The oil resurgence, vital for the Government's urgent need for money

In the midst of the formulas that the Government is considering to present a financing law to Congress, to balance the resources of the General Budget of the Nation for 2019 and cover at least 14 of the 25 trillion pesos of additional needs of the ministries after the arrival of the new administration, the oil sector returns to the scene as a key source of resources for the treasury.

This week the prices of the benchmark Brent crude (Europe), which Colombia uses as a reference for its exports, not only surpassed the barrier of 80 dollars per barrel but also approached 87 dollars.

Although it is a situational situation caused by the United States sanctions on Iran, among other factors, the truth of the matter is that this year the average will close higher than in 2017.

And this will constitute an important source of resources for the central government in 2019, basically due to the higher income tax payment and the dividends from Ecopetrol, which would be higher (defined by the board of directors next year), not only due to the rise in oil but also due to the effect of the savings strategy adopted by the oil company.

In fact, after having an average of 54.7 dollars in 2017, this year, between January and September 21, before it broke the barrier of 80 dollars, the average price of Brent oil was 72.57 dollars, exceeding the average forecast by the Ministry of Finance in the Medium-Term Fiscal Framework, which placed it at 67 dollars.

[prefix_blockquote align=»right» pull=»yes» italic=»yes»]Although prices of the benchmark Brent crude increased due to a situational factor (U.S. sanctions on Iran, among others), the truth is that this year the average will close higher than in 2017[/prefix_blockquote]

Thus, with figures from the Dian, the Colombian Petroleum Association (ACP) estimated that in 2017 the oil industry transferred 10 trillion pesos to the Nation (3.5 trillion in income tax and 6.5 trillion in royalties and other contributions), 54 percent more than in 2016, and calculations indicate that for 2018 the minimum increase would be 5 trillion pesos, excluding the dividends from Ecopetrol.

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According to the industry's accounts, this sector, which former presidential candidate Germán Vargas referred to as the cash cow that everyone takes from but no one wants, would contribute between 15 and 17 trillion pesos to the country in 2018, of which between 7 and 7.6 trillion pesos correspond to royalties for the regions, while the rest would be current income for the central government.

“This represents a significant increase compared to the contributions of 2017, which reached 10 trillion pesos, mainly explained by the recovery in oil prices over the last year,” says Francisco José Lloreda, president of the ACP.

The projection of 15 trillion pesos, that is, 5 trillion more than in 2017, was made with the prices and production volume for the year within the fiscal framework, that is, 67 dollars per barrel and 844,000 barrels per day.

But so far this year, with less than three months left to conclude the current exercise, including the price exceeding 80 dollars, the average crude oil barrel is at 72.95 dollars and the average oil production, between January and August, was at 857,613 barrels per day, according to data from the National Hydrocarbons Agency (ANH).

[prefix_blockquote align=»right» pull=»yes» italic=»yes»]Growth projections were made with the prices and production volume for 2018 within the fiscal framework, that is, 67 dollars per barrel and 844,000 barrels per day[/prefix_blockquote]

Under these new conditions, the industry's calculation is that the country would receive 17 trillion pesos this year from oil revenue, but this would have to be added at least another three trillion pesos that the refining, transportation of hydrocarbons, oil services, and fuel distribution left in income tax in 2017.

And on top of all this, the dividends from Ecopetrol would have to be included, which this year, when it was decided to distribute 55 percent of the profit from 2017, will be 3.5 trillion pesos for the Government, a figure that, if that distribution percentage is maintained, would exceed 4 trillion pesos.

This means that, in total, the oil revenue for this year, counting the dividends from the majority state-owned oil company, could approach 20 trillion pesos.

In fact, the most recent figures from Ecopetrol showed that its accumulated profits for the first half reached 6.1 trillion, and of these, 3.5 trillion, the same figure distributed this year, were achieved only in the second quarter.

Regions would have a 60 % increase in royalties.

The new surge in crude oil prices led to the proposed royalty budget for 2019 and 2020 having an increase of over 60 percent compared to the one allocated for the years 2017 to 2018.

When presenting the project in Congress, the Minister of Mines and Energy, María Fernanda Suárez, indicated that the amount will increase from 11.7 trillion pesos to 19.2 trillion, a quite representative figure that is almost half of the annual education budget and nearly three times the allocation for the social inclusion item or five times the housing sector budget.

“With these resources, the mining-energy sector will promote regional development and translate the contributions of the industry into works and benefits to improve the quality of life of Colombians,” reiterated Minister Suárez.

Of those 19.2 trillion pesos, hydrocarbon exploitation will contribute more than 15 trillion, and of this latter amount, 13.4 trillion corresponds to crude oil production and 1.7 trillion to gas production. Meanwhile, mining will contribute 3.2 trillion pesos.

In the project, one of the largest increases will be the allocation for peace, which rises from 511 billion pesos to nearly 1.7 trillion pesos, which in the official's opinion, will allow for more and better opportunities for the peace stabilization areas through the construction of roads, more electrical coverage, drinking water, basic sanitation, and education.

On the other hand, the allocation of the Science, Technology, and Innovation Fund would increase from 1.1 trillion pesos to 1.7 trillion pesos. In the legislative process of the project, the Government will seek to define mechanisms that allow for the acceleration and dynamization of the investment of the money.

Therefore, it will propose adopting the ‘works for royalties’ mechanism, similar to works for taxes, seeking that, after defining the needs by the regions, the execution and monitoring of the projects be the responsibility of the companies.

Thus, companies could formulate and present projects financed with royalty resources, and execute those approved by the Collegiate Bodies of Administration and Decision (Ocad), in accordance with the National Development Plan.

ÓMAR G. AHUMADA ROJAS
DEPUTY EDITOR OF ECONOMY AND BUSINESS
On Twitter: @omarahu