Palliser Report- IX CINMIPETROL 2013; Cartagena, Colombia in May 2013

Summary Comments :
The IX CINMIPETROL 2013 continued on from last year's successful event with another impressive array of Government and Industry leaders and presenters to show case the importance of the resource sector to the Colombian economy and demonstrate it is the forum for networking on strategic issues on resource exploitation matters in the country. It is a Conference where the Federal Government and Industry leaders articulated and debated different strategies without the politics.

The Conference was set against a backdrop of strong economic performance overall but with mounting criticism of continued delays in approvals for mining exploitation over the last 2+ years as the operation and authority of the new National Mining Agency ramped up its activities.
The Conference also focused on the co-ordination and understanding of social and business issues of resource exploitation that need to be integrated. This can be achieved with dialogue to improve understanding of the impacts and consequences that business operations have on society. This will assist the resource industry to develop strategies and operations needed to be sustainable.
What impressed Palliser about the IX CINMIPETROL 2013 was .....

Team Colombia
A key feature of the Conference was the array of the Ministers (Mining, Attorney-General, Finance, Environment) who attended. They were led by the President Juan Manual Santos who delivered a powerful endorsement of the importance of mining to Colombia. He stated emphatically that it was essential for the development of the country, for its wealth creation, infrastructure development and social distribution. Mining and Petroleum exploitation have to be sustainable for future generations and have to be consistent with Colombia environmental policies.
The President's speech was an important statement about Government's resource exploitation policy and counter-balanced society concerns that differences between the key Government departments were hindering the timing of vital exploration and development of Colombia's resources. The speech gave a strong message about the Santos Government's resource strategy and its intention for the key departments in Mining, Environment and Finance to be seen by the market as Team Colombia working in a co-ordinated manner. It was the Government "on-show" and an impressive oration by the President which won immediate recognition for its importance in Government policy and strategy.
This Conference has an impressive reputation for attracting the key Government leaders (President, Ministers in Mining, Environment, Finance and Attorney General) plus heads of Government Agencies such ANM, ANH, Ecopetrol and industry leaders from mining and energy. It provides a venue for networking with key decision makers who shape the political and economic direction of Colombia. Its attraction is its informality which enables attendees to network with key industry and government players.

Conference
A key takeout of the Conference for Palliser was from the presentation given by Mr. Eduardo Lora, former Chief Economist and General Manager Research Department of International Development Bank (IDB). He said that countries with democratic institutions that permit market forces and aspire to improved governance, such as Colombia, Peru and Chile, exhibit strong economic growth and prosperity. These characteristics are summarised and paraphrased as follows:
> Strong government but with independent institutions
> Stable government policies for
* Commerce and trade based on market prices and access to international markets.
* Promotion of innovation especially amongst SMEs.
* Low tariffs regime on imports.
* Independent Central Bank.
* Flexible exchange rates.
* Accepting the reward/risk equation with profits from resource exploitation and protected property rights
* Limits excessive public expenditure growth.
* Reasonable and consistent tax regime that promotes in society a culture of savings in society.
* Intellectual property protection.
> Low levels of corruption as no nationalisation of industry.
> Society has counter weights to government and industry policy to protect and respect Human Rights.
Countries with these attributes are the leaders in the Hispanic economies of Latin America. In this regard Colombia is the fore-front in promoting its credentials. These countries recognise there is always a need for improvement in clarity of policy and intent. Governance in each country must be a focal point for improvement, but it is only with these characteristics that there is a sound platform for growth and prosperity. Without them, future prosperity is hard to achieve.

