November 12, 2004

Plan Colombia Benefits U.S. Oil Companies

by Garry Leech

Harken Energy is the latest oil company to benefit from the United States’ escalating involvement in Colombia. On November 4, the Texas-based company announced the signing of a new oil exploration and production contract in Colombia. The company is closely linked to President George W. Bush who served on its board of directors from 1986 until 1990. In addition to providing half a billion dollars a year in Plan Colombia aid during his first term, President Bush has given Colombia almost $100 million in counterterrorism aid and deployed U.S. Army Special Forces troops to protect a major oil pipeline. The escalating U.S. military intervention in Colombia, along with International Monetary Fund (IMF)-imposed economic reforms, has created favorable conditions for foreign companies such as Harken seeking to exploit Colombia’s oil reserves.

U.S. military aid is providing a secure environment in which U.S. oil companies can operate in Colombia. In conjunction with military aid, IMF structural adjustment programs are creating an economic environment favorable to foreign companies. In return for loans in December 1999 and January 2004 totaling almost $5 billion, the IMF demanded that Colombia restructure state-owned entities. Accordingly, President Alvaro Uribe has restructured Colombia’s state oil company Ecopetrol over the past two years, providing favorable investment conditions for foreign oil companies such as Harken.

Harken’s November 4 press release stated that its subsidiary Global Energy Development PLC “will own 100% of the contract subject only to an initial 8% royalty payable to the Colombian Ministry of Energy.” Harken goes on to note that the “contract grants Global exclusive exploration and production rights to 85,000 acres which adjoin the established, producing Palo Blanco field,” which has “proved reserves of approximately 1.8 million net barrels.”

A May 10 Colombia Journal article titled Plan Petroleum in Putumayo discussed how U.S. military aid and IMF-imposed structural adjustment was already benefiting Los Angeles-based Occidental Petroleum and Canada’s Petrobank. The article also explained the Uribe administration’s 2003 restructuring of Ecopetrol into three separate entities: a truncated Ecopetrol to function as an oil producer and refiner, the National Hydrocarbon Agency to negotiate all oil contracts, and the Colombian Energy Promotion Association to promote Colombia’s energy industry. Following the restructuring, however, all new contracts signed by foreign companies still required them to enter into partnership with Ecopetrol.

But in March 2004, as noted in our May 10 article: “Colombia’s Energy Minister Luis Ernesto Mejía announced in Houston, Texas that foreign companies could negotiate contracts with the National Hydrocarbon Agency without entering into partnership with Ecopetrol.” This declaration, along with the 2003 restructuring and reforms in 2001 that dramatically reduced royalties company’s had to pay to the Colombian government, allowed Harken energy to negotiate a new contract in which it pays low royalties rates and does not have to enter into partnership with Ecopetrol. As a result, Harken “will own 100% of the contract,” which translates into the company owning 100 percent of the oil. It also means that Harken is “subject only to an initial 8% royalty payable to the Colombian Ministry of Energy.”

Harken’s contract illustrates to what degree IMF-imposed reforms have forced Colombia to make its oil available for foreign exploitation. As was noted in our May article: “Clearly, the terms have shifted dramatically in favor of foreign companies considering contracts signed four years ago called for equal partnership with Ecopetrol” and “20 percent royalty payments.”

While the Uribe administration justifies its policies to the Colombian people as necessary to avoid Colombia becoming a net importer of oil, the reality is that little of the oil or the profits remain in the country. Technically, Colombia will likely remain an oil exporter because of new contracts like the one signed with Harken. However, because Harken “will own 100% of the contract,” the company will reap all the profits from the oil it ships out of Colombia for sale overseas (i.e. the United States). Colombia will only receive an eight percent royalty payment on the value of the oil, but will be considered a net oil exporter because Harken drilled “its” oil in Colombia.

Colombia had to acquiesce to the IMF neoliberal reform agenda in order to receive U.S. military aid under Plan Colombia because the Clinton administration incorporated the IMF reforms into the Plan. In other words, the economic component of Plan Colombia simply consists of the structural adjustment programs imposed on Colombia by the IMF (see Plan Colombia: A Closer Look). U.S. aid has constituted the military component of Plan Colombia, which has so far amounted to some $3 billion in helicopters, weapons and training.

Clearly, U.S. military aid and IMF-imposed economic reforms have played a pivotal role in creating favorable conditions for foreign oil companies operating in Colombia. U.S. military aid is contributing to establishing security on the ground for oil companies seeking to take advantage of the favorable economic conditions created by the IMF-imposed restructuring of Ecopetrol. As Lt. Col. Francisco Javier Cruz, commander of a Colombian army battalion in the oil-rich department of Putumayo in southern Colombia pointed out: “Security is the most important thing to me. Oil companies need to work without worrying and international investors need to feel calm.”

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