On May 29, 2022, Colombians will flock to the polls to elect a new president. The current frontrunner is Gustavo Petro, who is running for president for the third time. On the campaign trail, Mr. Petro has promised sweeping reforms that would affect the country's energy, mining, and pensions sectors, among others.
On April 28, 2021, Colombians took to the street to protest against President Ivan Duque's plan to increase taxes. Although Mr. Duque abandoned his plan a few days later, the demonstrations continued. Seizing on the turmoil, Gustavo Petro, the former mayor of Bogotá and candidate from the Colombia Humana party, presented himself as an alternative to Mr. Duque's policies.
During his campaign, Mr. Petro has announced policies that would affect key sectors of Colombia's economy, namely:
Oil & Gas
Oil is Colombia's main export representing nearly 55% of the country's total exports. Roughly 40% of the foreign direct investment that flows into Colombia goes to the oil and gas industry.
Mr. Petro has stated that he wants to end Colombia's reliance on oil and ban fracking. He also wants to halt further oil exploration in the country, a measure that may breach exploration contracts concluded with various foreign and domestic companies (since 2018 Colombia has concluded 33 oil exploration and production contracts with companies other than Ecopetrol, the national oil company), as well as the country's obligations under international investment treaties. Mr. Petro also wants to create an "anti-oil" coalition with Chile's upcoming president Gabriel Boric, who has pledged that his administration will have a strong environmental focus, and Luiz Inácio Lula da Silva, who is seeking a new term as Brazil's president.
Mr. Petro expects to replace revenues that Colombia would lose by crippling its oil industry with revenues from higher taxes on the wealthy, increased tourism and an enhanced green energy industry. The latter is expected to generate significant inbound investment opportunities for green energy companies.
Colombia has historically welcomed direct foreign investment into its mining industry. As a result, foreign investors hold roughly 46% of the country's existing mining concessions, and foreign-owned projects represent 70% of the country's total mining production. Petro has signaled that he would depart from that pattern, tightening the administrative, environmental, social, labor and tax regulations governing the mining industry. For example, in a major change of the existing rules, Mr. Petro has vowed to restrict open-pit mining, which would greatly affect, among others, the production of coal, Colombia's main mineral export.
Despite the country's traditional support of the mining industry, over time, several foreign investors have brought claims under international investment treaties in relation to State measures affecting their operations. If Mr. Petro's plans were to materialize, we would expect a significant increase of mining-related investment treaty claims against the State.
Colombia's pension system includes a private capitalization component modeled after the Chilean pension system, in which private pension managers collect, manage, and invest workers' mandatory contributions for a fee. As he did during his previous campaigns, Mr. Petro has called for taking the pension savings entrusted to private pension managers and using them to fund policies such as paying a "social security bonus" for retired citizens and free higher education for half of Colombia's young population.
Given these risks, foreign investors would be well-advised to take timely steps to ensure the international protection of their investments, including by preserving claims against Colombia under international investment treaties. Concrete steps that investors can take include assessing their rights under international investment treaties, documenting significant developments, and taking care that their rights under international investment treaties are not lost, for instance, by ensuring consistency of their public statements and any claims before Colombian administrative or legal tribunals with their rights and obligations under international investment treaties.
Watch this space for coverage on further relevant developments in the lead up to the May election.
Ricardo Cruzat Reyes (White & Case, International Law Clerk, New York) contributed to the development of this publication.
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