How competitive is the energy sector in Colombia?
GONZALEZ: Colombia is very competitive right now. It's a very competitive destination for investment because of several factors. First, we're very open to investment. Rules are stable and investors know what to expect. Investors will be treated as well as they would be treated if they were Colombian. Secondly, we have very great potential in many sectors of the country’s economy. There are great opportunities in mining, electricity, and hydrocarbons. Lastly, you have the government institutions supporting those investors that require help to initiate investment. If you combine these three factors and you compare it with the region, I strongly believe we are very competitive and that is why we are having very large flows of investment into Colombia.
What is the government doing to ensure that projects are developed with the participation of indigenous populations? What are private companies doing to ensure the same end?
GONZALEZ: CSR is a very important part of what companies can do to make projects more legitimate in the eyes of indigenous communities. The concept of LPO, license to operate, which is a license given to you by communities, is increasingly important, not only in Colombia but throughout the region. Companies and investors alike are increasingly aware of the concerns over the redistribution of wealth generated from the projects being developed in different regions. We are involved in two initiatives to address this issue. First, we recently enacted an institutional reform which created a series of offices to make sure the community consultation process and environmental licensing goes quickly so that investors can have the appropriate support for this process to be carried out according to law. Secondly, we will become stricter with companies to make sure that they abide by the proper standards. By carrying out a project with the proper standards set forth by our agency, the legitimacy of a project is greatly substantiated. These standards include high environmental standards. It also involves discussing with the neighboring communities what the projects are about and what they can and cannot expect. Additionally, claims and complaints offices are being setup, which will serve as indicators of how projects are going. With this new institutional reform which was geared towards making sure investors have the support needed and raising the bar for companies to comply to higher standards, I believe we are on the right track to facilitate ongoing and new projects. We always have our eyes open to make sure that the problems that cannot be solved by companies can be solved through support by the government. This is an ongoing debate that we hope we are able to win by showing how projects can be developed within the framework we have set forth.
How have energy sector reforms impacted the performance of companies in the sector?
GONZALEZ: Nothing shows that the policies we’re trying to pursue are the correct ones like the results some companies are having, and companies have been doing very well, both in the hydrocarbon sector and in the electricity and mining sectors. We have many examples. Just to name a couple, Ecopetrol, since the reforms that were undertaken to have it function more with the private sector standards, has been creating value, has been increasing the quality of its projects, and has been increasing its participation overseas. The financial results of Ecopetrol show it’s been doing quite well. There are other private companies as well. Probably one of the biggest success stories is Pacific Rubiales. Pacific Rubiales, proudly it’s a company that was made in Colombia. Success for them has been very, very, very strong. They've made important discoveries, developed fields, and applied new technology successfully. Their success is also reflected in their production. There have also been success stories in electricity and mining. You just have to look at the overall performance of companies here. That’s why we get so much interest, because success brings interest.
What impact have the new reforms and initiatives had on overall production?
GONZALEZ: In terms of production, things are going well. Production is probably the ultimate test for how adequate the policies are with regard to their impact on the sector. I think we can be happy, not complacent, but happy and optimistic. Just over a year and a half ago, production was 760,000 barrels per day. I think we're very close to hitting the million barrel per day mark. We'll continue increasing production of oil and gas and we should be around 1.4-1.5m barrels per day by the end of 2014. I think this is going to bring a lot of positive things to the industry. When it comes to gas, we made some policy changes that I think are proving to be effective. We completely opened exports. There were many restrictions, but we opened exports to give companies the incentive to look for resources. If there's a large enough market then there will be people wanting to find and develop resources and this is what we're seeing. Preliminary figures show that after the policy changes we enacted, companies have increased their production by around 200m cubic feet per day. The ANH, the National Hydrocarbons Agency, is just finishing a study that is reviewing all the potential in hydrocarbons. We're seeing very impressive figures in gas and oil. Furthermore, there is an increased incentive for investment because the resources are there and the openness to investment and exports is there. With regards to electricity, things are going well. Production is growing at double-digit rates. We are going to interconnect with Panama; electricity will probably be flowing from Colombia to Panama in 2015. Chileans want to fund their mining boom with Colombian electricity interconnections. All the studies, all the harmonizing regulation, all the planning, and other phases are underway and the process is going well. In the three sectors, we're pleased to see that things are moving where we want them. Growth rates have been high enough that we feel optimistic. However, we must be vigilant to make sure policy is able to correct and ensure that the sectors are developing the way we intend them to.
We'll continue increasing production of oil and gas and we should be around 1.4-1.5m barrels per day by the end of 2014. I think this is going to bring a lot of positive things to the industry.
How does the success of the Oil and Gas, Electricity, and Mining sectors help the people of Colombia? What does this growth mean for the overall economy of Colombia?
GONZALEZ: When you're in the energy sector and you look at production figures, investment, and the pace and scale of projects, you tend to forget that this is not about barrels of oil or kilowatts per hour, but rather the people. In the end, when you're in government, it's about the people. This sector has to be geared towards bringing prosperity to the people. In Colombia right now, prosperity plays a larger role than security, fortunately. The energy sector is poised, like no other sector at any other time in the history of Colombia, to greatly contribute to development. If you look at strictly the money coming from royalties in the next ten years, due to increased production, we're talking about a figure that could amount to between 15 and 20 percentage points of GDP, which is a very substantial amount of money. We made reforms to ensure, as the Minister of Finance says, that we would be able to spread the marmalade on the whole of the toast or on the whole of the bread. This was the spirit of the reform. We changed the Constitution to make sure all the regions in the country received an important amount of royalties regardless of whether they were producers or not. The criteria for distributing these funds are social indicators as well as contribution to development. The ongoing reform, which was approved by Congress and is already law, is starting to send resources for social investment throughout the country. The sector will gain much more legitimacy this way and will be a fundamental agent of prosperity in the coming decades.