Economics is the cause, environment is the excuse

A panel discussion at the recent Colombian Chamber of Petroleum Goods and Services (Campetrol) Expo Oil & Gas 2017, entitled “Viable environments for sustainable petroleum development,” showed more agreement than controversy. Even the moderator was disappointed. 

The Colombian Association of Petroleum (ACP) president, Francisco Lloreda, started his comments on the issue by paraphrasing remarks by fellow panel members, Ecopetrol’s (NYSE:EC) Eduardo Uribe and even the Vice Minister of Environment Carlos Alberto Botero: economics is the cause of the discontent; the environment is merely the excuse.  

Political consultant León Valencia did not disagree with the assertion, although he did put a somewhat different slant on it. His company had been hired by an extractive industry company to take the pulse of Colombia’s rural areas and report back on the causes of anti-industry discontent. He and his team spent a year working on the study. 

Root cause is definitely the lack of infrastructure – both economic and social (like schools and clinics) – combined with a general lack of State presence. This lack of presence also led to both a feeling, if not the reality, that rural communities are not being listened to by Bogotá.  

Referendums and other forms of discontent, at the very least, bring ministers and the press down from the cold and rainy capital to talk to the citizenry. 

In short, he said, “Referendums are a symptom of a deeper problem: trying to be heard.” 

For this reason, Valencia disagreed with Lloreda’s implied (but not, in fact, stated) recommendation that referendums had to be controlled or even done away with. 

Lloreda wondered how the economic benefits of the extractive industry, which accrue to all Colombians, can be denied by a few thousand voters in a small community, voters which have been misinformed if not lied to about the real environmental impacts.  

Although he did not explicitly say this, the implication was that referendums should be stopped or at the very least be made non-binding. 

As the time-bell rang to end the session, it was Ecopetrol’s Eduardo Uribe who had the last word. He said the industry “was not going to win this issue in the Courts or in the Congress. We need to convince the people that they are better off with the industry than without it.” 

The petroleum engineer’s association (Acipet) has been the most active in using legal means to block referendums. Association president Julio César Vera would probably agree with Lloreda’s above argument and said (in a press release) that the extractive industries represent 24% of the national power generation capacity, “Such a structure could be put at risk when a group of citizens in a town submits a request to promote a popular consultation that has no technical arguments,” referring to the Resolution that recognizes a local citizen as the promoter of a Popular Consultation in Hato Corozal (Casanare). 

Acipet said that it seeks the protection of its members’ rights, the fulfillment of the rights to basic services such as electricity and fuel for millions of Colombians, and the defense of the interests of the Nation and the Colombian people involved in the oil industry, “objective outlined by the Congress of the Republic through the Law 20 of 1984.” 

Presidential candidate Juan Carlos Pinzón told the Campetrol conference that communities are upset mainly due to changes to the General System of Royalties (SGR), because they are not seeing benefits of oil projects in their territories. 

He said that producing regions should receive between 45% and 55% of royalties. 

Joaquín Montealegre, Technical Leader of the Sector at the National Authority of Environmental Licenses (ANLA), speaking at a conference on Putumayo, said that compensation requires creativity and needs to be in line with communities’ needs, adding that so far proposals presented by companies have been traditional, “which is fine, but it has not been a sufficient focus.” 

The Inter-American Development Bank (IDB) also made recommendations on social issues and said that communication channels between the Government, companies and civil society will be a key element to allow the sustainable and profitable development of industry projects, as long as Colombians understand that natural resources are public goods that generate value for all citizens. 

Bottom-line: The ACP’s Francisco José Lloreda told the Campetrol conference that the referendum issue has to be addressed on two levels: the ‘social license to operate’ without which no company will succeed, regardless of their contractual rights and the legal / constitutional conundrum about surface and subsurface rights.  

Acipet added two more legal considerations: the right of their members to work and the absurdity of some referendums which would exclude even basic energy services in their zeal to get the central government’s attention over E&P. 

As the article says, the industry represents 24% of the national power generation capacity and without access to energy, communities will basically be left without opportunities to achieve progress; this, without mentioning the important benefits they obtain through royalties (CoP$143T in royalties’ resources according to MinMinas, to be exact). 

Like we have said before, the lack of education about the real effects of the industry in the territories, added to corruption cases at local levels that often prevent the completion of projects paid with royalties’ resources, has become an existential threat to the industry that has to be addressed immediately. 

Some companies have success, but the industry as a whole suffers from a poor public image and a growing list of communities which want to stop all oil (and mining) activities. 

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