The Multinational Monitor



Colombia Signs Over Its Coal Resources

by Patricia Perkins

An agreement with Exxon to build and operate the country's largest mine draws criticism inside and out of the government. Many see it as part of a long series of resource giveaways.

Colombia virtually gave away its petroleum resources 30 years ago to giant oil corporations. Now, Colombia seems set on continuing its multinational charity-this time with Colombia's coal deposits.

In September the government of President Julio Cesar Turbay Ayala approved the second stage of a U.S. $3 billion, 30-year contract with Exxon's local subsidiary. The project: to develop El Cerrejon, the largest coal mine in the Third World, located on Colombia's Caribbean coast.

The terms of the 50-50 joint venture agreement, with Exxon controlling production, have sparked a heated controversy in Colombia. Several high-ranking officials of the state coal agency, Carbocol, resigned over the contract, claiming it will damage the long term economic welfare of the nation. These dissenting officials, along with other critics of the agreement, fault the government for bargaining poorly with Exxon. The contract "is a monstrosity of enormous injury to our national interests," said Jorge Child of El Spectador, a leading Colombian paper.

The debate over El Cerrejon reflects larger issues about Colombia's economy. Long dependent on agricultural and raw material exports, Colombia has remained highly vulnerable to fluctuations in international markets. Though rich in natural resources-coal, petroleum, uranium, nickel, gold, silver, emeralds-Colombia has not managed to build an internally-oriented economy. For instance, the nation has actually begun importing oil; the foreign corporations which control domestic crude reserves see more profits to be had importing to the Colombian market than exporting from it. As a result, domestic petroleum production has actually declined since 1973, and foreign debt has risen accordingly.

Proponents of the El Cerrejon agreement claim the project will differ from past attempts at exploiting Colombia's resources. Exxon and the Colombian government argue that El Cerrejon will bring four benefits: foreign exchange, infrastructure, employment, and technology transfer. None of these, however, may come to fruition.

Exxon's wholly-owned Colombian subsidiary, Intercor, predicts exports from the mine will bring in $1.5 billion a year in foreign exchange by 1988 (the first year of projected full operation). However, rapid escalation in cost estimates for the project seems to belie such optimism. In the past eight months alone, expected costs have been readjusted to nearly double the original figure. As expenses escalate, the hope of reaping foreign exchange benefits fades, since the construction will be performed by foreign contractors.

El Cerrejon's supporters say it will develop much-needed infrastructure for the Colombian economy. Carbocol is hoping to build a 150 kilometer railway from the mine to the coast, and a port on the Caribbean at Bahia Portete, from which most of the coal produced could be exported. The problem with this plan is that El Cerrejon's rail line will not be connected with Colombia's areas of industrial growth, making the line of little use in the country's attempts to build up its own industrial base. The government has not developed any plans for a link-up, consigning the project to export use only.

The third advantage of El Cerrejon cited by proponents-that it will generate much employment-seems exaggerated. Government projections of new jobs resulting from the project have soared as high as "100,000 to 200,000." The contract, however, does not set quotas for the hiring of Colombians, and Intercor itself limits its estimates to 4,000 permanent new positions. Many of the badly needed unskilled jobs initially created by the project will last only through the primary railroad/port construction phase, since the mining itself will be heavily mechanized.

The final justification for the project is that it will. allow Colombians access to sophisticated coal technology and expertise, with the hope that local companies eventually will assume a leading role in domestic production. Colombia has projected coal reserves of 40 billion tons, greater than any other Latin American nation, but mining techniques remain geared to small-scale, low-technology production.

The El Cerrejon contract, however, provides no firm guarantee of technology transfer. Though it stipulates five aspects of coal gassification production that Intercor may "make available" to Carbocol, each assurance disappears in the mist of legal caveats. Intercor made certain that transfer of technical information would be "subject to controls and limitations on export of technology imposed by the government of the United States of America" and "subject to the added conditions joint research agreements with other parties may impose."

Other elements of the El Cerrejon agreement further indicate the extent to which it sets an ominous precedent for future coal ventures in the country. Special loopholes in Colombian law created by administrative fiat expressly for the project-exempt Exxon from some Colombian taxes, allow high profit-remission rates not granted other foreign firms, and permit Exxon to retain 50 percent ownership of the mine, even though Colombian law requires at least 51 percent domestic ownership for coal projects of El Cerrejon's scale.

Why the giveaway? In part, because of power struggles within the Colombian bureaucracy. When the Cerrejon project first was being considered, five corporations submitted bids to the government. Initially Peabody Coal, which previously conducted extensive coal exploration in Colombia, was favored to get the contract.

Before Colombia awarded the contract, however, a bitter internal struggle developed between Colombia's state petroleum corporation, Ecopetrol, and the Industrial Development Institute (IFI), over which agency would control Carbocol's formation and policy decisions. Ecopetrol won out, as did Exxon, for Ecopetrol had over the years built up a cozy relationship with Exxon, sharing petroleum production and exports. Ecopetrol did not pressure Exxon to give more favorable terms to Colombia. -

More than Exxon's ties to Colombia's bureaucracy, however, the El Cerrejon contract reflects . Colombia's blind acceptance of foreign investment-no matter what the apparent cost. Earlier this year, President Turbay proudly declared that his government, "without xenophobic bluffing has decided to open the doors to foreign investment."

Turbay's approach accounts for the government's refusal even to entertain the questions of those with the technical expertise to judge the merits of the deal.

The government's assumption that foreign investment, such as El Cerrejon, willy-nilly benefits the economy seems destined merely to push Colombia further along the way to squandering its vast resource wealth. "Colombia is one of the naturally richest countries in Latin America," notes Raul Fernandez, Colombia expert at the University of California at Irvine. "But first its gold, silver and emeralds, then its petroleum, and now its coal ... have been mismanaged in a way that sacrifices the best interests of the nation to international market conditions."

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