By selling off 20 percent of Ecopetrol, Colombia hopes to net up to $5 billion and finance the new exploration it needs to boost the nation's lagging oil production, according to Armando Zamora, president of the National Hydrocarbon agency.
If more crude isn't discovered soon, Colombia will begin importing oil in 2011 — and that could be devastating for the government's finances, which depended on Ecopetrol for 7 percent of last year's $41 billion budget.
Venezuela, Bolivia and Ecuador have taken advantage of record-high oil prices by increasing state control and forcing multinational companies to renegotiate contracts that raise the royalties they must pay.
Colombia sees privatization as a way to position itself as the new destination for oil money, securing the investment it needs to search for more crude.
A different path
"The oil policies of President Alvaro Uribe have taken a very different ideological path to that of his neighbors," said Luisa Palacios, Latin American director for the New-York based consulting firm Medley Global Advisors. "The only way Colombia can compete is with the best possible climate for investment," she added, which means low royalties and low taxes as well. Despite analysts' support for the plan to sell off 20 percent of Ecopetrol — which in 2005 had sales of close to $6.5 billion — the government's announcement in July has caused a wave of criticism. The company, after all, has been a main source of income for Colombia, in state hands for more than 50 years.
"Not one country in the world wants to sell off part of an oil company that has created so much wealth like Ecopetrol. Colombia is the only exception," said Sen. Hugo Serrano, an expert on Colombia's oil industry.
Some Ecopetrol employees agree.
"Ecopetrol has always been for Colombians and should remain that way," said Jose Angulo, a 33-year Ecopetrol veteran who runs the Nueva Castilla platform, 45 miles southeast of Bogotá.
The Colombian government is expected to release details of the sale in the coming weeks.
At the moment, small companies from India, China and Canada are competing with giants such as BP, Chevron Corp. and Exxon Mobil Corp. to find oil in Colombia, investing close to $1.5 billion last year. The hydrocarbon agency, in charge of allocating exploration contracts, said these multi- nationals pay royalties of between 5 percent and 25 percent, depending on the oil produced.
Leftist rebel image
To draw investment, Colombia also has to overcome its image as a country teeming with leftist rebels who target oil installations to protest foreign exploitation and cut government revenues. In 2005, the oil pipelines were attacked 146 times, the Defense Ministry reported. Colombia has 1.4 billion barrels of oil in reserves that are rapidly being consumed. Production has fallen from a record 815,000 barrels per day in 1999 to just 526,000 in 2005.
In comparison, Venezuela exports 2 million barrels of oil a day.
Oil exploration has intensified in recent years. Since 2002, Ecopetrol has searched in 18 different projects but come up dry.
"In Colombia, there is more oil, but so far we haven't had any luck," platform operator Angulo said.
$350 million for exploration
This year, Ecopetrol plans to spend $350 million exploring for new oil from a total investment budget of $1.4 billion. Most of the rest of its spending will go to extracting more oil from wells already drying up. "It's necessary to give more freedom to the company, but not to privatize it," said Serrano, a former oil engineer and member of the opposition Liberal party. "When oil is found, the country will lose 20 percent of that income." But former minister of energy and mines Carlos Caballero said state control is counter- productive. One example: Ecopetrol's budget is determined by the government, which must approve all of its investments.
"Ecopetrol suffers from all types of restrictions that prevent it from competing and makes it more difficult to find more oil," he said.
The oil workers' union, representing a third of Ecopetrol's 6,000 employees, is "ready to take all the necessary measures to prevent this sale," union President Jorge Gamboa said.