Colombia has crude oil and natural gas to improve society welfare.This activity takes attention of private firms (locals and foreigns) due to high profits, it takes public servants’ attention due to possibility to do corruption with public resources and it takes attention of regular citizens due to a rich country does not have Metro lines and fair health system. This note shows the benefits from first two bodies (firms and government) and how government (government as central, regions and municipalities) can improve their revenues due to a better crude oil transport. Cenit, the new government body has lot of work to do to reach better revenues from crude oil transport. Colombia showed backward motion in this activity, by 2000 crude oil transport gave to government 15.8% of total crude oil revenues and 5.7% in 2011. The new Cenit has to work hart in giving results about environmental cost due to crude oil transport and she has to set up legislation that takes into account this cost. Moreover, this note shows the relevance of crude oil revenues to government, it reached 16.4% of total government income in 2011.
Author: Humberto Bernal,
Economist
e-mail: zhumber@gmail.com
Colombia has crude oil and natural gas to make business with locals and foreigns firms. It is a fantastic business to private agents and local government but this business gives few added value to whole society as this note highlight. The value added of Crude Oil and Natural Gas Exploration and Production shared just 6.2% of total GDP in Colombia in 2010 as figure 1 shows (green line, right axis), moreover this percentage showed a increasing trend since 2000, it means these activities contribute a bit more to Colombia development but it is still lower than other activities as manufacture sector. The most important contribution is through foreign currencies for colombian government through trading these products abroad and when foreign firms pay taxes and production costs. From Crude Oil and Natural Gas Exploration and Production’s GDP, one can divide it into its own components, most of this GDP is due to crude oil production as figure 1 shows (bars, left axis). By 2010, crude oil production GDP shared 89.2% of Crude Oil and Natural Gas Exploration and Production GDP, this percentage has showed low variation since 2000 when it reached 93.9%. Exploration and natural gas activities shared few of this added value, it is right to point out that almost all natural gas is traded inside country to home uses and as a car’s gas.
Figure 1. GDP crude oil and natural gas distributed according to activity and as a share of total GDP in Colombia 2000 -2010 (%)
Left: Crude Oil and Natural Gas GDP according to its activities. (%).
Right: Crude Oil and Natural Gas GDP as a share of total GDP. (%).
Source: CEntral Bank, Ecopetrol, DANE, DNP, UPME, Ministerio de Minas y Energía (They are official government (bodies).
The crude oil’s business is showed in figure 2. One can divide crude oil revenues according to main ends. From 100% of total revenue (as example, WTI price, US$95.1 per barrel in 2011), exploration cost was 1.6% of total revenue (WTI price as example); labor cost was 6.5%; royalties, taxes, government assignment rights were 39.4%; transport cost by pipeline was 5.7%; transport tax by pipeline was 0.1%; CIF cost was 10%, this CIF charge is the maximum, therefore it can be less; and capital and profits remuneration were 36.6%. These percentages did not show important changes as figure 2 shows but one has to recognize that the government’s revenues showed an increase, for example royalties, taxes and government assignment rights went from 22.2% in 2000 to 39.4% in 2011, this fact is due to higher crude oil prices and the new contracting scheme under Concession Contracts. However one must be highly critical to transport business, this activity shows a lower percentage as years pass (the green and purple areas figure 2), what sad, there are lot of pipelines through whole Colombia and the environment cost due to their building is high. One of main conclusion is highlight the work that the new government body called Cenit has to do. Cenit has to improve crude oil transportation and get more percentage from crude oil revenues, the expectation is to increase its percentage from 5.7% in 2011 as figure 2 shows to 15.8%, as it was in 2000. Cenit must start to work hard in a real environment valuation due to pipelines buildings and be aware of market demand and supply of crude oil transport, Venezuela is a big market which needs to supply crude oil to Asia.
Figure 2. Crude oil barrel distribution in Colombia 2000 -2011 (%)
Source: CEntral Bank, Ecopetrol, DANE, DNP, UPME, Ministerio de Minas y Energía (They are official government (bodies).
Colombian government should be happy about revenues from crude oil activity but society is sad due to government revenues management. Revenues from crude oil activity showed an increase trend, this revenues shared 6.8% of total government revenues in 2000 and 16.4% in 2010, it is mainly due to higher prices and the new contracting scheme which was set up in 2003. However, Colombia society is paying a high cost due to government corruption and lack of public resource management. Colombia faces lack of infrastructure as Metro lines, she faces poor in health system and lack of security due violence and narcotic dealers in Cauca, Chocó and Antioquia , they are the main coast border lines in Colombia.
Government revenues due to crude oil activity as share of total government revenues* ** 2000 -2011 (%)
*Government bodies accounted: central, regions and municipalities.
**It takes into account all taxes, government right and royalties.
Source: CEntral Bank, Ecopetrol, DANE, DNP, UPME, Ministerio de Minas y Energía (They are official government (bodies).https://docs.google.com/open?id=0BzkhS13UydIHZWlaQmhPYXlvdVk
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