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Cablegate: Colombian Coal Sector Booming in the Face Of

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #1127/01 0861802
ZNR UUUUU ZZH
R 261802Z MAR 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 2068
INFO RUEHCV/AMEMBASSY CARACAS 0157
RUEHLP/AMEMBASSY LA PAZ MAR LIMA 6032
RUEHZP/AMEMBASSY PANAMA 1426
RUEHQT/AMEMBASSY QUITO 6686
RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS BOGOTA 001127

SIPDIS

SENSITIVE
SIPDIS

WHA/EPSC FOR FCORNEILLE; EEB/ESC FOR MMCMANUS; DOE FOR GWARD

E.O. 12958: N/A
TAGS: ENRG EPET EINV ECON SENV CO
SUBJECT: COLOMBIAN COAL SECTOR BOOMING IN THE FACE OF
INFRASTRUCTURE, ENVIRONMENTAL CHALLENGES


1. (SBU) SUMMARY. Despite already ranking as the world's
fifth largest coal exporter, Colombia's coal sector looks to
increase production nearly 65 percent over the next three
years. Rich coal deposits in Guajira and Cesar Departments
as well as attractive prospects for developing nearby natural
gas deposits augur well for the three main international
mining firms, including U.S.-based Drummond. The most
significant challenges to the industry center on limited
public infrastructure and environmental compliance. END
SUMMARY.

Production Outlook Good
-----------------------

2. (U) Most of Colombia's coal originates in the northeast
departments of La Guajira and Cesar, though central Colombian
Departments of Cundinamarca and Boyaca also possess
high-quality deposits of coal. Western Colombia contains
economically viable deposits, but primarily in lower-quality,
less profitable coal. While commercial coal mining began to
grow in the late 1980s, exports have increased at a much more
rapid pace this decade with the U.S. sourcing approximately
70 percent of its global coal imports from Colombia.

3. (SBU) Beatriz Duque, Director of Coal at the Ministry of
Mines and Energy, told us that she expects total Colombian
coal production to reach 69 million metric tons (MT) in 2008,
up from 38 million MT in 2000. Duque predicts production to
hit 110 million MT by 2010, driven by strong investment terms
in Colombia and rising world demand for the country's
high-grade bituminous coal. Duque noted that coal currently
represents 65 percent of Colombia's mining exports and over
15 percent of total exports--a figure she expects to remain
stable despite increasing investment in precious and
non-precious metal mining.

Major Players Looking to Expand
-------------------------------

4. (SBU) International firms Cerrejon, Drummond, and Glencore
account for over 95 percent of Colombia's coal exports, with
the remainder produced by small local producers. Cerrejon, a
conglomerate comprised of BHP Billiton, Anglo American, and
XStrata, ranks as the largest coal exporter in Colombia and
one of the largest in the world. According to Cerrejon
President Leon Teicher, the company's operations at La Mina
constitute the largest known open-pit coal export operation
in the world.

5. (SBU) As a result of increased investment and rising
prices, the company has raised production from 18 million MT
in 2002 to over 30 million MT of coal in 2007 valued at USD
1.5 billion. Cerrejon Operations Director Catalina Garcia
told us her company expects to increase the production from
its 69,000-hectare operation in La Guajira Department to 40
million MT by 2010. She estimates Cerrejon's concession
contains 2 billion MT of immediately accessible coal with an
additional 1 billion MT available after the company completes
a river diversion project. Cerrejon expects to maintain the
40 million MT production level through the completion of its
contract with the GOC in 2034. The company exports
approximately 53 percent of its production to Europe with 20
percent going to the U.S.

6. (SBU) Birmingham, Alabama-based Drummond is the second
largest coal exporter in Colombia. The company began working
in Cesar Department in 1987 and exported over 25 million tons
of coal in 2007, roughly one-third of Colombia's national
production. Over 55 percent of Drummond's exports go to the
U.S. with the remainder to Europe. The company's contract
with the GOC runs through 2021. Drummond Colombia President
Augusto Jimenez, who estimates the company's coal reserves in
Colombia reach 2 billion metric tons, told us Drummond plans
to double production to 50 million tons by 2010.

7. (SBU) Finally, Swiss-owned Glencore expects to double coal
production from its mines in Cesar Department from 5.5
million MT in 2008 to 11 million MT by 2010. Glencore
Colombia President Jorge Carvajales estimates his company's
coal deposits are sufficient to sustain such production
through 2035.

Challenges and Opportunities

----------------------------

8. (SBU) Both GOC and mining company representatives
identified infrastructure and environmental responsibility
issues as the largest challenges facing the sector. The three
international mining companies have invested approximately
USD 3 billion in the last decade on private port and rail
facilities. However, lags in public investment in adjoining
infrastructure led to export bottlenecks. Meanwhile, GOC
concerns on environmental compliance have grown. Director
Duque emphasized that the most serious environmental problems
remain with small local producers, but said the GOC would
like to see more active compliance by all three large
international companies. She noted that forthcoming licenses
and regulation would contain stronger environmental
requirements for all companies. In conversations with us,
Drummond and Glencore complained about delays in
environmental permits and a lack of thorough impact
evaluations by the GOC before issuing regulations. Both
companies said a GOC requirement for direct loading of coal
at all at ocean ports by 2010, designed to reduce coal dust
pollution along the Caribbean coast, is not economically or
environmentally rational.

9. (SBU) Nevertheless Duque emphasized that investment in the
mining sector generally, and the coal sector specifically,
has risen steadily due to more flexible contract terms,
improved security, and higher coal prices. In addition to
major investments by the three existing international
producers, Mexican, Brazilian, and German electrical
generation companies are reportedly looking into acquiring
coal mines in Colombia to secure supplies for their
respective plants.

10. (SBU) In addition to coal opportunities, Drummond plans
to increase its production of natural gas located near its
existing mines. Drummond estimates that its properties in
Cesar Department contain at least 2.4 trillion cubic feet of
natural gas and its properties in La Guajira Department
contain 3.4 trillion cubic feet in natural gas. At present,
Colombia's total estimated natural gas reserves stand at 5
trillion cubic feet. Drummond plans to supply the gas for
Colombian domestic consumption as well as potentially for
export to Venezuela.
BROWNFIELD

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