Since the mid-1960s in Panama, energy related services have been rendered by a government agency called the Hydraulic and Electric Resources Institute (IRHE), which in the late 1990s was restructured into eight companies (one transmission company, three distribution companies and four generation companies) to allow for private investment in distribution and generation. The State continues to hold 100 per cent of the capital stock of the transmission company Empresa de Transmisión Eléctrica, SA (ETESA).

Being one of the fastest growing economies in Latin America, the escalation in the demand of electricity (approximately 5–6 per cent per year) has become a challenge for Panama, whose energy generated in 2017 was 64.8 per cent hydro, 29.4 per cent thermo, 4.3 per cent wind and under 2 per cent solar.

The installed capacity in Panama in 2017 was 3,336.1MW, of which 49 per cent was hydro, 39 per cent thermo, 8 per cent wind, and almost 4 per cent solar.

In 2017, the total energy sales by the distribution companies was 8,474.12GWh.

The three main subsectors of the energy market in Panama are generation, transmission and distribution. Commercialisation is also a regulated activity, but the law prescribes that commercialisation is to be performed together with the distribution activity, except that generators may commercialise their capacity or energy with large customers only.

Electricity generation is rendered in competition. Distribution/commercialisation, on the other hand, is currently limited to three concessionaires with exclusive rights in their areas of service, save for the fact that the distribution activity may be performed by other providers within isolated systems, and also under rural electrification project rules, when the distribution companies close to the project areas decline the option to provide the service.

Law 6 of 1997 dictates that the transmission and integrated operation activities shall only be performed by ETESA, but this rule is included in a provision that seeks to impose restrictions on the simultaneous provision of services. This may be why the National Authority of Public Services (ASEP) has issued a resolution governing the granting of transmission concessions to parties other than ETESA.

The law dictates that ETESA is responsible for the planning of the transmission network expansion, the construction of new assets and reinforcements to the network, as well as the operation and maintenance of the national interconnected system. ETESA is also obliged by law to mediate between generators and distributors by calling and conducting the public bidding processes necessary to award power purchase agreements to ensure satisfaction of the demand that distribution companies must serve under their corresponding concession contracts.

In 2016, Panama’s government approved the National Energy Plan (PEN), prepared by the National Energy Secretariat (SNE), that defines Panama’s roadmap regarding energy policy for the next 35 years (up to 2050). The PEN is driven by four main pillars that will guide the energy policy of the country, which are:

  1. universal access to and reduction of energy poverty;
  2. the decarbonisation of the energy matrix;
  3. reduction and efficient use of energy; and
  4. energy security.


iThe regulators

The law assigns functions and tasks to different entities in order to assure the proper functionality of the system. These entities are as follows.


ASEP is an autonomous governmental entity responsible for regulating public utilities, including electricity services. ASEP is bound to regulate electricity services so as to assure the constant availability of energy, to make it possible to efficiently supply the growing demand in a social, environmental and financially responsible manner. Also, this authority adopts procedures established by law to stimulate competition and is authorised to take measures to impede abuses from market agents who might have a dominant position in a moment in time.

The Authority for Consumer and Competition Protection (ACODECO)

ACODECO is an autonomous governmental entity legally empowered to investigate, verify and sanction monopolistic, anticompetitive and discriminatory behaviours and activities by agents of the market generally, including the electric market, among other powers granted by law.


ETESA is a wholly government-owned corporation that owns the transmission network, and conducts the integrated operation of the electricity system, among other activities. Although ETESA is a regulated entity, like generators and distribution companies that are subject to ASEP’s oversight and supervision, in some respects ETESA can make certain determinations that may effect other agents of the market.

National Energy Secretariat (SNE)

The SNE is a governmental entity ascribed to the Ministry of the Presidency, whose primary task is to establish and conduct the energetic policy of the country, within the legal framework, in order to guarantee supply, access, efficient use of energy, as well as to promote its investigation, development, and sustainable growth and progress.

Wholesale Market Monitoring Group

Although not an authority per se, the Wholesale Market Monitoring Group is formed by the agents of the market, and can act as a consulting body to provide advice to ASEP regarding issues related to the wholesale market.

