Sale of Coal Mine Key for Colombia’s Budget, Credibility

This war-torn country will get one last chance today to prove that despite rebel attacks and kidnappings, it can still attract foreign buyers to companies the government desperately needs to sell.

The auction of the government’s 50% stake in the world’s largest open-pit coal mine is all that remains, for the moment, of a privatization plan that even administration officials admit may have been too ambitious.

“Everything is riding on Carbocol,” the company that owns the government shares

in the coal mine, said Andres Restrepo, an economist at investment banker Corporacion Financiera del Valle.

After months of postponements, two other divestitures evaporated in just two days last month. Sales of an electricity-generating company and Bogota’s municipal telephone company were aborted by a last-minute legal maneuver and by worries about public safety in this country where guerrillas and criminals abduct an average of eight people a day.

“It gave the signal once again that the nation is incapable of moving forward with a privatization process that is now years behind,” summed up the newsletter of the National Assn. of Financial Institutions, an organization of banks, brokerage firms and similar companies.

That has made the mine sale crucial to both Colombia’s national budget and its credibility.

“The privatization of Carbocol will send a positive signal that it is still possible to privatize in Colombia,” predicted Juan Manuel Rojas, vice minister of energy, whose agency is selling the mine. The sale is also expected to pour nearly half a billion dollars into this country’s yawning national budget deficit.

Three international companies demonstrated the financial and technical ability needed to qualify as bidders and posted guarantees last week. Although the potential buyers don’t include Carbocol’s partner in the mine, a subsidiary of Exxon Mobil Corp., they are an impressive list of international mining companies: Switzerland’s Glencor, Britain’s Billiton and Anglo American Corp. of South Africa.

All operate in Colombia and are accustomed to the risks, said Nelson Rodolfo Amaya, Carbocol’s president.

The government is merely waiting to open the envelopes, Rojas insisted.

But the two failed sales were almost that close to fruition when they fell apart in late September, Restrepo warned.

“The possibility of a cancellation or postponement cannot be discarded,” he said, but “the worst psychological damage is already done--we have already sent the horrific message of how difficult it is for Colombia to attract foreign investment.”

A successful sale of Carbocol won’t undo that damage. But, Rojas said, “It will make the situation for the finance minister easier.”

Colombia’s treasury is struggling with an annual budget shortfall that is 3.6% of the gross domestic product. Although that’s an improvement over last year’s 5%, it is still a lot of money. Yet the government is reluctant to reduce spending, and tax hikes would be brutal in an economy that shrank 4.8% last year.

“A country that has the conflict that we have cannot allow itself to cut social programs,” Rojas said.

International markets consider Colombia a poor risk because it is in the midst of a prolonged civil war that is escalating, and, accordingly, they charge high interest rates.

To raise money, the government decided last year to try to sell its energy companies: Carbocol, a power company and 15 electricity distributors, one of them serving 90% of the country’s power customers. Bogota announced plans to sell the local telephone company for similar reasons.

But a string of lawsuits by unions, corporations and political groups halted most of the proposed auctions. And the telephone auction collapsed when both competitors withdrew their bids because of what city officials described as lax public security.

If a metropolitan telephone company is too risky a venture, what can be said of electrical towers in the countryside, where guerrillas destroyed 330 pylons in 12 months, or a coal mine in a remote desert?

Such risks have almost overshadowed the fact that analysts consider Carbocol a good business. With one pit 5 miles in diameter and enough viable deposits to last 40 years, plus its own port and a railroad linking the port to the mine, Carbocol is a major operation.

In the 15 years since the mine opened, coal has become Colombia’s third-most-important export, after coffee and oil. But security concerns will inevitably affect the price that Colombia can hope to fetch for Carbocol and its other companies.

“There is no other option,” Restrepo said. “The government needs these resources and it needs them now.”