BOGOTA (TrustLaw) - Colombia's oil and mining boom is fuelling concern that corruption and the misuse of energy revenues will increase as the Andean nation struggles to manage and regulate expanding energy windfalls.
Record numbers of foreign investors are flocking to Colombia to tap into its largely unexplored mineral reserves, buoyed by improved security, a business-friendly climate and attractive contract terms.
"There is a serious risk of more corruption in the coal, gold and oil sectors as interest from international companies, in particular Canada and the UK, wanting to do business in these sectors in Colombia increases," said Elisabeth Ungar, Colombian chapter director for anti-corruption watchdog Transparency International.
"This is creating an overflow and influx of requests for contracts which is putting pressure on the government's capacity to deal with issuing contracts in an orderly and rigorous way," she added.
Oil and mining revenues are an increasingly important source of government income, and a driving force for Colombia's economy.
From 1995 to 2008, the government received nearly $18 billion in royalties from international companies, including U.S. mining giant Drummond and BHP Billiton Ltd, the world's largest mining company, to operate in Colombia's resource-rich provinces.
And Latin America's number-four oil producer is set to receive up to $6.3 billion more in oil and mining royalties in the next three years as new oilfields open and gold, nickel, copper and coal mines spread across the country.
Managing this cash influx properly poses serious challenges in a country where the squandering of revenues is already notorious, especially at local government level.
"The management of royalties has been aberrant and monstrous," Colombia's Comptroller General told local newspaper El Tiempo in 2008.
NO BENEFIT FOR THE POOR
From the country's coal-mining centre in the Guajira desert - home to one of the world's largest open pit mines - to oil wells dotted across central Colombia, and gold mines in the rainforests of Choco province, Colombian authorities and media have unearthed a series of cases where energy revenues have been wasted or embezzled by local officials.
Many local residents say they have seen little improvement in basic services over the years in a country where half the population of 45.5 million lives in poverty.
Abandoned or pothole-strewn roads, unfinished hospitals, schools and playgrounds - or simply projects that never even get started - are commonplace.
Lucrative contracts for public works are sometimes awarded to companies without the necessary expertise and qualified staff, while some mayors lack the skills and training to manage big budgets.
Under Colombian law, royalties received by local provinces and municipalities should be used to provide services for the poor, including healthcare, education and drinking water, with the aim of lowering child malnutrition and mortality rates.
"Royalties should be spent on improving education and social services, but they are often spent on roads that lead to nowhere and futile and badly built public works," said Ungar.
In the last nine years, around 700 Colombian municipalities have received some $14 billion in royalties, but this wealth seems to have made little difference to ordinary people's lives.
"It's a paradox but there is a direct correlation with those provinces that receive the highest amount of royalties and many of those with the worst rates of poverty and poor social indicators," said Ungar.
For example, while the northern province of La Guajira is home to the country's biggest coal-exporting port and among the main recipients of royalties, mortality rates here are well above the national average, and only 42 percent of children attend primary school.
GOVERNMENT ACTION PLAN
President-elect Juan Manuel Santos, who takes office on August 7, says tackling graft will be a government priority. He wants to strengthen the management of royalties, including setting up an offshore stabilisation fund to save windfalls, creating a new regional task force to investigate alleged corruption, and reforming the way energy revenues are distributed and spent.
"There is concern among the Santos government about the mismanagement of royalties, and there is political will to tackle this issue, but whether this will translate into action, it is too early to tell," Ungar said.
The president-elect certainly faces an arduous task.
In recent years, Colombia's National Department of Planning (DNP), the government body responsible for distributing energy royalties, has suspended millions of dollars in payments to dozens of municipalities across the country following the discovery that money is not being used to improve public services but rather being siphoned off into the pockets of local officials.
Of the 762 regional government entities that receive royalty payments, 240 have had payments suspended, according to the DNP. Last year, Colombian authorities uncovered over 5,000 cases involving the mismanagement of royalties, of which around 1,300 are currently being investigated.
Dozens of local public officials have been blacklisted and are under investigation for alleged misuse of the money. In March, the governor of impoverished Choco state was handed an 18-month prison sentence for embezzling state funds.
Poor transparency concerning how mineral revenues are invested makes it difficult for local communities to hold government officials to account.
"The lack of information, both opportune and accurate, about the way royalties are spent makes it almost impossible for citizens to measure and monitor the impact of royalties in their communities and ensure they are being well spent," said Ungar.
Stemming the misuse of funds will also require the government to keep a closer eye on the actions of international companies.
"Many of the foreign mining companies that are planning to invest in Colombia have a poor history with respect to human rights, local legislation - for example, in consulting first with local communities - and accountability," Ungar said.
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