Legal framework

Panama’s main energy legal framework may be summarised as follows:

  1. Law No. 6 of 1997 (as amended) dictates the institutional and regulatory framework for the provision of electricity public service. This Law is regulated by Executive Decree No. 22 of 1998;
  2. Law No. 45 of 2004 establishes incentives for the promotion of hydroelectric and other new, clean and renewable sources of energy. This Law is regulated by Executive Decree No. 45 of 2009;
  3. Law No. 44 of 2011 (as amended) dictates incentives for the development, construction and exploitation of wind power generation plants;
  4. Law No. 41 of 2012 dictates incentives for the promotion of construction and exploitation of natural gas-based power generation plants;
  5. Law No. 37 of 2013 dictates incentives for the promotion of construction, operation and maintenance of solar power generation plants; and
  6. Law No. 42 of 2011 dictates parameters for national policy regarding biofuel and biomass-based power generation.

A significant number of resolutions of ASEP further develop some of these laws in detail. In particular, the Operations Regulation, is a comprehensive instrument governing important operative and technical aspects of the market and the commercial rules of the market.

iiRegulated activities

The main services provided by agents of the market in the electricity sector are transmission, distribution/commercialisation and generation. However, there are other forms of participation in the sector that are also regulated, namely:

  1. large customers (passive or active) who can freely contract their energy needs with other agents of the market;
  2. companies located abroad, who can perform international exchanges of electricity using to that effect the interconnection network; and
  3. autogenerators and co-generators who can generate energy for their own consumption, sell excess energy in the national interconnected system and purchase backup services therein.

This section focuses on the regulatory authorisation mechanisms of the three main activities: generation, transmission and distribution/commercialisation.

In general, electricity distribution and transmission activities require concessions issued by ASEP. As to generation activities, depending on the technology used to generate electricity, the service provider may need a concession contract or a licence.

Generation concessions

Any person (individual or legal entity) who intends to construct and operate a hydroelectric or a geothermal generation plant must obtain a concession issued by ASEP, which ultimately takes the form of a concession contract, although the concession right is recognised previously through a resolution of ASEP.

These concessions shall be issued through processes that guarantee public concurrence, in these cases:

  1. when ASEP deems necessary to develop a new hydroelectric or geothermal project; and
  2. when an interested party presents a concession application to ASEP.

The bid specifications and rules for the concurrence process are dictated by ASEP, and they should reflect objective rules fostering equality and promoting the participation of investors, provided that said rules are not contrary to Law No. 6 of 1997.

As part of the process, ASEP must seek a determination from the Ministry of the Environment as to whether the natural resource needed for the project is suitable for the intended purpose. Eventually, the winning bidder will be required to obtain the approval of the environmental impact study of the project.

The term of these concession contracts may be as long as 50 years, with the possibility to be extended for an equal term. The procedures and requirements for the issuance of a concession and its subsequent formalisation through the subscription of the concession contract are established and regulated by Resolution AN No. 5558-Elec of 31 August 2012, as amended.

Generation licences

Any person (individual or legal entity) who intends to construct and operate an energy generation plant – other than hydroelectric and geothermal – destined for public service (i.e., fuel-based, solar and wind power) must have a licence issued by ASEP for this purpose.

Licences take the form of resolutions issued by ASEP, containing the terms and conditions pursuant to which the licence is granted in each case. No contract is entered with the authority in these cases. The generation capacity of the power plant may not be increased without authorisation from ASEP. To this effect, the licensee should file an application.

Licences shall be granted for a period of up to 40 years. Licensees may only engage in electricity generation activities.

Resolution AN No. 1021-Elec of 19 July 2007 (as amended) regulates the requirements and procedure to obtain a licence. The licensing process has two stages: provisional licence and permanent licence.

The applicant must fill out a special form approved by ASEP for purposes of applying for the licence. A guarantee of US$100 per MW or fraction of capacity to be installed for the power plant, as shown in the form, shall be submitted as well. This guarantee will be returned once the definitive licence is issued. For wind power farms, the guarantee is US$500 per MW or fraction.

The application form requires the applicant to include certain general information of itself, a technical description of the project and also to attach a number of documents that are listed in the form. Some of these documents are required to be filed during the first stage of the process in order for ASEP to issue the provisional licence for the project. The rest can be submitted as part of the second stage of the process, which leads to the issuance of the permanent licence.

