An Energy Overview of Colombia

Courtesy of the U.S. Department of Energy

Energy Summary [Oil, Natural Gas, Coal, Renewables, Infrastructure, Electricity]
Energy Policy | Environmental Activities | Privatization Status | Economic Situation | Trade & Investment

General Information

The Republic of Colombia is the fourth largest country in South America, with an area about two times the size of Texas, and is bordered by Venezuela to the east, Ecuador, Peru and Brazil to the south, the Pacific Ocean to the west, Panama to the northwest, and the Caribbean Sea to the north. Colombia has a population of about 40 million and an annual growth rate of approximately 1.6%. There are 32 administrative regions (called 'departamentos') in Colombia, plus the capital district which is its own autonomous administrative region; these administrative regions are shown in Figure 1. The capital city, Bogotá, is located in the center of the country and has a population of about 6 million. Colombia's currency, the Colombian peso, has an exchange rate (as of August 2002) of approximately 2,560 pesos per U.S. dollar (i.e., one peso equals $.00039). The nominal gross domestic product (GDP) for Colombia in 1999 was an estimated $89 billion and the GDP for the year 2000 was forecasted to be $91.3 billion. Colombia is a member of the United Nations, the World Trade Organization (WTO), the International Monetary Fund (IMF), and the Colombian Foreign Trade Institute (INCOMEX).

Figure 1: Administrative Regions of Colombia

DC - Distrito Capital de Santa Fé de Bogotá AMA - Amazonas ANT - Antioquia ARA - Arauca ATL - Atlántico BOL - Bolívar BOY - Boyacá CAL - Caldas CAQ - Caquetá CAS - Casanare CAU - Cauca CES - Cesar COR - Córdoba CUN - Cundinamarca CHO - Chocó GUA - Guainía GUV - Guaviare HUI - Huila LAG - La Guajira MAG - Magdalena MET - Meta NAR - Nariño NSA - Norte de Santander PUT - Putumayo QUI - Quindío RIS - Risaralda SAP - San Andrés, Providencia y Santa Catalina SAN - Santander SUC - Sucre TOL - Tolima VAL - Valle de Cauca VAU - Vaupés VID - Vichada

Source: map courtesy of and copyright by FOTW Flags of the World

Energy Policy and Regulation

Colombia is a free-market economy with major commercial and investment links to the United States. Transition from a highly regulated economic regime to an unrestricted access market has been underway since 1990. During the 1980s, the electricity generation sector for Colombia (as well as for most other South American countries) was mired in troubles, due in part to the inefficiency of some state-owned generating companies and development of huge generation projects (which resulted in large cost and schedule overruns).

Beginning in 1990, the Colombian government has introduced several new policies to spur economic development and promote private enterprise. In 1994, the Colombian government enacted laws that provide the current framework for the electricity sector. Law 142 established that the provision of electricity, telecommunications, water, sewage, and bottled gas distribution are essential public services that may be provided by both public and private entities. Law 143 sets out the following principles for the electricity industry: efficiency, quality, continuity, adaptability, neutrality, solidarity, and equity. These principles are implemented by resolutions promulgated by the Comision de Regulacion de Energia y Gas (Energy and Gas Regulatory Commission or CREG), and other governing bodies.

In May and June of 1999, the Colombian Congress passed legislation to reform oil royalties, and Empresa Colombiana de Petroleos (Ecopetrol), the state industrial and commercial company responsible for the petrochemicals industry, revised the terms of its association contracts to further promote foreign investment. In late August of 2000, the Colombian government was formulating two new laws to make gas exploration easier. One law would reduce the amount of royalties that producers pay on gas, and the other one would liberalize the price of gas, which is currently regulated. The two laws hope to build a thriving Colombian gas market, as well as spur more economic development. A new Colombian mining code, Bill 269, is currently undergoing debate and could be passed by the end of 2000. The bill will increase Colombia's competitiveness in the global mining industry by providing tax incentives for exploration and production activities.

The Ministry of Mines and Energy is responsible for the overall policy making and supervision of the electricity sector in Colombia. It regulates generation, transmission, trading, interconnection, and distribution, and approves generation and transmission programs. The ministry delegates supervisory authority over the electricity sector to a number of its agencies, specifically the CREG, the Union of Mineral and Energy Planning (UPME), and the National Energy Finance Company.

Energy Summary

Colombia possesses numerous fossil fuel and natural resources. The country has productive petroleum reserves, extensive coal reserves that make it a global leader in coal exports, significant but largely untapped natural gas reserves, and extensive hydroelectric resources. A large amount of potentially productive oil and natural gas areas remain unexplored. An historical summary of Colombia?s total primary energy production (TPEP) and consumption (TPEC) is shown in Table 1.

Table 1: Colombia's TPEP and TPEC, 1990-2000
(in Quads)

note: 1 Quad = 1 quadrillion Btu
Source: DOE/EIA

Oil
Reserves, Exploration, Production, and Consumption
Ecopetrol is attached to the Ministry of Mines and Energy and possesses legal existence, administrative and decision-making autonomy, and its own, independent capital. Ecopetrol is responsible for exploring, extracting, processing, transporting, and marketing the hydrocarbon resources placed at its disposition. It implements its activities under conditions of efficiency and social responsibility, in order to balance its own development with the transfer of resources required by the government. In 1999, in response to declining proven reserves, the former president of Ecopetrol, Carlos Rodada, set a new production goal of 1.3 million barrels per day by 2010. To reach this goal, estimates of exploration and development expenditures are $6.0 billion and $9.0 billion, respectively. This would require proven reserves to increase by about 5.7 billion barrels. Current proven reserves are estimated to be 2.6 billion barrels. While this may sound ambitious, a large percentage of the prospective zones have not been explored.

