Whistle-Blower Behind Coal Rally Heralds Colombian Shift

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January 22, 2014

By Andrew Willis

Jan. 22 (Bloomberg) — European utilities paying more to burn coal this winter is a sign of progress in Colombia, according to Alejandro Arias, whose environmental activism is helping provoke stricter pollution controls on miners.

The 45-year-old lawyer photographed Drummond Co. loading coal on open barges a day after the practice was banned for spreading dust in the air over beaches and leading to spills in the Caribbean. The images were picked up by local newspapers. President Juan Manuel Santos reacted by suspending exports and European thermal coal prices surged. Colombia supplies about 24 percent of Europe’s imported coal.

In a country that spent the last decade inviting investors to its oil and mining industries while trying to extinguish a 50-year war against cocaine-funded rebels, Santos’ decision is being seen as a harbinger for a tougher stance on environmental protection. Public demands and media scrutiny are growing.

“Over time it’s going to become more complicated to operate in Colombia unless you stick to very strict environmental standards,” according to Oliver Wack, an analyst in Colombia at Control Risks, a global consultant on security, political and integrity risks. “Just like many other countries — only Colombia doesn’t have a history of this,” Wack said by telephone from Bogota.

Arias was trying to make history on Jan. 2 when he walked onto a farm near Drummond’s northern Colombian port and photographed the closely held U.S. mining company not adhering to the newest regulations meant to keep the black coal out of the green sea and the blue skies.

Record Plunge

The photos of Drummond were carried on social media and Arias was interviewed on radio shows. Less than a week later, President Santos, whose government had said the company would incur just a fine for breaching the deadline, surprised the coal market by halting exports altogether. Dry-bulk shipping costs fell the most in one day since at least 1985.

Drummond external public relations representatives in Bogota and officials at its headquarters in Birmingham, Alabama, didn’t respond to telephone and e-mail requests for comment on its coal loading operations. In a Jan. 19 statement, Drummond said its marine operations are conducted in an environmentally friendly manner and attributed a delay in completing infrastructure for the direct loading of coal to permitting holdups and a strike by workers last year.

This isn’t the first time Arias has fed a media storm surrounding Drummond’s coal loading. A year ago, he captured images of a crane dumping coal into the sea from a barge that had taken on water, to avoid it sinking. The photos were splashed on the front pages of newspapers and Drummond was fined $3.6 million.

Industrial Accident

Studies indicate the event, in which about 200 metric tons were deposited into the ocean, didn’t cause any long lasting impact, the company said. “The incident was an industrial accident and Drummond truly regrets this occurrence,” it said in the statement.

“I want people in Europe to know that they’re heating themselves with coal that has caused pollution” in Colombia, Arias said in a Jan. 14 interview from Bogota. “Royalties paid by mining companies here don’t nearly cover the costs of all this.”

Besides forcing coal exporters to switch to conveyor belts that pour coal directly into ships’ holds, the government plans to require environmental permits for mineral exploration and is conducting a broad sweep of any wrongdoing in the industry.

Marxist Rebels

The president’s reaction is spotlighting environmental transgressions in Colombia, home to about 10 percent of the planet’s plant and animal species, according to the Convention on Biological Diversity. Threats range from illegal gold mining using mercury to habitat destruction for coca crops and oil spills caused when Marxist rebel groups including the Revolutionary Armed Forces of Colombia, or FARC, detonate pipelines.

Signs of a longer-term tightening of standards emerged this month when Environment Minister Luz Sarmiento told newspaper El Tiempo she planned to bring forward legislation introducing environmental permits for mining exploration. Such licenses are currently only required for production.

Sarmiento has been at the center of the coal flap.

In a Jan. 7 Twitter posting, Santos said he was dispatching her to the city of Santa Marta to inspect Drummond’s coal- loading operations nearby, telling her not to hesitate to take a decision to protect the environment.

