Colombian coal mine to be world's biggest

Every 18 months an amount of earth that is the equivalent of building the Panama Canal will be moved. This is but one of the aspects of the world's largest coal mine, El Cerrejon, that Esso Inter-America Inc. (EIA), located here, and the government of Colombia are now starting to build.

The mine, which will cost $3 billion, will mean that Colombia, currently a net importer of energy, will become a net exporter of energy. It is expected that some coal will be shipped to the United States and Puerto Rico, as well as elsewhere in the world.

By 1989, Esso officials estimate, the mine could bring into Colombia $1 billion a year, the equivalent of two- thirds of the income from its annual coffee exports.

By 1986, the mine could employ 4,000 workers, and if it is expanded, 5,500 workers will be on the site. Esso, a subsidiary of Exxon, estimates that eventually 30,000 people will move into the area to work at the mine and service its employees.

Even more important, points out Ramon de La Torre, president of INTERCOR, EIA's coal mining subsidiary, it will open the way for additional coal mining in the area, since the El Cerrejon project will provide the basic infrastructure necessary to make the mine work.

The mine will also make another dramatic change for Colombia. It will bring industry into an area that is best known for its marijuana exports.

"There will be a transfer of technology which will train people and help the whole region develop," Mr. de La Torre states. The government's coal company, Carbocoal, has a second area, adjacent to the mine, that is about the same size as the El Cerrejon project. Exxon estimates it may hold reserves of 1.6 billion tons of coal.

The mine will make Exxon not only the largest oil company in the world, but also one of the largest companies involved in the international coal market. Currently, some 50 million tons of steam coal per year are sold on the world markets. Merrill Lynch, Pierce Fenner & Smith Inc., a brokerage house, estimates the US sold about 21 million tons of steam coal on the world markets in 1980.

Domestically, the US consumed more than 560 million tons of steam coal.

Esso's mine will produce 15 million tons of high grade, low ash, low sulfur coal per year when it comes on stream in 1986. At that time, Exxon officials reckon, the world coal market will be 105 million tons. If the world market for coal grows substantially, Esso can expand the mine to 25 million tons. In either case, it will be the largest coal mine in the world.

The Colombians have known about these coal deposits for a long time. However , the remoteness of the area and the geology of the deposits dampened commercial interest in developing them. For example, in order to move the coal from the mine site to a deep enough port, Esso has to build a 150-kilometer railroad, the first industrial-size railroad in Colombia. The port itself has to be dredged so that it can eventually accommodate 225,000 deadweight ton vessels -- the size of a supertanker. An access canal 18 meters deep will be dredged in the harbor.

At the same time, EIA will have to excavate 11 tons of dirt for every ton of coal mined. In most conventional strip mines five tons of overburden are removed to every ton of coal mined. All of the mining will be done by trucks and steam shovels.

In spite of these impediments, the Colombian government found some international interest in developing the mine. Originally, Peabody Coal Company , the largest coal company in the world, decided to exploit the deposit. However, Kennecott Copper, which owned Peabody, was in the middle of divesting itself of the coal company. Partially because of this distraction, officials say, Peabody did not bid as aggressively for the project of Exxon. When offered the deposit on the same terms that Exxon had negotiated with government, Peabody refused.

However, before Exxon had a chance of ink the contract, the government changed hands from a conservative to a liberal orientation. After a year of new negotiations, the government decided to throw the project open to international bids. Some 17 companies were invited to bid, but only five actually did. Esso again was the winner and under the terms of the contract had four years to evaluate the project to see if it could be made itno a commercial venture.

Esso then began a $56 million feasibility study -- probably the most expensive study ever made. Some 556 exploratory holes were drilled in order to determine the quality of the coal and the size of the deposits. Extensive testing had to be done to determine weather, winds, and environmental features.

Some 250 engineers pored over the area trying to determine where the port should be located and how to build the railroad. Airstrips had to be surveyed and studies made of the international coal markets.

Three times, recalls R. Stanley Kleppe, director and vice-president of Esso Inter-America, he had to go before the Exxon board of directors to explain the economics and dynamics of the project.

At the end of 3 1/2 years, Exxon made up its mind: It would go ahead with the project. However, instead of costing $2.5 billion as it had originally estimated, the mine would cost $3 billion. With the escalation of the price, a local controversy brewed.

Some young economists resigned from the government, claiming that the government had made a bad deal with Exxon. The opposition party demanded an investigation and the elected Colombian representatives debated the merits of the contract. The fact that EIA was owned by Exxon, a huge multinational corporation, was not lost on the Colombians who used it to cast aspersions on the deal.

Ironically, with the investigation, the EIA officials were able to look at their competitors' bids. What they found, says Mr. de La Torre, is that "we left a loft of money on the table." This is oil company lingo for a bid that is much higher than necessary to obtain a contract.

The Exxon bid had given the government a 15 percent royalty, in addition to 50 percent of all the coal mined. In addition, the government will receive a tax on any "excess profits" Esso makes, based on a pre-established formula. After 23 years, Esso will turn over the complete mine and its equipment to the government at no charge. At that point, some 75 percent of its reserves will still be available. Esso will be the operator of the mine.

According to Mr. Kleppe, the Esso return on its investment "is very conservative, almost marginal." This turned out to be an effective argument during the Colombian debates.

One of the keys to the success of the project is that international demand for coal remain strong. Mr. Kleppe says Exxon is confident it will and notes that the company has already signed a contract to supply 1.6 million tons of coal per year to ELSAM, a consortium of municipal electric companies in western Denmark. The main thrust of Esso's marketing has been Europe and the Far East and it has made specific offers to 16 power companies and industrial customers. Its main competitors will be Poland, South Africa, Australia, the US and the USSR.

Although coal will become the desolate and arid area's most important export, officials do not expect it to totally replace the smuggling of marijuana. However, notes Mr. de La Torre. "It gives the sons of the smugglers something to do besides work for their fathers."