MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 21 1998 (11)
COUNTRIES IN THE NEWS
Leading Facts About Colombia
Colombia has been racked by a bloody guerrilla war, and by successive waves of violence unleashed by powerful drug mobs, for at least 20 years.
On Sunday, 20.9 million voters have the chance to vote in presidential elections. Here are some key facts about the country:
POLITICAL STRUCTURE -- Democratic republic governed by presidents elected for four-year terms. Legislative power centres on the traditional Liberal and Conservative parties.
POPULATION -- 36.8 million (as of July 1996), of whom about two-thirds are mestizo (mixed European and indigenous descent) but with black and pure indigenous minorities. The language is Spanish and the country is predominately Roman Catholic.
AREA -- The fourth largest country in South America after Brazil, Argentina and Peru with an area of about 440,00 sq. miles (1,142,000 sq km). It shares borders with Venezuela, Brazil, Peru, Ecuador and
Panama.
GEOGRAPHY -- The western half of the country is crossed from north to south by three Andean mountain chains. The eastern half, consisting of the Llanos plains and the Amazon jungle, is sparsely populated. Most of the population lives in the Andean valleys (80 percent) and on the Caribbean coast.
CAPITAL -- Bogota (population 6.3 million), altitude 8,600 feet (2,600 meters). The second-largest city is Cali and the third Medellin.
ECONOMY -- Main exports are crude oil, coffee, coal, ferronickel, cut flowers, bananas and emeralds.
GDP: $98.8 billion (1998 estimated). Per capita income $2,380. Current account balance of payments: $5.6 billion deficit in 1997 and $4.8 billion deficit estimated for 1998.
FOREIGN DEBT -- $31 billion to June 1997. The only major Latin American debtor never to have defaulted on its debt.
NET RESERVES -- $9.15 billion (to May 29, 1998). INFLATION -- 17.6 percent in 1997 and running at an accumulated 12.7 percent after the first five months of 1998.
DRUGS -- According to U.S. estimates, Colombia processes 100 tons of cocaine per year and is responsible for about 80 percent of the world's supply. Colombia is also said to supply about two-thirds of the high-grade heroin to U.S. markets.
ARMED FORCES -- Army 121,000 men (but an active combat force of only 60,000 men), Air Force 6,000, Navy 10,000, Police 120,000.
ILLEGAL ARMED GROUPS -- Three main Marxist rebel groups, the Revolutionary Armed Forces of Colombia, the National Liberation Army and the People's Liberation Army number up to 20,000 fighters. Right-wing paramilitary gangs, grouped under the United Self-Defence groups of Colombia, thought to number about 3,000.
HISTORY -- The country's most brutal civil war known as ''La Violencia'' was sparked in 1948 by the assassination of popular Liberal Party leader Jorge Eliecer Gaitan. Some 300,000 people died during the ensuing bloodshed. The political strife, which included a military dictatorship from 1953 through 1957, ended in 1958 with a formal deal between the two traditional parties to share power -- an accord that lasted until 1978.
The military has not held power or mounted a coup attempt since 1957, making Colombia one of Latin America's longest uninterrupted democracies.
In the 1960s, Colombia's three Marxist guerrilla groups rose up in arms in a bid to overthrow the state and set up a socialist regime. The rebels have gained military and political prowess and now have de facto control over as much as 50 percent of the country, according to Western military sources.
Colombia is the world's leading supplier of cocaine and has become a major player in the international heroin market. Pablo Escobar, the late kingpin of the Medellin cartel, was the symbol of Colombia's drug trade. But after he was killed in December 1993 the Cali mob moved in to fill the vacuum. Cali criminals avoided the high-profile bombings, assassinations and direct challenges to the state issued by Escobar's men.
The billionaire Cali kingpins, the Rodriguez Orejuela brothers, were captured in 1995, signalling the break-up of the Cali cartel. A number of splinter groups -- the most important of which is the Norte del Valle cartel -- now run Colombia's drug trade.
ENERGY (April 1997) - The Republic of Colombia (Colombia) is a major exporter of coal and petroleum to the world market. The United States, its largest trading partner, was the destination for 13 percent of its coal exports and over 60 percent of its oil exports in 1995. New reserves of oil and natural gas are being developed. Most of the oil is slated for export, while natural gas is targeted for the domestic market. Hydropower currently provides most of the country's electricity.
