CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLO

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME September report 2018 Project coordination: ​Yessica Prieto Ramos Author: ​Sergio Córdoba Rojas

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

Director​​: Álvaro Jiménez Millán Projects and reserach coordinator: ​Yessica Prieto Ramos Communications coordinator: ​Andrés Vargas Ferro Researcher:​​ Sergio Córdoba Rojas Research assistant:​​ Sebastián Triviño Roldán Asociación CT Crudo Transparente

Carrera 5 No. 25 a - 50 Tel: (571) 704 93 76 Bogotá, Colombia Twitter: @CTColombia Facebook: /Crudotransparente

With the technical and financial support of the Natural Resource Governance Institute

September 2018

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

Summary

Executive Summary…………………………………………………………………………………………………………………………………..4 Introduction………………………………………………………………………………………………………………………………………….…….6 Context…………………………………………………………………………………………………………………………………………………...…..8 The Colombian tax regime for the oil sector…………………...………………………………………………………...…..14 Access to information on the Cubarral Block and its main figures……………………………………….…..19 Findings from the FARI model…………………………………………………………………………………………………….……...25 Local impacts in the area of influence……………………………………………………………………………………………… 36 Conclusions and recommendations…………………………………………………………………………………………………….47

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CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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Report 2018

Executive Summary

Oil

production

in

Colombia

plays

a

the

fundamental role in the country’s economy,

nation’s

national

economy’s

high

dependence on oil extraction.

and the Cubarral bloc (in the Meta region) has

In order to understand the importance and the

the largest share of Colombia’s production,

contribution of Cubarral block’s fiscal regime,

and its fields are in among the top 3 producers

the FARI model was used. FARI is a tool

in the country. The block’s extraction potential

devised by International Monetary Fund that

has attracted oil companies, such as Shell and

analyzes tax structure for oil projects and

Chevron. These international companies have

studies the revenue that the State receives

been present in this region since 1945. In

through royalties and taxes. For this purpose,

2003, the bloc was given back to the state, and

it was required to find financial information on

its operation was managed by Ecopetrol.

the

production

of

the Cubarral block,

Colombia’s fiscal regime for the oil sector is

particularly, data that would provide specific

characterized by its instability, reflected in a

numbers of production costs, tax payments,

high amount of tax reforms that have altered

and data necessary for FARI to produce

the rules of the game through new taxes. This

consistent results.

has discouraged foreign investment which,

Data was collected from different State entities

according to experts, can be seen in recent drops

in

the

associated to the oil sector. However, the

national GDP. However,

information provided in some reports was

Colombia’s oil tax regime and royalties from

contradictory to that provided by different

oil production have generated important

entities, generating confusion and suspicion

revenues. In the year 2013, this revenue

when interpreting data. We questioned the

accounted for 20% of Colombia’s total tax

reasons why these contradictions exist, despite

collection, demonstrating

the existence of the Law of Transparency and

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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the Law of Access to National Public

Colombia’s oil reserves issues, will leave the

Information. One of the results given by the

country in a delicate situation towards the

FARI model shows that the State could collect

future, taking into account the economy’s

around 62% of the total profits generated by

dependence on the extraction of raw materials

the Cubarral block during the period of

and its consequent extractive income.

2003-2025. This is approximately 84.3 billion

Finally, the economic income distributed to

pesos. 41% of the total tax revenue collected

the municipalities in the area of influence of

by the State comes from royalties, while 33%

the block has generated important social

comes from income tax and the rest

advances; however, these are not precisely

corresponds to different taxes. If we take into

significant if socioeconomic indicators are

account that the company that operates the

compared with those of non-oil municipalities

block is the state oil company Ecopetrol, the

of the same department.

State's income, including dividend, will be 96% of the total profits, equivalent to almost

This is why strengthening civil society’s

130 billion pesos (Approximately 70 billion

capacity to oversee government profits from

dollars).

oil extraction is very important. Revenue generated by Cubarral fields would could

Additionally, according to projections made

provide

with the FARI model, the block has already reached

its

production

peak

in

hospital

and

school

infrastructure to all municipalities in the

2013.

country. In this way, the effective management

Correspondingly, the block’s production has

of income will allow public finances to be

begun to decline, and projections show that the

managed in a more transparent manner and

block will not produce past 2025. Cubarral’s

have a positive impact throughout the national

revenue is linked to the international oil barrel

territory.

price. Therefore, the State’s income will be subject to the volatility of oil prices. If these increase, tax collection will increase as well.

The decline of the Cubarral fields and

adequate

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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Introduction Colombia’s estimated daily oil production for

From this perspective, our aim is to analyse

2016 was 837,000 barrels, and revenue from

the Cubarral block contract. This block is

this production represents a significant share

located in the department of Meta and is

of national Gross Domestic Product (GDP),

composed of the following fields: Castilla,

approximately 4.43% of the GDP for the

Castilla North, Castilla East, Chichimene and

period of 2010-2016[1]. In 2016, investments

Chichimene SW. This block is one of the most

in production were calculated between 9 and

important in the country because of its volume

10 trillion pesos (4.1 billion dollars)[2] Taxes

of production, which translates into sizable

and royalties generated by this activity

revenues for the State. To this end, the FARI

contributed revenues equivalent to 23 trillion

model designed by the International Monetary

pesos to the nation in 2013[3] (Approximately

Fund was implemented in order to carry out an

12.3 billion dollars).

ample analysis of production, costs and income generation and tax collection. This

The importance of the oil industry in

tool is widely used to analyse tax collection

Colombia becomes essential for the economic

revenues by the States and to examine the

growth of the country. In 2017, 41 exploratory

composition of the fiscal regime, in order to

wells were drilled, with a success rate of

make estimates of the contribution of the oil

31.7%[4], marking an encouraging trend for

sector to the macroeconomic framework of

the oil industry in Colombia looking towards

each country.

2018, since these new drillings will represent higher revenues via fiscal collection and

Therefore, solidifying the monitoring capacity

export of crude oil. In the 2010-2016 period,

of civil society is essential to exercise control

the average income from oil exports was US

and scrutiny over the revenue collected by the

$20 billion per year[5], which makes the

State from the production of this block.

industry vital to the national economy.

Additionally, it is important to influence the State towards better governance of national

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

natural

resources

through

7

proactive

information disclosure and understanding the impact of tax revenues for the country and communities.

1.

2.

3.

4.

5.

Producción de petróleo en Colombia cayó en 12% en 2016 http://www.elcolombiano.com/negocios/economia/produccion-de-petroleo-en-colombia-cayo-12-en-2016-YF5777054 Base de datos Banco Mundial​ https://datos.bancomundial.org/indicador/NY.GDP.PETR.RT.ZS?locations=CO Autosuficiencia petrolera en Colombia​ ​https://www.contraloria.gov.co/documents/463406/484 Presagio de nueva bonanza petrolera https://www.elespectador.com/noticias/investigacion/presagio-de-nueva-bonanza-petrolera-articulo-721890 Boletín Macro Sectorial, Contraloría General de la República https://www.contraloria.gov.co/documents/463406/484739/Bolet%C3%ADn+Macrosectorial+No.+06+%28pdf%29/f01dfce0-4 93c-423a-9148-244fce46edc1?version=1

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Context Located under the jurisdiction of 4 Meta

150 wells, which currently produce 60

municipalities (Acacías, Castilla La Nueva,

thousand barrels per day. The Chichimene

Guamal and San Martín), 45 km south of

field produces the third largest number of

Villavicencio, the Cubarral block[6] is one of

barrels per day, and the first extra-heavy crude

the most important oil sources in Colombia. Its

source in the country.

production contributes around 190 KBPD

(thousands of barrels a day average) to the

country[7]. By 2015, the Castilla field[8] was comprised of 500 active and inactive wells[9].

