorial Renewal
Structuring is also an alternative to be able to develop urban renewal projects that, as a result of the decreasing availability of land for construction or recreation, is an option to be able to give a better use to the already existing constructions, providing not only an aesthetic improvement, but also allowing the development of alternatives to optimize the use of the land, which in turn will generate a positive impact on the quality of life, access to new services and security for the people who live in or near the areas subject to renewal.
Urban renewal involves the transformation of the appearance and infrastructure of one or more elements of the urban and/or rural area that affect the quality of life of the population and also represents a change in the dynamics of the area and access to it, sometimes involving the development of infrastructures that belong to other sectors; however, the integrality of the projects is what allows a real contribution to the transformation of the communities and their territories.
FDN's participation in projects such as Corredor Verde in Cali, Ciudad Río and Centro Internacional Tequendama in Bogotá, as well as San Rafael Park and Aerial Cableway for Bogotá and the municipality of La Calera, has made it possible to incorporate pre-investment study and analysis methodologies that facilitate converting the ideas of the different promoters into viable projects, which has translated into the proposal of transaction schemes in accordance with both the availability of resources and the technical and urban challenges involved in the projects.
The structuring of urban renewal and territorial transformation projects presents great challenges, as it involves large projects with strategic physical and spatial areas for the territories, which translates into high resource needs and sometimes wasteful administrative approvals and procedures, which are difficult to manage and measure in order to achieve the implementation of projects.
FDN seeks to develop structures that can generate solutions for the following challenges:
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1. Explore and generate innovative transaction schemes that produce the necessary incentives to attract private investment.
2. Achieve that the sources of resources originated in soil capture processes become instruments to make financing viable and thus generate sources of actual payments.
3. Define specific rules that give viability to the development of the project.
At the end of 2019, FDN continued with the implementation of the Special Management and Protection Plan (PEMP) for the Centro Internacional Tequendama (CIT). In this project, FDN is advancing the procedures for the approval of the PEMP, so that it will have the urban rule for the performance of the works within the framework of a business model that ensures the sustainability of the equity securities together with the insurability of the resources for maintenance.
In 2020 it is expected to achieve an intervention approach agreed with the equity authorities and thus obtain the respective authorizations to initiate the formal processes of searching for investors.
On the other hand, in development of the agreement signed with the Water and Sewage Company of Bogotá (EEAB), we advanced the studies, designs and integral structuring of the project San Rafael Ecological Park and Aerial Cableway, located in the municipality of La Calera, in the department of Cundinamarca.
As a result of the products developed and delivered by FDN, the EAAB advanced the selection process for the implementation of phase 1 of San Rafael Park, which includes the construction of the works and the landscaping of the park. This process was initiated on December 28, 2018, but was suspended by an interim measure filed by EAAB's trade union, and by the end of 2019 it was still suspended. With regard to the aerial cableway, to date, the products of the studies and designs and the documents of the integral structuring of the project have been completed, and the approval of some deliverables by the inspector's office is pending in order to proceed with the settlement of the agreement. The continuity of the project depends on the lifting of the interim measure and the new Mayor's Office of Bogota deciding to perform the works. In our advisory role we have developed an important knowledge in the field of urban renewal given our participation in the aforementioned initiatives. With regard to the financing of projects that impact this type of infrastructure, in 2019 we closed a $100 billion financing operation allocated for the canalization works performed by the District of Barranquilla through the District Infrastructure Agency, where the so-called arroyos have been a problem for years in the city during the rainy season.
Towards the future we see great potential in the transformation of public buildings of ordinary operation of the municipalities, which require solutions, not only for their aesthetic improvement, but to respond to the needs of space, technology and practicality, and thus create optimal environments for officials and citizens.
Other Sectors
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In 2019, we participated in the financing for the development of the Puerto Antioquia project in Urabá, in which we acted as the leading financing agent5 and committed US$100 million for the financial closure. This closure will be completed in the first half of 2020.
As a complement to the search for different types of infrastructure other than roads, we will continue to explore both structuring and financing alternatives that will allow us to develop new knowledge, meet the needs of the public sector and respond to the requirements of citizens.
1.2. Promotion of Infrastructure Standards
As a result of the experience, both in our business model and in the sectors in which we have participated, as well as the continuous exploration of alternatives to cover the needs of the market, we have been able to capitalize on the knowledge it brings to the public and private sectors, and therefore allows us to contribute to the construction, modification and definition of public policies, institutional reforms and/or regulatory changes so that the inertia with which the infrastructure had been developed can be resumed.
In 2019 we worked on three fronts to strengthen the standards in the sector: (i) through participation in the Commission of Experts on Transportation Infrastructure, (ii) through the application of new methodologies for structuring projects (BIM, Five Case Model and Project Initiation Routemap, which can be consulted in Annex 5) and (iii) we developed international agreements that allowed us to strengthen the knowledge and experiences already acquired. 1.2.1. Commission of Experts and Intersectoral Commission on Transportation Infrastructure
In FDN we have achieved a better positioning in the different stages of the infrastructure projects cycle. As a team we have acquired important knowledge, specifically in the transportation subsector, given our participation in the financing of the 4G Program and our involvement in the development of the PMTI. As a result, the Vice Presidency of the Republic invited us to act as the Technical Secretariat of the Commission of Experts on Transportation Infrastructure, developed during 2019.
The Commission based its discussion on seven main topics that led to the development of seven policy papers, which were consolidated and edited into a single document submitted to the President of the Republic on November 18, 2019. These recommendations were presented by the Vice President of the Republic at the National Infrastructure Congress of the CCI in November 2019.
In 2020, it is expected that the Intersectoral Commission on Transportation Infrastructure or another department, with direct leadership of the vice presidency, will follow up on the implementation of the recommendations that resulted from this important exercise. To the extent that these recommendations are accepted by the National Government, new opportunities will
5Lead Arranger. 19 open up to continue with the development of the country's transportation infrastructure and, consequently, with business alternatives that can be developed in FDN.
1.2.2. Interinstitutional Agreements and International Alliances
FDN has achieved international positioning through alliances with different multilateral and bilateral entities, as well its participation in trainings, events and international missions in which the experience and capacity of the institution is recognized, due to the role that it has had in the structuration and financing of large infrastructure projects in Colombia, deemed world class.
During 2019 we signed a new international cooperation agreement with the Foreign and Commonwealth Office (FCO) of the United Kingdom government represented by the British Embassy in Colombia - Memorandum of Understanding to provide support for the implementation of infrastructure projects in Colombia. Through this Memorandum, $10.373 billion were committed as non-reimbursable cooperation resources from the British Government's Bilateral Prosperity Fund for the structuring of projects.
In parallel, follow-up activities continued to be carried out on the 14 existing international cooperation agreements and alliances with which it has been possible to mobilize international sources of financing, promote the participation of international companies in projects in Colombia and encourage the use of the capital market as a source of financing.
Derived from these agreements, technical assistance and non-reimbursable cooperation have been received, both in monetary and in-kind transfers, for a total estimated amount of US $3.8 million. From this amount, US $ 1.53 million correspond to what was received or performed in 2019 through advisories and consultancies of experts in different areas, as well as resources to co-finance the structuration of infrastructure projects. These assistances have also supported the design of financial products, the promotion of the capital market, as well as the training of team members in sustainable infrastructure issues. Annex 4 submits the main activities of those agreements.
Given its role in structuring and financing projects, the Inter-American Development Bank invited FDN to participate in the Regional Development Group of PPPs in Latin America, organized with the Latin American Association of Financial Institutions for Development (ALIDE), which purpose is to strengthen the role of national development banks in Public-Private Partnership projects. This group shall work during a period of two years focusing on three specific areas: (i) financial instruments; (ii) PPP structuring and (iii) capacity building. FDN's participation in the first meeting of this group in Washington, D.C. was very relevant and as a result the institution was presented with its strengths to several banks in countries such as Argentina and Paraguay.
As part of the relevance of having these alliances, the Infrastructure Fund established by IFC for US$ 5 million (with equal shares) was followed up, which in turn marked an additional cooperation contribution of Switzerland for US$1 million, whose purpose is to support the social infrastructure PPP’s structuring (PPP Schools with the Ministry of Education and Hospitals in Bogota). The experience and lessons learned in this subject will allow extending the benefits to the projects structured under the pre-investment fund scheme that is being built.
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1.2.3 Standards and Methodologies
As explained in the previous point, in 2019 we signed an agreement with FCI, IPA and BEIS of the United Kingdom of Great Britain and Northern Ireland. The objective of this agreement is to create a framework of cooperation between the participants to facilitate and exchange technical knowledge, skills and experience in the infrastructure sector and, in particular, in the adaptation and implementation of 3 methodologies for the best preparation of projects in Colombia. From FDN we have led its promotion and implementation. These three methodologies, which are explained in Annex 5, are Building Information Modeling - BIM, Five Case Model and Project Initiation Routemap. For this last methodology, the railway project between La Dorada and Chiriguaná was selected as a pilot project for its application. By reason of the recognition and benefit provided by these methodologies, the High Presidential Council for Compliance Management requested, supported by FDN, the subscription of a Memorandum of Understanding for the beginning of 2020 between FDN, the Presidency of the Republic and large part of State agencies and entities that develop infrastructure projects to generate standards, based on these methodologies, that allow improving the quality in the structuration of projects.
1.3. National and International Recognition of FDN
Around eight events were the stage for FDN to share its business vision in order to seek new investment opportunities in Colombia. Among the most outstanding events were: Global Summit Emerging Markets, IJ LATAM, World Strategic Forum, where the central topic was sustainable infrastructure, new sources of financing and renewable energies. In 2019 we continue to sponsor the largest investor’s event in Colombia, such as Colombia Insideout, organized by the Colombian Stock Exchange, which not only presented the progress and achievements in structuring and financing of projects, but also presented potential investment opportunities.
In different national events we were called to inform the progress made in infrastructure subjects, such as 4G Program and diversification of FDN pipeline, both in financing and structuration.
These scenarios show the achievements, progress and contributions of FDN in the sector and demonstrate the growing impact we have on the development of infrastructure. Additionally, in 2019 the financing project Autopista al Mar 1 received two international awards: Road Financing of the Year and Infrastructure Financing of the Year: Andes, granted by Latin Finance magazine, where the size and complexity of the operation was highlighted, as well as the innovations implemented to give participants confidence. Achieving the financing of this project, jointly led by FDN and SMBC (in pesos and dollars respectively) which had eight financiers willing to participate in a 16.5-year loan for $2.23 trillion pesos, including development banks and commercial banks.
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As explained in the sectorial impact section, we directly participated with $553 billion pesos and pesos financing lines for the Inter-American Development Bank (IDB), IDB Invest and Official Credit Institute (ICO) to add more than $806 billion pesos in financing.
In addition, the German development bank KfW joined SMBC and Société Générale in a tranche of US$225 million.
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2. GOVERNANCE STRUCTURE
The results we have achieved as an organization respond to a solid corporate governance structure, our shareholders and the team we have built to always seek new ways to positively impact projects, regardless of their stage.
Our corporate governance was designed to ensure independence in the decision-making process. Management, administration and legal representation are exercised by the Shareholders Assembly, the Board of Directors, the Board Committees, the Administration and the Internal Committees. This structure seeks to ensure that decision making incorporates the best practices, provides levels of attribution and serves as a control and follow-up mechanism for making decisions that impact the fulfillment of FDN's objectives.
Shareholders Assembly
Board of Directors
Risk Investment Committee Committee
Corporate Governance, Audit Compensation and Committee Appointment Committee
Management
Internal Committees
Chart 3. Corporate Governance Structure6 Shareholders Assembly
At the end of 2019, FDN's shareholding composition remained the same as at the end of 2018. Our majority private shareholders, International Finance Corporation (IFC), Sumitomo Mitsui Banking Corporation (SMBC), and the Latin American Development Bank (CAF) account for 26.6% of FDN's total shares. This participation gives the organization the status of a mixed entity and is in line with the shareholders agreement that allowed the entry of private shareholders. FDN established the basis for a robust corporate governance where, despite the minority of private investors compared
6 The detail of the internal committee composition is presented in Annex 6 23 to the participation of the State, guidelines were set up to ensure that decision making responds to the interests of all shareholders and not only to the interest of the majority shareholder.
Others
Government
Chart 4. Shareholding composition of FDN
Board of Directors The Board of Directors of FDN is comprised by a total of nine members. At least three members shall be independent; six of the members, including those having an independent capacity, are appointed by the National Government and the three remaining members are appointed each by IFC, CAF and SMBC.
The members of the Board of Directors are designated by the General Shareholders Assembly prior an analysis of compliance with capacities made by the Corporate Governance, Compensation and Appointments Committee. At the end of 2019, the Board of Directors of FDN is comprised by the following members:
3 members 3 members nominated by each nominated by the 3 independent international National Government members member General Vice- Minister of Finance
(Pending to be designated)
Chart 5. Board of Directors
Board of Directors Committees The Board of Directors has four permanent committees: Audit Committee, Corporate Governance, Compensation and Appointments Committee, Investment Committee and Risk Committee. These
24 committees are fully comprised by members of the Board of Directors, including at least one independent member, according to their professional profiles and technical characteristics. The functions of each committee are presented in annex 8 of Corporate Governance.
Table 3. Board of Directors Committees
Luisa Fernanda Lafaurie Three members of the Board of Directors Audit Committee María Carolina España where most of them shall be independent. Pending to be designated Luisa Fernanda Lafaurie Corporate Governance, Number of members defined by the Board, Mauricio Cabrera Compensation and including at least one independent member Rodrigo Galarza Appointments Committee Luis Fernando Perdigón Mauricio Cabrera At least three members within which one Julio Andrés Torres shall be independent and the members of María Carolina España Investment Committee the Board appointed by IFC and CAF shall be Luis Fernando Perdigón included. Luisa Fernanda Lafaurie (ad hoc member) Rodrigo Galarza Juan Alberto Londoño Number of members defined by the Board, Mauricio Cabrera Risk Committee including at least one independent member. Luis Fernando Perdigón Julio Andrés Torres
Executive Team Human capital has been and will continue to be a fundamental pillar for the development and evolution of the organization and the impact in the country’s progress.
To achieve this challenge, our team has technical qualities, experience and management skills suitable for strengthening the corporate culture based on teamwork, generating impact, innovation, mystique and commitment to the country.
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Chart 6. Executive Team of FDN7
Following the resignation of Clemente del Valle Borráez in April 2019, the Board of Directors initiated the process for the search and selection of the new president. Based on this process, the appointment of Francisco Lozano Gamba as president was made starting November 1, 2019.
Francisco Lozano Gamba is an executive with more than 25 years of professional experience in both the public and private sectors. He has extensive experience in the infrastructure sector and specifically in project finance, structuring of road concessions, as well as structuring of transactions aimed at privatizing energy companies. He is a civil engineer from Universidad de los Andes and holds three master's degrees, one in Urban and Regional Planning from the London School of Economics, another in Civil and Environmental Engineering and the third in Technology and Policy, both from the Massachusetts Institute of Technology (MIT).
The structure of the management team, led by the president of FDN, has eight vice-presidencies and three managers reporting directly to the president.
7 From left to right: Alessia Abello, Francisco Gómez, Carlo Bongianni, Juan Carlos Sarmiento, Claudia Martínez, Degly Pava, Moisés Mahecha, Roberto Sanz de Santamaría, Lina Gómez and Francisco Lozano. 26
Vice-Presidencies
Financing and Investment VP
Structuring Vice- Management Departments President (D)
Vacancy Treasury VP Human and Administrative Talent Manager Strategy and Development VP Transparency, Integrity and President Compliance Manager Financial VP
Internal Audit Manager Credit and Risk VP
Legal VP and General Secretary
Operations VP
Chart 7. Organizational Chart FDN
As part of the government structure of FDN, we have 14 internal committees, which are detailed in Annex 6.
Corporate Governance Evolution 2019 was a year of transition and strengthening in FDN's model of governance. With the resignation of the former president of the organization since 2013, Clemente del Valle Borráez, for the first time since its creation, the Board of Directors carried out the selection process of a new president based on the guidelines defined in the framework of corporate governance of the organization, which established that this process should be led by an international consulting firm specialized in talent search, based on the profile determined by the Board of Directors.
Similarly, in compliance with the Shareholders Agreement and the Bylaws, the appointment of the new president went through the procedure of no objection in writing before the International Finance Corporation (IFC) and the Latin American Development Bank (CAF). As a result of the process described above, in September the Board of Directors appointed Francisco Lozano Gamba as President of FDN.
At the same time, during 2019 Mauricio Cabrera and Jorge Hernán Melguizo joined as new independent members, replacing Alberto Gutiérrez Bernal and Guillermo Perry Rubio8. By December 2018, Rodrigo Galarza Naranjo, a member nominated by the IFC, and Julio Andrés Torres García, a member nominated by the Ministry of Finance, had already been appointed and took office before the Finance Superintendence of Colombia (SFC) in January 2019. Similarly, Juan Alberto Londoño Martínez, in his capacity as General Vice-Minister of Finance, took office in February of the same year, which caused an important renewal in the composition of the Board of Directors in 2019.
8 Mr. Guillermo Perry Rubio was a board member of the FDN from May 2014 to March 2019. He passed away in Bogota on September 27, 2019. Mr. Perry played a key role in consolidating and evolving the organization and establishing the principles that have given rise to the FDN since its participation in the Infrastructure Commission in 2012. 27
In terms of strengthening the corporate governance of FDN, in 2019 different issues were addressed; the first was the approval by the Assembly of a bylaw reform regarding the obligation of the Board of Directors to present an annual report on corporate governance to this body. Secondly, the election period for Board members was extended from 1 to 2 years.
Thirdly, it is important to highlight the program to strengthen corporate governance. During 2019, the Management and the Board of Directors drew up a plan to comprehensively strengthen corporate governance, which addresses the new challenges for the organization, one of the main ones being financing through capital market, specifically in the fixed income market, planned for 2020, ensuring that it responds to the current environment in which FDN is operating. For this purpose, two initial stages of this strengthening plan were proposed:
• First stage: its purpose is compliance and implementation of a series of corporate governance measures included in Código País destined to the securities issuance companies in Colombia and OECD Guidelines on the corporate governance of State Companies.
• Second stage: a global review of the corporate governance scheme of FDN shall be made from the risk management perspective, in line with the risk-based supervision that is being implemented by the Finance Superintendence of Colombia.
Annex 8 contains a detailed report on the issues relative to the corporate governance practices and evolution in 2019 and the challenges for 2020.
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3. FINANCIAL EVOLUTION OF FDN
The balance sheet structure of FDN stood out for the consolidation of financing business that represented an increase of almost double in the portfolio balances with respect to the previous year and the payment of the ordinary bond for $2.67 trillion in November 2019.
As part of the financial evolution of FDN, the main indicators of the Income Statement and Balance Sheet are presented below from 2015.
