The Colombian royalty and environmental systems

The Oil and Gas Year, international journal in the hydrocarbon sector, interviewed John Rojas, General Manager of Active Legal, about the implications of recent reforms to the General System of Royalties and environmental system in Colombia for hydrocarbon industries.

by: John Laursen
Country Editor
The Oil and Gas Year Colombia

July 29, 2014

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Companies active in the Colombian oil and gas industry have had to navigate a number of legal overhauls in recent years, including a new national royalty system and environment permitting process. Activo Legal is a Bogotá-based law firm that has a specialty in the mining and hydrocarbons industries.

What effect has the General Royalty System, brought into force in 2012, had on oil and gas companies in Colombia?

Many things have changed in the general royalties system, but one of the most important factors concerns the fact that royalties are now individually distributed by the central government to the Colombian departments. Before the change in the royalties system, the income from exploration and production activities was badly invested in the different regions, due to local government mismanagement. But under the new system, the royalties will reach the communities in the areas where resources are being exploited. As a result of well-directed royalties, oil and gas projects will not only encourage employment opportunities, but also community investment.

Has the national environmental system posed any obstacles for oil and gas companies, with relation to local communities?

There have been a number of different problems. The municipalities form part of the national environmental system and perform as an environmental authority with a great say in the licensing process. Furthermore, all negotiations result from the preliminary consultation of local communities. The national environmental system guarantees participation of the community in decisions that may affect them. Accordingly, local communities are able to impose environmental, social or financial obligations on oil and gas companies present in their territory.

To prevent is better than to cure. A solution to these problems would be to have a better legal framework in place for awarding blocks. If a company develops its activity here in Colombia, as is in any other country, it should be able to determine any potential hurdles and plan accordingly before it begins to negotiate with the National Hydrocarbons Agency (ANH). For example, environmental, technical and legal studies could be made beforehand and be presented to the local communities and the environmental authorities. This would prevent delays in production and any problems relating to the exploratory commitment time, by ensuring that most potential obstacles have been removed before the acquisition of a block.

Will national environmental laws become stricter in the future?

Colombia is a pioneer in laws aimed at conserving the environment. The environmental framework here dates back to 1993, and was a swift response to the Rio Convention of 1992, which set out guidelines for the protection of biodiversity and the fair and sustainable use of natural resources. All Colombian citizens have the right to live in a healthy environment, but at the same time the economy must be developed. As a result, the Colombian state has found itself in the awkward position of having to balance these two opposing goals.

In future, this will not necessarily mean stricter environmental laws. It will mean, however, that current regulations will be upheld vigorously. It will also mean that the current licensing process will be expedited. That is why the National Licensing Authority and the One-Stop Shop for Environmental Procedures were created, to give companies a single point of contact in filing their applications. Laws are currently being drafted to resolve more bottlenecks in the system. In summary, the environment, the regions and the local people must be protected, but in an efficient way.

What importance do the 2003 reforms of the Colombian oil industry hold for the state of the industry today?

They were very important reforms, which changed the sector in a very positive way. Before the ANH was founded in 2003, state oil company Ecopetrol had both the role of resource administrator and exploration and production company. After the reforms, Colombia became much more competitive as business opportunities improved, for a large part because the then-instated ANH imposed clear laws for obtaining blocks. Since the reforms, we have had an annual increase in foreign investment in hydrocarbons, mining and energy. In 2013 alone, foreign investment in hydrocarbons increased by 8 percent. The division between the ANH as administrator and oil company Ecopetrol has been very important in imposing international norms and standards in Colombia.

The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoints of Activo Legal Ltda.