Can Colombia's mining sector navigate the legislative minefield ahead?

A series of regulatory changes introduced in Colombia's mining sector, along with others that could go into effect later this year and in 2025, have created an atmosphere of uncertainty for the industry.

According to experts, investments have slowed as stakeholders await greater clarity and certainty regarding the future regulatory framework. President Gustavo Petro aims to introduce a new mining law to replace the current one and has also proposed the creation of state-owned company EcoMinerales, which would play a key role in all phases of the industry.

The council of state, Colombia's highest court in administrative and constitutional matters, is currently reviewing various legal challenges brought by several sectors against decree 044, issued earlier this year. That decree establishes five-year renewable reserve zones, within which mining activities would be prohibited. Meanwhile, the new mining law bill is on hold until prior consultations with ethnic communities across the country are completed.

BNamericas speaks to Estefanny Pardo, senior counsel at law firm Holland & Knight LLP and a specialist in environmental litigation and dispute resolution for the mining industry, about the legislative concerns of the sector.

BNamericas: How is the mining industry in Colombia currently faring?

Pardo: It's in a phase of regulatory upheaval. Since 2022, the sector has experienced significant changes at both the normative and regulatory levels.

First, there was the tax reform, then Decree 044 [which establishes temporary reserve zones], followed by reforms to Law 1333 [the environmental sanctioning regime].

The tax reform removed the option for mining and energy companies to deduct royalties from their income tax, sparking both domestic and international concerns, as this left Colombia with one of the highest tax rates globally.

This led to nearly a year of legal uncertainty until the constitutional court declared the reform unconstitutional.

BNamericas: Does the proposed new mining law also contribute to this uncertainty?

Pardo: Yes, because it aims to alter the current mining regime.

At present, Colombia only has one form of contract: the mining concession agreement. However, the new draft law would introduce other contracting modalities, essentially returning us to the regime that existed prior to the current law.

This draft was published for public consultation several months ago but has yet to be presented to the legislature. It requires prior consultation with ethnic communities across the country, which is a monumental task.

The draft also proposes changes related to environmental issues, which shouldn’t be included since the mining code should only address mining-related matters.

BNamericas: What environmental issues are included?

Pardo: One example is a proposed change to the precautionary principle in environmental matters, which affects any industry or activity. This principle states that if there is reasonable scientific doubt about potential serious and irreversible harm, absolute scientific certainty is not required to prevent that harm, and therefore authorities must take action to avoid the project.

Under this principle, if there are serious, technical, reasonable, and objective studies indicating that significant and irreversible harm is possible, the precautionary principle applies.

The mining bill seeks to adjust this, allowing the precautionary principle to be invoked in the absence of scientific certainty. This could go against the principle of sustainable development, preventing any kind of activity from moving forward if doubt exists.

BNamericas: What other proposed changes are concerning for the industry?

Pardo: The bill also includes changes related to expiration of contracts, royalties and environmental permitting.

Currently, no environmental permit is required for the exploration stage, but the bill would introduce such a requirement. It also adjusts regulations regarding protected environmental zones and makes many other amendments to the mining regime, which increases legal uncertainty.

The bill hasn't yet been submitted to the legislature because the prior consultation process hasn't been completed.

BNamericas: What are the main concerns surrounding decree 044 on reserve zones?

Pardo: Essentially, the decree invokes the precautionary principle, as interpreted in the mining bill, without requiring serious, objective or reasonable technical studies. The environment ministry can temporarily block areas, preventing any mining activity, and, more significantly, prohibit the granting of environmental authorizations.

This is a serious issue. The decree modifies article 34 of the mining code, which allows authorities to declare certain areas off-limits to mining, but only after fulfilling specific requirements, including technical, social, environmental and economic studies by relevant environmental authorities.

Decree 044 bypasses these studies, allowing the environmental authority to block areas based solely on available official information, which violates the acquired rights and legitimate expectations of mining titleholders.

