Plan Petroleum in Putumayo
by Garry Leech
May 11, 2004
First Published in Colombia Journal

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In December 2000, U.S.-trained counternarcotics battalions, U.S.-supplied Blackhawk helicopters and U.S.-piloted spray planes descended on Putumayo department to conduct Plan Colombia’s initial aerial fumigation campaign. In the more than three years since the initial spraying of coca crops, Putumayo has been a repeat target, as have many of the country’s other southern departments. Although the U.S. government claims its fumigation prescriptions finally began decreasing coca cultivation in 2002 and 2003, there is still no evidence that Plan Colombia has achieved its principal goal of dramatically reducing the flow of cocaine to the United States. But while Plan Colombia has failed to affect the price, purity and availability of cocaine in U.S. cities, its militarization of Putumayo has contributed significantly to increased oil exploration by multinational companies in this resource-rich region. Neoliberal economic reforms that constitute the economic component of Plan Colombia have further sweetened the pot for foreign oil companies.

In July 2002, the Bush administration convinced Congress to lift conditions restricting Colombia’s U.S. military aid to counternarcotics operations, allowing it to be used to fight the country’s illegal armed groups as part of the global war on terror. The lifting of the conditions led to the direct use of U.S. military aid to target Revolutionary Armed Forces of Colombia (FARC) guerrillas responsible for attacking the oil operations of multinational corporations. Shortly after September 11, 2001, U.S. Ambassador Anne Patterson made clear the importance of finding alternative sources of oil in the context of the war on terror. She said that Colombia, already the third-largest exporter of oil in Latin America and one of the top ten foreign suppliers to the United States, “has the potential to export more oil to the United States, and now more than ever, it’s important for us to diversify our sources of oil.”

The escalation of the civil conflict in Putumayo over the past decade, however, has made foreign oil companies hesitant to exploit the vast oil reserves that exist mostly in rebel-controlled regions. That is, until the arrival of right-wing paramilitaries in the late-1990s and the implementation of Plan Colombia, both of which have resulted in greater security for oil operations. At the outset of Plan Colombia, oil production in this remote Amazon region had been declining for 20 years after reaching a high of some 80,000 barrels a day in 1980. And while production still remained at the relatively anemic level of 9,626 barrels a day in 2003, a slew of new contracts signed between multinational companies and the Colombian government over the past two years promise dramatic increases.

The remote municipality of Orito, where four oil pipelines interconnect, is the hub of Putumayo’s oil operations. Two pipelines carry oil from nearby fields currently being exploited by the state oil company Ecopetrol, U.S.-based Argosy Energy and Petrominerales, a subsidiary of Canada’s Petrobank. Another pipeline brings oil from the Ecuadoran Amazon where U.S.-based Occidental Petroleum and Canada’s EnCana have operations. The fourth is the Transandino pipeline, which transports oil from the other pipelines across the Andes to the port of Tumaco on Colombia’s Pacific coast.

Ecopetrol’s facility in Orito consists of a small refinery, which only produces enough fuel for local consumption by vehicles and helicopters used by the company and the military, and several large storage tanks that supply crude to the Transandino pipeline. The facility also contains an army base housing 1,200 specially trained troops whose mission is to protect Putumayo’s oil infrastructure. Leftist guerrillas have repeatedly targeted Colombia’s oil pipelines to protest the exploitation of the country’s resources by multinational companies. In a seeming contradiction, the rebels profit from the very industry they are attempting to destroy by extorting money from foreign oil companies and their contractors in return for not targeting oil operations. The country’s most attacked pipelines in recent years have been the Caño Limón in the northeastern department of Arauca and the Transandino in Putumayo. After the Caño Limón pipeline was attacked 170 times in 2001, the Bush administration provided $93 million in counterterrorism aid to Colombia and deployed U.S. Army Special Forces troops to help safeguard the pipeline, which is partly owned and operated by Occidental Petroleum.

Though none of the foreign oil companies admit to paying off the guerrillas, Occidental Vice President Lawrence Merriage has admitted that in the past his company’s contractors have met extortion demands in Arauca. When asked about FARC threats and demands in Putumayo, Argosy’s Colombia representative Edgar Dyes admits there have been threats to kidnap employees, but claims he has no knowledge of whether or not the company’s contractors have made extortion payments to the rebels. Interestingly, the FARC left Argosy’s operations untouched in 2003.

The implementation of the $1.3 billion Plan Colombia in Putumayo followed on the heels of a dramatic increase in the number of attacks against the department’s oil infrastructure from 48 in 1999 to 110 the following year. According to the army commander responsible for protecting Putumayo’s oil operations, Lt. Col. Francisco Javier Cruz, U.S. drug war aid has made the region safer for conducting oil operations because the army has been able to use “helicopters, troops and training provided in large part by Plan Colombia.” But while the number of attacks had been reduced to 43 by 2002, last year they leapt to a record 144.