With regard to a few of the most important documents required for the licence, the regulation requires:

  1. a sworn statement of the treasurer of the applicant containing a list of the direct and indirect shareholders of the applicant, that is, showing the controlling interest over 100 per cent of the capital of the petitioner (in the case of investment funds or publicly traded companies, the applicant must list the members of the controlling body of the entity, i.e., the board of directors);
  2. a letter of solvency and financial capacity, and the ability of the applicant to contribute at least 30 per cent of the investment necessary for the new power plant based on international costs according to the technology to be used and letters of intention of experienced power plant operators (two years) and contractors (five years);
  3. a letter of viability of connection of the project issued by ETESA or by a distribution company, as the case may be;
  4. environmental impact study of the project and evidence of approval by the Ministry of the Environment (typically this approval is sought within the 12-month term of the provisional licence);
  5. construction bond for 10 per cent of the investment required to build the new power plant (required when the definitive licence is issued); and
  6. performance bond (estimated at US$500 per MW for windpower and US$2,000 per MW for natural gas and solar projects).

The regulation specifies which of the documents required need to be filed as a condition to issue the provisional licence, which is valid for 12 months. The rest of the requirements shall be filed within the 12-month term of the provisional licence. ASEP may extend this term, as well as the terms of milestones contemplated in the definitive licence, based on a justified request of the applicant.

The provisional licence is non-transferable and does not authorise the construction of the power plant.

Once the remainder of the requirements to obtain the definitive licence are filed, ASEP shall issue the definitive licence of the power project.

Transmission concessions

Resolution JD-1244 of 10 February 1999 (as amended) governs the award of transmission concessions. Transmission concessions shall be awarded through a concurrence process, unless there are no interested competitors (except for the applicant). In the amendment enacted in 2016, ASEP provided that no concurrence process would be required in the case of companies that intend to build transmission lines and substations that will be transferred to ETESA.

Distribution concessions

Currently, most (but not all) of the country is divided into three large distribution areas, each one exploited by a distribution concessionaire that is a mixed-capital company in which the public and private sectors have interests. The participation of the private sector in these entities is the result of the public bidding acts held in the late 1990s after the restructuring of IRHE. Some of the original private equity holders have sold their interest in the companies, and therefore, share ownership has changed in time, but distribution concessions remain in effect under a regime of exclusivity within the service area of each concession.

As indicated before, the distribution activity may be carried out by third parties (other than the three main distribution companies) outside of the exclusivity regime in the case of isolated systems and in the case of projects of rural electrification.

iiiOwnership and market access restrictions

No-ownership restrictions

Article 285 of the Panamanian Constitution provides that the majority portion of the capital of private companies of public interest that operate in the country shall be Panamanian, save for the exceptions contemplated in the law, which shall define them.

Further to Article 280 of the Constitution, Article 45 of Law No. 6 of 1997 specifically authorises that companies that render public services in the field of electricity may have majority foreign ownership, pursuant to the provisions of Law No. 6 of 1997.

Law No. 6 of 1997, in turn, expressly allows national or foreign capital companies (private or mixed), to participate in the electricity sector, whether by purchasing shares of state-owned electricity companies, or by obtaining and exploiting concessions or licences.

Land acquisition restrictions

Pursuant to Article 291 of the Constitution, foreign individuals or legal entities or companies whose owners are foreign, in whole or in part, may not acquire ownership of public or private land located within 10 kilometres of the national borders. Therefore, an electricity sector service provider owned directly or indirectly by foreign individuals or entities is prevented from acquiring title over the land referred to above. This rule does not encompass the use of land for an electricity sector project through means other than ownership rights.