Additionally, the Chichimene field has around

Figure 1. Cubarral Block and Castilla/Chichimene fields

Source: Contagio Radio

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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The history of the block begins with the arrival

recorded. Additionally, in 1988 Ecopetrol

of the Dutch-American oil company Shell,

drilled the 'Pozo Castilla-Norte l' which

which in 1945 settled in the department of

extended the field further towards the

Meta to begin hydrocarbon exploration and

northeast. During the 27 years of exploitation

exploitation projects. It was in this year that

of the block (Castilla and Chichimene fields),

the company drilled the San Martín 1 well in

Chevron drilled more than 100 wells that

the municipality of Castilla La Nueva [11]. In

together produced an average of 28 KBPD,

1969, with the help of improvements in

around 80 million barrels in total [13].

technology,

especially

seismic,

oil

is

In 2000, the Chevron operation contract

discovered in Castilla La Nueva. However, it

ended. Then, Ecopetrol signed a 6-month

is not Shell, which carried out the first drilling

contract with Chevron to have the American

in the Meta, who discovered it. This

company provide administration services in

breakthrough was made by the multinational

order to facilitate the transition. This contract

Chevron while drilling the "Pozo Castilla 1".

conceded

Thanks to these discoveries, on July 1, 1973,

of the extracted oil to

Chevron[14]. After this date, the block was

the "Chevron - Cubarral Association Contract"

conceded in its entirety to the Colombian

was signed between Chevron and Ecopetrol,

State. Subsequently, Ecopetrol signed a

which consisted in granting the multinational

contract in 2005 with the ANH (National

the possibility of developing the Cubarral

Hydrocarbon Agency) for the extraction of

project with a 50/50 percentage share with the

crude oil in the fields associated with the

state oil company [12].The contract legally

Cubarral contract. It is not clear under what

ended on January 30, 2000.

legal figure the block was operated between

Production in the Castilla well began in 1976,

the period of 2000-2005.

averaging a daily production of 10 and 20

From the beginning of Ecopetrol’s total

KBPD (thousands of barrels per day average)

takeover of the block, the production went

during the 1980s, and 25 KBPD during the

from 18,000 barrels per day in 2000, to 32,000

1990s. At the same time, oil extraction in the

barrels in 2003. This increase was fueled by a

Chichimene well began in 1985. During the 15

912-million-dollar

years that this field belonged to Chevron, a

investment

for

the

treatment of heavy oil in 2001[15]. In 2002 the

monthly average production of 6.5 KBPD was

7%

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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Incremental Production Project was approved,

Graph 1 shows the importance of oil

increasing

the

exploitation to the region. In Castilla La

Chichimene and Castilla (Castilla, Castilla

Nueva, Guamal and Acacías, no other

North, Castilla East) fields from 4% to 12%

economic

[16].

municipal added value. This means that these

the

recovery

factor

of

activity

exceeds

5%

of

the

three municipalities are mostly dependent on

The production averages since Ecopetrol

the oil industry, according to the National

started managing the whole project have

Planning Department. San Martín’s case is

increased progressively until today, making

different, since data shows that the economy is

Castilla and Chichimene the second and third

sustained mainly by agriculture, construction,

largest producers of oil in the country,

social

surpassed only by the Rubiales field [17].

and

personal

service

activities.According to data from Ecopetrol,

By 2008, Meta had become the country's

the Cubarral block generated 3,239 jobs

largest oil producer, ahead of Arauca and

through contractors in 2017 and 84% of these

Casanare. Meta supplied 28% of the national

jobs are performed by locals of Meta. To date,

production and Casanare 21%. These two

direct and indirect jobs generated by the

departments registered almost 50% of the

extraction of oil in the Cubarral block are the

crude production in Colombia[18]. According

most important source of income for the

to the Ministry of Mining and Energy, the

communities where the block is located [20].

daily production of Meta went from 122,435 BPD in 2007, to 168,263 BDP in 2008, with most of this production coming from fields in

Puerto Gaitán (with 68% of the total produced by the department), Acacias (with 15%) and Castilla La Nueva (with 11%) [19].

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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Graph 1. Municipal added value percentage by economic activity

Source: Departamento Nacional de Planeación (2018)

Throughout Colombia’s history of armed

located. On different occasions in recent

conflict, Meta has been one of the departments

decades, the project’s work area has been

that has suffered the most violence, especially

affected by attacks, explosions, and employee

in the areas of Maripipán and Vistahermosa

intimidation by armed actors involved in the

[21].

conflict.

Although armed violence is mainly

concentrated in the east of the department, this

Oil companies’ contractors and employees

has clearly affected inhabitants of these

have been victims of acts of violence by

municipalities where the Cubarral block is

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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paramilitary groups such as the United

year, another 10 similar cases were reported in

Self-Defense Forces of Colombia (AUC by its

the

initials in Spanish). Since the end of the

systematic pattern of violence against social

nineties, the AUC, the Peasant Self-Defense

leaders.

Groups of Meta and Vichada, as well as the

department,

which

demonstrates

a

Oil activity has been a source of social conflict

Revolutionary Armed Forces of Colombia -

in the region. The oil crisis of 2014 and 2015

People's Army (FARC-EP by its initials in

led Ecopetrol to hire a smaller number of local

Spanish) were enriched thanks to the oil

workers, creating tension among the residents

activity through the collection of extortions

who were laid off [25]. This led to protests

and the illegal appropriation of royalties.

that peaceful initially, but ended in acts of

In 2003, Meta was one of the departments

violence.

prioritized by the Colombian State to attack

discontent has been channelled by community

the main criminal and guerrilla structures.

organizations such as the Corporation of Local

Later, in 2012, it was one of the ten regions

Boards of the Area of Direct Influence of

where the 'Sword of Honor' military plan was

Chichimene (CJAID) [26].

developed, for the purpose of striking against implement

the

Macarena

that

sought

to

generate

occasions,

the

generated strong controversies due to the

Integral

environmental

Consolidation Plan, a comprehensive action doctrine

different

The oil exploitation and its investments have

FARC[22]. It was also one of the areas chosen to

On

impact

on

neighboring

populations and ecosystems. Problems caused

an

on communities and citizens have placed the

environment of security and peace in a

block’s sustainability in the national scope.

sustainable manner.

For example, in 2009, a toxic substance

In 2014, Edith Santos, president of the

affected 20 of the 54 km of the Orotoy River,

Community Action Board of the district of

which runs through the municipalities where

Chichimene, Acacías, was murdered for her

Cubarral is located. On that occasion,

union activism in this municipality [23].

Ecopetrol was held responsible by the

Police investigations have established a link

Ministry of the Environment for the use of

between oil contractors and criminal gangs

chemical

that sought to exercise control over local

contingency plan; affecting water sources and

contracts in the area [24]. During the same

local communities [27]; The operation in the

substances

without

having

a

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

block

had

several

accidents

13

between

September 2010 and January 2014. Four spills affected the Alfije, Lejía and San Luis pipes; with Caño La Berraquera being the most serious, with a spill of 1,698 barrels of oil in 2011 [28].

Different oil-related activities, such as seismic exploration, dumping, as well as the overflow and filtration of sludge and storage pools that do not meet technical specifications have caused distress among environmental agencies and communities in the area. The latter has been reported several times since 2008, when Cormacarena pointed out that "liquids with hydrocarbons

are

still

stored

in pools

excavated on land and in the open, which pollutes rainwater that falls directly [...] on the ground, underground and surface water "[29].

[6] ​Block: Extension of land granted by the State for exploration and / or exploitation of oil through a tender to interested oil companies.

[7] ​https://www.elespectador.com/economia/la-violencia-seca-la-produccion-petrolera-en-el-meta-articulo-738754.

[8] ​Field: Zone where there is accumulation of crude oil in the subsoil and which is located within an oil block.

[9] ​Well: Perforation made in the subsoil in order to obtain the oil located in the deposits. The wells are located in the oil fields.

