New Stringent Mining Regulations

Colombia’s New Hardline Stance On Mining: Implications for Multinationals

November 16, 2015

Kurt Weech – Primary Article Contributor and Analyst following Colombia

Cole Grossinger –Team Leader following Colombia

Keywords: Colombia, mining, resource extraction, multinationals, royalties, taxes, economy

Multinationals that set up shop to mine Colombia’s natural resources could face a new, hardline stance if they don’t play by the rules. Foreign mining firms are also set to face higher royalties and increasing taxes.

In March of 2015, Colombian President Juan Manuel Santos, a year into his second term, announced that his new administration would take a zero tolerance stance on illegal mining and proven attempts to expedite permit approvals for multinationals. The country’s Minister of Mining and Energy, Tomas Gonzalez, stated that the government’s objective is to establish a “strong, responsible and predictable” industry.

Increased regulation is not a new stance for Santos. The President has been hitting the brakes on mining contracts since 2011. Throughout his time as President, the Colombian Ministry of Mining has rejected over 90% of mining licenses and has revoked the licenses of firms that had not paid required fees on time.

The Santos administration has also taken other measures to increase the regulation of Colombia’s oil extraction industry. According to the Colombian Petroleum Association, Colombia is increasing government royalties to 75%. This increase remained in a legislative bill despite heavy lobbying from the oil sector for its exclusion. This development, paired with the fact that Colombian crude oil prices continue to decline, could not come at a worse time for oil companies. This could also be unfavourable for the Colombian economy in the event that investors take their business elsewhere.

New tax laws in Colombia are being used to fill the fiscal gap through the increase of corporate income tax. The Santos administration has decided to extend a “wealth tax” that was set to expire this year. As expected, the tax has not been well received by the business community. Increased taxes have negative effects on investors and, through the hindering of profits, create unfavourable outcomes when compared to investing in other countries. The tax bill will hurt investment in Colombia generally; shave a half percentage point off economic growth and especially hurt medium to large sized companies.

These harsher reform laws increase investment risk and could make mining companies more cautious doing business in the country. Further, investors will require more due diligence in their operations to ensure that they are abiding by new mining regulations. An increase in royalties along with tightened regulation create unfavourable outcomes for investors.