Why does the Colombian coal industry need help from a London lobby group?

Destruction of a house to make way for Cerrejon mine expansion. Photo: London Mining Network.

Destruction of a house to make way for Cerrejon mine expansion. Photo: London Mining Network.

Bob Burton and Richard Solly

A few months ago the Colombian Mining Association (CMA) joined the London-based World Coal Association (WCA), the coal industry’s global lobbying group.

While the WCA rather cryptically proclaimed it would be assisting the CMA “on issues ranging from sustainable mining practice to climate change” the move reflects growing panic among Colombian coal exporters as domestic and international opposition to coal mining and burning grows, global markets shrink and the price of thermal coal plummets.

During the decades-long civil war the Colombian coal industry grew to where it now ranks as the fourth largest exporter of power station coal in the world behind Indonesia, Australia and Russia.

The growth of the Colombian coal industry came at a terrible cost, including the dispossession of communities and widespread human rights abuses against members of the mining workforce and residents. Coal not only polluted the air and water but the country’s politics as well with credible reports of at least one coal company providing support for militias involved in human rights abuses.

The growth of the coal industry also bred a deferential view that the central government should cater for the every whim of an industry touted as central to an export-centric economic strategy.

But affected communities have not taken it lying down.

When in January 2013 Drummond, a US-headquartered coal company, dumped more than 1700 tonnes of coal into the ocean from a barge at risk of sinking in Santa Marta bay – a major tourism destination – lawyer Alejandro Arias photographed the operation. His photos of the coal dumping were widely used on the front pages of major Colombian newspapers and sparked public outrage.

When Drummond ignored a January 1, 2014 deadline – set seven years earlier – requiring the use of a direct ship-loading conveyor system to minimise pollution, Arias publicised the breach through both social and mainstream media. With elections looming, the Government insisted Drummond shut down its export operation until the new loading system was completed.

A series of successful legal actions have also sent shock waves through the coal industry.

After a campaign by local communities, Colombia banned  mining in the sub-alpine tundra known locally as the ‘paramos’. The paramos are ecologically rich and play an important role in protecting water quality for millions of people living in downstream cities. In one decision, in February 2016 Colombia’s highest environmental authority directed Hunza Coal to shut one of its three pits in the paramo and to present a restoration plan within 45 days.

In a separate case, Colombia’s constitutional court cancelled 347 mining licences in the region, including for coal projects, overturning a lower court decision allowing companies to continue their operations until the leases expired.

Despite the decisions, Greenpeace Colombia found government agencies have failed [Spanish] to enforce the court ruling.

The constitutional court has also ruled in favour of a local government challenge against a 2001 law which blocked provincial and local authorities from restricting mining. The law also specified only the national government had the right to approve mining permits. The ruling, which has been criticised by the CMA, opens the prospect that local and provincial governments could block coal and other mining operations on environmental or other grounds.

Other legal actions, while ultimately overturned, have put the industry on notice that the old days -when they could do almost whatever they wanted – were over.

In January 2015 the residents of Bosconia won a night-time ban on coal trains rumbling through their town, disrupting residents sleep and polluting the air with coal dust. The Constitutional Court subsequently extended the ban to cover three other communities along Fenoco’s railway line to Puerto Nuevo coal port.

While the ban – which hit the coal exports of Drummond, Glencore’s subsidiary Prodeco and Goldman Sachs’ then company CNR – was subsequently overturned in November 2015 when the coal companies persuaded the court some noise mitigation measures were sufficient to override residents’ objections.

Cheap to produce but a long way to travel

Colombian coal has long been regarded as cheap because of low labour costs, which flowed in no small measure from the notoriously oppressive conditions for unions in the coal-producing regions. However, it relied on ready access to the booming demand for coal in Europe, which took over half the country’s exports. Until recent times the remainder went predominantly to the Americas.

With coal exports having doubled since the turn of the century, the industry dreamt the boom-time demand would keep underwriting further expansions.

