VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #3049/01 0961344
ZNR UUUUU ZZH
R 061344Z APR 06 ZDK
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 3830
INFO RUEHBR/AMEMBASSY BRASILIA 6704
RUEHCV/AMEMBASSY CARACAS 7504
RUEHLP/AMEMBASSY LA PAZ APR LIMA 3528
RUEHZP/AMEMBASSY PANAMA 8994
RUEHQT/AMEMBASSY QUITO 4185
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS BOGOTA 003049 

SIPDIS 

SENSITIVE 
SIPDIS 

E.O. 12958: N/A 
TAGS: ETRD ENRG EMIN CO
SUBJECT: DRUMMOND HAS MAJORITY STAKE IN NEW RAIL CONCESSION 

REF: 05 BOGOTA 5979 

Sensitive but unclassified -- please handle accordingly. 

¶1.  (U) Summary.  The U.S. based Drummond Co. recently 
purchased a controlling share of a new rail concession 
linking Colombia's coal belt in Cesar with the northern coast 
ports of Cienaga and Santa Marta, resolving one of Colombia's 
most serious trade irritants.  Drummond and other coal 
companies participating in the venture committed to a USD 350 
million investment to increase capacity along the line and 
dramatically improve service over the line's prior owners, 
Feneco.  The increased capacity of the rail line will mean 
coal will overtake petroleum as Colombia's largest export 
commodity in the medium term.  End Summary. 

Drummond Gains Control of Rail Concession 
----------------------------------------- 
¶2.  (U) On March 27, the Colombian government, with President 
Uribe in attendance, approved the purchase by U.S.-owned coal 
producer Drummond Ltd. of a controlling stake in a new 
concession to operate a major rail line between Colombia's 
coal belt in Cesar department and the northern coast port of 
Santa Marta.  Coal companies including Drummond Ltd., 
Glencore, Carbones de Caribe, Carbones de Cesar, Consorcio 
MineroUnido, and Carboandes will operate the concession and 
together plan to invest approximately USD 350 million to 
expand capacity and build a second track generally within the 
existing right of way.  The transport capacity will expand to 
about 80 million tons per year by 2007 and enable the 
participating companies to expand their operations from a 
current annual level of 35 million tons to 66 million tons of 
coal production by 2010.  Augusto Jimenez, President of 
Drummond, Colombia, told econoff his company would own a 
controlling 42 percent stake in the concession.  The 
agreement includes construction plans for 4 extensions or 
spurs off the current line.  The group plans to fufill the 
original intent of the GOC when the rail line was first built 
and carry general merchandise and commoditites for export 
such as African palm oil, cement, and steel. 

¶3.  (U) Jimenez said the new agreement resolves a number of 
difficulties Drummond en]mQ%m&t its commitments to renovate rail infrastructure and 
make required land purchases for future spur expansions. 
Drummond encountered particular difficulties with Feneco in 
obtaining access rights needed to achieve its expansion 
plans.  An arbitration court ruled Feneco performance 
necessitated the firm pay Drummond an indemnity in the amount 
of USD 21 million for damages caused to Drummond operations. 

Drummond Plans Large-Scale Expansion 
------------------------------------ 

¶4.  (SBU) As reported reftel, Alabama-based Drummond Co. Inc. 
operates one of the world,s largest surface coal mining 
operations in Cesar Department, northern Colombia.  From 
1995-2005, Drummond has extracted approximately 100 million 
tons of high-grade coal from the Pribbenow Mine location of 
the La Loma Coal Mining Project.  In 2005, Drummond produced 
22 million metric tons of coal from the site and forecasts 26 
million tons of production for 2006.  According to Drummond 
officials, there are still about 400 million metric tons of 
proven reserves at the Pribbenow Mine and vast resources 
still to be "proven".  A new concession called El Descanso
(located about 10 miles away) will begin production later in 
2006 and has an estimated 1.5 billion tons of reserves. 
Jimenez told econoff that the company would spend USD 1.2 
billion over the next 5 years to further expand production to 
almost 70 million tons per year (according to preliminary 
company estimates) once El Descanso is operating at full 
capacity.  The company is also prepared to increase 
investment in its port infrastructure to allow for this 
increase in capacity. 

Comment 
------- 

¶5.  (U) Coal was Colombia,s second largest export commodity 
behind petroleum with USD 2.6 billion in exports compared to 
USD 5.6 billion for petroleum in 2005 according to Proexport.
 Coal exports grew 40 percent in dollar terms from 2004 to 
2005 compared to a rate of about 32 percent for petroleum. 
Given Colombian coal investors' expansion plans and 
Colombia,s dwindling oil production and reserves, coal is 
positioned to be crowned export king in the medium term. 
WOOD 

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