IS COLOMBIA READY FOR THE PARTIAL PRIVATIZATION OF

C O N F I D E N T I A L BOGOTA 007497

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/16/2016
TAGS: ENRG EINV EPET CO
SUBJECT: IS COLOMBIA READY FOR THE PARTIAL PRIVATIZATION OF
ECOPETROL?


Classified By: DCM Milton Drucker for reasons 1.4(b) and (d)

1.(C) Summary: Seeking easier access to capital for
exploration and international ventures, the GOC is requesting
authorization from Congress to sell shares in up to 20
percent of Colombia's national oil company, Ecopetrol. The
GOC expects the sale to generate up to USD 1 billion,
allowing the parastatal to bypass the complicated Colombian
budget process for projects related to the company's
exploration plan. Sensitive to popular concerns regarding
potential international involvement in the parastatal, the
GOC is working with Congress to restrict ownership of the
privatized shares to Colombian citizens and companies. The
GOC expects congressional approval of the partial
privatization by the end of 2006. End summary.


2. (C) Shortly after the privatization plan was announced,
Isaac Yannovich, President of Ecopetrol, told the DCM and
Econoff that Ecopetrol had fallen behind its competitors in
the development of new oil/gas fields as a result of
Congressional reluctance to release funds to the company for
exploration. The company needs a dependable source of
exploration capital, Yannovich explained, adding that partial
privatization could generate an estimated USD 1 billion in
unrestricted new capital. It is likely Ecopetrol would
leverage the new funds for additional resources through bonds
or loans secured with the private capital.


3. (C) The GOC is very concerned about public perception of
the partial privatization. Initial deliberations with
Congress have centered on the ability of the government to
restrict ownership of Ecopetrol shares to Colombian pension
funds or holding companies (allowing the participation of
Colombian citizens and the Colombian private sector) through
a special class of stock with limited transferability. Press
reports indicate the GOC and Colombia's Congress expect to
fully exclude foreign participation of any kind in the
partial privatization of Ecopetrol. (Note: while it is too
early to tell if this restriction would raise national
treatment issues under the pending FTA or other agreements
between the U.S. and Colombia, post will follow this angle
closely.)


4. (C) Laboff reports Ecopetrol's union, the Union Sindical
Obrera (USO),is calling for a national strike in September
to stop the privatization plan, believing the proposal is the
first step toward foreign control of the national oil
company. The USO, which has alleged ties to guerrilla
groups, held a one day work stoppage on August 3rd, to
protest the move. Yannovich, aware of union resistance to
the privatization, told DCM he expects some form of strike as
plans are finalized for the partial privatization, but recent
successful contract negotiations with the union offer
optimism for a resolution acceptable to all parties.


5. (C) Comment: Working to make Ecopetrol behave more like a
private company has been a constant goal of the Uribe
administration. Regulatory reform in 2003 removed Ecopetrol
from the process of granting block concessions, and, as part
of the recently negotiated free trade agreement with the U.S,
the company's procurement regime is also moving toward an
open market approach. While the full privatization of
Ecopetrol may be politically unrealistic at this time,
bringing the private sector on as part owners will also tend
to make management more interested in efficiency. Access to
capital that is not subject to congressional restrictions is
another step in Ecopetrol's evolution toward making the
company a more efficient participant in the region's energy
sector.
WOOD