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ELN, Colombia’s second-largest guerrilla group, has intensified its attacks against the oil sector just as FARC attacks are down. (Photo: Colombia's Oil and Mining Ministry)
Tuesday, March 14, 2017

Colombia Oil: Peace Bump?

Will Colombia’s oil sector see a bump after the peace accords?

Inter-American Dialogue 

The Revolutionary Armed Forces of Colombia, or FARC, rebels began surrendering their weapons on March 1 to the United Nations, three months after they signed a renegotiated peace agreement with the country’s government. In the past, the government has said that the peace process will benefit the country’s energy sector. However, other experts have warned that areas of the country that had previously been under FARC control may now be vulnerable to environmental exploitation by illegal groups. Which aspects of Colombia’s energy sector are most likely to see a change as disarmament begins? Will Colombia see fewer attacks on its oil sector infrastructure? What challenges remain as Colombia looks to reap the benefits of the peace agreement vis-à-vis the energy sector?

Rich Donohoe and Walter Pesenti, managing directors, at Berkeley Research Group: Infrastructure and security issues will continue in Colombia. Its current pipeline network has the capacity to transport about one million barrels per day, while inadequate road and rail systems make ground transportation complicated and expensive. Caquetá and Putumayo departments offer promises of new oil deposits, but lack a connection to the Pacific coast that could feed Chinese demand, which consumes about 26 percent of the country’s oil exports. The weak infrastructure is further undermined by continued security concerns. The Coveñas pipeline plays a vital role in exporting oil, but averages one rebel bombing each week, which is unlikely to stop.

Attacks on oil infrastructure have dropped since the FARC cease-fi re, but the country’s second-largest guerrilla group, the National Liberation Army (ELN), is fi lling the vacuum. Additionally, criminal groups have quickly stepped into areas that the insurgency abandoned. Similar to the disarmament of the Irish Republican Army through political dialogue with its political arm Sinn Féin, some members of FARC may put down their weapons, but members who are professional smugglers and criminals will simply move to other similar ventures. Expect oil, gas and electric franchises to fall into illegal hands, much like in the Baltics, Balkans and Ukraine. Until a replacement ‘center of local government’ develops that can enforce rule of law in the former FARC-controlled areas, the ELN or local indigenous populations wishing to protect their environmental and societal sovereignty may continue attacks. Although the United Nations can collect weapons and disarm the FARC to a point, expect individual FARC members to keep spare weapons around ‘just in case.’ While pro-businesspolicies and a favorable regulatory system can create a sense that things are easy in Colombia, the reality is very different. Low oil reserves, insuffi cient and weak infrastructure, persistent security risks and inherent social unrest are the biggest obstacles. In the current oil-sector environment, the positives might not outweigh the risks. Even the government is aware of that, and it recently passed a tax reform aimed at replacing the old incomes from oil with tax revenue. Without the oil, Colombia’s growth will depend on internal consumption and foreign capital.

John Padilla, managing director, and Sergio Torres, consultant, at IPD Latin America: Colombia’s peace agreement with the FARC has had a positive, though limited, effect on the country’s energy sector.

Terrorist attacks against oil infrastructure in FARC-dominated areas (i.e., southwestern Colombia, along the Ecuadorean border) are down, and should maintain that trend. But the ELN, Colombia’s second-largest guerrilla group, which started peace negotiations with the government in February, has intensified its attacks against the sector. Attacks on the 485-mile Caño Limón-Coveñas pipeline have resulted in increasing levels of shut-in production from the Caño Limón field in 2017.The pipeline transports nearly 10 percent of Colombia’s total oil production. Seventeen attacks have already been perpetrated this year, as compared to 43 total last year.

These attacks have forced Ecopetrol to declare force majeure on Vasconia crude shipments, which leave from the Coveñas Port, since January. Previously, ELN attacks were mostly deployed to extort payments from producing companies; now they are likely aiming to press the government for a bilateral cease-fi re declaration. With legislative and presidential elections slated for Marchand May 2018, respectively, terrorist actions against the sector will likely remain elevated.

Regardless of how ELN peace negotiations evolve, it is not clear that Colombia’s government can prevent other illegal organizations from filling the power vacuum left by the FARC. The result: increased extortion and corruption, a lack of legitimate employment opportunities and rule of law, and continued inequality. A peace agreement is just the first point on a long list of structural changes Colombia must implement before its energy sector can truly benefit from an end to civil conflict.

Santiago González, local partner at the Bogotá office of Norton Rose Fulbright LLP: The peace agreement and the consequential disarmament of the FARC rebels is, without hesitation, a landmark in the history of Colombia. The government has no additional excuses for not reaching isolated and rural areas of the country, which were illegally controlled and under the forced influence of armed groups. Infrastructure, education and the satisfaction of the population’s basic needs should now be a feasible priority of the government. In this framework, the energy sector will necessarily benefit from the circumstances, given that security conditions and infrastructure will now play in favor of the industry, allowing investors to access remote areas and making the most of existing but unreachable natural resources. Colombia should definitely see fewer attacks on its oil sector infrastructure.

Still, we cannot forget that in addition to the FARC rebels, there are also other illegal armed groups, such as the National Liberation Army, or the ELN, and the former paramilitary and delinquency forces. In particular, the ELN is a guerrilla group that has been actively fi ghting against the exploitation of natural resources by multinational companies. Attacks on the oil infrastructure such as the Caño Limón-Coveñas oil pipeline is a reality happening right now. The government faces at least four main challenges: (i) complete a successful implementation of the peace agreement with the FARC; (ii) initiate and complete a peace agreement with the ELN; (iii) effectively provide the rural areas of the country with education and infrastructure and satisfy their basic needs; and (iv) firmly combat the dissidents of the FARC, ELN and former paramilitary groups.

This last challenge will be key to protecting areas that had previously been under FARC control from environmental exploitation by illegal groups. In turn, the energy industry will have to be prepared to deal with increasing social protests that will be promoted by former members of the rebel groups and the communities that want to receive tangible benefits from the exploitation of Colombia’s natural resources. Energy companies will have to identify the best way to fi t into the puzzle of the post-conflict era and get actively involved with all stakeholders.


Republished with permission from the the Inter-American Dialogue's weekly Energy Advisor



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