The OECD, the so-called club of wealthy countries, invited Colombia to start negotiations in order to join the organization. What does this news mean for Colombia and its mining and energy sector?
The most important part of being in the OECD is to be able to learn the lessons of 32 countries; to have committees on multiple matters and with the best standards; and to take advantage of their experience to do things better.
Colombia would be able to contribute in many fields. It will help us achieve important competitiveness in the world, where we have positioned ourselves in a very active way, as you may have seen during this administration. The fact that the OECD has called Colombia so quickly and has invited us to participate formally and attend OECD discussions is highly important. It must have an impact on our policies, on what we do at all levels, especially in our sector, to be competitive against the best companies and standards in the world.
Colombia is currently placed seventh in the Behre Dolbear 2012 ranking of the most attractive countries for mining investment, which assesses political risk and whether the countries have favorable policies and conditions for investment. Could you talk to us about the improvement experienced by Colombia, which was about to become a net importer of crude oil a decade ago?
Colombia’s hydrocarbon history is very important. First of all because we have become one of the 22 countries that produce more than a million barrels per day. We have been able to attract foreign investment in a historical way. Last year alone, more than $8.5 billion was invested in the sectors of mining and hydrocarbons. In November 2012, we held oil-block auction rounds for more than 57 blocks with over 37 companies that came to Colombia to invest $2.6 billion in exploration over the coming years. We see this as a big story, but we are faced with the challenge of increasing our reserves; we want our reserves to grow much more. A large percentage of our country’s territory is still to be explored. The challenge is to provide enough favorable conditions for the country and for companies to both share – with complete social responsibility – a future of increasing reserves, which is what interests us most.
According to Minister Mauricio Cardenas Santamaria: “The signing of the FTA with the United States opens strategic opportunities not only for mining but also for other activities of our industry, such as hydrocarbons and electric power.” How can Colombia's mining and energy industry benefit from the FTA?
We are thinking about future energy integrations between the north and south. Regarding hydrocarbons, there is an important group of Colombians and Colombian companies that are learning. The Pacific Alliance will be a very important market for energy services; and regarding the US, we hope to have the future interconnection that will allow us to pass electric power from one side to the other. This is a dream, but we want to work with Panama to create integration. We still need to see what to do with Central America and Mexico in order to achieve integration at that level.
Colombia is Latin America’s fourth oil producer, and you have stated that Colombia still has a lot to discover, so you are making a lot of effort to bring in foreign investment to explore. What is the true potential of this country’s natural resources?
We are constantly increasing our knowledge and we annually get more seismic information. Last year, we obtained more than 22,000km of seismic data at the Agencia Nacional de Hidrocarburos – ANH (National Hydrocarbons Agency). This year’s goal is to acquire similar or greater seismic data that will provide us with the right knowledge to hold more informed auctions tomorrow. I can tell you that Colombia has not discovered the Pacific region yet and the Colombian mountain ranges are still to explore. So, it has great potential; not to mention the non-conventional areas.
Colombia received $16.6 billion of foreign direct investment in 2012, of which 80% went into the oil and mining sectors. What projects or incentives do you expect to implement in order to maintain this flow of foreign investment in 2013 and 2014?
The net figure is probably lower. The net figure of foreign investment is $8.57 billion. We want to remain competitive through the legal stability that has been traditional in this country over the years. All contracts shall be clear to the communities and they shall be socially responsible. The latest contracts have a clause that binds the contractor to invest 1% of the operating income in the area where the company’s interest is located. This has been welcomed by investors because it is a way to interact responsibly with the community.
We have competitive contracts regarding Government Aid. They are competitive with the countries that we have to compete with in the whole world. Having competitive agreements means that royalties in Colombia can vary from 8% to 25%, depending on the size of each contract. There are also data protection clauses but they are still very competitive contracts, at least as far as the country is concerned. The contracts contain the knowledge on royalties that we have.