Table 4. Income and Balance Sheet9
Figures in million pesos
∆ 2019 vs. ∆ 2019 vs. Income and Balance 2015 2016 2017 2018 2019 2018 (%) 2018 ($) Direct Operating Revenues 51,649 239,995 379,080 503,834 576,369 14.4% 72,535 Direct Operating Income 14,385 68,389 83,050 138,546 195,963 41.4% 57,417 Net Profit 7,938 49,428 51,651 73,753 111,767 51.5% 38,014 Total Assets 725,788 3,344,994 6,940,577 6,977,552 4,446,303 -36.3% -2,531,249 Net Portfolio 136,931 269,643 448,284 1,297,675 23,44,875 80.7% 1,047,200 Net Investments 330,656 1,937,535 4,802,135 4,230,984 1,243,138 -70.6% -2,987,846 Total Liabilities 29,539 2,604,660 5,290,310 5,252,994 2,680,431 -49.0% -2,572,563 Equity 696,249 740,334 1,650,267 1,724,558 1,765,872 2.4% 41,314
Table 5. Efficiency and Return10
Efficiency and Return 2015 2016 2017 2018 2019 Net Adjusted Interest Margin 100.0% 7.76% -78.92% -52.18% 7.32% Financial Efficiency 64.59% 32.40% 36.95% 27.77% 21.67% Operating Efficiency 3.74% 0.96% 0.68% 0.75% 1.28% Return on Average Assets ROAA 1.16% 2.32% 1.33% 1.05% 1.68% Return on Average Equity ROAE 1.21% 6.91% 6.19% 4.37% 6.44% Portfolio Quality (Non-Performing Portfolio / Gross Portfolio) 0.02% 0.01% 0.01% 0.00% 0.00% Total Non-Performing Portfolio Hedge 499.4% 421.52% 590.94% 1211.90% 2045.05% (Provisions/Non-Performing Portfolio) Hedge (Provisions / Gross Portfolio) 10.71% 4.80% 4.01% 2.84% 2.62% Basic Creditworthiness 181.18% 28.24% 23.49% 28.31% 34.17% Total Creditworthiness 184.26% 138.97% 62.10% 68.28% 77.13%
In 2019 the balance sheet structure of FDN had an important change with respect to previous years, where revenues were generated in a greater percentage by treasury operations, becoming an entity that generates a greater part of its revenues as a result of its portfolio operations. The above is explained in the reconstitution of assets and liabilities that FDN had as a consequence of the
9 Draft of Consolidated Financial Statements for 2019. 10 Notes of Efficiency and Return Indicators 1. The calculation of Net Adjusted Interest Margin considers the financial revenues of portfolio, interests and commissions. The expenses for interests, bank credits and other obligations and financial expenses for market operations. 2. Financial efficiency is understood as the ratio between the operating expenses and gross margin of revenues for the entity’s business lines (Financing, Structuring and Treasury). 3. Operating efficiency indicator is calculated with the ratio between the operating expenses and total assets. 29 prepayment of the ordinary bond subscribed with FONDES (resources from the sale of Isagén) for $2.67 trillion, in the fourth quarter of the year. As a result of this prepayment, there was a lower execution of investment revenues; however, this was offset by a higher execution of portfolio revenues than budgeted.
Thus, the net portfolio had a greater participation on the total of assets, passing from 18.6% in 2018 to 52.7% in 2019. Gross portfolio passed from $1.34 trillion in 2018 to $2.41 trillion in 2019, which represents a growth of 80.3% as a result of the continuous participation of the entity in 4G projects and diversification of FDN in corporate credits of other infrastructure sectors other than highways.
As a result, charts 8 and 9 show the evolution of the assets and liabilities, respectively, from 2016 to 2019.
Other Assets Net Portfolio Investments
Total Assets* * Million pesos Chart 8. Asset Evolution
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Subordinated Bonds Ordinary Bonds Financial Obligations Remaining
Total Liabilities* *Million pesos Chart 9. Liabilities Evolution
By the end of the year, the final profit for the closure represented a growth of 51.5% with respect to the previous year, a fact that evidences the entity’s commitment to the achievement of its strategic objectives and to remain positioned as an infrastructure project financing entity of the country.
Provisions in 2019 had a growth of 66.5%, in line with the growth of the gross portfolio. The hedge margin (provisions / gross portfolio) decreased from 2.84% in 2018 to 2.62% in 2019, in connection with the participation in the portfolio of customers with better indicators that represent a lower risk for the entity.
With respect to 2018, in general, the assets mainly decreased for the prepayment of the ordinary bond, offset by the payment to the saving accounts of returns, accrual at market value of the investment portfolio, the accrual of interests on the loan portfolio, the portfolio commissions for approved and not disbursed quotas between December 2018 and 2019, and the withholdings and self-withholdings made to FDN for the ordinary course of its activities.
The total liability had a decrease of 49.0% as a result of the prepayment of the ordinary bond, counteracted by the accrual of interests of subordinated bonds and the provision of income tax.
The equity had a positive variation of $41.314 billion compared to 2018, equivalent to a growth of 2.4% in comparison with 2018, explained in a greater value of cumulative profits of 2019.
In relation to operating results, the adjusted net interest margin closed in 2019 at 7.32% positive, recording an improvement over 2018 (-52.18%). This was achieved mainly due to the increase in portfolio interest income. It is important to highlight that nearly 15% of the operating income in 2019 was represented by loan commissions and corresponds to the same behavior of project finance.
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The direct operating result presented a growth of 41.4%, represented by $57.4 million compared to the result for 2018. It is important to highlight the return of the Treasury, which was marked by the valuation of both public and private debt instruments due to the valuation of the curves in the short and long term. Similarly, the lower growth in operating expenses, which in 2019 was 4.1% compared to revenue growth of 14.4%, led to an increase in operating income.
Taking into account the foregoing, the net profit of FDN showed a growth of 51.5% before 2018, causing an additional profit of $38 million to the shareholders. In terms of return, ROAE passed from 4.37% in 2018 to 6.44% in 2019.
The total solvency ratio passed from 68.28% in 2018 to 77.13% in December 2019 and the basic creditworthiness ratio increased from 28.31% in 2018 to 34.17% in 2019. The VaR as of December 31 reached $56.352 billion presenting a decrease of 65.9% with respect to the previous year. The greatest contribution was made by the interest rate risk factor with a total of $42.361 billion. The most relevant change occurred in the Exchange Rate risk factor, which closed at $23.553 billion as of December 31.
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4. BUSINESS ARCHITECTURE
In line with the best practices of organizational management, at FDN we have sought to support the achievement of strategic objectives in a business architecture based on processes and based on efficient risk management. In 2019 we began a consolidation stage to achieve future integration of processes, human talent and the technological platform, in an appropriate environment of control and risk management, defining the framework of what today is called business architecture.
With this vision it is possible to strengthen both business and support processes and thus react more effectively and timely to changes in the environment (regulatory, market, technological, strategic changes, among others), have greater flexibility and efficiency, continuously improving management and having greater clarity about how we manage the organization and how we can develop better processes, optimizations and risk control. 4.1. Business Process In 2018, a process design methodology was defined, which incorporated some of the business architecture dimensions. In 2019, the implementation stage and the operation and monitoring stage were added as follows:
DESIGN OPERATION AND MONITORING INITIAL DIMENSIONING IMPLEMENTATION Chart 10. Process Assurance Phases
• Initial Dimensioning Phase: understanding session and walkthrough test to analyze and understand together with the process expert and the operational risk expert, the nature of the intervention. • Process Design Phase: interdisciplinary sessions in which the process is integrally designed with its different management elements such as indicators, SLA11, charges, complementary documents; technological requirements, documentary, human, regulatory, physical risks and controls are derived and finally, a methodological assurance is made to ensure the standardization in the modelling and deliverables of this phase.
11 Service Level Agreements, which correspond to an agreement between the service provider and the internal customer, where the deliverables of the process are defined in time and quality. 33
• Process Implementation Phase: during this phase, the requirements identified during the design stage are enabled or implemented and gaps identified in the methodological assurance are closed. • Operation/Monitoring Phase: once the process is implemented, a monitoring of its indicators is made in addition to the realization of adherence tests, which validate the execution of the process pursuant to its design and implementation. As a result of these tests, a process improvement plan is derived.
Applying this methodology, 103 policy documents were created or updated, including policies, manuals, guides and formats during 2019; 12 processes were reviewed and updated and two new
processes were created, resulting in the following updated process map:
PLANNING,PLANEACIÓN, DEVELOPMENT DESARROLLO Y AND SEGUIMIENTO STRATEGIC ESTRATÉGICO MONITORING
DESARROLLO Y ADECUACIÓN DE PRODUCTOS Y NEGOCIOS
PROCESOS DEVELOPMENT AND ADEQUACY OF PRODUCTS AND BUSINESSES
ESTRATÉGICOS
STRATEGIC PROCESSES PROCESSES
TREASURYGESTIÓN MANAGEMENTDE TESORERÍA
DESARROLLOCAPITAL MARKET DE MERCADO DEVELOPMENT DE CAPITALES - CPD - DMC
PROCESSES PROCESSES
ESTRUCTURACIÓNSTRUCTURATION PROCESOS MISIONALES PROCESOS
MISSION FINANCIACIÓNFINANCING
CLIENTES
CLIENTES CUSTOMER
CUSTOMERS PROCUREMENTGESTIÓN DE OPERATINGGESTIÓN GESTIÓNPROCESS POR GESTIÓNRISK DE GESTIÓNCREDIT DE GESTIÓNLEGAL LEGAL STAKEHOLDERGESTIÓN DE SATISFACTION
COMPRAS Y OPERATIVA PROCESOS RIESGO ANÁLISIS DE RELACIONAMIENTO SATISFACCIÓN
AND MANAGEMENT MANAGEMENT MANAGEMENT ANALYSIS MANAGEMENT RELATIONSHIP CONTRATACIÓN CRÉDITO CON GRUPOS DE CONTRACTING MANAGEMENT MANAGEMENTINTERÉS
MANAGEMENT NEEDS AND REQUIREMENTS AND NEEDS
NECESIDADES Y REQUISITOSNECESIDADES GESTIÓNINTEGRITY, DE ADMINISTRATIVEGESTIÓN ADMINISTRACIÓINTEGRATED FINANCIALGESTIÓN ECONOMICANÁLISIS GESTIÓNHUMAN TECHNOLOGYGESTIÓN DE APOYO DE PROCESOS TRANSPARENCYINTEGRIDAD, ADMINISTRATIVAMANAGEMENT NMANAGEMENT DEL SISTEMA FINANCIERA ECONÓMICO TALENTO MANAGEMENTTECNOLOGÍA
PROCESSES PROCESSES MANAGEMENT ANALYSIS TALENT SUPPORTING TRANSPARENCIAAND COMPLIANCE INTEGRADOSYSTEM DE HUMANO GESTIÓN MANAGEMENT Y MANAGEMENTCUMPLIMIENTO ADMINISTRATION
INTERNALAUDITORIA INTERNAAUDIT
VERIFICACIÓN DE PROCESOS CONTROL
CONTROL CONTROL PROCESS VERIFICATION PROCESSES PROCESSES PROCESOS DE PROCESOS Chart 11. Process Map of FDN
The indicator used to measure the evolution of management by processes has been the process maturity level, which for the closing of 2019, had a result of 4.3 (scale of 1 to 5), equal to the goal defined for the year, as a result of the valuation made by an external audit that is shown below:
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Table 6. Process Maturity Level
2019 2018 2017 Continuous improvement 3.7 3.5 2.4 Culture 4.1 3.9 3.4 Persons 4.2 4.2 3.5 Information technologies 4.7 4.4 3.5 Methods 5.0 4.7 4.5 Governability 4.2 4.1 3.0 Strategic alignment 4.5 4.0 3.4 General processes 4.3 4.1 3.4
4.2. Human Talent FDN continues to move forward in strengthening one of the fundamental pillars that is human capital, focusing its efforts on maintaining a healthy environment, where there is a social fabric that impacts the trust, friendship and respect, with a culture that facilitates the fulfillment of the organizational strategy. Leveraging on the leaders and attracting, identifying and developing talent in all our processes to achieve memorable experiences among our employees, seeking to obtain quality results and impact for our country.
This was a year of challenges, where our focus was to consolidate a committed team, strengthening capabilities such as responsibility, teamwork and resilience, in order to adapt to the dynamics of the sector and the organization.
The above is reflected in the results of the different measurements that the Management carries out to monitor the impact of the actions, as can be seen in the organizational climate result (understood as the feeling of people within the organization, a perception of the moment in which the measurement is made). The general perception was maintained with respect to the immediately previous year, highlighting that the team and leadership variables, two sensitive elements considering the changes and the organizational moment, obtained similar ratings to those of the 2018 measurement.
Strengths identified in the 2019 measurement were the following:
1. Identity and direction 2. Relationships and sense of belonging 3. Personal leadership
Improvement opportunities identified were:
1. Communication and processes 2. Networking and unit 3. Performance and development
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80 75 74,9 75 72,9 70 67,1 65 62 60 55 50 2015 2016 2017 2018 2019
Chart 12. FDN Organizational Climate Evolution
In the organizational culture (interaction of values, beliefs and behavior rules subject to slow or constant changes), an adjustment was obtained with the culture required in the following variables, pursuant to the Cameron & Quin model, which is used by FDN:
• Clan, understood as teamwork, participation and interest for people, with an adjustment of 99.5%. • Market, understood as competitiveness, productivity, final result and market share, with an adjustment of 92.1%. • Adhocracy, understood as flexibility, adaptability, innovation and changing environments, with an adjustment of 92%. • Hierarchy, understood as control, processes, rules and policies, with an adjustment of 121%.
Rating desired to be able to close the gap is to obtain a percentage that is as near as possible to 100%; this means that for getting even closer to the culture required, we must promote an environment towards creativity and flexibility, decreasing the perception of high control.
Regarding the goals for 2019, the corporate indicator screen defines goals for two of four variables, guidance to clan (teamwork) and innovation (adhocracy), which pursuant to the measurement made in the last quarter of the year, had the following results:
Table 7. Human Talent Indicators
Goal 2019 Actual 2019 Compl. % Guidance to clan (teamwork) in organizational leadership 24.8 25.9 104%
Guidance to innovation in organizational characteristics. 23.8 22.1 93%
To achieve the closure of the gap in innovation, FDN began the development to implement an innovation model in 2019, which shall be commissioned in 2020.
On the other hand, for the development of capacities and skills in our employees, programs that generate value in the obtaining of results were carried out in the three fronts:
36
• Strengthening of competences. Leadership, communication and strategic vision was especially worked on for the analyst group. • Skills to manage knowledge by facilitating organizational communication spaces to share projects and lessons learned through the story telling model. • Training tools. Two virtual courses were built that can be accessed by all employees to capitalize knowledge and initiate the strengthening of our E-learning culture.
In addition to the above, it is important to note that in 2019, given its role in structuring and financing projects, the Investors Leadership Network (ILN) invited the FDN to participate in the Sustainable Infrastructure Fellowship Program, which offers training for senior public sector infrastructure managers in emerging countries. In 2019, two members of the FDN team participated in the eight-week training organized by ILN in conjunction with the Sustainable Infrastructure Foundation, the Government of Canada, and the Schulich School of Business at York University. The training concluded with two weeks of executive training with global institutional investors who are partners of ILN, including CDPQ, Natixis Investment Managers and Ontario Teacher's Pension Plan. During 2020, it is expected to continue with the participation of more people of FDN in this initiative.
The foregoing elements are fundamental to attract, retain, potentiate and develop the best talent; however, the importance of staying competitive before the market in the compensation of employees cannot be ignored, for which FDN has been implementing some benefits and also updated the salary management model study, keeping it aligned with the dynamics and organizational challenges.
Staff Management
Table 8. FDN Staff Evolution
2017 2018 2019
Staff 134 157 166
The different FDN teams have been strengthened, taking into account the business challenges, risk mitigation, process management, among others, always looking for efficiencies that leverage the sustainability of the company and according to the business plan, seeking to attract the best talent and strengthen gender diversity to consolidate the expected results.
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FemaleFemenino MasculinoMale
78 85 70 56 45
79 81 64 47 51
YEARA Ñ O 2 0 1 5 YEARA Ñ O 2 0 1 6 AYEAR Ñ O 2 0 1 7 AYEAR Ñ O 2 0 1 8 YEARA Ñ O 2 0 1 9
Chart 13. Distribution of Staff by Gender
According to the data in the chart, it is evident that the growth of the staff has always sought to maintain a balance in the number of men and women within the company and, likewise, an equity in the remuneration established in the positions, thus contributing to the offer of equal development opportunities without gender discrimination.
Between 18 and 30 years
Between 31 and 40 years
Between 45 and 50 years
Between 51 and 65 years
Minors
Chart 14. Distribution of Staff by Age12
Chart 14 shows the generational distribution of our staff.
12 In the range corresponding to “Minors”, we have a SENA student, sponsored by FDN, and that at the time of entering the productive stage in FDN, he will be older than 18 years. 38
2%
8%
Millenials GeneraciónX Generation X 30% Baby Boomers 60% GeneraciónZ Generation Z
Chart 15. Generational Categories
In Annex 7 we describe the generational categories of chart 15.
According to this distribution, the challenges in terms of talent management and development cannot be ignored, since the meaning of work and authority are conceived differently. For that reason, FDN cares for monitoring and developing in the leaders, the capacities that allow them to manage in the best way possible each segment of the population.
Table 9. Segmentation of FDN Population
LEVELS 2017 2018 2019
PRESIDENT 1 1 1
VICE-PRESIDENT 7 8 6
MANAGER 8 8 10
DIRECTOR 37 41 43
ANALYST 63 75 81
ASSISTANCE 18 24 25
TOTAL 134 157 166
Based on what has been built in previous years, during 2020 we will continue to implement actions that will help us improve the perception of the climate, the development of our collaborators' capacities, the closing of gaps between the required culture and the current one, the conciliation between personal and working life, always seeking to impact the sustainability of the business through people. In addition, we will focus on consolidating strategic programs that allow us to address our future challenges through the correct management of people, identifying:
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• The most efficient way for people to grow through organizational structure or challenges - Career Planning.
• People with potential that we can prepare in a clear and convincing way in order to have them in the place where they generate most value, thus achieving internal mobility, in accordance not only with the capabilities and challenges of the organization, but also with the interests and purposes of people. The above in an environment that strengthens our identity, relationship, quality of life and organizational and individual productivity, which contributes significantly to the development of our country.
4.3. Information Technologies Increased businesses, continued risk assurance, implementation and compliance with regulatory requirements, the new approach to business architecture, and the increasing diversity and complexity of available technologies have resulted in greater demands for FDN. For this reason, the convenience of seeking a specialization by separating that corresponding to the management of the technology platform from the administration, assurance and support of the applications was determined. In this way, among other objectives, it is intended to provide better support for users regarding the gathering of requirements and tests, in order to ensure that the technological tools adequately and effectively support the operation.
