11/25/2021 | News release | Distributed by Public on 11/25/2021 13:00
Colombian pro-market presidential candidates are pledging more attractive conditions for the coal industry, but the frontrunner for the country's 2022 election threatens to scrap coal production.
Leftist presidential candidate Gustavo Petro, the favorite in a field of 43 candidates, said one of his first decisions after winning would be to leave Colombia's coal resources unexploited.
Petro, a former Bogota mayor, was leading in a recent poll carried out by Centro Nacional de Consultoria with a 22pc share.
Elections will take place in May 2022 to replace conservative incumbent Ivan Duque. Petro's main rival is likely to be former finance minister Oscar Ivan Zuluaga of the conservative Centro Democratico party that supported Duque. Duque and other opponents say Petro would move Colombia in the direction of neighbouring Venezuela, which is in the throes of economic collapse and political repression.
And the future policy on Colombia's hydrocarbon exploitation and exports, a key source of government revenue and employment, is high on the political agenda of the main candidates.
"Coal and oil will come to an end whether we like it or not, and then we move towards transitions so that the economy goes from a dependence on coal and oil to clean energy," Petro said during a mining conference last month.
"Colombia needs to leave 80pc of its coal reserves grounded if it wants to fulfil the global pledge to keep warming below 1.5°C," Petro added.
Colombia has 4.55bn t of proven coal reserves, representing 0.4pc of the global total, according to figures from BP. This would allow it to maintain coal production for at least 20 years, according to Colombia's national mining agency ANM.
Colombia, the world's fifth-largest coal exporter, could produce 67.8mn-72.6mn t in 2021, up from 48.4mn t produced in 2020, according to government projections.
The coal-producing states of La Guajira and Cesar must promote solar and wind projects as they have strong potential to generate an excess of renewable electricity that could be exported, Petro said.
In terms of wind, the national mining and planning unit UPME estimates that La Guajira has the potential to produce 21GW of renewable power, enough to meet Colombia's current power demand.
Wind speeds in La Guajira average nearly 10 metres/second annually, making it one of Latin America's two windiest locations. On solar, the country has the potential to generate around 40GW of power, with the sunniest areas being La Guajira province, San Andres Islands and the eastern plains of Orinoco near the Venezuelan border, according to UPME.
Petro, a former guerrilla who became a politician more than a decade ago, said replacing coal and oil export revenues worth $4.16bn in 2020 would be "easy" with exports of renewable energy.
"It would have been very difficult to stop depending on coal and oil when oil and coal export revenues were $40bn, as happened in 2013," he said.
But a closer look at the decline in revenues shows the descent over the past decade has been skewed in favour of oil. Revenues from oil products fell to $8.7bn in 2020, from $32.5bn in 2013. But coal revenues fell less sharply from $6.7bn to $4.2bn over the same period.
And any shift away from coal production and exports will not happen overnight, particularly given high international coal prices. Global mining firm Glencore has relinquished its mining rights for the Prodeco operation, but it is looking to buy out its partners in the Cerrejon project, suggesting that the company has a relatively firm outlook for international demand in the medium term.
But Colombia has great opportunities to continue exporting coal to Asian markets owing to a shift in demand from northwest Europe, the former mayor of Medellin, Federico Gutierrez, told Argus.
"Today, Colombia has a great opportunity around price and demand especially in Asian countries and there is also a great opportunity for the sector. That's why it seems irresponsible to me and also populist [by those] who said fossil fuels will have to end," he said.
As much as 60pc of La Guajira's GDP depends on coal production, and the new president must respect the coal contracts of the government with the largest coal producers Cerrejon and Drummond, Gutierrez said.
Gutierrez along with several former mayors of other cities are forming a coalition to run for the presidency.
Colombia has over 17.6 trillion pesos ($4.67bn) in coal and oil royalties waiting to be invested, but the municipalities have difficulties in structuring projects, which has prevented the money from being invested properly. Gutierrez pledged to help the municipalities form teams to structure projects to take advantage of booming royalties.
Former minister of mines and energy Mauricio Cardenas agreed with Gutierrez on this need. It would be "suicide" if Colombia stops producing coal, metallurgic coke and oil, and scrapped plans to impose a surcharge on income taxes for the mining sector, Cardenas said.
Minerals such as coal and copper are needed for the transition to renewable energies, Zuluaga said, noting that if he wins the 2022 election he will increase the competitiveness of the sector. Neighbouring countries such as Panama and Ecuador have allowed exploration and production of copper, and Colombia is lagging.
Juan Carlos Echeverry, former chief executive of state-controlled oil company Ecopetrol, has pledged to keep taxes on coal mines unchanged, including paying 35pc in income taxes.
Drummond and Cerrejon declined to comment.
By Diana Delgado