Coal is Colombia’s second-biggest export after oil and Colombia is the world’s fourth-largest coal exporter. The industry is well developed and the major players continue to invest in coal production and export infrastructure. However, production growth has stagnated in recent years as the industry has been battered by strikes, rebel attacks and falling prices.


Since 2012, the coal sector has suffered setbacks every few months. In summer 2012, a month-long strike shut down the Fenoco railway, which transports about half of Colombia’s coal production to the coast. Another strike shut down the operations of the third-biggest coal producer, Prodeco, a subsidiary of Glencore, from August to October 2012.

In the first quarter of 2013, the sector was affected by a month-long strike at the Cerrejón coal mine, the biggest in the country; a temporary ban of night-time operations of the Fenoco railway; a government-imposed suspension of exports from a port controlled by Drummond, the country’s second-biggest coal miner; and a guerilla attack that closed Cerrejón’s private rail line for four days. Then, in July 2013, Drummond declared a partial force majeure in response to strikes that shut down its operations for seven weeks. In October 2013, Cerrejón’s rail line was attacked again.

These issues combined to make a dent in Colombia’s coal production, which totalled 85.5m tonnes for 2013. This figure represented a 4% decline compared to 2012 production and a significant underperformance compared to government targets. Early in 2013, the government had said it hoped production would reach 110m tonnes. Revised official targets later in the year called for 94m tonnes. The drop in production has not only hurt miners, but the government as well. Royalties on coal are an important source of government revenue. Their decline in 2013 came at an inopportune time, as the government was attempting to raise money for infrastructure development plans.

Environmental Crackdown

Despite relying on coal mining revenues, the government of President Juan Manuel Santos has taken a harder line with the industry on environmental issues than has been customary in Colombia. Santos’s predecessor, Álvaro Uribe, who took office in 2002, opened Colombia’s mining sector by decreasing taxes and actively courting foreign investment. Throughout Uribe’s administration, policies designed to attract investment developed more quickly than environmental regulations governing the industry. When Santos took office in 2010, he signalled that he would continue Colombia’s favourable treatment of miners, holding up the industry as a “locomotive” of growth. However, beginning in 2013, his government’s stance toward mining began to change.

In January 2013, a photographer took pictures of a Drummond ship dumping tonnes of coal into the Caribbean Sea. Drummond later said that it had done so to prevent the ship sinking, but the company did not immediately report the incident as required by law. The government’s response to the violation was swift. In early February 2013, the Ministry of the Environment issued a suspension of Drummond’s port licence, which remained in effect for more than three weeks. At the end of the year, after an extensive investigation, the government fined Drummond $3.5m for the environmental damage caused by the dumping and $100m for back taxes the company had failed to pay.

Drummond faced another suspension in 2014. Based on an environmental protection law passed seven years earlier, as of January 1, 2014, all coal exporting ports had to implement a direct loading system, a covered conveyor belt that drops coal directly into freighters. The direct loading systems were meant to replace the conventional two-step system that involved loading coal from trains to barges and then from the barges to freighters via floating cranes. This system was environmentally damaging as it resulted in coal and coal dust falling into the ocean. As the end of 2013 approached, it became clear that Drummond’s direct loading system would not be completed by the January 1 deadline. Drummond blamed the delay on the seven-week strike that had shut down its operations during the summer. In November 2013, Reuters reported that the government was looking for ways to allow Drummond to continue operating past the deadline, thus preserving the roughly $66m per month the company paid in royalties and taxes. In December, the Ministry of the Environment said it would grant Drummond an extension accompanied by daily fines, but did not specify the length of the extension. Then, in early January 2014, the extension was revoked and the government suspended Drummond’s exports from its Santa Marta port. Drummond was legally permitted to export through another port but the other viable option, Prodeco’s Puerto Nuevo port, was operating at full capacity. As a result, Drummond had to shut down its production after filling its in-country storage facilities.

“We know this is a very costly decision from a royalties point of view, but what’s at risk is the country’s environment,” Luz Helena Sarmiento, the minister of the environment, told reporters. “If they don’t do things properly, we’d prefer not to have this money. They have to learn that Colombia must be respected.” Meanwhile, Santos told reporters, “We will not let any company, whether foreign or national, break the rules designed to protect Colombia.” The Drummond episode has led observers of the industry pondering whether the new stance reflects a change in policy or was simply an attempt to please voters in a presidential election year.

Cheap Coal

Like commodities producers throughout the world, coal miners in Colombia have suffered due to falling prices in recent years. According to figures from the World Bank, the price of Colombian coal fell from $115.38 per tonne in January 2011 to a four-year low of $64.13 per tonne in March 2014. The decline has pushed many coal projects below the threshold of economic viability. Stanmore Coal, an exploration company, estimates that 40% of global thermal coal operations that rely on shipment by sea are “unprofitable at current pricing levels”. The estimate was based on a spot price of $73 per tonne for Australian thermal coal.

Coal prices are expected to remain stable through the medium-term. The World Bank projects a modest decline in prices in 2014, followed by a slight recovery in 2015. Between 2016 and 2025, the World Bank expects the price of Australian coal to rise from $87.3 per tonne to $100 per tonne in nominal US dollars.

As the developed world has gradually transitioned away from coal-fired power plants, emerging markets, particularly China and India, have become increasingly important to the industry. Coal consumption in China and India is expected to continue growing, although perhaps not at the same rates that were once expected. In recent years, China has focused on reducing emissions, which means burning less coal. Between 2012 and 2013, China invested more than $110bn in clean energy, which compares to the $77bn invested by the US over the same period. In May 2014, China signed a 30-year natural gas supply deal with Russia. Both of these measures – increased investment in clean electricity production and the securing of long-term access to Russian gas – will help China wean itself off coal.

India, for its part, appears likely to follow China’s lead on clean energy investment, especially in light of the election as prime minister of Narendra Modi, who favours solar power. However, in light of growing concern over emissions, Colombia’s coal industry could fare better than others, as Colombia’s coal tends to be fairly clean-burning, with less than 1% sulphur.


Despite lower prices, the coal industry in Colombia has continued developing. According to preliminary figures from the central bank of Colombia, foreign direct investment (FDI) in Colombian mining, which is dominated by coal, was $2.9bn in 2013, which compared to FDI of $2.5bn in 2011 and $2.3bn in 2012. Much of the investment in coal has gone toward private infrastructure development aimed at increasing the country’s export capacity.

Prodeco’s Puerto Nuevo port, a $550m project, opened in 2013 with a capacity of 21m tonnes per year. Drummond expects to finish a second shiploader at its Santa Marta port by August 2014, which will increase the port’s capacity to 60m tonnes per year. Drummond and other thermal coal miners in the north are adding a second track to their Fenoco railway, which will more than double transport capacity to Caribbean ports. The president of Cerrejón said in early 2014 that the mine’s $1.3bn expansion project would be completed by midyear, raising production capacity to 41m tonnes per year.

All these projects will help to continue developing Colombia’s coal infrastructure and production capacity, but it will take time for them to significantly impact production. In May 2014, the government forecast coal production of 89.1m tonnes for the year, which would represent a return to the 2012 level. However, revenue will be lower than in 2012 because of depressed prices.

Colombia’s coal industry is stable and productive, and expectations are that it will remain among the biggest in the world. As it continues developing, production growth can be expected to pick up in the medium-term, if not immediately. However, earnings growth may remain at the mercy of global market conditions.