Multinational Incentives and the Rentier Predatory State

LC&S 43.2 (image credit: Dawn Paley)In this blog I share an excerpt of an article that was published in the latest issue of the Labour, Capital and Society Journal (Volume 43:2, 2010). In it, I explain the series of concessions that the Colombian state has offered mining and oil multinationals in order to encourage them to invest in the country. With this post, I hope to provide the reader with some additional context to the workers’ mobilization in Puerto Gaitan—the subject of two recent blogs (“Puerto Gaitan: On the Move Again” & “Behind the Oil Workers’ Strike in Colombia“)—and the problems that multinational investments bring to bear on the country’s political economy of war.

In 2001, Ecopetrol reduced its mandatory share in joint ventures from 50 percent to 30 percent. Then, in 2002, the government changed its flat 20 percent royalty with a sliding scale that increases the financial viability of small projects. (Forero, NY Times, October 22, 2004). In April 2004, the state went further, eliminating Ecopetrol’s required participation in projects. This was alongside the reduction of taxes and the expansion of the lifespan of contracts. It also made the awarding of concessions more flexible (Forero, NY Times, October 22, 2004). Armando Zamora, Director of the National Hydrocarbon Agency, eloquently expressed the state’s policy-makingmind set that allowed making these concessions. He said, “We were anguished and that’s what permitted us to undertake these reforms.”[i]

In 2005, these concessions were complemented by the introduction of Law 963. This new law provided favourable treatment to about 700 multinational corporations currently operating in Colombia, guaranteeing a low fixed tax for the duration of the contract and stipulated that articles within their contracts could not change between 3 and 20 years, depending on the agreement. Royalties have been declining due to the government exemptions that were provided, chiefly to those extracting coal and gold. Drummond for one was granted two exemptions, one in 1995 and another in 2007, reducing coal royalties paid to the state by more than $500 million. In gold, mining multinationals pay only 4 percent for the right to mining, in contrast to international rates of about 20 percent (Portafolio, November 23, 2010). Other incentives that increased multinational profit margins are provided by Ecopetrol, which covered the cost of building infrastructure, pipelines, and provided transportation, all of which made it cost effective for multinational corporations and consequently very attractive.

Ecopetrol has promised to invest $60 billion in exploration, infrastructure, transportation, refining, production, marketing, and acquisitions between now and 2015. This year alone, the company will spend $6.9 billion. One of the first projects will be the construction of a new $3.5 billion pipeline from the city of Ariguaney in the department of Meta to the port of Coveñas in the department of Sucre (Paley 2010). Currently, Ecopetrol assumes the costs of maintaining 79 percent of existing pipelines, which is equivalent to 8,815 km of pipeline (Paley 2010).[ii]

These changes and concessions give an idea of how desperate the state has been to look for alternative rents, given the decline in US aid and the increasing resistance of the dominant groups in paying the war tax to fund its bloated security sector (see Cambio September 23, 2009).