NEWS 01 MAY 6 - MAY 20 2013
ES CUE L A DE E CO NOM ÍA
VIGILANCIA AL CLIMA DE NEGOCIOS PESO – DOLLAR EXCHANGE RATE (ER) • After the Feb trend reversal in ER dynamics, the Colombian peso (COP) continues to weaken, even below pre – 2013 levels: i) ER (30 – day avg.) Dec 7 = $1,820
ii) ER (30 – day avg.) Feb 7 = $1,773 (minimum)
• In any case, there’s no evidence whatsoever of an inflection point in the 30 – day ER average so as to predict comfortably that the current level is a max and that it will converge back to the $1,800 threshold. •
iii) ER (30 – day avg.) April 22 = $1,813.43 iv) ER (30 – day avg.) May 20 = $1,833
• Note the Feb – May 3.8% depreciation (almost 70 COP per $US): i) ER January 31 = $1,773 ii)ER May 20 = $1,841 • As we have said before, the Feb – May depreciation has been to some extent a market response to the Central Bank’s (CB) loose policy stance (in response to output slow down). • However, we believe exogenous factors have been the main driving force behind local ER dynamics (and not domestic monetary policy, nor the recent fiscal countercyclical fiscal policy also known as PIPE). • Why? Note that after three consecutive cuts in its interest rate (Jan, Feb, and Mar), the CB didn’t change the rate during its Apr 26 board meeting (and the market expects no additional cut during its May 31 meeting). Yet, the ER continued to depreciate consistently during May. • Several factors might be pulling capitals away from Colombia:
On the contrary, if output slowdown, adverse shocks to business environment, and external shocks to the ER persist, the COP might weaken even more.
• Undoubtedly, recent ER behavior has injected (very much needed) oxygen to some stumbling sectors of the Colombian economy (tradable sectors, especially Manufacturing and Agriculture – AG –; see below). •
On the other hand, don´t forget that local currency depreciation melts down the real (dollar) value of any foreign investor’s net worth. Moreover, excess depreciation of a currency is not a good symptom of confidence in the economy´s fundamentals.
• Finally, ER volatility is around 13 COP. Given that it’s significantly below its recent maximum levels, and given uncertainty in terms of ER future dynamics, it’s not a bad time for tradable sector companies to purchase hedges against ER fluctuations (the higher the volatility, the more expensive the hedging).
i) Output stagnation and deterioration of business environment in some sectors of the Colombian economy (see below). ii) Signs of U.S. economic recovery. iii) Global risk aversion enhancing factors: IMF’s cut in its global growth forecast, uncertainty in Europe, etc. 1
Recall that the CB has cut its interest rate in 100 basis points (bps) during 2013: i) 25 bps on Jan 28; ii) 25 bps on Feb 22; iii) 50 bps on Mar 22 (0 bps on Apr 26; the rate is currently standing at 3.25%). Plus, the CB has adopted a more active international reserve accumulation policy: $US 30 million daily (or $US 3 billion between Feb and May), as opposed to the $US 20 million per day it had been purchasing before.
QUAESTOR’s $US Value of Domestic Stock Price Index • The stock market has exhibited a boom – bust cycle during 2013, with a deep plunge after its Feb peak. •
$US 100 invested on Jan 02 have become $US 87 on May 20.
• $US 100 invested during the markets’ peak (Feb 5) have turned into $US 85 on May 20.
• This is a 12% (COP) nominal drop in just 105 days (!!!). • Such a nominal stock price plunge, coupled with the 3.8% Feb – May depreciation (see above), adds up to a huge loss in real (dollar value) terms. • Reasons behind the plunge? Consider the following:
• Indeed, after its Feb 5 max (15,195), the stock market’s main index (IGBC) receded systematically: i) IGBC March 1 = 14,786
i)
Dismal corporate results: only 57% of those companies listed in the IGBC reported profit growth.
ii) Disappointing data from Oil and Gas sector (O&G) companies: less than expected reserves, production and profits.
ii) IGBC April 1 = 14,043
iii) IGBC May 3 = 13,491 iv) IGBC May 3 = 13,343 (with 13,191 on May 10).
iii) Output stagnation and deterioration of business environment in some sectors of the Colombian economy (see below). iv) Uncertainty about property rights attributable to peace talks with FARC terrorists (see below). v) Uncertainty in international financial markets (Europe’s macro instability, IMF cutting global growth forecast – see above –) has increased relative risk premiums in emerging markets’ assets. • As we have said in our previous reports, we believe the market will remain bearish in the short – run.