[10] Personería de Villavicencio​ www.personeriavillavicencio.gov.co [11] Memorias hidrocarburos 2012 http://www.minminas.gov.co/minminas/downloads/Userfiles/file/Memorias/Memorias2010/02-hidrocarburos%20(2).pdf [12] Archivo El Tiempo: Campo Castilla. ​ http://www.eltiempo.com/archivo/documento/MAM-1265300​tm [13]Corporación Universitaria del Meta.​ http://revistas.unimeta.edu.co/index.php/rc_es_guarracuco/article/view/93 [14] Castilla y Chichimene pasarán a Ecopetrol​ http://www.eltiempo.com/archivo/documento/MAM-1240507 [15] Ecopetrol Empresa.​ https://www.ecopetrol.com.co/especiales/carta_petrolera/empresa.htm

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

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[16] Castilla, Recargado.​ https://www.ecopetrol.com.co/especiales/carta_petrolera/empresa.htm [17] Los 20 campos con mayor producción petrolera en Colombia: http://www.eltiempo.com/economia/sectores/los-20-campos-petroleros-de-colombia-con-mayor-produccion-84750​: http://inteligenciapetrolera.com.co/inicio/ultimo-ano-ecopetrol-genero-mas-5-mil-empleos-meta/ [18]Gobernación del Meta (2009). Meta, situación socioeconómica del departamento 2008 (julio) [19]Meta: Análisis de Conflictividad. https://info.undp.org/docs/pdc/Documents/COL/00058220_Analisis%20conflictividad%20Meta%20PDF.pdf [20]En el último año Ecopetrol generó más de 5.000 empleos en el Meta: http://inteligenciapetrolera.com.co/inicio/ultimo-ano-ecopetrol-genero-mas-5-mil-empleos-meta/ [21] Conflicto Armado en el Meta.​ http://www.ideaspaz.org/publications/posts/511 [22] Conflicto Armado en el Meta.​ http://www.ideaspaz.org/publications/posts/511 [23] Cómo las Bacrim ‘vacunan’ a contratistas de petroleras. https://www.semana.com/nacion/articulo/como-las-bacrim-vacunan-contratistas-de-petroleras/426680-3 [24] Ocupan bienes a empresario por crimen de líder en Acacías (Meta).​ ​http://www.eltiempo.com/archivo/documento/CMS-16435545 [25]​ ​https://www.elespectador.com/noticias/economia/se-agrava-situacion-acacias-y-castilla-nueva-protestas-articulo-635343 [26] Se agrava situación en Acacías y Castilla la Nueva por protestas contra Ecopetrol https://www.elespectador.com/noticias/economia/se-agrava-situacion-acacias-y-castilla-nueva-protestas-articulo-635343 [27] Archivo El TIempo.​ ​http://www.eltiempo.com/archivo/documento/MAM-3408725 [28] ​Petróleo en en Meta. http://sostenibilidad.semana.com/medio-ambiente/articulo/explotacion-de-petroleo-en-meta-causa-desconfianza-en-las-comuni dades/38693 [29] ​https://conflictos-ambientales.net/oca_bd/env_problems/map/21

Colombia’s fiscal regime for the oil sector Colombia’s constitution, in its article 332

tools to manage the underground resources in

affirms that non-renewable natural resources

order to maximize profits for the country.

are the State’s property. From this perspective,

Fiscal regime should be understood as the set

the tax regime is one of the most important

of rules, laws, taxes and types of contract between

the

State

and

the

extractive

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

15

companies to carry out the exploitation of

to attract more investment[34]. In the specific

hydrocarbons

analysis for the Cubarral block, the tax

and

minerals

in

each

country[30]. A well-designed fiscal regime is

collection

the most effective instrument that States have

royalties, while the remaining 73.33% are

to manage and optimize the value of the

other taxes such as income tax, Value-Added

exploitation of hydrocarbons. Even though

Tax, industry tax and trade, among others.

Colombia does not have the oil potential of its

With regard to tax legislation, as of the year

neighbors, an attractive fiscal regime must be designed

to

attract

investments

is composed of 26.67% for

2000, 11 tax reforms have been carried out.

from

They have focused on favoring direct foreign

companies, while also giving government an

investment, which means that the country has

important role in the extraction of crude oil.

had a modification every year and a half. This

In Colombia’s case, the “government take”,

portrays

understood as the percentage of profits of an

discourages investment in the country and is

oil project given to the State through royalties,

reflected in a 0.5% decrease in the national

taxes and other taxes charged to companies,

GDP[35]. Throughout these changes, several

ranges between 40% and 59%. Additionally,

temporary levies were established that became

the “state take”, the state’s profit through

permanent over time, as is the case of the

royalties, taxes and dividends generated by the

wealth tax or the surcharge on wealth[36]. It is

state oil company, is approximately 96%[31].

likely that these taxes were created by

With the current tax regime, for the year 2013,

short-term issues, but later they served to deal

the

taxes

with the deficit. Table 1 gives an account of

represented 20% of the total[32], showing the

the taxes that are charged to the oil sector, as

country’s high dependence of on oil revenues,

well as the current amounts and their

which makes it difficult to introduce changes

antecedents.

collection

for

royalties

and

or make the tax regime more flexible.

However, Colombia’s tax collection behaves similar to the Latin American average during the period 2003-2014[33]. This is due to a strategy promoted in the region’s countries focused on more flexible tax regimes in order

tax

instability

that

actually

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

16

Table 1. Taxes paid by the oil sector Tax

Amount

Observations

Income

33%

35%(2003-2006) 34%(2007) 33%(2008-20129 25%(2013-2016) 34%(2017)

CREE

-

9%(2013-2016)

Royalties

Escalonada

See Graph 2

VAT

-

16% (2003-2011)

Gasoline

COP$1050 (US₵46) per

Its real name is National Gasolina

galon

Tax. COP$215 (US₵9) per galon

Wealth surcharge

4%

5% (2015) 6% (2016-2017)

Wealth

2,4%-4,8%

0,3% (2003-2006) 1,2% (2007-2011)

Source: Crudo Transparente Although on particulars such as royalties,

change in the same period of time, the other

where there have been no changes in the last

taxes charged to the oil sector have been

15 years, or VAT, which has only had one

modified several times in the last years. The

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

17

Income Tax has undergone changes in the

depending on the production of barrels per

years 2003, 2007, 2008, 2013 and 2017. For

day. In years past, a fixed rate of 20% was

2013, it was reduced by 8 percentage points,

charged

but the Income Tax for Equity was created -

production. Currently, with a production of 5

CREE, for the same amount, so, in real terms,

KBPD, an 8% royatly rate will be charged to

the tax was maintained but with different

the production. If the production is greater

names.

than 5 KBPD but lower than 125 KBPD, the

is increased in the same

19.99%. If the production is greater than 125

Gasoline National Tax and its percentage was this

tax

of

percentage that ranges between 8.01 and

Gasoline changed its name to be called Additionally,

volume

The result of this operation will be a

proportion. Similarly, the Global Tax on

modified.

the

% = 8+(Production-KBPD)*0,1

2017, the CREE tax is eliminated and the tax

of

following formula will be applied:

In the last tax reform, which came into force in

income

regardless

KBPD and less than 400 KBPD, 20% of

reform

royalties will be charged. If it is greater than

increased the VAT from 16 to 19%, arguably

400 KBPD but less than 600 KBPD, the

because the fall in oil prices was affecting the

following formula will be applied:

fiscal collection of the State.

% = 20+(Production-400 KBPD)*0,025

Colombian economy and its high dependence on extractive income had to modify its tax

The result of this calculation will be a

structure after the fall of oil prices through an

percentage

increase in Value-Added Tax to cover the

Finally, if the production is greater than 600

fiscal gap. Despite this panorama, the oil

KBPD, ra royalty rate of 25% will be charged.

industry was exempt from paying VAT, which

Figure

allows us to infer that it was Colombian

according to volume in production.

tax-payers that ended up covering the fiscal deficit and not the oil sector.

Regarding the topic of royalties, since 2002 they are charged in a staggered manner,

between

20.01 and 24.99%.

