Colombia’s Mining Renaissance: A brief discussion on Governance, Development and Policy Making By Andres AGUILERA As part of the graduation requirements at Korea University Graduate School of International Studies – International Commerce Track. November 2010. This version is a draft. Word Count: 9491
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Being grateful feels great! I would like to thank all the people that have influenced
this whole process of being in Korea University. I am going to do this in a
chronological manner, first, during the preparations to come to Korea, second,
my time during the Master’s program and third, during the writing process of this
document.
I specially would like to thank my grandma, Beatriz Forero de Castillo, thanks for
your prayers, your advice and your help. Diana Moreno your help was
determinant to make this happen, thanks for your generosity. Thanks to Amy,
Don and Mr. Hong for trusting the process from far away. The Lenert-Rosas
family, thanks for opening their house to our cause. Martu, gracias totales . Lucho,
John, Pao thanks for being there guys. Briana, thanks for your support and
friendship. Special Thanks to the members of Let’s Send Andres back to Korea
Action Group .
Thanks to my lovely Russian-speaking friends, you have been muses for me, in
our conversations and moments shared I found inspiration and invaluable insight.
Mr. Kim, thank you for your friendship. Natalia, thanks for the moments shared,
remembering and discussing our lovely Macondo, you are a bright woman with a
great sense of humor. Marce and Mimi, you are ‘da crew’ . Thanks to my
‘chapines’ friends, we shared happy and relaxed moments. Cheers for our
common friend 'Eloy'. I would like to thank the Faculty and fellow students atKorea University GSIS, such diversity enriched my life beyond you can imagine.
Also, I would like to say thanks to Professor Lee Jin-sang, PhD, for his guidance
infrastructure, developed policies to attract foreign investment and introduced
reforms that improved the business climate.
As mentioned above, fuels take a substantial share in the world trade in natural
resources and that specific segment (oil, gas and other fuels) has been widely
documented and studied. This document will focus on less known minerals but
deemed critical by the United States4 and the European Union5.
Current technological developments have created demand for ‘exotic’ minerals;
minerals like Coltan, a portmanteau for Columbium (Niobium) and Tantalum,
disregarded and unregulated by local governments, these minerals are now
indispensable for the hi-tech industry due to the particular physical and chemical
properties of these elements and their novel applications for science and
technology.
Coltan elements are now deemed ‘critical’ for cutting edge industries like defense,
aerospace and communications but also a wide range of mass market
consumer electronics like mobile phones, computers, game consoles and
others.
The modest objective of this research project is to be an exploratory primer for
the formulation of a comprehensive policy and investment formulation towards
Latin America, especially in a sector in which South Korea is highly import-
dependant. Gains for Korea may include securing and diversifying the supply ofthe aforementioned ‘critical’ minerals and for Colombia to attract significant
amounts of foreign direct investment and the development of these resources.
of its abundant and competitive labor (English-speaking), yet the manufacturing
sector is growing to cater the massive Indian market.19
South Korea, another country featured in this research project, is in search of
strategic minerals supply for its manufacturing and electronics industry. The two
minerals discussed in this research, Niobium and Tantalum are critical for the
steel and electronics industry respectively, economic sectors in which South
Korean companies have significant market share.
The global mining sector is undergoing important challenges to its structure,
economic output is directly linked to natural resources consumption, and all
economies all over the world are adding pressure to the current mineral
production by an increasing demand from both developed and developing
countries. The current sources of minerals are being depleted at a fast pace and
potential new deposits are located in either difficult to mine or politically unstable
locations. Also, the consolidation in the industry is leaving fewer players with
significant market share which means less competition and the possibility of an
escalation in prices.
Recently there has been an increased media attention to the so called Rare
Earth Elements (REE) due to the decision of China to impose an export quota of
less than 35000 metric tons a year20 for the next six years according to reports by
international media. The elements are not as rare or scarce as the name suggest,but they are vital for a variety of industry and defense applications, moreover,
China holds a strong monopoly position in its current production and export of
these ‘earths’ refined materials estimated at 95% of the market share.21
Colombia Mining RenaissanceColombia is a resource-rich nation; it has a significant land area, abundant
biodiversity, a favored location with access to the Caribbean Sea and the Pacific
Ocean among other natural assets. The purpose of this chapter is, first to
describe briefly the policies that have accompanied this mining renaissance in
the last decade, second to describe concisely the current regulatory framework
and the changes proposed by the recently inaugurated administration of
President Juan Manuel Santos, third discuss the potential that Colombia exhibits
in unconventional mineral resources.
