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Cablegate: Goc to Take Larger Share of High Oil Revenues

VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #3082 2342003
ZNR UUUUU ZZH
R 212003Z AUG 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 4266
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS BOGOTA 003082

SIPDIS
SENSITIVE

WHA/EPSC FOR FCORNIELLE; EEB/ESC FOR MCMANUS; DOE FOR
LEINSTEIN AND GWARD; COMMERCE FOR JANGLIN

E.O. 12958: N/A
TAGS: EPET ENRG ECON EINV PGOV CO
SUBJECT: GOC TO TAKE LARGER SHARE OF HIGH OIL REVENUES

REF: A. BOGOTA 570
B. BOGOTA 3017

1. (SBU) SUMMARY: Amid sustained high oil prices and rising
production (ref A), the GOC plans to increase its take in new
hydrocarbon contracts from 30 percent up to a maximum 50
percent. GOC officials have told us that they will not
retroactively implement the proposed changes to existing
contracts, but only apply them to future contracts. They
acknowledge that the move could tarnish Colombia's investment
climate in the energy sector, but confide that the GOC is
under political and fiscal pressure to raise revenues from
record high energy prices. The GOC has consulted with
private industry representatives, who have said they are
comfortable with the changes as currently envisioned. END
SUMMARY.

The Plan
--------

2. (SBU) The GOC has not officially announced its proposal,
but in a August 8 meeting with Energy Deputy Secretary
Jeffrey Kupfer (ref B), Minister of Mines and Energy Hernan
Martinez said the plan calls for the GOC to increase its 30
percent take per barrel by five percent for sale prices above
USD 90. The GOC's share would then jump an additional five
percent for every $30 price increase thereafter (i.e., 35%
from $90-$120; 40% from $120-150; etc.) The plan would cap
the maximum royalty at 50%. Martinez emphasized that the new
scheme will apply only to new contracts, with contract terms
for existing contracts remaining unchanged.

Private Sector Input
--------------------

3. (SBU) Colombian Petroleum Association Alejandro Martinez
told us that the private sector could accept the changes
along as they were transparent, applied uniformly, and with
no retroactive application. He confirmed that Minister
Martinez and National Hydrocarbons Agency Director Armando
Zamora had consulted with oil and gas producers about the
plan and incorporated modifications in response to industry
concerns. For example, he said that while the trigger price
for implementing the increased GOC take originally began at
USD 60 per barrel, the GOC had raised the trigger to USD 90
after industry pointed out that such a low threshold would
likely make investment in many new development prospects
financially non-viable.

Investment Climate Impact
-------------------------

4. (SBU) Chevron Colombia President David Bantz told us that
his company and others operating in Colombia recognized the
political and fiscal pressure that the GOC was under to reap
a larger share of record oil and gas prices. Bantz noted
that international hydrocarbons companies were facing similar
contract changes in many other countries around the world,
but that significant investment problems had arisen only
where the changes were applied arbitrarily or retroactively.
He emphasized that the key to preserving Colombia's positive
investment climate and continuing to attract the investment
Colombia need to preserve its oil exporter status over the
long run was to protect existing contracts and apply the new
contract model transparently. Bantz expressed confidence
that under the currently envisioned terms, most projected
exploration and development projects would remain
sufficiently profitable to attract foreign direct investment.
BROWNFIELD

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