Colombia’s coal infrastructure is relatively robust, most notably the CNZ project in the north of the country. This is a large integrated complex that includes mining production facilities, a 150 km standard-gauge railway and a Caribbean coast export terminal at Puerto Bolivar. The CNZ project accounted for 38% of the country’s coal production in 2011 and investment in the area is expected to continue.
The head of Colombia’s National Infrastructure Agency (ANI), stated that investment in infrastructure projects should reach US$ 14 billion for the period 2014 – 16. Investment in coal infrastructure is likely to see the expansion and improvement of transport links, such as railways and roads. In addition to these transport links, exports shipped from Puerto Bolivar offer access to North American and European markets, while Asian markets can also be accessed via the Panama Canal. Plans have been made to build a large highway through the centre of the country.
Although the government has committed to large-scale investment in infrastructure, its ability to deliver will, in part, depend on an improvement in the investment environment. President Santos is likely to reject calls from legislators to increase taxes on the mining sector in an attempt to avoid declines in investment and production.
While current infrastructure in major coal mining operations and plans for expansion is good, Colombia will face a more difficult process in establishing infrastructure for small-to-medium mines. An improvement in infrastructure for these businesses could help significantly in closing the gap between Colombia’s potential and actual revenue from the mining sector.
The technologies needed for extractive industries are generally in place in Colombia, primarily because the industry is relatively mature and foreign investment has helped to modernise operations. However, with no state-owned company leading the industry, Colombia will continue to rely on foreign investment to develop and implement new technologies. In a similar vein to infrastructure deficiencies, the challenge for the Colombian Government will be to facilitate the spread of these technologies from large-scale operations to smaller, localised enterprises.
Political violence continues to pose a threat to companies operating in Colombia, as rebel groups, notably the Fuerzas Armadas Revolucionarias de Colombia (FARC) and the National Liberation Front (ELN), remain active. Natural resources infrastructure in the oil and mining sectors is a consistent target for FARC and concerns over water usage and contamination are a source of contention for local communities in the country. The CNZ project was attacked seven times in 2012 and the mine’s railway was attacked in January and March of 2013. These attacks usually involve the use of explosives on railway tracks, causing derailments, or other energy resources. However, these small-scale attacks seem to have little impact on the operations of a complex as large as Cerrejón and the company was able to continue exporting coal using stocks that were still held at the mining facilities.
The FARC and ELN use the kidnapping of prominent Colombians and foreign workers to bring attention to their cause and as a device for revenue generation. Most recently, a Canadian geologist was kidnapped in January 2013 by ELN and is still being held by the group. He is being used as a bargaining tool in an attempt to gain representation at peace talks with the government.
Both groups are involved in illegal mining activities. Reports suggest that FARC have been active in the mining and production of gold and tungsten. ELN has at least some control over illegal mining operations in rebel-controlled areas in northern Colombia.
In the past, foreign investment has been closely linked to the security situation on the ground and investment has increased considerably since the previous president, Alvaro Uribe, launched a concerted campaign to quell political violence in 2002. Foreign investment is likely to rise further if peace talks are concluded with the various rebel factions, although the significant demobilisation of fighters could lead to the evolution of criminal gangs, which would pose a different threat to the Colombian Government and armed forces.
Strikes and worker disruption
Strikes and worker disputes pose a significant risk to the mining sector. Coal production in H1 2013 dropped by 13.4% as a result of work stoppages at both Drummond and the Cerrejón group. Drummond was targeted by a strike by workers in response to reports that the company planned job reductions at its Colombian operations, as well as issues over pay. There were concerns the strike could result in an increase in coal prices, as the company accounts for one third of Colombian coal production.
Strikes have led to violent clashes between protestors and police and could reflect a growing risk of civil unrest in the run-up to the 2014 election. With President Santos focusing on his re-election prospects, it is unlikely he will to take a firm stance on worker disruption, which could be detrimental to coal pricing and production levels in the short term.
Written by Dr Elizabeth Stephens, JLT Specialty Ltd.
Part 1 of this article can be reached here.
Read the article online at: https://www.worldcoal.com/coal/04122013/coal_cost_culture_part_2/