The reform of the reform

To justify the reform of the royalties regime through Legislative Act 05 of 2011, the then Minister of Finance Juan Carlos Echeverri argued, as a fundamental argument, that “with the mining boom and the prosperity that is expected to come in the coming years, royalties are going to increase substantially, which is why their governance needs to be changed,” that is, to redistribute them.

“and spread them throughout the national territory and not just focus them on certain sites.” However, the minister's calculations and projections were far from reality, as just when he proposed the ‘bonanza’ that was expected, the prices of oil, coal, gold, and ferronickel, along with the royalties, plummeted.

[prefix_blockquote cite=»Analysis conducted by former Minister of Mines and Energy, Amylkar Acosta.» align=»right» pull=»yes» italic=»yes»]As Minister of Mines and Energy, María Fernanda Suárez, rightly says, “the producing regions are not satisfied with the royalties they receive today.” Therefore, the reaction of the producing regions was swift, exacerbating conflict and protest, as well as rejection of extractive activity through various means, hindering, and in many cases, preventing the advancement of important projects.[/prefix_blockquote]

With this reform of the royalty regime, the losers were the departments and municipalities of the country where companies exploit non-renewable natural resources (RNNR), as well as the port municipalities through which they are transported, which went from receiving, on average, 74 percent of the total royalties directly, to receiving only 10 percent. The impact was even greater given the expectations of higher royalty income, which have not been met. In round figures, from obtaining 791 million pesos of per capita income as direct royalties between 1995 and 2011, they reached only 174 million pesos between 2012 and 2018, at constant 2019 pesos.

As Minister of Mines and Energy, María Fernanda Suárez, rightly says, “the producing regions are not satisfied with the royalties they receive today.” Therefore, their reaction was swift, exacerbating conflict and protest, as well as rejection of extractive activity through various means; this hindered, and in many cases prevented, the advancement of important projects.

[prefix_blockquote align=»right» pull=»yes» italic=»yes»]According to the projections available, it is estimated that for this year, while companies will pay approximately 9.3 trillion pesos in royalties, they will pay the Nation 15 trillion pesos in taxes.[/prefix_blockquote] This affects, to a greater or lesser extent, both producing and non-producing regions, especially considering that royalties are the only certain resources they have to finance their investment budgets. These represent, on average, 16.5 percent of the income of the departments and 7 percent of the municipalities. 

Hence the urgent and unavoidable need to reform the reform. As Minister Suárez stated, while supporting the Legislative Act project presented by the Government for consideration by the Congress of the Republic to modify Article 361 of the Constitution again, “we are returning the pendulum and I hope this reform is the right balance, where there is more money for producers significantly and for non-producers as well.” This was warned by the outgoing director of the DNP, Gloria Alonso: “If we do not make the producing regions see the benefits that the exploitation of non-renewable natural resources can bring, neither producers nor non-producers will see the royalties.”.

One must wonder how they will achieve ‘more money’ for producers without detracting from what non-producers are currently receiving, and as stated in the rationale of the project, trying to “preserve the levels of royalties, which can only be given in more favorable environments for the exploration and extraction of RNNR.” The Minister of Mines and Energy is responsible for resolving this question, as she states, the greater resources for both will come from savings, “which will go from 20 to 4.5 percent, that is the sacrifice: less is saved.”.

Broadly speaking, this will be the redistribution that will be made through this Legislative Act project of the resources coming from the General Royalty System (SGR), which, according to it, “will be allocated to the financing of investment projects that contribute to the social, economic, educational, and environmental development of the territorial entities.” The producing and port departments and municipalities will go from receiving, as a direct allocation of the current 10 percent, 20 percent of the current income of the SGR; additionally, the producing municipalities will receive five percentage points more. Undoubtedly, this reform significantly improves the participation of the producing and port departments and municipalities, but it is insufficient compared to the damage inflicted by Legislative Act 05 of 2011.

For this reason, it is considered that the norm that currently only applies to the areas most affected by the conflict (Zomac) should be extended to them, which would open the possibility for companies operating in their territories to execute prioritized works by these territorial entities funded by the taxes they must pay. This proposal is more valid, considering that, according to projections, it is estimated that for this year, while these companies will pay approximately 9.3 trillion pesos in royalties, they will also give the Nation 15 trillion pesos in taxes.

[prefix_blockquote align=»right» pull=»yes» italic=»yes»]The outgoing director of the DNP, Gloria Alonso, warned that “if we do not make the producing regions see the benefits that the exploitation of non-renewable natural resources can bring, neither producers nor non-producers will see the royalties.”[/prefix_blockquote] Fifteen percent will be allocated to all municipalities, both producers and non-producers, according to the index of unmet basic needs (NBI) of their population. Thirty-four percent of the current income of the SGR will be allocated to the financing of regional investment projects of the territorial entities, taking into account the index of unmet basic needs and unemployment rates.

The 7 percent assigned in Legislative Act 04 of 2017 to comply with the implementation of the final agreement signed with the Farc is maintained. Only if the effective collection exceeds the budgeted amount, either due to higher production or better prices, 70 percent of that sum would be saved and 30 percent would go to the producing and port departments and municipalities.

Special mention should be made regarding the Science, Technology, and Innovation Fund (FCTel). Although the 10 percent of the current revenues of the SGR is maintained, with the repeal of paragraph 5 of Legislative Act 04 of 2017 (which modified Legislative Act 05 of 2011), which provided for “open and competitive public calls” for the submission and execution of projects financed with this fund, it regresses. The scientist, former rector of the National University and member of the Mission of Wise Men, Moisés Wasserman, is right when he states that, apparently, “like in that game of ladders and slides, we are in danger of landing on the square that takes us back to the beginning of the board.”.

Regarding the functioning and operability of the SGR, as well as the procedures for the approval of investment projects that can be financed with SGR resources, after making a clean slate of it, as this reform project of the royalties regime does, when issuing the law that will regulate this Legislative Act, the procedures to be followed must be reconsidered, since the system of the Collegiate Bodies of Administration and Decision (Ocad) has been a total failure. It is evident that more than 6 trillion pesos from the previous biennium (2017-2018) got stuck in that system and could not be executed.

Finally, what is established in the report should not be overlooked: “The SGR will have its own budgetary system, initiated by the National Government,” which flagrantly violates the constitutional principle of territorial autonomy enshrined in Article 287 of the Constitution.