2 shows royaltie rates charged

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

18

Figure 2. Percentage of royalties for wells discovered after Law 508

[30] Evaluación de los regímenes fiscales de petróleo en Colombia​ ​http://www.cid.unal.edu.co/files/publications/cid200510maatin [31] La Economía Petrolera en Colombia http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/borra692.pdf [32] El impacto de la crisis petrolera en los ingresos del Gobierno Nacional Central – GNC https://www.contraloria.gov.co/documents/20194/520989/Bolet%2525C3%2525ADn+Macro+Fiscal+16.pdf/0310f5b9-e027-40b 3-8502-fa46973fd4b5 [33] I​mpacto fiscal de la volatilidad del precio del petróleo en América Latina y el Caribe https://repositorio.cepal.org/bitstream/handle/11362/39706/S1501020_es.pdf [34] ​La agenda de la sociedad civil frente a las industrias extractivas en América Latina https://resourcegovernance.org/sites/default/files/documents/reporte-regional.pdf [35]​ Inestabilidad tributaria y crecimiento económico en Colombia https://www.gerencie.com/inestabilidad-tributaria-y-crecimiento-economico-en-colombia.html [36] ​Complejidad del sistema tributario en Colombia fundamentado en leyes imprecisas e inestables http://expeditiorepositorio.utadeo.edu.co/bitstream/handle/20.500.12010/1492/T131.pdf?sequence=1&isAllowed=y

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

19

Access to information on the Cubarral Block and its main figures Law 1712 of 2014 on Transparency and the

expression of cause and motivation for their

Right

request.

of

Access

to

National

Public

Information [37] is the norm that regulates the

To collect the information required for this

rights of citizens to access public documents

project, Crudo Transparente requested the

and data in Colombia. Its main objective is to

National Hydrocarbons Agency and Ecopetrol

make available any information that is

for a copy of the Cubarral Contract, with its

controlled or managed by any entity or

annexes and other related documents. Despite

institution of the Colombian State, persons

the commitment of these entities to the

that exercise public function, that administer

disclosure of all contracts within the process

resources or provide a public service, for any

of the Extractive Industries Transparency

citizen interested in accessing it, quickly and

Initiative, as well as the previously mentioned

completely.

Law on Transparency and Access to Public

According to this law, every person has the

Information, the published documents were

right to request and obtain information of any

not found and the request was denied. Reason

kind or subject, provided that the conditions

for which, it was decided to file a protection

established by law and the Constitution are

sue so that the state oil company would

met. It must be emphasized that Law 1712 of

disclose the information requested.

2014 states that all information held or

Likewise, approximately 35 rights of petition

controlled by a state entity is public and may

were sent to Ecopetrol, the ANH, the Ministry

not be reserved or limited except by

of Mines and Energy, the National Tax and

constitutional or legal provision. Likewise,

Customs Directorate (DIAN), the Ministry of

said entities are obliged to deliver what is requested

without

making

Finance and Public Credit, and the town halls

arbitrary

of Acacías, Guamal, San Martín and Castilla

distinctions and without requiring an

La Nueva. The information provided by these

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

20

entities was related to the production of crude

entities to show the effectiveness in the control

oil from the five fields assigned to the block

of tax collection.

from 2003 to 2017, as well as the exemption

Additionally, when requesting information

from the production bonus to oil companies. In

from Ecopetrol on the criteria for the division

the same way, information was provided on

of the five fields located in the Cubarral block,

gasoline consumption inside the block and the

said entity transferred the petition to the ANH,

API grades of the extracted oil.

arguing

that

the

national

authority

is

However, the information referring to tax and

responsible for handling those topics. For its

cost issues of the block was denied by

part, the ANH responds to the petition

Ecopetrol, ANH and DIAN, arguing that the

mentioning that the division of the fields is the

requested information was subject to legal

responsibility of the institution responsible for

reserve, due to the treatment of business

the blocks, Ecopetrol. The company, in a brief

secrecy and confidentiality that it has received.

statement of four lines, mentions that the

the same. Similarly, the municipalities of

division ratio was geographical. However, the

Guamal, San Martin de los Llanos and

question remains about the technical and

Acacías,

economic criteria used to divide the block into

from

whom

information

was

requested regarding the territorial taxes paid

five fields.

by the oil company, argue that, due to the

The controlled production provided by the

reserved nature of the information, it is not

ANH contains data on the extraction of base

possible to supply it. However, both the

oil, heavy oil, as well as incremental

mayor's office of Castilla La Nueva and Meta’s

governor

office

did

production [38]. The sum of the three types of

provide

oil is equal to the aggregate production of the

information, but this data is not very rigorous,

Cubarral contract supplied by Ecopetrol;

since it provides specific data on some vehicle

however, it is not clear where the incremental

taxes but not the block in general. There

production of the contract delivered by

remains the concern of whether the legal

Ecopetrol comes from. Even though the

reserve of the data is a concrete impediment to

information provided by the ANH contains the

be able to supply the information or if indeed

incremental production from 2013 to 2017, it

there is no real will on the part of the State

does not fit with the incremental production audited and provided by Ecopetrol. Although

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

21

both Ecopetrol and the ANH were asked to

difference

clarify

incremental

exceeds 15 million barrels in two years and 6

production, the response of these entities was

million in another. Taking into account the oil

to re-send the same information of the fields

price per barrel and the exchange rate, the

assigned to the block and that explain the

difference exceeds 8 billion pesos (3.5 billion

aggregate production of the Cubarral contract,

dollars), which raises concerns about the

but not that of the Incremental Cubarral.

discrepancy of data.

the

information

on

in

the

controlled

production

Table 1 shows the inspected production provided

by

Ecopetrol

in

the

period

2005-2017, as well as by the ANH in the period 2013-2017. It can be observed that, except for the years 2015 and 2016, the

Table 1. Audited production by Ecopetrol and the ANH (Barrels)

Year

Ecopetrol

2005

18.907.648

2006

23.270.810

2007

23.637.005

2008

27.193.200

2009

32.429.741

ANH

42.592.343 2010

Difference

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

22

2011

51.855.509

2012

56.944.575

2013

60.589.006

42.680.058

17.908.948

2014

58.622.050

42.917.952

15.704.098

2015

73.211.947

73.211.941

6

2016

71.507.170

71.507.168

2

2017

67.730.468

61.657.433

6.073.035

Source: Crudo Transparente, based on data from Ecopetrol and ANH (2018)

In order to have more clarity regarding the

On the other hand, the ANH has published

incremental production in the Cubarral block,

information

Ecopetrol and the ANH were asked for

production in the period 2013-2017 on its

information on the criteria used for this

website. This information contains data on the

project, as well as the Incremental Cubarral

different oil contracts in the country, the fields

contract mentioned in the public records. The

assigned to these contracts and their average

response provided by both entities is that said

daily production. We found that in some years,

contract does not exist. Also, they annexed the resolution

mentioning

that

not

mentioned

in

national

audited

not part of the Cubarral block, but were given to other blocks. In the year 2013, said fields

economic criteria that boosted the incremental are

the

the Castilla East and North Castilla fields were

incremental

production is approved, but the technical and production

about

are assigned to the Castilla block, which does

the

not appear in the audited production of the

resolutions or in the answers issued by said

following years and is not registered by the

entities.

ANH. In 2014, the Castilla Este field appears ascribed to the Apiay contract, while the

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

23

Castilla Norte is registered under the Apiay

2013, taking into account that this agency was

Incremental. Finally, for the year 2015, both

created in 2003? Additionally, the information

fields appear attached to the Cubarral,

provided by the two entities does not match,

Cubarral Incremental, Apiay and Apiay

raising concerns about the possible causes of

incremental contracts. Given the confusion of

this disparity. If one takes into account that the

the information provided, the ANH was asked

phase difference is more than 65 million

for more clarity on the subject, the response

barrels in five years, it is important to

from the agency was a statement where it was

investigate in greater depth the reasons for

stated that the fields in question are associated

such incongruity. Table 2 gives an account of

with the Cubarral contract but they do not

the figures provided by the state oil company

explain why the ANH website offers other

and the ANH, showing that, although the

information.

information is similar in the years 2013 and 2014, there is a disagreement of more than one

It is worth noting that the incremental

million barrels per year in the following years

production audited by the ANH only covers

until reaching a difference of more than 31

the period of 2013-2017, while that of

million barrels in the year 2017.

Ecopetrol covers 2005-2017. The following question arises: Why does the ANH not have production figures audited in years prior to

Table 2. Incremental production audited by Ecopetrol and the ANH (Barrels)

Year

Ecopetrol

2005

4.765.800

2006

4.269.080

2007

4.697.597

2008

9.034.043

2009

12.088.877

ANH

Difference

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

24

2010

20.053.898

2011

23.559.385

2012

22.003.987

2013

22.273.668

23.848.980

1.575.668

2014

21.567.543

22.667.023

1.099.480

2015

27.062.266

45.135.465

18.073.199

2016

28.481.996

45.057.068

16.575.072

2017

25.731.240

57.515.476

31.784.286

Source: Ecopetrol and ANH (2018) It is contradictory that even though the Law of

oversight and control by civil society, and

Transparency and the Right of Access to

promoting the empowerment of citizens on the

Public

governance of natural resources.

