Violent Protests Threaten Colombia's Oil Boom

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Luis Alfredo Zapata / EPA

Oil workers go on strike in Puerto Gaitá, a town in the Colombian state of Meta, on July 19, 2011

At first, Pacific Rubiales Energy had the magic touch in Colombia. Forty-two of its first 48 exploratory wells struck oil — an almost unheard of success rate. The Toronto-based firm, whose Colombian operations are run by exiled Venezuelan oilmen, now pumps nearly one-quarter of the country's present crude production of 953,000 barrels per day, and it's the main driver behind a boom that may well see the country reach 1 million barrels per day by the end of the year.

But this week, violent protests at the massive Rubiales and Quifa fields in the state of Meta completely halted Pacific Rubiales' production. Disgruntled oil workers and local residents blocked roads, cut electricity lines and burned backhoes and dump trucks, forcing the company to evacuate some of its personnel by helicopter. "This is not a labor protest," complained company executive director Camilo Valencia. "This is a hostile takeover of our installations."

Valencia may be partly right. Though the protesters have legitimate beefs about wages and benefits, government officials suspect that guerrillas of the Revolutionary Armed Forces of Colombia, or FARC, may have infiltrated the demonstrations. Either way, the production stoppage of 225,000 barrels per day has also disrupted the upbeat meme about Colombia overcoming security issues and other problems to become a safe, business-friendly alternative to oil-rich Venezuela. "Oil companies are quite concerned" about the troubles in Colombia, said Heather Berkman, a Latin America analyst at the Eurasia Group in New York City. "It's definitely had a ripple effect in the investment community."

It's hard to say how big that ripple will be. On Thursday, Sept. 22, Pacific Rubiales announced it had reached a temporary accord with the protesters and said production would return to normal next week. What's more, Colombia is no longer the near failed state where marauding guerrillas, paramilitaries and drug traffickers put huge chunks of the national territory off limits to oil exploration. In the past decade, a U.S.-backed military offensive has reduced guerrilla forces by more than half. And while Venezuela and other big producers in the region have changed investment laws and royalty rates to give their governments a greater share of oil profits, Colombia by contrast has reduced royalty rates and allowed foreign companies to own 100% stakes in oil ventures — incentives that opened the door to newcomers like Pacific Rubiales.

Still, the oil boom has provoked numerous protests over labor and social and environmental concerns — sensitive issues in a country where there have been so many murders of union leaders, for example, that the U.S. recently demanded labor reforms as a condition for ratifying a bilateral free-trade pact. At the same time, the influx of foreign companies has provided soft and easy targets for FARC, which still has about 8,000 fighters, many of whom operate in oil-producing states like Meta and Caquetá. In June three Chinese oil workers and their translator, working for U.K.-based Emerald Energy, were kidnapped by FARC rebels in Caquetá. In August FARC set fire to numerous oil-tanker trucks and activated a roadside bomb in Caquetá, killing one oil worker and wounding six others. Police officials recently claimed that at least three petroleum companies in Caquetá had been paying extortion money to FARC, and that the attacks began when those payments were stopped.

In fact, a nationwide increase in rebel attacks and crime prompted the Aug. 31 resignation of Colombian Defense Minister Rodrigo Rivera. It also persuaded President Juan Manuel Santos to station more police and army troops along vulnerable highways in oil-producing areas. "The growth in oil exploration has been dizzying," Santos said last month. "The area of the country under exploration has jumped from 8 million to 38 million hectares [20 million to 94 million acres]. That requires the presence of the armed forces. Oil companies are asking for this protection."

Amid the bonanza, oil firms are also being asked to do more. Most of Pacific Rubiales' workforce is employed by contractors and subcontractors, and workers insist that these companies are failing to comply with Colombian laws regarding salaries and benefits. That's what sparked this week's disturbances as well as a July protest at Pacific Rubiales installations that also briefly shut down production. The Ministry of Social Protection announced this week that it has opened 40 investigations into labor conditions for oil workers in Meta state.

It's not just oil workers who are angry. People in Puerto Gaitán, an oil boomtown located near the production sites, are pressuring Pacific Rubiales to do more for their community, like buying local products and hiring local residents. "When they have oil running underneath them," says Meta governor Darío Vásquez, "the people believe they have acquired new rights."

But some wonder who "the people" really are in certain cases. According to Pacific Rubiales and government officials, this week's demonstrations may have been inflated by FARC infiltrators — though it has often been a convenient excuse for officials and executives in Colombia to peg demonstrators as traitors. Oil companies also contend that while they're already paying out huge sums in taxes and royalties, politicians have sometimes squandered the riches. While petrodollars and huge growth in the mining sector have helped fuel Colombia's robust economic growth over the past five years, many towns and villages around production sites remain mired in poverty. One example is the oil-rich state of Arauca, where officials wasted millions on grandiose projects like an Olympic-size velodrome and a water park with a wave pool. Annual royalties to Puerto Gaitán's city government have jumped from chump change to about $50 million — yet 44% of the population lives in poverty and running water is available for just a few hours a day.

For now, peace has been restored in Meta, and Pacific Rubiales will soon be back to pumping its 225,000 barrels per day. But Rodrigo Vecino, a leader of the USO, or Colombian Oil Workers' Union, warns that unless the companies become more responsive to local residents, labor strife "will be constant."