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BRIEFING NOTE EXTRACTIVES IN

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 the same time protestors in Arauca department blocked access Norte project, which accounted for 38% of production in 2011. to oil fields and claimed the government had failed to invest Cerrejon is the largest open-pit coal mine in the world. enough in education and health care. This followed a two-day strike in July 2011 in which 10,000 oil workers walked from social unrest and strikes companies in Meta department. The coal strike cost Cerrejon an Striking oil and mine workers have complained of poor pay, estimated $96 million, and the oil strike led oil company Pacific benefits and working conditions. In February 2013, Cerrejon coal Rubiales to briefly halt production at the Rubiales field, costing workers went on a month-long strike to win better wages. Near 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 FIVE UNANSWERED QUESTIONS Illegal mining, gold in particular, has overtaken coca as a main source of income for the FARC and other armed groups. will oil and mining hurt the rest of the economy? They either extorted from or directly ran thousands of mines About 61% of foreign direct investment in Colombia went to the in 489 out of Colombia’s 1,119 municipalities as of early 2012, mining and energy sectors in 2012. This inflow, coupled with commonly in northern departments such as Antioquia, Chocó higher natural resource exports, led the to rise and Córdoba. Colombia’s outgoing police chief said in April 7% in value between January 2012 and January 2013. In a classic 2012 that illegal mining was the biggest challenge facing his case of ‘Dutch Disease’– where a boom in natural resource successor. President Juan Manuel Santos has sought to regulate exports leads a currency to appreciate, damaging the rest of the the sector, and in November 2012 proposed a law to formally economy – this has begun to undermine the competitiveness of criminalize illegal mining activities. 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 FIVE MAJOR PLAYERS demand for the peso in relation to the dollar. But the IMF has warned of Colombia’s over-reliance on oil revenues. Can juan manuel santos the government continue developing petroleum and mining Since his election in 2010, Colombia’s centre-right president without distorting the growth of other sectors? has prioritized foreign investment in oil, mining and infrastructure, counting on collaboration with private firms to when will a farc peace deal come? spur economic development. He has sought to improve internal The government has damaged the FARC and killed top security and pursued a peace deal with the FARC, which he commanders, and peace talks are ongoing. Peace would wants done by November 2013. improve stability, enhance Colombia’s foreign investment climate and open up oil, gas and mining concessions in areas revolutionary armed force of colombia (farc) controlled by rebels. But still the fighting has shown little The FARC began an insurgency against the state in the mid- sign of slowing: the government rejected a FARC proposal last 1960s around agrarian land reform. Since the 1980s it has September for a bilateral ceasefire, and since then FARC attacks tapped into revenues by exploiting primary commodities, on infrastructure have continued. FARC demands have included including attacks on oil and mining infrastructure, drug a change to the national constitution; President Santos has trafficking, and illegal gold mining. In the war that has killed replied that if FARC leaders want to change the country’s tens of thousands and displaced millions, the Colombian army political or economic model, they should run for election. 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. colombia dutch disease data ecopetrol Source: World Bank and BP Stat Review Founded in 1948, the 80% state-owned oil company that accounts for four-fifths of Colombia’s oil production briefly % ‘000s of barrels per day 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 80 1000 produces oil in Brazil, Peru and the Gulf of Mexico, and owns 900 the main downstream facilities in Colombia. 70

800 united states 60 Colombia has had warm political ties to the United States 700 under successive governments, and exported about 40% 50 600 of its oil output to the US in 2011. The US has supported counter-insurgency efforts against the FARC, which Amnesty 40 500 International has written are designed specifically to protect 400 US operated oil installations. The two countries launched a free 30 trade agreement in May 2012. 300 20 china 200

Colombia and China struck agreements in May signalling 10 100 Colombia’s intention to shift more oil and mining exports to Asia. The deals included an agreement by the China 0 0 Development Bank to help finance a 600,000 bpd oil pipeline 2000 2002 2004 2006 2008 2010 and railroad to the Pacific, allowing quicker transport to Asia, and discussions to develop Colombia’s coking-coal reserves and Fuel exports (% of merchandise exports) mineral deposits in the Amazon basin. 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 ABOUT OPENOIL security problems posed by other paramilitary gangs, also involved in illegal mining, extortion and drug trafficking, OpenOil produces reference guides to the oil, gas and mining known as bacrims. industries of countries around the world, in both print form and online at wiki.openoil.net. The bookOil Contracts: How to Read what will happen to indigenous colombia? and Understand Them, is available at contracts.openoil.net; and The expansion of oil, gas and mining activity has driven the handbook Exploring Oil Data at data.openoil.net. We provide economic growth but also threatened the territorial rights, technical expertise to clients including UNDP, Revenue Watch, livelihood and culture of indigenous and Afro-Colombian the Center for Global Development and the EITI secretariat. 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, ABOUT CORDAID and the state maintains rights to the sub-soil resources. According to Peace Brigades International, 80% percent of the Cordaid’s extractives program supports local communities and human rights violations in Colombia in the 10 years to 2011 civil society to become informed, legitimate and capacitated took place in mining and energy-producing regions. What are partners in negotiations with international oil, gas and the risks of valuing extractives development over traditional mining companies and governments. We support the national culture? debate on the extractive industry between civil society, community based organizations, governmental institutions how will relations with fare without and representatives of oil, gas and mining companies. We are chavez? working on a national database on mining and social conflicts, Relations between Colombia and Venezuela were icy for a program for women participation in decision making on much of the presidency of Alvaro Uribe (2002-2010), but ties mining issues, the formulation of community development between Juan Manuel Santos and late Venezuelan president agreements and the development of protocols for the process Hugo Chavez were closer. Before Santos, many of resettlement of communities affected by oil, gas and mining migrated to Venezuela to escape the FARC conflict. Meanwhile projects. Colombia’s petroleum industry itself benefited from an inflow of Venezuelan oil workers after Chavez’s purge of state-run Extractives in Colombia is part of a series of briefing notes PDVSA in 2003. Nicolas Maduro, Chavez’s chosen successor, on extractives in Cordaid’s focus countries. The series is helped persuade Chavez to work with Santos to end the long a co-production of OpenOil and Cordaid. Briefing notes conflict with the FARC, according to The Guardian, and after on DR Congo, Guatemala, Nigeria and South Sudan can be Chavez’s death Santos said he would be “optimistic” should downloaded at www. Cordaid.org. 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? 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 CONTACT iron ore. Will Colombia sustain its economic growth through mining once the oil runs out? What would the most favorable OpenOil circumstances be? Amrit Naresh Research Associate E [email protected] KEY LINKS W www.openoil.net

Energy Information Administration: Colombia Analysis Cordaid Oil and Gas Investor/Global Business Reports: Colombia Nico van Leeuwen Colombian National Agency of Hydrocarbons (es) Programme Officer Extractives CARE. USGS: The Mineral Industry of Colombia E [email protected] Peace Brigades: Mining in Colombia, at what cost? W www.cordaid.org ACT. Giving it Away: Unsustainable Mining Policy in Colombia SHARE. Americas Quarterly: Natural Resources in Colombia RUSI: Prospects for Peace with the FARC LIKE CORDAID.

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