Coal extraction in Colombia has shown an important increase since 1976 where 95% of extraction has been exported. Colombia counts with 76 years of coal reserves under actual extraction rate. Coal activity has shared between 0.21% and 1.86% of Colombia GDP since 1940, the highest figures were achieved in the last years. However, most of coal income goes to foreign firms, and royalties paid by these firms are mismanagement because high government corruption. The volume of coal royalties is about 0.1% of Colombia GDP, it is a huge volume of money (US$115.3 million in 2012). Moreover, in 2010, central government promised fair royalties distribution, but it was just a promise, unfortunately the GINI coefficient for royalties distribution between municipalities went from 0.896 in 2004 to 0.910 in 2012. Most of royalties are taken by 137 municipalities out of 1,122 in Colombia. Central government has a challenge to spent royalties in efficient way to avoid a deep Dutch Disease in Colombia (Colombia is in her third Dutch Disease since 1900, this one started in 2003).
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
Twitter: Humberto_Bernal
According to British Petroleum Statistical Review Energy, Colombia has a proved crude oil reserves for the next 6 years (maximum 7 years). In gas case, Colombia has reserves for the next 13 years. Finally, in coal case, Colombia has reserves for the next 76 years!!. Therefore, Colombia is coming to the end of her traditional crude oil production, but there are projects to extract no traditional crude oil in the very long run because high ecological cost and lack of technology. On the other hand, coal extraction is taking attention of government and foreign firms, it is mainly for high reserves that Colombia has and the high price that coal faces. Coal international price has shown an important increase since 2004. Nowadays, Colombian coal is paid about US$100.8 per tonne in 2012 as figure 1 shows. This important increase can be explained by high coal demand from BRICS countries, Japan and Turkey, therefore as countries get high levels of development, then they demand higher energy resources. The challenge for next centuries is to get efficient energy sources and they have to be at low cost without high environmental impact.
Figure 1. International coal price 1949-2012
(US$ chained prices of 2012)
Source: US Energy Information Administration, Central Bank Colombia and own calculations.
Colombia extract high volume of coal. Before 1976, Colombia extracted coal for local consumption, but after that year through foreign firms such as Exon Mobile (USA), BHP Billiton (UK-Australia), Anglo American (UK) and Glencore Xstrata (Switzerland), Colombia started to export huge volume of coal. Colombia extracted 1,150 thousand tonnes in 1940 and 85,803 thousand of tonnes in 2011 as figure 2 shows. Coal exports went from 12 thousand of tonnes in 1970 to 81,225 thousand of tonnes in 2011 and 77,403 thousand of tonnes in 2012. It means that Colombia is exporting about 95% of her coal extraction. The main buyers are China, the United States, the United Kingdom and Brazil.
Figure 2. Coal production in Colombia 1940-2012
(Thousands of tonnes)
Source: UPME Colombia.
Coal value added in Colombia shows a positive tendency. Coal is an important commodity for colombian Gross Domestic Product (GDP), it shared with 0.41% of total GDP in 1940 and it increased to 1.86% in 2012 as figure 3 shows. This share is high for just a commodity, therefore it can contribute to the third Dutch Disease in Colombia in the next 76 years. Of course, there is room for carrying with this disease because Colombia has huge coal reserves and the coal international price shows an important increase.
Figure 3. Coal GDP as a share of total GDP in Colombia 1940-2012
(% of GDP)
Source: UPME Colombia.
One can conclude that globalization in Colombia means export commodities such crude oil, coal, gold, silver and ferronickel. The foreign payment for these commodities is divided into foreign incomes and government royalties. Unfortunately, royalties face management corruption and high concentration in few municipalities and regions, therefore it is difficult to avoid the Dutch Disease.
Royalties are huge and mismanagement. Royalties from coal extraction went from US$40.6 million in 2004 to US$115.3 million in 2012 that means between 0.05% and 0.1% of Colombia GDP. In the case of crude oil, its royalties went from US$ 1.0 billion in 2004 to US$4.3 billion in 2013, it means between 0.8% and 4.3% of Colombia GDP. Therefore, Colombia society gets huge resource from these commodities. Sometimes society blame foreign firms for extracting these commodities, but the true is we have to blame government for royalties mismanagement and corruption. Of course, society can ask for higher royalties through high charges to foreign firms, but it is optimum tariff project, I tend to think that government can increase this royalties rate in both crude oil and coal, and both can get benefits.
Coal royalties distribution is highly concentrate. The GINI coefficient for royalties distribution went from 0.896 in 2004 to 0.910 in 2012, therefore there is evidence on higher concentration in royalties distribution. Figure 4 shows royalties distribution in Colombia, as one can see municipalities that extract coal are the main ones that get royalties, for instance municipalities such as Ciénaga in Magdalena region, Albania in Guajira region and La Jagua de Ibirico in Cesar were those that got huge volume of royalties in 2012. Therefore, Colombia government face a challenge in royalties management, they have to be spent in efficient projects (without corruption) to improve industrial sector to be competitive in these global days.
Figure 4. Coal royalties according to municipalities 2012
(as share of total royalties %)
Source: UPME Colombia.
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