Andean Group - November 2006 (ISSN 1741-4466)

The minister for mines and energy, Hernán Martí­nez, issued a warning that Colombia may start having to import oil by the end of this year to meet domestic demand. Martí­nez's warning came on 30 October, one day before the Colombian congress started discussing the government proposal to sell 20% of Ecopetrol, the state-owned oil company. 

Martí­nez's warning has a clear political aim. The Colombian government is keen to sell a 20% stake in Ecopetrol to generate cash to boost exploration. According to Martí­nez, "if Ecopetrol doesn't find more oil it's going to turn into a company dedicated simply to refining fuel". The main problem is that as a government company, Ecopetrol has to compete with social programmes for its annual budget. This leaves the company with little money to invest in exploration. 

The government claims that the partial sale of Ecopetrol is the only way for Colombia's to reverse its waning self-sufficiency in oil production. According to official statistics, the country's proven reserves have fallen to 1.45bn barrels now from about 2bn barrels in 2000. This obviously makes Colombia's status as a net exporter of oil increasingly more precarious. At present Colombia produces 530,000 barrels per day (bpd), of which 320,000bpd are extracted by Ecopetrol and the rest by associated companies such as BP, Petrobras and Occidental. Ecopetrol currently needs to produce 313,900 bpd to meet domestic demand and export commitments. With the Colombian economy growing at an average of 5% annually this leaves the state oil company with scant margin for increased production before it has to start buying from its associates.

Martí­nez hopes congress will approve the sale by year end. If this is the case, the government will sell the shares of Ecopetrol on the Colombian stock market between August and September next year. Under Colombian privatisation laws, the government has to give a first option to Ecopetrol current and former workers, as well as national cooperative associations and pension funds. Martí­nez, however, said that if the domestic capital market cannot absorb all the shares it will offer, the government would consider issuing shares on the New York exchange. The toughest part of the plan will be fixing an appropriate price. A 20% stake in Ecopetrol could be worth anything between US$2bn and US$8bn, depending on price and reserves projections.