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Javier Mozzo
Colombia, July 5: Colombia has sweetened the terms of new oil production contracts for private sector companies in an effort to give them a swifter return on initial outlay and woo much-needed new investment to the beleaguered industry.
In an interview with Reuters, mines and energy minister LuisCarlos Valenzuela said the government was reducing the "state take" especially in the early phases of new field development by Colombian private sector firms and foreign multinationals.
But at the same time, state-run oil company Ecopetrol, which operates in association with private Colombian firms or foreign multinationals, will contribute less to the infrastructure costs in new fields.
"The (new) conditions are fair and competitive compared to any country," Valenzuela said.
"A framework like this delays the rate at which Ecopetrol increases its share of output. What we're putting forward are the same rules that exist in Yemen, Indonesia or Oklahoma," he added.
Foreign firms long complained existingcontract terms were uncompetitive and gave margins of less than 10 per cent in a country where drilling conditions are often difficult and the threat of Marxist guerrilla violence is on the rise.
Over the last two years, Ecopetrol has tinkered with contract terms, cutting state take in high-risk unexplored regions or reducing environmental regulations during exploration work.
The moves have been designed to boost production, currently stagnant at 8,50,000 barrels per day, and stave off the threat that Colombia could become a net importer of oil again by 2005 if no major new finds are made.
The latest adjustment to terms are some of the most sweeping of the last two years.
The new contracts announced this weekend, will mean Ecopetrol takes an initial stake of just 30 per cent of output from a new field operated by a private sector partner.
Its stake will increase on a sliding scale once the value of the private sector operator's share of output rises above 1.5 times the cost of initial fielddevelopment.
At the top end of the scale, Ecopetrol will be entitled to a 65 per cent share of output once the private company recoups more than 2.5 times the value of its original outlay.
At present, Ecopetrol has a 50 per cent share of output from the outset which rises to a maximum 75 per cent.
On small fields, Ecopetrol will only increase its take when accumulated output rises about 60 million barrels.
At the same time, Ecopetrol will in the future contribute only 30 per cent of the costs of field development, compared to 50 per cent at present.
Valenzuela is known to favour scaling back cash-strapped Ecopetrol's direct involvement in exploration and production, leaving it to concentrate on administering contracts farmed out to the private sector.
Valenzuela said the new terms should allow companies a return of between 15 and 17 per cent on investment.
Valenzuela, however, stopped short of predicting the new-style contracts would give an instant shot in the arm to Colombia's oilindustry.
"We must be tough and frank," Valenzuela said. "We must look tobe competitive in the long term and create the competitive conditions that industry is looking for."
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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