Regarding the most relevant implementations developed during 2019, we highlight the following: (i) the Single Customer Base project, (ii) facilities functionality of the SAP credit management module with which the conditions and use of the credits are integrated, as well as the accrual and collection commissions management and, (iii) implementation of new products in the portfolio management application, PORFIN, incorporating the Colombian Counterparty Risk Chamber for the liquidation of operations, supporting the management of the Treasury Vice Presidency.
On its part, the #pegaso tool, content manager, through which processes are automated, maintains its adoption and relevance for the organization. During 2019, we implemented new flows such as that of audit and operational risk, which allow us to document risks, as well as operational risk findings or events, and include and track improvement plans. For the financing process, the waivers approval flow was developed. A flow was also developed for the registration and follow-up of Petitions, Complaints, Claims, Suggestions and Reports (PQRSD). The foregoing without prejudice to the continuous improvement of existing workflows. This results in automated processes in which full traceability is available and compliance is ensured.
A particular application that deserves to be highlighted is that of the daily movement of accounting, which went from being 100% on paper to being entirely digital, representing approximately a volume of 5,600 documents. This application facilitates the consultation of accounting supports ensuring their traceability and timeliness.
The following charts show the evolution of the tool use. This is how the number of workflows increased by 76% compared to the previous year:
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Requests 2018/2019
January February March April May June July August September October November December
Chart 16. Use Evolution of #Pegaso Tool
The following are the main uses of workflows:
24%
20%
15%
Requests Requests 13% 11%
9% Solicitudes
4%
919 760 581 476 427 340 148 ContractingProcesos de EstudiosSARLAFT SolicitudPayment de TalentoHuman StandardFlujos AuditoríaAudit DesembolsosDisbursements y ContrataciónProcesses StudiesSarlaft RequestPagos HumanoTalent EstándarFlows SeguimientoFollow-Up andWaivers Waivers Chart 17. Main Requests in #Pegaso13
With regard to infrastructure, in addition to its administration and ongoing monitoring, we carried out the following projects:
• Renewal of the telecommunications platform, implementing next-generation equipment and centralized network equipment management software, to improve the speed, growth capacity and improvement in coverage and speed of the Wi-Fi network. • Reconfiguration and assurance of the FDN perimeter security platform. In addition to the improvement in perimeter security, the firewall action was expanded to be able to analyze
13 The 760 SARLAFT studies correspond to the number of flows commenced in the tool in 2019, 32 were cancelled, 711 were processed in 2019 and the remaining 17 were processed in 2020. 41
traffic between internal network segments enabling the intrusion detection and malware14 scanning modules for the internal network. • Implementation of a second call recording system in order to provide redundancy and thus ensure compliance with the standards of the Securities Market Self-Regulator (AMV).
Finally, we continue with the implementation of the SAP PPM module for projects of the Structuring area, which allows us to visualize the phases, general activities, contractual milestones (with their supports and dates), as well as the roles and people in charge of the projects that are in force and filter them per customer, unique code of the project, management, type of service, among other attributes.
Similarly, through PPM, the costs handled from the existing financial module in FDN are being automatically linked to the budget of each project, individually and monthly by 2019, allowing direct and real-time access to the state of project execution.
As part of the corporate indicators, the maturity of the technology platform has been measured. The 2019 measurement reflected a value of 4.0 vs. a target of 4.3, reaching 93% compliance. This indicator is measured on a scale of 1 to 5, an assessment made by an external auditor.
Table 10. Maturity Level of the Technological Platform
2019 2018 2017 ENSURE AVAILABILITY 4.2 4.2 4.0 ENSURE SECURITY 3.2 3.0 2.0 USER SUPPORT 5.0 5.0 5.0 MANAGE QUALITY 3.5 3.5 2.5 MANAGE INVESTMENT 3.8 4.2 4.0 DEFINE PROCESSES 4.5 4.7 4.5 DEFINE ARCHITECTURE 3.8 3.8 3.0 DEFINE AND COMMUNICATE PE 3.7 4.0 3.5 GENERAL PROCESSES 4.0 4.1 3.6
Finally, an efficient risk management is essential to ensure the business architecture, so at FDN we have developed efforts to apply not only regulatory requirements related to risk management, but the best standards in the management thereof. The progress made in the comprehensive risk management is developed in chapter 5.
14 Malware is the name given to the set of computer threats that can jeopardize the integrity and security of information and/or technology infrastructure. 42
5. EXCELLENCE IN RISK MANAGEMENT
In order to support our organizational architecture and protect the value of FDN equity, we manage the financial and non-financial risks to which we are exposed given our participation in different stages of the infrastructure project development, as well as in the development of the organization support processes. With this we seek to prevent or avoid the materialization of risk events that additionally affect the normal development of our processes, negatively impact our reputation or prevent the achievement of our objectives.
Credit, liquidity and market risks, as well as balance sheet operational and structural risks, are managed by us through the Risk Management Systems (SAR), in compliance with the regulations set out by SFC. Since 2014, the socio-environmental variable was incorporated as another component of the operational risk management in project financing, as well as in the structuring and management thereof.
During 2019, in accordance with SFC regulations, we incorporated information security and cybersecurity risk management.
In addition to identification, management and mitigation, in FDN we have two additional lines of defense that help shield our risk management scheme, such as processes that ensure integrity, transparency and compliance and the Internal Control System.
5.1. Risk Management System
Credit Risk Management System (SARC) FDN manages credit risk of both the credit portfolio and the treasury investment portfolio, in accordance with the guidelines established by both the institution's internal bodies and SFC.
On a semi-annual basis, the Portfolio Qualification Committee assesses the risk of its customers taking into account the delinquent days of the credits, projections and other risk factors that determine the financial performance and compliance with the commitments and obligations that the debtors have acquired.
Based on this credit risk assessment, the Committee determines the portfolio rating. These criteria, together with the risk measurement policies and methodologies, are documented in the Credit Risk Management System Manual – SARC.
Nonetheless, FDN conducts a monthly review of the value of relevant guarantees, provisions and changes in the level of risk.
Throughout 2019, a total of 41 credit applications were processed from missionary areas, specifically originated by the Financing Vice Presidency and the Treasury Vice Presidency. Of these 41 applications, 30 were approved by the Board of Directors.
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RESUMEN DE PROYECTOS Y EMPRESAS ANALIZADOS POR LA VICEPRESIDENCI A D E 2019 SUMMARY OF PROJECTS AND COMPANIESCRÉDITO YANALYZED RIESGO BY CREDIT AND RISK VICE PRESIDENCY A Ñ O 2 0 1 9
30 27 25 25 22 20 20 15 10 5 3
5 0 0 0 0
0
Up
-
Study
Study
Project
Related Related
Projects Projects
Approved
Approved
Approved
Corporate Corporate
Follow
Estudio
Projects in in Projects
Proyectos
Companies
Empresas
Aprobados
Estudio
Aprobados
proyectos
Unapproved Unapproved
relacionadas
Seguimiento
Corporativos
Proyectos en Proyectos en Proyectos
Shareholders
Projects under under Projects
Accionistas de Accionistas
Aprobados
Analyzed Funds Funds Analyzed
Corporativosen
Funds Approved Funds
No Aprobados No
Corporate under under Corporate
Territorial Entities Entities Territorial
EntesTerritoriales Fondos Analizados Fondos FondosAprobados Chart 18. Projects and Companies Analyzed by the Credit and Risk Vice Presidency
Of the 30 approved applications, 22 correspond to the corporate segment, five to the project finance segment and three to territorial entities.
TerritorialEntes TerritorialesEntities Project 10% Finance 17%
CorporativosCorporate 73%
Chart 19. Number of Credit Approvals per Segment in 2019
Per type of product, of the 22 approved operations of the corporate segment, 16 are due to credit quotas for corporate bonds, three to credit quotas for Securitization operations, and three to Bank Guarantees to support equity contributions based on 4G projects. In the case of project finance approvals, four transactions correspond to senior debt transactions and one Online Liquidity transaction. In the case of territorial entities, two senior debt transactions and one in the credit quota for public debt bonds were approved.
Among the seven applications processed during the year corresponding to the project finance segment, the Credit and Risk Vice Presidency carried out the analysis of 20 sponsors and 27 companies related to the project. In addition, in the development of its corporate objectives, the vice presidency monitored 25 disbursed credits, 11 of the project finance segment, nine of the corporate segment and five of private equity funds.
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Finally, by economic sector, 37% of applications belong to Energy, 17% to Road Infrastructure other than 4G, 12% to Transport Infrastructure, 10% to Utilities and Telecommunications, 7% to Fourth Generation Projects (4G), 2% to Port Infrastructure and 15% to other sectors.
4G OtherOtros SectorsSectores 7% 15%
Servicios Públicos y TelecomunicaciUtilities and Telecommunicationsones 10% Port Infraestructura EnergíaEnergy InfrastructurePortuaria 37% 2%
InfraestructuraTransport deInfrastructure Transporte 12%
RoadInfraestructura Infrastructure Vial 17%
Chart 20. Number of Credit Applications per Sectors in 2019
The provision percentage has decreased by 11.8% compared to December 2018, due to new disbursements with a lower risk profile, such as credits secured by the nation and multilateral entities.
As of December 2019, individual provisions corresponded to 1.62% of the portfolio, of which the regulation established by the SFC Reference Model corresponds to 0.84% and the additional 0.78% corresponds to provisions resulting from internal risk management models. Market Risk Management System (SARM) The market risk measurement methodology is based on the provisions contained in chapter XXI of the Basic Accounting and Financial Circular (rules related to market risk management). In addition to this, the Market Risk Management System (MRSA) Manual provides policies, organizational structure, procedures, controls and other components that test the management of risks associated with Treasury operations, in both local and foreign currency. During 2019, the VaR Component, incremental VaR and marginal VaR were implemented, which allow tracking the Treasury strategy and the taking of risks in more detail. Likewise, the methodology for estimating the maximum amount of daily operation of the Treasury was defined.
In addition, exposure limits and operation amounts were approved for the FX table managed by the Treasury taking into account the limits set by the risk committee and the Board of Directors.
Taking into account the market behavior and exposure to different risk factors, the risk profile of the portfolios managed by the Treasury is within the limits established by the Board of Directors: the daily VaR under the SFC methodology as of December 31, 2019 was $17.82 billion, technical reserves amounted to $3.6 trillion and the total solvency ratio was 78.53%. The VaR under the
45 internal methodology with a time horizon of one day and with a confidence level of 99% presented a value of $1.213 billion, equivalent to six basis points of the total market value of the portfolio.
Structural Risk Management System (SARE) During 2019, the Structural Risk Management System was strengthened to identify, measure, control and monitor the following balance-sheet level components:
Interest Rate Risk
Investment Placement
Collection Issuance
Structural Exchange Liquidity Rate
Chart 21. Structural Risks
Given the balance-sheet structure change of FDN, the Market and Liquidity Risk Area has implemented the models used for the measurement, control and monitoring of structural risks. Together with the ALM Area, the financing strategies needed to meet the 2020 needs were analyzed; different technological tools were also studied to meet information, operational and analysis needs during the provided process. Liquidity Risk Management System (SARL) Both measurement methodologies and policies, organizational structure, limits, technology platform, control and monitoring aspects of the liquidity risk are contained in the Liquidity Risk Management System (SARL) Manual, in accordance with the principles established by the SFC.
Given the needs of FDN in terms of its financing and the resulting impact on the balance sheet structure, a new liquidity policy based on the prudential regulation proposed in Basel III was implemented. The new policy approved by the Board of Directors establishes a liquidity cushion comprised by a number of factors that allow establishing the minimum amount that FDN must have in high-quality liquid assets15 to meet its obligations. Likewise, a Liquidity Coverage Indicator (ICL) was defined in a 30-day time window that allows monitoring that liquidity requirements have sufficient support for liquid assets. This indicator should always be greater than or equal to 1. Informatively, the ICL at the end of December was 3.23.
The result of these measurements shows that FDN is not exposed to liquidity risk since, in addition to the good levels of available assets it has within its balance sheet, it has easily realizable liquid assets, allowing it to meet the requested liquidity requirements.
15 High-quality liquid assets are defined by: Savings Accounts, TCO and TES with maturity of less than 90 days, money market FICS and simultaneous assets with one business day at maturity. 46
During 2019, the internal liquidity stress models were calibrated and under none of the scenarios analyzed FDN presents a negative GAP on time horizons of less than or equal to one year.
Operational Risk Management System (SARO) The objective of the Operational Risk Area is to support the areas of the organization in identifying, measuring, controlling and monitoring the risks to which FDN processes are exposed.
To achieve this objective, we define methodologies for each of the aforementioned stages, in order to assertively identify the risks and the most effective control measures. In addition, it monitors the relevant risks of the organization and the changes in the risk profile, in order to identify early warnings that allow having timely action plans and reducing risk exposure.
One of the main pillars of risk management is culture. For this reason, during 2019 the Operational Risk Area carried out the following activities:
• Training for all FDN employees in order to strengthen the knowledge of the risk management stages and the report of operational risk events. • Training the risk managers in risk identification, measurement, control and monitoring methodologies. • Risk identification, measurement and control workshops with the Risk Managers designated in each of the areas. • Each time a new employee enters, he is given the corresponding induction to the Operational Risk Management System.
These trainings enabled having a more active role of risk managers during 2019, making it possible to increase participation in risk and control identification, report of operational risk events and defining the most appropriate action plans. They also allowed identifying the gaps that currently exist in the company to strengthen management during 2020.
Table 11 presents event reports of 2018 vs. 2019
Table 11. Statistics of the Operational Risk Event Report of 2019 vs. 2018
QUARTERLY % Part of % Part of % Part of % Part of Quarter I Quarter II Quarter III Quarter IV Total INDICATOR the year the year the year the year 2019 Quarterly 20 19% 42 39% 21 19% 25 23% 108 Performance 2018 Quarterly 21 22% 29 30% 21 22% 26 27% 97 Performance Percentage Variation -5% 45% 0% -4% 11%
These action plans allow FDN to close those gaps identified throughout operational risk management during 2019, which will be executed throughout 2020.
During 2019, risks were identified outside the profile, each with an action plan and will be executed mostly during the first half of 2020. The distribution of action plan categories is presented in Chart 22.
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Process Adjustment New Controls New Process Tool Parametrization
Chart 22. Operational Risk Action Plan Categories
Finally, it is important to note that the operational risk management report has been submitted bimonthly to the Board of Directors, including all the events generated, the actions that have been taken thereon and the change in the risk profile, so that this body establishes the guidelines corresponding to the management presented. Socio-Environmental Risk Management Through its environmental and social policy, FDN has committed to ensure that all activities carried out within its service portfolio and corporate activity make sure to assess and ensure compliance with applicable environmental and social, national and international standards and regulations, under the principle of sustainable development.
The objective is that the environmental and social risks and impacts of the projects financed, structured or managed by the entity, be managed in line with the Colombian legislation and the IFC Performance Standards on Environmental and Social Sustainability (2012). These standards describe the requirements to be met throughout the FDN investment cycle with regard to:
• Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts • Performance Standard 2: Labor and Working Conditions. • Performance Standard 3: Resource Efficiency and Pollution Prevention. • Performance Standard 4: Community Health, Safety and Security. • Performance Standard 5: Land Acquisition and Involuntary Resettlement. • Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources. • Performance Standard 7: Indigenous Peoples. • Performance Standard 8: Cultural Heritage.
In the development of its environmental and social policy, FDN has implemented an Environmental and Social Risk Management System (SARAS), which through management tools seeks the identification, assessment and mitigation of risks and impacts associated with the processes developed by FDN in the project financing, structuring and management businesses. It also provides for internal management of savings and efficient use of resources and comprehensive management of solid and hazardous waste in the corporate activities of FDN.
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We carry out the initial review of the new projects and customers requesting financing, verifying that the proposed activity is not part of the FDN Exclusion List and establishing whether the project has already obtained the necessary environmental and social authorizations in accordance with national legislation. Once the initial information is gathered, the project is categorized (categories A, B and C)16 according to the magnitude of its risks, environmental and social impacts, to subsequently proceed to the performance of the Environmental and Social Due Diligence (DDSA), in charge of an independent environmental and social consultant in the case of category A and B projects, or by the FDN team in the case of low-risk or category C projects.
The result of the due diligence is the identification of project gaps with respect to the requirements of the IFC Performance Standards and the applicable national regulations, and is an input for the preparation of the Environmental and Social Action Plan (ESPA), which aims to close the gaps detected by bringing the project to compliance with the environmental and social standards. The implementation of the PAAS becomes a customer commitment being included among the obligations provided in the credit agreement.
During the credit life, the independent environmental and social consultant is in charge of reviewing compliance with the ESA through regular inspection visits and reviewing the customer reports on their environmental and social performance. An Environmental and Social Monitoring Report (RMAS) documents the review carried out by the independent environmental and social consultant, and in many cases is an input for the certification of compliance with environmental and social standards that is a condition to disburse the credit. In the event that deviations from compliance with PAAS are found, an action plan is implemented by mutual agreement with the customer to remedy said deviations.
Through SARAS all financing processes FDN is carrying out for various infrastructure sectors, including senior debt applications, bank guarantees, liquidity lines and peso funding from international and multilateral banks have been evaluated and monitored. The conclusions and recommendations of this process are inputs for decision-making at different instances of the Business Committee, the Credit Committee, the Investment Committee and the Board of Directors.
Throughout 2019, we supported the environmental and social assessment of the 37 credit applications processed. During that year, contractual commitments were monitored with regard to environmental and social aspects of 25 projects that are active, making requirements and compliance verification through monitoring reports of environmental, contractual provisions and participating in the approval processes of disbursements. In order to ensure that projects financed by FDN are aligned with the environmental policy, the process of negotiating new credit agreements in six projects was accompanied to include clauses with environmental and social compliance obligations.
On the other hand, we participated in the analysis for the structuring of the projects of the railway corridor La Dorada - Chiriguaná, the works for the hospitals of Bogotá (Usme, Santa Clara and Bosa) and the commuter train of Valle, incorporating the requirements of the Performance Standards as part of the guidelines for such initiatives.
16 A: High Risk, B: Medium Risk, C: Low Risk 49
Cybersecurity and Information Security In terms of Cybersecurity and Information Security, from FDN we have concentrated efforts on designing, monitoring and implementing models, schemes and good practices that allow the privacy and protection of the institution data, aiming at its integrity, confidentiality and availability, delivering preventive, detective and corrective solutions that strengthen information security and technological security.
