Ecopetrol Tapped For Emergency $1bn

(Forbes, Dylan Baddour, 10.Dec.2019) — As protesters continue to push demands in Colombia, the government here has asked its oil company, Ecopetrol S.A., for a billion-dollar dividend to cover its commitments.

The combination of planned tax cuts for corporations, plus new tax cuts and for low income earners offered to appease ongoing protests, have left the Colombian state on the hunt for revenue.

The Colombian finance ministry said in a statement that the $3.6 trillion peso ($1.1 billion dollar) Ecopetrol payout would come from a special reserve fund, wouldn’t affect sustainability and would “finance public investment, necessary to boost economic growth.” 

Ecopetrol, owned more than 88 percent by the Colombian government, has a history of big payouts. Yet this move reveals a degree of desperation to fund social spending by the government of President Ivan Duque, who has been a vocal critic of big Ecopetrol dividends.

As a senator in 2015, Duque called the company’s history of payouts a “structural problem” during an interview with Caracol radio. He said Ecopetrol distributed twice as much of its profits as did other major oil companies, leaving it to borrow for new investments.

News of the payout drove Ecopetrol stock price up to $19.12 by Dec. 4, its highest point since July.

Yessica Prieto Ramos, national director of research a Crudo Transparente, an oil industry in Bogotá, said the big payout was a sign to investors of financial strength. “It’s strength has allowed them to offer bigger dividends,” she said. “It make it looks like a company in which investors can put their money.”

Sergio Guzman, director of Colombia Risk Analysis in Bogota, said the payout could detract from other potential investments like in the emerging field of hydraulic fracturing in Colombia.

“Clearly the government seems to be in dire straits economically because all of its tax reform proposals as well as some demands by protesters are deficit-producing proposals,” Guzman said. “Unless the government can produce higher-than-expected economic growth, we’re going to be in a very difficult fiscal situation.”

Duque’s tax reform proposal, submitted to the Colombian congress in October, included about $3 billion in cuts for corporations. National protests exploded in late November, decrying the tax proposal among a long list of other qualms. After two weeks of marches, Duque made additions to his reform: a 100 percent VAT refund for the lowest fifth of income earners, a reduction in healthcare contributions for pensions, incentives for companies to hire young people and three tax-free days per year. 

Protesters held a third successful national mobilization on Wednesday and continue to push for more drastic pension reform plus investments in health, education and rural infrastructure. 

Yet this upheaval that’s lately played out in Colombia and other South American countries won’t likely affect the region’s petroleum industry, said Ross Lubetkin, CEO of Welligence Energy Analytics. 

“It’s not really on the radar at all of the industry,” he said. “I guess it’s been a similar story for decades.”

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