The Minister in Colombia (Philip) to the Secretary of State

No. 238

Sir: I have the honor to transmit herewith copy and translation of the Petroleum Law enacted by the Colombian Congress and entitled Law 120 of 1919.

The text of this law as adopted was finally voted by the Colombian Senate on the 29th ultimo. The signatures of the President and the Acting Minister of Public Works were attached on the 30th ultimo. The extraordinary session of the Colombian Congress was adjourned on the 31st ultimo.

Adverting to my cable messages Nos. 174,65 186,66 189 and 19567 of November 20–10 a.m., December 6–9 a.m., December 12–9 a.m., and December 18–10 a.m., respectively, I beg to report that I have reason to believe that the Colombian Government has used every means at its disposal to bring about the enactment by the Congress of a just law and one which would not discourage foreign capital. This has not been an easy task owing to the prevailing ignorance among the legislators of the matter under discussion and the sentiment in favor of nationalization of oil lands as a means of procuring the greatest returns for the country and of avoiding international complications.

As the Department will observe, the Government has succeeded in bringing about a reduction of the zone tax on the gross production of oil in private lands as well as the excision of the proposed increase tax of one per cent every ten years of this tax.

On the other hand the taxes and restrictions placed upon the exploitation of national lands are severe and will probably call for revision by the next Congress.

Hastily I should judge that the holders of private lands, the titles to which antedate 1874, are entirely satisfied with the law now enacted. Others will probably consider the provisions as calling for modifications before successful development can be undertaken.

In the absence of any specific advice from the Department in this matter as well as of any source of disinterested expert opinion [Page 784] here, I am unable yet to formulate a definite opinion as to the probable attitude which will be assumed by the American oil interests in general with respect to this law. I am of the opinion that it is based upon the recognition of the acquired rights of individuals to non-metalliferous subsoil deposits in private lands which, I understand, is the point in which the Department and the Senate are chiefly interested.

There will doubtless be protests by the oil interests against the provisions of this law. These protests, perhaps, will be voiced chiefly by those interests whose business it is to acquire holdings for the purpose of disposing of them to others. But should the Department and the Senate (as I think most probable) conclude that the law does not imply nationalization and that it respects private rights acquired in good faith I can conceive of no reason why it should be considered a just cause for the further postponement of action on the Treaty of 1914.68

I have [etc.]

Hoffman Philip

Law No. 120 of 1919 Relative to Beds or Deposits of Hydrocarbons

The Congress of Colombia Decrees:

Chapter I: Preliminary Dispositions

Article 1: For the purposes of the present law, under the denomination of hydrocarbons is understood all the subterraneous formations of mineral oils, as petroleum of whatsoever class, natural gases emitted by these same formations, pitch, asphalt, wax and fossil resin.

The dispositions of this law shall not be applicable to deposits of asphalt when their exploitation is for the purpose of obtaining asphalt for consumption in the country.

Asphalt which is exported shall pay a tax of 6, 4, and 2%, depending on the zone from which it comes, in accord with article 2.

Article 2: For the same purpose the territory of the Kepublic is divided into three zones, as follows:

The first, which comprises the beds or deposits situated within 200 kilometers of the sea coast, the which will pay a minimum exploitation tax of 10% of the gross product; the second, which comprises those deposits situated at a distance of more than 200 and not exceeding 400 kilometers from the sea coast, the which will pay a [Page 785] minimum tax of 8% of the gross product; and the third, which comprises the deposits situated more than 400 kilometers from the sea coast, from the gross product of which shall be paid a minimum tax of 6%.

In the contracts which may be celebrated in conformity with this law, it shall be specified that the tax assessed on the minimum base fixed in this article shall be augmented by 1% for each ten years of exploitation.

Article 3: For each contract of lease of hydrocarbons situated in public lands, in those recovered or which may be recovered by the Nation, by nullification, expiration, or cancellation of the adjudication which may have been made of them, in those which the Nation may have acquired or may acquire by any title whatever, and in those which belong to it as fiscal property, there shall be paid, in addition to the tax specified in the preceding article, an annual fee of 10 cents for each hectare of the concession, in the first year; of 20 cents in the second; of 50 cents in the third; and of one peso in the fourth and succeeding years, until the expiration of the lease. In the lands adjudicated or ceded as public lands (baldios) subsequent to October 28, 1873, there shall only be paid the exploitation tax fixed in accord with the bases of the preceding article.

