Analysts welcome Colombia oil sell-off

Colombia’s politically sensitive decision to partially privatise Ecopetrol, the state-owned oil company, will allow the country to reverse a decline in oil output and dramatically improve government finances, experts said on Wednesday.

President Alvaro Uribe’s office announced on Tuesday that his government would sell a 20 per cent stake in Ecopetrol to private investors. Economists have estimated the public share offering could be worth $3bn to $4bn (£1.6bn-£2.2bn).

Colombia’s move goes against the tide of energy policy elsewhere in Latin America, where Venezuela and Bolivia, for example, have this year raised taxes and nationalised some assets.

But a big capital injection into Ecopetrol is essential, the company argues, if it is to increase exploration and, in theory, boost output. Colombia has 1.4bn barrels of proven reserves and is self-sufficient until 2010.

Colombia’s oil production has dropped from more than 800,000 barrels a day in the late 1990s to 540,000 b/d at present because of guerrilla violence that has deterred exploration combined with exceptionally high tax rates.

However, a marked reduction in violence during the past two years has allowed Ecopetrol to return to areas long ago abandoned by oil engineers, and lower royalty rates introduced by Mr Uribe have encouraged multinational exploration.

“This decision is a win-win situation for both the government and Ecopetrol,” said Luisa Palacios, director for Latin America at Medley Global Advisors, a consultancy in New York. “Ecopetrol will now be able to increase investment spending without having to reduce its fiscal contribution to government coffers.”

Although Ecopetrol is a profitable company, its investment budget is constantly constrained by having to pay dividends to the central government.

Jorge Gamboa, president of Ecopetrol’s labour union, told local media on Wednesday that his members would oppose the move and call a national strike.