Colombia is currently ranked fifth in Latin America in crude oil production. Colombia achieved oil self-sufficiency for the first time in the early 1970s, only to require imports again by 1976. Colombia continued with exploration activities and achieved self-sufficiency again in 1986. Since then, Colombia has had steady increases in petroleum production throughout the years. In 1999, petroleum production reached an all-time high of 831,000 barrels per day (b/d). However, production was down to 710,000 b/d as of June 2000, primarily due to increased bombings of the major pipelines in Colombia by politically motivated guerilla forces and decline in reserves from the Cusiana-Cupiagua fields. An historical summary of petroleum production and consumption in Colombia is shown in Table 2.

Table 2: Petroleum Production and Consumption in Colombia, 1990-2000
(in thousand b/d)

* includes crude oil, natural gas plant liquids, other liquids, and refinery processing gain
Source: DOE/EIA

Because of the unavailability of the pipelines to transport crude to shipping ports, export volumes have decreased. In 1999, Colombia exported over 450,000 barrels per day of crude oil to the United States, valued at approximately $3.0 billion (1999 dollars). However, as of August 2000, crude oil exports to the United States have decreased to 326,000 barrels per day. It is estimated that Colombia is incurring losses of more than $900,000 per day in royalties, taxes, and state participation due to the pipeline bombing campaign.

In addition to this recent rash of bombing campaigns of the pipelines, Colombia is at a critical crossroads in regards to petroleum production. Despite increased production levels, Colombia is at risk of becoming a net oil importer by 2004 if new reserves are not discovered. Colombia's reserves have decreased by 25% over the past six years without sufficient exploration activity to replenish. Normal production rates are expected to decline beginning in 2001. The possibility of a decline in production would have serious implications for Colombia. The oil sector represents on a monetary basis, more than 20% of Colombia?s exports and 4.5% of gross domestic product (GDP).

Colombia has 18 sedimentary basins that contain hydrocarbon potential, seven of which have commercial production. The 18 basins cover 1,036,400 square kilometers with about 200,200 square kilometers under actual exploration and production activity. This means about 81% of this area is available for contracting. The seven basins where current production exists are the Upper, Middle, and Lower Magdalena Valleys, Llanos Orientales, Putumayo, Catatumbo, and Guajira basins. The hydrocarbon resource potential is estimated to be 26 billion equivalent oil barrels. The remaining eleven currently non-producing basins are estimated to have potential of 11 billion equivalent oil barrels.

Exploration in Colombia has traditionally focused on areas with suitable infrastructure and where there is sufficient geologic data so that investment risk is reduced. Currently, exploration is addressing areas with more complex geology. Greater investment risk is involved in these activities; however, there is also the possibility of major discoveries. The major oilfields in Colombia are the Cusiana-Cupiagua fields located in the Casanare department, and the Cano Limon field located in the Arauca department. BP-Amoco operates the Cusiana-Cupiagua fields on behalf of a group of companies (Ecopetrol ? 50%, BP-Amoco ? 19%, Total ? 19%, and Triton ? 12%). The fields have combined reserves of 1.6 billion barrels. Production from the Cusiana-Cupiagua fields in 1999 averaged 434,000 b/d, which represented over half of Colombia?s production. The crude oil from that field is a light sweet crude with a 36.3° API gravity and 0.26% sulfur content. BP has invested about $3.0 billion in Colombia to date. Occidental Petroleum operates the Cano-Limon field located in Colombia?s eastern plains, and has a 35% working interest in that field. The production level from the Cano-Limon field in 1999 was 125,000 barrels per day. The crude oil from this field has an API gravity of 29.5°.

Government officials in Colombia have reason for optimism of reaching their goal of continuing to be an exporter of petroleum. In June 2000, Ecopetrol, Petrobras Colombia, and Nexen, Inc. (formerly Canadian Occidental Petroleum) confirmed discovery of the third largest oilfield of the last 20 years in Colombia: 280 million barrels of high quality oil as minimum recoverable reserves in the Guando oilfield. Preliminary estimates place the amount of oil in place at 1.4 billion barrels of 30° API gravity sweet crude. The new oilfield was discovered in the Upper Magdalena Valley; it could generate about 500 million dollars of income and, in two and a half years, expand the economic proficiency of the country. Nexen, Inc. has picked up 100% interest in the Viallarica and Fusa blocks east and south of Guando. Initial prospects for these areas are also promising.

After a disappointing year in 1999 when only one contract for exploration was signed, in mid-October 2000, Ecopetrol announced that it had signed its 25th contract of the year, the most in one year since 1985. This can be attributed to newer laws that are promoting foreign interest in Colombia as a petroleum resource. The new legislation does not require companies that are engaged in the hydrocarbon and mining sector to convert proceeds from foreign sales into Colombian pesos -- they are required to convert only enough to cover expenses. Changes have also been made to Colombia?s association contracts. The contracts, in use since 1974, are contractual joint ventures rather than equity joint ventures, and associate a company with Ecopetrol to explore and develop reservoirs and distribute production after royalty payments. One main change was the reduction of Ecopetrol?s share of the field once commerciality was declared, from 50% to 30%.

To further address Colombia?s problem of declining reserves, Ecopetrol announced an offering named Round 2000. This offering was a package of 13 units of blocks that were previously reserved for Ecopetrol. The offering was broken down into four categories:

• Open acreage areas made up of exploratory blocks, which are neither licensed to private investors nor reserved for Ecopetrol,

• Areas currently operated by private investors, including blocks that are in either exploration or production phases, which account for nearly 90% of the country's production,

• Ecopetrol-operated areas, including blocks that have been reserved for Ecopetrol?s own exploration efforts, blocks that have been relinquished to Ecopetrol at the completion of an associated contract, and production blocks that Ecopetrol operates upon successful exploratory efforts, and

• Areas known to be prolific with natural gas.

In 2001, Ecopetrol awarded the 13 projects to meet Colombia?s future goal of 1.3 million barrels per day production in 2010. Five of the projects are for exploration and the other eight are incremental production projects. Project investment for the next six years will be approximately $620 million.