More than half of last year’s attacks occurred in November when FARC guerrillas launched a major offensive against Putumayo’s oil infrastructure. The government immediately responded by removing the local army commander responsible for defending the oil installations and replacing him with Lt. Col. Cruz. The transfer of Cruz from an elite Colombian Army counterinsurgency unit, the Rapid Deployment Force (FUDRA), signified the importance the administration of President Alvaro Uribe has placed on protecting Putumayo’s oil infrastructure. The special operations group of Lt. Col. Cruz’s Ninth Special Battalion has advanced weapons and night vision equipment that allow it to conduct counterinsurgency operations as part of a strategy to pre-empt future attacks. The battalion also has two helicopters—owned by the state oil company Ecopetrol and Canada’s Petrobank—at its disposal for transporting troops on counterinsurgency operations. Lt. Col. Cruz clearly states his mission: “Security is the most important thing to me. Oil companies need to work without worrying and international investors need to feel calm.”

Foreign oil companies clearly have a vested interest in Lt. Col. Cruz’s troops being able to maintain security in Putumayo. According to Steven Benedetti, a Petrobank representative in Bogotá, the company began operations in the region in June 2002 because “we believe there is a big prize in Putumayo.” That “prize” is the estimated 1.1 billion barrels of oil in the Orito field, of which 80 percent remains untouched. Despite several of the company’s drilling sites having been targeted in the FARC’s November 2003 offensive, Petrobank increased production by 18 percent over the previous year.

According to Lt. Col. Cruz, the army alone cannot prevent future guerrilla attacks against the oil infrastructure. His men often rely on civilian informers working as part of the informant network created under Uribe’s Democratic Security Program. Cruz notes that, in order to accomplish his mission, it is very important that the army “make the people understand that when they collaborate to avoid terrorist attacks, everybody wins.” He is referring to the fact that when oil production halts, there is a corresponding reduction in royalties paid by foreign oil companies to the Colombian government. Colombian law stipulates that these royalties are supposed to be used for social and economic programs. Under the terms of an incremental production contract it signed in 2002, Petrobank has the rights to 79 percent of all the oil produced in the Orito field above a baseline production level of 3,200 barrels a day, which it currently exceeds by 1,400 barrels a day. Its partner Ecopetrol receives the remaining 21 percent of the oil. With Colombia’s sliding royalty scale, Petrobank pays 8 percent of the value of its 79 percent share to the national government, which turns over 9 percent of the royalty payment to the departmental government. Orito municipality then gets 31 percent of that 9 percent.

It is difficult to find the benefits of the oil royalties in Orito. Orito municipality is the Putumayo department’s largest recipient of oil revenue, but the degree of poverty and underdevelopment is no less stark than in other comparably sized towns that receive no oil funds. Within the town, however, the dramatic contrast between the lifestyle of the oil workers and other local residents is reminiscent of Gabriel García Márquez’s portrayal of the foreign fruit company’s presence in the mythical town of Macondo. Near the center of the town of Orito sits a huge recreation compound with basketball courts, picnic and games areas, a hall for social gatherings and a huge swimming pool with a winding waterslide for the employees of Petrobank and Ecopetrol. A tall wire and steel fence insures that the residents of nearby shantytowns don’t stray into the fortress-like complex. The reason Orito has not benefited from the royalties, according to one local resident, is that “the oil leaves Putumayo and the royalties go into the wallets of the administrators.” Another states it even more bluntly: “The politicians steal the money.” In contrast to his decision to cut-off royalty payments to the oil-rich Arauca department because corrupt municipal governments are allegedly sympathetic to leftist guerrillas, President Uribe has allowed the money to continue flowing to corrupt local officials in Putumayan towns controlled by right-wing paramilitaries.

Despite—or perhaps because of—the presence of the army and the National Police, the town of Orito is controlled by paramilitaries belonging to the United Self-Defense Forces of Colombia (AUC). The paramilitaries arrived in Putumayo in the late-1990s and after a series of massacres they successfully seized most of the department’s significant towns including Orito. Even though the FARC has recently regained several smaller towns, and despite Lt. Col. Cruz’s claims that the army is fighting the AUC, the paramilitaries’ ruthless tactics have helped them retain control of Orito. According to one local, “They kill innocent campesinos just because they might be guerrillas.” The day I met with Lt. Col. Cruz, paramilitaries assassinated local campesino leader Alirio Silva in Orito.

Militarization through the war on drugs and terror is not the only factor creating favorable conditions for foreign oil companies in Putumayo; Plan Colombia’s economic program has also made oil an inviting enterprise for foreign companies. When the initial phase of Plan Colombia was implemented in 2000, the economic component simply consisted of the economic austerity measures already imposed on Colombia by the International Monetary Fund (IMF) in return for a three-year $2.7 billion loan in December 1999. The neoliberal policies called for by the IMF included public spending cutbacks, opening domestic markets to foreign companies, and privatizing and restructuring state-owned companies. This ongoing linkage of structural adjustment to U.S. military aid can be traced back to 1989 when President George Bush Sr. announced his $2.2 billion Andean Initiative while calling on Colombia to implement economic reforms “on the basis of market-driven policies.”