There are countries that need to be more competitive because they have less information, while there are others that have more information and are less interested in investment. We make that balance and I believe the results are very competitive. This sector has great opportunities for all investors interested in coming to a country with a dynamic and growing economy, with good prospects in the short, medium and long term.
Colombian oil production increased 3.16% last year when it reached 944,000 barrels per day.
The 2012 average was 944,000 oil barrels per day (bpd), which means 3.16% more than the previous year when it reached 915,000 bpd. The hydrocarbon production increase of last year corresponded to greater activity in the existing producing fields and the startup of new oil fields.
This year’s average production is 1,008,000 barrels. The year average until May is 1,008,000, so it is very important growth. I would say that Colombia must have the expectation to continue to grow once there is certainty about what will happen with these exploratory fields. There is a very important issue about the reservoirs that were certified last year. The new certified reservoirs increased 5.8% but the most important point is that 30% of those reservoirs are new fields. The trend we had maintained for some years was that only 10% of the increase came from new fields, and it was the same with gas.
I would like you to expand on the plan you have to hold another auction next year to assign exploration blocks.
We do not have a date for the auction yet. We need to establish a date that allows us to make informed auctions for areas we would like to explore and we hope to have a lot of information to do this but I do not have an exact date yet.
The Ministry has stated that in the coming years it will invest $5 billion on infrastructure such as hydrocarbon transport in Colombia. What infrastructure projects are needed in the country and how can foreign investors contribute to this progress?
This question is very relevant. We are turning the hydrocarbon transport sector into a business that is different and differentiated from the production sector.
We would like the investments in this sector to be made by investors who have to do with profitability. It should be a sector whose regulation allows generating a business that is different to the business of hydrocarbons.
We have created a company 100% owned by Ecopetrol, which is called Cenit. It is competing to be able to advance in significant hydrocarbon expansion projects. It is the enterprise that is expanding the Ocensa oil pipeline. It is also thinking of building, along with other partners, of course, an oil pipeline to the Pacific coast. Cenit is about to reach the south of the country and there is a possibility that we will get to Ecuador. It may make investments close to $5 billion in the next five years.
If we talk about coal, the Chilean copper commission has concluded that Colombia is the sixth most attractive country for coal mining. What are the prospects and greater coal-sector investments? How do you plan to give it added value such as gasification and liquefaction?
We are Latin America’s first coal-producing country. Last year, we produced 90 million tons and there are great stakeholders interested in mining here. It is large-scale mining. In the center of the country we have metallurgic coal with enough potential to expand our chances to export that coal. The coal industry in the center of the country has very big proven reserves, and is also expanding through the supply of infrastructure that is going to take that coal to a port. We are planning the roads right now. The renewal of one of the railway lines between Belencito and Bogota, and between Chiriguana and La Dorada, was approved this week. We are working on the Magdalena River to have a way to come out to the sea in the future. That is the future of coal transport in the center of the country. It is very important and it implies large investments that shall allow our reserves to be economically exploited.
As far as the coal on the coast is concerned, there are projects under expansion to increase current exploitation. The north zone of Cerrejón wants to produce 40 million tons. Prodeco has just opened a direct loading port in Santa Marta, and so will other mining ports next year. There are some important expectations, despite the fact the price was good, but it dropped to $70 or $75 dollars, more or less.
The ANH and the Agencia Estatal de Minería (State Mining Agency) have been thinking of performing an analysis of the existing possibilities in the great social window of coal.
We will soon open a coal-powered thermal generation plant whose technology reduces sulfur emissions very significantly. It was made by the Chinese. This plant is located in Cordoba and it will generate about 300 megawatts. This is a different kind of technology to eliminate sulfur emissions to the environment.
I would like you to expand on the prosecutor's decision to cancel 37 mining titles located in protected natural parks with environmental content. What is the plan to protect the environment, the natural parks and for mining to be highly responsible? How is illegal mining being fought?