Refineries and Downstream Processing
Colombia has a total refining capacity of nearly 286,000 b/d. There are a total of five refineries (as shown in Table 3) with the Barrancabermeja and Cartagena refineries comprising nearly 99% of all capacity. Ecopetrol is responsible for managing all aspects related to the petrochemicals industry, as well as management of the two Barrancabermeja and Cartagena refineries.

Table 3: Colombia's Petroleum Refineries

Source: Ecopetrol

The Barrancabermeja and Cartagena refineries are currently undergoing expansion and modernization programs that would increase capacity by 50,000 b/d at Barrancabermeja and 25,000 b/d at Cartagena by 2002. These expansions would increase installed capacity to over 355,000 b/d.

Colombia's refineries satisfy a considerable portion of national demand for petroleum products with its own production. The output of Colombia?s refined petroleum products is shown in Table 4.

Table 4: Output of Refined Petroleum Products in Colombia in 1998

note: total may not add to 100% due to rounding
Source: DOE/EIA

Natural Gas
Colombia has proven natural gas reserves that are estimated to range from 7 trillion cubic feet (TCF) to 8 TCF. Potential reserves are estimated at 70 TCF. Colombia produced and consumed 250 billion cubic feet (BCF) of dry natural gas in 1998. Colombia's natural gas resources are located mainly in the Departments of Casanare in east-central Colombia and Guajira in northern Colombia. Most of the production occurred offshore in the Guajira region. An historical summary of natural gas production and consumption in Colombia is shown in Table 5.

Table 5: Natural Gas Production and Consumption in Colombia, 1990-2000
(in TCF)

Source: DOE/EIA

There are three major government organizations that play a role in the natural gas industry in Colombia. Ecopetrol manages and regulates all oil and gas exploration and exploitation activities. The CREG regulates the transportation and distribution of electric power and gas and adjusts policies and procedures by which these services can reach the consumers and allow market competition between providers. Finally, Empresa Colombiana de Gas (Ecogas), under the Ministry of Mines and Energy, is responsible for gas transport, transport infrastructure, and providing producers and consumers with equal access to transport capacity. Ecopetrol previously managed all aspects of gas transport. However, in 1997, the Colombian Congress wanted to separate the transportation sector from Ecopetrol?s exploration and production activities. Therefore, in 1997, Ecogas was formed to manage the gas transportation sector.

Recent increases in natural gas prices have attracted investors to Colombia?s Caribbean coast in search of natural gas. Earlier this year, Millennium Energy, Inc. and Mera Petroleums Inc. signed an agreement with Ecopetrol to explore for natural gas in the Guajira Department. The concession for these two companies may possess as much as 2 TCF of natural gas in place. Also, a steel plant that would use natural gas is being planned for construction in this region. The steel plant project investment is estimated to be $1.8 billion. Colombia is in talks with at least one firm interested in building a natural gas pipeline to Venezuela's Lake Maracaibo for reinjection into declining oilfields. The Colombian government has also been promoting the use of natural gas to its citizens as a low-cost alternative energy source (the cost of natural gas as an energy source is only one-fifth of that of electricity in Colombia). Distribution companies in Colombia have made considerable progress in covering the main cities, reaching 1.4 million residential users in 1998 as compared to 931,000 in 1995.

Coal
Colombia has proven recoverable coal reserves of 7.44 billion short tons. Recoverable anthracite and bituminous make-up over 94% of these total reserves. The majority of coal reserves are found in the Guajira (Cerrejon) peninsula of northern Colombia and in the Cesar department (state). The Guajira peninsula is located along the Atlantic coast and is home to the Cerrejon Zona Norte mine. This is the largest coal mining operation in Latin America, possessing over a billion short tons of reserves. The reserves found here are a tertiary, low-ash, low-sulfur non-caking bituminous coal.

Colombia exports 84% of its total coal production, and coal ranks third in exports from Colombia. Colombia currently ranks first in Latin America and seventh globally in the amount of coal that it exports. Colombia consistently has been the leader in coal production for Central and South America. In 1997, the United States imported about 10% of the coal production in Colombia. The coal industry in Colombia is aggressively seeking to expand its current exports within 10 years to over 70 million short tons. This would place it third in the world in coal exports if current production levels in other nations remain constant. An historical summary of coal production and consumption in Colombia is shown in Table 6.

Table 6: Coal Production and Consumption in Colombia, 1987-99
(in millions of short tons)

n/a - not applicable
Source: DOE/EIA

Until mid-1999 the Colombian government managed the coal sector, although the mines were private with the exception of the Cerrejon Zona Norte mine. The government owned 50% of this mine through Carbones de Colombia (Carbocol), and Intercor, a subsidiary of Exxon Mobile, owns the other 50%. Originally, this contract was set to expire in 2008; however, the operating license has been extended for another 25 years until 2033. In July 2000, the Cerrejon Zona Norte mine complex completed an infrastructure expansion project that would increase Colombian coal exports by 4.4 million short tons annually from its current range of 15 to 18.5 million short tons. Carbones del Cerrejon (CdelC), the Anglo American plc, Billiton plc, Glencore International AG consortium, provided three quarters of the $42 million investment. The North Cerrejon Association, the Exxon Mobile-Carbocol joint venture, provided the remaining funds.

In its continuing efforts to attract foreign investment, in February 2000 Colombia solicited bids for the government's 50% share of the Cerrejon Zona Norte mine operation. In September 2000, the equally-aligned CdelC consortium had successfully bid for the government?s share of the mining operation. The consortium submitted a bid of approximately $384 million, subject to certain adjustments at closing. The consortium thus becomes a 50:50 partner with Intercor. In addition to this new purchase, the consortium also has access to over 2 billion short tons of thermal coal resources in Cerrejon Central and Cerrejon South.

