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Additional Reforms Needed in Colombian Mining Sector

Exportation in Colombia has been, and remains, a significant driving factor for large-scale mineral exploration, extraction and production by multinational corporations. According to the Banco de la República, the Colombian mining sector contributed to a record high proportion of the country’s total exports in 2011 and 2012, at 71 percent.

Fossil fuels especially constituted an integral component of mining sector production, with oil and coal representing 70 percent and 20 percent of production, respectively. A 2011 report produced by Carolynna Arce, deputy director of the Agencia Nacional de Hidrocarburos (National Hydrocarbon Agency), reported that Colombia received an estimated $4 billion in foreign direct investment in the oil and gas sector in 2010. This could explain why, earlier this year, Colombia Reports ran the headline that “66% of Colombians think mining is positive for the country.”

Such optimism arguably overlooks various Colombian mining scandals, such as the illegal assignment of mining titles in National Parks by Ingeominas that surfaced in 2011. That aside, ABColombia, The Guardian, Peace Brigade International and Guillermo Rudas of Colombia’s Universidad Javeriana all vocally highlighted the tax breaks enjoyed by multinational mining companies in Colombia.    

Meanwhile, statistics from the 2014 Comisión Económica para América Latina (Economic Commission for Latin America—CEPAL) show that between 1990 and 2012, the average percentage of mining and hydrocarbon revenue distributed in the form of taxes to Latin American states has risen from 13.6 percent in 1990 to 20.7 percent in 2012.

Colombia, for its part, has increased the tax percentage on non-renewable resources revenue from 9 percent to 19.6 percent, which represents one of the highest increases during the period. However, Colombia maintains one of the most favorable tax regimes in South America for extractive companies. Argentina (37.3 percent), Brazil (36.3 percent), Uruguay (26.3 percent), Bolivia (26.0), Chile (20.8 percent), and Ecuador (20.2 percent) all divert a higher percentage of revenue to the state.

The lower taxes and the environmental and social impact on rural Colombia, such the large quantity of waste generated, the acidification and release of toxic chemicals in freshwater ecosystems, and the exacerbation of internal conflicts in impoverished Indigenous and Afro-Colombian communities, raises important questions about the current sustainability and overall benefit of current mining practices.

When it comes to royalties, the problem is that while tax exemptions have made economic conditions more favorable for mining and fuel companies, they have left many Colombians feeling short-changed. According to the Contraloría General de la República (National Controller), for every 100 pesos paid by corporations in mining royalties, 132 pesos are given straight back to the mining corporations in tax deductions. This makes it seem like the government does not only give away Colombian land, it actually pays corporations to take it.

As of May 2014, information about mining royalty payments made by companies remains publically unavailable. This is not surprising, since it is rare that legislation forces private companies to disclose such data. The Colombian government’s Sistema de Información Minero Colombiano (Mining Information System—SIMCO), for instance, has not updated its database since September 2012. Furthermore, while $1.6 billion was paid in royalties in 2011, only $701 million was paid in the first nine months of 2012.

Although the 2011 mining code reform (to Laws 685 of 2001 and 1382 of 2010), through which the state’s relationship with the mining sector is regulated, was lauded as the most progressive reform in decades, additional reform is needed. A new mining code is expected in 2015.  Currently, the distribution of royalties is legally administered in a way that cuts out the middle man (i.e. the local government) and promotes investment in all of Colombia’s departments through the reduction of potential opportunities for corruption. But is anything really stopping local politicians from feathering their nests while the people they are paid to represent fall further into chronic poverty?

The Extractive Industries Transparency Initiative (EITI), an international initiative that aims to promote accountability and to bring transparency, fairness and justice to mining communities, was set up to make it increasingly difficult for corrupt government officials and corporate leaders to sweep financial misdemeanors under the carpet. According to former Minister of Mining Federico Renjifo, the Colombian government intends to ratify the EITI 2014.

This takes time and resources. First, a coherent and sequenced government work plan must be developed. Then, a national tripartite committee with clearly defined roles and responsibilities must be established, and there must be an overriding consensus and a strong commitment towards achieving EITI standards in all sectors. The Ministry of Mining and Energy’s information system, which will be used to handle the new data, must also be improved.

If things do not improve, this current lack of oversight may mean that even if mining production triples—which the government hopes will happen by 2021—a weak tax regime and a lack of transparency could cost Colombians more money than mining and hydrocarbon projects generate.

*Kai Whiting is director of the energy engineering undergraduate program at Universidad EAN in Bogotá. He joined the EITI Colombia Civil Society Board and Technical Support Group in May. Follow him on Twitter: @KaiWhiting.

Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Colombia, mining royalties, Transparency

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