Colombia oil: Local difficulties

Click for original at Economist Intelligence Unit

Colombia’s guerrilla conflict may be flagging, but oil firms must now contend with flourishing local disputes.

Last year, Colombia failed to reach its target of producing 1m barrels/day (b/d) of oil. No matter; it simply shifted the target to this year. But by October 2012, output was still just shy of the magic 1m-barrels mark. This protracted struggle raises an awkward question: is this merely a short-term hiccup, or does it hint at more lasting impediments?

Most commentators identify a recent resurgence of guerrilla attacks on pipelines as the problem. Peace talks between the government and the main rebel group, Fuerzas Armadas Revolucionarias de Colombia (FARC)—which on November 19th announced a temporary ceasefire—are undoubtedly good news for the country as a whole but and the oil industry in particular. Company reports, however, spread the blame for output woes among delays in obtaining environmental permits, bottlenecks in pipeline and highway transportation, and “community conflicts”. Moreover, community conflicts—a catchall term bundling together everything from environmental to labour disputes—show no sign of disappearing.

For years, protests were suppressed by a mixture of heavy police response and paramilitary intervention. But most Colombian paramilitaries have now demobilised, as government forces have tightened their control over the oil-rich Llanos Basin in the east of the country, and guerrilla attacks have diminished. At the same time, the government has pressed to make policing less violent and hold military forces responsible for human-rights abuses. Yet the reduced militarism may have helped uncork tensions among communities frustrated by resource exploitation in their back yards.

Flaring up

Recent examples of strife between oil firms and locals abound, though the spark for disputes varies from case to case. Some complaints are caused by labour grievances or environmental worries. Others stem from disagreements over how to divide the spoils of oil production. Strained relations with indigenous and other vulnerable communities also play a part.

In August, for example, community conflicts in the Llanos Basin halted oil output from the Yenac and Mantis fields of Canada’s Petrominerales. Separately, at around the same time, the company reported that since April output at its Disa-1 and Mapache-1 wells, about 75 km away, had been down by around 500 b/d, owing to “community disruption”. (Petrominerales says it complies with all requirements, has community relations offices and engages the community in its environmental planning.) Another protest, this time fuelled by environmental concerns, halted construction of the new Bicentenario pipeline that will connect Llanos Basin oilfields with a Caribbean export terminal; the first phase is now slated to open in April 2013, more than a year later than planned.

In some cases, disputes can combine seemingly disparate issues. During a labour-led takeover of an oilfield constructionworkers’ camp near Puerto Gaitan in August, disaffected workers complained about environmental damage by the oil industry and called for more local investment. They also demanded better wages and conditions.

By far the most high-profile protest in recent years was the months-long labour agitation in late 2011 against Pacific Rubiales by contractors at its Rubiales field, the country’s most prodigious. Workers were upset about living conditions, pay, the length of their shifts and the poor condition of the road connecting the oilfield to the nearest town. Thousands of workers signed on as members of the Unión Sindical Obrera (USO), Colombia’s biggest oil union. In the months following, demonstrations and the company’s reactions grew heated, and Pacific Rubiales halted production. Finally, the company signed a contract with a separate union that had never worked in the oil industry.

USO organisers claim to have been blacklisted and have dozens of declarations from union members who claim they were required to renounce their memberships in order to continue working on site. Pacific Rubiales denies the existence of a blacklist and claims it has never requested that a worker renounce a union membership. The new union, Uten, also says it knows nothing of a blacklist.

Curable and incurable ills

Adding to local tensions are changes in the country’s royalties system. Oil proceeds used to be primarily distributed to the municipalities and departments (similar to provinces) that produced petroleum. But in some areas money was spent on projects seen as wasteful—such as a pop concert in Puerto Gaitan—while schools, clinics and drinking-water systems went wanting. A change this year that spread the royalties more evenly throughout the country has displeased many in oil-producing areas. They complain that they are not being properly compensated for bearing the brunt of oil development’s unwelcome impacts.

