Analysis: Colombia vote worries oil, mining investors

Eco Oro Minerals

12/06/2018 20:16

By Julia Symmes Cobb
    BOGOTA, June 12 (Reuters) - 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  ECO.CN , the South American nation's biggest
company, to refocus it on renewable energy.
    Ecopetrol is responsible for about 60 percent 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 favorite 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
fourth-largest economy.
    "We like Duque obviously," Continental Gold Inc  CNL.TO 
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  ANGJ.J  suspended a potentially $2
billion project last year after the surrounding community voted
to ban mining. urn:newsml:reuters.com:*:nL1N1HZ2QF 
    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.  urn:newsml:reuters.com:*:nL2N1T801S
    "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. 
     
    MORE INVESTMENT 
    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 $7 billion a
year just to keep output between 800,000 and 860,000 bpd. 
    Private oil companies plan to invest up to $4.9 billion this
year, ACP said, while Ecopetrol plans to spend up to $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 $10 billion in industrial improvements -
and bolster security to curb attacks by the leftist ELN rebels
on Ecopetrol's pipelines.
    Bombings have kept the Cano-Limon 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.  urn:newsml:reuters.com:*:nL2N1Q60QR urn:newsml:reuters.com:*:nL2N1SO17P 
    The ACP declined to comment on candidates' proposals but has
warned about the damaging effect of referendums, high taxes and
pipeline bombings.  urn:newsml:reuters.com:*:nL1N1J21CF
    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.  urn:newsml:reuters.com:*:nL2N1T70YW
    Petro's pledge to buy unproductive land to give away to poor
farmers has sparked concern. Opponents said the rhetoric reeked
of the expropriation practiced by socialist leaders in
neighboring Venezuela, which is in deep economic and social
crisis. Petro denies he would expropriate.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on Latin American elections     https://tmsnrt.rs/2rAQ4l1
Profile of Colombia's leftist presidential candidate Petro    
 ID:nL1N1SF0YS 
Profile of Colombia's cenre-right presidential candidate Duque  
   ID:nL1N1SE0QE 
Colombia faces a challenge to avoid a debt downgrade whoever
wins vote      ID:nL2N1SM1UN 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Julia Symmes Cobb, additional reporting by Steven
Grattan, Luis Jaimew Acosta and Carlos Vargas
Editing by Helen Murphy, Daniel Flynn and Marguerita Choy)
 ((julia.cobb@thomsonreuters.com; +57-316-389-7187))