Cablegate: Coal in Colombia -- Enjoying a Post-Strike Boom
VZCZCXYZ0033
RR RUEHWEB
DE RUEHBO #9120/01 2761952
ZNY CCCCC ZZH
R 031952Z OCT 06
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 9533
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L BOGOTA 009120
SIPDIS
SIPDIS
E.O. 12958: DECL: 10/03/2016
TAGS: ENRG EMIN ETRD CO
SUBJECT: COAL IN COLOMBIA -- ENJOYING A POST-STRIKE BOOM
REF: A. A.BOGOTA 5486
B. B.BOGOTA 7731
Classified By: ECON COUNSELOR LAWRENCE J.GUMBINER FOR REASONS 1(B) AND
(D)
1.(U) Summary. Colombian and foreign coal mining companies
along with various auxiliary companies and GOC officials
gathered for their annual conference in Santa Marta September
21-22. The GOC estimates that Colombia has 17 billion tons of
extractable coal, the largest such reserves in Latin America,
and enough for export for the next 25 years. The industry
provides direct or indirect employment for some 100,000
Colombians. Industry bottlenecks include transportation
infrastructure and the global scarcity of tires for coal
transport trucks. Environmental concerns about dispersion of
coal dust in Santa Marta bay (a coal port and tourist area)
have not gained political traction in the face of the
industry's strong economic performance. Econoff also visited
the Drummond mine and port where recent potential gas finds
(ref b) and security improvements in the rail line were
reviewed. End Summary.
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Bullish on Coal in Colombia
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2.(U) Colombia's mining agency (INGEOMINAS) estimates that
Colombia has a supply of 17 billion tons of coal reserves, a
25-year supply (compared to a 5-year supply of petroleum
reserves). These are the largest known reserves in Latin
America and the 6th largest in the world. Although many of
the reserves are in traditional zones of conflict in the
Departments of Cesar and Santander, INGEOMINAS considers them
commercially viable. Coal production reached 59 million
tons in 2005, a 10 percent increase over 2004, and jumped an
additional 40 percent from January-May 2006 vs. the same
period in 2005. These figures represent production prior to
the crippling mid-year strikes at the Cerrejon and Drummond
mines which lasted five weeks (Ref A). Post strike figures
have yet to be released. Coal accounts for 46 percent of all
direct foreign investment in Colombia, 12.3 percent of total
exports and 10 percent of exports to the US. It provides
direct employment for 25,000 Colombians, and indirect
employment estimated at 75,000 individuals. 70 percent of
all coal produced is sold to power plants for electricity
generation in the US and Europe. The importance of the
industry to the GOC goes beyond the numbers; Minister of
Mines and Energy Hernan Martinez told the Santa Marta
conference that the industry plays an important role in
providing employment and income for working class Colombians,
contributing to lower crime rates and bolstering national
security by offering an alternative to the armed conflict.
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Industry Bottlenecks: Infrastructure and Tires
--------------------------------------------- --
3.(U) Industry insiders at the conference pointed to two
consistent bottlenecks as impediments to increased
production: inadequate transportation infrastructure and the
scarcity of tires for coal transport trucks. On
infrastructure, the Chief of Planning for the Transportation
Ministry, Geraldo Dominguez stated that the GOC plans to
expand the rail line in the department of Cesar (where the
Drummond mine is located), as well as expand port facilities
for coal in Santa Marta and Barranquilla. Dominguez added
that the GOC plans to explore the option of transporting coal
via river routes in Capulco (a small port on the Magdalena
River.)
4.(U) The tire scarcity issue was mentioned by virtually all
participating companies. Coal trucks that transport coal
from extraction point to the loading area require specialized
tires due to the weight of their cargo. These tires cost
40,000 USD and have an average life of 2000 road hours.
There are only two manufacturers of the tires -- Firestone
and Michelin -- and they are unable to keep up with current
worldwide demand. There will be no relief in sight until a
new manufacturing facility opens in Brazil in an estimated
three years. Multiple industry sources told Econoff that
coal production could be increased substantially if more
tires were available.
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Environmental Concerns Center on Santa Marta Bay
--------------------------------------------- ---
5.(U) The president of Colombia's Economic Society, Dr. Amika
Acosta, raised concerns about the long term environmental
impact of coal dust in the Santa Marta Bay. This is a big
port area that is being touted as potential tourist area due
to cruise ships and the nearby Tayrona National Park. He
complained that this could have serious impact on the long
term health and future economic prospects for Santa Marta.
Former Colombian Environment Minister Juan Mayr -- a native
of Santa Marta -- echoed those concerns. He told EconCouns
that the process of delivering and loading coal at seaside
ports on open barges to transport vessels was causing
noticeable damage to the Bay and surrounding coastline. Mayr
advocates concentrating coal exports in one or two ports
rather than the current system of dotting the coast with
numerous company-owned facility. Puerto Bolivar in La
Guajira presently used for Cerrejon exports, would be the
most logical site, according to the former minister.
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Drummond Churns Ahead With Post Strike Production
--------------------------------------------- ----
6.(C) Econoff also had the opportunity to visit the Drummond
Mine in La Loma and the port facility in Santa Marta. The
modern strip mine facility stretches for 50,000 acres, and is
a 24/7 operation that extracts 65,000 tons of coal daily.
Drummond then transports this coal along a private rail line
in 100-car trains, 112 miles to the Santa Marta port. This
coal is mixed at the port facility to get the proper grade
and loaded via shoots on the water to coal ships for
transport to US markets. Company officials confirmed that
Drummond plans to spend USD 5 million this year to further
explore potential natural gas on the edge of their property
in La Loma (Ref B). Drummond officials stand by their
estimate of 1.7 trillion cubic feet of methane, and told
econoff that all data to date indicate that the gas is there.
Ministry of Mines and Energy officials have complained
privately to emboffs that they have yet to see the company's
data, and have been critical of Drummond going forward
publicly with the claim without confirmation from the GOC.
7.(C) Security for the Drummond operation is tight, and there
has been noticeable improvement in recent years. The company
reports that their rail line from La Loma to Santa Marta
(which is also used by 2 other Colombian mining companies)
has had no attacks this year and only 10 attempted attacks in
2005. This compares with 20 attacks in 2004. Drummond
officials attribute the improvement to ramped up private
security operations, which involves roving security at
transport times every kilometer along the rail line (Note:
many of these private security guards are former paramilitary
who had operated in the area. End Note).
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Comment
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8.(U) Comment: Colombia's potential as a major coal exporter
has always been hampered by the risks and costs associated
with security. As security conditions improve, and high
energy prices make extraction of remote mines profitable, we
would expect continued strong growth in the Colombian coal
industry. The environmental concerns of critics could gain
traction should the growing tourist industry in Santa Marta
begin to flex political muscle, but we do not expect that to
occur in the short term. End Comment.
WOOD
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