Under these pillars, we developed the following activities in 2019:
• Generation of the General Information Security and Cybersecurity Policy. • Preparation of the Information Security Management Manual. • Preparation of all the supporting documents comprising the different Information Security and Cybersecurity guidelines. • Creation of the [email protected] mail group to which the information security and cybersecurity newsletters COLCERT, CSIRT Gobierno and CSIRT Financiero (Asobancaria) will be notified, and which in turn would generate the FDN CSIRT. • Contracting of the SOC-CERT SIEM, which will allow FDN to have online monitoring tools of events for their correlation, analysis, notification and protection from cyber situations that affect the data and services that the organization makes available to its employees and customers. • Submission to senior management and the Board of Directors of the management of the Cybersecurity and Information Security area, such as the cybersecurity talk. • Preparation of the Business Continuity documents and the respective guides to face cyberattacks. • Analysis of the detected cybersecurity and information security risks, which when mapped allow the identification of the degree of impact so that the controls to be taken mitigate in the best way their possible materialization. • Awareness-raising process for FDN officers, senior management and the Board of Directors on cybersecurity and information security topics, good practices and key factors that need to be taken into account to prevent, as much as possible, events that compromise FDN.
As planned for 2020, we will develop plans that allow improving the FDN security as follows:
• Implementation of the Security Operations Center, SOC, with the use of security event correlation tools, which will be contracted through a third party.
This model will allow real-time security monitoring of the entire FDN infrastructure the 24x7x365.
• Implementation of the model that will allow encrypting data and information. • Implementation of a scheme that allows performing an entire process of vulnerabilities to the network, communications, infrastructure and perimeter zone. • Implementation of models that allow protecting information from undue or unauthorized leaks.
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5.2. Integrity, Transparency and Compliance FDN is aware of the seriousness of corruption and other conducts associated with acts of fraud, bribery, money laundering and terrorism financing. Given the above, the Integrity, Transparency and Compliance Management consolidates a Compliance Program, which has undoubtedly been relevant in FDN. Senior management is particularly committed to the prevention and actions to be developed so that said risks can be satisfactorily managed, which has allowed the organization to work for the sake of compliance with SARLAFT regulation, as well as procedures designed for the prevention of risks managed by management.
This report summarizes the management carried out during 2019 with regard to compliance, which relates the main activities carried out by the Integrity, Transparency and Compliance Management corresponding to the SARLAFT, Conduct, Transparency and Regulatory risk management in compliance with the applicable regulatory framework.
SARLAFT
During 2019, with respect to the Money Laundering and Terrorism Financing Risk Management System, SARLAFT, FDN focused its efforts on strengthening it through strengthening its know-your- customer process, the monitoring of information and the segmentation of risk factors.
Regarding the know-your-customer process, work was done hand in hand with a consulting firm in order to update the customer engagement and information update form, a document that was developed with all FDN areas to include not only regulatory information, but also the data that the institution requires for proper customer management.
Complementing the customer knowledge and engagement process, customer information was migrated to a centralized system, allowing information to be properly captured and stored and in compliance with the applicable regulations.
With regard to information monitoring, FDN acquired the Catalyst tool, which supports the monitoring of counterparties with sanctions, restrictive lists and negative media information. This monitoring is automatically carried out on the data loaded into the tool, identifying early warnings for the follow-up performed by the area, in protection of the FDN interests.
Compared to the segmentation of risk factors, FDN, with the approval of its Board of Directors, adopted a methodology that is based on statistical elements that allow the organization to segment risk factors according to the minimum requirements established in the Basic Legal Circular of the Finance Superintendence of Colombia.
In the development of customer and counterparty knowledge management, a total of 711 SARLAFT due diligence reports were analyzed during the 2019 term, including reports, updates and validation of tax liable persons. Generally speaking, such management is summarized as follows:
Table 12. 2019 Due Diligence Reports
COUNTERPARTY FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER
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PROVIDERS 108 149 143 144 EMPLOYEES 27 11 23 14 FINANCING CUSTOMERS 10 9 9 12 STRUCTURING CUSTOMERS 9 9 16 17 CAPITAL MARKET CUSTOMERS 0 0 0 1 ALLIES 0 0 0 0
Finally, in compliance with the obligation included in the regulation regarding instruction on SARLAFT, FDN performs an induction to new employees, develops an annual training to strengthen the knowledge of collaborators, and carried out a training of the members of the Board of Directors, which was attended by the Deputy Superintendent for Money Laundering and Terrorism Financing Risk.
With regard to the management of risks managed by the Integrity, Transparency and Compliance Management, said activity was carried out through the application of different methodologies involving the identification and measurement of risks, which is developed together with the process leaders whose result is documented in the matrices of the SARLAFT, conduct, new products and regulatory risk.
Likewise, during the term, management has been leading the Regulatory Risk Management initiative for FDN, in order to establish a cross-cutting procedure aimed at ensuring regulatory compliance. For this purpose, work has been done on identifying all applicable standards and regulations, people in charge within FDN, as well as the processes that ensure regulatory compliance.
5.3. Internal Control System (SCI) FDN continues to strengthen the compliance and monitoring level on its Internal Control System. During 2019, its operation and reliability were strengthened through the constant update of processes, simultaneously with the risk and control matrices, taking into account the recommendations of the regulatory bodies, audits and the guidelines given in this regard by the Board of Directors.
In compliance with the provisions of Part I - Title I - Chapter IV - numeral 6.1.2.1.15 of the SFC Basic Legal Circular, the Audit Committee developed each of its activities related to the entity Internal Control System through the different reports issued by the control entities. In compliance with the follow-up work by the Committee on the risk exposure levels of the entity, the controls applied in the Risk Management Systems process and the entity processes provided in the Internal Audit and Tax Audit work plans were verified in accordance with current regulations. As a result, it was determined that there are processes and procedures that continue to be strengthened for their management and risk management. This process that is constantly in development of its work has implemented measures aimed at strengthening its control and monitoring. Updates of policy, processes, procedures and risk matrices were carried out during the year.
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In 2019, from the third line of defense, that is Audit Management, and in order to strengthen internal control, we carried out the following activities:
• Preparation and execution of the Audit Plan as a first-year entity. • Increased staff for internal auditing. • Development of Risk-Based Audit Methodology. • Strengthening the documentation of work papers. • Implementation of Pegaso tools. • Awareness of the concept of the three lines of defense. • Execution Risk-Based Audit Plan. • Implementation of the findings tracking process. • Implementation of report line.
In 2020, we will continue to work to obtain certification on the degree of compliance with the Internal Audit Activity (AAI) with the Definition of the Profession, Standards and Code of Ethics of the Global IIA.
During 2019, FDN strengthened all three lines of defense and in 2020 we will continue our risk management to continue to protect the organization´s value. 6. REGULATORY ASPECTS 6.1. Operations with Partners and Managers As part of the 2019 management report, in this chapter we comply with different regulatory requirements, which by their nature, FDN must report annually.
According to IAS 24, the objective of the financial statements is to ensure that they contain the information to be disclosed necessary to highlight the possibility that its financial situation and results for the period may have been affected by the existence of related parties, as well as outstanding transactions and balances, including commitments with said parties.
Below are the items in the financial statements that include balances and movements with related parties as of December 31, 2019.
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Table 13. Operations with Partners and Managers 2019
Related Shareholders Total Parties Related transactions National Ingramco IFC CAF with balance Dec 2019 Government Subsidiary Investments $ 77,713 531 18,329 0 96,573 Investments using the 0 0 0 1,907 1,907 equity method Credit and interest 0 0 69,731 0 69,731 portfolio Availability commissions 0 0 66 0 66 Subordinated bonds 2,504,971 0 0 0 2,504,971
Board of Related Shareholders Total Directors Parties Related transactions National Ingramco IFC CAF with results Dec 2019 Government Subsidiary Portfolio interests 0 0 3,153 0 0 3,153 Valuation interests 0 32 2,340 0 0 2,372 Availability and front 0 0 516 0 0 516 commissions By the equity method 0 0 0 0 947 947 Income investment 68,209 0 0 0 0 68,209 valuation Expense investment 22,983 0 0 0 0 22,983 valuation Bond issuance interest 288,059 0 0 0 0 288,059 Valuation financial 0 0 559 0 0 559 expense Other commissions 0 1,085 0 0 0 1,085 Fees 0 0 0 794 0 794
Table 14. Operations with Partners and Managers 2018
Related Shareholders Total Parties Related transactions Sumitomo with balance Dec 2018 National Mitsui Ingramco IFC CAF Government Banking Subsidiary Corporation Investments $952,918 1,573 10,145 0 0 964,636 Investments using the 0 0 0 0 460 460 equity method Shareholders accounts 0 0 0 179 0 179 receivable Subordinated bonds 2,504,768 0 0 0 0 2,504,768 Ordinary bonds 2,673,075 0 0 0 0 2,673,075
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Board of Related Shareholders Total Directors Parties Related transactions National Ingramco IFC CAF with results Dec 2018 Government Subsidiary Valuation interests 0 32 1,669 0 0 1,701 Income investment 141,143 0 0 0 0 141,143 valuation Expense investment 63,931 0 0 0 0 63,931 valuation By the equity method 0 0 0 0 40 40 Bond issuance interest 279,311 0 0 0 0 279,311 Other commissions 0 434 851 0 0 1,285 Fees 0 0 0 579 0 579
6.2. Judicial Contingencies and Impact
At the end of 2019, this was the state of the judicial contingencies in which FDN was involved:
Direct Reparation Action brought by Sociedad Energética de Melgar S.A. E.S.P. The direct reparation action brought by Sociedad Energética de Melgar S.A. ESP, for an estimated amount for procedural purposes of $150 billion, in which in addition to FDN, the Nation is sued through the Superintendence of Utilities, the Ministry of Mines and Energy, the Ministry of Finance and Public Credit and Compañía Energética del Tolima S.A. E.S.P. This action is heard by the Administrative Court of Tolima. The claims in this lawsuit are, among others, that the Nation be held liable for all damages caused to Sociedad Energética de Melgar S.A. ESP for its actions and omissions linked to the administrative operation of intervention and liquidation of Electrolima S.A. ESP in liquidation. The first instance ruling was in favor of FDN, in which the lawsuit plea of ineptitude was declared partially proven for improper choice of action and res judicata in respect of the claim for damages arising from the intervention, possession and liquidation of Electrolima S.A. E.S.P. On January 15, 2018, the plaintiff filed an appeal against the ruling which was admitted in July 2018. On May 27, 2019, FDN submitted closing arguments and the Council of State's second-instance ruling is currently pending.
Ordinary Labor Process against FDN and Instituto de Seguros Sociales Pension labor proceeding. Said process corresponded to the 13 Labor Circuit Court, which ruled in the first instance sentencing FDN, which was confirmed by the Court in appeal. Once the procedural process was completed, the Court granted FDN the extraordinary appeal for cassation. However, the Supreme Court, in decision dated May 31, 2017, decided NOT TO REPEAL the conviction of the payment of the retirement pension in favor of the plaintiff since November 26, 2003.
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On November 24, 2017, the plaintiff brought an executive process to enforce the sentence included in the final ruling. On the same day, FDN, by judicial deposit, made the payment of $551,588,890 fulfilling the full payment of the sentence. FDN filed merit exception arguing the full payment of the obligation, which was declared partially proven during the hearing held on August 16, 2018. Subsequently, the parties filed appeals against the writ that resolved the exception. On February 6, 2019, the hearing was held where it was decided to confirm the appealed writ. Taking into account the above, on May 30, 2019 the court requested the parties submit the credit settlement, which was submitted by FDN on June 26, 2019. Currently, the judge is expected to approve or amend the credit settlement. The contingency associated with this proceeding was recognized in the 2009 Income Statement and updated in 2011, 2012, 2013, 2014, 2015, 2016, 2017,2018 and 2019.
Procedural Succession in Contractual Proceeding brought by William AMASHTA TAGLIER against CORELCA S.A. FDN was notified of the writ dated March 06, 2014, through which the Ministry of Mines and Energy is accepted as CORELCA's procedural successor, and FDN is linked under the figure of Compulsory Joinder. In a decision dated April 22, 2015, the Council of State declared that the Atlántico Administrative Court lacked jurisdiction to hear the process in the first instance, ruling to return the file to the court for the purpose of annulling the first-instance ruling. The Atlántico Administrative Court annulled the ruling dated October 25, 2006 and transferred the process to the 15 Administrative Court of the Barranquilla Circuit. In April 2019, we were informed that it issued a ruling on May 10, 2018 declaring CORELCA S.A. in default and ordering it to pay the sums requested in the lawsuit. FDN was not convicted in this ruling, which is final without an appeal being brought against it, and therefore the process is over.
Procedural Succession in Contractual Proceeding brought by Fertécnica S.A. against CORELCA S.A. On February 27, 1998, the company Fertécnica S.A. brought a lawsuit against Corelca S.A. Within the framework of the appeal, the company Corelca S.A. was liquidated by resolution dated January 30, 2014. As a result of the liquidation, the Ministry of Mines and Energy was designated as Corelca S.A. procedural successor, for having owned a controlling shareholding in the capital stock of this company, and it was ordered to recognize FDN as compulsory joinder, since this entity had been a non-controlling shareholder. In ruling dated June 12, 2014 of the Council of State, the following decisions were incorporated by the Council of State: 1) to revoke the first-instance ruling; and 2) to declare itself inhibited from deciding on the merits, because of the ineffectiveness of the lawsuit. Consequently, Fertécnica S.A. brought an extraordinary appeal for review against the appeal ruling referred to above. We are currently awaiting the sentence deciding on the appeal for review by the Council of State. It is important to consider that in Decree 3000/2011, by which CORELCA S.A. was liquidated, it was established in article 27 that a Trust of CORELCA Liquidation Remnants would be constituted and
56 that: "if there are pending proceedings against the entity at the end of the liquidation, the respective contingencies shall be addressed charged against the stand-alone trust fund referred to in this article or in the absence thereof, the stand-alone trust fund constituted for the purpose." In accordance with the above, the CORELCA S.A. Liquidation Minutes recorded that this contingency was 100% provisioned and the Stand-Alone Trust Fund was instructed to address the contingency.
Contractual Action brought by THX ENERGY Sucursal Colombia in Liquidation against FDN. The plaintiff seeks the annulment of the unilateral liquidation minutes of the 2013 Service Agreement 069 entered into between THX and FDN to be declared, and therefore to render ineffective the penalties imposed by FDN against the plaintiff. The claims are worth $14.56 billion. In the answer to the lawsuit, the defense of FDN argued as a prior exception that there is no competence of the administrative tribunal, since the agreement entered into is governed by commercial civil law, so its discussion must be brought before ordinary civil judges; and also it submitted evidence that the unilateral liquidation procedure under the agreement was legitimately made on account of the breach by the plaintiff. With regard to the previous exception, on December 7, 2017, the office decided to deny it, a decision against which an appeal was brought which was decided by the Council of State confirming the Court decision. The evidentiary hearing was held between May 31 and August 14, 2019. On August 26, 2019, the FDN attorney-in-fact submitted closing arguments. On January 22, 2020, FDN was notified of the ruling issued by the Cundinamarca Administrative Court, Third Section, Subsection "A", which denied the lawsuit claims. Said ruling is final and therefore the process ends in a favorable manner for FDN.
Executive Civil Proceeding brought by CUMMINS DE LOS ANDES S.A. against FDN. The plaintiff requests that the last sum of money that it alleges was not paid for the services provided as a consultant be paid; the claims correspond to $20.3 million on account of the Agreement 03/2010 executed between FDN and Cummins de los Andes and is derived from the covenant 062/2007 executed between FEN and IPSE. The proceeding had a favorable ruling for FDN in the first instance. On September 28, 2016, the ruling was revoked and the file is forwarded to the trial court to continue the proceedings and to give a final ruling regarding the merit exceptions proposed by the defendant. In a decision dated January 30, 2017, it was decided to declare as proven the agreement breach exception and non-existence of the obligation, and the termination of the proceeding was decreed, sentencing the plaintiff to pay costs for $1,392,000. The current attorney-in-fact, who is an officer of the Institute of Planning and Promotion of Energy Solutions for Non-Interconnected Zones - IPSE stated that he is awaiting the certified copy of the final ruling, which he requested by petition to the court. However, the court has struggled to find the file, as it appears to be overlapped. Once the certified copy of the final ruling is delivered, it will be understood that it was final and that the proceeding is over.
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Contractual Disputes Proceeding brought by Unión Temporal Energías del Ebro U.T. against FDN and IPSE. The claims correspond to a total of $4,203.9 million on account of the settlement of agreement 13/2008 executed between FEN and UT Energías del EBRO, which derives from covenant 061/2006 executed between FEN and IPSE.
A lawsuit was brought on September 25, 2016, which was answered within the term and, in addition to it, FDN sued the Joint Venture in counterclaim on account of breach of the agreement for claims of $10,320.2 million related to the damages caused by the plaintiff to FDN.
On May 9, 2018, the Initial Hearing was held, in which the proceeding remedy and the litigation setting were completed and the previous exceptions were resolved unfavorably for IPSE and FDN. Consequently, the attorney-in-fact appealed the decision which ruled that the action invalidity exception was not proven, which was granted by the Court in the suspensive effect.
On July 6, 2018, the proceeding was assigned to the Third Section, Subsection A, of the Council of State, to the court of Magistrate Marta Nubia Velasquez Rico. The decision on the appeal is pending.
Adverse possibilities of the proceeding are low.
In accordance with the fourteenth clause of Covenant 061/2006 executed with IPSE, the adverse effects of litigation must be borne by IPSE.
Ordinary Fiscal Liability Proceeding ANH vs THX ENERGY in Liquidation and Others. By Writ No. 0816 dated May 04, 2017, it was ordered to open an ordinary fiscal liability process in which the entity affected is the NATIONAL HYDROCARBONS AGENCY under the breach of Agreement number 69-2013 executed between FINANCIERA DE DESARROLLO NACIONAL and THX ENERGY SUCURSAL COLOMBIA in liquidation. In it, GERMÁN EDUARDO OROZCO PEÑALOSA (Agreement Supervisor), HIDROLOGÍA GEOLOGÍA AMBIENTAL S.A.S. (Agreement Inspector), THX ENERGY SUCURSAL COLOMBIA in liquidation (Contractor) were bound as alleged tax liable persons. Subsequently, by Writ No. 1232 dated September 12, 2018, the Office of the Comptroller General links FDN as allegedly liable entity within the aforementioned fiscal proceeding, taking into account the role of executing entity of the inter-administrative agreement 01/2007 entered into between FDN and ANH, under which FDN contracted THX ENERGY SUCURSAL COLOMBIA in liquidation through agreement 069/2013. The Office of the Comptroller General therefore considered that the alleged irregularities arising in the performance of Agreement 069/2013 could arise from the functions exercised by FDN, considering in turn appropriate to bind FDN to ensure it the right of defense and contradiction and other constitutional guarantees it has, so that it participates in the evidentiary discussion and defends itself from the allegations that may be made against it. The Writs above were personally notified to FDN on September 19, 2018. In the proceeding, the amount of the asset impairment in relation to the alleged irregularities arising from the agreement is estimated at $14,546,635,072.
