www.cordaid.org
may 2013
BRIEFING NOTE
EXTRACTIVES
IN COLOMBIA
FIVE FEATURES
oil booming for how long?
Colombia’s oil output has jumped by 72% since 2007, but the
finance minister has said production at current rates, 950,000
barrels per day, will last just another eight years without new
finds. BP puts Colombia’s reserves to production ratio at 5.9
years. Still, the EIA projects oil production will continue to
rise short term. Shale oil exploration may help grow reserves,
and underdeveloped areas like Chocó, Putumayo, and Caquetá,
where FARC forces have had a strong presence, could see more
exploration. Colombia also held a bidding round last October
for offshore plays. The oil sector’s future success could depend
largely on whether it can book new reserves.
foreign currency inflow
Foreign investment in oil and mining has keyed the
government’s efforts to boost production, hitting a record high
of $14.5 billion in 2012. The government has lowered royalty
rates for foreign oil companies and allowed longer exploration
licenses and 100% stakes in fields smaller than 60 million barrels.
But bottlenecks in key production areas highlight the need for
more investment. The Bicentenario oil pipeline, from Casanare to
Coveñas port, at $4.2 billion is the biggest such project underway,
and China may help finance a new rail line to export coal.
coal
The world’s fourth biggest exporter of coal, Colombia exported
95% of its 90 million tons of produced coal in 2012, earning $8
billion. Production has doubled since 2000. The Carbones del
Cerrejon consortium is a joint venture of BHP Billiton, Anglo
American and Glencore Xstrata. It operates the Cerrejon Zona
Norte project, which accounted for 38% of production in 2011.
Cerrejon is the largest open-pit coal mine in the world.
social unrest and strikes
Striking oil and mine workers have complained of poor pay,
benefits and working conditions. In February 2013, Cerrejon coal
workers went on a month-long strike to win better wages. Near
the same time protestors in Arauca department blocked access
to oil fields and claimed the government had failed to invest
enough in education and health care. This followed a two-day
strike in July 2011 in which 10,000 oil workers walked from
companies in Meta department. The coal strike cost Cerrejon an
estimated $96 million, and the oil strike led oil company Pacific
Rubiales to briefly halt production at the Rubiales field, costing
it 177,000 barrels per day.
Map of current and requested mining concessions (2012).
Source: UAEGRTD, 2013, Catastro Minero Colombiano, 2012. Elaboró: Grupo Terrae
CARE. ACT. SHARE. LIKE CORDAID.
gold, the new coca
Illegal mining, gold in particular, has overtaken coca as a
main source of income for the FARC and other armed groups.
They either extorted from or directly ran thousands of mines
in 489 out of Colombia’s 1,119 municipalities as of early 2012,
commonly in northern departments such as Antioquia, Chocó
and Córdoba. Colombia’s outgoing police chief said in April
2012 that illegal mining was the biggest challenge facing his
successor. President Juan Manuel Santos has sought to regulate
the sector, and in November 2012 proposed a law to formally
criminalize illegal mining activities.
FIVE MAJOR PLAYERS
juan manuel santos
Since his election in 2010, Colombia’s centre-right president
has prioritized foreign investment in oil, mining and
infrastructure, counting on collaboration with private firms to
spur economic development. He has sought to improve internal
security and pursued a peace deal with the FARC, which he
wants done by November 2013.
revolutionary armed force of colombia (farc)
The FARC began an insurgency against the state in the mid1960s around agrarian land reform. Since the 1980s it has
tapped into revenues by exploiting primary commodities,
including attacks on oil and mining infrastructure, drug
trafficking, and illegal gold mining. In the war that has killed
tens of thousands and displaced millions, the Colombian army
has diminished the rebel forces. The FARC ended a two-month
unilateral ceasefire in January 2013 and as of April, despite
peace talks, fighting continued.
ecopetrol
Founded in 1948, the 80% state-owned oil company that
accounts for four-fifths of Colombia’s oil production briefly
overtook Brazil’s Petrobras in January 2013 to become the
largest listed oil company in Latin America by market
capitalization ($130 billion). Ecopetrol also explores and
produces oil in Brazil, Peru and the Gulf of Mexico, and owns
the main downstream facilities in Colombia.
united states
Colombia has had warm political ties to the United States
under successive governments, and exported about 40%
of its oil output to the US in 2011. The US has supported
counter-insurgency efforts against the FARC, which Amnesty
International has written are designed specifically to protect
US operated oil installations. The two countries launched a free
trade agreement in May 2012.
china
Colombia and China struck agreements in May signalling
Colombia’s intention to shift more oil and mining exports
to Asia. The deals included an agreement by the China
Development Bank to help finance a 600,000 bpd oil pipeline
and railroad to the Pacific, allowing quicker transport to Asia,
and discussions to develop Colombia’s coking-coal reserves and
mineral deposits in the Amazon basin.
FIVE UNANSWERED QUESTIONS
will oil and mining hurt the rest of the economy?
About 61% of foreign direct investment in Colombia went to the
mining and energy sectors in 2012. This inflow, coupled with
higher natural resource exports, led the Colombian peso to rise
7% in value between January 2012 and January 2013. In a classic
case of ‘Dutch Disease’– where a boom in natural resource
exports leads a currency to appreciate, damaging the rest of the
economy – this has begun to undermine the competitiveness of
Colombia’s manufacturing and agricultural exports.
