After years of false starts, the Colombian government finally sold its coal company, Carbones de Colombia, known as Carbocol, to an international mining group for $383.7 million in October. The new owners-a consortium made up of South Africa’s Anglo-American, the UK’s Billiton and Switzerland’s Glencore International-will assume about $70 million in debt as part of the deal.
Carbocol, owner of a 50% stake in the Cerrejón Zona Norte coal mine, is Colombia’s first privatization since 1998, carried out against a backdrop of deteriorating internal security and public finances. The mine, located in the Guajira region of northern Colombia, is Latin America’s largest and one of the biggest open-pit coal mines in the world. It is expected to produce 40 million tons of coal a year by 2010.
The deal comes at a time when foreign investment in the country has halved, to $1.4 billion in 1999 from $2.9 billion in 1998. It was delayed for more than three years until the government and the mine’s other 50% shareholder, Intercor, an arm of ExxonMobil, could reach an agreement to open the mine’s railway and port facilities to third parties.
Juan Mario Laserna, Colombia’s director of public credit, admitted the privatization was a “tough deal,” mainly because of the long process in resolving legal issues between the government and Intercor over use of the port and railway. However, Laserna claims the successful completion of the transaction “signaled a turnaround in perceptions in the international capital market.” More important, he adds, “It has had a stabilizing effect on the domestic market,” giving renewed impetus to the country’s stalled program of economic reforms.
Carbocol transferred its interest in the Cerrejón Zona Norte mine to CZN, a joint-venture company owned equally by Billiton, Anglo-American and Glencore. Colombia retains the mineral rights to the mine and assigns all assets and production rights to CZN. The government charges a 10% royalty on all coal leaving the mine, as well as access fees to the port and railway facilities used by the consortium for CZN and its other mine, Cerrejón Central, to export the coal from Puerto Bolívar to markets in the US, Asia and Europe.
Unresolved Issues Remain
There are still unresolved issues, however. Arrangements between CZN and Intercor are not clear-cut. Intercor, the mine’s operator since 1984, won a 10-year renewal of its concession in 1999, but Intercor and CZN are jointly responsible for the transportation facilities. Intercor has the final say on senior management appointments, but the consortium can approve lower-level posts. Marketing arrangements for the coal are yet to be agreed by the two shareholders. Intercor isn’t commenting on its intentions, but under the deal it has until early December to decide whether to sell its own stake in the mine to CZN.
Chase and Salomon Smith Barney were jointly mandated to advise the Colombian government on the sale, but Chase dropped out when negotiations with Intercor over the transport facilities dragged on. Carlos Guimarães, managing director and head of Latin America investment banking at Salomon, described the participation of the three major international companies as “an important statement of confidence” in the government’ s effort to reform public finances and “a landmark in opening the way for future privatizations in Colombia.”
Even so, the sale was not as successful as the government might have hoped. The consortium was the only bidder for Carbocol and paid the minimum price of $383.7 million. Prior to the auction, the government offered shares in the company to employees, trade unions and pension funds through a subscription program. Only one investor purchased five shares. Later, the only other pre-qualified potential bidders, French oil giant TotalFinaElf, and Alabama-based Drummond, withdrew from the process.
Billiton, Anglo-American and Glencore have a history of investments in other regions of Colombia, with joint ownership of coal mines in Cerrejón Central, Oreganal and Cerrejón Sur. In 1999, Billiton secured $353 million in project financing to expand the Cerro Matoso nickel mine.
The government has had to postpone at least two other planned privatizations this year. In September, it suspended plans for sale of the state power generator, Isagen, pending a lawsuit filed by Empresas Públicas de Medellín (EPM). EPM was protesting an earlier government decision to prohibit it from bidding for a majority stake. US power company Enron was also expected to bid for Isagen. The scheduled sale of ISA, the state-owned electrical transmission company, was also delayed, after guerrilla bombs damaged or destroyed over 400 of ISA’s transmission towers in an attempt to stop the privatization.LF