Summary
Colombian President Juan Manuel Santos announced Nov. 3 that the government would invest 2.2 trillion pesos (roughly $1.2 billion) in restoring the navigability of the Magdalena River, Colombia's primary waterway and conduit between the Andean interior and the Caribbean coast. The initiative, first conceived in the late 1990s, is just one component of the Santos administration's larger attempt to develop Colombia's transportation matrix and create more cost-competitive options for getting goods to market.
While the project will have some positive effects, such as lowering transportation costs for the energy sector, the venture is no panacea. Fluvial transport will continue to account for a small percentage of overall freight in Colombia, and the country will still struggle with high transportation costs due to the overall inadequacy of existing infrastructure, namely its road and rail networks and intermodal facilities.
Analysis
The Magdalena River -- along with the Amazon, Parana and Orinoco -- is one of the great rivers of Latin America. From pre-colonial times until the early 20th century, the Magdalena served as the primary means of transportation, linking Colombia's mountainous interior with the coast. Existing roads were poor, rail was underdeveloped and air travel was nonexistent. Flat-bottomed riverboats (powered first by hand, then by steam and finally by diesel engines) became a primary means of transportation of both goods and passengers. However, due to certain characteristics of the river -- such as inadequate depth, shifting sand banks and erosion, as well as competition from other modes of transport -- scalability proved to be a challenge. By the mid-1950s, the river had peaked in importance, settling into a steady devolution that has continued to this day.
Colombia's Geographic Challenge
From the present perspective the Magdalena has lost nearly all of its economic relevance due to competition from roads and railways. Only around 1.5 million tons of cargo, or 0.6 percent of the national total, was shipped on the river in 2011. Around 90 percent of this cargo was liquid hydrocarbons and the remaining 10 percent was dry bulk, mostly coal.
The Initiative
For a number of reasons, including economic, environmental and security concerns, the Colombian government is now trying to reverse this trend and increase the use of fluvial transportation. Cormagdalena, a state-owned entity, has been tasked to partner with a private consortium to implement the Program for the Recuperation of the Navigability of the Magdalena River. Planning has been underway since 2007, and the execution phase will soon begin.
The program consists of two phases, both of which will be auctioned off to a public-private partnership in the first half of 2014 and executed simultaneously. The first phase, covering the stretch of river from the inland city of Barrancabermeja to Barranquilla on the coast, will be dredged to 8 feet by the end of 2014. The Canal del Dique -- a man-made linkage between the coastal city of Cartagena and the Magdalena -- will also be deepened and reinforced. The second phase, from Barrancabermeja to Puerto Salgar, will be dredged from 4.5 to 6 feet. Both sections will be complemented by channel improvements and the construction of protective levees to help make the changes more permanent. Because this second stage is more technically complicated, work will likely continue through the end of 2017.
Addressing the issue of funding, Santos stated that the federal budget would cover the vast majority of the project. The remainder would be financed by government-controlled energy firm Ecopetrol and Cormagdalena, along with the various municipalities bordering the river using royalty revenues from extractive industries.
Three consortiums are slated to participate in the auction. The first is Navega Magdalena, comprised of Belgian firm Jan De Nul, Spanish firm Acciona Concesiones S.L. and Colombian firm Consultores de Desarrollo y Castro Tcherassi. The second is Desarrollo Rio Magdalena, comprised of Spanish firm Iridium, Dutch firms Van Oord, RM Holding and Juneau Business. The third is Navelena, comprised of Brazilian firm Odebrecht and Colombian firm Valores y Contratos. Lacking indigenous expertise, Colombia is utilizing outsiders to ensure the project succeeds.
The scheme has also piqued the interest of supply chain and logistics firms looking to position themselves for once the project is completed. In July, Impala, a subsidiary of Swiss firm Trafigura, invested $800 million in improving its capacity to ship dry and liquid commodities such as coal and oil in Colombia. The firm is building a port facility in Barrancabermeja, as well as contracting services in the port of Barranquilla. It has acquired a fleet of 80 tractor-trailers, 34 dry-good barges, 15 liquid-good barges and four tugboats to transport commodities from Meta, Boyaca and Cundinamarca to the ports of Barranquilla and Cartagena. Other firms expected to use the river include Ecopetrol, Coquecol (a coal exporting subsidiary of Gerdau) and Itacol (a food processing firm), among others.
Potential Effects
Once complete, the navigability project will allow barges laden with 2,500 tons of cargo -- roughly equivalent to 46 tractor-trailers or 16 train cars -- to operate in the river year-round. According to government projections, the ability for larger-capacity ships to work around the clock across the middle and lower sections of the Magdalena will allow total river freight to triple (to 6 million tons per year by 2017) and will drive down costs. It will also ease transportation bottlenecks on the country's principal highways. In reality, however, for the river development to be wholly effective, it will need to be complemented by improvements to intermodal infrastructure. Even then, river transport will likely provide a relatively minor complement to land-based transport, not a substitute.
The benefits of this project will be felt initially in the oil and coal sectors. Two of Colombia's largest petrochemical refineries -- the Barrancabermeja and Cartagena production facilities -- are located along the river. The Middle Magdalena basin is one of the country's most productive fields, second only to the Eastern Plains. The first stretch of the project will allow oil to be shipped via river, cutting down on transportation costs. The price of energy in Colombia is roughly three times greater than production costs and a major drag on competitiveness, since high transportation costs cut into profit margins for producing firms. Because pipelines in the northeast have been particularly vulnerable to oil theft and attacks from rebel groups, this could offer Colombia a more secure alternative. However, it also may simply create another target for rebels to attack.
While coal production is overwhelmingly concentrated in the northern departments of La Guajira and Cesar, substantial reserves also exist in Boyaca, Cundinamarca and Santander. The rehabilitation of the river could be to the coal deposits in those central departments what the Fenoco and El Cerrejon rail projects were to coal mining operations in the Guajira Peninsula -- namely, a way to drive down transportation costs and make development of coal mines there more feasible.
Despite the optimism surrounding the project, substantial challenges and questions of impact remain. At the forefront is the issue of demand. Infrastructure projects such as this are influenced primarily by two critical factors: technical feasibility and demand. While feasibility seems viable and political will certainly exists, the demand for fluvial transport is less clear-cut. Even if the freight transported on the river triples as a result of the program as anticipated, it will still remain a relatively small proportion of the country's total transportation matrix. For a real impact on transportation costs to be felt, Colombia's struggling and slow-advancing road and rail systems would need to improve.
Along the same vein, the country lacks the intermodal facilities and river equipment needed to expedite fluvial transportation. Whereas private companies such as Impala will build their own facilities, importing their own tugboats and barges, it is unclear whether there will be enough demand to incentivize additional operators to enter the market. Until the interconnections between road, rail and river are made more efficient, the effects of the project will be felt slowly.
Finally, environmental disputes and delays should be expected. Any megaproject that affects rivers is likely to face tough scrutiny from environmental groups. While the government is behind this initiative and companies are planning on having double-hulled ships to prevent spillage, the country's Ministry of Environment will continue to strictly enforce environmental regulation. These challenges are not insuperable, but they could lead to delays and more tempered results.
Santos' time in office has until now been defined by two main issues -- peace negotiations with the country's largest rebel group and his ability to continue to expand the economy, despite global economic woes. Both issues are immensely challenging and will fundamentally affect Colombia's prospects looking forward. Just as reaching a peace accord with the rebels will not rid the country of criminality, neither will the river program rid the country of its transportation challenges.
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