The government has engaged in a currency war to help offset
this through a rigorous dollar-buying program, decreasing
demand for the peso in relation to the dollar. But the IMF
has warned of Colombia’s over-reliance on oil revenues. Can
the government continue developing petroleum and mining
without distorting the growth of other sectors?
when will a farc peace deal come?
The government has damaged the FARC and killed top
commanders, and peace talks are ongoing. Peace would
improve stability, enhance Colombia’s foreign investment
climate and open up oil, gas and mining concessions in areas
controlled by rebels. But still the fighting has shown little
sign of slowing: the government rejected a FARC proposal last
September for a bilateral ceasefire, and since then FARC attacks
on infrastructure have continued. FARC demands have included
a change to the national constitution; President Santos has
replied that if FARC leaders want to change the country’s
political or economic model, they should run for election.
colombia dutch disease data
Source: World Bank and BP Stat Review
%
‘000s of barrels per day
1000
80
900
70
800
60
700
50
600
40
500
400
30
300
20
200
10
100
0
2000
0
2002
2004
2006
2008
2010
Fuel exports (% of merchandise exports)
Manufactures exports (% of merchandise exports)
Oil production (thousand barrels per day)
CARE. ACT. SHARE. LIKE CORDAID.
Even if a peace deal is reached, though, it may not address
security problems posed by other paramilitary gangs, also
involved in illegal mining, extortion and drug trafficking,
known as bacrims.
what will happen to indigenous colombia?
The expansion of oil, gas and mining activity has driven
economic growth but also threatened the territorial rights,
livelihood and culture of indigenous and Afro-Colombian
populations, which make up about 30% of the country’s
population, according to the UN. Many sought-after mining
concessions are on indigenous and Afro-Colombian territory,
and the state maintains rights to the sub-soil resources.
According to Peace Brigades International, 80% percent of the
human rights violations in Colombia in the 10 years to 2011
took place in mining and energy-producing regions. What are
the risks of valuing extractives development over traditional
culture?
how will relations with venezuela fare without
chavez?
Relations between Colombia and Venezuela were icy for
much of the presidency of Alvaro Uribe (2002-2010), but ties
between Juan Manuel Santos and late Venezuelan president
Hugo Chavez were closer. Before Santos, many Colombians
migrated to Venezuela to escape the FARC conflict. Meanwhile
Colombia’s petroleum industry itself benefited from an inflow
of Venezuelan oil workers after Chavez’s purge of state-run
PDVSA in 2003. Nicolas Maduro, Chavez’s chosen successor,
helped persuade Chavez to work with Santos to end the long
conflict with the FARC, according to The Guardian, and after
Chavez’s death Santos said he would be “optimistic” should
Maduro be elected president. Santos has said he wants to
improve border security and trade between the two countries.
Colombia and Venezuela also share plans for a pipeline to carry
Venezuelan and Colombian crude to the Pacific coast. How will
Colombia’s relations with Venezuela fare with Chavez gone?
ABOUT OPENOIL
OpenOil produces reference guides to the oil, gas and mining
industries of countries around the world, in both print form
and online at wiki.openoil.net. The book Oil Contracts: How to Read
and Understand Them, is available at contracts.openoil.net; and
the handbook Exploring Oil Data at data.openoil.net. We provide
technical expertise to clients including UNDP, Revenue Watch,
the Center for Global Development and the EITI secretariat.
ABOUT CORDAID
Cordaid’s extractives program supports local communities and
civil society to become informed, legitimate and capacitated
partners in negotiations with international oil, gas and
mining companies and governments. We support the national
debate on the extractive industry between civil society,
community based organizations, governmental institutions
and representatives of oil, gas and mining companies. We are
working on a national database on mining and social conflicts,
a program for women participation in decision making on
mining issues, the formulation of community development
agreements and the development of protocols for the process
of resettlement of communities affected by oil, gas and mining
projects.
Extractives in Colombia is part of a series of briefing notes
on extractives in Cordaid’s focus countries. The series is
a co-production of OpenOil and Cordaid. Briefing notes
on DR Congo, Guatemala, Nigeria and South Sudan can be
downloaded at www. Cordaid.org.
will mining fill the gap once oil runs out?
The Ministry of Mines and Energy projected in 2011 that
mining would account for 13% of GDP by 2020. Oil and gas
now make up about 5% of GDP while mining contributes 2%.
Once Colombia’s oil reserves are drained, the government may
need to lean more on mining as a “locomotive” of economic
growth, as the president has put it. In addition to coal and gold,
Colombia has reserves of nickel, copper, silver, emeralds and
iron ore. Will Colombia sustain its economic growth through
mining once the oil runs out? What would the most favorable
circumstances be?
KEY LINKS
Energy Information Administration: Colombia Analysis
Oil and Gas Investor/Global Business Reports: Colombia
Colombian National Agency of Hydrocarbons (es)
USGS: The Mineral Industry of Colombia
Peace Brigades: Mining in Colombia, at what cost?
Giving it Away: Unsustainable Mining Policy in Colombia
Americas Quarterly: Natural Resources in Colombia
RUSI: Prospects for Peace with the FARC
CONTACT
OpenOil
Amrit Naresh
Research Associate
E amrit.naresh@openoil.net
W www.openoil.net
Cordaid
Nico van Leeuwen
Programme Officer Extractives
E nico.van.leeuwen@cordaid.nl
W www.cordaid.org
CARE.
ACT.
SHARE.
LIKE CORDAID.
08-2013
CARE. ACT. SHARE. LIKE CORDAID.