President Samper appears to have survived a political crisis triggered in August 1995 by accusations linking his 1994 election campaign to narcotics money. After Colombia's Congress exonerated him of these charges in June 1996, President Samper turned his attention to regaining international credibility in the war against drugs and jump-starting the economy (economic growth slowed from over 5 percent in 1995 to just over 3 percent in 1996). A constitutional reform package has been submitted to Congress (including major changes to penal, electoral, administrative, and executive structures), and Economy Minister Jose Ocampo has announced a fiscal austerity package for 1997.
Colombia's economy, which has experienced sustained economic growth since the 1950s, is evolving under a liberalization program known as "aperatura" (now in its fifth year). Privatization of state-owned enterprises, loosening of import controls, free trade, and new investment (foreign and domestic) are the hallmarks of this policy. During 1992-1996, Colombia received a total of $4 billion for project financing (25% from multilateral financing institutions), including $800 million for the oil sector. Infrastructure investments totaling $27 billion over the next 4 years are planned, including major expansions of oil, natural gas, and power facilities. Increasing oil exports resulting from investment in the Cusiana oil field are now generating significant additional revenues for the economy.
The United States is Colombia's main trading partner and largest foreign investor (more than half of total direct foreign investment through 1995). However, this relationship is strained over U.S. dissatisfaction with the Samper administration's efforts to deal with the country's illicit drug trade. On March 1, 1996, the United States announced it was decertifying Colombia's program to comply with international drug control efforts (thus denying most U.S. aid, including new funding commitments from the U.S. Export-Import Bank, the Overseas Private Investment Corporation, and the Trade Development Agency). The impact on U.S. investment was significant, as the U.S. share of foreign investment dropped from 70 percent in 1996 to 20-30 percent in 1996. On February 28, 1997, the decertification was renewed for another year. The United States has also denied visa requests from President Samper and other prominent Colombians.
Massive peasant-guerrilla uprisings, particularly in coca-producing regions of Caqueta and Putamayo, continue to be a concern. Petroleum industry infrastructure, particularly pipelines and facilities associated with the new Cusiana field 125 miles northeast of Bogota, are the frequent targets of guerilla attacks, as are mining camps in remote areas.
OIL - Colombia's oil industry received a big boost from the discovery of the giant Cusiana field in 1991. According to a 1996 study by Ecopetrol, Cusiana and the nearby Cupiagua field hold total potential reserves of 1.6 billion barrels of crude oil and 3.0 billion cubic feet of natural gas. Development of these two fields will boost current production by about 50 percent by 1999 (to 900,000 b/d). The fields are being developed primarily for export markets, with the United States expected to be the major purchaser of the additional volumes. Production from these and other new fields comes at a fortuitous time for Colombia, where production at older fields is on the decline.
Located in the eastern foothills of the Andes, the Cusiana and Cupiagua fields are shared jointly by Ecopetrol (50 percent), BP (19 percent), Total (19 percent), and Triton Energy (12 percent). The oil (crude density of 35-38 degrees API) will be shipped through the new 470-mile Ocensa pipeline being built to an export terminal at Covenas, on the Caribbean coast. By the time the pipeline opens in late 1997, the fields are projected to be producing about 500,000 b/d (up from about 180,000 b/d in 1996).
Colombia's importance in the world oil market is evident from two recent developments. First, the country received an invitation to join the Organization of Petroleum Exporting Countries (OPEC), which it declined. Now, the New York Mercantile Exchange (NYMEX) is seeking permission from the Commodity Futures Trading Commission to allow deliveries of Cusiana crude oil against the NYMEX light, sweet crude oil contract, beginning in July 1997.
Colombia's oil industry allows foreign investment via association contracts with state oil company Ecopetrol, which retains firm control of upstream activity. Exploration contracts cover designated blocs for 6 years, and development is through joint partnerships with Ecopetrol for up to 26 years. Colombia currently has 97 exploration and production contracts in place with 64 companies; 34 of these projects are operated by private companies. A "war tax" on foreign oil companies is being phased out (from $1/barrel) by 2000, and has been eliminated for new fields discovered after January 1, 1995.
