Colombia's mining sector braces for change with proposed reforms

In the coming months, the Colombian government will send a bill to congress aimed at reforming the mining code that has been in force since 2001.

The proposed amendments are one of the greatest current challenges facing the mining industry in the country, as they would entail some important changes.

The draft of the reform bill can be downloaded in the Documents box at the top right of the screen.

If approved, among other aspects, the modifications will grant a greater role to the State in the industry, including extraction of strategic minerals. The suggested measures also include prohibiting new licenses for the production of thermal coal, tightening environmental regulations and bolstering small-scale or artisanal mining, as outlined in the draft, entitled 'Mining law for the just energy transition, national reindustrialization, and mining for life.'

Prior consultation on the articles of the bill commenced with communities and the public in February.

BNamericas takes a look at three of the most prominent concerns for the mining industry regarding the content of the bill.

BAN ON THERMAL COAL

The bill proposes prohibiting new contracts for the exploration and mining of thermal coal, with the aim of advancing the just energy transition process and the decarbonization goals adopted by Colombia. 

The mines and energy ministry is tasked with designing a transition plan for players involved in mining thermal coal, which includes actions for substitution, conversion or diversification of this activity, in coordination with the affected populations, mine owners or contractors, the environment ministry, the labor ministry and other relevant government entities. Any existing contracts will not be affected by the ban.

According to information provided to BNamericas by the Fenalcarbón federation of coal producers, Colombia exported 54.5Mt of thermal coal in 2023, making it one of the top exporters of this fossil fuel, behind Indonesia, Australia, Russia and South Africa. 

Colombia's thermal coal exports are projected to reach around 55Mt this year, while domestic demand will be around 8Mt, primarily for thermoelectric generation.

In February, Fenalcarbón president, Carlos Cante, told BNamericas that coal for thermal generation serves as a backup energy source, ensuring reliability of electricity supply and contributing approximately 38GWh/d. The fuel thus remains crucial for Colombia’s energy security. 

Nonetheless, the government argues that it is essential to reduce polluting emissions associated with coal and predicts that prices of the mineral will decline in the coming years due to the growth of renewable energies, which could deter coal mining operations.

In a recent podcast, Valentina García, an analyst at consultancy Colombia Risk Analysis, noted that implementing the ban on new thermal coal licenses could stymie foreign direct investment in the sector. While Colombia could slow production, global demand for coal is expected to remain strong, leading to significant lost revenue for the country.

STATE PRIORITY FOR STRATEGIC MINERALS

The reform proposal stipulates that in designated strategic mineral areas, activities in each phase of the mining cycle will preferably be conducted by the Colombian geological service, state-owned industrial and commercial enterprises, and mixed public-private companies. Public-private partnerships may also be formed. 

In exceptional circumstances where direct agreements with the geological service or state-owned companies are not feasible, the national mining agency (ANM) will conduct selection processes to contract for strategic mineral areas. Experts argue that this grants the State an active role in mineral exploration and extraction and could hinder interest in Colombia as a mining jurisdiction.

This prioritization for the State also involves the establishment of state-owned company EcoMinerales, a project proposed by the Gustavo Petro government and submitted to congress in December, although it has yet to be debated. 

EcoMinerales would engage in exploration, construction, mining and commercialization of strategic minerals and their derivatives, with the aim of paving the way for industrialization, the energy transition, agricultural development and construction of public infrastructure.

Local media quoted Juan Camilo Nariño, president of mining association ACM, as saying that the reforms reflect a statist vision, creating uncertainty and leaving the private sector awaiting clarity about the future before making investment decisions.

NEW MINING PHASE

The proposed reforms also introduce a new phase into the mining cycle: exploratory preparation, which local analysts suggest could increase the costs of mining operations, affecting Colombia's competitiveness in attracting foreign investment for projects.

During this preparatory stage, contractors must initiate social engagement with communities, develop a social management plan, conduct prior consultations as required, obtain approval of the exploratory program from ANM and secure environmental permits. The phase will have a maximum duration of two years, with a possible one-time two-year extension.

Every mining project will also be required to hire at least 50% local labor if the local workforce possesses the required skills to carry out a development.