Exxon mine project in Colombia nettles US coal community
Exxon has set a tiger loose in the American coal industry's house. It's not a big tiger, but coal industry spokesmen and senators from coal-producing states fret that it could mean trouble. The tiger is a mine Exxon is developing with the Colombian government. The mine will export coal -- a resource the United States has an abundance of.
While Exxon officials insist that most of the coal is intended for European markets, they concede that some of it will be destined to American electric utilities, especially those in Florida, along the Gulf Coast, and up the Atlantic Coast.
Already Florida Power Corporation has agreed to buy 550,000 tons of Colombian coal in 1985 as part of the 5 million tons it will burn this year, a Florida Power spokesman said, and it has a 41/2-year contract to buy a minimum of another 2 million tons.
Virginia Electric Power Company is exploring the possibility of using Colombian coal, says spokesman Bill Hall. And the president of Exxon Coal International, Richard Kiddoo, says his company is also negotiating with Jacksonville Electric Company in Florida.
Colombian coal is attractive to coastal utilities because it is cheaper than American coal. Utilities and coal companies complain that railroad freight rates in the US have boosted the price of coal so high that Colombian coal can be shipped here for less money.
``It's cheaper to get it from Colombia,'' says Flordia Power spokesman Karla Umberger. ``We don't plan to drop our domestic market, but it's good to have different sources of fuel. It's the railroad rates that are our main concern.''
Coal producers fear utilities will use Colombian coal to drive down the price of coal when long-term contracts come up for renewal. While utilities have purchased foreign coal in the past from Poland, Australia, South Africa, and Canada, producers see Colombian coal as a bigger threat to their long-term markets.
During a recent Senate subcommittee hearing on importing coal, two things appeared to upset the senators: (1) The Colombian government's share of the investment for the mine came from the federally backed Export-Import Bank, and (2) the Staggers Rail Act is keeping rail rates artificially high, so that American coal is losing its competitive edge.
``When the Saudi Arabia of coal [the US] is importing coal, then there is something wrong,'' said Sen. J. Bennett Johnston (D) of Louisiana.
Exxon and the Colombian government-run coal company, known as Carbocoal, split 50-50 the $3 billion investment to turn the sparsely settled Cerrejon region of northern Colombia into a modern coal mine and seaport. Carbocoal got its $1.5 billion share by borrowing from Ex-Im Bank, which the federal government created to help promote US sales abroad by lending money to foreign nations for buying US products.
After 10 years of development, the mine is now producing its first coal, and Exxon officials say they expect to produce 2.8 million tons this year and 16.5 million tons by 1989.
Mr. Kiddoo says only about 3 million tons of Colombian coal will be sold in the US, which would amount to a very small percentage of the American domestic market. Even if the company sold 10 million tons in the US, he said, it would only amount to 1 percent of the American coal industry's production.
At the same time, he said, the Ex-Im loan to the Colombian government was used to buy more than $500 million worth of goods and services for the mine from American businesses; as the mine operates, he says, sales should continue.
But with the American coal industry in a depressed condition, senators from coal-producing states are not mollified by Kiddoo's statements.
``Our people are going down the drain while we're sending our money overseas to support other people,'' said Sen. Wendell H. Ford (D) of Kentucky. Sen. Jay Rockefeller (D) of West Virginia noted that most of the supplies for the mine were purchased in California, Texas, New York, and Massachusetts, while the coal-producing states got next to nothing.
``California gets the money, and West Virginia loses the jobs,'' Mr. Rockefeller said. ``What's fair about that?''
E. Allan Wendt, deputy assistant secretary of state for international energy and resources policy, assured the senators that the department did not see the Colombian mine as much of a threat to the American coal industry.
``We don't see the potential of Colombian coal as being very great,'' he said. ``Most of that coal is likely to go to Western Europe, while some of it will go to ports along the Gulf and East Coasts. Our coal potential is enormous, and the overwhelming amount of it will come from domestic mines.''
But West Virginia exports coal to Europe, Rockefeller said, and the Colombian mine would be competing for the market.
In the House, legislation has been proposed to put a tariff on foreign coal. But even coal producers say that would do more damage than good. A. Denny Ellerman, executive vice-president of the National Coal Association, points out that ``a tariff would only protect some producers supplying those domestic coal markets subject to import competition -- but only at the expense of an even greater loss of overseas export markets.''