Other restrictions

There are other restrictions that are specific for the electricity sector:

  1. energy generation, transmission, distribution and commercialisation companies located in Panama shall have, as sole purpose in their bylaws, one of the activities listed in Article 1 of Law No. 6 of 1997;
  2. activities related to the transmission and integrated operation of the interconnected national system will be undertaken by the transmission company (ETESA, as defined in the law);
  3. commercialisation services may be rendered by distributors, except in the case of generators who might commercialise directly with large customers;
  4. generation companies and their owners shall be restricted from having direct or indirect control in distribution companies, as well as requesting or applying for new concessions, if by doing so they would directly or indirectly serve more than 25 per cent of the national energy demand;
  5. the transmission company may not participate in activities related to the generation or distribution of energy, nor in the sale of energy to large clients;
  6. under certain circumstances, distribution companies and their owners may not participate or control directly or indirectly generation plants in their concession area; and
  7. distribution companies and their owners may not request or apply for new distribution concessions, if by doing so they would serve directly or indirectly more than 50 per cent of the total number of national clients.

ivTransfers of control and assignments

In connection with capital stock of a concessionaire or licensee: there are no special requirements to seek approval before transferring direct or indirect ownership of stock of a concessionaire or licensee. However, it is recommended to notify any changes in due course after the change of ownership occurs because one of the requirements to obtain a concession or licence is the list of direct and indirect shareholders of the applicant. There is no special regulation for this filing, which is informative in nature.

In connection with mergers and acquisitions of concessionaires or licensees: there is no specific regulation generally mandating that merger and acquisition transactions relating to electricity sector entities be subject to prior approval of ASEP. ASEP has authority to intervene in the event of practices that hinder competition (i.e., abuse of dominant position), including mergers or acquisitions with such effects.

Parties interested in entering transactions in the electricity sector may submit a voluntary consultation on whether the particular merger or acquisition is permitted.

In connection with assets of concessionaires or licensees used in the provision of electricity services: Law No. 6 of 1997 includes among the duties and obligations of electricity sector players ‘to administer and maintain the installations and assets required for the provision of the services’. However, some concession contracts contemplate specific provisions on the ability to dispose of assets required for the service. For example, in the case of generation concessions, they allow for the transfer of assets necessary to provide the service, with the prior notice to ASEP.

In connection with concessions or licences: as indicated before, provisional generation licences are not transferrable. Other licences or concessions would be typically transferrable subject to the prior approval of ASEP.


iVertical integration and unbundling

In the 1990s, prior to IRHE’s restructuring, IRHE performed all three of the main electricity sector activities discussed herein (transmission, distribution and generation). IRHE also acted as ‘regulator’ of the sector in many – if not most – respects. Back in those days, a few private power plants had been authorised by IRHE to operate.

Law No. 6 of 1997 disaggregated these services by:

  1. restructuring IRHE into seven different service providers in which the private sector would have stakes, as described before;
  2. creating restrictions in the law leading to avoid the provision of services in a way that would permit vertical integration; and
  3. creating a clear regime of competition in generation activities, enabling large customers to become players in their own merit and regulating other alternatives for players of the market to participle (i.e., autogenerators and co-generators).

Also, special rules have been dictated for electricity sector players to share infrastructure with other agents of the market through remunerated commercial contracts.

Pursuant to Law No. 6 of 1997, a general rule applicable to all electricity market players is to facilitate access and interconnection of other entities who render public services, or who are large customers of the latter, to lines and substations used in the organisation and provision of the services.

Finally, natural gas projects are a new occurrence, and they began to make an appearance in the electricity forum of Panama not long ago. The first natural gas power plant has not yet come online, but it is expected to do so in the following months. Two others have been authorised to date.

iiTransmission/transportation and distribution access

As indicated before, concessionaires of the electricity market must facilitate access and interconnection to lines and substations used in the organisation and provision of the services to other entities who render public services, or to large customers. For instance, a distribution company shall permit a generator to connect to the transmission network indirectly through the distribution network’s assets, if required, subject to viability based on technical studies. Another example would be a generator who has installed transmission capacity for itself. Such capacity may be sought by another generator to connect to the grid.

The law does not currently allow for competition in the commercialisation of services to end customers. Regulated customers, which are the vast majority of customers of distribution companies, may only be served by the distribution company in their concession zone, which is under a regime of exclusivity. The remaining customers are large customers, who may negotiate their supply agreements with generators.

The rules encouraging competition, which have mainly focused on generation, have been fruitful, as can be seen judging by the large number of projects (in all technologies) that have been or are being constructed after enactment of Law No. 6 of 1997.