By writ 0659 dated July 12, 2019, the 10 Intersectional Controller decided to file the process on the grounds that the willful or unlawful act of the related entities was not evidenced, nor the existence of the causal link necessary to consider the existence of fiscal liability. This decision was provided
58 with the degree of consultation with the Office of the Comptroller General, who ordered the writ to be revoked, by which the file of the process is ordered.
By Writ N.ORD-80112- 029/2019 issued by the Office of the Comptroller General, it was decided to confirm the Writ by which the process filing was ordered. As a result, this process ended on December 2, 2019; therefore FDN has been unbound from the proceeding.
Contractual Disputes Proceeding NATIONAL HYDROCARBONS AGENCY– ANH vs. Financiera de Desarrollo Nacional.
On October 04, 2018, FDN is notified by the Cundinamarca Administrative Court of the acceptance of the lawsuit of contractual disputes brought by ANH against FDN.
The claims of the lawsuit are:
a) That Financiera be declared to have breached inter-administrative agreement 01/2007 entered into on June 15, 2007 between Financiera and ANH. b) That, as a result of the breach, Financiera be held liable for the damages caused to ANH. c) That the judge settles the agreement and makes the final account adjustment. The value of the claims is as follows: - By way of damages, the sum of $53,621,241,508 - By way of settlement and return of remaining resources of the covenant, which are currently in the account of covenant 01/2007, the sum of 189,777,563,842.6817 On January 17 2019, FDN filed the answer to the lawsuit and the impleader of Axa Colpatria Seguros S.A. On January 27, 2019, FDN filed the "Expert Opinion on Accounting Forensic Audit" issued by Cevallos & Holguín Consultores. On May 8, 2019, the Court issued a writ refusing the impleader. On May 14, 2019, the FDN attorney-in-fact filed a motion for reconsideration and appeal against the writ that denied the impleader. On August 22, 2019, a writ was issued by which the Office rejected the motion for reconsideration and admitted the appeal. The appeal is currently being decided by the Council of State. According to the attorney-in-fact, the risk rating is "Medium-Low"; the probability of loss is remote. FDN and ANH have initiated preliminary talks in the quest to achieve eventual conciliation for the early termination of the proceeding.
Writs of Protection of Fundamental Rights
1. Writ of Protection of Fundamental Rights AGROPEZ, COOPESCA AND OTHERS against Ministry of the Interior, INVÍAS, ANLA, FDN and Others. • The writ of protection of fundamental rights filed by AGROPEZ, COOPESCA and OTHERS in which they request the protection of their right to prior consultation, equality and food security violated by the environmental license granted by the National Agency for Environmental Licenses (ANLA) to the project to deepen the access channel to the bay of Cartagena without carrying out the prior consultation with the suing communities.
17 This sum corresponds to the return of the remaining resources of the covenant currently in possession of FDN, pending the settlement and approval of the final balance sheet thereof. 59
• The Supreme Court issued a ruling ordering to carry out the prior consultation process with the communities of Tierra Bomba and Punta Arena. Subsequently, FDN, within the term, requested a review of the decision before the Constitutional Court. By Writ dated March 23, 2018, the Constitutional Court decided not to select the writ of protection of fundamental rights for review. The National Agency for the Legal Defense of the State (ANDJE) filed an insistence with the Constitutional Court on May 04, 2018. • On June 08, 2018, ANDJE reported that it was notified on June 07, 2018 by the Constitutional Court that through Writ dated May 21, 2018 the request for insistence was denied. • On June 21, 2019, the Civil Chamber Specialized in Land Restitution of the Superior Court of the Judicial District of Cartagena opened a contempt incident against INVIAS, FDN, Ministry of Transport and the Board of Directors of FDN. FDN submitted an answer official letter within the term and on July 04, 2019 the Court closed the contempt incident. • As a result of the above, the sued entities executed an inter-administrative agreement in order to coordinate compliance with the requirements of a writ of protection of fundamental rights ruling and to carry out the prior consultation process with the communities.
6.3. Anti-Corruption and Citizen Service Plan Law 1474/2011 sets out the provisions for the strengthening of mechanisms for the prevention, investigation and sanction of acts of corruption and the effectiveness of public management control. In its article 73 (Anti-corruption and citizen service plan), the aforementioned law sets out that each national, departmental and municipal entity shall develop an annual anti-corruption and citizen service strategy. Such strategy includes, among other things, the map of corruption risks in the respective entity, specific measures to mitigate those risks, anti-paperwork strategies and mechanisms to improve citizen service.
Pursuant to the terms of the aforementioned law, for the 2019 period, within its Action Plan, FDN incorporated control mechanisms to mitigate corruption risks, established activities aimed at citizen service and activities related to Accountability to citizens, which have been developed and complied with as established in said plan.
Similarly, FDN continues to comply with regulations, standards and timely and adequate reporting of management, financial and operational information to the control entities, without any type of sanctions or faults due to non-compliance, thus achieving an effective management in advance during the reported periods.
With regard to Law 1712/2014 related to “Transparency and the right of access to public information”, the entity continues to increase its interrelation with the target public and through the website it is possible to access all the information published in accordance with the terms of the aforementioned law. 6.4. Document Management At FDN we are committed to the guidelines for safeguarding the entity's information in all its forms in accordance with the guidelines of the General Archive of the Nation. In the development of this
60 responsibility, FDN is responsible for the management of the documentary, physical and electronic archive and the filing of correspondence. In 2019 it received the management of the PQRSD process.
The entire physical archive is managed by this area, for which it scans the physical documents received and uploads them to the document manager. During 2019 the document management area uploaded 30% of the total number of documents to the #Pegaso application. There was also a 32% reduction in the number of pages scanned, which is explained by a decrease in the use of paper and physical documents in the development of zero paper policies.
In an effort to centralize all digital documents in #Pegaso, the document management area migrated the historical digital documents from five areas, leaving only those from two.
Ensuring the correct preservation of the entity's information and in accordance with the guidelines of the General Archive of the Nation, the following projects were developed during 2019:
• Implementation of the plan contained in the Integrated Conservation System formulated in 2018 applied to keep the physical documents in safe conditions and avoiding biological or physical deterioration. • Preparation and validation of the Documentary Retention tables in its first instance by the General Archive of the Nation. • Preparation and validation of the Documentary Valuation tables of the accumulated fund corresponding to the FEN to the General Archive of the Nation. • Preparation and approval of the Long-Term Documentary Preservation Plan for the electronic documents. • Selection of a new correspondence tool to replace Orfeo.
The Document Management area also assumed the operation of the PQRS process in order to ensure the corresponding regulatory compliance. The Integrity, Transparency and Compliance Management led the initiative to improve the entity's PQRSD process, a regulatory initiative that is documented in a new transversal and centralized PQRSD process for FDN, in order to:
• Guarantee the proper operation of the channels for receiving these requests. • Adequately respond to the requests. • Timely follow-up on the requests submitted. • Generate management indicators. • Keep monitoring and establish action plans in case the indicators show that it is necessary.
For this purpose, we defined the respective process, modified the web page so that when PQRS are submitted by this means, they meet all the requirements of the standard and a flow was developed in #Pegaso to automate their management. Once the implementation of the new model was concluded, the PQRSD part was handed over to the Document Management area for its operation, and the complaints part (D) to the Internal Audit. The statistics of the PQRS are presented in annex 10.
Finally, during 2019 we reviewed FDN’s stakeholder matrix and maintained the one initially defined, which is summarized in the following chart:
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Citizens Financial Entities Control and Surveillance Entities Superintendences Shareholders Communities Employees FDN’S STAKEHOLDERS Ministries Risk Rating Agencies Project Developers Guilds Customer Project Funders s Project Originators
Chart 23. FDN’s Stakeholders
6.5. Compliance with Intellectual Property and Copyright Regulations Regarding the guidelines indicated by Law 603/2000, it is reported that during 2019 the entity complied with all the regulations on intellectual property and copyright. 6.6. Certifications In compliance with Article 57 of Decree 2649/1993, the control and surveillance entities have been expressly informed about all economic events, which have been recognized and disclosed due to their nature and amount in the Financial Statements and in their respective notes. Likewise, as of the December 31, 2019 cut-off date, there is no knowledge of the existence of subsequent events that may affect or require adjustments.
It is certified that the Financial Statements and other relevant reports for the public referred to in this management report do not contain vices, inaccuracies or errors that may prevent the entity's true financial position or operations from being known. 6.7. Free Circulation of Invoices In compliance with the second paragraph of Article 87 of Law 1676/2013, whereby access to credit is promoted and regulations are issued on personal property securities, the Administration certifies that FDN has not hindered the free circulation of invoices issued by sellers or providers. 6.8. Coexistence Committee During 2019 the Committee held four meetings. In addition, the election and appointment of the committee members took place, and they held their first meeting in the last quarter of 2019. In 2019, three cases were managed for the committee's consideration. 6.9. Supply Chain Table 15 presents FDN’s supply chain information.
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Table 15. FDN’s Supply Chain
FDN's supply chain is mainly made up of natural persons and legal entities from different tax regimes, most of whom are domiciled in Colombia and a few abroad. They provide services as contractors, specialized consultants or services in financial, legal, project structuring and infrastructure matters. To develop its operation, FDN requires the 1. Description of the organization's supply chain. contracting of operational services such as leases, maintenance, insurance, air ticket supplies, software, cleaning and cafeteria elements, furniture and equipment. It also needs access to transactional and consultation platforms, public utilities, subscriptions and affiliations. On the other hand, there is the human team hired through payroll with the corresponding social security and parafiscal payments.
FDN’s permanent employees, contractors, consultants, providers of 2. Types of providers involved. goods and services, members of the board of directors, shareholders, strategic allies, public utilities companies and guilds.
3. Total number of providers involved in the 616 organization that presented movement during 2019. 4. Estimated number of providers in the entire supply Unavailable information chain. Armenia, Barranquilla, Bogotá, D.C., Bucaramanga, Cali, Cartagena, 5. Geographical location of providers. Chía, Cota, Honda, Manizales, Medellín, Montería, Pereira, Popayán, Tunja. 6. Estimated monetary value of payments made to 322,617,500,187 providers
The supply chains involved in the mission issues developed by FDN are characterized by requiring a high level of specialization in the financial, 8. Specific characteristics of the supply chain sector legal, infrastructure and project structuring areas. These issues require and how labor-intensive it is. skilled labor with advanced technological tools, which means that the supply chain is not characterized by intensive use of labor.
6.10. Subsequent Events As of the date of submission of this report at the meeting of FDN’s Board of Directors in February 2020, there are no subsequent events to report.
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ANNEXES Annex 1. 2019 Corporate Indicators Table 16. Corporate Indicators
2019 December Perspective Purpose Indicator Unit TARGET BUDGET ACTUAL Compl. Operational Income M$ 617,596 617,596 576,369 94% 2
Achieve profitable, sustainable ROAE % 6.16% 6.16% 6.44% 104% 1 FINANCIAL growth with impact on the Financial margin before M$ 242,757 242,757 255,624 105% 1 country's development provisions Net portfolio balances M$ 1,881,718 1,881,718 2,344,875 125% 1 International scenarios of the To be a nationally and financial sector and internationally recognized infrastructure in which FDN No. 6 6 5 83% 2 reference as a development participates, presenting its bank model and role (impact not less than 250
CUSTOMERS/ people) FDN’s participation in STAKEHOLDERS Achieve a relevant infrastructure portfolio % 12.05% 12.05% 14.04% 117% 1 participation in advisory and Colombian Banking financing of infrastructure Between 4 Road Mobilization Indicator Times 4 - 5 times 4.1 100% 1 and 5 Mobilize resources towards Mobilization Indicator other Between 1 the financing of Infrastructure Times 1 – 3 times 3.8 100% 1 sectors and 3 Percentage concentration on Generate project pipeline by % 63.0% 63% 58% 109% 1 developing studies, roads (based on commitments) structuring and managing, financing and monitoring Number of Structured projects No. 22 22 20 91% 2 infrastructure projects
Product development, business Develop innovative products, cases, and/or adaptation of businesses and services that existing products, or products No. 2 2 2 100% 1 INTERNAL allow making financing and that support emissions for DMC. PROCESSES closing of projects feasible (Does not include PER products)
Spread Profitability trading pb 150 5.78% 7.16% 124% 1 portfolio v. Benchmark Achieve efficiency between Spread Profitability liquidity resource collection and pb 80 5.08% 5.42% 107% 1 portfolio v. Benchmark placement % Financial Margin before % 39.24% 39.24% 50.57% 129% 1 provisions
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2019 December Perspective Purpose Indicator Unit TARGET BUDGET ACTUAL Compl. Solvency % 34.33% 34.33% 77.13% 225% Sovereign International (S&P) Rating Rating Sovereign Risk BBB 100% Risk Develop and maintain excellence in risk management International Fitch Rating Rating Sovereign Risk 0.0 BBB 100%
INTERNAL Sovereign Local Fitch Rating Rating Sovereign Risk AAA F1+ 100% PROCESSES Risk Have an efficient and safe organization, under a system of Maturity level of processes Index 4.3 4.3 4.3 100% continuous improvement Have the appropriate platform Maturity level of technological and technological tools to Index 4.3 4.3 4.0 93% platform support the operation Organizational environment indicator Index 76.4 76.4 74.9 98% Have human talent with high
technical capacity and Percentage of collaborators with orientation to results results in competence evaluation % 40% 40% 37.9% 95% LEARNING higher than 85% AND Clan orientation (teamwork) in Index 24.8 24.8 25.9 104% DEVELOPMENT organizational leadership Achieve a culture of teamwork
focused on innovation Orientation towards innovation in Index 23.8 23.8 22.1 93% organizational characteristics Manage the knowledge derived Knowledge Management Initiative IRP 1 1 1 100% from FDN’s experience
2019 Compliance* 103%
*For the calculation of total compliance, the value of 120% is considered as the maximum compliance per indicator
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Annex 2. Detail of Structuring Projects in the Transportation Subsector First Line of the Bogota Metro
During the year 2019, the structuring team made great effort to advance the prequalification phase and the international public bidding to select the concessionaire responsible for the implementation of the project.
On February 25, applications for prequalification were received from seven groups, of which six were prequalified for bid submission. Two group meetings were held with these groups, 24 one-on- one meetings and 2,068 observations to the bidding documents were received.
Finally, two proposals were submitted on October 3, 2019.
On November 27, 2019, Empresa Metro de Bogotá and the company Metro Línea 1 S.A.S. signed the concession contract for the construction, operation and maintenance for 20 years of the First Line of the Bogota Metro.
Likewise, on July 22, 2019, the selection process was initiated for the contracting of the integral inspection of the Concession Contract. As a result of the evaluation process of the 17 expressions of interest received and the preparation and adjustment of the process documents, the new date for publishing the composition of the Short List was set for December 30, 2019
TransMilenio Soacha Phases II and III
FDN carried out the integral Structuring and accompanied the bidding process for the construction of the extension of the NQS main road to the municipality of Soacha, phases II and III for Empresa Férrea Regional of Cundinamarca and the following should be noted:
- It is the line or corridor of mass transport that will bring more social benefit to the population in the country: it will mobilize more than 430,000 passengers a day in a stretch of 8 km. - It is the only main road corridor of the TransMilenio System structured and awarded in these four years. - FDN carried out the value engineering and design optimization, which allowed for a reduction of 18.9% in the cost of infrastructure and inspection. - The infrastructure was adapted to receive bi-articulated buses at the four (4) single stations, one (1) intermediate station of 3M (6 main road stops and 9 feed stops), portal (6 main road stops and 9 feed stops) and the parking lot with the largest capacity of the entire system (154 bi-articulated, 169 articulated, 19 preventive and corrective maintenance positions, 1 repair station, 1 paint station, 4 supply positions, 6 washing positions). Each stop position in the stations and portal is capable of receiving 72 buses/hour. - The work agreements that include five (5) years of service level guarantee (maintenance stage) were awarded according to table 17.
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Table 17. TransMilenio Soacha Phases II and III
Lot Work Inspection
Contractor Value Contractor Value
1 Consorcio Vial de Soacha (Mario Huertas $ 235,599,770,214 Consorcio TPF – $ 27,851,578,367 Cotes – Coherpa Ingenieros Constructores ICEACSA 2 Constructora Conconcreto S.A. $ 133,457,791,597 Interdiseños $ 18,107,834,462
Total $ 369,057,561,811 $ 45,959,412,830
- The achievement of the award allows FDN to obtain success fees of $1.725 billion for the structuring and $1.134 billion (before VAT) for the credit operation.
On the other hand, FDN was also hired by Empresa Férrea Regional of Cundinamarca to structure and manage the financing of the works and the inspection. The following was achieved as a result of this advice: - On July 29, the selection process of the project's financiers was carried out, in which six offers were received (Banco Davivienda, Banco de Occidente, Banco Itaú, FDN (financing), Bancolombia and Banco Popular) equivalent to 1.4 times the required amount. After the evaluation of the offers, Banco Itaú was selected with an amount of $203.083 billion pesos, Bancolombia with an amount of $300 billion and FDN with an amount of $106.917 billion, thus obtaining a total financing of $610 billion with a weighted rate of IBR (6 months) + effective annual rate of 2.91% - On October 23, the credit agreement was signed between the selected financiers and Empresa Férrea Regional of Cundinamarca. It is estimated that the first disbursement will be made in the first quarter of 2020.
Projects under Implementation
La Dorada- Chiriguaná Railway Corridor
Financiera de Desarrollo Nacional S.A., and the National Infrastructure Agency signed on December 22, 2017 the Inter-Administrative Agreement 24/2017 whose purpose is “… to join efforts to develop (i) demand and feasibility analysis of the railway projects of interest to the Nation that were identified as priorities in the Intermodal Transportation Master Plan (PMTI), using primary and secondary information and, according to the results obtained in this stage and the degree of feasibility of the projects studied, (ii) develop the technical, legal and financial structuring at the level of feasibility of the corridors identified and prioritized in the first stage.” As a result of the first stage, priority was given to the Dorada - Chiriguaná corridor, with its connection to Santa Marta, in order to develop an integral structuring.
During the year, the technical arranger and its respective inspection were hired, so the technical structuring has been advanced, in which the market figures of the corridor were updated, the operational zone was defined and the field information gathering for the preparation of the detailed diagnosis of the corridor is in execution. As of the date of this Management Report, the FDN-VE-03
67 selection process is open for the legal and financial arrangers, which is estimated to be awarded on January 29, 2020.
Additionally, given the need to complement the resources of agreement 24/2017 for the contracting of the legal and financial structuring of the corridor, FDN managed international cooperation resources through the Prosperity Fund (PF) of the Government of the United Kingdom of Great Britain and Northern Ireland, in particular with the Foreign and Commonwealth Office (FCO) of the British Embassy in Colombia, and a Memorandum of Understanding was signed on August 22, which has as one of its purposes: to provide support to FDN to implement the project “Technical, legal and financial structuring of the railway corridor between La Dorada in the department of Caldas and Chiriguaná, in Cesar (Colombia) with its respective branches, including interoperability with the Chiriguaná - Santa Marta section.