Firms are also targets of attempts by locals to maximise their gains from companies’ presence. This is not limited to simply extracting cash payoffs. Affected communities routinely complain about a lack of adequate healthcare. Perhaps spooked by cases such as that affecting Chevron in Ecuador, where oil companies may be held liable for health problems decades after oil production began, some companies operating in Colombia monitor the health of local communities. But locals complain that the medics they bring in do not diagnose illnesses or prescribe medicine, leading to demands for oil companies to provide more medical services.

Some local grievances may be impossible to address through government or corporate action. To prevent inflation in an area in the grip of an oil boom would be a tall order, for instance. And a certain amount of disgruntlement is probably inevitable when the prevailing wage in an industry in a particular corner of Colombia is higher than in many other businesses but still well below global norms. Rent-seekers are bound to target any industry that provides little direct employment while producing tremendous profits. Wealth gaps are a problem breeding discontent well beyond the oil industry’s sphere of influence; Colombia is one of the most unequal societies in Latin America, according to the World Bank.

Still, companies commonly follow certain practices that appear to exacerbate disputes. Poor communication between companies and locals seems to be endemic. Across Colombia’s jungles and palm-spotted plains, the oil industry is searching out—and often finding—oil and gas deposits. But the people living near these projects are frequently ill-prepared to negotiate with the law firms and public-relations agencies that oil firms employ as go-betweens. Often, according to Moisés Varón, a leader of the USO, community consultations are no more than a company-sponsored meeting, complete with free snacks, aimed at securing a required sign-off from the community. Fully informed consultations are the exception, he claims.

Moreover, companies tend to negotiate only once the government has required it, rather than taking the initiative to meet locals at an early stage. Arguably, too, the lack of industry-wide or regional collective contracts hurts firms’ cause in the long run: without standard mechanisms to forestall trouble, each worksite and sub-subcontractor is at risk of a flare-up. A lack of transparency on environmental matters may also harm companies’ relations with locals. There is currently little or no public information about air or water quality around oilfields, for instance. It is therefore not surprising if, with companies routinely dumping and injecting millions of gallons of water a day, local residents worry. Such practices may make work easier for oil firms in the short term, but local resentment, resistance and demands for compensation are stored up for later.

Continuing conflicts

What hope is there that the situation will improve? For their part, oil firms tend to treat separate local conflicts as isolated events, rather than as a phenomenon that may call for a change of strategy. Admittedly, several have expanded their efforts to tell the public about their social programs and have started new social or environmental efforts; Pacific Rubiales has bombarded television viewers with cheery advertisements. But those sceptical about the industry dismiss such efforts as publicity stunts.

Policy changes might help. Colombia has shown an inclination to adopt environmental laws similar to those in much wealthier countries. At some point, the government is likely to create stricter monitoring and public disclosure rules for air and water pollution; it may also put in place more formal environmental mechanisms for hydrocarbons projects. Similarly, it may move to more strictly enforce consultation rules with vulnerable communities and be quicker to step in during labour disputes. But for now, with the price of oil stagnant, Colombian oil company stocks far below their highs of two years ago and output lagging expectations, the government will not dare to implement stricter rules for fear of strangling industry growth.

Unions have called for a move to sector-wide labour contracts that provide a floor for wages and benefits. That should reduce the number of wildcat strikes. Yet the record of collective contracts in conflict-ridden Venezuela shows that they do not guarantee social peace. A wide discrepancy between industry wages and what locals earn in other industries is driving a new type of protest in Venezuela, in which labourers ever further from the oil well demand inclusion in the industry contract. In any case, given the difficulty of organising collective action across Colombia’s isolated oilfields, demands for collective contracts are unlikely to bear fruit any time soon.

Realistically, the government and companies are likely to put off any major changes in behaviour or policy unless local disputes become far more severe. It is tempting to hope that attempts to smooth out wealth imbalances will eventually dampen down local grievances. The government is trying to make taxation more progressive: on November 1st it sent the legislature a bill that attempts to do so. Over time, modest redistribution may drain some of the sting from local disputes. But for now community conflict, with its negative impact on Colombian oil output, appears to have put down roots.

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About Steven Bodzin

Steven Bodzin is a reporter. He blogged when he was a freelancer.

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