The next step in the promotion of competition appears to be the reduction of restrictions on the activity of commercialisation (referred to below).


Sales of energy to large customers is subject to a regime of mutually agreed pricing. There are no tariffs to apply.

For sales to regulated customers, the Law requires ASEP to dictate the applicable tariff regime for each activity, which serves as a general framework of methodologies and formulas that the market agents must then apply to produce their own tariffs. The tariff regime approved by ASEP is valid for four years unless corrections are needed in the event of errors.

For distribution, ASEP shall define the profitability rate deemed reasonable for the concessionaire, taking into account the latter’s efficiency, the quality of its service, its investment programme for the period of validity of the tariff formulas and any other factor deemed relevant.

For transmission, costs used to calculate the tariff must enable ETESA to have a reasonable rate of return before taxes, over the fixed net asset, at the original cost. For purposes of this calculation, the law contemplates rules on how to determine a reasonable rate.

ivSecurity and technology restrictions

Although Law No. 6 of 1997 does not explicitly regulates topics such as homeland security, law enforcement, protection of critical infrastructure and network security, it does define generation, transmission, distribution and commercialisation of electricity as services of public interest destined to satisfy collective needs of the general public. As a general rule, the state must intervene in such services of public interest in order to guarantee the efficient, continuous and uninterrupted service provision.

The Criminal Code of Panama includes penalties ranging from three to five years of jail time for those who seize movable property destined for electricity public services.

Similarly, the Criminal Code also includes penalties ranging from five to 10 years of jail time for those who damage or make useless networks, channels or works destined for the transmission of energy, gas or energy substances.

In general, providers of electricity public service have, among others, the following obligations. They must:

  1. assure that the service is provided continuously and efficiently, without abuse of dominant position;
  2. avoid monopolistic or competition restrictive practices;
  3. provide for the end customers that are entitled to receive the subsidies granted by the authorities;
  4. divulge the efficient and safe way to use the public service;
  5. protect the environment in the execution of their daily functions;
  6. facilitate the interconnection access to other companies or entities providing public services and to their large customers;
  7. provide collaboration to the authorities in cases of public calamity to avoid harm or injury to the end users;
  8. register with the regulatory authority and provide notification of commencement of the services;
  9. respond for damage caused to the end customers; and
  10. provide clear information to the end customers regarding the services and the costs.

Among the transmission company´s obligations are the following. They must:

  1. provide for the transmission service as established in Law No. 6 of 1997;
  2. prepare the generation expansion plan of the interconnected national system;
  3. prepare the transmission expansion plan for the interconnected national system;
  4. undertake basic studies required to identify possible hydroelectric and geothermic developments; and
  5. expand, operate, maintain and provide services related to the national network of meteorology and hydrology.

Among the distribution company´s obligations are the following. They must:

  1. provide the energy distribution service within its corresponding concession area;
  2. extend their services to rural areas within its corresponding concession area;
  3. comply with the terms of the concession agreement, and provide the services in a regular and continuous manner within the concession area;
  4. expand the distribution networks when required to serve the increase in demand within the concession area; and
  5. keep the fees for the services public and accessible to the customers.


iDevelopment of energy markets

Under the law and more specifically under the Commercial Rules of the Wholesale Electricity Market, which is part of the Operations Regulation, two markets are recognised: the spot market and the contract market.

A general rule in Law No. 6 of 1997 obligates distribution companies to enter into power purchase agreements to meet the demand in their concession zone. Currently, ETESA calls and conducts the public bids required to award power purchase agreements (PPAs) intended to satisfy the general obligation of Law No. 6 of 1997. ETESA acts as an intermediary between distributors and generators in said processes.

When IRHE had been just restructured, the initial bids for PPAs were open to participants from all generation technologies. With the passage of time, some bids called only for certain technologies. As a result, there have been solar-only, wind power-only and natural gas power-only bids. Through this contracting policy – which refers only to the moment of procuring the PPA – for the past few years, the government has been trying to reshape the composition of the generation matrix of the country.

In the contract market bids are called for different products, for instance, power-only, power and energy or energy-only. However, again, this refers only to the moment of procuring the PPA.

