Tuesday, September 27, 2022

BULLSHIT

Revised Colombia tax bill still puts mining investment at risk – industry group

Reuters | September 27, 2022 |

Colombia. Stock image.

A tax reform proposed by Colombia’s leftist government will put mining investment and production at risk, despite modifications to the bill announced this week, the head of the country’s mining association said on Tuesday.


Colombia’s new leftist President Gustavo Petro has said he wants to raise an additional 25 trillion pesos (some $5.6 billion) in tax revenue in 2023, before eventually adding about $11.5 billion annually for social programs to government coffers.


The government agreed on Monday to modify the reform to continue to allow oil and mining companies to deduct royalty payments from taxes in exchange for raising income taxes on them by 5% and increasing an export tax for oil and coal sold above certain threshold prices to 20%.

Oil and coal are Colombia’s principal exports and sources of national income. Petro campaigned on promises to move toward renewables and halt new oil exploration.

Juan Camilo Narino, Colombian Mining Association (ACM) president, said even the modified bill put an undue tax burden on miners, citing what he said was 90% effective tax rate.

“The tax structure must coincide with the realities of the business,” Narino told reporters. “These contributions are going to diminish and fall drastically in the short and medium-term,” he said referring to pressure the new tax regime will put on the industry.

Narino said the mining industry would contribute 48% of the revenue raised by the tax reform – some $2.62 billion.

The bill may compromise production of minerals, especially coal, Narino added, and reduce foreign investment by up to 17%.

“It puts at profound risk the viability of the Colombian mining sector, future investments and most seriously, the stability of 640,000 families” involved in the industry, he said.

Coal exports will pay the 20% tax when prices exceed $86 per tonne, based on a 20-year average, the ACM said.

The group has asked the government to remove that proposed charge in exchange for higher income tax, Narino added, similar to taxes levied on the financial industry.

Mining companies will pay 14.7 trillion pesos in taxes, royalties and high price duties this year, he said, a figure that could rise to 25 trillion pesos next year.

(By Luis Jaime Acosta and Julia Symmes Cobb; Editing by Jane Merriman)

Colombia May Shoot Itself In The Foot With Ban On Fracking

OR IT MAY KEEP THE PEOPLE HAPPY

(NOT PROTESTING)

  • Crude oil is Colombia’s largest export responsible for around a third of the Andean country’s total exports by value.

  • Colombia’s lack of proven oil and natural gas reserves, and the absence of large-scale discoveries for two-decades, points to fracking being the only viable means of sustaining its oil industry.

  • Colombia’s previous government was in favor of fracking, but the current government is looking to ban the practice altogether.

  The controversial hydrocarbon technique hydraulic fracturing, known as fracking, which sparked the U.S. oil boom catapulting that country to become the largest petroleum producer globally, is drawing considerable attention in Latin America. A major fracking boom is underway in the region’s third largest economy, Argentina, which is driving oil and natural gas production to record highs. Mexico is also embracing the controversial hydrocarbon extraction technique to boost economically crucial petroleum output. Fracking is also under consideration in Bolivia, Chile and Uruguay as Latin American economies, hit hard by the 2020 COVID-19 pandemic, struggle to boost growth and government income while reducing soaring poverty. In stark contrast the strife-torn Colombia is seeking to ban fracking with newly appointed leftwing President Gustavo Petro having campaigned on an anti-extractivist platform.

During his electoral campaign Colombia’s first ever leftwing president stated he intended to end contracting for oil exploration and ban fracking in the Andean country. This will sharply impact Colombia’s hydrocarbon dependent economy and potentially cut funding for Petro’s planned programs aimed at alleviating poverty. For over a decade Colombia has punched well-above its weight when it comes to hydrocarbon production. Despite a lack of proven oil reserves, which at the end of 2021 amounted to just over 2 billion barrels sufficient for 7.6 years of production, Colombia is Latin America’s third largest oil producer. The expansion of the oil industry over the last two decades, with annual average petroleum output exceeding one million barrels per day for the first time during 2013, saw petroleum become a key economic driver.

