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. 

--------------------------- 
Bullish on Coal in Colombia 
--------------------------- 

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. 

--------------------------------------------- -- 
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. 

--------------------------------------------- --- 
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. 

--------------------------------------------- ---- 
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).

------- 
Comment 
------- 

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 

=======================CABLE ENDS============================