Foreign companies conduct most of the exploration activities in Colombia, with current efforts focussing on the Piedmont (in the Eastern Plains south of Cusiana/Cupiagua). Participants include BP (the most active exploration company), Occidental, Chevron, and Texaco. In mid-1996, Ecopetrol announced a promising discovery from its own exploration activities -- the Coporo field. However, Ecopetrol encountered extraction difficulties and suspended drilling in February 1997. The field now appears to be unviable without outside investment.
Colombia's oil production target for 1997 is 723,000 barrels per day, of which Ecopetrol plans to produce 473,000 barrels per day. In January 1997, two fields being developed in association with private companies -- Tauramena (with BP) and Cravo Norte (with Occidental Petroleum) -- produced nearly 60 percent of the country's oil. Ecopetrol's development plans include $23 million in 1997 for the Apiay-Ariari fields in the Llanos Orientales region (total of $45 million through 1999). In addition, the company expects to drill 100 exploratory wells in association with private partners in 1997.
Guerrilla attacks on oil infrastructure are a major concern for industry operations in Colombia. In the first two months of 1997, for example, the country's largest oil pipeline (Cano Limon-Covenas) was attacked 12 times. In March 1997, three pipelines that carry oil and natural gas from the country's largest refinery (Barrancabermeja) were also attacked. In response, BP's chief executive officer asked President Samper to boost security near the company's operations at the Cusiana/Cupiagua fields. It has been estimated that insurgency increases operating costs by 2-10 percent. In 1996, nearly $40 million in additional costs were incurred from at least 45 attacks against oil pipelines.
Ecopetrol is modernizing its major refineries (Barrancabermeja and Cartagena), but does not plan to add any new refining capacity. Private sector plans, however, include two new refineries by 2000 plus expansion of the country's new petrochemical industry.
NATURAL GAS - Colombia produces natural gas strictly for its domestic market, and plans to increase production to meet demand increases as it completes its "gas massification" program (which aims to double gas consumption to 800 million cubic feet per day by 2000). The program entails the creation of a national gas pipeline grid linking the Atlantic Coast with interior markets via pipeline interconnections and conversion projects -- a $3 billion project to provide service to 35-40 percent of the country's population by 2010. Ecopetrol, the sole transporter of gas, has already spent $1 billion on new trunk lines to transport natural gas to major cities (Bogota, Medellin, Cali). The infrastructure needed to transport natural gas to most cities is scheduled for completion by the end of 1997.
About 75 percent of Colombia's natural gas is currently produced offshore by Texaco at the Guijara fields (with over 4 trillion cubic feet of estimated recoverable reserves). In December 1996, Texaco inaugurated its second offshore platform at the Chuchupa field, which will allow production to increase by at least 300 million cubic feet per day (from about 400 million cubic feet per day). Texaco has a 50/50 association contract with Ecopetrol through 2004, and an agreement to continue operating the fields under a build operate / maintain transfer agreement until 2016.
Most of the recent discoveries have occurred onshore. These include the Volcanera field and the overlying Pauto and Florena fields (with estimated reserves of 10 trillion cubic feet); the Opon field, which was declared commercial in May 1996 and is currently being developed; and the Cusiana field, where natural gas is currently being reinjected. A 200-megawatt power plant currently under construction near the Opon field will consume up to 60 million cubic feet per day of the field's production when it begins operating by the end of 1997.
Columbia's Energy and Gas Regulatory Commission (CREG) oversees the country's natural gas distribution markets, which are now entering the final stages of deregulation. Colombia has plans to sell its 60.6- percent stake in Gas Natural (the country's largest natural gas distribution company which serves 300,000 customers in Bogota). In January 1996, Ecopetrol sold its 38-percent share of Promigas (which serves the Caribbean coast) to Enron for $100.5 million. The country plans to provide natural gas to over a million homes and a number of industries, and may offer exclusive distribution rights in six areas of country with private sector participation in the form of BOMT (build, operate, maintain, transfer) concessions.