Crude oil is Colombia’s largest export responsible for around a third of the Andean country’s total exports by value. Data from Colombian government statistics agency, DANE, shows the Andean country exported $12.1 billion of crude oil and derivative products for the first seven months of 2022. That represents 35% of all exports, which totaled $34.6 billion, for the period, making petroleum Colombia’s single largest export. The peak oil industry body, the Colombian Petroleum Association, estimated the hydrocarbon sector (Spanish) directly contributed $20 trillion Colombian pesos to government coffers during 2021 which was a considerable increase over the $11.5 trillion generated in 2020 but less than the $26.2 trillion paid during 2019. The industry body believes that amount will rise to over $24 trillion pesos for 2022. Those numbers indicate Colombia’s oil industry is responsible for generating around a fifth of government revenue. That underscores the industry’s importance as a source of fiscal income, especially with the Petro administration planning to hike government spending on social programs in an uncertain economic environment weighed down by runaway inflation and fears of a global recession. 

Colombia’s endemic lack of proven oil and natural gas reserves, coupled with an absence of large-scale discoveries for two-decades, points to fracking being the only viable means of sustaining the Andean country’s vital hydrocarbon sector. This is especially the case with Colombia’s proven oil reserves set to expire by around 2030 and sooner if production returns to pre-pandemic levels of around 880,000 barrels per day. Since 2017 Colombia has been facing a natural gas crisis, which forced the country to start importing liquified natural gas in December 2017. That further stresses the need for Bogota to focus on bolstering energy security and expanding hydrocarbon reserves, particularly with proven natural gas reserves of nearly 3.164 trillion cubic feet only capable of sustaining production for eight years.

Fracking has long been seen as a solution to Colombia’s limited proven hydrocarbon reserves. The U.S. EIA estimates Colombia has at least 5.4 billion barrels of technically recoverable shale oil and 20.1 trillion cubic feet of shale gas in the Middle Magdalena and Llanos Basins alone. Colombia’s highest administrative tribunal the Council of State in a July 2022 ruling overturned its moratorium on hydraulic fracturing, established in 2018, and rejected a lawsuit seeking to ban fracking in Colombia. The court found that the rules implemented by the Duque administration, which left office on 7 August 2022 when Petro was inaugurated, for fracking are legal. The decision opened the door for the commencement of commercial fracking operations in Colombia.

Nonetheless, moves are afoot by Petro’s administration to ban fracking in Colombia despite the Council of State of Ruling. The Andean country’s Congress recently held a hearing for Bill 114 of 2022 (Spanish) which seeks to prohibit hydraulic fracturing of the exploitation of unconventional hydrocarbon deposits. The bill is supported by Colombia’s President whose Minister of the Environment and Sustainable Development Susana Muhammad was quoted as stating in local media (Spanish):

“We believe that fracking and unconventional ones are not a path that accelerates the energy transition because it would delay it, has high environmental costs especially in land use, in the use of water and irrigation not known and difficult to know only, as is the impact on the very complex Colombian geology,"

For the bill to proceed it must be debated by a congressional commission and discussed in both chambers before approval and authorization by Colombia’s president.

Rising uncertainty surrounding fracking saw Colombia’s state-controlled energy company Ecopetrol request permission (Spanish) from the industry regulator, the National Hydrocarbons Agency (ANH – Spanish initials), to suspend its two fracking pilots for 90-days. Ecopetrol, which is the operator, partnered with ExxonMobil to develop two fracking projects in the Middle Magdalena Valley, near the municipality of Puerto Wilches, known as Kale and Platero. The pilots are attracting substantial opposition from the local community, primarily over concerns regarding water contamination. A Barrancabermeja court ruled in the favor of a community organization which sought to end the projects on the basis that Ecopetrol had not consulted with the local community as required by Colombian law. The Administrative Court of Santander later overruled that decision finding the request for prior consultation by the local Afrowilches community was inadmissible. Those events indicate that even if Bill 114 of 2022 is not passed into law considerable opposition to fracking will continue in Colombia, making its introduction fraught with uncertainty, thereby deterring the required investment from energy companies.

By Matthew Smith for Oilprice.com



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