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Colombia: A New State of Play

Colombia: A New State of Play

The administration of President Juan Manuel Santos is entering its final stretch with presidential elections next year, prompting Colombia Gold Letter to take the pulse of sentiment in the mining and exploration sector on several key issues.

Political environment

Colombia Gold Letter: The Santos administration has spent its political capital brokering a peace  agreement with the FARC. The agreement terms were unpopular with a large percentage of the population, loosely defined as the Alvaro Uribe faction, but the fact that the agreement is being implemented despite this opposition, shows the high level of political stability that Colombia enjoys. The 2018 presidential election could see power swing back to the Uribistas as many Colombians feel the country needs another firm hand government.

Mark Moseley-Williams, former CEO of Eco Oro Minerals: Currently in Colombia there is political stability and there will continue to be so in the future. Mining needs a president that really rolls up his sleeves. German Vargas Lleras has a good shot and he is a doer, an executor as vice-president he is used to handling big infrastructure projects, so he would be good for the mining sector. Another interesting possibility is the former attorney general Alejandro Ordoñez: among all the public servants he has been one of the most vocal supporters of the mining industry. Because mining has become a political issue, we will have to wait until after the election cycle for infrastructure projects to move forward.

Andres Restrepo, President of Mineros SA: In general, there is opposition to new licenses such as La Colosa with municipalities holding popular votes, so there is a lot of noise. The current president is ending his term and is not inclined to assume the political cost of putting things in order, especially with the low level of popular support that this government is ending with. This is serious as it effects the chance for economic growth and the country needs all the economy to grow.

Ignacio Santamaria, Lawyer at Camacho Lloreda: The government has spent all its political capital on the peace  process and despite its interest in the mining sector it has no political capital to spend on it. The environment is  probably going to be a theme in the next election, which will have an impact on mining and will generate  uncertainty.  Mining has to be a state policy and not be treated as a political football. Someone has to rule and take decisions. Mining is for central government to decide, not municipalities as many projects are of national interest.

However, municipalities must have a say, so the government needs to create mechanism so they can communicate and take part in the decision-making process. But Colombians consume themselves discussing things and trying to arrive to the perfect solution rather than the optimum solution. Colombia wants a president that rules, and so German Vargas Lleras has  a good chance.

Legal agenda

CGL: With its political capital spent, the government does not have the firepower to advance much on the legislative agenda during its final year, so no drastic changes are to be expected. The mining sector, through the Colombian Mining Association, has tried to influence some regulation in order to benefit the industry, mostly because the government has left the sector to fend for itself in the face of an onslaught of popular votes, militant environmentalism and the increase of criminal mining activity. We do expect some positive changes with the new tax reform at the end of the year.

IS: The government has spent its political capital so it will be very quiet on the legislative front for the remainder of the Santos administration.

AR: The tax reform at the end of the year is very important as it includes a mechanism whereby companies can spend some of their tax liability on public works and offset the cost against taxes. The executive wants to help but there is no consensus between different levels of government. The CARS [regional autonomous authorities] don’t have a unified position or con-sensus with the central government, and each department does its own thing, which makes investment in mining, oil, energy, infrastructure difficult.

MMW: Santos is in office until August 2018 but nothing will happen legislatively until the next presidency. The only benefit the sector has obtained recently is the tax initiative reform but there is uncertainty as the legislature refuses to legislate. In the virtual absence of the Parliament the Constitutional Court has been trying to fill the gap. When in comes to regulation there are too many grey areas, and yes it gives room for the mining industry to fight things but it also gives breathing room to its opponents, which makes the situation complicated.

Communities

CGL: Colombia is not a mining country and so for many people the idea of modern, formal, large-scale mining is alien. With the government focused on the FARC peace deal it has been unable to respond to challenges facing economic development such as militant environmentalism; courts and local government have taken it upon themselves to enact laws and with determine the direction of the country. Direction of the country. This has resulted in court-approved popular votes in individual municipalities about whether to allow mining or not, which is beyond the purview of local authorities. Issues are reduced to a binary for or against decision in popular votes where voters are ill-informed and the mining sector in general has failed to deliver a strategy to counteract this.

AR: There is a worldwide phenomenon that is not only affecting mining, but other sectors. Social media is facilitating people who demand to be heard, but who then go and make the wrong decision motivated by fear. Brexit, the Trump election, vaccines and popular votes against mining. Some actors are taking advantage of this to motivate particular out comes that have come at a high costs for the economy. You don’t need to have a popular vote for everything. There are decisions that have to be taken by someone that studies the issues in depth and then decides.

The impact of popular votes against mining is significant. At a 2 % annual GDP growth rate, it will take Colombia 34 years to double its GDP. With investment in mining, oil etc, a 4% growth rate will double the GDP in 12 years. Not taking advantage of these resources condemns the poor to 30 years more of poverty.

If you ask people whether they want water or mining they will always answer water. But the question is really whether people want poverty or not. People don’t see the impact of their decisions. Tolima is a department that has one of the most modern agricultural sectors in Colombia but its economic indicators are some of the worse. We have to useall of our resources like they do in Norway, the USA and Australia.

IS: Education is the solution to the communities’ issue. The decisions of local communities have been taken without sufficient information and they have been uninformed and therefore very wrong. The mining sector is very clear that there can be no project development without having locals on board and that they must be interested in what communities want. People have taken advantage of the disinformation and fed communities incorrect information. The mining industry with the government's help has to provide better information to communities.

MMW: “Some communities understand mining and are more amenable to development of professional mining, but a project has to be handled in the proper way. The previous change in the royalty scheme was loaded against mining companies as it means there is little benefit in hosting a project for communities. Local mayors are some of the most prepared and informed people not only in Colombia but across all of Latin America. You are dealing with prepared local politicians so you cannot get away with giving out poor quality information. Companies have to consider doing proper community investment during the exploration phases and figure out what they the locals truly need.

Environment

CGL: Environment has been a battleground for the mining sector for much of the past seven years. By waving the environment banner, mining opponents have successfully mobilized parts of Colombian society against modern, professional, large-scale mining, with scant evidence or any science-based approach. Potential threats to the environment, particularly water, from mining has been successfully channelled into uniformed persecution of formal mining activity, whilst destructive illegal mining is ignored/accepted. Companies have been on the backfoot on the environment and and have not implement the appropriate communication strategy to counteract the propaganda against them.

AR: Environment is used as a tool by those that want to prohibit mining, particularly by focusing on water. It is a political strategy. There are moments when you have to make decisions for the common good and not the individual good.

MMW: There needs to be a more innovative approach in handling the water issue and getting communities on board. Water is tough so there needs to be better education, hire a hydrologist early on to study the local water environment and explain to the locals how the mining project will be managed. The issues we are struggling with now, are a result of not putting enough money or effort in teaching communities from day one.

ABOUT THE AUTHOR

Miners & Investors is a trusted provider of analysis, and commentary that helps illuminate the most significant issues, events and trends impacting the Latin American Mining and Investment markets.

 

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