Colombia Revival: Mining buoyed by political stability
Source: Breakbulk Magazine and Breakbulk.com, March/April 2010 Issue – Colombia has almost come full circle in the past two decades, evolving from a country that in the 1990s suffered an exodus of foreign investors because of rampant political insecurity to an attractive economy that is today luring a surge of investment as the military wins back control of resource-rich areas from cocaine-smuggling rebels.
Colombia’s growing political stability is good news for the project cargo industry, because the past eight years under President Alvaro Uribe have allowed safe access to energy and mining projects that investors had earlier been forced to abandon when FARC rebels roamed the countryside.
Many foreign transportation providers who are doing business in Colombia are impressed by Uribe’s progress, although guerrillas are still at large, and security problems are contained rather than resolved.
“We don’t live in fear that rebels are going to assault one of our cargo trucks (loaded) with 40 to 50 tons of goods like they did in the past,” said Hector Suarez, who has two decades of experience in project cargo logistics in the country and is now project manager at Kuehne + Nagel in Colombia. In a sign of the dramatic turnaround, Colombia ranked ahead of Brazil and Chile and 37th overall in a recent World Bank report on ease of doing business in a total of 183 countries.
After emerging from the global economic crisis without suffering a major recession, Colombia’s gross domestic product is expected to grow 4 percent this year. Colombia expects total investments of $49 billion in the mining and energy sectors between 2010 and 2015, Mines and Energy Minister Hernan Martinez Torres said recently.
Projects will include oil exploration and production, refinery expansion, gas and oil pipelines, and power projects including wind turbines and thermoelectric plants. Analysts say that during the next decade, total investment in energy and mining could surpass $60 billion, with a focus on oil, gas, coal and gold projects. “I would hope that with investment just in refinery expansion, new hydroelectric plants and the renovation of thermoelectric plants, we would see at least 5 million tons in project cargo during this decade,” Suarez said.
As these huge capital investments start up, global transport and logistics firms expect growth of between 20 and 25 percent in the project cargo business in Colombia during the next decade. In part, that growth will also be due to projects currently under way, including the construction of a new coal port terminal in Santa Marta province, on the Caribbean; hydroelectric plants, such as Pescadero Ituango at the mouth of the Ituango River in Antioquia province; and the expansion of the Reficar refinery near Cartagena, on Colombia’s Caribbean coast. Reficar supplies Ecopetrol, the fourth-largest oil company in Latin America.
“The Reficar project in Cartagena is starting to develop, and the intention is obviously to participate with a significant cargo volume. The same can be said for Santa Marta,” said Mauricio Lozano, head of sales in Colombia for Seaboard Marine.
Seaboard operates weekly services from the Port of Miami and the Port of Houston to the Port of Puerto Bolivar on Colombia’s Caribbean coast, services already busy with project cargo and heavy machinery used to supply the huge multinational coal mine Carbones de Cerrajon, owned by global miners Anglo American, BHP Billiton and Xstrata.
The Caribbean port of Santa Marta is already a large port with railway access, and the government is spending about $800 million to modernize coal facilities there as well as at the Port of Barranquilla and the smaller Pacific port of Buenaventura. Exports of Colombian coal have increased about 70 percent since 2001, reaching a record 75 million metric tons in 2009. The government intends to increase that volume to 180 million metric tons by 2019 by attracting new mining companies and improving the rail and port infrastructure that serves the coal mines.
The excitement surrounding Colombia’s revival is spreading beyond the Americas. BDP Project Logistics, a project cargo transportation and logistics company based in Singapore, is increasing its presence in Colombia this year following the success of its contract to handle the logistics for the construction of the Termocandelaria thermoelectric plants (see sidebar, this page), a multimillion-dollar project in the cities of Cartagena and Barranquilla.
“The company has a lot of confidence in the Colombian market, so that is why we are investing and increasing our presence here,” said Arndt Droegemueller, BDP’s director of business development in South America who is based in the Colombian capital of Bogota. “The energy sector represents about half our focus, and in 2010-2011, we are going to be really dedicated to that,” he said. “In terms of oil, we have closed an important contract, and we hope by the middle of the year to participate for more logistics contracts in several energy concessions that have been recently announced and have their financing confirmed.”
Economists, business leaders and political analysts agree that Colombia is benefiting from the deterioration of the energy and mining investment climate in neighboring Venezuela, where insecurity and drug smuggling is growing and socialist leader Hugo Chavez has taken control of strategic sectors such as energy, banking, telecommunications and mining.
Bogota and Caracas are now poles apart on the global investment map, particularly in mining. Colombia is attracting companies ranging from Canadian exploration companies to mining multinational AngloGold Ashanti. For example, Canada’s Greystar Resources aims to become the country’s largest precious metals miner in production in 2012 at its Angostura gold and silver mine and expects to invest $600 million in the project.
While it is still a little early for Greystar to be handing out project cargo contracts, the miner’s confidence in Colombia echoes the sentiment of many. “After nearly eight years of government under Uribe, we have seen that the country has been put on very strong footing and made very significant progress in economic growth and legislation to improve decisions for investment,” said Frederick Felder, executive vice president at Greystar.
However, worries about political stability have not disappeared entirely.
One area of concern for Colombians is whether Uribe plans to run for a third term in a presidential vote in May. Some observers say Colombia risks weakening its democracy because Uribe is barred from seeking re-election and would need to win a referendum to change the constitution.
While time appears to be running out for the Harvard- and Oxford-educated lawyer, the risks for investors are seen as slight because several strong presidential candidates have emerged in recent months.
By: Leticia Lozano