Mining 2011 - Colombia
Originally published in Latin Lawyer.
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Provide an overview of the mining industry in your country. What significance does the mining industry have as a component of the national economy?
The mining industry has progressively gained an important role in the Colombian economy in the past decade thanks to government policies which have favoured foreign investment and promoted mining exploration and exploitation. The permanent control by the government of areas, which in the past were difficult to access, due to public order issues has favoured the exploration of vast territories and the improvement of mining in other areas which historically were being mined in Colombia.
Thermal and coking coal, nickel and emeralds have been the traditional Colombian mining products. Gold, silver and iron ore exploitations have been gaining strength and have presented a constant growth during the past years.
Although mining activities do not represent a large portion of the GDP (1.54 per cent average for the period between 2003 and 2008 according to the National Department of Statistics (DANE)), the mining industry in Colombia has been, during the last decade, one of the main recipients of direct foreign investment (an average of 21.24 per cent of the direct foreign investment in Colombia was directed to the mining industry between 2003 and 2008), a figure that acquires a special significance in a country like Colombia, which has focused a great part of its development strategies in the mining industry.
Additionally, between 2004 and 2008, the mining industry represented an average of 20.48 per cent of Colombia's exports, a percentage that, according to official economic forecasts, will probably grow in the future thanks to important investments in mining exploration projects made in recent years. Gold exports have now surpassed coffee in order of importance.
In the past decade, Colombian mining and petroleum industries have doubled their exports; in the first trimester alone of 2010 this sector grew 13.2 percent.
Furthermore, the Colombian Stock Exchange Market has been attracting several mining and petroleum companies looking to develop ambitious projects in Colombia. Companies like Pacific Rubiales have experienced the benefits of the Colombian market while several other companies like Greystar, Canacol and Medoro have expressed their interest to be a part of the local stock market. It is foreseeable that the mining industry could be the fastest growing industry in Colombia during the next decade as the projects currently in exploration reach more mature stages and major players start consolidating their interests and positions in Colombia.
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Describe the legal and regulatory framework. What laws establish and grant authority to the mining authorities?
The legislative branch, and specifically Congress, is the single competent authority in Colombia to enact laws. Furthermore, the executive branch may issue the necessary regulations, directives and guidelines to ensure that the laws issued by Congress may be effectively applied. The regulatory powers of the executive branch are limited by the scope of the laws and must not modify or exceed the terms, conditions and general principles established therein.
Since 1940 the Mines and Energy Ministry (formerly the Mines and Petroleum Ministry) has been the main mining authority with the legal capacity to regulate mining activities in accordance with the laws issued by Congress.
The Mines and Energy Ministry delegated several of its mining-related powers to national and departmental authorities as follows:
The National Institute of Geology and Mining (INGEOMINAS) is the national delegate mining authority in relation to royalties, promotion of the mining industry and management of the mining cadastre. In addition, INGEOMINAS is the entity entitled to grant and control the performance of concession agreements in the departments where no other authority has been appointed for that purpose; some regional governments have been granted the capacity to grant and control the performance of concession agreements. Such authorities and their capacities in relation to mining issues are described below; the governments of the departments of Antioquia and Bolivar were designated to manage all the minerals within their respective territory; and the governments of the departments of Caldas, Cesar, Norte de Santander and Boyaca manage all the minerals found within their respective territories, except for coal and emeralds which is managed by INGEOMINAS. In general terms, all of the delegate authorities mentioned above must follow national laws issued by Congress and have to comply with the regulations issued by the Mines and Energy Ministry.
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Describe the investment regime applicable to foreign company involvement in mining projects.
Under Colombian law, foreign individuals and corporations which act as mining concessionaires have the same rights as Colombian individuals and corporations, and Colombian governmental regulatory bodies are specifically prohibited from requiring any additional or different requirements. Foreign companies, however, will have to constitute a branch, subsidiary or affiliate in Colombia before they may be granted a concession agreement.
In general terms, companies that perform sales in foreign currency will have to repatriate such amounts in Colombian pesos through the authorised foreign exchange intermediaries. The branches of foreign companies, however, that perform activities of exploration and exploitation of petroleum, natural gas, coal, ferronickel or uranium; or services related to the hydrocarbon sector (as determined by article 16 of law 9 of 1991 and Decree 2058 of 1991) are exempted from this repatriation obligation. These branches may not acquire foreign currency in the foreign currency exchange market and will have to repatriate the amounts necessary to pay any expenses in local currency. Notwithstanding the foregoing, these branches may, prior to certification from the fiscal auditor of the branch, use the foreign exchange market to send abroad the equivalent in foreign currency of the amounts received in Colombian pesos for internal sales of services; and the capital of the branch in the event it is liquidated.
Dividends are payable to foreign investors as they would be payable to any local investor. No prior authorisation is required for the remittance of dividends abroad so long as they are adequately supported by the relevant financial statements. The foreign currency will be negotiated with the relevant foreign intermediary and remitted abroad through the filing of certain forms before the Colombian Central Bank.
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Is your country a party to international investment treaties applicable to mining projects undertaken or sponsored by foreign companies?
Colombia is a party to several international investment...
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