Reserve zones decree keeps Colombia's mining sector on edge

Recent announcements by Colombia’s environment minister Susana Muhamad that a decree which creates temporary reserve zones will not be suspended and that she is preparing to issue resolutions to delimit the areas, is keeping the mining sector on edge.

Colombia has significant mineral potential but has been unable to advance projects that would increase the country's mineral reserves, which are necessary for the energy transition advocated by the government of Gustavo Petro.

Mining operations would be banned in these nature reserves, creating a risk for the industry, said the president of mining association ACM, Juan Camilo Nariño, during a panel debate on the subject.

According to Nariño, the decision will affect small, medium-sized and large companies and communities throughout the country, which shows that the decree continues to be a "latent risk" for the mining industry.

The decree, signed on January 30, establishes that temporary reserves will be valid for up to five years, extendable for another five, as long as there is no certainty about the compatibility of mining in the area.

During the period, in addition to the fact that mining titles will not be granted in areas declared as reserves, environmental licenses will not be awarded, which experts claim would mean that projects that already have an environmental license and that have to modify their license to advance with development or change stage will not be able to obtain the new authorizations.  

According to Hernán Rodríguez, a partner at law firm Dentons Cárdenas & Cárdenas, the decree gives the environment ministry the power to ban mining in certain areas, if it deems necessary, without having carried out environmental, social and technical studies, and without taking into account the communities.

“The activity is excluded because when there is a free area a contract cannot be awarded. When there is a request for a concession contract it will have to be rejected. When there is a mining title already granted [it is not specified whether for exploration, construction or production] neither permits nor environmental licenses can be granted,” says Rodríguez.

In the exploration stage, among other things, permits for water and forestry exploitation are required to drill, which Rodriguez says will be impossible to obtain.

The same would happen when projects need to move on to the construction and production phases, since "if they are in a temporary reserve zone, permits will not be granted."

According to the panelists, this would make mining in the country unviable.

Additionally, the draft of the new mining law establishes that mining projects located in reserve areas will be subject to termination of the contract. “I see that there is a very clear intention here to prohibit or exclude mining areas,” says Rodríguez.

Meanwhile, José Vicente Zapata, from law firm Holland & Knight, said there is “very serious subjectivity” in the decree because it attempts to sell environmental protection but ends up restricting a lawful activity.

President Petro is seeking to modify the contractual framework that governs the mining sector, for which he has announced both the new mining law and the creation of state-owned company EcoMinerales, which could be finalized next year.

Along with the decree, the plans create greater legal uncertainty, according to representatives of the sector.

Although Colombia has less than 3% of its territory titled for mining exploitation and exploration, the activity is an important contributor to the country's economy.

According to data from ACM, in the last four years the sector has contributed 20tn pesos (currently almost US$5bn) in royalties, 36tn in taxes and other types of contributions, and 33tn pesos in social investment.

According to statistics from the central bank, in the first eight months of the year, foreign direct investment in the oil and mining sectors fell 28%.

Such a drop had occurred only twice in the last 10 years – in 2015, after the fall in mining commodity prices, and in 2020 with the pandemic. "Now the explanation can only be related to legal uncertainty and very low tax competitiveness which generates returns well below the minimum expected for any investment," said ACM’s economics director, Juan Sebastián Martínez.