One of the other major coalmines is the Pribbenow Mine, located near La Loma in the Cesar department, which is operated by the U.S.-based company Drummond Ltd. The mine has estimated reserves in excess of 534 million short tons of high Btu, low-ash, low sulfur thermal coal. The company?s contract with the government-owned Colombian Mining Company (Minercol) runs through 2019. Drummond is expected to increase its cumulative capital investment in the coal industry in Colombia to $1 billion. This additional expenditure would increase its output from 6 million short tons to 12 million short tons annually by the end of the year.

Hydroelectric and Other Renewable Energy
The Andes Mountains, rich in water resources, lends itself to hydroelectric power and its important role in Colombia?s energy mix. More than 60% of Colombia's net electricity power generation is from hydroelectric sources; in 1998, more than 31 billion kWh were generated. As a result, Colombia accounts for approximately 6% of the hydroelectric power generation for Central and South America. More than half of the new electrical capacity planned or under construction in Colombia between 2001-07 will be hydroelectric. One of the largest hydroelectric projects is the Nechi project. The $606 million Nechi hydroelectric project, being planned by the Medellin Public Utilities Company (Empresas Publicas de Medellin, EPM), will have 645 megawatts (MWe) of capacity with an average nominal generation of 3,712 gigawatt-hours (GWh) per year.

Other forms of renewable energy use are virtually nonexistent in Colombia. However, some Colombian companies are exploring the development of renewable energy sources. EPM, supported by a German technical cooperation agency, will begin a two-year feasibility study in 2001 to evaluate the possibility of generating electricity from wind in the north Guajira department. EPM will install two wind-measuring stations, in addition to the one already in place, to determine the electricity generating potential. After analyzing the data, EPM will decide whether to launch a full-scale 24.7 MWe wind generation plant at an investment of $24 million. Colombia has also performed research on generating electricity from ocean waves near the port of Buenaventura.

Energy Infrastructure
Electricity Transmission
The Colombian National Transmission System (STN) provides a viable means of transaction between electricity generators and traders. The transmission service is a natural monopoly that is regulated by the CREG. There are 11 companies in charge of electricity transmission in Colombia; the largest of these is Interconexion Electrica S.A. E.S.P. (ISA), which has partial ownership of more than 74.2% of the STN network. ISA also owns 65% of the transmission company Transelca, a company whose assets amount to 9.7% of the STN. ISA's role as a transmission company evolved out of Laws 142 and 143 in 1994. Before this legislation, ISA was a main generator of electricity, supplying over 30% of the country?s total consumption.

ISA is the only energy transporter in Colombia with national coverage. ISA owns and operates 100% of the 500 kilovolt (kV) lines and substations in the STN, and 67.4% of the 230 kV transmission lines and 43.6% of the substations in the system. ISA's transmission system consists of 1,070 kilometers of 500 kV lines and approximately 6,836 kilometers of 220/230 kV lines. The transmission system is also interconnected to Ecuador and Venezuela; however, this portion of the system has relatively little volume at present. Colombia is expected to increase its interconnected capacity with Ecuador, with the majority of this interconnected capacity expected to be used for sales to electricity purchasers in Ecuador. ISA also operates the National Dispatch Center (CND) and the Wholesale Energy Market (MEM).

ISA has been very aggressive in expanding its transmission network. It has invested more than $600 million to expand its transmission network in order to establish a base network in the STN since 1997. These investments included 560 kilometers of 230 kV lines that were incorporated into the network, 378 kilometers of 500 kV lines, six 230 kV substations, and 1,428 MegaWatt Ampere (MVA) transformation capacity. ISA had also bid successfully in 1999 on two competitive-bidding expansion projects presented by the UPME. The first project is a 230 kV-226 kilometer long transmission line from Primavera to Guatiguara to Tasajero and the 230 kV-86 kilometer long Sabanalarga-Cartagena transmission line. The total investment for these two projects is estimated to be $36 million. A new substation built by ISA that connects a hydrogenerator with the southwestern region of the country was expected to begin operations in 2000.

Oil and Gas Pipelines
Colombia possesses an extensive network of oil and gas pipelines linking production areas to the main refineries and to shipping ports. The pipeline transportation grid measures 11,859 kilometers. Ecopetrol is the owner of 6,881 kilometers of pipelines, consisting of 2,527 kilometers of multi-pipeline to transport fuels, 1,751 kilometers of oil pipelines for crude transport, 378 kilometers of propane pipelines for the transportation of LPG, 663 kilometers of fuel oil pipelines for fuel oil, 1,001 kilometers of gas pipelines for natural gas, and 561 kilometers that are being converted for natural gas service. The most important oil pipelines are the 774-kilometer Cano Limon-Covenas, the Alto Magdalena, the 481-kilometer Colombia Oil Pipeline, the Transandino from Ecuador to Tumaco, and the Oleoducto Central S.A. (Ocensa). Capacity-wise, the Ocensa and Cano Limon-Covenas pipelines are the largest with 550,000 and 240,000 b/d, respectively.

The major natural gas pipelines are the 340-kilometer Mariquita to Cali (TransGas Occidente), the 575-kilometer Ballena to Barrancabermeja, and the 780-kilometer Barrancabermeja to Neiva to Bogota (Centro Oriente). Expansion plans are in development for future natural gas pipelines that will stretch from Ecuador to Panama. In late 1999 Colombian officials announced support for a Colombian-driven regional natural gas grid to extend into Ecuador and Panama, and eventually other Central American countries. The purpose of the pipeline is to spur investment in developing Colombia?s natural gas resources. The Colombia to Panama pipeline is a planned 18-inch diameter line that would be 592 kilometers long and run from the Colombian port of Cartagena to Colon, Panama. This pipeline project is estimated to require an investment of $300 million. The pipeline would initially transport 70 million cubic feet (MCF) per day, with expansion to 140 MCF per day possible in five or six years. The gas would initially come from Texaco's fields in the Guajira region, where it is currently being reinjected to boost crude output. The gas would be used to generate power in Enron?s Bahia Las Minas thermoelectric power plant in Panama.