The main purpose of this project for 2020 is to open the contractor selection process for the infrastructure rehabilitation component of the corridor and in the first semester of 2021 open the selection process of the contractor(s) that will develop the operation and maintenance of the infrastructure and the acquisition, operation and maintenance of the rolling stock of the railway corridor that is the subject matter of the structuring.
Cali, Yumbo, Jamundí and Palmira Commuter Train
FDN signed a three-year framework cooperation agreement with the Valle del Cauca Government to join efforts for the technical, legal and financial structuring of the Commuter Train between Cali, Palmira, Yumbo and Jamundí. It is a solution to the mobility and integration of the Cali conurbation, with direct impact on the connection with other six municipalities in the area of influence. The project is contemplated within the strategies of the development plans at a national and subnational level and in the strategy of reactivation of the railway mode within the framework of the Railway Master Plan. It favors regional integration, reduction of pollutant emissions, reduction of congestion, and will promote renewal and integration with the urban context.
The estimated investment costs of the first prioritized line are between $614 million and $947 million (Cali - Jamundí section of 22 km with 18 stations). A mixed mode is proposed; Train for interurban areas and Tramway to serve the Central zone of Cali, with connection to the Integrated Mass Transport System of Cali.
FDN, in addition to participating in the integral structuring, may eventually design land management instruments and value capture mechanisms that become a source of payment for the financing and sustainability of the transport system. It will also be able to contribute its experience in the transitional management that the project requires prior to the creation of the managing entity. Additionally, FDN could have subsequent or additional participations in the project, including providing financing or other products to the successful bidder, managing entity or interested entities.
As was the case with the First Line of the Bogota Metro, and phases II and III of TransMilenio Soacha, this project is expected to generate a financing option for FDN in 2022 or 2023.
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SITP Structuring of the Barranquilla Metropolitan Area
The structuring of the SITP will be completed in late February 2020, which will allow the implementation of the system through Business Agreements to be signed by the Barranquilla Metropolitan Area (AMB) with the local transporters. It is expected that in the next three years, and with the procurement of new sources, the bidding and awarding of the new collection operator for public transport will be carried out and the integration of the main road system with the SITP buses will be achieved, improving the quality of service to the users of the SITP of the AMB.
In the discussions held with the new mayor of the city, it is expected that FDN can advance the integral structuring and accompaniment of the bidding process for the construction and operation of the main road corridor of Calle 30 in Barranquilla and which is part of the SITP of the AMB.
PMTI III
In development of the Inter-Administrative Agreement C03/2017 signed with the Ministry of Transport, the National Infrastructure Agency and the National Roads Institute, the following main activities were carried out during the year:
FDN defined the legal, institutional, technical and financial scheme to implement the National Valuation Contribution (CNV) in order to find new funding sources for the country's infrastructure projects that have been prioritized in the PMTI. This will allow the recovery of part of the costs or the participation in the benefits generated by the greater value of the land in the area of influence of the infrastructure projects.
Together with the transport sector, the Cartagena - Barranquilla corridor was selected as a pilot project for the National Government to begin using this mechanism. It was estimated that the collection could amount to approximately $596 billion, with a total of 59,956 property units that are part of the project's area of influence.
To make the collection effective and after conducting different discussion and socialization meetings, the updated versions of the draft regulatory decree were delivered to the Ministry of Finance and the draft CONPES document to the National Planning Department, instruments that are the support to implement the tax on the pilot project and, in general, on the rest of the projects with collection potential.
Completed Projects
Prepare the technical, financial, economic and legal studies - Support the technical and administrative actions to meet the requirements that allow obtaining the CONFIS of fiscal guarantee and the CONPES of strategic declaration by the National Entities for the Avenida 80 Mass Transport corridor
In development of the Inter-Administrative Agreement CN2018-0236/2018 signed with the Medellin Metro, the following main activities were carried out during 2019:
Studies were conducted that allowed the outgoing municipal administration to present the requirements for the National Government to declare the project of strategic importance; however,
69 the project did not achieve the objective because DNP, the Ministry of Transportation and MHCP requested the municipal administration and Empresa Metro de Medellin to meet the following conditions:
• Appropriate 15% of the future terms for the year 2019, which is necessary since these are ordinary future terms. For this purpose, the city administration tried to include an article on this matter in the National Development Plan (PND), which was not approved because it needed a special majority. The purpose of this article was to allow the approval of exceptional future periods with feasibility engineering. • Wait to obtain the results of the Public Transport Matrix that the Valle de Aburrá Metropolitan Area was carrying out for transportation throughout the region, in order to validate whether the expected demand for the project corresponded to the analyses of the previous matrix, which will be delivered in early 2020. • Prioritization of the two projects that the municipality of Medellin and the Government of Antioquia presented to the National Government for co-financing of the infrastructure (Light Train of Av. 80 and Railroad of Antioquia).
The importance of this project was ratified with the bridge team of the new mayor of Medellin and it was established that the possibility of signing a new agreement with FDN for the final structuring phase of this project would be reviewed.
Sustainability of Bogota's Integrated Public Transport System
The following are the main results of Agreement 567/2017 signed with TransMilenio S.A., achieved during 2019:
Phase I was completed, which corresponds to: (i) Pre-feasibility - Collateral Business (the final analysis for the operation of the businesses was delivered), (ii) Pre-feasibility - Station Administration (the viability of the alternative selected for structuring the adequate administration of the stations and the migration to an asset management system was presented), (iii) TransMilenio System User Diagnosis (the final report corresponding to recommendations and conclusions regarding the typology of TransMilenio users and the necessary measures to model citizen behavior was delivered).
The necessary work was done to structure phase II of the agreement; however, once the analysis was done, it was found that the remaining resources of the agreement were insufficient to fully and adequately perform the technical, legal and financial structuring of the collateral businesses and station administration, as well as the new communications strategy of the SITP in the city of Bogotá D.C. Based on the above, the Technical Coordination Committee decided that it was not viable to continue with the performance of the agreement, so it was agreed to carry out an early termination of the agreement, which was signed on June 21, 2019. The agreement has been liquidated. Thanks to the pre-feasibility results, especially the collateral business component, TransMilenio has informed us that it has increased its revenues by 20% during 2019.
We will approach the new administration to carry out phase 2 of the project.
Integral validation of private initiative for the design, construction, operation and maintenance of the Modal Integration Centers of Calle 80 and Autopista Norte
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In 2019 the first stage of the Inter-administrative Agreement No. 483/2017 executed with TransMilenio S.A. was completed, corresponding to the validation of the technical component of the proposal in the feasibility stage of the Public-Private Partnership of private initiative for the design, construction, operation and maintenance of the Modal Integration Centers of Calle 80 and Autopista Norte.
Taking into account that the Ministry of Transportation did not issue the required regulations for the collection of the fees for the use of the infrastructure to the transportation companies that make use of the CIM, it was not possible to carry out the second stage of the Inter-administrative Agreement (legal and financial validation).
Finally, through Resolution 779 of August 8, 2019, TransMilenio S.A. rejected the PPP project CIM NORTE and CIM CALLE 80. The inter-administrative agreement was liquidated on September 30, 2019.
Reengineering of the Integrated Public Transportation System of Bogotá
In compliance with Agreement 554/2017 signed with TransMilenio S.A., the following activities were carried out: • The impact on agreements of the current SITP operators (2019) and proposals for short- term contractual amendments (2020) was measured. • Analysis of scenarios for the improvement of the zonal operation in the short term, as well as the modeling of the scenario in the medium term (2022 and 2024) for short-term operational design. • Additionally, a proposal for the classification of services was prepared, including the definition of new nomenclature, analysis of economic and operational impacts for the SITP in Bogotá. • The proposal of the scenarios for the improvement of the zonal operation in the medium term (2022 and 2024) and in the long term (2026 and 2030) was advanced, as well as the legal analysis of the proposed scenarios. The agreement ended on February 9, 2019 and is in liquidation.
Evasion in the TransMilenio System
In compliance with 391 Agreement of 2016 executed with TransMilenio S.A., FDN recommended the technological standard for turnstiles, which was implemented at the opening of the TransMicable system and will be used as a pilot at the Santa Lucía station. This will allow avoiding the phenomenon of evasion in the access to the stations from the physical equipment.
The agreement ended early on December 30, 2019 due to the uncertainty that still exists about the opening of the tender process within the entity, which if extended would represent a greater expenditure of resources of the agreement.
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Annex 3. Detail of Former FEN Projects in Execution
FDN continues to participate in five projects that are part of the legacy of the former FEN (Technical Assistance Agreement-AST, ANH Agreement, Mitú Trust Account, IPSE 061 Agreement and IPSE 062 Agreement) in which the required activities have been developed to close these projects as soon as possible.
During the year the agreement of Ecogás' Trust in Liquidation was assigned to Fiducoldex; additionally, we worked together with the MME in order to close and liquidate all the agreements corresponding to the energy sector (Mitú Trust Account, IPSE 061 and IPSE 062). The need to transfer the existing resources in the CAT II Inter-administrative Agreement has been reiterated through communications with the MHCP, but to date there is no response from this entity.
In connection with the ANH Agreement, it is currently pursuing a lawsuit against the insurance company that covered 69/2013 agreement executed with THX Energy Sucursal Colombia (now in Judicial Liquidation) due to the process of default of the aforementioned contractor. In the development of the lawsuit, a technical expert's report was hired in October to corroborate the figures of the lawsuit's claims. The process is still ongoing.
Alternative Access Channel to the Bay of Cartagena
In development of the 406 Inter-administrative Agreement of 2016 signed with the National Roads Institute and the Mandate Agreements signed with the Port Companies 01-2016. The following are the activities carried out during the year: 80% progress was made with Phase 1 of the project management corresponding to pre-construction (environmental impact study and prior consultation). The environmental impact study was completed, as for the prior consultation process, stages 1 to 3 were developed, as established in Presidential Directive 10/2013 with the two communities certified by the Ministry of the Interior (Bocachica and Caño del Oro), however, given the STC ruling 1460- 2018 against the Expansion and Deepening of the Bay of Cartagena Channel Project (executed between 2014 and 2015 by FDN), it was not possible to fully comply with the milestone because such communities conditioned the progress of the prior consultation to compliance with the ruling (the communities of Ararca, Pasacaballos, Tierra Bomba, Punta Arena and Santa Ana are linked). On September 18, 2019, during session No. 14 of the project committee, the Ministry of Transport gave the instruction to end the execution of the project and to begin the liquidation of 406 Inter- administrative Agreement of 2016. The above taking into account that the ministry currently has budget restrictions for the sector and its sectoral priorities are currently focused on other projects. To date, FDN is taking the necessary steps to meet the request of the Ministry of Transport. Compliance with the STC Ruling - 1460-2018
On June 26, 2019, the 1269 inter-administrative agreement was executed between INVÍAS and FDN with the purpose of “joining efforts between the National Roads Institute and Financiera de
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Desarrollo Nacional to comply with the ruling of sentence STC46o-2018, on prior consultation with the black communities of Tierra Bomba, Punta Arenas, Ararca, Pasacaballos and Santa Ana. Cartagena -Bolivar regarding the project of deepening and widening the access channel to the bay of Cartagena”. Likewise, on July 11, 2019, mandate agreement No. 001/2019 was executed between the Port Companies and FDN to comply with the ruling. During the second half of the year, the process of prior consultation with the communities of Pasacaballos, Ararca, Punta Arenas, Santa Ana and Tierra Bomba was carried out. Once stage 4 of the previous consultation was completed, as established in Presidential Directive No. 10 of November 7, 2013, the following result was obtained: (i) Protocolized agreements with the communities of Punta Arena, Santa Ana and Tierra Bomba; (ii) Closure of the consultation without agreements with the communities of Pasacaballos and Ararca, with whom the procedure of weighing agreements will be carried out.
In order to comply with the commitments acquired with the communities of Punta Arenas, Santa Ana and Tierra Bomba, 1269 Inter-administrative Agreement (INVÍAS and FDN) and Mandate Agreement No. 001/2019 (Port Companies and FDN) were added and extended until July 30, 2020. Currently, actions are being carried out in order to comply with the agreements agreed upon with the aforementioned communities.
The necessary steps must be taken with the Ministry of the Interior, INVÍAS, the ANLA and the Port Companies with regard to the compensations with the communities of Pasacaballos and Ararca, with whom agreements were not formalized.
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Annex 4. Inter-Institutional Agreements in Force Signed in Years Prior to 2019
SECO (Swiss Cooperation) - World Bank (2016 - 2020) With resources from this Swiss cooperation, the business case in the area of capital market development was concluded. In addition to promoting the capital market as a source of infrastructure financing, it will also advise projects and companies in the design and execution of specific financial solutions. This cooperation facilitated the issuance of the first sustainable bond (green and social) to finance the acquisition of the TransMilenio fleet phase I and phase II for the Calle 80 yard.
Given the results of this cooperation not only in FDN, but in Colombia in general with the launch of the Capital Market Mission document, the extension of the program's scope for five more years is being considered.
Clean Technology Fund World Bank - Colombia Clean Energy Development Project (2016 - in force) The analysis of the usefulness of the guarantee offered by the World Bank and the Clean Technology Fund for US$41 million and US$40 million respectively to provide guarantees to banks, projects or project aggregation vehicles continued. In 2019, the steps to obtain the nation's guarantee were completed.
Progress has been made in contracting studies related to the market, risks, product financial advice and training for the financing of renewable energy projects under the US$953,000 Project Preparation Grant granted by the World Bank.
Global Infrastructure Facility (GIF) and World Bank (2016 - in force) With resources from this cooperation, the consultancy for the “Design and implementation of financial products and instruments for the long-term auctioning of renewable energies” was completed. Market understanding analysis, energy price projections, risk and cost analysis of the projects were carried out. Additionally, risk and size assessments were carried out, specifically, for the product of the liquidity line for this new sector.
As a result of this consultancy, FDN will offer the liquidity facility to both energy projects with bilateral agreements and those that were awarded at the renewable energy auction held in October 2019.
China Development Bank (CDB), Memorandum of Understanding on Infrastructure (2015 - in force) China Harbour Engineering Company LTD has the controlling interest in the 4G -Autopista Mar 2 project. Sumitomo Mitsui Banking Corporation is the lead arranger of the dollar tranche of the financing and CDB participated in this tranche with about US$420 million. The financial closing of this project was completed at the end of July 2019.
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This year, CDB's Vice President, Zhang Xuguang and his team, visited the project to review the lessons learned from the Mar 2 project financial closing and agreed to work together to achieve the first project disbursement, which took place in early November 2019. There was also a discussion about reviewing with them other forms of cooperation such as facilities in dollars and the possibility of again co-financing projects with the participation of Chinese companies.
Additionally, FDN signed its inclusion as a member of the Association of China-LAC Development Financial Institutions, led by CDB, in order to play a constructive role in promoting the relationship between China and Colombia and between China and Latin America in general.
Foreign and Commonwealth Office, the Infrastructure and Projects Authority and the Department for Business, Energy and Industrial Strategy of the Government of the United Kingdom (UK) - Memorandum of Understanding on Project Planning and Implementation Methodologies (2018 - in force) In the framework of this Memorandum supported by the UK Global Infrastructure Program, several workshops were held during 2019 with the aim of disseminating the methodologies that are the purpose of the Memorandum.
Additionally, the Presidential High Council for Management and Compliance supported the workshops in order to promote the use of these methodologies among the project structuring entities in Colombia. It is planned to establish working groups for the adaptation of these methodologies to the Colombian context and regulation and to begin their application in pilot projects.
Foreign and Commonwealth Office of the Government of the United Kingdom represented by the British Embassy in Colombia - Memorandum of Understanding to provide support for the implementation of infrastructure projects in Colombia (2019 - in force) This memorandum was signed with resources from the UK Government's Bilateral Prosperity Fund, which will provide $9.43 billion for the structuring of infrastructure projects as non-reimbursable cooperation resources.
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Annex 5. Methodologies for Project Preparation Building Information Modeling (BIM)
BIM is a methodology that uses a digital model for the design, construction and, operation and maintenance of infrastructure assets. It brings together technology, process improvements and digital information in order to optimize client and project results, as well as the operation of assets. BIM is a strategic factor in improving decision-making for both buildings and public infrastructure throughout their life cycle.
Exact design at the level being worked on (pre-feasibility, feasibility, detail engineering). Identify and minimize interference between disciplines at
the design stage. Transparency Produce accurate and reliable information more quickly for decision making.
Build the asset knowing all the details beforehand and after having simulated the work plan
Preventing possible construction inconveniences during the work
Improved asset management in operation and maintenance Optimize infrastructure to reduce OPEX.
Chart 24. Building Information Modeling (BIM)
Five Case Model
The Five Case Model is an analytical framework that helps prepare programs and projects in any sector, under any contractual scheme (PPP, public works, hybrid) and at any level of government. It helps to answer three basic questions: What is the current situation and what are the needs to be solved? Where do we want to go? And what tools do we use to achieve this?
The Five Case Model allows us to take a step-by-step approach to develop an investment case where we analyze the need for change and clearly establish the intervention requirement, the expected result and the clear objectives to be achieved, the optimal balance between benefits, costs and risks by considering and evaluating various possible solutions and finally visualizing a successful execution by developing a structured plan to successfully implement the project.
This methodology is based on the analysis of five cases: (i) strategic, (ii) economic, (iii) commercial, (iv) financial and (v) management.
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Final stage Supported by Intermediate stage technical studies Initial stage
Time Project maturity degree
Strategic Economic Commercial Financial Management
Is it needed or Does the selected Is it commercially Financially viable Does the organization aligned with other alternative maximize viable and with the available have the required capacity projects? value to society? attractive? budget? for its implementation?
Chart 25. Five Case Model
Project Initiation Routemap
This methodology allows identifying the problems in early instances of the project cycle to develop robust and/or complex projects. It provides assistance in analyzing complexity and preparing to execute projects (sponsor, client, manager and market), determines key considerations to bridge the capacity and complexity gap and ensures that the right questions are asked so that key risks and opportunities are identified.
Chart 26. Project Initiation Routemap
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Annex 6. Internal Committees FDN's management has 14 steering committees that are composed of company executives and personnel:
Presidential Committee: in charge of evaluating the development of FDN Business Plan. Composed of FDN's president and all the Vice Presidents.
Monitoring Committee: monitors the development of FDN's active debt operations. Composed of the Vice President of Credit and Risk, Vice President of Finance, Director of Finance, Director of Credit and Risk and the lawyers assigned to the transactions.
