JULY 1983 - VOLUME 4 - NUMBER 7
Exxon Coal Project Leaves Colombian Firms Empty-Handed
by Lore Croghan
BOGOTA, COLOMBIA - When a multinational corporation directs a major development project in a Third World country, what is its obligation to local industry? That has become an important question in Colombia, where two U.S. corporations are under fire for ignoring Colombian companies in the construction of what will be the largest coal mine in the Third World.
In an attempt to free itself from its dependence on agricultural export revenues, the government of Colombia has begun construction of the ambitious El Cerrejon Norte Coal Project on its Caribbean coast. With 40 percent of Latin America's coal reserves, Colombia is looking to the mine as a key element in its strategy to become a "coal country" by the end of the decade. Under this plan, high-grade bituminous coal - a hefty percentage of which will come from El Cerrejon Norte - will upstage coffee as a source of foreign income.
Because it lacked both the technology and capital necessary to develop such a huge project, the Colombian government signed a 30 year contract with Intercor, a wholly-owned subsidiary of Exxon Corporation in 1976. Under the terms of the 50-50 joint venture agreement, Intercor gained the right to survey and explore the area, and administer, plan, and develop the mine. In return, the government agreed to provide 50 percent of the funding and to construct roads, railroads, port facilities, and housing for the project.
When it was signed, Colombia's contract with Exxon drew sharp criticism within the country. Several officials of Carbocal, the government-owned coal agency, resigned over the terms of the contract, saying that it would damage the long-term economic welfare of the nation.
These fears seem to have been justified. Despite strong attempts by the Colombian government to "Colombianize" the mine, domestic industries are finding themselves left out in the cold by Exxon's major subcontractor, Morrison-Knudsen, a construction and engineering firm based in Boise, Idaho which was hired to construct the mining facilities.
Colombian businessmen charge that Morrison-Knudsen has not used the site development money - half of which comes from the Colombian government - to hire domestic companies. "Morrison-Knudsen has its own interests in mind," charges Carlos del Castillo Restrepo, president of Fedametal, the Colombian metals industry federation. "It knows its foreign suppliers well, and naturally thinks of them first at bidding time."
While an in-house Exxon newspaper published at El Cerrejon reported that 85 percent of Morrison-Knudsen's subcontracts were given to Colombian firms, local businessmen and sources working at the mine assert that far more of the dollar value ends up in foreign hands. And though a board consisting of Exxon and Carbocal was formed to review subcontracts granted by Morrison-Knudsen, critics characterize it as a rubberstamp since it does not have enough information to be an adequate safeguard.
Because of the importance of the project to Colombia's economy, the degree of local involvement with the project has become a national issue. Some time ago, the Ministry of Mines and Energy organized a special "Coordinating Group of Colombian Human Resources" to champion local labor and industry's involvement in the project. More recently, a 30-member commission from the Colombian Congress made a special investigative trip to the mine site, to see how work there could better serve national interests.
In spite of the conflict, the Colombian government has decided to move ahead with the project as quickly as possible. "Coal is the fuel of the present, not the future," Minister of Mines and Energy Carlos Martinez Simahan said recently.
The need for haste has allowed Morrison-Knudsen to have its own way in subcontracting construction and goods and services to bring the mine on-stream. Local professionals and businessmen complain that the firm largely ignores them in its closed bidding procedures, using bureaucratic procedures to block Colombian suppliers. "When Colombian firms do receive invitations to participate in the private bidding, the documents invariably come too late, or demand impossibly brief terms of delivery," says German Pena Velasquez, president of the Colombian Society of Architects.
Morrison-Knudsen does not follow the customary construction practice of publishing project plans indicating the scope of its contracting and purchasing requirements. Colombian firms could qualify for subcontract bidding if they had such information beforehand, says Carlos del Castillo Restrepo.
When contacted, Morrison-Knudsen refused to comment, claiming that under the terms of the contract, Exxon must answer all inquiries. Exxon completely denied charges that its subcontractor Morrison-Knudsen has bypassed Colombian firms in filling contracts. The charges are "absolutely false," says Ed Glab, public affairs adviser for Esso Inter -America (Exxon's overseas office for Latin America and the Caribbean).
All but two of 217 subcontracts through January 1983 for construction, materials, housing, welding, etc. were granted to Colombian firms, Glab asserts; those two were for highly technical processes. (This contradicts Exxon's on-site newspaper which claimed 85% of contracts went to Colombian firms). Neither has MorrisonKnudsen discriminated against Colombian firms in the bidding process, Glab asserts, saying that all bidding invitations are sent out in Spanish, and "we actually increased the bid time to go out of our way to accommodate the Colombians."
According to Glab, almost 60 percent of all funds spent through April 1983 on developing the site were spent in Colombia. In addition, says Glab, "the lion's share - approximately 95 percent - of those employed in the construction phase are Colombian."
Glab's figures, however, either baldly contradict those of Colombian businessmen and government officials and inside sources at the mine site or sidestep the complaints of local industry.
A serious consequence of MorrisonKnudsen's exclusion of local firms is the thwarting of "technology transfer," says Octavio Villegas Duque, former president of Colombian Society of Engineers. Local professionals lack experience in handling sophisticated coal projects; existing Colombian coal mines are small, underground operations. So far, Villegas says, Colombian engineers have not been allowed to learn from foreign experts the methods of designing and operating a large-scale mine. And failure to learn such high technology now means dependence on foreign help for future coal projects.
One of the more unsavory examples of Morrison-Knudsen's tendency to overlook local industry was its awarding of a $66 million, two-year food service contract to a Lebanese-based multinational, Albert Abela N.V. Because this type of contract can be renewed as long as workers need to be fed, it could grow into one of the single largest subcontracts at Cerrejon Norte.
Bidding should have been open solely to Colombian firms. The terms of the Andean Pact, a trade agreement between Andean countries which has the power of law, restrict foreign participation in the food service industry to the most minimal technical assistance. Local firms already have extensive experience in running large-scale food services at construction and mining camps.
Nevertheless, Morrison-Knudsen insisted that it would receive bids only from consortia composed of one local and one foreign firm. Abela started out with an experienced local partner and then suddenly switched to Hardys Ltda., a small fastfood operator, and Alberto Abela Colombiana Ltda., a company it created with $2,000 in capital. (According to commercial law, when a consortium dissolves, all its partners are disqualified from further bidding.) With these unqualified associates, Albert Abela N.V. won the lucrative bidding.
The Colombian government of Belisario Betancur tried to stop the multinational from taking a job that local industry could do. The National Planning Department refused Abela permission to bring foreign investment into Colombia
But Abela was undaunted. "We haven't lost the subcontract that Morrison-Knudsen gave us because of the Planning Department's decision," said a company spokesman. Instead, MorrisonKnudsen gave the Lebanese multinational a large interest-free advance (reportedly $6 million) that makes foreign investment unnecessary.
Exxon denies any wrong-doing in the Abela contract case. "Our people in Colombia insist that [the contract] conforms 100 percent with Colombian law," says Exxon's Glab. He claimed no knowledge of Morrison-Knudsen's questionable advance to Abela.
Colombia's government has pinned future economic plans on the success of this project, but it has a difficult task at hand in "Colombianizing" the Cerrejon coal mine project. For despite their denials, Morrison-Knudsen and Exxon have a lot to learn about heeding Colombia's national interests, judging by the uproar.
Lore Croghan is an American journalist working in Bogota.