Dispatch in the market occurs in ascending order of variable cost, regardless of the conditions of a particular PPA.

iiContracts for sale of energy

Large customers may freely negotiate individual contracts for the purchase of capacity or energy with generators of the market. There are no regulatory requirements limiting pricing or establishing rates.

The parties may agree to include in these contracts an arbitration clause to submit to arbitration by ASEP in the event of disputes; and therefore, only if a party submits a dispute to ASEP would the authority have the ability to intervene to dictate a solution.

There is no natural gas market in Panama. The gas necessary for the large gas power plants being installed will have to be imported.

iiiMarket developments

Currently, Law Project 573 is being discussed at the National Assembly (it is still in a very early stage). If approved, this Law Project would modify Law No. 6 of 1997 in various aspects, including the recognition of the ‘commercialisation’ activity in the energy market outside of the current bounds of the Law. The ‘marketer’ (person undertaking the commercialisation activity) would be allowed to commercialise energy between the distributors, large clients and other market agents, as well as between generators and large clients.

This Law Project anticipates the elimination of the rule that makes it mandatory for all generators with uncompromised capacity to submit bids for PPAs when bids are called, and the abolition of special bids for the purchase of energy by specific technology.

Additionally, this Law Project intends to include a mechanism to provide incentives for the use of renewable energy by including public bids for the purchase of energy and evaluation criteria that penalise CO2 emissions.


iDevelopment of renewable energy

Law No. 45 of 2004 establishes a number of general incentives for the promotion of energy generation systems fuelled by new, renewable and clean sources.

Some of the tax incentives are the following: exoneration of import tax, tariffs, rates, and other contributions caused by the importation of equipment, machines, materials and parts necessary for the construction, operation and maintenance of generation systems fuelled by clean and renewable sources.

There are also tax incentives based on the reduction of tons of CO2 emissions, which may be used for the payment of income tax during the first 10 years counted from the beginning of the project’s commercial operations.

More specific laws for the different types of energy sources regulate the corresponding incentives for each source. Among them are the following:

  1. Law No. 44 of 2011 establishes incentives for the construction and operation of wind generation plants;
  2. Law No. 37 of 2013 establishes incentives for the construction and operation of solar generation plants; and
  3. Law No. 41 of 2012 establishes incentives for the construction and operation of natural gas generation plants.

The PEN, prepared by the SNE as per Law No. 43 of 2011, includes as a short-term project the consolidation and harmonisation of existing regulations regarding renewable energy into one law.

iiTechnological developments

Panama is taking its first steps towards being conscientious about smart grids in governmental affairs and in relation to citizens. Perhaps the entity that is the most advanced in taking the first steps towards implementing the concept of a smart city is the municipality of Panama. While no special regulatory effort appears to be in the pipeline for smart grid technology as it pertains to the electricity sector, it is clear that both ASEP and the SNE are actively joining forces with other government entities such as the Municipality to promote the common goal to incorporate technology to empower citizens.


The following are among the most relevant occurrences:

  1. The much-needed Third Transmission Line is reaching completion and portions thereof have become operational already.
  2. A new public bid is in process for the construction of the Fourth Transmission Line with a capacity of 1,280MW by circuit of 230kV, with possible expansion to 500kV, with an approximate length of 300 kilometres. Proposals are expected to be presented by participants on April 2019.
  3. Law Project 573, which amends Law No. 6 of 1997, is still being discussed and if approved, a more liberalised form of commercialisation activity will be a reality in Panama.
  4. The current trend in large power plant investment is natural gas. There are currently three concessions awarded, one of them in advanced stages of construction.
  5. Another project that is being discussed is the Colombia–Panama interconnection line through underwater cable with a capacity of 400MW.


The Panamanian electricity sector is expected to continue to attract investment. A relatively clear-cut regulation to obtain the relevant concessions and licences is among the strengths of the system.

If the new rules on commercialisation are enacted, the dynamics of the system will change and there must necessarily be a time to adapt to change. The regulator should make sure that clear regulation is in place and proper divulgation is made, to avoid confusion in the applicable rules that pertain to commercialisation with regard to the traditional methods to purchase and sale power and energy.


1 Annette Bárcenas Olivardía is a partner and Luis Horacio Moreno IV is an associate at Alfaro Ferrer & Ramírez.