They are two different issues. One of them is the environment. Colombia is one of the countries with the richest biodiversity in the world. It must be able to balance its wealth and its natural resources. We have asked companies to be not only socially but also environmentally responsible. We already have certain parts of the country where there is not any kind of economic exploitation, neither mining nor agricultural businesses or livestock.
For example, the Páramos of Highlands; Colombia has the largest concentration of highlands in the world and we want to protect them. The country has some natural parks that are essential for forest reserves, where there are some wetlands protected by law.
There will not be any mining there; that is clear to us. Wherever there is this kind of protection, no titles or environmental licenses can be issued. There cannot be such kind of activity. Additionally, what has happened in fact is that there has been some sort of criminal engineering with no respect for the environment. It has arbitrarily exploited and polluted the environment. This is why there is now a draft law banning the exploitation of gold with mercury. The army is helping with quick and strict monitoring and control, especially regarding machinery doing illegal mining. We destroyed machinery and increased protection of the Andean Community of Nations with an agreement to allow the destruction of machinery. This is what Colombia has so far, just as some other countries in Latin America such as Peru and Ecuador do.
Colombia has great electric potential. New renewable energy technologies have hardly been explored. What projects are there to extend and expand network coverage and how would you like to develop the potential of wind, solar and biomass power?
More than 70% of Colombia’s power is water-generated. The rest is generated by thermal gas, fuel oil or coal. We are very interested in alternative energy development. We have places where we do so; we have highly connected areas where we need to find alternative generation solutions, either wind power or any technology that allows us to move forward.
The big issue will be costs; how to finance this issue. However, we are committed to finding systems to become more involved; and we have agreed with multilateral institutions to receive their assistance to advance in this area.
As far as coverage is concerned, up to now and through its policy of Social Energy for Prosperity, the government has taken energy solutions to 14 municipalities of Non-Interconnected Zones (ZNI). In 2012, five more municipalities had energy 24 hours a day: Mapiripán (Meta), Puerto Leguízamo (Putumayo), Guapi and Timbiquí (Cauca), and Bocas de Satinga (Nariño). Additionally, the village of Coayare (Guainía) has gone from four to 24 hours of service since December 22, 2012.
President Barak Obama suggested the creation of a new energy and climate alliance of the Americas, which according to him can shape the progress towards a more secure and sustainable future. Could you tell us about the upcoming initiatives and actions that will be implemented to increase the relations between both countries in the energy field?
We have a business relationship with U.S., and it is greater than with all other countries. In the coming days, we will be in Washington visiting the people who are dealing with all the energy issues.
In our dealings with Central American countries and Mexico, we are trying to see how we can integrate power transmission in the future. It takes time, we have to look at each country’s regulation; we must look at our own circumstances. You know we had a chance to undertake some transmission projects with Panama. Panama has requested to review the terms of that agreement and we will review it. Central America has already agreed to make some of these interconnections and we also want to look into that.
They are all great future interests and we want to see how we can move forward and how we can make regulation competitive.
In the public sector, you have served as Minister of Interior, Secretary General of the Presidency of the Republic, Deputy Minister and Minister of Finance, Economic Development and Mining and Energy. How has your vision of public service evolved throughout your career?
Indeed, I have been in the public sector as well as in the private one in many opportunities. It has been a rare thing for someone who is in public service to have been in private sector companies as well. I think the Colombian public sector is more demanding every time; it is increasingly competitive. It is becoming more regulated and I think it is an accomplishment for Colombia in the sense that we have a lot to sell to the world and to Colombians.
Turning all this strength Colombia has into benefits for Colombians is an essential part for those of us who do public service. That is where I am now and I hope to be for a longer time.
We know you have been chairman at Banco de Colombia, International Finance Company and Colombian Trust Association, as well as Ecopetrol. How has this experience in the private sector helped you shape your leadership view?
It has been essential. You know that private business only talks about results. The outcome is also very important for the public sector but the way it is done is sometimes slower. Not losing focus of results is one of the lessons one can learn from the private sector to implement in the public sector. It is not easy but here we are.