Railroads and Port Facilities
Empresa Colombiana de Vias Ferreas (Ferrovias), the Colombian National Railroad Company, provides administration, maintenance, upgrading, and control of the railway system. Of the 3,154 kilometers that were in existence in 1961, only 2,000 kilometers are currently in service. The remainder have been lost primarily due to lack of maintenance of the rails, bridges, and stations. The most important line of the system is the Bogota to Santa Marta line. This line connects the main internal production and consumption centers with the Caribbean Sea ports and allows the mobilization for the exportation of products such as coffee, oil by-products, paper, iron, and coal. Within this line, the La Loma to Santa Marta section is fundamental due to its terminal position, as well as the large volume of coal that is moved from the Drummond Pribbenow Mine in the department of Cesar. The other major railroad line is the Cerrejon railroad, which carries coal from the mine to Puerto Bolivar. The primary users of this line are the CdelC-Intercor association and other mine operators in the southern part of the Guajira department.

It is currently estimated that only 10% of the capacity of the railroad is utilized. To recover the railway system, the Colombian government and Ferrovias committed to assembling a concession program to attract the private sector into rehabilitating, maintaining, and controlling the operations of the railway system. Two concessions were offered: the Atlantic System and the Pacific System. The Atlantic network was conceded to Fenosa S.A. Rehabilitation of the Atlantic network is estimated to cost $205 million. The Pacific network was conceded to Concesionaria de la Red del Pacifico. The Colombian government has committed to contribute funds for the first five years of both concessions.

Colombia has major ports located along the Caribbean Sea at Covenas, Barranquilla, Cartagena, and Santa Marta. Major ports along the Pacific Ocean are Buenaventura and Tumaco. The port in Covenas ships Colombian crudes to the Gulf and East Coasts of the United States. The port in Tumaco ships to the U.S. West Coast. Drummond Ltd., a U.S.-based coal firm, owns a port along the Caribbean Sea that it uses to ship coal from Colombia. Plans are in development to construct additional ports along the Caribbean Sea for coal export. One plan is being developed by a number of operators and producers in the Cesar department of Colombia, and is being led by Prodeco, a local subsidiary of Glencore. The port location would be in the vicinity of Santa Marta and is designed to handle 11 million short tons in its initial stages, increasing to a minimum of 16.5 million short tons. Initial investment would be $65 million, increasing by at least $100 million for a handling capacity of 16.5 million short tons.

The ambitious plans for coal ports mirror the expectations that Colombian coal producers have with regard to increased exports. Assuming that the project meets approval, design specifications will be finalized in 2001 and the port will commence operations at the end of 2003. The second planned port has received all the necessary licenses from regulatory authorities. However, the construction phase has not been initiated because of rumored reports that the project has encountered financial difficulties. The project would construct a deep-water port located in Barranquilla and would handle up to 16.5 million short tons.

The energy infrastructure of Colombia is consistently under attack by guerrilla forces. One of the principal targets has been the Cano Limon-Covenas oil pipeline. This line is extremely vulnerable to attacks because it runs mostly above ground in sparsely populated areas with high rebel presence. As of mid-September 2000, the line had been out of service for 117 days this year because of 62 bomb attacks. ISA?s electric transmission system has also been the target of numerous attacks since late 1999. A guerrilla forces bombing campaign has destroyed some 400 transmission towers and has caused repeated power outages in many parts of the country. However, the built-in redundancy of ISA?s transmission system prevented conditions from becoming much worse than what they could have been. More recently, but to a lesser degree, the rail lines used to transport coal from the Drummond coal mines in the Cesar department have been attacked. Two recent attacks have derailed coal shipments from the mines.

Electricity
Installed Capacity
Colombia presently has an installed electricity generation capacity of 14,614 megawatts (MWe). Hydroelectric generation capacity comprises over 55% of the total capacity with thermal sources making up the remainder. An historical summary of electricity generation capacity in Colombia is shown in Table 7.

Table 7: Installed Electricity Generation Capacity in Colombia, 1990-2000
(in thousands of MWe)

n/a - not applicable
note: components may not add to total due to rounding
Source: DOE/EIA

Severe droughts in recent years have caused power shortages and resulting forced rationing. As a result, Colombia has encouraged development of more non-hydroelectric electricity generation capacity, with a goal of at least 20% shares for both coal-fueled and gas-fueled power generation. Colombia is planning to increase its thermal generation capacity to 50% of its total capacity by 2010. Table 8 shows Colombia?s short-term electrical generation expansion plan.

Table 8: Colombia's Electrical Generation Expansion Plan, 2000?02
(Status as of August 2000)

Source: Interconexion Electrica S.A. ESP

Generation and Consumption
The growth of electricity demand in Colombia is expected to be about 6% per year for about the next decade. Hydroelectric is responsible for approximately 70% of the net generation of electric power in Colombia. The remaining amount is primarily from thermal sources with a small fraction from renewables. With the exception of the drought-ridden year of 1992, electricity demand in Colombia has grown steadily since 1989. An historical summary of electricity production and consumption in Colombia is shown in Table 9.

Table 9: Electricity Generation and Consumption in Colombia, 1990-2000
(in billion kWh)

generation components may not add to total due to rounding
Source: DOE/EIA

Industry Overview
The largest electricity generators in Colombia are Emgesa (in the Bogota region), which owns over 2,500 MWe of capacity, and Empresa Publicas de Medellin, which owns about 1,400 MWe of capacity. Combined, these two companies serve about 40% of the country's electricity customers.

The Colombian government has created a plan to supply additional electricity via its Electrical Expansion Plan. Goals of this plan are to: (1) increase electricity generation to meet growing demand; (2) increase private investments to improve the regulatory structure; (3) allow for more flexible electric utility prices by improving the tariff structure and taking into account varying income levels; and (4) allow privatization of some state-owned electric power plants.

