Colombia’s oil and mining industries, hit by lower output and growing resistance to some key projects, are pleading for help from the next government to streamline slow and erratic regulations.
The country’s commodities sector, once a darling of foreign investors, has lost its luster in recent years as shifting environmental rules, delays in obtaining permits and local community resistance leave many projects stuck on paper.
The winner of Colombia’s presidential election on Sunday – or a run-off vote next month – will face slowing growth in oil output and stalled mining projects just as peace talks with Marxist rebels open the possibility of tapping crude and gold whose extraction has been hampered by war.
A peace deal with FARC rebels could boost annual economic growth by 1 to 2 percent, the government says. It also would bolster investor certainty in oil and mining, with much of the country’s mineral wealth in areas where conflict persists.
“If Colombia sets clear rules for the sector, there is enormous potential,” said Santiago Angel, vice-president of hydrocarbons and energy at ANDI, a business group. “The main problem is coordination.”
The front-runners, center-right President Juan Manuel Santos and right-wing Oscar Ivan Zuluaga, are both seen as market-friendly candidates who support foreign investment.
Foreigners invested about $8 billion in the oil and mining industries last year alone. Those sectors have outpaced overall growth in Latin America’s fourth-largest economy since 2008, and now account for about 10 percent of GDP.
Deputy Mines Minister Cesar Diaz said last week the mining sector could double or triple in size if Colombia reached a peace agreement and established a better regulatory framework.
Mining exports actually fell one-fifth in value to $11.2 billion in 2013 as both output and the average price of coal and gold declined.
Strikes and port and railway shut-downs were partly to blame. But keeping the sector growing, the government recognizes, will require improving liaison between the various entities that oversee it.
“I wonder if Colombia realizes that (mining) isn’t growing but going backwards,” said Claudia Jimenez, former head of the Large-Scale Mining Sector Association, which represents coal miner Drummond, nickel producer Cerro Matoso and other firms.
ECONOMIC BACKBONE
A surge in mining permit requests prompted a two-year moratorium on new mining rights that ended last year. But an environmental review of where mining should be allowed in one of the world’s most biodiverse countries is still ongoing.
Companies entangled in that review include Canadian miner Eco Oro, which has invested $230 million over 18 years in the Angostura gold and silver project but still does not know if it will be able to mine the area.
Colombia dropped to 82nd in 2013 from 25th in 2009 in Canadian research institute Fraser’s ranking of mining countries based on regulatory complexity and investor friendliness.
“The government is conscious, I’m conscious that it hasn’t been easy for the industry,” Santos told an oil and mining conference last week, although he said his government improved efficiency and cut corruption in regulatory bodies.
The government has given signals it may have to backtrack on a 2011 legal reform that slashed the share of oil and mining royalties paid directly to local authorities, spurring an increase in resistance by communities.
“This hasn’t been good for the industry. There is then no incentive to have a mining operation nearby except jobs,” said Jimenez, the mining group’s representative.
Hundreds joined protest marches this year and last against new oil projects in Meta province, Colombia’s biggest onshore oil region, fearing water pollution and possible displacement from their homes.
Reuters
