BOGOTA – In the decade since opening its energy sector, Colombia has earned a reputation for stability and success. The country has won plaudits across the hemisphere from its neighbors and investors; Colombia’s energy reforms were studied closely by Mexican authorities as they rewrote their energy laws. However, as oil and gas production has dipped below targets and exploration has fallen short of expectations, the country is battling not only to meet its own energy needs but also attract the investment necessary to sustain the energy sector into the future. Moreover, Colombia has realized that deliberate community engagement and environmental stewardship is critical to achieving that goal.
These issues and efforts to redress them figured prominently across presentations and discussions at the Institute of the Americas Colombia Energy Roundtable in Bogotá on September 9.
Colombia’s challenges are not unique. Indeed, social responsibility in the energy sector has become a key element of policies – and conflicts – across Latin America. Colombia’s Ministry of Mines and Energy notes that oil production is an estimated 40,000 barrels per day (bpd) under its 1 million bpd target; around half of the production shortfall can be attributed to social conflicts and security challenges. The government is expected to make up the financial loss by raising taxes, an increasingly polemic topic and one that many argue will still fall short of the covering the nation’s budget gap.
Beyond the economic impact, Colombia has an obligation to protect both its biodiversity and indigenous heritage. Issues of community engagement and environmental protection have arisen at all stages of the project cycle and across the value chain, from exploration and production to infrastructure to power generation and transmission projects.
The Colombian government is taking these concerns seriously. As the Ministry of Mines and Energy focuses its efforts on increasing exploration and production, particularly in the offshore and unconventional areas, the accompanying regulatory framework aims to incorporate best practices in social responsibility. Colombia is looking closely at the experience of other nations, such as the United States for approaches to a host of concerns, from water usage to “consulta previa” or prior consultation.
The struggle to balance investment and economic growth with social responsibility is not a new concern. Colombia’s indigenous peoples are recognized in the 1991 constitution but in many ways government and private sector engagement with local communities has had mixed results. For indigenous communities, the government must correct the imbalance between economic development and social and environmental goals. International sustainability efforts and the international human rights framework, they argue, should inform these efforts.
Instruments to guide indigenous participation, however patchy, are already in place in Colombia, including prior consultation and planning processes. Panelists argued that these efforts must go further to ensure the participation of indigenous people in the design and implementation of development plans, in particular zoning regulations in Colombia. These plans should also be aligned with local indigenous initiatives such as “planes de vida” or life plans – efforts carried out by several indigenous communities as a way to articulate local development goals – and prior consultation processes.
In terms of environmental concerns, one panelist argued that companies were recycling older impact studies as a way to cut corners in light of rising costs and long permitting delays. The Colombian government has frequently stated its intention to reduce permitting times to six months, an improvement but still quite distant from Canada where environmental permits are routinely turned around in a matter of weeks.
On the industry side, although several companies are now incorporating best practices and engaging with the immediate community the full implications of the broader project area are often not taken into account. One panelist cited an example in Peru. The project bordered a river and while the company had worked closely with the community most immediately affected, they had failed to engage with those on the other side. Conflict later arose, halting the project for several weeks.
That there is a significant financial cost to inadequate community engagement and environmental responsibility is clear, even though few companies have calculated these figures. According to one panelist, stoppage at an oil production site could easily run to $20 million; halting operations at the exploration stage could cost up to $70,000 per day.
With President Santos now entering the second month of his second term, there is hope for stability on which to expand exploration and production activities. The National Hydrocarbons Agency (ANH) has set forth a two-part strategy for boosting reserves and production: 1) unconventionals; and, 2) offshore. And the government’s decision to forego any further bid rounds for the next 2 years and instead focus on bringing to fruition the long list of pending projects and investments is important.