Back in August 2011, the joint venture partners in the Cerrejon Coal Company – Glencore, BHP Billiton and Anglo American – were so optimistic they agreed to spend US$1.3 billion building new port, transport and mining capacity to produce another 8 million tonnes-a-year for the export market.

While the expansion has been commissioned the new capacity has barely been used, in part due to the souring global market for thermal coal and in part due to a lack of water.

To expand exports the Cerrejon Coal Company needed to expand the mine, which has intensified conflict with communities near the massive Cerrejon coal mine. Those living near the mine have persistently raised their voices about forced removals of residents, pollution and the huge environmental impacts of the projects.

The company’s determination to press ahead with the Cerrejon mine expansion continues to fuel conflict, with a riot control unit of Colombia’s police attacking a February 2016 protest against the eviction of remaining residents of the village of Roche.

The company’s plan to divert the Arroyo Bruno stream, a vital water supply for residents and of environmental significance, is one of the latest flashpoints between the consortium and local communities. An open letter to the company and its joint-venture partners has also raised concerns about the health impacts of the mine.

The accelerating retirement of old coal plants in Europe – a prime market for Colombian coal – has hit the exporters hard.

With old plants being shuttered to comply with the European Union’s 2001 Large Combustion Plant Directive and its recent successor, the Industrial Emissions Directive, European demand for Colombian coal has been under sustained pressure. On top of the closure of old plants has been stagnating power demand in major markets, the imposition of a price on carbon dioxide emissions and the dramatic rise of renewables.

The UK, which in the last quarter of 2015 sourced over half its thermal coal imports from Colombia, is emblematic of the transformation. With coal plant closures accelerating and those remaining running less frequently, the most recent data indicates UK imports of Colombian coal fell by a third in a year, a trend which will continue as more plants close.

In Europe, falling demand has also been supplemented by pressure on buyers to end buying ‘blood coal’ from companies such as Glencore’s Colombian subsidiary Prodeco until the concerns of the victims of human rights violations have been addressed.

In April 2016 the Danish utility Dong Energy informed a coalition of environmental and social justice groups it would not sign any new contracts with Prodeco “until we are comfortable that Prodeco is meeting our standards of responsible sourcing.”

As the viability of exports from Colombia has declined, companies have decided to bail out of the Colombian industry altogether.

In August 2015 Goldman Sachs offloaded its loss-making Colombia Natural Resources mines to the US coal company Murray Energy. It was estimated Goldman Sachs – hit by labour disputes, environmental controversies and falling prices – lost up to US$200 million over five years on its Colombian coal foray. (Murray Energy, hit by the rapid decline in demand in the US coal market, views diversifying into Colombian coal as a way of expanding into the international market.)

Anglo American is also heading for the exits. One of its many coal interests it is looking to off-load  its one-third interest in the Cerrejon mine. Glencore has flagged it would consider increasing its stake in the joint venture “at the right price” while BHP Billiton has been more circumspect stating it would “consider opportunities that come up.” (In its most recent investor presentation (pdf) BHP Billiton states its thermal coal portfolio – which includes Cerrejon – produces coal ranked as being in the lowest 10 per cent in terms of production cost.) [See p. 10]

As demand for Colombian coal in traditional markets has plummeted, exporters have desperately started looking further afield to other possible markets in Japan and South Korea.

While the opening of a new shipping lane with the Panama Canal may cut the transport time, growing resistance to Colombian coal exports from both within and outside the country – combined with falling demand in the seaborne coal market – could well mean that Colombia’s coal production capacity may have peaked.

This is why the peak Colombian coal lobby group has turned to the World Coal Association for PR and lobbying assistance in Europe.

Bob Burton is the Hobart-based Editor of CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.) His Twitter feed is here. Richard Solly is a member of the Colombia Solidarity Campaign and Co-ordinator of the London Mining Network which is on Twitter here.