Treasury Bills (TES) Implicit Interest Rates • After a steady reduction of the implicit interest rate of the July 2020 TES bond (11% coupon, issued on July 24 2005, expire on July 24 2020), reaching a minimum of 4.68% on March 7 (71 basis point drop in relation to Jan 3), the rate increased again during the Mar – May time lapse and has converged back to levels not seen since the second half of January (TES Rate May 16 = 5.02%). • Even though the TES price reduction hasn’t been as severe as the stock price crash, given the magnitude of such a plunge (see above), and given the decline in other asset prices of the Colombian economy (for instance currency; see above), we suggest caution before adopting a final stance on the future dynamics of TES prices.
Inflation Rate • Recall (from our previous report) that on Saturday May 4 DANE (National Statistics Agency) published inflation data for April 2013: 0.25% (vs. 0.14% on Apr 2012). • Hence: i) Cumulated inflation (Jan – Apr) stands at 1.21% (compared to 1.62% during Jan – Apr 2012). ii) Annual inflation (May/2012 – Apr/2013) is at 2.02% (compared to 3.43% during May/2011 – Apr/2012). • There’s no doubt that consumer price data reflects full stability and portrays sufficient macro/monetary stability for investment purposes. • Yet, inflation data is also be revealing domestic economic deceleration and aggregate demand weakening (see below).
Output Performance vii) Wednesday May 16 (ANDI – Encuesta de Opinión Industrial): During the first quarter manufacturing output declined 3%. Furthermore, 10 (out of 14) subsectors exhibited output drops during QI2013. As a result, manufacturing sales receded 1.9% due to a 2.2% sales reduction in the domestic market.
• Recent relevant data: i) O&G and Mining (–23%): even though oil exports increased in more than 1 million barrels (vs. Mar 2012), coal exports (as with the Feb datum) contracted significantly. For sure, the labor strike in Cerrejón (see below) partially affected March’s datum. a) Government saving additional resources abroad.
The report also indicates: a.
b) Ag and agro – industrial products (–17.5%): coffee exports explain a big chunk of the drop..
b. Orders keep on falling.
c) Manufacturing (–12.6%): the fall in plastic product exports account for a large fraction of the sector’s underperformance.
c. Business environment has not improved. viii) Thursday May 17 (Camacol): 87k jobs were lost in the construction sector during the first quarter of the year (in relation to QI2012). The situation is especially worrisome in Bogotá (75k jobs were destroyed during QI2013).
First quarter exports (QI2013) declined 9.5% with respect to 2012. This contraction is attributable to the 12.6% drop in O&G and Mining sector exports: $US 9,315 million (QI2013) vs. $US 10,656 million (QI2012). The latter, undoubtedly, has to do with:
ix) Thursday May 17 (DANE – Muestra Mensual Manufacturera): Manufacturing output dropped 11.5% (yoy) during March. Last year (Mar 2012) manufacturing output was receding at a mere 0.6% yoy rate. Moreover, a plunge of this sort hadn’t happened since Apr 2009 (when manufacturing output fell 13.9%). Even worse, 42 subsectors (out of 48) exhibited output contractions:
a) 32 day long (Feb 7 – Mar 11) labor strike in Cerrejón. b) 22 day long (Feb 7 – Mar 1) suspension of Drummond’s license for loading coal in its Santa Marta and Ciénaga port (after the coal ocean spill incident)4. c) 22 day long (Feb 7 – Mar 1) suspension of FENOCO’s daily night time (10:30 pm – 4:30 am) operation5.
a. Vehicles: –31.2%. b. Clothing: –24.3%.
Nevertheless, adverse business environment conditions in mining (see below) are probably starting to kick in. Finally, first quarter exports to the U.S decreased 16.8% in relation to 2012 (basically due to a contraction of exports in fuels and mineral oils). This datum explains almost 70% of the 9.5% drop in QI2013’s total exports.
c. Sugar refining: –23.5%. d. Paper and cardboard: –18.1%. e. Drinks: –15.5%. f. Non – metallic minerals: –14.5%. g. Milling: –12.7%. h. Chemical products: –11.4%.
ii) Monday May 13 (Banco de la República): 8.9% reduction during the first quarter’s FDI flows: $US 3,837 million (QI2013) vs. $US 4,210 million (QI2012). The drop is explained by the fact that FDI in the Ag, Manufacturing and Retail sectors contracted 33%, while FDl in the O&G and Mining sector only grew 0.6%.