The Colombia economy
The Palliser Report continues from last year's VIII CINMIPETROL 2102 with its positive reporting of the Colombian economy's strong performance fuelled by strong investment expenditure through its diverse economy from resources to manufacturing and construction.
The economy continues to display strong macro metrics with annualised figures as listed. GDP growth to the 2nd quarter was at 3.3% pa which is anticipated to increase to circa 4.5% pa in 2014. Inflation is at the low end of the Central Bank's target range at 2.0-2.5% pa and there are positive signs on job creation as the level of unemployment fell to 9.4%, continuing a long decline in this statistic.
The resource sector grew at 1.4 % pa impacted by 7.8% growth in oil & liquids production. In the second quarter, oil production exceeded 1.0 million bbls/day, but this activity was offset by offset by reduced coal demand of 20%. The engines of growth for the Colombian economy also include the agriculture sector at 3% pa and the construction sector with housing and civil works increasing at about 16-17% pa. Consumption demand is soft but is expected to increase as the impacts of higher levels of construction work through the economy into 2014. This will raise disposable income and give an impetus to consumer growth. The depreciation of the Peso against the US$ by more than 9% since Jan 2013 will improve export competitiveness. During the past 12 months FDI is 8% lower given the general global slowdown in the world economy.
Industry is being constrained by deficiencies in infrastructure. There is an urgent need for substantial upgrades, especially in port infrastructure. Currently ports are operating at greater than 77% of capacity and the residual gives limited flexibility to increase Colombian exports. The target is to increase export port capacity to 174 MTPA by 2030 which will be split about 50/50 between the Pacific and Atlantic coasts. The estimated cost to the year 2030 for port and associated facilities for rail, river and road transport is in excess of US47 Billion ($2013).

The Pacific Alliance
In 2010, President Garcia of Peru presented an initiative, called the Pacific Alliance, to the Presidents of Colombia, Mexico, Chile, Ecuador and Panama to form an alliance that would deeply integrate their economies to ensure the continual flow of capital, G&S and people. The first summit was held in April 2011 with the founding members being Colombia, Peru, Chile and Mexico. In the Latin American and Caribbean countries, this bloc has a combined population of 208 million people (covers 36% of Latin American population), 35% of bloc GDP with per capita GDP of US$10,000 and an impressive economic growth rate of 5% pa in 2012 compared to the global average of 3.2% pa.
Colombia is the current chair of the Pacific Alliance since May 2013 in Cali. This Alliance has achieved impressive reforms since inception with the removal of business & tourist visa requirements between Mexico, Peru and Colombia and the reduction of 90% of the tariffs on trade within the bloc; the balance to go by 2020. Its impressive track record has attracted the interest of over 20 nations as Observers from the Americas and developed economies to observe and learn from these rapid developments in the bloc integration. This Pacific Alliance speaks to the themes discussed above of market oriented economies of Colombia, Peru and Chile that have the platforms to promote long term growth in their economies.

Security
The issue of security is an ever present concern in Colombia. The Conference was informed that 87% of the Departments (or States) and 86% of the population were free from insurgent attacks during the year and this has had a beneficial impact on economic growth and tourism. In 2013 "Peace Talks" commenced in La Havana, Cuba between the Government and the guerrilla forces dominated by FARC, but they have been protracted. However there are indications that this 50 year old conflict is drawing to a conclusion as the details of a peace accord are negotiated. Nevertheless, a large majority of Colombians remain sceptical about the timing of a final peace accord. When it does arrive, they want it to be durable. The next Presidential election is in May 2014 and this is influencing the politics of the timing for a peace accord if it is going to happen this time around....

Summary
Overall, Colombia is a country that continues to develop its abundance of natural resources and biodiversity to create greater wealth for all Colombians. The country has important structural market focussed policies and independent public entities which encourage investment and economic growth. There is a restrained positive sentiment that a "tipping-point" in national security is near. There are many challenges ahead, but there is a national desire to advance society using this wealth generation capability to improve infrastructure and provide regional benefits and social services for all Colombians.
Geoffrey R Widmer
61-3-9819-3995(p)
61-(0) 419-310-601
Skype:geoffreyrwidmer
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
www.palliser.com.au
June 2013

Disclaimer:
The preceding commentary is a compilation of views and data expressed at the May IX CIMIPETROL 2013 expressed by the various participants. The Palliser Group has not verified these facts as presented to the conference and has not made independent enquiries as to the validity of the statements made or of the data presented. The Palliser Group recognises the authors of the various views as detailed in the May IX CIMIPETROL 2013.