COAL - Colombia has the largest reserves of coal in Latin America, consisting of high-quality bituminous coal and a small amount of metallurgical coal. About 80 percent of annual production is currently destined for export markets.
El Cerrejon Norte, the world's largest open-pit coal mine, contains an estimated 3 billion tons of reserves. In 1996, it produced about 16 million short tons (nearly 60 percent of the country's total). The mine is operated by Intercor (an Exxon subsidiary) under a 50/50 agreement with state-owned coal producer Carbones de Colombia (Carbocol); however, the government plans to sell its share by the end of 1997. The coal is transported by rail to Puerto Bolivar for export. Another major project, La Loma, opened in 1996. Operated by Drummond, a U.S. company, the mine is expected to offset anticipated declines in El Cerrejon production (adding 3 million tons in 1996). Other recent developments include the formation of a new company to exploit the El Cerrejon Central reserves.
Colombia plans to boost production to over 40 million short tons by 2005. Towards this end, the country plans to award four Atlantic coast coal mine concessions in May 1997. The bidding, which opened in February 1997, covers four mining zones in the same region as El Cerrejon-Zona Norte: El Cerrejon Sur, Cesarito, Guaimaral, and El Descanso.
ELECTRIC POWER - Colombia plans to nearly double its electric generating capacity (to 21 gigawatts) by 2010 at an estimated cost of $6 billion. Most of the investment will be in thermoelectric generating capacity (primarily natural gas) and most of the funding is expected to come from the private sector. In addition to meeting anticipated increases in demand for electricity (about 6 percent annually), the expansion plan seeks to reduce the country's dependence on hydroelectricity, which currently accounts for about 75 percent of Colombia's electric generating capacity. The hydroelectric share would decline to about 60 percent by 2010 under current plans, which promote investment in thermoelectric plants (especially gas-fired plants). The diversification of electric generating capacity reflects concern over the impact of droughts on hydroelectric generation, which forced the country to ration electricity for an 11-month period in 1991 and 1992.
Colombia has begun the process of privatizing its electric power industry. In December 1996, the government sold two hydroelectric plants (the 500-megawatt Betania plant and the 1,000-megawatt Chivor plant) and one thermoelectric plant (the 180-megawatt Termocartegena plant). Planned sales include EPSA, a coal generation and distribution company, and two companies whose generation and distribution functions will be restructured and auctioned off separately (Empresa de Energia Electrica de Bogota and Empresa de Energia del Quindio).
ENVIRONMENT - Colombia established a Ministry of the Environment in 1993 to set national environmental policy and corresponding regulations for the sustainable use of the country's natural resources. The Ministry's policies, plans, and projects are executed by Regional Autonomous Corporations. Colombia's National Development Plan (1995-1998) provides $1.4 billion for sustainable development programs. By 1998, funding for these programs will represent about 0.5 percent of the country's gross domestic product (about 5 times the level of investment as recently as 1994).
COUNTRY OVERVIEW
President: Ernesto Samper (since August 1994; next scheduled election May 1998)
Independence: July 20, 1810 (from Spain)
Population (7/96E): 36.8 million
Location/Size: NW South America/1,138,908 sq. kilo- meters (439,619 sq. miles),
approximately the size of New Mexico, Texas, and Louisiana
Major Cities: Bogota (capital), Medellin, Cali, Barranquilla
Language: Spanish
Ethnic Groups: Mestizo, White, Mulatto, Black, Indian
Religion: Roman Catholic (95%)
Defense (6/95): Army (121,000); Navy (18,100); Air Force (7,300); Paramilitary
Police (87,000)
ECONOMIC OVERVIEW
Currency: 1 Peso= 100 centavos
Exchange Rate (3/25/97): US$1 = 1060 pesos
Current Account Deficit (1996E): $3.6 billion
