Colombia’s government and the Revolutionary Armed Forces of Colombia (FARC) could ink a peace treaty in less than a month. This could be very positive for the energy and mining industries. A safer, post-conflict environment could encourage new exploration investment in key E&P and mining areas. Colombia could direct some of its military and security budget (US$ 8.7 billion — or 14% of the total budget — for 2016) toward more economically and socially-oriented activities. Broader-based economic growth is altogether possible.

But, as with other peace processes, the specific outcomes are not predictable. No one is truly prepared for the ramifications of peace. And challenges will accompany opportunity. The energy and mining sectors will need a game plan supported by strong teams to prepare for the post-conflict environment. Not only must those sectors be prepared to cope with changes — they must also be prepared to play an active role in implementing peace, because there will be demands.

For starters, it will be expensive to implement peace. Recent government estimates indicate that it will cost around US$ 30 billion over the next ten years to enact the agreements that are part of the peace accord. The World Bank and the United States have made some initial commitments, but they barely scratch the surface.

Most issues associated with peace accord implementation will emerge in the peripheral and historically neglected regions of Colombia, which have long been affected by the armed conflict. Notably, many of those areas also happen to host energy and mining activities. In January 2015, the United Nations published a list of 125 municipalities that would be most directly impacted by post-conflict strategies. At least 40 of them are also home, or in close proximity to, hydrocarbons and mining activities.
The demands on productive sectors will certainly vary by region. In some regions, the FARC has consolidated its grip on society and has a strong influence, which will present one set of challenges. In others, recently-elected political authorities strongly support the peace agreement and, thus, its implementation — which is a start, but will present another set of challenges. Some of the specific issues the industry must prepare for include:

  • Requests for direct economic support: Colombia’s national government has limited-to-no sway over departments and municipalities. In many ways, each department and municipality acts as a city-state, negotiating political support in exchange for tax revenue and an array of favors and backing. As such, Colombia’s national government has had little success in improving economic activity in the country’s peripheral areas. There is no evidence that this dynamic will change after a peace treaty is signed. And while President Santos and other government officials have been clear that all of Colombian society will have to pay a part of the costs associated with peace implementation, even that will not be enough. And that means that the national government will look for direct economic support from additional sources – like industry in the affected areas. Companies will likely be pushed to provide jobs for the demobilized (unskilled and semi-skilled), implement and support additional social programs, play a more prominent and visible role in the community, and probably contribute to infrastructure and other economic programs.
  • Increased social pressure: A guerrilla without weapons likely means intensified social demands. Guerrilla forces will continue to have significant leverage in their traditional strongholds. They will almost certainly use that leverage to increase social mobilization and demands on the industries active in their areas.
  • Increased political wrangling: With former FARC members entering the scene, political maps of certain oil and mining production departments may be redrawn. That means increased political conflict at the local and regional levels. Companies will have to stay on top of a constantly shifting roster of stakeholders if they are to maintain a keen understanding of their environment.
  • New security threats: Past peace agreement experiences in Colombia have shown that at least a portion of demobilized fighters return to illegal activities. And it will certainly not be possible to create economically viable options for all of the demobilized FARC fighters. (Including fighters and militias that directly support the FARC, there are some 6,000 to 10,000 involved individuals. The network that the FARC supports directly and indirectly is substantially larger.) Drug trafficking, kidnapping, and extortion will continue to be attractive options for some. At least a portion of former FARC combatants will likely form or join already-established illegal groups (known as BACRIM) that could emerge or grow as new sources of threat to the energy and mining industries.

Preparation for the various potential outcomes and scenarios is a must. Waiting for the ink to dry on a peace accord is simply not an option. Is your company ready?

For more on what your company can and should be doing to prepare for the implications of peace, please contact IPD Latin America.

Detailed multi-client study prospectus available upon request.