The Cauca Valley of southern Colombia is an example of privatization in the energy market. At the Cauca Valley, the government has developed an energy expansion plan to facilitate adequate electricity generation, transmission, and distribution from 1995 to 2004. The plan calls for installation of additional thermal power generation in the southern portion of the country with implementation by the private sector. Empresa de Energia del Pacifico (EPSA) provides utility services in the Cauca Valley region. This autonomous entity of the government solicited bids for a 21-year power purchase agreement for up to 160 MWe of generating capacity. KMR Power Corporation and Marubeni Corporation won the contract and they plan to develop, construct, operate and own a 200 MWe combined cycle gas-fired plant, where excess capacity can be sold to third parties under long-term contracts and on the relatively new spot market.

Environmental Activities

Colombia is internationally recognized as a country with high biological diversity -- approximately 10% of the world's biodiversity is located in Colombia. The Colombian Ministry of the Environment strives to maintain the country's natural and biological resources while allowing sustained economic development. Therefore, the ministry is greatly concerned about the environmental impacts from oil and gas exploration and production, the mining industry's activities, and the development of hydroelectric resources.

Colombia?s experience with economic and financial instruments for sustainable development dates back to 1959, when the country's first environmental and development authorities were created. These authorities were primarily compensatory financial instruments. They sought compensation for environmental damage associated with the use of different natural resources, but were not designed to and did not modify the behavior of the deteriorating or polluting agents. Some of these financial instruments included water and forest user charges, air and water effluent charges, transfers from the electric power sector for watershed conservation, and royalty transfers to regional environmental authorities. The common denominator for all of these instruments is that they were not part of an integral strategy to attain specific environmental goals.

Colombia was one of the first Latin American countries to implement legislation requiring environmental impact assessments (EIAs). The first of these programs was established in 1974 under Law 2811. INDERENA, the first Colombian environmental protection agency, was responsible for administering the EIA requirements. The law required developers to prepare impact statements and environmental and ecological studies as a step to obtain environmental licenses. The purpose of licensing was to prepare an environmental plan that showcased activities aimed at mitigating environmental impact.

Between 1991 and 1993, Colombia's Department of Natural Planning appraised the effectiveness of the EIA, and found that the existing regulations gave government officials too much discretion over the manner in which EIAs were conducted. Following the appraisal in 1993, the Colombian Congress phased out INDERENA and created the Ministry of the Environment through Law 99. The Ministry of the Environment is now Colombia?s highest environmental authority. Law 99 established a system of shared responsibility for EIAs. Law 99 requires an environmental license for the execution of projects and the establishment of industries or development activities that may cause natural resource or environmental damage. By 1997 the environmental license became the main regulatory mechanism in Colombia.

The primary cause of environmental damage to habitats in Colombia is by guerrilla terrorist attacks on oil and gas pipelines and, to a lesser extent, on electric transmission towers. A 1998 report by the Colombian Ministry of the Environment showed that oil spills, primarily from the heavily bombarded Cano Limon-Covenas pipeline, have caused severe damage to some of the country's rivers and wetlands, wildlife, and farmland. The bombing campaigns over the last ten years have resulted in the spilling into watercourses of more oil than that which was spilled in the Exxon Valdez incident.

Because Colombia possesses abundant fossil fuel resources, the majority of carbon emissions are from consumption and flaring of these fuels. From 1989 to 1998, Colombia?s carbon dioxide emissions from fossil fuel consumption have increased by nearly 40%. Petroleum consumption comprised over 61% of these emissions in 1998, with natural gas and coal approximately equally responsible for the remainder. An historical summary of CO2 emissions from fossil fuel use in Colombia is shown in Table 10.

Table 10: Fossil Fuel-related Carbon Dioxide Emissions in Colombia, 1990-2000
(in millions of tonnes of carbon)

note: yearly components may not add to total due to rounding
Source: DOE/EIA

To curtail its increasing carbon dioxide emissions and reduce global warming, Colombia is a party in the Kyoto Protocol. The Colombian government supports the use of proposed flexible mechanisms (such as carbon sinks, emissions trading, etc.) to meet the Protocol?s goals.

Privatization and Deregulation Status

Colombia has a free market economy with major commercial and investment links to the U.S. Transition from a highly regulated economic regime to an unrestricted access market has been underway since 1990. The U.S. is Colombia's largest trading partner, and the U.S. has been the largest individual country investor in Colombia.

The Colombian economy was opened to foreign competition in 1991. Foreign investment legislation was revised in 1995 to facilitate joint ventures and other forms of investment. Joint ventures and licensing agreements have become more important recently as businesses strive to be more competitive.

The administration of Colombian President Andres Pastrana has continued to support Colombia's "apertura" (economic liberalization) begun in 1990-1991 under former President Gaviria and continued to a lesser degree by former President Samper. Privatization projects in Colombia must receive congressional approval, which can delay the process. Currently, government officials are holding back on some sales due to political pressure by labor unions and activist groups that are demanding that state-owned assets not be "given away."

The mid- to late-1990s have seen the privatization and concession of many Colombian seaports, airports, highways, energy projects, and telecommunications institutions. Colombia?s natural gas companies Promigas and Gas Natural have been privatized. Since 1994, Colombia has privatized several of its electricity generating companies to foreign companies such as Chile?s Endesa and Gener, U.S.-based Houston Industries, and, most recently, the sale of two of three natural gas-fired power plants located in Cartagena from privately-held KMR Power Corporation to AES. As previously mentioned, the government is currently liquidating its 50% holding in the Cerrejon Zona Norte coal mine.

Another large and important divestiture is the government's 76% holding in electricity generator ISAgen. Originally scheduled to be privatized in June 2000, the sale of the government?s share of ISAgen has been delayed until June 2001 because of legal challenges. As of early September 2000, four companies had prequalified to participate in the Isagen auction: Colombia's EPM, Enron, AES Corporation, and Union Fenosa. The minimum price for the stake in ISAgen has been set at $365 million.