As a result, during March the overall manufacturing sector exhibited 2.2% and 12.2% yoy drops in occupied personnel and sales, respectively. Furthermore, during March there was a 4.3% reduction in occupied personnel in the manufacturing sector under long term contracts. Year to date manufacturing output (QI2013) contracted 6.1%, whereas last year (QI2012) it was growing, at least, at a 2% rate. In consequence, QI2013 manufacturing jobs and sales receded 1.8% and 6.3%, respectively.
iii) Tuesday May 14 (Fedesarrollo): The Consumer Confidence Index gained 9.9 percentage points during April 2013, reaching 23.7% (rising significantly in Cali: 15.4 percentage points). Even though, the index overall is still 3 percentage points below its Apr 2012 level, it’s now above the Dec 2012 and Jan 2013 levels (and also above the Apr 2009, 2010 and 2011 levels).
12 – Month manufacturing output (Apr 2012 – Mar 2013) dropped 1.9% (last year: 4.5% increase). During this time period occupied personnel in the sector is stagnant and sales declined 1.9%.
According to the think tank, this result shows that private consumption growth will pick up (and exhibit stronger dynamics) during the second quarter of the year.
x)Thursday May 17 (DANE – Muestra Mensual Comercio al Por Menor): 0.9% yoy increase in retail sales during March. Last year (Mar 2012) they were growing at a 6.8% yoy rate. If vehicle sales are excluded, the Mar 2013 retail sales yoy growth rate expands to 6.4%. Additionally, retail sector jobs exhibit a 4.4% yoy increase during Mar 2013.
iv) Wednesday May 15 (ANM – National Mining Agency): Coal output plunged 21.4% (5 million tons) during the first quarter: 18.4 million tons (QI2013) vs. 23.4 million tons (QI2012). This result confirms DANE’s export data in relation to Mining sector exports (see above). According to ANM, the drop is explained by factors like the ones we mentioned above (Cerrejón’s 32 day long labor strike, Drummond’s 22 day – long port loading license suspension, etc.). Nevertheless, we insist: adverse business environment conditions in mining (see below) are also starting to kick in. The Agency also informed that, as a result of the quarterly coal output drop, royalties and compensation crashed in 51.6% (!!!) during the first quarter: 196k million COP (QI2013) vs. 405k million COP (QI2012). v) Wednesday May 15 (DANE): 5.9% overall reduction in the volume of mortgages and housing loans during the first quarter (–2.3% for new housing and –9.5% for used housing). Additionally, the number of houses with mortgages and loans declined in 9.3% (–7.3% in new houses and –11.9% in used houses). vi) Wednesday May 16 (DANE): Construction licensed area plummeted 16.4% during March: 1.843.902 m² (Mar 2013) vs. 2.205.691 m² (Mar 2012). The plunge was especially strong in unsubsidized housing (–20.5% in m² and –17.4% in number of houses). During the last 12 months there’s a 6.9% decrease in construction licensed area: 24.227.935 m² (Apr 2011 – Mar 2012) vs. 22.559.159 m² (Apr 2012 – Mar 2013).
Installed capacity utilization remains at historically low levels.
First quarter retail sales grew a meager 0.9% (4.1% excluding vehicles), whereas last year (QI2012) they were growing at a 6.9% rate. QI2013 jobs in the retail sector grew 4.5%. 12 – Month retail sales (Apr 2012 – Mar 2013) grew a modest 1.7% (3.2% excluding vehicles; last year: 9% growth rate). During this time lapse occupied personnel in the sector increased 5.1%. •
In sum, first quarter output data was dismal.
•
Undoubtedly, several sectors in the Colombian economy have either stagnated (mining, retail sales, Ag) or plummeted (manufacturing, construction).
• The impact in the labor market has been (and could continue to be) severe. • No wonder there’s an evident weakening of domestic demand. •
Even worse, external demand is still weak.
• Hence, symptoms of external imbalances are showing up in the horizon (export and FDI contraction). • Hopefully, the latest consumer confidence data and the government’s countercyclical PIPE program (see our previous report) are capable of offsetting the economic weakening and ignite a full recovery, at least during the second half of the year. • However, if business environment conditions in several sectors of the economy keep on deteriorating (see below), the recovery will not occur.
