Colombia’s Deteriorating Security Outlook Could Impair Ronda Colombia’s Outcome

Colombia’s security environment is swiftly deteriorating as the Colombian government aggressively offers more than a hundred oil and gas exploration and production blocks in the Ronda Colombia 2012 bidding process. Oil and gas exploration is a key driver of the Colombian government’s revenue. A deteriorating security outlook could disincentive investors interested in bidding for the blocks offered in in key areas such as the Caguán-Putumayo basin.

Left-wing guerrillas have wreaked havoc in Bogotá, Caquetá, Guajira, Putumayo, and more recently in Cauca (where indigenous groups have strongly opposed the presence of armed groups). Analysts are divided about what is causing the Fuerzas Armadas Revolucionarias (FARC) and, to a lesser extent, the Ejercito de Liberación Nacional’s (ELN) recent blows to the Colombian Army, the Police force, and the country’s infrastructure. Some analysts believe this upsurge in guerrilla attacks is a defensive strategy amid the heavy military pressure of the Colombian state on areas where the guerrillas have historically been strongest, such as Caquetá in the case of the FARC. Other analysts, however, argue the uptick in guerrilla activity is the result of the government’s lack of military initiative and of the government’s military fatigue. Regardless of the cause, an emboldened guerrilla does not bode well for the outcome of the Ronda Colombia 2012, a bidding round of over a hundred exploration and production blocks in mature areas, new frontier basins, and areas with little geological knowledge.

The FARC and ELN guerrillas each have affected key oil infrastructure like the Caño-Limón and Oleoducto Transandino pipelines, which bring hydrocarbons to market through ports in the Atlantic and the Pacific coast, respectively. The rebels have also targeted railways transporting coal mined in the departments of La Guajira and Cesar. These attacks have not only affected production targets, but they are now forcing key players to re-evaluate their investment decisions. Gran Tierra Energy (GTE:CN), with assets in the rugged Caguán -Putumayo basin in southwestern Colombia, cut its capital expenditure budget by 14 percent for the remaining of this year in response to production constraints resulting from the guerrilla’s attacks on oil infrastructure. If decisions like this one are any indicator of what investor offers in the Caguán-Putumayo basin would look like, Colombian officials must be starting to feel strong shivers down their spines.  Continue reading

Advertisements

Royalties reform in Colombia

Increasing opposition to a constitutional reform that would change the regional distribution of oil and mining royalties is emerging in Colombia’s Congress as the bill makes its way through the legislature. Senator Juan Lozano, the president of Juan Manuel Santos’ Partido de la U, argued in a debate last night in the Senate that there should be a discussion on current tax benefits granted to extractive companies. Lozano’s statement echoed that of Senator Jorge Robledo from opposition party PDA. Robledo also argued that the bill seeks to centralize management of royalties in the hands of the national government  to cover its deficit.

Finance Minister Juan Carlos Echeverry highlighted that Colombia’s government does not plan to modify royalty rates and that the bill in discussion would contribute to a more equitable distribution of royalties among sub-national governments, both for producers and for non-producers. Echeverry clarified that the national budget will not benefit from any changes in the royalties regime. This is the second of eight debates. The debate was postponed late last night and will resume today. The government will continue to face strong opposition, in particular once the bill reaches the lower Chamber’s floor in the third and fourth debates and legislators are preparing to support candidates for local elections in 2011. Royalties are a significant component of the income of sub-national government. Colombia’s government expects to receive COP 8 trillion in oil and mining royalties this year.