Colombia during the 1990s embarked in a substantial institutional overhaul, anew constitution was promulgated in 1991 after a peace process with a largely-
urban guerrilla (M-19) and the opening of the Colombian economy to world trade
and investment, just to name some of the main features. Colombia had
successfully dodged economic calamities like hyper-inflation, balance of
payments deficits or the external debt that plagued the region in the 1980s, not to
mention the populist regimes that crowded the political arena. However, the poor
security perception of Colombia due to a long lasting insurgency, paramilitary
groups and the drug trade curbed investment flows to the country hurting the
economy.
Colombia is currently undergoing a ‘mining renaissance ’ mainly to three factors
considered in this work (security, business-friendliness, incentives for investors)
that have restored the confidence in the country. The business-friendly and
security-oriented administration of Alvaro Uribe Velez (2002-2010) deployed
Colombian Regulatory Framework for the Mining Industry
The Law 685 of 2001 is the Colombian Mining Code and one of the first features
it describes is the issue of ownership of minerals, “the minerals of any type and
place, located in the soil or subsoil, in any natural physical state, are exclusive
ownership of the State” 34 investors are allowed to participate in the mining sector
once they have entered concession contracts. This law provided the general
framework for mining development in Colombia, the scope of the law covers
mining titles rights, services, foreign participation, the delimitation of reserved
zones, prospect, development and briefly some environmental issues.35 The Law
1382 of 2010 is the most recent amendment to the Colombian Mining Code; no
structural changes were made to the original framework. Instead, the protection
sensitive ecosystems like the prohibition of mining in places above 3,000 meters
above sea level and the protection of Ramsar Convention sites.36
The National Mining Plan to 201937 was developed in 2006 in order to describe
the coordination of policies among the different levels of government. Three main
aspects are covered in this Plan; first the Promotion of the Mining Country , with
this policy the government aims to position the Colombian mining industry tocompete in the international market. The second part of the plan is the improving
of productivity and competitiveness of the mining sector following sustainability
principles and strengthening the social base of the country. Third, to achieve the
proper management of mining resources through the optimization of policies that
support this strategic sector.
The National Mining Plan identified irregularities in the Colombian mining sector,
some of them are; illegal mining operations, environmental deterioration
The second fund named Regional Competitiveness Fund managed by the
National Government and comprised of two sub-funds Regional Compensation
Fund to operate for 20 years and targeted to develop the poorest regions in
Colombia and the other, the Regional Development Fund. The purpose of the
Regional Development Fund is to distribute royalties among the larger population
because under the current system, it is estimated that 80% of the royalties
reaches regions that make only 17% of the population.46
The Amendment also includes the destination of 10% of the Royalties to “science,
technology and innovation projects ” implying the implementation of a Hartwick
Rule or the reinvestment of rents from national resource extraction to offset the
declining stocks of exhaustible resources into other forms of capital (human
capital or physical capital) that intends sustainability and intergenerational
equity.47
As described in this chapter, there is evidence of the Mining Renaissance that
Colombia is experiencing due to the set of policies implemented in recent years
including the improvement in security, the business friendly reforms and thepolicies to attract foreign investment. However, these policies also present
challenges in institutional development to prevent the adverse effects of natural
resources extraction (Dutch disease) and in the governance of the natural capital
stock of the country through the multiple funds to be established and the
When thinking about international trade in minerals by bulk, iron ore, copper,
bauxite and other highly traded minerals come to mind, however there are other
minerals that maybe are not traded in such big volume but are critical to the
manufacture of mass market products (i.e. consumer electronics) making theserefined minerals exotic yet pervasive. This chapter discusses briefly the current
applications of Niobium and Tantalum, the potential deposits of these elements
in Colombia, and the importance of these minerals for the Korean industry.
Niobium, which is also know as Columbium and Tantalum are minerals with
similar characteristics and they tend to occur together in mineral deposits. One of
the minerals from which Niobium (or Columbium) and Tantalum is refined from is
known as Coltan, a portmanteau for Columbite-Tantalite.
Niobium and Tantalum are strategic minerals deemed critical for both the United
States and the European Union because of their importance in key industries
(economic importance); the availability or supply risk they present and their
importance for emerging technologies.
In order to assess criticality of minerals, a methodology called Criticality Matrix
was developed in order to tackle this issue. “To be critical, a mineral must be
both essential in use (represented on the vertical axis of the matrix) and subject
to supply restriction (the horizontal axis of the matrix).” 48 The farther a mineral is
positioned from the graph’s origin the more critical it is In order to fully
Niobium or Columbium is a metal with high economic importance due to its
multiple applications, among them the use in alloys and high performance alloys.