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Cerrejón belongs to BHP Billiton (Anglo – Australian capital), Anglo – American (Anglo – South African capital) and Xstrata (Swiss capital). The production halt cost the company approximately $US 80 million (2.5 million coal tons were not exported). Drummond is a global leader in coal and coke production (American and Japanese capital). It ships 80k daily tons of coal from Colombia to Europe. The mines (La Loma, El Descanso) are located in the nearby state of Cesar. At current coal prices the license suspension represented a $US 6.4 million daily loss.
UNDER OUR WATCH: • Unrest in Ag Sector: This time it was potato farmers. They held a strike (and blocked major roads) during several days. As usual, the strike came to an end on Thursday May 9 when the Ministry of Agriculture gave into farmers’ requests and granted more than $US 20 million in subsidies (lump sums per hectare). This type of subsidy is a costly and distortive response to please potato growers. First of all it will not stimulate productivity in the potato sector. Nothing worse that lump sums per hectare to hinder productivity and perpetuate the subsidy.
The GC’s report contains a heavy ideological depth charge. For instance, it’s not fortuitous that the report has been elated by www.rebelion.org. We believe the GC should not pose as a think tank or a public policy school. Thus, instead of issuing ideologically contaminated papers, it should devote itself to its real purpose: fiscal control. Ideological persecution of this sort against the mining industry is a big setback to business environment. It hurts formal and environmentally responsible tax paying companies, while doing a favor to illegal and environmentally razing operators.
Secondly, it adds up to the collection of fiscally costly policies that the government has adopted in order to calm down social unrest in Colombia (judicial employees, coffee farmers, truck drivers, cocoa farmers, Cucuta businessmen, steel workers, rice farmers– see our Quarter I report). Just in the Ag sector strikes have cost more than $US 500 million. Recall that last year’s judicial national strike ended in a $US 750 million wage leveling package granted by the government (and, ironically, inconformity in judicial employees persists).
Not surprisingly, the mining industry (Minería a Gran Escala of ANDI, Asomineros and Federación Nacional de Productores de Carbón) issued a press release controverting the GC’s report and stating that it “contains appreciations that don´t fit the reality of the operation of formal mining companies in the country and disregard the conclusions of published papers.”
Third, the potato subsidy perpetuates a perverse incentive being issued by the government again and again to every dissatisfied sector of society: go to strike (preferably violently) and get a bite of the public budget.
i) Contempt and fire from public officials against FDI in mining. Recall, for example, from our previous reports:
In sum, the government seems incapable of enduring social unrest. In the midst of every single confrontation it yields to distortive policies, jeopardizing, at the same time, the country’s fiscal stance and stimulating, by the way, further strikes. • Fire against Mining Sector: On Tuesday May 7 the General Comptroller (GC) issued a very critical report on the Mining sector in Colombia. As if it were a think tank or a public policy school, the GC severely criticized mining in Colombia, claiming that: i) It’s not fostering local development. ii) It’s putting at stake food supply security in regions like Cesar and La Guajira. iii) It creates mere commodity exports (99% of gold and 92% of coal is exported with no value added whatsoever). iv) It has created an enormous environmental debt. v) Entitlements and concessions are not granted with serious and rigorous selection methods. vi) Public institutions are privileging mining over fundamental human rights in surrounding areas (local communities are forced to sell their land or end up expropriated, with no adequate compensation plans).
It’s a fair and reasonable cry. Specially taking in consideration other recent setbacks for business environment in the mining sector:
a.
Outbursts and publicized decisiveness of the Minister of Environment, Attorney General, and General Comptroller against Drummond after the unfortunate coal ocean spill incident.
b. Systematic persecution from environmental authorities and local officials against Anglo Gold’s6 exploration activities. ii) Systematic deterioration of physical security in the mining sector. See, for example, from our previous reports: a. Multiple FARC attacks against Cerrejón’s infrastructure. b. Multiple kidnappings of mining companies’ workers (Braeval7, Gran Tierra Energy8, etc.) iii) Bigger state – take. Last year’s tax reform increased taxes (rates and withholdings) on capital intensive sectors like mining and O&G. iv) Inapplicability of the new Mining Code. Even though the Minister of Mines announced two decrees to make up for the Constitutional Court’s ruling that knocked out flat the new Mining Code9, the situation surely entails worrisome legal instability for the industry.
