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Colombian projects offer opportunities for investors
Development Business / July 16, 1997

By Larry Luxner

BOGOTA -- From airports and coal mines to prisons and superhighways, a series of privatizations and infrastructure projects across Colombia hold forth the promise of huge contracts for multinationals willing to invest time and money in Colombia, South America's second-most populous nation.

These megaprojects coincide with predictions that Colombia's economy will end 1997 with GDP growth of 3.8% and inflation of 20% (compared to 22% inflation for 1996). The prognosis for 1998 is even better, with most estimates predicting 5% growth.

"Despite current pessimism among some Colombian businessmen and private consultants, foreign analysts trust that the economy will recover during the second half of the year," says David Ramírez, an economic adviser to President Ernesto Samper. "Not only growth will be higher than in 1996, but in addition, inflation will decline, the currency appreciation process will slow down and the balance of payments will strengthen."

Recently, a consortium made of Chase Securities Inc. and Salomon Brothers Inc. was chosen to help the Samper government sell its 50% interest in Cerrejón Zona Norte, one of the world's largest coal mines. CZN is jointly owned by Carbocol, a state entity, and International Resources Corp., a unit of Exxon.

In 1995, the country's thermal or bituminous coal production reached 26 million tons (worth $671 million), of which 76% was exported. During the same year, Colombia's domestic price for thermal coal was $12.20 per ton, making it the cheapest in Latin America. The assets of CZN, which can produce up to 15 million tons a year, include the coal mine itself, a port facility on the Guajira Peninsula, and a 150-kilometer railway linking the two.

Larry Gaffaney, vice-president of Chase's Global Mining & Metals Group, says the state has poured around $3 billion into CZN since its opening. "There's a real acknowledgement that the government has developed a world-class property," he said, "but on an ongoing basis, government ownership is not the highest and best use here."

Another project concerns roads and highways in Bogotá. The city's Public Works Authority (SOP in Spanish) says 71% of the capital's roads are in desperate need of repair. As such, the agency recently opened bidding for a three-year, $111 million rehabilitation program. At the moment, SOP is responsible for a 35% portion of the city's 10,730 kilometers of roads which carries 80% of Bogotá's traffic; responsibility for the other 65% of smaller roads is performed by hundreds of small contractors who often lack expertise.

"A multitude of problems beset Colombia's roadways: damage from landslides and floods, design deficiencies, expanded traffic loads, low-quality construction materials, irregular maintenance with unsuitable equipment, and difficult geologic conditions," says the U.S. Embassy in Bogotá. "The project's goal is to take SOP out of the construction business; private contractors would handle construction and maintenance, and SOP would be responsible for the administration of bids and contracts."

In addition to roads, the Colombian capital plans to implement a rapid-transit network, using funds from the World Bank's International Bank for Reconstruction and Development as well as other sources. Colombia's second-largest city, Medellín, already has its own $2 billion, world-class metro; Bogotá's metro is expected to be even bigger.

Also in Bogotá, Colombia's Ministry of Justice -- confronted with rising crime, an inmate population exceeding 30,000 and continuing deterioration of the country's 170 prisons -- has plans to build an $85 million penitentiary. The new facility will house 3,360 inmates in various security zones; the ministry plans to begin its tender process for selecting a design and construction firm later this year.

Over the loud and bitter objections of labor unions who fear their jobs are at stake, the Samper administration has also begun awarding the operation of Colombia's major airports to foreign firms. Last August, Holland's Schiphol Management Services -- which runs Amsterdam's Schiphol International Airport -- won a 15-year concession to operate Cartagena's Aeropuerto Rafael Nuñez. Earlier this year, a similar 15-year concession to run Barranquilla's airport was awarded to a consortium made up of Spain's AENA (50%), local firm Aeropuerto de Barranquilla S.A. (47%) and three smaller firms, each with 1%.

Once master plans are completed, say officials, tenders will be opened for the administration of airports in Medellín, Cali, Bogotá and San Andrés Island.

Labor unions are also opposed to the privatization of Colombia Telecom, the state phone monopoly. However, competition could be coming nonetheless to the local and long-distance market. On June 11, the Superior Tribunal in Bogotá sided with state-owned Empresas de Telecomunicaciones de Bogotá (ETB) and ordered the government to present a timetable for ETB's entry into both the domestic and overseas long-distance market. That follows the formation of a $500 million venture, Capitel, between Colombia Telecom, Sweden's Ericsson, Canada's Northern Telecom and Germany's Siemens that ends ETB's local phone monopoly.

"We believe that the Colombian telecom sector ultimately will provide attractive investment opportunities," says a report by New York-based Santander Investment Securities. "The cellular sector is the most promising, in our view, characterized by its well-defined regulatory framework, strong growth prospects, remaining exclusivity period and transparent tariff schedule. We expect the long-distance market to open next year, with details released in the fourth quarter of 1997."

Finally, in what may rate as the biggest project of all, the Colombian government has opened international bidding for a $650,000 pre-feasibility study to build a 180-kilometer-long "dry canal" linking the Caribbean and the Pacific.

This $3 billion project foresees construction of a 1.5-meter-gauge railway crossing the Darien and Urabá regions, and two ports -- one in Boca Tarena on the Caribbean coast, the other near Bahia Cupica along Aguacate Bay. Both locations have the physical conditions that would favor deep-water ports for large cargo vessels; in fact, the Aguacate Bay port would be Colombia's first container terminal on the Pacific.

Government officials hope the proposed "canal seco," as it's known in Spanish, will lure business away from the 80-year-old Panama Canal. FONADE, the government agency overseeing the current bidding, says that by early 1998, a design and construction contract is to be evaluated and awarded, with construction to be finished no later than 2002.

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