Tuesday, 24 February 2009

Glencore and Reficar: Senator Adds Word 'Re-Nationalisation´ to the In-Vogue Global Dictionary of Nationalisations

Reficar, as the refinery is called, is located 30 minutes to the west
of Cartagena in the Colombian Caribbean coast. Its location is strategic
because Reficar has access to the Gulf Coast and Caribbean markets
by the Atlantic Ocean, as well as to the center of the country market by river

The recent feud between the Colombian government and the Swiss trading company Glencore for the upgrading of the Cartagena refinery is far from resolved. President Alvaro Uribe, in one of his frequent tantrums, decided to attack Glencore for the delays in the project and threatened to rescind all its contracts in Colombia should the company failed to make good on the $3 billion investment. Glencore is currently in negotiations to sell back its stake on the refinery, 51 percent, to Ecopetrol, for $200 million or so, to maintain its other Colombian investments. The company says the financial crisis cut access to funding for the project -- clearly they weren't and are not interested in Cartagena anymore.

The word nationalisation in in vogue these days, but the word re-nationalisation has been somehow unheard of during the ongoing crisis.
Colombian Senator Hugo Serrano Gómez, one local eminence in the energy industry, is urging the Colombian government to re-nationalise the Cartagena refinery, cease all payments to Glencore and cancel its contracts in Colombia. A wee too much, some may say. Not that much -- he might be quite right actually, we believe. Serrano Gómez argues that Glencore has failed to meet any contractual clauses, delayed a project vital for Colombia while systematically lying over its experience in the oil and refining industry. A re-nationalisation would kick start a project that has been paralysed since Glencore won the bidding process for the refinery in 2006. The Colombian government gave Glencore a number of guarantees that no government in this region can afford anymore: turned the Cartagena refinery a duty-free zone to permit the importing of machinery, equipment and materials necessary for the upgrade; even as Glencore isn't a producer of fuels, the government awarded the company such status and provided it with $300 million in subsidies and fresh financing. Awful things we do in this country to get foreign investment coming, right? Serrano Gómez says Ecopetrol has the cash to perform the upgrading; President Uribe is trying to lure the Brazilians, who recently fell out with Venezuela for the Abreu e Silva refinery in Pernambuco, Brazil.

So, you might have guessed already that we do not support nationalisations in this blog, but we do support re-nationalisations of this type.
This is a different case form Venezuela, where foreign oil companies in the Orinoco Belt were doing their job, but for the government they were bad partners because they were an obstacle to the Hugo Chávez's administration's goal of cutting production to keep prices high. Absurd. The case of Ecopetrol-Glencore is different. The Uribe administration policy of building up investor confidence shouldn't come at the expense of eroding our already-weak judicial and legal stability. Glencore has clearly failed to meet contract terms. The Cartagena refinery stake should be taken away from the company, so the state can sell the stake to other companies. To prevent these type of companies from entering Colombian soil, more rules and covenants should introduced in contracts, while their existing concessions be revised. Cancelling the contracts might be a bit extreme, but the government is in the obligation of making a thorough revision of Glencore's activities in Colombia, and find out why it delayed commencement and execution for this very key infrastructure project for Colombia.

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