In 1999, the IMF approved a three-year credit of $2.7 billion for Colombia. The purpose of this was to support the government's economic reform program for 1999-2002. Colombia is expecting to complete the privatization of several state-owned banks over the next several months.

In December 1998, the Inter-American Development Bank announced the approval of a $350 million loan to Colombia to consolidate modernization of the electric power sector. The resources will back a reform program by the government to consolidate a development model for the electric power industry based on competition and private sector participation. A solidarity fund will be put into operation in the electricity and gas sectors to assist low-income groups while at the same time eliminating company deficits generated by subsidies. The program will support actions to consolidate the independence of the regulatory agency, and undertake policy design and implementation to provide electricity to rural areas not on the service grid. The program will promote private sector participation in electricity distribution companies at the national level, increasing revenues from privatization, bringing in new capital along with management expertise, and de-linking these companies from the national budget.

Economic Situation

Colombia is America's 4th largest export market in Central and South America after Mexico, Brazil, and Venezuela (which is almost equal with Colombia), and ahead of Chile and Argentina. Globally, Colombia ranks 25th as a market for U.S. products. Proximity and the established presence of U.S. Products and investments in the market contribute to the continued success of U.S. companies in Colombia.

Despite the recent recession that affected Colombia in 1998 and 1999, the Colombian economy has been one of the most stable in all of Latin America. Gross domestic product (GDP) and inflation figures for the past sixty years point to an excellent economic performance within the context of Latin America, and also as a developing country. Colombia's economic growth has consistently been higher than the Latin American average. Colombia's inflation rate has also been historically low compared to other Latin American countries. In the 1990s, the average inflation rate in Latin American ranged between 200 and 300%, while Colombia's inflation rate remained below 30%. Recognized for its economic stability, Colombia, along with Chile, became the first two Latin American countries to receive investment grade ratings for their foreign debt from leading credit rating agencies.

Colombia had been a closed economy for commercial export that radically protected domestic production. In 1990, under the administration of former President Cesar Gaviria, the contemporary economic structure began to take shape. President Gaviria made a series of economic modifications that brought the country its highest levels of growth and most favorable economic conditions in twenty years. The administration under former President Samper (1994-1998) was widely considered to be corrupt and lacking in credibility. Economic growth during his administration slowed and economic imbalances widened. The recent deterioration in the economy has been the result of unsustainable fiscal policies, external shocks, and a difficult domestic security situation. The recessionary trend intensified in late 1998 and real GDP retracted by 4.3% in 1999.

However, current President Pastrana has taken a number of important steps. After moving slowly during his first year in office, Pastrana moved ahead with a serious economically orthodox recovery package. This included the passage of a tough budget for 2000 and successful floatation of the Colombian peso following a series of controlled devaluations. In mid-September of 2000 the Pastrana administration submitted a tax reform proposal to Congress as part of its structural reform efforts agreed to with the IMF. The tax reform proposal is integral to the government's larger plan to remove structural impediments to improve fiscal balances. Key components of the tax reform submitted include: raising the financial transactions tax from 0.2% to 0.3% in 2001; transforming the current sales tax by incorporating items currently subjected to different tax rates; lowering income tax from 35% to 32% if current exemptions are eliminated; and measures to combat tax evasion and strengthen enforcement of tax laws.

In late 1999, Colombia received approval from the IMF for a three-year credit under the Extended Fund Facility (EFF) to support Colombia?s economic reform program for 2000-2002. The total credit was equivalent to $2.7 billion. The Colombian government?s agreement with the IMF commits it to maintaining a declining path for inflation and fiscal deficit while increasing growth. Also in late 1999, Colombia received notification from the World Bank that they would receive a $4.2 billion package that complemented the IMF program. The World Bank package included backing from the Inter-American Development Bank (IADB), the Corporacion Andina de Fomento (CAF), and the Fondo Latinoamericano de Reservas (FLAR). Specifically the package includes $1.4 billion from the World Bank, $1.7 billion from IADB, $600 million from CAF, and $US 500 million from the FLAR.

Recent economic information has shown that Colombia?s economy has rebounded from the recession of 1998?1999. In the first quarter of 2000 the economy expanded by 2.2%. A larger expansion of 3.5% occurred in the second quarter over the same quarter in 1999. The key economic driver behind this rebound has been an 11.7% expansion relative to the same quarter last year in the manufacturing industry. Other sectors showing signs of recovery have been the agricultural, construction, and financial sectors. Despite Colombia?s high employment (presently about 20%), consumption continued to grow with retail sales up 3.5% for July 2000 as compared to July 1999. Despite the increase in economic activity, consumer prices remain relatively contained compared to previous years with annual inflation through 2000 at about 9%. This was below the government's target of 10% for the year. An historical summary of GDP and inflation in Colombia is shown in Table 11.

Table 11: GDP and Inflation in Colombia, 1994-98

n/a - not available
Source: Colombian National Planning Department; Latin-Focus (1999 data)

In late 1999, President Pastrana announced a strategy called 'Plan Colombia', an integrated strategy to address the most pressing challenges that Colombia currently faces, such as promoting the peace process, reviving the economy, combating the narcotics industry, and strengthening Colombian society. The plan is a $7.5 billion program, with the Pastrana administration pledging $4.0 billion from Colombia's coffers, and calling upon the international community to provide the balance. The plan is composed of ten elements that outline proposed strategies for implementing various components of the plan. In July 2000, President Clinton signed legislation providing a $1.3 billion assistance package to Colombia.