Information

establishes

that

the

information that is available to the public is

The Cubarral block is located in the basin of

easily accessible to all interested citizens,

the Eastern Plains, one of the most important

there are so many difficulties in obtaining

oil basins in the country. This block has a

quality information from the State entities.

production of approximately 190 KBPD,

Given this panorama, there is still doubt about

which represents a significant source of

the reasons behind the difficult access to

resources for the nation and the territories that

information, an aspect that should be resolved

are in its area of influence. The block’s

in the future with a more exhaustive analysis.

production represented approximately 18.89%

Finally, there is evidence of a lack of synergy

of the national total between 2014 and 2017,

on the part of the entities in charge of carrying

according to data from the ANH [39]. In

out the inspection of oil production. The lack

March 2003, a resolution was passed,

of institutional dialogue translates into a lack

approving the incremental production of the

of clarity about the destination of resources.

Castilla,

These issues give even more importance to the

Chichimene and Chichimene SW fields,

Castilla

East,

Castilla

Norte,

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

25

proposed by Ecopetrol, due to the natural

international

markets

decline of the fields.

characteristics

of

The

crude

obtained

from

Cubarral

[42].

production

and

These price

differences make it important to monitor the

is

resources that come into the State.

characterized by its extra-heavy nature, and API grades that are less than 15° [40]. Heavy oil in Colombia went from representing 10% of the extracted oil at the beginning of the century, to 53% in 2015 [41], and 0.6% of the world's reserves of heavy crude worldwide. It is important to note that due to the extra-heavy characteristics of Colombian oil and the difficulty in processing it, it has lower price in

[37] Ley de Transparencia y del Derecho de Acceso a la Información Pública Nacional http://www.secretariasenado.gov.co/senado/basedoc/ley_1712_2014.htlm [38] Incremental production: volume of hydrocarbons expressed in barrels of oil per day that is obtained above the basic curve of production from the use of new technologies that allow an improved recovery in the deposits [39] Producción fiscalizada de petróleo, ANH http://www.anh.gov.co/Operaciones-Regalias-y-Participaciones/Sistema-Integrado-de-Operaciones/Paginas/Estadisticas-de-Produccion.asp x [40] Density unit adopted by the American Petroleum Institute (API). According to this scale, the lower the index, the denser the crude extracted. Most crude oils are between 27 and 40 degrees API. [41] Crudos pesados: la realidad del sector hidrocarburos de Colombia​ https://www.revistavirtualpro.com/editoriales/20170501-ed.pdf [42] Ibíd.

Findings from the FARI Model Up to date, a detailed economic study of oil

regime established for the oil and gas sector.

contracts by civil society has not been carried

This analysis makes it possible to strengthen

out Colombia. Therefore, monitoring the

the monitoring capacity of civil society, as

Cubarral contract allows us analyze the tax

well as raising the level of understanding of

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

26

the economic impact the Cubarral contract

For the Economic Monitoring of the Contract

revenues has on the country.

Cubarral Project, information was required that was not available to the public and that was collected in three ways: first, by means of rights of petition, and those results were presented previously. Secondly, a compilation and analysis of legislative, tax and financial information was carried out. This data came from sources such as: the tax statute, the oil code, the exchange statute, different tax reforms from 2001 to date, the EITI Colombia reports and the Ecopetrol annual reports.

Thirdly, the UCube database of Rystad Energy was used, with the help of the Institute for the Governance of Natural Resources - NRGI.

To carry out this task, a tool used by the

Based on the information collected, an

International Monetary Fund was adopted to

adaptation of the model was made, in order to

evaluate the fiscal regimes of the countries for

account

the oil and mining industry, known as

tool

of

the

influence on the adaptations made to FARI or

fiscal regimes of the hydrocarbon and mining this

characteristics

the IMF is not responsible for or has any

The purpose of this model is to analyze the Additionally,

the

Colombian tax regime. It is worth noting that

Extractive Industries Fiscal Analysis - FARI.

sector.

for

on the results and / or interpretations thereof.

has the

possibility of adapting according to the

When reviewing Ecopetrol’s annual reports, it

availability of information of each country,

could be observed that the information found

including

allow

in the company's financial statements does not

complementing the missing data. In this way,

match its results from 2014 and 2015, in

the model seeks to find consistent results from

which the income recorded for the first one

the information collected.

varies by 3 billion pesos (1,2 billion dollars)

some

assumptions

that

with compared to the second.

There is a

discrepancy in the information given in the

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

27

reports, which should be investigated in

assumptions about the costs, taking into

greater depth if this is the result of the absence

account that the model is a simulation that

of effective control by the company.

allows an approximation of the economic framework of the project and the participation

To model the FARI, it was necessary to

of the State in the oil rent. The results are an

review the last ten tax reforms from 2001 to

approach to the financial situation of the

date, in which the different changes in the

contract and not a perfect image of it, nor of

national tax legislation were considered.

the company.

Likewise, for the period 2003-2017, economic indicators were taken into account, such as the

Oil prices have undergone drastic changes in

Market Representative Exchange Rate, the

recent years due to dynamics that in the supply

Brent prices, the nominal interest rate, as well

and in the global demand for crude oil. These

as the inflation rate, both nationally and in the

changes include a rise in prices in 2008 or the

U.S., because it is necessary to contemplate

collapse occurred in 2009 and in 2014.

the variations in the purchasing power of the

Ecopetrol (ranked 35th among the world's

dollar.

largest oil companies and fourth in Latin America) has suffered because of this price

To carry out the projection in the model until

volatility, affecting both investments and

2025, the last tax reform was taken into

profits from oil revenue. In the last decade,

account, as well as the dynamics of the fiscal

petroleum profits represented 15% of the

and macroeconomic legislation in Colombia.

national total [43]; therefore, the impact of the

The end year is 2025 because, according to the

oil industry on public finances is significant.

information obtained, this is when the block

Figure 3 shows the changes in the price of oil

will reach the end of its useful life. With this

in the period 2003-2017.

information, we proceeded to execute the FARI model for the Cubarral contract without losing sight of the fact that, in the absence of tax and financial information from the State institutions, the model had to be adapted to the data obtained, in order to produce consistent figures. Consequently, we had to make some

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

28

Figure 3. Oil prices per barrel in the last years (Brent)

Source: Banco de la República (2017). Barrel price / Year

Additionally, the importance of oil in the

crude exports are also reduced, generating a

country's exports (45% of the total since 2010

significant economic impact on the Colombian

[44]) has led to a high dependence on the

trade balance.

extraction of crude oil for the Colombian economy. A low diversified trade balance, focused on extractive activity, generates greater vulnerability because, in the face of a deterioration in the terms of trade, exports are reduced and pressure is generated in the trade balance,

which

through

exports.

implies Figure

lower 4

revenues

shows

the

importance of oil in the country's export structure. When the price of oil decreases,

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

29

Figure 4. Oil share of total exports

Source: DANE. Porcentage / year

However, if the production data are analyzed

It should be noted that, according to the

in light of the historical prices of the oil barrel,

analysis made, in 2015 the oil extraction in the

it can be seen that there is no relationship

block reached its peak and from that date

between the price of a barrel of oil and the

began its decline, which is projected until the

production of the block. The production of

year 2025. Figure 5 shows the close

Cubarral, despite the low prices of the barrel

relationship between national production and

between 2014 and 2016, remained constant

block production, which shows a growing

even in the most difficult years in terms of

trend that stabilizes as of 2013.

prices. Independent of the price of oil [45], Colombia maintained the production of crude oil, according to the goal established by the National Government of reaching a production close to one million barrels a day.

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

30

Figure 5. Cubarral block oil production

Source: Crudo Transparente, data from Ecopetrol, Ministerio de minas y energía, ANH (2018)

Cubarral is the most important block due to its

include

participation in the national production of

development costs. Bearing in mind that,

crude

the

according to the FARI model, production costs

estimations show that the block can be worth

amount to 28.87% of total income, projected

190 trillion pesos (82.5 billion dollars) valued

net income for the Cubarral block in the period

by the oil reserves calculated in the period

2003-2025 would be 135 trillion pesos (58.5

2003-2025.

billion dollars), a sufficient number to provide

oil.