South African capital. Canadian capital. Canadian capital. 9 Recall that two years ago the new Mining Code was ruled unconstitutional by the Constitutional Court (CC) due to lack of consultations with indigenous groups. However, the CC granted the government a 2 year grace period for such consultations (in order to avoid the resurrection of the old Mining Code and the obvious legal instability/disruption of the mining industry). Unfortunately, the government didn’t make it, time expired the CC didn’t grant an extension of the due date and mining activities in Colombia, once again and starting on May 11, are to be governed by the old (2001) Code. 6 7 8
As if all of the above were not enough, on the same day it published its mining report (May 9), the GC issued another press release arguing that the extension of the concession contract between the Government and Cerro Matoso (BHP Billiton’s10 production of iron, nickel and ferronickel in the state of Córdoba) is not legal and hurts the State’s interests. According to the GC, benefits in terms of royalties and compensations paid by the company are not clear and sufficient. And, believe it or not, simultaneously to all of these eruptions from the GC against the mining industry, the National Mining Agency (ANM) issued its own press release establishing that 78% of mining entitlements in Colombia exhibit some sort of anomaly (no environmental permit, nonpayment of royalties, no insurance, etc.). This came after an auditing exercise over 2,500 entitlements (out of 9,500 that are going to be audited). Hence, the President of ANM has announced that this audit exercise will converge into stronger and more effective controls over mining activities. No one denies the necessity of severe environmental, fiscal and operational controls over mining activities. But disproportionate (yet politically profitable) official persecution and enhanced animosity against the mining industry (as if all companies were illegal operators) is the worst public policy whatsoever: it induces serious companies to flee the country, thus attracting illegal operators (those that use environmentally razing techniques and pay zero taxes) to mining areas. What are authorities thinking? • Congress against O&G: On Wednesday May 15 several Senators requested the Minister of Mines that Pacific Rubiales’11 contract not be extended beyond 2016 and that the oil field be given over to Ecopetrol. The GC (surprised?) joined the debate and claimed that Pacific has damaged the oil field. This is another very bad hint in terms of business environment for the O&G sector. Indeed, this company has also been a systematic target of political and ideological attacks during the previous months (no wonder the GC stepped in). • Peace talks with FARC: The government and the terrorist group are about to close a deal on the topic of rural development (first of five topics to negotiate). We don’t expect anything good out of it in terms of business environment. FARC are insanely demanding: i)
Limits (prohibition?) to private property in land.
ii) Expropriation of large estates. iii) Prohibition to FDI in land. iv) Earmarking additional fiscal resources for AG during a 10 – year time period. We believe the Santos administration won’t concede on extreme requests (especially those against private property or FDI). However, the final deal might include: i) Increasing land taxes in order to induce a more efficient use of land. ii) Strengthening the (already worrisome and dangerous) legal structure for land expropriation in order to nourish a land bank for poor peasants. As we have said over and over, these types of policies won’t improve the life quality of poor peasants. On the contrary, populist measures of this sort will undoubtedly hinder rural economic and social development. For instance, additional taxes on land will hurt investment (and job creation) in rural areas and the AG sector. Additionally, peasants with land grants but lacking credit, technology, economies of scale and insurance12 usually go bankrupt and abandon (once again) their farm to find a job in the city. At the end of the day these (probably well intended) policies unfortunately end up, in the first place, killing many job creating investment possibilities in rural areas and, secondly (and paradoxically), expelling out peasants out of their land and back into the cities. • Physical Security: i) Dismal statistic: During 2013 there have been 64 terrorist attacks against O&G + Mining infrastructure. In contrast, during 2010 there were only 31 attacks (less than half during more than twice as long). If the trend continues, total terrorist attacks against O&G and Mining during 2013 will compete with last year’s record breaking datum: 308 attacks. ii) Wednesday May 8: Terrorist group ELN conditioned, once again, the release of Canadian geologist Jernoc Wobert to Braeval’s resignation to mining entitlements and concessions in Colombia. Braeval Mining Corporation’s focuses on gold exploration and development projects in Colombia, México and Perú. Specifically, ELN is demanding Braeval’s resignation to mining titles in Mina Seca (1,527 hectares), La Nevera (880 hectares), Casa de Barro (200 hectares) and Las Nieves (36 hectares). Recall that Wobert was kidnapped with two Peruvians and three Colombians on Friday January 18 in the “Casa de Barro” gold mine (municipality of Norosí, south of the state of Bolívar). The Peruvians and Colombians were liberated on February 12. The Canadian remains captive. Australian and British capital. Canadian capital. Against exchange rate, climate, phitosanitary and international price risks.
