Colombia: Incentives For Production And Exportation Of Natural Gas

Currently pending for approval before the Colombian Congress is a bill, "whereby a national policy is adopted concerning the exportation of natural gas and other provisions are enacted". As set forth in the debates of the Bill, which is now being reviewed by the Chamber of Representatives, the three main matters dealt by such bill are the following: (i) the de-regulation of the natural gas prices, (ii) exportations and supply for the local market and (iii) incentives for the production, transportation and consumption of natural gas.

A particular issue of the Bill which has generated debate is the regulation of gas prices and, more specifically, the matter relating to the liberation of the gas prices, since it is feared that such liberation would increase the tariffs for local consumers.

Following is a brief summary of the main objectives that the congressmen submitting the Bill have taken into consideration:

1. A "vicious circle" which generates a lack of competition is sought to be broken with the Bill; such circle consists in the following: the natural gas prices are not liberated because there are no competitors, and there are no competitors because the prices for producers have not been liberated. With the Bill, a competed gas market is intended to break the vicious circle of production, since there is currently a monopoly of the Colombian State in the marketing of gas.
2. The Bill also intends to develop the local consumption of gas, by making the conditions for its marketing easier, since the Colombian market is currently too small to absorb gas discoveries of considerable magnitude.
3. Taking into consideration the reduced size of the local market, parallel to its development, the Bill seeks to increase the export of gas in order to begin the marketing of said gas findings abroad.
4. The Bill also intends to clearly establish the cases in which restrictions could be imposed on exports, as would be the case of low gas reserves when there is a high domestic consumption or when, for reasons of drought, the consumption of the thermoelectric plants increases.
5. Another objective is to stimulate the exploration and exploitation of gas, authorizing the National Government to create incentives for these activities.