Colombia is now planning to apply its successful free zone model to the petrochemicals sector, as the government has announced in February 2017 plans to develop offshore free zones focus on the hydrocarbons sector and on related logistics, compression, transformation, and liquefaction of natural gas, according to ANDI, the Colombian Chamber of Free Zone Users.
Colombia’s 108 free zones have diverse specialisations in value-adding manufacturing, light industries, agriculture and food processing, logistics, business process outsourcing, and information technologies, among other areas. With the passage of Free Zone Act of 2016 (Decreto 2147), the free zones enjoy a stable regime of value-added and income tax exemptions as well as other benefits to companies that wish to export from Colombia or access the national market.
Refueling: The new “specialised offshore free zones dedicated to the hydrocarbons sector,” as national investment agency ProColombia’s President Felipe Jaramillo referred to them in an interview with Free Zone Watch, will aim to take advantage of a growing industry – Colombia’s oil production has nearly doubled in a decade, to upwards of 1 million barrels per day – and encourage new offshore exploration. Colombia’s proven reserves have declined, from upwards of 2.1 billion to 1.6 billion in 2016, according to Reuters, because of a decline in exploration. Part of that decline can also be attributed to low oil prices which have rendered many of Colombia’s reserves too expensive to develop.
Colombia’s largest oil company, Ecopetrol, will be drilling a number of wells in 2017, as Colombia looks to understand the profile of its offshore reserves and invite new investment in the industry.
Locally-driven: The creation of backward linkages with Colombian industries is also a primary driver of the offshore hydrocarbons free zone plan. Mr Jaramillo, speaking about free zones generally, indicated that Colombia is primarily interested in “attracting investors interested in generating production supply chains with local providers,” with businesses building their in-country presence long-term “through the acquisition of inputs, products, and services from national companies.”
In order to create such interdependence, Colombia could look to another country across the Atlantic Ocean. Examples of offshore free zones are scarce, but one place where they have met with success is in Nigeria, one of Africa’s largest petrochemicals producers. The Lagos Deep Offshore Logistics Base (LADOL) off of Lagos, Nigeria, is a model that could be looked to more and more in the coming years. As Dr Amy Jadesimi, CEO of LADOL, explained to Free Zone Watch in an exclusive interview, “The high-costs associated with operating offshore acreages is no longer sustainable” due to the new realities of the oil and gas market, a fact which makes “real local content” and “reliable and transparent local partners” of utmost importance.
Colombia hopes that such local content will continue to emerge in the form of a qualified young skilled labour force and growing logistics, engineering, oilfield services, and other related industries. Colombia’s free zones have generated 163,000 jobs and COP$40.1 billion in FDI in just under a decade, and as the country targets a COP$20 billion three-year FDI goal and sustainable long-term growth, hydrocarbons-based free zones could prove an important contributor and bring needed succour to a promising local industry.