From

this

perspective,

operational

and

the 1,122 municipalities of Colombia with a

However, to calculate the net income that both

first level hospital [46] and a school that

the contractor, in this case Ecopetrol, and the

provides quality education for more than 1,000

State take, the costs generated during the

students [47].

project must be subtracted. These costs

exploration,

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

31

From the resulting net income, royalties must be deducted, which constitute an economic consideration generated by the exploitation of a mineral [48] and taxes, which are the economic rent for the extraction of a non-renewable natural resource such as oil.

Figure 6 shows the fiscal tools that represent the government’s vehicles for collecting revenues from the extraction project. As mentioned above, the State retains a higher percentage of revenues than the oil company through various taxes such as royalties, income tax, industry and commerce, and gasoline, in addition to local taxes such as street lighting, billboards and banners, among others.

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

32

Figure 6. Revenue flows in a tax and royalty system

Source: Natural Resources Governance Institute (NRGI) To make a more in-depth analysis of

It should be taken into account that in 2012,

Cubarral’s share in Colombia’s finances,

the distribution of royalties changed with the

calculations were made in two different

creation of the General System of Royalties

periods. First from 2003 to 2016, time in

(SGR). In this new system, participation of the

which the audited production of all years is

municipalities where non-renewable natural

available and was collected by the Crudo

resources are extracted is 20% of direct

Transparente team. The production cost data

allocations, going from 80% of the previous

was provided by Rystad Energy, through the

regime. The remaining 80% goes to various

support of the NRGI. The second period runs

Funds such as the Regional Compensation

from 2017 to 2025. During this period,

Fund, the Regional Development Fund and the

projections were made by the same company.

Savings and Stabilization Fund. These funds finance regional or local impact projects in the

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

poorest

territories

of

the

country,

33

in

7 shows how revenues varied according to the

accordance with criteria such as unsatisfied

volatility of international prices of the barrel

basic needs, unemployment, etc [49]. From

of oil. It can be observed that the falls in the

2003 to 2016, the block generated a net

price of the barrel (2008 and 2015) coincide

income of 74 billion pesos. From this revenue,

with the decrease in net income, as well as the

the State collected 53.9 billion pesos (23.5

net profit of the State and vice versa.

billion dollars) from taxes and royalties. This

Finally, it is worth noting that, of the total

amounts to the construction of approximately

estimated net income, the government take is

190 soccer stadiums like Barranquilla’s “Metropolitan”,

where

the

62.32%

Colombian

during

the

period

2003-2025,

generating a net profit of 84 billion pesos

National Soccer Team plays. From this

(36.5 billion dollars) in the same period.

perspective, the importance of Cubarral to

However, the 2013 peak of profits, shown in

Colombia’s economy should be highlighted, as

Graph 7, does not coincide with the production

well as the impact generated by the social

peak of the block, which, as mentioned above,

investment made with these resources.

was in 2015. This is mainly due to the high oil

From 2017 to 2025, the projections show an

prices in 2013 which represented higher

expected net income of approximately 61.2

income for the project, while the high

billion pesos (21.4 billion dollars from which

production in 2015, at lower prices, generates

the State, through taxes and royalties, will

lower income. We can conclude that utilities

keep 33 billion pesos (11 billion dollars). This

are determined by the price of the barrel.

profit would be enough to build the metro line proposed for Bogotá, twice [50]. Although most of the utility was already obtained in the period 2003-2016, there is still a considerable amount of resources left that would satisfy the needs of many communities in the country.

Figure 7 shows the estimated net income of the Cubarral block from 2003 to 2025, as well as the net income collected by the State through taxes and royalties. Similarly, Figure

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

34

Graph 7. Cubarral’s Cash flow and net government income

Source: FARI model

On the other hand, when analyzing the tax

on gasoline and the rest includes industry and

structure for the Cubarral block, it can be

trade taxes, VAT, surcharge on wealth and

deduced that, of the net profit obtained by the

property tax.

State during the period 2003-2016, 18.5

For the period 2017-2025, royalties collected

billion pesos (8 billion dollars), that is, 36,3%

by the State from Cubarral will be around 16.5

of the profit, were obtained through royalties.

trillion

Additionally, 16 billion pesos (7 billion

pesos

(6,100

billion

dollars),

equivalent to 49.9%. Likewise, approximately

dollars), 31.2% of the total, were collected via

12 billion pesos (5,2 billion dollars) or 36.2%,

income tax and 5.8 billion pesos (2 billion

will be collected as income tax. Lastly, 2.2

dollars). The last share,11.3%, through the tax

billion pesos (1 billion dollars), 6.7% of the total, will correspond to the gasoline tax.

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

35

Figure 8 shows how the fiscal collection for

entire useful life in the period 2003-2025 is

the Cubarral block was configured, which is

estimated at 38.5 billion pesos (16.7 billion

mainly composed of royalties and income tax,

dollars), while the income tax will be

with the gasoline tax owning a secondary

approximately 26 billion pesos (11.3 billion

share. Cubarral’s contribution, during its

dollars).

Graph 8. Cubarral fiscal tool structure

Source: FARI Model

It should be highlighted that, for the same

approximately one sixth of the total national

period, the General Royalty System has

royalties.

recorded a total of 28.6 billion pesos (12.5 billion dollars) throughout the country and Cubarral's royalties represent 16.78% of that total. This shows the economic importance of Cubarral, since its production and consequent fiscal contribution to the nation represents

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

36

[43] El impacto de la crisis petrolera en los ingresos del Gobierno Nacional Central - GNC https://www.contraloria.gov.co/documents/20194/520989/Bolet%2525C3%2525ADn+Macro+Fiscal+16.pdf/0310f5b9-e027-40b3-8502-fa 46973fd4b5 [44] Colombia, exportaciones de café, carbón, petróleo y sus derivados, ferroníquel y no tradicionales https://www.dane.gov.co/index.php/estadisticas-por-tema/comercio-internacional/exportaciones [45] Histórico producción mensual de petróleo http://www.upme.gov.co/generadorconsultas/Consulta_Series.aspx?idModulo=3&tipoSerie=138 [46] Inversión para nuevo Hospital General será de $57.000 millones https://www.elheraldo.co/barranquilla/inversion-para-nuevo-hospital-general-sera-de-57000-millones-372871 [47] $20.000 millones se invierten en la construcción de dos Megacolegios en Valledupar https://www.mineducacion.gov.co/cvn/1665/w3-article-349968.html [48] Las regalías​ http://www.anh.gov.co/portalregionalizacion/Paginas/Las-regalias.aspx [49] Guía de validación jurídica de la distribución del Sistema General de Regalías - SGR - entre fondos y beneficiarios https://colaboracion.dnp.gov.co/CDT/DNP/SR-G01%20Guia%20de%20validaci%C3%B3n%20juridica%20de%20la%20distribuci%C3%B 3n%20del%20SGR%20entre%20fondos%20y%20beneficiarios.Pu.pdf [50] Peñalosa reveló costo aproximado del metro y explicó integración con TM https://www.noticiasrcn.com/nacional-bogota/penalosa-revelo-costo-aproximado-del-metro-y-explico-integracion-tm

Local impacts in areas of influence Since 2012, year in which the General System

SGR aims to redistribute royalties in a way

of

the

that benefits of the entire country, they should

municipalities where the Cubarral block is

be more equitable in the distribution of income

located have received 295 billion pesos (164

and seek to compensate the communities

billion dollars). Acacias and Castilla La Nueva

affected by extractive projects.

Royalties

came

into

force,

were given more than 270 billion pesos (150

Graph 9 shows the royalty income received by

billion dollars) [51] from this revenue.

the municipalities of Acacías, Castilla La

However, for a block that has produced almost

Nueva, Guamal and San Martín, highlighting

five billion pesos in royalties since 2012, what

the difference in the income of Acacías and

said municipalities actually keep is not

Castilla La Nueva with that of Guamal and

remarkable.

San Martín. It should be noted, as mentioned

Leaders in the region have expressed their

above, that the royalties received by these

support for a change in the General Royalty

municipalities come from the SGR, which

System (SRG) to give a bigger cut to the

come from the payment of all the extractive

producing municipalities. Even though the

projects that are carried out in the national

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

37

territory, including those of the Cubarral block.