Portfolio Rating Committee: responsible for evaluating the credit risk of FDN portfolio according to the criteria established by the Board of Directors. Composed of the FDN President, the Vice President of Credit and Risk, the Vice President of Finance and the Vice President of Legal Affairs.
Procurement and Contracting Committee: responsible for approving contracting initiatives with a value of more than 1,000 Current Legal Minimum Monthly Salaries. Composed of the Vice President of Credit and Risk, the Vice President of Finance and the Vice President of Operations.
ALCO Committee: evaluates the management of assets and liabilities of the entity in order to mitigate structural risks of the balance sheet in the development of the business. Composed of the President of the FDN and all the Vice Presidents.
Operational Risk Committee: responsible for analyzing and managing operational risk and issuing recommendations on operational risk policies to the Board of Directors. Composed of the Vice President of Credit and Risk, the Vice President of Finance, the Vice President of Strategy and Development, the Vice President of Operations and the Director of Operational Risk.
Technology and Online Governance Committee (GEL): evaluates the company's operational processes, technological tools and monitors the online governance strategy. Composed of the FDN President, all the Vice Presidents and the Human Talent Manager.
Product Committee: follows up on the Product Development or New Business Plan, presents new products or adaptation of existing products for internal approval. Composed of the FDN President and all Vice Presidents.
Archive Committee: reviews and approves the company's document management projects. Composed of the Vice President of Strategy and Development, the Vice President of Legal Affairs, the Vice President of Operations, the Director of Technology and the Director of Processes.
Conciliation Committee: studies, analyzes and formulates policies on the prevention of legal damage and legal defense of the company, and defines the origin of conciliation in each case of legal contingency of FDN. It is made up of the FDN President, the Vice President of Credit and Risk, the Vice President of Finance and the Vice President of Legal Affairs.
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Internal Credit Committee: evaluates and reviews the economic or strategic viability of the company's credit and investment applications. The Committee is comprised of the President, Vice President of Finance, Vice President of Strategy and Development, Vice President of Legal Affairs and Vice President of Credit and Risks.
Technical Treasury Committee: responsible for the periodic review of portfolio composition, monitoring of early warnings and limits, and analyzing the macroeconomic environment. The Committee is composed of the Vice President of Capital Markets and Treasury, the Vice President of Credit and Risks, and the Vice President of Strategy and Development.
Coexistence Committee: knows, evaluates and deals with complaints or situations that may constitute labor harassment, as well as the evidence that supports them, in a confidential manner. Composed of (2) two representatives of the employer and (2) representatives of the workers.
JOHSC Committee: the Joint Occupational Health and Safety Committee is responsible for supporting the employer's obligations with respect to compliance with the minimum working and health conditions required by FDN. It is composed of (2) two representatives of the employer and (2) representatives of the workers.
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Annex 7. Generations Categories
Generation Category Description • Millennials They respect the knowledge and credibility of others above the formalities, they have a lot of commitment, but not with the organizations but with themselves, they are not afraid to change jobs, they do not conceive life without technology and adapt to the changing pace of things, they like to undertake and learn and be part of the decision making. • Generation X They are still the majority in the labor market and occupy leadership positions, they want professional development within the same company, they are stable, they know how to work in a team and they promote trustworthy labor relationships, they have adapted to the arrival of the Internet in their lives and to the subsequent technological development. • Baby Boomers Work is important to them, they are committed, faithful to their professional life and good at creating teams, they expect security and stability from work, they are used to working for many years in the same company, they are the voice of experience. • Gen Z Their life revolves around technology, they look for flexible jobs, remote work, and that allows them to carry out several activities at the same time, it is difficult to capture their attention and they care about the environment and people, they are very creative.
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Annex 8. FDN 2019 Annual Corporate Governance Report
ANNUAL CORPORATE GOVERNANCE REPORT 2019
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In accordance with the provisions of letter aa) of Article 17 of the Bylaws, the Board of Directors of Financiera de Desarrollo Nacional S.A. submits an annual report on monitoring and compliance with the practices and measures of corporate governance corresponding to the management of 2019.
CORPORATE GOVERNANCE
1. Corporate Governance Overview in 2019 − Background on the evolution of FDN corporate governance − Continued strengthening of the corporate governance structure − Changes in the Board of Directors composition − Election of the Company President − Amendments to the Bylaws
2. Capital Stock Structure − Capital stock − Main shareholders − Shareholding Composition
3. Meetings of the General Shareholders Assembly − Main decisions − Dividend allocation − Key decisions in 2020
4. Board of Directors − Composition − Our members of the Board of Directors − Operation and effectiveness − Committee Activities − Conflicts of interest and related party operations
5. Remuneration − Remuneration of Board Members
6. Corporate Governance goals for 2020
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1. 2019 CORPORATE GOVERNANCE the election of the Board would fall entirely OVERVIEW on the General Shareholders Assembly and modified its composition with the purpose of 1.1. BACKGROUND ON THE EVOLUTION OF giving more independence to this body. In FDN CORPORATE GOVERNANCE this regard, it was established that the Board of Directors would be composed of seven The implementation of good corporate members of which at least two must be governance practices has been in the DNA of FDN independent and two would be nominated since its foundation. Thus, Decree 4174 of each by IFC and CAF. November 3, 2011, by means of which the name, structure and objectives of Financiera Energética • Chairman of the Board of Directors: Special Nacional were modified to create Financiera de qualities of independence were established Desarrollo Nacional, contemplated as one of the that a board member must meet in order to be nominated as Chairman of the Board of guiding principles for the development of the Directors. FDN's corporate purpose to take “all conducive measures to adopt corporate governance • Board of Directors Committees: Two standards.” additional committees composed exclusively The capitalization and involvement of the new of members of the Board of Directors were IFC and CAF shareholders in 2014 had as its main created (risks and, remuneration and purpose the transfer of experience, knowledge, appointments); the above with the purpose and best practices in infrastructure project of supporting the Board of Directors in the financing and the strengthening of socio- functions it must perform, and the environmental issues in infrastructure projects, investment and audit committees, both as well as the strengthening of the company's composed of members of the Board, were corporate governance. In line with the above, as maintained. a pre-condition for capitalization by the multilateral entities, different adjustments to the • President of the company: The figure of the FDN's governance structure were implemented president (legal representative) of the through a comprehensive statutory reform and company was also modified within the the implementation of measures and rules integral reform of the bylaws, while establishing a new procedure for his related to this issue in the Shareholders' appointment. The previous bylaws Agreement, including the following: contemplated that the appointment and • Modification of the composition of the removal of the president of the Company Board of Directors: Decree 4174/2011 corresponded to the President of the establishes the composition of the Board of Republic in accordance with the State Directors allowing the possibility of being industrial and commercial company regime modified by the Shareholders General to which the FDN was subject. With the Assembly in the event that the participation bylaw reform, the President was given of the Nation in the capital stock decreases. greater autonomy and independence both in Taking into account that with the his functions and in his appointment, which capitalization by the new shareholders the falls exclusively on the Board of Directors. interest of the Nation would decrease below 90%, the statutory reform established that
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• Shareholders Agreement Provisions: Certain provisions of the Shareholders Agreement subscribed between the Nation, IFC, CAF and 1.2. CORPORATE GOVERNANCE FDN were incorporated. It should be STRENGTHENING highlighted that topics such as special The corporate governance strengthening is a majorities of the Board of Directors and continuous process, in which the companies, General Shareholders Assembly were depending on the changes to their internal included. dynamics and the environment, or on new challenges and goals proposed, must analyze On the other hand, the Shareholders Agreement their current government scheme and define established measures that amended the concrete actions to adjust their governance to the new realities. governance structure of the company, which generated the need to reflect such changes in the One of the challenges for 2020 and the next years Bylaws and other corporate documents during is the exit to the capital market, initially through 2014. Thus, the signing of the Shareholders the issuance of fixed income bonds and then the Agreement was an important starting point for preparation for the listing of its shares, in strengthening the FDN's corporate governance compliance with the provisions of the structure. Shareholders Agreement. Pursuant to the foregoing, during 2019, the Continuing with the strengthening process and Management and the Board of Directors worked based on the previous facts, between 2015 and on designing a comprehensive strengthening 2019 FDN has been implementing different plan for the entity’s corporate governance, which instruments and analyzing the best way to attends the new challenges, builds on the basis 18 implement the Country Code . Below, we of the Shareholder Agreement and the bylaws highlight the main activities carried out by FDN in and responds to the current environment in terms of corporate governance between 2014 which FDN is acting. and 2019: Thus, the Administration, together with the advice and support of the Corporate Governance, Remuneration and Appointments
• Removal of the • Entry of private • Presentation to the Board Ministers from the Board Committee, structured a Program to Strengthen shareholders of the first diagnosis on the gap of Director • Comprehensive analysis of Codigo País. • Review of the gap amendment of Bylaws: • Approval of • Assignation of functions • Political analysis before Codigo Pais different improvements Board and and responsibilities regarding FDN's Corporate Governance, which in principle Approval of and Action Plan. were included in the Committee the corporate governance to Managers’ Conflict • Statutory Reforms: FDN’s corporate Operation the Compensation and governance, such as: Appointment Committee, of Interest Regulations. modification of Board of will have the following stages: Board of Director’s currently the Corporate Management by the Directors period and • Amendment of composition, special Governance, Compensation Assembly. assignation of functions majorities, President the Board’s and Appointment Committee. • Approval of composition, passing the AGA Regulations from 7 to 9 − First Stage: aims at the compliance and implementation of a series of corporate governance measures included in the Country Code for companies issuing securities in Colombia and the OECD Chart 27. Corporate Governance between 2014 and 2019
18 It is the Code of Best Practices of Corporate Governance issued and Transparency and Financial and Non-Financial Information) that form the published by the Finance Superintendence of Colombia through External basis for the completion and referral of the Implementation Report of Best Circular 028 of 2007. It includes 148 recommendations (divided into the Corporate Practices, obligation by the issuers of securities in Colombia following areas: i. Rights and Equitable Shareholder Treatment, ii. General where the adoption of the recommendations of corporate governance will Shareholders Assembly, iii. Board of Directors, iv. Control Architecture, v. be verified.
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Guidelines for Corporate Governance of Francisco Gómez Vélez as the Company's State Companies. President in charge, who had been serving as Vice-President of Strategy and Development. − Second Stage: a global review of the corporate governance scheme of FDN The selection and appointment of the new shall be made from the risk management president was made based on the guidelines perspective, in line with the risk-based defined by the Board of Directors, within which it supervision that is being implemented by was established that the Corporate Governance, the Finance Superintendence of Compensation and Appointments Committee Colombia. would advance the selection process through an internationally recognized executive selection firm (head hunter) with experience in the 1.3. CHANGES IN THE BOARD OF DIRECTORS selection of executives for public companies. This COMPOSITION firm presented the Committee with several During 2019, the Board of Directors had an candidates who met the requirements of the important renewal. First, in the month of profile defined by the Board of Directors. January, Mr. Rodrigo Galarza (nominated by IFC) The selection and designation of the new present and Mr. Julio Andrés Torres García (nominated was done based on the guidelines defined by the by MHCP), elected by the Assembly in December Board of Directors, within which it was 2018, were sworn in by SFC. In second place, in established that the Corporate Governance, February, SFC authorized the possession of Mr. Compensation and Appointments Committee Juan Alberto Londoño, general vice-minister of would perform the selection process through an finance. Thirdly, at the ordinary Assembly held executive selection firm (head hunter) that is on March 27, 2019, the Assembly appointed the internationally recognized and with experience Board of Directors for the period March 31, 2019 in the selection of executives for public to April 1, 2021; two new members were companies. Such firm submitted to the included in the elected board: Mauricio Cabrera committee several candidates that met the and Jorge Hernan Melguizo. In fourth and last requirements of the profile defined by the Board place, in December 2019 the Assembly accepted of Directors. the resignation of Mr. Jorge Hernán Melguizo as an independent member of the Board of Subsequently, the Committee, in accordance Directors and designated in line 3 of the Board with the quorum and majorities established in its Mr. Germán Quintero, nominated by the regulations, prepared a short list of three Ministry of Finance and Public Credit. candidates, which was put to the consideration of the Board of Directors, which decided to 1.4. ELECTION OF FDN PRESIDENT submit the proposed candidates to the Before the resignation of Mr. Clemente del Valle evaluation of the supranational investors for Borráez, for the first time since the creation of their non-objection, in line with the provisions of FDN, a new president had to be selected and the Articles of Association and the Shareholders elected for the company. Agreement.
While the selection process was carried out, in As a result of the process described above, in April 2019, the Board of Directors appointed September and after a process of several
85 months, upon receipt of no written objection Our Capital Stock is represented by ordinary from CAF and IFC, the Board of Directors shares of the same class and grant the same appointed Mr. Francisco Lozano Gamba as economic and voting rights. During 2019, the President of the FDN. capital stock had no amendments. As of December 31, FDN had nine public and private 1.5. AMENDMENTS TO THE BYLAWS shareholders that are the owners of 11,284,413 The Bylaws of FDN were amended once during shares in which the subscribed capital of the 2019. The following reforms were approved in company is divided, pursuant to Table No. 18. the regular meeting of the Shareholders 2.2. MAIN SHAREHOLDERS Assembly held in March: Considering as significant shareholders those − The appointment period of the members who individually hold 5% or more of the of the Board of Directors was amended company's shares or who have the power to from 1 (one) year to 2 (two) years, with nominate members of the Board of Directors, as the purpose of providing continuity and of December 31, 2019 FDN had the following: development of strategic knowledge of the company by the members and • The Nation – Ministry of Finance and Public aligning it with the period of the fiscal Credit: is a national public entity in charge of auditor. coordinating macroeconomic policy; it − In order to adopt recommendations defines, formulates and executes fiscal included in the Decalogue of Corporate policy and intervenes and develops the Governance of the Ministry of Finance budgetary and financial perspective of the and Public Credit, the approval of the country, among others. Code of Corporate Governance was included as a function of the Board of • Latin-American Development Bank-CAF: is Directors, as well as the presentation to a development bank comprised by 19 the Assembly of a follow-up report and countries, whose mission is to promote compliance with its rules. sustainable development and regional economic integration in Latin America. 2. CAPITAL STOCK STRUCTURE 2.1. CAPITAL STOCK
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Table 18. Stock Capital
Type of Capital Amount Shares Authorized capital $1,200,000,000,000 12,000,000 Subscribed capital $1,128,441,300,000 11,284,413 Paid capital $1,128,441,300,000 11,284,413
• International Finance Corporation - IFC: is a transfer transactions between shareholders, and member of the World Bank Group and the the profits generated during the 2018 period leading international development were paid in cash to the shareholders in full. As a institution exclusively dedicated to the result, FDN's shareholding structure as of private sector in developing countries. December 31, 2019 was as follows:
• Sumitomo Mitsui Banking Corporation - SMBC: it is a private financial entity belonging to the bank group with the same
name, from Tokyo, Japan.
2.3. SHAREHOLDING STRUCTURE FDN's shareholding structure remained the same with respect to 2018, since there were no
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Table 19. Shareholding Structure as of December 31, 2019
Number of Ownership Capital Shareholders Shares Interest Nature THE NATION – MINISTRY OF FINANCE AND PUBLIC CREDIT 8,279,303 73.369% Public INTERNATIONAL FINANCE CORPORATION – IFC 1,002,924 8.8876% Private SUMITOMO MITSUI BKING CORPORATION – SMBC 1,002,924 8.8876% Private CORPORACION ANDINA DE FOMENTO – CAF 976,234 8.6511% Private INSTITUTO DE PLANEACION Y PROMOCION DE SOLUCIONES ENERGETICAS – IPSE 22,419 0.1986% Public EMPRESA DE ENERGIA DE BOYACA - EBSA 246 0.0021% Public CENTRALES ELECTRICAS DEL CAUCA – CEDELCA 225 0.0019% Public EMPRESA DE ENERGIA DE PEREIRA S.A. -ESP 11 0.00010% Public QUINDIO REGIONAL AUTONOMOUS CORPORATION 5 0.00004% Public OWN REPURCHASED SHARES 122 0.00108% - TOTAL 11,284,413 100% -
122 reacquired shares were obtained in the framework of the Reacquisition Plan of own shares and reduction of capital approved by the Shareholder Assembly in 2008, which have not been cancelled to date.
3. MEETINGS OF THE GENERAL decided at the special meeting of the 2019 Assembly was the approval of two bylaw SHAREHOLDERS ASSEMBLY reforms. Likewise, and in compliance with the 3.1. Main Decisions bylaw provisions, the General Shareholders In 2019, the General Shareholders Assembly met Assembly proceeded to appoint the Board of twice, the first in a regular manner on March 27, Directors for the period from April 1, 2019 to 2019 and the second one in a special manner on March 31, 2021. In the conformation of the Board of Directors, the third line of the December 30, 2019. The summons to the nomination of the Ministry of Finance and Public previous meetings were made through a notice Credit is vacant, since it did not nominate a published in the newspaper La República, under candidate. In addition, the Assembly appointed the terms provided in the bylaws. KPMG S.A.S. as FDN's tax auditor for the period As established in article 379 of the Code of from April 1, 2019 to March 31, 2021. Commerce, previous to the regular meeting of the General Shareholder Assembly, the shareholders had at their disposal the documents to be evaluated in the meeting of the senior management body in order to enable the exercise of the Inspection Right.
Below is a summary of the issues discussed in the meetings of the Assembly of 2019:
− Regular meeting held on March 27, 2019. As noted in paragraph 1.5 "Bylaw Reforms" of this report, one of the most relevant issues
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Finally, the Assembly, in compliance with the − Special meeting held on December 20, bylaws and law: 2019
- considered and approved the On December 20, 2019, a special meeting was Management Report of the president held to appoint German Quintero Rojas, and the Board of Directors. nominated by the Ministry of Finance and Public - considered and approved the Report of Credit, as a member of the Board of Directors. Additionally, the Assembly clarified that Julio the Board of Directors to the assembly Andrés Torres, member nominated by the MHCP, on the Audit Committee activities. fulfilled from his designation the required - considered and approved the individual qualities to be an independent member and, and consolidated Financial Statements therefore, he holds such capacity within the with cut-off as of December 31, 2018. Board of Directors. Finally, the Assembly - considered the tax auditor’s Opinion. accepted the resignation of Mr. Jorge Hernan - Approved the profit sharing project. Melguizo as a member of the Board of Directors.
Minutes 63 of the Shareholders Assembly The detail of the issues analyzed, approvals and includes the topics presented at the special authorizations given by the Assembly is meeting held on December 20, 2019, duly incorporated in Minutes 62 dated March 27, recorded in the Shareholders Assembly Minutes 2019 duly filed in the Minutes Book of the Book, which was timely sent to the Finance Shareholder Assembly, which was sent to the Superintendence of Colombia. Finance Superintendence of Colombia. 3.2. Dividend Allocation
As indicated above, during the regular meeting, the shareholders approved the dividend allocation project of 2018. The profits decreed amounted to $70,659,514,172, which, pursuant to the decisions made by the shareholders, were paid in cash to the shareholders in June 2019.
