August 31, 2010 / 6:03 PM / 9 years ago

Colombia hands key royalties proposal to Congress

* Royalty reforms a key proposal for Santos government

* Plan hopes to save “boom” funds for when economy slows

By Patrick Markey

BOGOTA, Aug 31 (Reuters) - Colombia’s government presented Congress with proposed reforms to oil and mining royalties on Tuesday — one of the key projects as the country seeks to regain investment grade lost during a 1990s fiscal crisis.

President Juan Manuel Santos plans to centralize how royalties are managed to more evenly distribute around $3 billion a year nationwide and stamp out inefficiency and corrupt abuses of regional commodity resources.

Santos, a U.S. and British-trained economist who took office this month, also wants to create a fund to put aside cash from boom times to help the economy weather slowdowns, following the example of countries like Chile and Norway.

“The royalties will cease to be resources for a few municipalities and pass to a common fund to be distributed among all the regions,” Finance Minister Juan Carlos Echeverry said in a statement, noting that the proposal had been passed to parliament.

Santos came to office with a strong mandate, high popularity and a wide majority in Congress. But the royalties bill has already faced opposition from officials in petroleum-producing areas who say it dilutes their authority.

The constitutional reform on royalties will need at least a year to complete eight debates — four each in both houses of the Colombian legislature. Details of exactly how royalties will be managed have yet to be hammered out.

“Securing passage of this proposal will probably consume a significant amount of time and effort during a period when the government needs to undertake more far-reaching reforms to increase tax revenues and manage its fiscal deficit,” consultants Eurasia Group said in a recent note.

Properly managing economic growth, improving savings and reducing a stubbornly high fiscal deficit are cited by rating agencies and analysts as key points for Colombia to recover investment grade on its sovereign bonds.

Colombia, once dismissed as a failing state mired in drug violence and guerrilla war, is enjoying a flood of foreign direct investment in its petroleum and mining sectors as instability from the four-decade conflict eases.

The Andean nation is now the world’s No. 5 coal producer and Latin America’s No. 4 oil producer, with current crude output at around 783,000 barrels per day and forecast to reach 1.5 million bpd over the next few years. (Reporting by Patrick Markey; Editing by Daniel Wallis and Jim Marshall)

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