Respect Demanded

The loading halt came just three weeks after Sarmiento had said that while Drummond would face fines for continuing to use barges, the second-biggest coal exporter could continue shipments beyond a Jan. 1 deadline for starting direct loaders. Announcing the ban on Jan. 8, Sarmiento said the government prefers to forgo royalties than to tolerate improprieties: “They have to learn that Colombia must be respected.”

In two days, next-month coal for Amsterdam, Rotterdam or Antwerp rose as much as 6.9 percent to $84.45 a metric ton. The Baltic Dry Index, a measure of the cost of shipping commodities, had its biggest drop since at least 1985 on Jan. 10 as Drummond declared force majeure on supplies to customers including Electricite de France SA.

A halt to Drummond loadings will remove 5.5 million tons of supply in the first three months, Deutsche Bank AG analysts led by Michael Lewis said in a Jan. 14 report. The coal index fell 1.6 percent to $81.80 at 7:45 a.m. New York time today.

“It seems the government is finally telling companies to respect environmental rules in Colombia,” Ana Maria Silva, head of mining at the comptroller’s office, said in an interview in Bogota.

‘Sustainable Manner’

Closely held Drummond has been operating in Colombia since the 1980s. A case accusing it of paying illegal paramilitary groups in Colombia to protect its interests was thrown out by a U.S. district judge last July.

The largest coal producer in Colombia is Cerrejon, a venture owned by Anglo American Plc, Glencore Xstrata Plc and BHP Billiton Plc., three of the world’s biggest mining companies. Anglo and BHP spokesmen in London referred questions on environmental practices to Cerrejon officials, who declined to comment in an e-mailed response.

Glencore subsidiary Prodeco opened a new port with direct- loading facilities in May, built at a cost of $550 million. “Our commitment is to carry out our business in an environmentally responsible and sustainable manner and in harmony with our neighboring communities,” Prodeco said in a 2011 sustainability report, the most recent available on its website. A Glencore spokesman in Baar, Switzerland said the company worked to prevent, mitigate or compensate all possible environmental impacts in the building of the port.

Environmental Politics

Santos, who as President Alvaro Uribe’s defense minister helped weaken the FARC and attract record foreign investment, plans to seek a second term as president in May elections. His delegation continues to discuss a peace plan with FARC leaders in talks that began in Havana in November 2012.

“Santos has very few votes to win on the right, which opposes the peace process, so he’s looking for votes on the center-left,” said Control Risks’ Wack. “Environmental politics is part of that. Over the next couple of months and then in the longer term, this is the way the government is going to go. There is going to be less leeway for companies.”

Officials at the president’s office and the environment ministry didn’t reply to e-mailed requests for comment.

Anti-mining media coverage is putting pressure on authorities to over regulate, according to Beatriz Uribe, chief executive officer of Mineros SA, Colombia’s largest gold miner.

“It’s an exaggerated measure,” Uribe said in a Jan. 15 interview, referring to the planned permitting changes. “The impact of mining exploration is minimal. It will greatly reduce exploration in this country.”

Dangerous Place

The belated crackdown on pollution marks a radical change in the government’s position, according to Arias.

In a letter dated Jan. 19, 2011, the environment ministry rejected pollution claims made by Arias and other residents living near Caribbean ports. Frustrated by the government’s perceived unwillingness to act, he began collecting evidence, including the barge dumping photographs in January 2013.

Colombia remains a dangerous place to speak out against wrongdoing, Arias said, watching the door in the Bogota cafe where he was being interviewed. The jovial Colombian says he has received numerous death threats and uses two bodyguards, a bullet-proof vest and car in his hometown of Santa Marta.

Members of the Sintramienergetica union that represents Drummond coal workers said they also received threats during a 53-day strike over pay and conditions last year. Drummond said it was quick to alert authorities about the threats.

The Internet is helping promote environmental consciousness in Colombia, according to Arias, who says his income comes mainly from advisory and legal work.

“Someone in the Amazon could immediately see what was happening,” Arias said, referring to photos he uploaded. “Colombians have a lot of pent up anger. When you show them evidence they react.”

Copyright 2014 Bloomberg.

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