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The terrorists have threatened that any military operation aimed at rescuing Wobert is “unfeasible”. In their last press release they also said that they repealed one paramilitary group seeking to rescue Wobert. iii) Wednesday May 8: In the state of Norte de Santander (frontier with Venezuela) Army troops found a deposit full of explosives belonging to FARC terrorists (“Cuadrilla Iván Ríos”). Intelligence sources say that these explosives were aimed at attacking energy infrastructure. iv) Friday May 10: 3 persons were kidnapped in the municipality of Santander de Quilichao (state of Cauca). This is the second kidnapping in this municipality in less than a month. v) Friday May 10: Army troops found a deposit with 5 thousand land mines in the settlement of Versalles (municipality of Albania, state of Caquetá) belonging to FARC terrorists (“Cuadrilla 49”). The explosive artifacts were going to be used and detonated by the terrorist group in southern Caquetá. vi) Friday May 10: One policeman was shot in the head by FARC snipers in the municipality of Arauquita (state of Arauca, frontier with Venezuela). The incident is part of FARC’s “Pistol Plan”, aimed at killing policemen and soldiers on a one by one basis. During 2013, and under this macabre plan, 70 policemen and soldiers have been shot by FARC in the state of Arauca. vii) Friday May 10: A car with explosives was deactivated in downtown Bogotá. viii) Saturday May 11: 100 persons had to flee their homes in the municipality of La Hormiga (state of Putumayo) in an attempt to avoid crossfire during intense combats and fighting between the Army and FARC terrorists. ix) Saturday May 11: In cross – fire between Army troops and ELN terrorists in the municipality of Saravena (state of Arauca) three guerrilla members were shot down and two soldiers were wounded. x) Sunday May 12: FARC terrorists (belonging to “Frente 36”) incinerated one bus on fire in the municipality of Toledo (state of Antioquia). xi) Monday May 13: FARC terrorists launched a grenade and fired (with assault rifles) against a Police station in the municipality of Teorama (state of Norte de Santander). One policeman was wounded. xii) Tuesday May 14: At 3 a.m. FARC terrorists (belonging to “Frente 32”) attacked with explosives and assault rifles a Police station in the settlement of Pepino (6 kms away from Mocoa, capital city of the state of Putumayo). One policeman was killed and four other were wounded. This is the third attack in 2013 to Police stations in the state of Putumayo. xiii)Tuesday May 14: At 7:40 a.m. FARC terrorists (belonging to “Frente 36”) set another bus on fire in the municipality of Toledo (state of Antioquia). xiv) Tuesday May 14: Five FARC terrorists (belonging to “Columna Móvil Alfonso Castellanos” and “Compañía Drigelio Almarales”) were shot down by Army troops (8th Division) in the municipality of Arauquita (state of Arauca). The terrorists were planning extortion acts against local citizens. xv) Tuesday May 14: Army troops (23rd Brigade) deactivated several explosive artifacts installed by FARC terrorists in a school in the settlement of Carrizal (municipality of Ricaurte, state of Nariño). xvi) Tuesday May 14: Local authorities in the municipality of Montecristo (south of the state of Bolívar) denounced a shortage of supplies (food and medicines) in two of its settlements (Dorado and Paraíso – 400 families) due to ELN’s prohibition to enter or exit both places (and after the terrorist group burned several vehicles and assassinated a motorcyclist on April 25). xvii) Wednesday May 15: Four ELN terrorists (belonging to “Frente José Adonay Ardila Pinilla”) were shot down by Army troops (16th Brigade) in the municipality of Tame (state of Arauca). One soldier was also wounded. xviii) Friday May 17: FARC terrorists (belonging to “Frente 33”) attacked with explosives Army troops in the settlement of Otare (municipality of Ocaña, state of Norte de Santander). Our assessment: Physical security and personal (life and freedom) safety have not improved, especially in frontier states, and in regions of interest to the O&G, Coal, Gold and Electrical Energy sectors. Note ELN’s escalation of terrorist acts. It’s an evident strategy of ELN attempting to induce the government into peace talks. Similarly, FARC terrorists keep on trying to enhance people’s perception of their military capacity during peace talks with the government. In other words, FARC is evidently attempting to strengthen its position amid negotiations with the Santos administration.