Hydrocarbons for development

The election of new local and governmental leaders marks the beginning of a new roadmap for the regions. This is the start of an economic
and social agenda in which it is imperative to leverage the potential of various strategic sectors that allow for the acceleration of territorial development.

In the midst of a deceleration context, mainly marked by high interest rates, elevated inflation, and contraction in economic activity, the new local and governmental leaders face multiple challenges aimed at accelerating the social and economic development of the regions in the next four years. The rise of new political figures marks the beginning of an agenda in which it is imperative to prioritize strategic sectors, as well as accelerate investments in infrastructure, education, health, water, and sewage.

Oil and gas play a fundamental role in these new government plans. This is a sector that has historically provided resources for social development and on which the commitment to continue impacting lives falls, through the flow of millions of dollars in royalties, taxes, dividends, and transfers to the country.

Although today there is discussion on how to implement actions to accelerate the energy transition and boost tourism, it is enough to remember that annually oil companies deliver to the State between 8 and 25 percent of the value of crude production, according to the Comptroller's Office. This money is allocated to address the unmet basic needs of municipalities and finance the large projects that bring progress to the territories.

The potential is enormous and even greater when viewed from the perspective of the producing areas. At the national level, for example, the oil and gas industry represents 40 percent of the country's exports, 20 percent of fiscal revenues, and 76 percent of royalties. In some regions, on the other hand, it translates to more than 50 percent of departmental revenues, which means thousands of direct and indirect jobs, and families that depend on this sector.

Gregorio Gandini, founder of Gandini Análisis, explains that “for a couple of decades hydrocarbons have maintained the fiscal and economic sustainability of the country. Therefore, the government plans of regional leaders must focus on leveraging the benefits of this sector. This would allow for strengthening public-private partnerships that favor the development of strategic projects or productive reconversions in the territories.”.

At the national level, the oil and gas industry represents 40 percent of the country's exports, 20 percent of fiscal revenues, and 76 percent of royalties.

Calculations from the National Hydrocarbons Agency (ANH), with analysis from Campetrol, show that only in the first quarter of 2023 those municipalities with the highest royalty collection were Puerto Gaitán, Acacías, Castilla La Nueva, Yopal, and Aguazul, which reached 46.4 percent of the total collection. For that period alone, a total of 2.3 trillion pesos was recorded, which was the contribution of companies in this sector for the development of the regions where they operate.

1. It is clear that the new decisions made regarding regional policy must support and promote investments managed by the private sector. Academic experts argue that the new mayors and governors will be key to stimulating a national dialogue that includes the discussion on why it is necessary to continue promoting the exploration and production of oil and gas, both on land and in the Colombian Caribbean Sea.

2. Precisely, the Minister of Mines and Energy, Andrés Camacho, has recognized the importance of oil and gas in the country's development. Camacho has reiterated in various forums that hydrocarbon exploration must be maintained while advancing an orderly energy transition that allows municipalities to reconvert their economies to evolve towards productive activities based on new energy sources.

3. Oil and gas play a fundamental role in government plans. This is a sector that has historically contributed resources for the social development of regions in Colombia.

4. While the call is to build the country among all sectors, Juan Felipe Neira, a professor at the Universidad Externado, highlights that one of the challenges for the new leaders will be to maintain security in the territories, which would guarantee the execution of existing contracts for hydrocarbon exploration and production. He warns that in recent years social conflict and environmental obstacles have hindered the sector's development, making the dialogues established between municipalities, departments, the Government, and the industry essential.

5. Today, companies providing goods and services related to the hydrocarbon sector generate more than 100,000 direct jobs and 550,000 indirect jobs in oil and gas producing municipalities. It is estimated that for this biennium 2023-2024, nearly 80 percent of the 30 trillion pesos in royalties will become a primary source to fight poverty and advance Colombia's social challenges.

6. This reading undoubtedly makes the industry play a key role in the country's development and in the new navigation charts that the upcoming rulers intend to implement. The call, then, is to achieve an agenda that integrates the new plans of local governments with the national one, as well as to mitigate external factors that allow the business sector to continue contributing and developing its operations.

7. One of the issues that will need to be focused on will be maintaining the operational and legal stability of companies to incentivize the billion-dollar resources that help close gaps, reduce poverty, and build the country. These plans will not only guarantee Colombia's energy self-sufficiency but will also help advance towards a fair energy transition, the great bet that the Government has in its National Development Plan.