International Reserves, Non-Gold (9/96): $7.8 billion
Gross Domestic Product (GDP, 1996E): $51.5 billion (1990 dollars at market
exchange rate)
Real GDP Growth Rate (1996E): 3.0%
Inflation Rate (1996E): 20.8%
Unemployment Rate (1996E): 9.4%
Trade Deficit (1996E): $2 billion
Exports (1996E): $11 billion
Imports (1996E): $13 billion
Petroleum Exports (1996E): $3.3 billion
Major Exports: Coffee, petroleum, coal
Major Imports: Capital goods, industrial inputs, consumer goods
Major Trading Partners: United States, European Union, Andean Pact
ENERGY OVERVIEW
Minister of Mines and Energy: Rodrigo Villamizar
Proven Oil Reserves (1/1/97): 2.8 billion barrels
Petroleum Production (1996E): 630,000 barrels/day (b/d), of which 620,000 b/d was crude oil
Petroleum Consumption (1996E): 300,000 b/d
Net Petroleum Exports (1995): 340,000 b/d (215,000 b/d to the United States)
Crude Refining Capacity (1/1/97): 248,850 b/d
Oil Pipeline Capacity (1996): 761,000 b/d
Natural Gas Reserves (1/1/97): 8.25 trillion cubic feet
Natural Gas Production (1995): 180 billion cubic feet (bcf)
Natural Gas Consumption (1995): 180 bcf
Recoverable Coal Reserves (1994E): 5.0 billion short tons
Coal Production (1995): 28.92 million short tons (MMST)
Coal Consumption (1995): 7.83 MMST
Net Coal Exports (1995): 21.1 MMST (2.7 MMST to U.S.)
Electricity Generation Capacity (1/1/95): 11 gigawatts (including 8 gigawatts hydroelectric)
Net Electricity Generation (1995): 47 billion kilowatthours (including 37 billion kilowatthours hydroelectric)
ENVIRONMENT OVERVIEW
Minister of the Environment: Eduardo Verano
Total Energy Consumption (1995): 1.24 quadrillion Btu
Energy Consumption Per Capita (1995): 35.33 million Btu Energy-Related Carbon Emissions (1995): 15.3 million metric tons (0.25% of world carbon emissions)
Carbon Emissions Per Capita (1995): 0.4 metric tons (vs. 5.4 metric tons in the United States)
Major Environmental Issues: Deforestation; soil damage from pesticides; air pollution, especially in Bogota, from vehicle emissions.
ENERGY INDUSTRY
Organization: Oil and natural gas: Empresa Colombiana de Petroleos (Ecopetrol);
Coal: Carbones de Colombia (Carbocol); Electric power: Government-owned plants in process of privatization
Major Ports: Barranquilla, Buenaventura, Cartagena, Leticia, Puerto Bolivar, San Andres, Santa Marta, Tumaca
Major Oil-Producing Fields (1995): Cusiana (BP); La Yuca, Cano Yarunal, Matanegra, Cano Limon (Occidental); San Francisco (Shell)
Major Oil Pipelines: Cano Limon-Covenas (230,000 b/d), Central Llanos (75,000 b/d), Colombia (150,000 b/d), Trans-Andean (15,000 b/d)
Major Refineries (1/1/97 Capacity): Barrancabermeja - Santander (173,000 b/d), Cartagena - Bolivar (70,000 b/d)
Russia's Crude Oil Export Grows 7.8 Percent in 4 Months.
Russia's export of crude oil grew by 7.8 percent in the four months of the current year, reaching 43.2 million tonnes, the Prime-Tass news agency learned on Thursday at the economics and information department of the Russian Ministry for Foreign Economic Relations (MFER).
In January-April 1998, Russia received from crude oil exports 3.8 million dollars, which is 23.5 percent less than over the same period last year.
The share of crude oil in the total amount of Russia's exports dropped in the first four months from 17.9 to 16.4 percent.
An average export contract price for Russian oil, according to the MFER, has decreased by 35.5 dollars per ton for the same period of the year, to make 86.9 dollars.
Foreign countries bought from Russia 36.8 million tons of oil which brought the country 3.1 billion dollars. An increase in the amount of shipments made 5.1 percent as compared to 1997 indices. However, the receipts dropped by 29 percent.
The ministry emphasized the fact that oil deliveries to countries of the Commonwealth of Independent States grew by 26.4 percent to reach 6.4 million tonnes and bring Russia 0.6 billion dollars.
MFER experts also noted that there has been no considerable change in contract prices in oil trade with CIS countries as compared to 1997.
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