Colombia vote worries oil, mining investors
BOGOTA: Investors in Colombia’s oil and mining sectors have much at stake in Sunday’s presidential race with the frontrunner pledging business- friendly measures to revive production while his leftist rival wants to end reliance on petroleum and coal, the country’s top exports.
Leftist candidate Gustavo Petro, a former member of the M-19 guerilla group, has promised to overhaul state-run oil firm Ecopetrol SA, the South American nation’s biggest company, to refocus it on renewable energy.
Ecopetrol is responsible for about 60 per cent of Colombia’s flagging oil production of around 830,000 barrels per day and operates export pipeline infrastructure.
At current rates of production, Colombia has just six years worth of oil, the energy ministry says, and urgent investment in exploration is needed to replace reserves, making Sunday’s vote decisive for its future as an oil exporter.
Petro has also stirred alarm with promises to let coal mining contracts lapse in Colombia, the world’s fifth-largest coal exporter, target a shift towards agricultural production.
However, the right-wing favourite to win Sunday’s poll, Ivan Duque, has diametrically opposed positions, pledging to cut taxes and boost Colombia’s competitiveness in extractive industries.
“We can’t have a policy of destroying productive sectors,” Duque told Reuters.
“We are not yet an oil country. We are a country with potential. We must continue exploration of conventional and offshore oil so that we maintain the foreign currency flows that oil exports bring us.”
Ecopetrol declined comment but it has said any transition to renewable energy should be orderly.
Companies are already grappling with security concerns as well as local referendums and environmental court rulings that have stymied major mining projects in Latin America’s fourthlargest economy.
“We like Duque obviously,” Continental Gold Inc chief executive Ari Sussman said during a visit to the company’s Buritica project, which will begin full production in 2020.
“I do not think ( Petro) would be good for Colombia because I think everything would freeze,” Sussman said, referring to the legislative bottlenecks that the leftist’s lack of support in Congress could cause.
AngloGold Ashanti Ltd suspended a potentially US$ 2 billion project last year after the surrounding community voted to ban mining.
A recent paper by the Colombian Petroleum Association (ACP), which represents private crude producers warned that planned referendums put one- fifth of oil production at risk.
Petro, however, has voiced strong support for such local community referendums and also wants to ban open-pit mining, which accounts for almost all Colombia’s coal and gold production.
Although Petro, 58, lies some 20 points behind 41-year-old Duque in opinion polls, his economic proposals are stirring alarm among some investors.
“There is unified concern over what Petro has proposed economically,” said analyst Sergio Guzman of Control Risks.
“The chances that it happens are slim but, the fear doesn’t stop being there.”
Most companies and trade associations declined to comment for this story.
Duque’s solution to dwindling oil reserves is to encourage investment in exploration, which he says could provide years more oil production - though his campaign has declined to give precise figures.
The ACP says the industry needs to spend up to US$ 7 billion a year just to keep output between 800,000 and 860,000 bpd.
Private oil companies plan to invest up to US$ 4.9 billion this year, ACP said, while Ecopetrol plans to spend up to US$ 4 billion.
Duque has promised tax cuts for the sector combined with investment at Ecopetrol’s refineries meant to allow exports of more higher-value derivatives.
“Duque will bolster foreign investor sentiment into extractive industries,” analysts Molly Shutt and Mara Roberts Duque of BMI Research said.
The former senator has also pledged to improve transport for crude – as part of a US$ 10 billion in industrial improvements – and bolster security to curb attacks by the leftist ELN rebels on Ecopetrol’s pipelines.
Bombings have kept the CanoLimon export pipeline – which runs from Colombia’s eastern border with Venezuela to the Caribbean coast – offline since January.
The Transandino – which runs near the southern border with Ecuador – was also recently halted by attacks.
The ACP declined to comment on candidates’ proposals but has warned about the damaging effect of referendums, high taxes and pipeline bombings.
Petro has said he will replace lost commodities income over a decade with agricultural production, which he says will provide more jobs.
His platform mentions food production but he has not provided further details.
His campaign did not respond to questions.
Despite Petro’s pledge to aid poor farmers with land reform, the agricultural federation, which includes coffee growers, made a rare presidential endorsement last week backing Duque, who has promised to modernize the industry, incentivizing a crop output increase with tax cuts and credits. — Reuters