The decree starts from the presumption that mining, by its very nature, causes harm.

BNamericas: Why do you say that acquired rights are violated?

Pardo: Because the decree states that neither mining titles nor environmental authorizations may be granted in reserve areas.

Many projects in the exploration phase could be declared temporary reserve zones, effectively preventing them from obtaining environmental licenses for the exploitation phase.

Additionally, the decree sets a long term: five years, extendable for another five. This means that a mining project stuck in the exploration phase without an environmental license for 10 years will simply die.

This represents a violation of the acquired rights and legitimate expectations of mining companies that have signed contracts with the State.

While the government argues that environmental protection should supersede private rights, it overlooks the fact that those whose rights have been violated must be compensated if a reserve is declared after a mining title has been granted, which is, in effect, a contract with the State.

BNamericas: Could decree 044 lead to international arbitration for breach of contract?

Pardo: Yes, because mining activities are carried out within the framework of the law and are protected by contracts.

While there may be no acquired rights in environmental matters, and even though environmental licenses can be revoked if obligations aren’t met, once a contract is signed with the State, certain rights are guaranteed. Compensation must be provided if, due to circumstances beyond the company’s control, the necessary environmental license can't be obtained or the activity outlined in the contract cannot proceed.

The scope of the claims would have to be determined, but there are precedents. It’s crucial to identify the damages early to file a claim in international arbitration.

Although the decree is technically temporary, its effects can become indefinite.

The State is at fault for failing to conduct the necessary studies and for not respecting the due process rights of mining titleholders, as well as the fair and equitable treatment foreign investors are entitled to.

BNamericas: Is there a risk that this decree could impact ongoing operations?

Pardo: Yes, it could affect ongoing operations. The decree specifies that mining titles will not be granted in these reserve zones, and it also states that environmental licenses won’t be issued.

This means that projects with existing environmental licenses, which may need to modify their licenses to continue development, could face difficulty obtaining approval for those modifications if their area is declared a temporary reserve.

In such cases, operations with an environmental license would essentially be frozen in time.

BNamericas: Given the regulatory reforms, what’s the general sentiment in the mining industry?

Pardo: Whenever I speak with mine owners and managers, I sense deep concern and sadness. The mining sector, which contributes so much to the country, is now facing a period of regulatory turmoil.

At the same time, there's a strong sense of unity and trust in the legal sector, consultants and associations. This regulatory upheaval has brought the mining industry together in a way that hasn't been seen before.

BNamericas: What are your expectations regarding the council of state’s review of decree 044?

Pardo: The claim has already been admitted, which is an important step forward.

If the council of state orders the suspension of the decree, it will be a significant milestone, as it will prevent the government from declaring temporary reserve zones under this decree.

However, if the council of state doesn't issue this precautionary measure, the process will continue, and a ruling could take several years. Meanwhile, decree 044 will remain in effect, and the government can continue declaring temporary reserve zones.

It’s also important to note that the government has claimed it doesn’t need decree 044 to declare reserves and can rely on older regulations. Thus, even if the decree is suspended, the risk remains that the government will continue to push for reserve zones.

While there’s no fixed deadline for a decision from the council of state, a ruling is expected by the end of the year.

BNamericas: Next year is a pre-election year. How do you foresee the legal, political and operational environment for the mining sector for the remainder of this year and into 2025?

Pardo: I believe we’re in the hands of the courts and the council of state.

Whatever decision is made regarding decree 044 will be crucial for the remainder of the government’s term, as it could empower President Gustavo Petro to issue more decrees.

As COP 16 [Conference of the Parties to the UN Convention on Biological Diversity, to be held in Cali from October 21 to November 1] approaches, we expect a wave of new regulatory measures.

At this point, the mining sector is entirely dependent on the council of state and the high courts.

Next year, I anticipate a slightly calmer period in terms of new regulations, but in 2025, changes in the courts could create further uncertainty if new judges are more aligned with the government.