Trade and Investment

President Andres Pastrana?s administration has energetically and enthusiastically pursued bilateral measures and agreements to promote trade and foreign investment. Activities have included participation in the periodic Trade and Investment Council meeting between the United States and the Andean Community (Bolivia, Colombia, Ecuador, Peru, and Venezuela), as well as summit meetings between various government leaders of the European Union and Latin American and the Caribbean. Also, President Pastrana issued a directive in 1999 requiring all Colombian public entities to respect international copyrights. He has also called for increased competitiveness of Colombian industry, with the ultimate goal of Colombian entry into the North American Free Trade Agreement (NAFTA). Previous efforts to improve Colombia's attractiveness to foreign investors included elimination of a hydrocarbon production tax and changes in its tax laws to reduce some loopholes and some fees on investment.

During the first half of the 1990s, Colombia began lowering and simplifying its import tariffs in order to reform its foreign trade regime and open up the economy to foreign investment. Colombian imports are classified into three basic groups: those freely imported, those requiring approval of a previous import license, and items that cannot be imported. All imports must be registered with the Colombian Foreign Trade Institute (INCOMEX) in a special application form known as 'Registro de Importacion'. There are four common external tariff levels in Colombia based on whether the import is not produced in Colombia (5% tariff), is produced in Colombia (10 to 15%), is a finished good (20%), and some exceptions, such as automobiles which remain at the level of 35 to 40%, and some agricultural products which fall under a variable import duty system. The countries comprising the Andean Community have agreed upon this tariff system for imports from third party countries.

Colombia?s main trading partners are the United States, followed by the European Union, Japan, and the Andean Community. Colombian exports in 1999 to the United States were valued at nearly $6.3 billion, and Colombian imports from the United States in 1999 were valued at $3.5 billion. Colombia was the thirtieth largest market for the United States in 1999. The primary imports into Colombia on a cost basis from the United States are machinery and transportation equipment, and chemicals and related products. The primary export to the United States from Colombia is crude oil. Excellent opportunities for exports to Colombia exist in oil and gas exploration equipment and services. Another promising prospect is electrical power systems, provided that the regaining economic strength of Colombia continues, as does its rising demand for energy. Colombia's Ministry of the Environment estimates that the country?s environmental investment needs will total around $34 billion during the next decade. The best opportunities include water and wastewater treatment plants, water and air monitoring and control equipment, solid waste hauling and disposal equipment, and environmental services. Expected future expansion within the coal mining industry in Colombia will provide opportunities for additional mining equipment exports, including shovels, excavators, front loaders and related equipment.

By 2005, Colombia may become a net importer of oil without increased investment. Currently, oil exploration investment is only 20% of what Ecopetrol states that it needs to remain self-sufficient. Ecopetrol?s 1999 exploration budget was about $1.2 billion, with approximately $430 million raised through financing and forward sales of oil. Net flow of investment capital into Colombia for energy projects has fallen since 1998. Foreign companies have scaled back investment or left the country, most significantly Shell, Lasmo, Repsol S.A., and BP-Amoco. Upstream activity is at a virtual standstill with only 17 exploration wells drilled in 1998, compared to an average of 70 exploratory wells annually in the 1980s. In the past 10 years Colombia has had to infuse at least $8.8 billion into Ecopetrol, and the company has been criticized for inefficiency.

Traditionally, Colombia has not used special incentives to attract foreign investors. However, the Colombian government has been making efforts to create an improved climate for investment to attract long-term foreign capital. Some of these efforts include: ensuring transfer of new technologies, modernization of the economy, increasing operating capacity, and new strategies to peacefully end the violence in certain regions of the country.

The last four Colombian administrations have implemented policies that do not discriminate against foreign investors. The new policies aim to treat domestic and foreign investors equally. Investment restrictions in various sectors have been eliminated, with the exception of those activities that relate to national security and toxic waste. As a result, the country has seen a significant increase in foreign investment since 1991. An historical summary of foreign investment in Colombia is shown in Table 12.

Table 12: Foreign Investment in Colombia, 1991-99

Source: Ministerio de Comercio Exterior

Some of the advantages that Colombia has to offer to foreign investors include duty-free zones, which were established to promote export of industrial products; special foreign trade rules; special tax rules, such as the Tax Refund Certificate (CERT), which was created so that exporters could use it to pay income taxes, tariffs and other taxes; the Paez Law and Quimbee Decrees which promote investment in regions affected by natural disasters; and finally, special trade zones comprised of free trade zones and special economic export zones (SEEZ).

Free trade zones were created in 1958 when the Colombian government established the Barranquilla Free Industrial and Trading Zone. Free trade zones are geographic areas that have certain tax benefits, special regulations for capital investment, foreign exchange benefits, and procedural incentives. The types of free trade zones are industrial, commercial, tourist, and technological. By Law 7 and Decree 2131 in 1991, the Colombian government authorized the liquidation of the public free trade zone assets and personnel by July 1994. Five government-owned zones were given for administration to the private sector through a concession contract. Authorized by Law 7, the private sector has also constructed six more free trade zones.

SEEZs are geographical areas provided with special conditions that promote the combination of private capital and potential foreign investment. Colombia has four SEEZs for exporting purposes. Incentives to attract investors are customs tax and value-added tax exemptions on imports for companies that set up operations in a zone. Colombia is seeking to increase its export volume by creating favorable conditions in these zones to attract investors. Operators in the zone must export a minimum of 80% of their production.

Numerous foreign companies maintain activity in Colombia. Companies such as Exxon-Mobil, Chevron, Texaco, BP Amoco, Arco, Conoco, Triton, Harken, Shell, Elf Aquitaine, Total, Repsol, Lasmo, PetroCanada, Canadian Petroleum, Petrobras, Teikoku, Nexen, Inc. (formerly Occidental), Enron and others continue to play a role in Colombia's oil and gas industries. U.S.-based Drummond Ltd. plays a major role in Colombia?s coal mining operations. General Electric, AES, and the Chilean-based firms of Endesa S.A. And Gener S.A. are involved in Colombia?s electric industry.

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