The largest deposits of economically recoverable Niobium are located in Brazil
and Canada, Niobium materials can also be obtained as a by product of tin
production.50 The main use of Niobium is in the steel industry (about 10% of total
steel production uses niobium) as an alloying element in high-strength, low-alloy
(HSLA) steels, as the name suggest, these alloys are strong and the alloying
element is usually less than 1%. These HSLA steels are currently used in oil and
pipeline steels, used for lighter hence more fuel efficient automobiles and for
construction applications. 51 Ferro-columbium and nickel-niobium are used for
super alloys or materials with formidable resistance to high temperatures used
for defense and aerospace applications. Applications for Niobium by products
include superconductors used in high-energy physics research and a potential asconfinement magnets in thermonuclear fusion, medical applications included
Magnetic Resonance Imaging (MRI) Equipment.52
Niobium Main Uses
68%
22%
10%
Ferroniobium for Steel
Ferroniobium:
Construction
Alloys
Source: Annex V to the Report of the Ad hoc Working Group on defining critical raw
On the other hand, South Korea has a preeminent electronics industry, this
sector is pivotal for nearly every human endeavor today, for example in global
communications, finance, education, and government just to name a few, most
of these hardware products depend on the supply of the mentioned exotic
minerals for their manufacture process.
South Korea imports 97% of the minerals and fuels it consumes, but this fact has
not held up economic growth.61 Korea Resources Corporation (KORES) has a
criterion to identify strategic minerals as those which have a great impact in
national industry, the criteria are minerals which imports exceed 100 million
dollars, or the dependency rate exceeds 90%.62
Nowadays, KORES has identified six major minerals as strategic for Koreanindustry:
• Soft coal (bituminous coal)
• Uranium
• Iron ore
•
Copper• Nickel
• Zinc
The Ministry of Knowledge Economy of Korea announced in 2009 the creation of
a Overseas Resource Development Fund to be capitalized with 1 Trillion Won(892 million dollars) in order to secure resources abroad. The fund will have a
startup capital of 110 billion won from Korea National Oil Corp. (KNOC) and
KORES and expects to attract the remaining 890 billion won from private
In 2007 KORES developed the Third Basic Plan for Overseas Resources
Development (2007 – 2016), in this plan it is outlined the main policy tools to
promote the exploration and development of mineral deposits (fuels and non-
fuels) for a period of ten years, however, the policy is revised every three years
according to other sources.64 The main goal of this policy is to achieve 38%
sufficiency by 2014 in the six minerals listed in the previous page.
The policies designed to promote the investment abroad (Overseas Resources
Development Business Act) are soft loans (long term, low interest) for the
exploration, development and exploitation of minerals deemed strategic for the
Korean economy. Among the operations eligible for financing are geological
survey, geophysical and geochemical exploration, feasibility studies and others.
The financing policy also covers development of mineral deposits, improvementof production facilities, acquisition of equity in mineral projects and others.
Other incentives for foreign exploration include tax credits and incentives,
exemptions in corporate tax and dividend from overseas exploration and
production business activities, and the avoidance of double taxation through
bilateral double taxation agreements. Mining is risky venture for investors due to
the natural complexities of the industry and the long payback periods, that is why
the Government provides incentives and offsets related risks through technical
assistance, special finance programs and facilities, insurance and other related
support programs.
According to the Korean Mineral Information Service (KOMIS), Joint Committees
for Resources Cooperation were established with Indonesia, Australia,
Philippines, Russia, Mongolia, Saudi Arabia, Vietnam and Colombia. However
right path of becoming significant stakeholders in world’s affairs. Hopefully, the
CIVETS countries follow a similar path and achieve their potential.
The increased demand for all kinds of commodities has put Latin America and
the Caribbean back in the map of investors and policy makers all over the world.
Moreover, the financial crisis of 2007-2008 has modified the global geopolitical
structure, as pointed by Michael Geoghegan, the center of gravity is moving east
and south.
South Korea is not a newcomer in the region it has signed a Free Trade
Agreement with Chile and is currently undergoing negotiations with Peru and
Colombia; it has considered negotiations with MERCOSUR and attempted
negotiations with Mexico. In the case of Brazil, this country is listed in the top 20import sources for Korea. The feasibility studies for the South Korea – Colombia
FTA describe these two economies as complementary across different economic
sectors. The actual outcomes of the implementation of a FTA are still to be seen.
The pattern of FDI inflows to Colombia in recent years can be perceived as
evidence that the gains in security, the improvement of business climate and the
investment promotion measures taken by the Colombian government are paying
off and the overhaul of the Mining Law and other legal and institutional changes
are preparations for the anticipated investments in this sector.
An important policy convergence is found between Colombia and South Korea,
on one hand, Colombia is coordinating different policies in order to attract foreign
investment to the oil and mining sector; on the other hand, South Korea is