Extreme weather affecting Colombian energy policy

Colombia has been apprehensively awaiting the impact that the El Niño weather phenomenon would have on the country’s climate. This year’s El Niño has drastically cut rainfall in the country, severely lowering the water levels of Colombia’s Magdalena and Cauca rivers. Colombian President Juan Manuel Santos warned that the country might have to impose a limit on domestic water consumption as well as ration energy, as Colombia receives 70% of its energy from hydroelectric dams.

Colombia had expected to bridge its energy shortfall with a new natural gas importation agreement with neighboring Venezuela, but Venezuela state oil company PDVSA announced that it had temporarily stopped natural gas exports to Colombia. PDVSA explained that the changing climate meant that they needed to hold onto the natural gas to generate electricity domestically. Reuters noted that the export agreement provides for the two countries to supply their own markets before exporting.

Earlier this week, Colombian daily El Espectador interviewed Leonardo Villar, director of Colombian think tank Fedesarrollo. Villar spoke about Colombia’s prospects for 2016, and the likely difficulties the country will have in the coming year. Speaking on the price of oil, he said, “It is very difficult to predict oil prices, like exchange rates. Just a few months ago, there was speculation that it would go down more and there was a rise. Everything depends on circumstances out of Colombia’s control. … We need to get used to a low price, whether it is $30 or $50.”

Boom times for the Peruvian mining industry

On Wednesday, Peruvian Finance Minister Alonso Segura told the press that thanks to a record of strong investment in the country’s mining industry, mining production would skyrocket through 2018. He said, “This important growth will be generated by both production and investment. Despite future investments, already-launched projects' production will be much stronger.”

Minister Segura went on to contrast this healthy growth in the Peruvian mining industry with the state of the industry in other countries around the world, where large mining projects have been closed one after another due to the collapse in metal prices.

The Peruvian Central Bank (BCR) predicts that copper production will grow by an amazing 75.2% between this year and 2017. The strong investments made in the mining industry by previous governments are now finally starting to pay dividends.

Despite the rosy outlook for the Peruvian mining industry, the country’s economy as a whole is expected to grow only slightly in 2016, by just 2%. According to analysts, in addition to the mining sector, the construction, retail, and public sectors will drive economic growth. Analysts predict that business will hold off on making investments during the first half of the year because of the Peruvian presidential elections.

2015: A tough year for the Colombian economy

Over the weekend, El País published an article summarizing the performance of the Colombian economy in 2015. According to the report, while 2015 was not a terrible year for the Colombian economy, it was a year in which all the alarm bells went off. Oil income hit rock bottom, inflation began rising, and businesses and regular citizens started worrying about the climbing value of the dollar.

Amidst these conflicting signs and indicators, Colombian GDP grew at a healthy rate in 2015, and outside experts and the Colombian government expect it to continue growing in 2016. Still, the Colombian Ministry of Finance has had to revise downwards the country’s reported GDP growth for 2015 from 3.6% to just 3.2%.

The government has also shifted its goal for next year from 3.8% growth to just maintaining 2015’s 3.2% growth. Mostly, this revision is due to lowered expectations for the country’s agriculture and fishing industries because of the El Niño weather phenomenon.

In oil-related news, El Tiempo reported on an announcement by the Colombian government that 36 large oil services companies are in severe financial difficulties. The companies are from all parts of the oil services industry in Colombia, reflecting the significant problems wracking the industry.

The future of Peru's mining industry

In 2015, the two main stories for Peru’s mining industry were the country’s battle against illegal mining, and the formalized mining industry’s frequent clashes with local communities. Late last week, the Peruvian Ministry of Economy and Finance doubled down on the country’s push to formalize its mining industry.

The MEF announced that it would send S/. 1.8 million to six Peruvian regions to fund formalization in those regions’ mining sectors. This decision shows that the Peruvian government recognizes that the decentralization of the country’s mining sector undermined the federal government’s efforts to formalize Peru’s mining industry. Several Peruvian regional, most famously Madre de Dios, sided with their informal miners against the central Peruvian government. With the additional funds, though, the regional governments will likely change their tune.

According to the Andina news agency, the Peruvian government carried out 100 operations against illegal mining throughout the country in 2015. Just last week, the Peruvian government revealed that 120 illegal mining encampments were destroyed in a raid called “La Cumbrera 2015” in the Cusco department. This time, the illegal miners fought back and detonated dynamite in an attempt to prevent the operation.

 The raids this year brought together officials from various Peruvian agencies and departments, and were carried out at a steady rhythm throughout the year. The Andina report made no mentions of plans for 2016.

Nonetheless, the Peruvian mining industry has remained very attractive to foreign investment. The total value of the country’s 47 ongoing mining projects now comes to $56.4 billion. Of that money invested in Peru’s mining industry, Chinese companies have invested more than one-third of it.

Depressed oil prices scramble Colombia's financial future

On Wednesday, reports centered on the ongoing crisis over global oil prices and its impact on Colombia’s current account deficit. The combination of low oil prices and strong domestic demand drove the country’s current account deficit up from 4.7% this time a year ago to 6.6% today. However, outside investors expect Colombia’s current account deficit to improve in 2016 thanks to stabilizing oil prices and reduced volatility in the value of the Colombian peso.

Also on Wednesday, the Colombian peso registered its biggest gain since November 3 when it climbed 3% to 3,213.70 per dollar. As has been the case for the last two years, the peso tacked with the price of oil. A rally in crude oil prices similarly drove up the value of the Colombian peso. Bloomberg however noted that the peso was also helped by the Colombian government’s decision to raise the minimum price for its January 13 sale of state-controlled power company Isagen S.A.

Nonetheless, the Colombian government has been forced to scramble for new revenue as a result of the total collapse in global oil prices. Colombia, despite being a strongly conservative country, has even started investigating the possibility of launching a regulated online gambling market. As oil accounts for 40% of Colombia’s exports, the government must now cast around for new revenue streams to replace oil.

Peru expects huge boost in copper production in 2016

On Monday, the Peruvian government announced its copper production projections for 2016. The government expects production to rise by 65.5% to a total of 2.5 million tons, once the Las Bambas project comes online in February. According to Peruvian Minister of Energy and Mines Rosa María Ortiz, after protests against the project turned violent in September, the mining company and the government have had productive and ongoing talks with leaders of the local community.

Minister Ortiz stressed that protests are no longer holding up the $7.4 billion project, and it should go ahead as scheduled. Reuters noted that if Las Bambas successfully comes online, it would set a new trend of projects restarting after being shut down by deadly protests. Newmont Mining’s Conga project has been paralyzed since 2011, and Southern Copper Corp’s Tía María project was shut down in May. Both projects were derailed by violent protests.  

Rosa María Ortiz also told the press that the new Peruvian president will have to strengthen he country’s norms against illegal mining so that the activity can be brought under control. She said, “We cannot stop fighting illegal mining because it does not just hurt the environment, but also brings other illegal businesses, like human trafficking, child prostitution, and gasoline smuggling.” According to the Minister, Peru has approximately 70,000 illegal miners, who produce 20 tons of gold per year.

Also looking to the future, Peruvian business journal El Comercio outlined six different possibilities for the Peruvian economy in 2016. The Peruvian government expects the country’s economy to grow by 4% in 2016, which is much more optimistic than the assessments of most outside analysts. El Comercio concluded that while the economy will grow in 2016, it will not reach its full potential.