Graph 9. Cubarral municipalities’ royalty income

Source: Crudo Transparente, data from DNP

With these royalties, aqueducts and sewers

Figure 10 shows the aqueduct and sewerage

have been built in the municipalities that have

coverage in the municipalities where the

allowed coverage of more than 80% in three of

Cubarral block is located. Likewise, the

the four municipalities, except for Guamal,

departmental and national coverage is shown,

which has a coverage of approximately 62%.

in order to establish parameters that allow

In front of the municipal coverage in sewage

comparing each municipality’s situation with

system, the municipalities of Acacías and San

the that of Meta department, as well as the

Martín have an index higher than 80%, while

country. Except for Guamal, the municipalities

that of Castilla La Nueva is approximately

in question surpass the departmental and

70% and that of Guamal is only 47%.

national average in coverage of aqueduct and sewerage.

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

38

In Guamal’s case, it should be noted that the

However, although the municipality of San

aqueduct coverage is slightly higher than the

Martín receives a smaller amount of money,

departmental

its indicators in aqueduct and sewerage

average.

Nevertheless,

the

sewerage coverage is significantly lower than

coverage

are

the

best

of

the

four

the Meta average. One of the factors that could

municipalities. From this perspective, the

explain this phenomenon is the lower amount

reasons for Guamal's low coverage should be

of resources collected from royalties.

studied in greater depth.

Graph 10. Aqueduct and sewerage coverage

Source: Crudo Transparente. Data from DNP, Superintendencia de Servicios Públicos Domiciliarios (2016)

On the other hand, the municipalities that are

In terms of infant mortality rate, the four

part of this analysis show mortality rates

municipalities have rates lower than the

slightly

and

departmental one, but higher than the national

departmental average, except for Castilla. Its

rate. Although both Acacías and Castilla,

mortality rate is slightly lower than the

Guamal and San Martín have a first-rate

average.

hospital, the mortality and infant mortality

higher

than

the

national

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

39

rates are higher than the national average,

effectiveness

of

pregnancy

prevention

which means that, although there is a

programs leads to high fertility rates that

significant investment in health infrastructure,

stagnate opportunities and social equality in

there’s no real progress in terms of preventing

the country, especially in the communities.

deaths per 100,000 inhabitants.

Table 2 gives an account of the mortality, infant mortality and fertility rates in the

Finally, fertility rates in the municipalities are

block‘s municipalities, compared with the

significantly higher than the national and

national and departmental average. It is

departmental average, with the exception of

striking that Guamal has the highest indicators

San Martín, where the fertility rate is lower

in these three areas.

than the national one, as well as the departmental one. It is evident that the low

Table 2. Health index per 1000 inhabitants Acacías

Castilla

Guamal

San Martín

Meta

Nacional

5,01

4,24

6,91

5,04

4,74

4,39

17,9

18,80

22,2

22

24,1

17,10

65,69

65,94

70,41

49,26

56,72

50,68

Mortality Rate

Infant mortality rate

Fertility rate

Source: Crudo Transparente. Data from DNP, DANE (2016)

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

40

Furthermore, qualitative housing deficit in the

welfare scores reviewed so far, has such high

four

the

quantitative and qualitative deficit, exceeding

departmental and national average, meaning

even the national and departmental average.

that

the

This could be explained by a low royalty

municipalities in question is greater than those

income that allows municipal investment to

of the department of Meta, as well as the rest

focus on health and basic sanitation program

of the country.

development, but not on housing development.

municipalities the

quality

is of

lower housing

than in

However, to arrive at an accurate conclusion it

The quantitative housing deficit is greater than

will be necessary to explore which programs

the departmental and national average in

have been promoted by the local government

Acacías, Castilla La Nueva and San Martín but

with profit from royalties.

not Guamal. These three municipalities have a smaller number of houses than those needed to meet the housing needs of all its inhabitants.

Figure 11 shows that Castilla La Nueva has a qualitative housing deficit of 9.7%, the lowest of the four municipalities. Meanwhile, San Martin has the highest deficit, with 18.6%.

In terms of quantitative deficit, the lowest is the municipality of Guamal, with 5.7% and San Martin is again, the municipality with a higher quantitative deficit.

It is noteworthy that San Martin, one of the municipalities with the best wealth and

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

41

Graph 11. Quantitative and qualitative housing deficit

Source: Crudo Transparente. Data from Dane (2005)

If the data is analyzed in the light of

Figure 12 shows the index of unsatisfied basic

socioeconomic indicators, it can be understood

needs (NBI) and misery by municipality, in

that the Unsatisfied Basic Needs Index (NBI)

comparison with the departmental and national

in the municipalities where the Cubarral block

average. It should be noted that Guamal,

is located is similar to the departmental index,

where the indicators in health and basic

except Guamal, where the index is lower. This

services were the most lagging, has the lowest

would allow us to conclude that the extraction

NBI percentage, as well as the lowest poverty

of hydrocarbons does not represent a real

rate in the four municipalities in question.

benefit for the communities of the areas of

Therefore, the effectiveness and impact of

influence. On the other hand, the percentage of

social investment programs promoted by the

misery in the municipalities of Acacías,

local governments with money received for

Castilla and Guamal is significantly lower than

royalties, must be analyzed, in order to be able

the departmental and national average.

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

42

to conclude assertively about the magnitude of the impact of the programs.

Graph 12. Unsatisfied Basic Needs (NBI) and Misery Rates

Source: Crudo Transparente. Data from DANE (2011)

From this perspective, these socioeconomic

If the socioeconomic indicators are compared

dynamics illustrate an important improvement

with those of Cumaral, a municipality that

in social matters, surpassing the departmental

opposes any extractive project to be carried

and national averages in most of the indicators

out in their territory, it could be seen that their

presented

is

wealth and welfare rates are very similar to

troublesome that 20 to 25% of the population

Guamal, one of the municipalities where the

lacks certain basic needs, particularly when

block is located.

so

far.

Nonetheless,

it

Cubarral is the block with the highest

As for the NBI and poverty rates, it should be

production in the country and, therefore, the

mentioned that the percentages of Cumaral are

one that generates the most wealth to country.

very similar to those of the municipalities in question. This allows us to infer that, despite

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

43

the profit allocated to the municipalities from

model, there is a concern about why this

royalties, there are no significant advances in

progress is so insignificant compared to

social matters with respect to a non-extractive

non-oil municipalities. Figure 13 shows the

territory such as Cumaral.

evolution of NBI in these five municipalities.

When comparing the evolution of the NBI of oil-extracting towns with Cumaral during the 2005-2011 period, it can be observed that the five municipalities have had similar patterns, both at the beginning of the period in question and at the end of it. This allows us to infer that the impact of royalties on the municipalities was not reflected in significant social progress, and can be matched with the progress made by non-oil municipalities such as Cumaral.

It is worth mentioning that the period under analysis is prior to the entry into force of the new General Royalty System. We can conclude that, although the oil municipalities received 80% of the royalties with the old

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

44

Graph 13. NBI evolution from 2005 to 2011

Source: Crudo Transparente, data from DANE

Beyond royalties, additional income received

In this way, civil society could effectively

by the State for other taxes and that are

supervise the revenue that the State receives

distributed by the General Participation

for the extraction of raw materials, while

System, has not translated into real reduction

strengthening

the

of NBI in the country. It is striking that the

non-renewable

natural

department

mechanisms

of

Chocó,

located

in

the

Colombian Pacific, has an NBI index of

of

governance

of

resources

with

transparency

and

accountability.