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4. BOARD OF DIRECTORS Manager in Coltabaco S.A. and advisor of the 4.1. Composition Ministry of Defense and Justice, among others. On February 1, 2019 was appointed the General According to article 16 of the FDN Bylaws, the Vice-President of the Ministry of Finance and Board of Directors is comprised by nine (9) main Public Credit. members, of which at least three must be independent. From March 31, 2018 and up to the date in which IFC and CAF jointly have at least 5% of the ordinary and outstanding shares of the company, the members shall be elected as follows:
I. Six (6) members shall be appointed by Julio Andrés Torres García (Independent the Ministry of Finance and Public Member – nominated by MHCP) Credit, of which at least three (3) shall Systems Engineer from Universidad de los Andes be independent. No member may hold a (1988), he has a Master of Business Management ministry office. degree from Northwestern University (1994) and a Master of Public Administration from Harvard II. One (1) member nominated by IFC, one University (2005). He has had experience in the (1) member nominated by CAF and one financial sector holding offices such as (1) member nominated by SMBC. partner/executive director in Andina Acquisition All the members shall comply with the OECD Corporation, partner director / founder of Nexus 19 Guidelines and the other guidelines . Capital Partners, Vice-President of Emerging Markets, Capital Market area in J.P Morgan Chase Bank, among others. In addition, he has 4.2. Our Members of the Board of Directors been a managing director of Public Credit and National Treasury.
Juan Alberto Londoño Martínez Germán Quintero Rojas Lawyer from Universidad de los Andes (2010). He has had experience in the financial sector as Lawyer from Universidad Sergio Arboleda in deputy president of Fiduprevisora S.A. and has 2000, specialist in Administrative Law (2003). In performed as consultant of the Ministry of Mines addition, he has a Master of Administrative Law and Energy, National Mining Agency and Wildlife from Universidad San Pablo CEU (2002). Conservation Society. He has also been Currently, he works as general secretary of the Government Affairs and Special Projects Ministry of Finance and Public Credit and has
19 According to the FDN's Bylaws, other guidelines mean: within five President of the Republic of Colombia, (ii) be or have been a member (5) years prior to the nomination of a member of the Board of of any popularly elected body; (iii) have been elected by the vote of Directors of the company, such member shall not (i) have been or a popularly elected body, or have been a candidate for a popularly have hold an minister office or any other position elected by the elected position; or (v) be or have been an officer of a political party.
90 held offices in the public and private sector as as technical vice-president of Asobancaria and legal director of Fiducoldex S.A., general managing director of Public Credit of the Ministry secretary of Ministry of Mines, general secretary of Finance and Public Credit, among others. of Acción Fiduciaria S.A., among others. In addition, he has participated as member of the board of directors of entities such as Bancoldex S.A., Fiduciaria Previsora S.A. and Ecopetrol S.A.
Rodrigo Galarza Naranjo (nominated by IFC)
He is a lawyer graduated from Universidad del Luisa Fernanda Lafaurie (independent member Rosario (1993) and a specialist in Banking from – nominated by MHCP) Universidad de los Andes (1996). Since 2007 he has been a managing partner at Galarza Economist from Universidad Javeriana (1988) Abogados, whose area of practice is financial law and specialist in Finance from Universidad de los and capital markets. He is a member of the list of Andes (1997). She has an Executive MBA (EMBA) arbitrators of the Arbitration and Conciliation (2007). She has worked as president of CENIT, Center of the Bogotá Chamber of Commerce. He president of Oleoducto Central de Colombia was a member of the Committee of Experts of (Ocensa S.A.), CEO of HJDK Group and Minister of the Capital Market Mission 2019. Additionally, he Mines and Energy, among others. She has has held offices as executive vice-president, participated as member of the Board of Directors general secretary of Asofondos, legal and in companies such as Mercantil Colpatria, regulatory manager of Bolsa de Bogotá S.A. and Emgesa S.A., ISA, Grupo Éxito, among others. She legal director of Asobancaria. He has been an has experience as chairman of the Board of independent member of the board of directors of Directors in companies as Ecopetrol S.A., Ecogas important national companies such as EPM and Emgesa. She was designated by the Bogotá ESP S.A., Positiva Compañía de Seguros members as chairman of the FDN’s Board of S.A., Emgesa ESP S.A. and Unión para la Directors. Infraestructura S.A.S. among others.
Mauricio Cabrera Galvis (independent member Carolina España Orlandi (nominated by CAF) – nominated by MHCP) Systems Engineer from Universidad Philosopher from Universidad Javeriana (1976), Metropolitana de Caracas (1989) with a Master's with a Master's degree in Economics from Degree in Finance from the same university Universidad de los Andes (1981) and candidate to (1996). She is the current Representative of the Ph.D. from London School of Economics. He has Development Bank of Latin-America - CAF in experience in the financial sector as president of Colombia. She has served in positions such as Banco de Occidente and president of FES CFC Treasury Executive, Deputy Director of Financial Foundation. In addition, he has held offices such
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Policy, and Director of Financial Resources at 4.3. Operation of the Board of Directors CAF. Outside the financial sector, she has worked In 2019, the Board of Directors met 19 times, 14 as a consultant on treasury management systems in person and 5 through successive for Price Waterhouse. communication as established in articles 20 and 21 of Law 222/1995.
Based on the dates agreed in the meeting schedule of the Board of Directors, the General Luis Fernando Perdigón (nominated by SMBC) Secretary, together with the president of the company, were in charge of preparing the He is an industrial engineer from Universidad de meetings by sending to each member the agenda los Andes (1997) with a diploma course in and the supporting documents of the topics Corporate Finance from CESA (2001). He is previously presented. Managing Director and head of the Project Finance area of SMBC for Latin America, based in It is worth noting that in 2019 the Board of New York. Luis Fernando has more than 20 years Directors held two strategic sessions in May and of experience in project finance. Among other November. These sessions were focused on roles, he worked at Standard Chartered Bank for reviewing the role of the FDN to date, the basis 9 years in Bogotá and New York. At SMBC, in on which it has developed its business, and the addition to his current role, he has served as preliminary definition of certain aspects for the SMBC's Country Manager in Colombia and head preparation, by Management, of the 2020-2024 of the Andean region for five years, among Business Plan, which will be presented to the others. Board in the first quarter of 2020.
Within the most important subjects that were submitted for consideration of the Board of Directors during 2019, the following are highlighted:
a. Strategic
− Funding strategy. − FDN Impact Indicator.
− Corporate Governance Strengthening Program.
During 2019, the Board of Directors assessed and approved 20 credit operations totaling approximately $1.8 trillion in the mass transport, road infrastructure, unconventional renewable energies and basic sanitation sectors. The foregoing is in line with the diversification policy provided by the entity.
The total average attendance to face-to-face sessions of the members was 91%. Table No. 20 details the attendance of each member of the Board of Directors.
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Table 20. Attendance to Sessions of the Board of Directors 2019
Member of the Board of Directors Sessions attended Attendance (face-to-face or Average virtually)
4.4. Committee Activities − Investment Committee The number of members is defined by the Board The FDN Board of Directors has four committees of Directors taking into account that at least one whose purpose is to advise and assist the board (1) member must be independent and those in its different functions. In accordance with nominated by IFC and CAF must be members. In article 16.3 of the Bylaws, the Board of Directors 2019 it was comprised by Mauricio Cabrera, Julio has the following committees, which are formed Andrés Torres, Carolina España, Rodrigo Galarza, as follows: Luis Fernando Perdigón and Luisa Fernanda − Audit Committee Lafaurie. It is responsible for assessing and Consisting of at least (three) 3 members whose recommending to the Board of Directors the majority must be independent. It is comprised by company credit and investment requests Luisa Fernanda Lafaurie, Carolina España and submitted by Management.
Jorge Hernán Melguizo (member of the board Table 22. Investment Committee Attendance 2019 until November 2019). This committee is responsible for the assessment of the company’s Number of Quorum Attendance Internal Control System. Meetings 13 100% 97% Table 21. Audit Committee Attendance 2019 Number of Quorum Attendance Meetings − Risk Committee 5 100% 93% The number of members is defined by the Board of Directors taking into account that at least one (1) member must be independent. In 2019 it was comprised by Juan Alberto Londoño, Mauricio Cabrera, Luis Fernando Perdigón and Julio Andrés Torres. It is responsible for advising the
93 board on risk management and monitoring comprised by Luisa Fernanda Lafaurie, Mauricio compliance with established policies and Cabrera, Rodrigo Galarza and Luis Fernando procedures for managing financial and Perdigón. operational risks in accordance with the Its role is to support the improvement of the standards established by SFC. human resource management and policies for Table 23. Risk Committee Attendance 2019 the selection, engagement, assessment and compensation of the company, and to assist the Number of Quorum Attendance Board of Directors in its functions related to the Meetings proposals and supervision of corporate 6 100% 89% governance measures adopted by FDN. Table 24. GCRN Committee Attendance Corporate Governance, Remuneration and Appointments Committee Number of Quorum Attendance Meetings The number of members is defined by the Board 9 100% 96% of Directors taking into account that at least one (1) member must be independent. In 2019 it was
During 2019, the committees supported the Board of Directors in the following topics:
Table 25. Board of Directors Committees
Committee 2019 Management Audit Committee The most relevant topics that were subject to its consideration were: • Assessment procedure of the Internal Auditor • Monitoring of the risk-based Audit Plan • Assessment of the FDN financial position • Budget performance of the company Risk Committee The most relevant topics that were subject to its consideration were: • Rating – Constructor Sector methodology • Risk proposal and metrics for FX products • Amendment to SARM, SARL and SARLAFT manuals • Update to the Information Security and Cybersecurity Policy Corporate Governance, Remuneration and The most relevant topics that were subject to its consideration were: Appointments Committee • Assessment of the profiles of the candidates nominated to be members of the Board of Directors • Assessment and Review of the FDN Corporate Governance Strengthening Program • Assessment of the additional compensation Policy for 2019. Investment Committee Assessment and Recommendation of the approval of 20 credit and investment transactions amounting to approximately COP 1.8 trillion.
4.5. Management of Conflicts of Interest During some sessions in 2019, some members of and Operations with Related Parties the Board of Directors stated that they were immersed in situations that could potentially
94 involve a conflict of interest. There were six (6) 6. CORPORATE GOVERNANCE situations disclosed and, in all cases, it was GOALS FOR 2020 considered by the other Board members that the conflict existed, so mechanisms for the 2020 is of particular importance for the management of conflicts of interest were consolidation of the best corporate governance implemented in line with what is defined in the practices in FDN, so the Board of Directors and Conflict of Interest Management Policy approved Management have drawn up a plan to by the General Shareholders Assembly. accompany its debut as an issuer in the capital market. 5. REMUNERATION 5.1. Remuneration of the Members of the Board In this direction it is proposed to adopt the of Directors Country Code in development of which a bylaw reform will be carried out, as well as new codes The fees of the members of the Board of of corporate governance and code of ethics and Directors were set by the Shareholders Assembly conduct will be issued. Corporate governance in session of December 1, 2014. Until December policies will also be enacted in matters such as 31, 2019, the same remuneration equivalent to information disclosure and related parties, and four (4) SMLMV was maintained for each board amendments to the operating regulations of the and committee session. different bodies of the company.
Currently, the members of the Board of Directors Another relevant milestone will be the start of do not have any kind of variable remuneration. the Board of Directors' assessment process.
In 2019, a total of $794,462,928 was paid by way In addition, and in line with the approach of the of fees to the members of the Board of Directors. comprehensive supervision framework During 2019, the Board of Directors did not promoted by SFC, the second stage of the approve transactions with Related Parties. strengthening program will begin, which will focus on the analysis of decision-making within the company and its impact on the comprehensive management of the risks to which FDN and its environment are exposed.
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Annex 9. ART. 446 of the Code of Commerce
Table 26. Breakdown of Disclosure Expenses
Figures in pesos
CONCEPT AMOUNT $
DISCLOSURE EXPENSES 634,076,688.00
* These values do not include VAT
Table 27. Breakdown of Fee Expenses
Figures in pesos
BOARD OF DIRECTORS FEES 794,462,928.00 TAX AUDIT 415,083,998.00 LEGAL CONSULTANCY 988,471,568.00 FINANCIAL CONSULTANCY 158,300,008.00 RATING AGENCY FEES 799,140,123.00 CONSULTANCY FEES FOR IFRS CONVERGENCE 48,002,550.00 INSPECTION FEES 40,900,000.00 LABOR AND HUMAN RESOURCES CONSULTANCY FEES 128,767,593.00 TECHNOLOGICAL AND OPERATIONAL CONSULTANCY FEES 470,466,787.00 PROJECT MANAGEMENT 14,424,243,387.00
TOTAL 18,267,838,942.00 * These values do not include VAT
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Table 28. Breakdown of Payment to Managers
Figures in pesos
DIRECTORS INTEGRAL SALARY 7,042,622,637.00 TRAVEL ALLOWANCES 145,233,340.00 BONUSES AND AIDS 466,246,799.00 VACATION 581,339,310.00
TOTAL 8,235,442,086.00
Table 29. Breakdown of Investments in Companies
Figures in pesos
ENTITY AMOUNT $
EMPRESA DE ENERGIA DE BOGOTA S.A. E.S.P. 87,246,000.00 HIDROELECTRICA PESCADERO ITUANGO 17,995,841.00 COMPAÑÍA ENERGETICA DEL TOLIMA S.A. ESP 3,351,639.00 XM COMPAÑÍA DE EXPERTOS EN MERCADOS S.A E.S.P 15,245,019.00
TOTAL 123,838,499.00
Table 30. Breakdown of Donations
Figures in pesos
ENTITY AMOUNT $
DONATED GOODS 0.00
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Table 31. Breakdown of Goods and Obligations Abroad
Figures in pesos
ENTITY AMOUNT $
RIGHTS CITIBANK CORRESPONDENT ABROAD 188,575,058.00 IFC PROJECT STRUCTURING FUND 531,079,282.00
719,654,340.00
Annex 10. PQRS Processing
Table 32. PQRS Received in 2019
Type Amount Share Percentage Petition 166 99% Complaint 1 1% Claim 0 0% Suggestion 0 0% Report 1 1% Total general 168 100%
Consultation
Complaint
Petition by members of Congress
Between authorities By process Petition by control entities
General petition
Information and/or document request
Term to respond Average time
Chart 28. Average Time to Respond PQRS from January to December 2019
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Table Index Table 1. 2019 Strategic Indicators...... ¡Error! Marcador no definido. Table 2. Accumulated commitments ...... ¡Error! Marcador no definido. Table 3. Board of Directors Committee ...... ¡Error! Marcador no definido. Table 4. Income and Balance Sheet ...... ¡Error! Marcador no definido. Table 5. Efficiency and Return ...... ¡Error! Marcador no definido. Table 6. Process maturity level ...... ¡Error! Marcador no definido. Table 7. Human talent indicators ...... ¡Error! Marcador no definido. Table 8. FDN plant evolution ...... ¡Error! Marcador no definido. Table 9. Segmentation of FDN population ...... ¡Error! Marcador no definido. Table 10. Maturity level of the technological platform ...... ¡Error! Marcador no definido. Table 11. Statistics of the operational risk event report of 2019 vs. 2018 ...... ¡Error! Marcador no definido. Table 12. 2019 due diligence reports ...... ¡Error! Marcador no definido. Table 13. Operations with partners and managers 2019 ...... ¡Error! Marcador no definido. Table 14. Operations with partners and managers 2018 ...... ¡Error! Marcador no definido. Table 15. FDN’s Supply Chain ...... ¡Error! Marcador no definido. Table 16. Corporate Indicators ...... 64 Table 17. TransMilenio Soacha phases II and III ...... 67 Tabla 18. Capital Social ...... 87 Table 19. Shareholding Structure as of December 31, 2019...... 88 Table 20. Attendance to sessions of the Board of Directors 2019 ...... 93 Table 21. Audit Committee Attendance 2019...... 93 Table 22. Investment Committee Attendance 2019 ...... 93 Table 23. Risk Committee Attendance 2019 ...... 94 Table 25. GCRN Committee Attendance ...... 94 Table 24. Board of Directors Committees ...... 94 Table 26. Breakdown of disclosure expenses ...... 96 Table 27. Breakdown of fee expenses ...... 96 Table 28. Breakdown of payment to managers ...... 97 Table 29. Breakdown of investments in companies ...... 97 Table 30. Breakdown of donations ...... 97 Table 31. Breakdown of goods and obligations abroad ...... 98 Table 32. PQRS received in 2019 ...... 98
Chart Index Chart 1. FDN business model ...... ¡Error! Marcador no definido. Chart 2. Evolution of net portfolio balances by sector 2016 - 2019 FDN ...... ¡Error! Marcador no definido. Chart 3. Corporate governance structure ...... ¡Error! Marcador no definido. Chart 4. Shareholding composition of FDN ...... ¡Error! Marcador no definido. Chart 5. Board of Directors ...... ¡Error! Marcador no definido.
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Chart 6. Executive team of FDN ...... ¡Error! Marcador no definido. Chart 7. Organizational Chart FDN ...... ¡Error! Marcador no definido. Chart 8. Asset’s evolution ...... ¡Error! Marcador no definido. Chart 9. Liabilities’ evolution ...... ¡Error! Marcador no definido. Chart 10. Process assurance phases ...... ¡Error! Marcador no definido. Chart 11. Process Map of FDN ...... ¡Error! Marcador no definido. Chart 12. FDN organizational climate evolution ...... ¡Error! Marcador no definido. Chart 13. Distribution of plant by gender ...... ¡Error! Marcador no definido. Chart 14. Distribution of Plant by Age ...... ¡Error! Marcador no definido. Chart 15. Generational categories ...... ¡Error! Marcador no definido. Chart 16. Use evolution of #Pegaso tool ...... ¡Error! Marcador no definido. Chart 17. Main requests in #Pegaso ...... ¡Error! Marcador no definido. Chart 18. Projects and companies analyzed by the Credit and Risk Vice Presidency ¡Error! Marcador no definido. Chart 19. Number of credit approvals per segment in 2019 ...... ¡Error! Marcador no definido. Chart 20. Number of credit applications per sectors in 2019 ...... ¡Error! Marcador no definido. Chart 21. Structural Risks ...... ¡Error! Marcador no definido. Chart 22. Operational risk action plan categories ...... ¡Error! Marcador no definido. Chart 23. FDN’s stakeholders ...... ¡Error! Marcador no definido. Chart 24. Building Information Modeling (BIM) ...... 76 Chart 25. Five Case Model ...... 77 Chart 26. Project Initiation Routemap ...... 77 Chart 27. Corporate Governance between 2014 and 2019 ...... 84 Chart 28. Average time to respond PQRS from January to December 2019 ...... 98
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