Colombia's Energy Renaissance post-2000

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According to a 2010 report by US-based business organisation Council of the Americas, Colombia has developed its once struggling energy sector over the last decade into one of Latin America's foremost destinations for investment in the oil and gas sector, a transformation made possible by the country's political, economic and legal stability and an effective balance struck by the government between private firms and public institutions.[1]

Security Environment

According to a report by the BBC, one significant factor in the resurgence of the Colombian oil industry since 2003 is the vast improvement in the national security environment following the rise of Alvaro Uribe Velez rise to power in 2002.[2]

Partly as the result of the implementation of the the US-funded "Plan Colombia" anti-drug and anti-rebel program, the Colombian military were able to regain control of most of the national territory. According to comments made by former Mining and Energy Minister Carlos Rodado, the frequency of attacks by leftist guerrillas on power pylons fell to around 30 in 2011, compared to around 500 in the early 1990s. Attacks on pipelines were also said to have fallen to "a couple of dozen per year", down from 270 in 2001, according to Rodado.[3]

Regulatory Reform

The National Hydrocarbons Agency (ANH) was created in 2003, releasing formerly state-controlled Ecopetrol from its regulatory role.

With the introduction of this new institutional framework, Ecopetrol was forced to compete on a level playing field with private countries for exploration and production licenses and in November 2007 floated shares on the Colombian stock exchange. From 2003 onwards, private oil companies were allowed a full 100% ownership stakes in fields with less than 60 million barrels of reserves.

This insitutional model followed the example of Brazilian Petrobras, the formerly state-owned company which was partly privatized in order to improve transparency and competition in the bidding process. Brazil subjected state-owned Petrobras to commercial discipline by floating 40% of its shares in 2010. In 2007 Ecopetrol put up for sale up to 20% of its shares.[4]

According to the Council of the Americas report, the new competitive model and more efficient nature of Ecopetrol was a "resounding success". The number of exploration contracts awarded doubled between 2004-2009.[1]

Oil Industry under President Santos

As a result of continued high energy and commodity prices since Santos came to power in August 2010, foreign investors have sought to invest in Colombia. Foreign direct investment increased by 56% in 2011 to $14.8 billion, 82% of which was in the oil and mining sectors.[5]

The new administration under Santos began putting into place a series of fiscal reforms around the extractives sector. These included the restructuring of allocation of royalties, with plans to transfer 20% of royalty revenues from local authorities to central government,[6] and the creation of a sovereign wealth fund along the lines of those successfully created by Norway and Chile. The goal was said to be to keep public expenditure and to create "fiscal equilibrium" by 2014.[7]

In October 2011 newly appointed Energy and Mining Minister Mauricio Cardenas opposed the raising of royalty rates for oil and mining companies, arguing that it would be inopportune timing for the sector and that the debate should be left until a later date.[8]

Oil companies as of 2011 paid royalties in accordance with their levels of production. In the coal sector companies paid between 5-10% depending on production and in the minerals sector businesses paid 12% for ferronickel or 4% of gold and silver. The new bill proposed raising oil royalties to a maximum of 25% and 8-20% for coal and other minerals.[9]

References

  1. 1.0 1.1 Colombia's Energy Renaissance”. Council of the Americas, December 2010.
  2. Profile: Alvaro Uribe VelezBBC, retrieved 19 January 2012.
  3. Colombia is a rising oil exporter to U.S.LA Times, 7 April 2011.
  4. Share gusher”. Economist, 30 August 2007.
  5. Colombia’s turnaround: from bullets into drill bits”. Globe and Mail, 19 January 2012.
  6. Colombia economy: Seeking fiscal sustainability - Latin America”. Economist, 14 October 2010.
  7. Colombia: going Dutch?”. Control Risks, November 2010.
  8. Colombian mining minister opposes bill to raise royalties”. NTN24, 12 October 2011.
  9. Colombia refuses to increase oil royalties”. Reuters, 12 October 2011.