In recent months, Colombia has witnessed several changes to its regulatory landscape with potentially far-reaching effects for the energy and mining sectors. Colombia’s political shift in 2022 is likely to result in further legal reforms that will affect extractive industries. This article outlines the changes that have been implemented thus far and describes reforms currently contemplated by the Colombian government.
On October 11, 2022, Colombia’s Congress ratified the Escazú Agreement (the Agreement) via Law 2273 of 2022 (Law 2273). While the Agreement was initially adopted in March 2018, it has now become part of Colombian law. Its key provisions focus on the public’s right to environmental information, the right to participation in environmental decision-making and access to justice in environmental matters. However, questions have been raised about the Agreement’s conformity with other domestic legislation, particularly concerning the prior consultation process. In accordance with the Colombian Constitution, communities have the right to be consulted on any law or administrative act that has an impact on them. Although the Agreement has provisions that are considered to have a positive impact on the communities, a debate has arisen as to whether its adoption as Colombian legislation should have been subject to prior consultation, since it will still have an impact on the communities, regardless of whether it is positive or not.
The Agreement is not yet in force. Under law, prior to coming into force, the Constitutional Court must declare the constitutionality of the entire text. In addition, since the Agreement regulates fundamental rights, the execution of certain provisions must be done by means of statutory laws, which may imply a challenge for the Agreement’s implementation since it requires the approval of the absolute majority of the Congress.
The legislative modifications that the implementation of the Agreement may require include: (i) the public disclosure of the administrative orders imposing preventive measures and adopting decisions in the framework of environmental sanctioning procedures; (ii) the public disclosure of the requirements made to the holders of environmental licenses and their respective responses filed before the environmental authority; (iii) the continued participation of the intervening third party after the granting of the environmental license, so that they may hear new requests for modification of environmental licenses, requests for pronouncement of minor changes and administrative acts of control and follow-up; and (iv) the modification of the scope of the environmental public hearings, in order to turn them into deliberative spaces.
It should also be noted that Law 2273 provides petitioners with access to environmental information of the transition zones of the high Andean paramo forest. In practice, this may result in the public dissemination of information concerning extractive projects that would have otherwise remained confidential. However, the law does not contain any restrictions on its use or production.
Environmental concerns have also been at the center of rulings by the Colombian Council of State and Constitutional Court. The Council of State issued two relevant decisions: (i) an August 4, 2022 decision enacted temporary measures to safeguard protected areas found within mining titles; and (ii) a September 12, 2022 decision confirmed that the administration may revoke a company’s environmental license, as a result of changes to social and environmental conditions in the area of activity. Also of note, in Decision SU-121/22, the Constitutional Court further enshrined the right to prior consultation for extractive projects.
In early December, Colombia’s Congress approved a tax reform bill, which was enacted by the Executive Branch on December 13, 2022, as Law 2277. This law incorporated significant changes to Colombia’s tax regime, affecting both domestic and foreign corporations. Several changes are particularly noteworthy for companies in the mining and energy sectors:
i. It is no longer permitted to deduct royalty payments in the oil, gas and mining industries from corporate income tax. In practice, this signifies a large increase in the effective tax rate for these sectors, which will unavoidably impact operational costs.
ii. The law levied a permanent surcharge on corporate income tax for companies engaged in crude oil and coal extraction and production. The surcharge will depend on the average market prices over the preceding 120 months and will be applied as follows:
A) Oil companies’ income tax rate depends on the price of oil in international markets, relative to the average price of the last 120 months. If the increase in price between the current price and the 120-month average is:
- Less than 30%: No surcharge, oil companies will pay the single rate that applies to all legal corporations, which is 35%.
- Between 30-45%: 5% surcharge, oil companies will pay 40% total rate.
- Between 45-60%: 10% surcharge, oil companies will pay 45% total rate.
- Above 60%: 15% surcharge, oil companies will pay 50% total rate.
B) Coal companies’ income tax depends on the price of coal in international markets relative to the average price of the last 120 months, and the surcharge will be applied as follows:
- Less than 45%: No surcharge, coal companies will pay the single rate that applies to all legal corporations which is 35%.
- Between 45-60%: 5% surcharge, coal companies will pay 40% total rate.
- Above 60%: 10% surcharge, coal companies will pay 45% total rate.
However, this specific provision is limited to oil and coal companies with taxable income over COP2,120,600,000 (approx. US$451,191.50).
Potential upcoming reforms
In October 2022, Colombia’s government created a commission to reform the 2001 Mining Code. Although there is no official draft bill just yet, public statements by administration officials indicate that the reforms are likely to favor informal miners and increase environmental licensing requirements. As President Gustavo Petro recently proclaimed, the administration’s stance is that “the State should no longer prioritize big mining multinational companies.” Further, the government’s conduct in recent mediations between informal miners and mining companies shows its commitment to strengthening the position of the former group. Therefore, the reforms are expected to focus on the protection of the environment, local communities and informal miners.
Bills currently under consideration by the House of Representatives and the Senate have a similar focus, and indicate the government’s broader environmental and social concerns. The regulations currently under consideration and their effects include:
i. Bill of Law 241 of 2021 – aims to protect buffer zones of National Parks and would prohibit large-scale mining projects in those areas;
ii. Bill of Law 072 of 2022 – sets standards on air quality and pollution control that would effectively preclude mining activity;
iii. Bill of Law 160 of 2022 – aims to protect the transition zones of the high Andean paramo forest, including by prohibiting the exploration and exploitation of large-scale mining in those areas; and
iv. Bill of Law 098 of 2022 – establishes standards for obtaining an environmental license for the mining exploration phase, including a new maximum duration of three years for this phase.
v. In addition, the Government filed with Congress the National Development Plan which is a legal instrument through which the Government’s objectives are outlined and serves as the basis for the public policies formulated by the President – This project establishes a provision prohibiting new thermal coal open pit projects and restricting the extension of the current ones.
These wide-reaching reforms are likely to have serious effects on activities in the oil, gas and mining sectors. We encourage all clients to stay abreast of these developments and remain informed of any further reforms.
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