VZCZCXYZ0008
RR RUEHWEB

DE RUEHBO #0766/01 0642201
ZNR UUUUU ZZH
R 052201Z MAR 09
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 7549
INFO RUEHBR/AMEMBASSY BRASILIA 8715
RUEHCV/AMEMBASSY CARACAS 1789
RUEHPE/AMEMBASSY LIMA 7119
RUEHLP/AMEMBASSY LA PAZ MAR QUITO 7849
RUEHZP/AMEMBASSY PANAMA 3184
RUEHSW/AMEMBASSY BERN 1518
RUEHRI/AMCONSUL RIO DE JANEIRO 0134
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS BOGOTA 000766 
 
SIPDIS 
SENSITIVE 
 
WHA/EPSC FCORNEILLE; EEB/ESC/IEC MMCMANUS 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EINV PGOV CO
SUBJECT: ECOPETROL BUYS BACK CARTAGENA REFINERY; LOOKS FOR 
NEW PARTNERS 
 
¶1. (SBU) SUMMARY: Marking the end of a troubled three-year 
partnership, on March 3 state-owned hydrocarbons company 
Ecopetrol repurchased Swiss-owned Glencore's 51 percent stake 
in the Cartagena refinery for USD 549 million.  Glencore, 
which took a USD 109 million loss from the price it paid 
Ecopetrol for the refinery in 2006, sold due to difficulties 
in financing the USD 3 billion expansion of the refinery amid 
tight international credit markets.  Local politicians, labor 
unions and financial analysts welcomed the transaction as the 
end of what they viewed as a ill-conceived refinery 
partnership with a company primarily experienced in mining. 
While cash-flush Ecopetrol says it can shoulder the expansion 
of Colombia's second-largest refinery on its own, President 
Uribe and Ecopetrol executives have put out feelers for 
potential new partners, including Petrobras and General 
Electric.  END SUMMARY. 
 
Never Quite on the Same Page 
---------------------------- 
 
¶2. (SBU) The Ecopetrol-Glencore partnership began in 2006 
with Glencore purchasing a majority stake in the outdated and 
undersized Cartagena refinery from Ecopetrol for USD 657 
million.  As part of the purchase agreement, Glencore agreed 
to lead, and majority-finance, a USD 3 billion expansion of 
the refinery.  The project, which is now underway, aims to 
nearly double refining capacity from 80,000 barrels per day 
(bpd) to 140,000 bpd as well as significantly improve the 
environmental quality of the diesel and gasoline produced at 
the facility.  Nevertheless, the partnership was plagued 
almost from the outset with financing and operational 
difficulties.  As a result, criticism grew in the Colombian 
Congress and elsewhere that Glencore, largely known for its 
mining operations in Colombia, did not have sufficient 
experience in petroleum refining to serve as a successful 
partner. 
 
Last Straw: Tight Credit 
------------------------ 
 
¶3. (SBU) As international credit dried up in the last several 
months, Glencore warned it would not have access to enough 
financing to meet its contractual requirements for the 
refinery expansion.  After public comments by President Uribe 
to review Glencore's coal mining concessions if it failed to 
meet obligations with the Cartagena refinery, Glencore and 
Ecopetrol began negotiating an exit strategy from the 
refinery project.  Energy Minister Martinez told Econoff that 
the GOC urged a quick and amicable settlement to avoid a 
long-term legal dispute that would damage Colombia's 
investment image.  However, he stressed that the GOC did not 
push for any specific terms or sale price for the deal. Under 
the final arrangement, Glencore sold its majority stake back 
to Ecopetrol for USD 109 million less than it paid in 2006. 
 
Good Deal for Ecopetrol 
----------------------- 
 
¶4. (SBU) Although the original 2006 sale to Glencore was 
criticized by various politicians, labor unions and industry 
experts, Ecopetrol's re-purchase has been greeted with almost 
universal approval.  Supporters point out that Ecopetrol is 
in a much stronger position now to finance the expansion 
operation after its partial privatization in 2007, 
accumulated profits from the recent spike in oil prices, and 
its listing on the New York Stock Exchange last year.  Among 
others, former Fedesarrollo Director and current shareholder 
representative on Ecopetrol's board of directors Mauricio 
Cardenas, praised Ecopetrol reaching negotiated agreement 
with Glencore rather than getting bogged down in a long 
contractual dispute with the company.  Minister Martinez 
echoed the point with us, saying the quick resolution allows 
Ecopetrol to continue the much-needed refinery expansion 
without interruption and opens the door to pursue a new 
partner immediately.  Even the National Oil Workers' Union 
(USO), often a vocal critic of Ecopetrol, voiced its approval 
of the buyback. 
 
Still Interested in New Partners 
-------------------------------- 
 
 
 
¶5. (SBU) Ecopetrol President Javier Gutierrez has stated 
publicly that Ecopetrol is fully prepared to proceed with the 
refinery expansion on its own as part of an ambitious 
company-wide investment plan.  The day after the announced 
deal with Glencore, Ecopetrol launched a USD 8.1 billion debt 
issuance to finance its investment plans.  Nonetheless, the 
company and the GOC have indicated interest in considering a 
new international partner for the refinery expansion.  In a 
visit to Brazil during the Glencore-Ecopetrol sale 
negotiations, President Uribe publicly invited Brazilian 
state-owned hydrocarbons company Petrobras to consider 
investing in the project.  (NOTE: Petrobras was the runner-up 
bid to Glencore for the Cartagena refinery project in 2006. 
END NOTE.)  Petrobras Colombia President Abilio Ramos told us 
his headquarters in Brazil is studying the opportunity, 
noting that Petrobras has recently purchased refineries in 
the U.S. and Japan.  Petrobras already has plans to invest 
USD 404 million in exploration and production in Colombia 
over the next five years. Beyond Petrobras, General Electric 
has also expressed interest in joining the Cartagena refinery 
expansion, but not yet begun any formal discussions with 
Ecopetrol. 
BROWNFIELD