Robbing the poor to give to the rich: the injustice of Colombia mining royalties

Posted on Mar 3 2014 - 2:28pm by Rico
(Photo: Business Insider)

Colombia has developed various strategies to attract foreign direct investment. One of them is tax exemption. It makes economic conditions more favorable for mining and fuel companies. Royalties are a different kind of “tax” used to compensate the Colombian people for the stripping of their mineral resources. The problem is for every $100 COP paid in mining royalties, $132 COP is given straight back to the mining corporations in tax deductions. The government does not just give it away – it actually pays corporations to take it.

Export in Colombia has been and remains a significant driving factor for large scale mineral exploration, extraction and production by multinationals. According to the central bank, the country’s hydrocarbon sector alone attained a record high proportion of total exports in 2012, at 71%. This contributed a record $40 billion to the economy.

Yet how much of this wealth was given over to the Colombian Government? And how much did that same government assign to badly needed improvements in public infrastructure projects, health care or education?

The world awoke in 2011 to various Colombian mining scandals.  ABColombia, the British newspaper The Guardian, NGO Peace Brigades International and Guillermo Rudas of Colombia’s Universidad Javeriana were all particularly vocal on the subject.  They highlighted the enormous benefits enjoyed by multinational companies residing in and exploiting pristine areas of Colombian land.  Many, if not all, such companies still continue to miscommunicate or partially conceal their true financial figures.

The EITI (Extractive Industries Transparency Initiative), an international initiative that aims to promote accountability, bring transparency, fairness and justice to mining communities was setup to make it increasingly difficult for corrupt government officials and corporate leaders to sweep financial misdemeanours under the carpet. Ratifying the EITI was said to be the intention of the Colombian Government in 2014, according to the previous Minister of Mining Federico Renjifo but this takes time.

Subsequently, one can only look to the 2011 mining reform for the much needed changes. On its unveiling it was billed as the most progressive in decades. Now wealth is legally administered in a way that cuts out the middle man and promotes autonomy and investment among all of Colombia’s departments. But is anything really stopping local politicians from feathering their nests whilst the people they are paid to represent fall further into chronic poverty?

As of February 2014 post-reform information regarding mining royalties remains publically unavailable. This is unsurprising given that there is no legislation anywhere in the world, which forces a company to disclose data. SIMCO, the Colombian Government’s Mining Information System, has not updated their database since September 2012. The latest figure provided for royalties is $USD 701 million for the first nine months of 2012 whilst in 2011 $USD 1.6 billion was recorded. There is certainly nothing to back up the U.S. Colombian Embassy’s 2011 claim that the new reform will increase Pacific departments average royalty receipts from $USD 40 million to $USD 852 million p.a.

The two “considerable” sums of money with a more factual basis: the $USD 1.6 billion assigned over to royalties along with an export market valued at $USD 40 billion due to hydrocarbons alone, probably go some way to explaining why on 20th February this year Colombia Reports ran the headline “66% of Colombians Think Mining is Positive for the Country”. Such sums also appear to give support to President Juan Manuel Santos’ Tweet of the same day that “mining levers social development and national productivity by generating resources that are invested in the wellbeing for the most vulnerable”.  These figures and political rhetoric are however deceptive, especially if one does not investigate the facts behind them. Ask Santos how much money a multinational company pays in just about any country in Latin America, apart from Peru, to extract a tonne of mineral or barrel of oil, and one will quickly realise that once again Colombians are being sold short.

This point is really driven home when one looks at statistics from CEPAL, the economic commission for Latin America, which show that between 2007 and 2011 the Colombian taxes that actually found their way to the State equated to 16% of the GDP generated by the mining and hydrocarbon sector –  the smallest percentage in Latin America, apart from Peru. Compare this to Ecuador at 89%, Mexico’s 77% or even Bolivia’s 42% and one really has to cast doubt on the credibility of President Santos’ statement or the exact benefit  derived from extracting more oil, coal or precious metal than the country consumes.

In the medium to long term, Colombia will arguably be in one of the worst positions in the region with a fading export market, fewer natural resources to sell and limited public services and infrastructure. The latter, as in Ecuador, should really be built now in the “boom”.

According to Contraloria for every $100 COP given in royalties by the mining and hydrocarbon sector, the State has returned, or rather rewarded, up to $132 COP in tax deductions. That is not just giving it away but paying multinationals to take it. This is a very warped version of a Robin Hood tax and goes someway to explaining why, even though the Colombian Government has received $1.461 billion in royalties from El Cerrejón over the last 25 years, 70% of the population of La Guajira lives in poverty.

If things remain the same and with nothing in the way of official statistics to suggest otherwise, this may mean that even should mining production triple as the government aims by 2021, a weak tax regime and a lack of transparency could cost Colombians, not just those neighbouring El Cerrejón, more than mining and hydrocarbons generate.

This article is the second of a series on Colombia’s mining and minerals industries


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