79.19% and 32.34% misery. There remains the

Finally, it should be noted that a large part of

concern of why the socioeconomic indicators

Ecopetrol is public, since 88.49% its shares

of the country do not reflect the high tax

are state-owned, while the remaining 11.51%

collection received from the oil industry.

are own by private citizens. From this point of

In order to account for the destination of these

view, the Colombian State receives 88.49% of

resources, a more in-depth analysis should be

the dividends generated by the company.

carried out to clarify what has been invested,

Figures show that from 2003 to 2016, the total

what projects and programs have been

income received by the State through taxes,

implemented and what their impact has been.

royalties and dividends was 71 billion pesos

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

(30,8 billion dollars). The projected revenue to

45

The Natural Resources Governance Index,

be collected in the period 2017-2025 will be

created by the NRGI, provides an assessment

57.9 billion pesos (25 billion dollars) for a

of the state of transparency and governance in

total income of 129.3 billion pesos (56.2

81 countries where the role of extractive

billion dollars) for the period 2003-2025. This

industries is sizeable [54]. This index studies

is a little more than half of Colombia’s

the legal and regulatory framework, as well as

national budget for 2018 (235.6 billion pesos

its implementation for the extraction of

or 102 billion dollars). This means that the

minerals and hydrocarbons in a country,

state take for the entire period will be 95.66%

taking into account three components: the

of the total net income.

first, the extraction of value, which has to do

Considering that the Cubarral block represents

with

approximately 20% of the total production of

protection of the environment, collection of

the country, it should be deliberated that the

public revenues and existence of state

country's income from oil extraction would

enterprises in extractive activities. The second

significantly increase the quality of life of

is income management, mainly associated to

Colombians. However, in 2016 the Human

the efficient distribution of resources obtained

Development Index places Colombia in eighth

by the extraction of natural resources. Lastly,

place among the 10 South American countries,

general conditions of governance, which

surpassing only Bolivia and Paraguay [52].

evaluate the social, political and economic

Additionally, Colombia is the second most

context of the country, including issues such

unequal country in Latin America. Corruption

as corruption, defense of human rights,

has managed to keep 50 trillion pesos (22.000

availability

billion dollars) [53]. It can be inferred that a

violence, among others.

weighty part of the income received by the oil

NRGI,

the country. However, the destination given to to

accurately

pinpoint

information,

concessions,

absence

of

Colombia

ranks

seventh

in

resource in the world, and third Latin

the

American country after Chile and Brazil.

concentration of wealth generated by oil.

Colombia had the best grades in revenue management,

of

of

transparency and governance of the oil

resources must be investigated in greater depth order

management

According to the study carried out by the

activity goes to the most affluent population in

in

the

followed

by

the

general

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

governance

conditions,

calculated

46

as

signing of the peace agreements with the

satisfactory, while the extraction of value was

FARC in 2016, there are still armed actors in

reviewed as weak in aspects such as disclosure

Meta who seek territorial control through

of payments, beneficial owners, interests of

violence and intimidation of social leaders.

public officials and management of local

Additionally, the perception of corruption in

impacts.

the country remains high, which makes institutional transparency difficult. It should be

In light of the social, political and economic

emphasized that oil extraction has caused

context of the country, it is important to

significant environmental impacts, despite the

mention that Colombia, through the SGR,

rapid intervention by Ecopetrol. Likewise, it

created different funds in order to redistribute

should be mentioned that even though 80% of

income from mining and hydrocarbons, to

the extraction of crude oil in the country is

territorial governments of different levels,

carried out by Ecopetrol, the income from this

producers and not producers. According to the

activity has not translated into improvements

NRGI, Colombia’s Savings and Stabilization

in the socioeconomic indicators of the nation

Fund obtained a rating of 100%, due to the control

mechanisms

designed

for

and the region.

its

management and transparency, making it the highest-ranked governance program in the world.

However, despite Colombia’s good grades in the index, it is perceived that, despite the

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

47

[51] Fichas territoriales municipales​ https://terridata.dnp.gov.co/#/perfiles [52] Human development report 2016​ http://hdr.undp.org/sites/default/files/2016_human_development_report.pdf [53] Corruptos se embolsillan $50 billones de presupuestos regionales https://www.elespectador.com/economia/corruptos-se-embolsillan-50-billones-de-presupuestos-regionales-articulo-719783

[54] Índice de Gobernanza de los Recursos Naturales 2017 https://resourcegovernance.org/sites/default/files/documents/2017-resource-governance-index-spanish.pdf

Conclusions and Recommendations

Despite the fact that the Transparency and

of mechanisms to carry out the auditing, or a

Access to Public Information Law was enacted

lack of political will that would encourage

in Colombia, the set of information provided

corrupt practices.

by State entities associated to the oil sector, mainly Ecopetrol and the ANH, was not clear

The oil industry in Colombia is one of the

and generated confusion. Ecopetrol’s data

sectors of the economy that pays the most

differed from the data provided by the ANH.

taxes. Extraction of non-renewable natural

These differences create skepticism on the

resources is heavily taxed due to the

ability of said entities to carry out an effective

characteristics of the resource and therefore,

control of crude production due to the absence

the shortage of it. In spite of the costs

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

48

(28.87%), the government take of the Cubarral

Cubarral block, during 2003 to 2016, a little

block is approximately 62%. Dividends left by

more than 51 billion pesos (22 billion dollars)

the extraction of crude oil amount to 50.9

were generated in royalties and taxes, this

billion pesos (22 billion dollars), which

revenue would be enough to boost health and

generates an essential economic stimulus to

education in throughout the national territory.

continue

oil.

Although it is true that royalties are assigned

Additionally, high prices since 2005, with the

to different purposes, it is worthwhile to

exception of 2014 and 2015, have resulted in

deepen the analysis of the destination that is

substantial fiscal contributions, as well as

given to the resources generated by the oil

greater dependence on oil exploitation.

industry.

with

the

extraction

of

Especially

since

Cubarral's

contribution will still be significant.

In the same way, the fiscal regime for the oil sector represents an important part of public

The national context around the Cubarral

finances. In the period 2003-2025 the block

block should be highlighted. In the Orinoquía

will generate the State a net income for of 84.3

basin, located in the Colombian eastern plains,

billion pesos (36.5 billion dollars). The

oil production is a fundamental factor that has

international oil prices directly influence tax

allowed to promote economic and social

collection, since the higher the price, the

development in the region. However, in three

higher the public revenue. 2013, the year in

of the four municipalities where the Cubarral

which the price of a barrel of oil averaged 95

block is present, oil extraction covers more

dollars, brought significant revenue for the

than 80% of the total municipal economic

country and companies. Colombia-s fiscal

activity. This dependence is a dangerous factor

regime, despite its instability, is considered

if one takes into account that the Block has a

attractive for domestic and foreign investors.

few years of oil reserves and that, faced with the decline, the economy of the municipalities

It is striking that the indicators of poverty and

will suffer greatly due to the high dependence

misery in several departments such as Chocó,

on oil extraction.

in the Colombian Pacific, or Vichada, in the eastern plains are so high despite the amount

Additionally, oil extraction in this region has

of resources the State receives from oil

not been exempt from social protest or

extraction. If one takes into account that in the

violence. Underlying social issues in the

CUBARRAL BLOCK: HOW MUCH DOES IT PAY AND HOW MUCH WILL IT PAY? CONTRIBUTIONS OF THE LARGEST OIL BLOCK IN THE COUNTRY TO THE FISCAL REGIME

49

municipalities have spawned protests among

and oil revenues that show progress in

the inhabitants of the municipalities against

departments such as the Meta, but there are

Ecopetrol for the lack of social investment and

setbacks in the socioeconomic indicators of

job creation by the company. Likewise,

departments such as Chocó. In that sense,

paramilitary activity has been a negative

corruption, as well as the inefficiency of the

influence, with violence and intimidation

authorities in the local and national order, can

against communities that have spoken against

be important factors that encourage these

the negative impacts generated by oil activity

inequality, making it difficult to control due to

in the territories.

the disparity of information provided by the entities of the State.

It should be mentioned that despite the importance of oil income from the Cubarral

Therefore, it is essential that civil society

block, communities in the area of influence

strengthens the oversight of the management

have spoken against these extractive practices

of natural resources. Also, raising awareness

due to the non-compliance with labor and

for the social, economic and environmental

salary agreements by Ecopetrol. Similarly,

impact of extracting them in order to properly

armed conflict that has harassed the region,

use

not allowing it to effectively exercise civil

Likewise, demand a good use of the rent for

rights

the benefit of all the inhabitants. The

for

the

inhabitants

of

these

municipalities.

the

mechanisms

of

accountability.

governance of non-renewable resources by

If we analyze Ecopetrol’s participation in the

governments and, mainly, communities, will

national production of crude, approximately

allow effective control of the destination,

80%, a greater advance in the development of

quality and impact of the resources that enter

the nation would be expected. However, the

the State.

local impact in the municipalities where crude

is extracted translates into acceptable social indicators with respect to the national and departmental average.

As mentioned above, the country has shown improvement in the distribution of royalties