In 2001, the Colombian government established new regulations that no longer required foreign companies to enter into a 50-50 production partnership with Ecopetrol, allowing private companies to keep up to 70 percent of the oil they extracted from new fields—even more in incremental production contracts for existing fields. It also extended the length of time that foreign companies retained production rights and dramatically lowered the amount they had to pay the government in royalties on their percentage of oil production. Before the new regulations, Colombia demanded a Latin American high of 20 percent in royalties, but the new rules included a sliding scale under which most of Colombia’s oil fields—under 5,000 barrels a day—only required an 8% royalty payment as described earlier. The government claimed these changes were necessary to make the country more competitive, encourage foreign investment and maintain oil self-sufficiency. A newly “competitive” Colombia quickly negotiated dozens of new contracts with foreign oil companies, among them Petrobank and Argosy in Putumayo.

The next step in meeting IMF structural adjustment demands took place on June 26, 2003. Uribe issued a presidential decree ordering the restructuring of the state oil company Ecopetrol. While it was not a privatization of the oil company, the result was the same. Ecopetrol split into three companies: a truncated Ecopetrol functions as an oil producer and refiner, the National Hydrocarbon Agency negotiates all oil contracts and the Colombian Energy Promotion Association handles promotional duties. In March 2004—two months after Colombia signed a new $2.1 billion deal with the IMF calling for continued economic reforms—the practical consequences of Uribe’s restructuring of Ecopetrol became clear. 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.

The new rules also eliminate time limits on production rights and allow foreign companies to keep up to 100 percent of the oil for as long as a field remains productive. And, with the exception of those operating exceptionally large oil fields, of which there are currently only two in Colombia, most companies will continue to pay only an 8 percent royalty. Clearly, the terms have shifted dramatically in favor of foreign companies considering contracts signed four years ago called for equal partnership with Ecopetrol, 20 percent royalty payments and a time limit on production, after which all the remaining oil and drilling assets had to be turned over to Ecopetrol.

The Uribe administration tries to justify its oil policies to the Colombian people by claiming they are necessary to prevent the country from becoming a net oil importer by the end of 2005. To meet its growing domestic demand and still remain a net exporter, Colombia needs to produce more oil. These policies will likely increase oil production, but the fact that Colombia might retain self-sufficiency or its position as a net exporter is merely a technicality. Colombia is not actually producing all of the oil it consumes domestically or exports, it is buying much of it at market rates from foreign companies operating on Colombian soil because some of the contracts allow these companies to sell their percentage of oil to Ecopetrol. In Putumayo, for example, both Petrobank and Argosy Energy sell all their oil to Ecopetrol as soon as it leaves the ground. In Orito, Ecopetrol purchases Petrobank’s 79 percent share at market cost and then transports it through the Transandino pipeline to the Pacific coast for export.

In many future contracts, Ecopetrol will be purchasing 100 percent of a foreign company’s oil, some of which will be used for domestic consumption and the rest exported. So while Colombian oil production will likely increase in the coming years, it will be primarily produced by foreign companies and Colombia will purchase much of this oil at the same global market prices it would pay for overseas crude. Oil extracted by foreign companies, however, is not classified as imported because it is produced in Colombia. Therefore, technically, even though Colombia is paying global rates for its own oil, the country will remain a net exporter. Despite that the only benefit to Colombia from the new contracts is the 8 percent royalty payments it receives from the foreign companies, the director of the National Hydrodarbon Agency, José Armando Zamora, insists that the contract concessions “do not represent a loss of sovereignty or the sale of the nation’s resources.”

In 2003, Petrobank invested $50 million in its Putumayo oil operations. If Ecopetrol had used an equivalent amount from Colombia’s $2.1 billion IMF loan to fund the exploration and production itself, it could have retained all the oil instead of turning over 79 percent of it to a foreign company. The sale of this oil abroad would have covered operation costs, allowed Colombia to pay back the loan and provided the government with much needed revenue. Such an oil policy implemented throughout the country using IMF loan money to cover start up costs would allow Colombia to control its own valuable resources as do other countries with state oil companies such as Mexico, Venezuela and the world’s largest producer, Saudi Arabia. Clearly though, the IMF’s goal is not to support nationally focused economic projects.

The government has used the misleading concept of maintaining oil self-sufficiency to justify virtually giving away the shop to meet IMF-imposed structural adjustment conditions and to continue receiving U.S. military aid. And foreign oil companies have gladly benefited from Plan Colombia’s military and economic components, making Colombia an unsettling example of resource extraction in the neoliberal era. As Petrobank’s Benedetti makes clear, the company is excited about the new contract rules and does not intend to let the civil conflict interfere with its plans to expand operations throughout Colombia. “We believe the benefits outweigh the risks,” says Benedetti. Yet many residents in Putumayo believe oil exploitation puts them at risk because it helps sustain the conflict. As one local candidly states, “Everyone knows the conflict in the Middle East is because of oil, and Colombia’s problems are no different. Maybe the coca is going, but there’s still oil. And if there’s oil, then the armed groups won’t leave because they are interested in places where there are money and power.”

Garry Leech is the editor of Colombia Journal, where this article first appeared (www.colombiajournal.org), and author of Killing Peace: Colombia's Conflict and the Failure of U.S. Intervention.

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