This last without prejudice to the collection by the owner of the soil from the exploiter of the indemnities and advances to which he may have claim in accord with chapters 12 and 13 of the Mining Code.

Article 4: In lands distinct from those enumerated in the preceding article there will be no payment to the Nation of the fee of annual rental of the surface, and the exploitation tax will be a fixed quota of 8%, 6% and 4% of the gross product, respectively, in each one of the zones expressed in article 2.

Article 5: After 20 years from the passage of this law, if the government should have knowledge of the existence of deposits of hydrocarbons in lands distinct from those enumerated in article 3 which are not being exploited, in accord with article 25, it can dictate the necessary measures to ascertain if such deposits are susceptible of producing hydrocarbons in commercial quantity and conditions; if such investigation results satisfactorily it shall threaten the proprietor of the soil with the payment of an annual tax of 5 pesos per hectare of the land which contains such deposits, which tax shall become effective unless the proprietor of the soil agrees to effect the exploitation and does so, in which case he will be subject only to the payment of the corresponding exploitation tax, according to the dispositions in effect, and also in accord with the commercial requirements which the Government deems convenient.

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Article 6: Foreigners interested under any title, in the exploitation of the hydrocarbons referred to in the present law, must expressly declare that they submit themselves to the dispositions of Law 145 of 1888, regarding aliens and naturalization, and to its additions, and amendments.

Article 7: The right of exploiting the lands or deposits situated in the lands referred to in article 3, is acquired by the lease concession which the Nation will grant to any national or juridical person, who, in conformity with common laws, has the capacity to obligate himself as lessor and acquires the right to do so according to the dispositions of this law.

Article 8: The concessionaire may transfer or sublet the concession referred to in the previous articles, subject to approval of the Government.

When the sub-lessor or cessionaire is a foreigner he shall make the declaration specified in article 6.

Article 9: The industry of exploitation of hydrocarbons and the construction of pipelines are declared to be of public utility.

Article 10: The dispositions of chapters 12 and 13 of the Mining Code shall apply as far as they are compatible with the nature of the exploitation of the beds or deposits referred to in this law.

Moreover, in favor of the exploitation of such beds and deposits, the right is assured of establishing the right of way of pipelines, including land sufficient for pumping stations and other constructions necessary to the proper functioning of the pipe lines, and of establishing wharves, carriers, and submarine and subfluvial pipelines, all of this subject to permission, which with knowledge of the necessity therefor, the Government will concede, and subject to the dispositions which may be dictated on the subject. Equal rights will be enjoyed by the persons or entities who, without being engaged in the exploitation of hydrocarbons, may celebrate contracts with the Government or obtain permission from it for the construction of pipelines.

The tariffs of pipeline companies shall be subject to the revision and approval of the Government.

Chapter II: Contracts of Lease

Article 11: The exploration of assignable public lands, for the purpose of locating the deposits referred to in this law, is declared free.

Article 12: For exploration in public lands not assignable by virtue of reserves decreed by the Nation, and in those others referred to in article 3 of this law, a Government license is required, which will be granted to those soliciting it, provided that there are no special circumstances which might imply fraud or grave danger to the [Page 787] Nation and provided that the applicants shall be obliged to deliver to the Government topographic plans of the land explored and the corresponding reports on its richness.

The exploration license can be retired by the Government at any time it esteems convenient and it will not constitute any right or preference for the holder in the matter of making contracts.

Article 13: To explore lands adjudicated or ceded as public lands subsequent to October 28, 1873, if the person who is to do the exploring is not the owner of the land, there shall be required, besides the license from the Government provided for in the preceding article, previous notice to the owner of the land or to the person in charge of it.

The person to whom this notice is given cannot refuse to permit the exploration, but the owner shall have the right to be indemnified by the explorer for the damages he may cause.

In case of disagreement decision shall be by experts named, one by each party and a third by the judge who may have jurisdiction by reason of the amount and the situation of the land.

Article 14: The person who desires to acquire for exploitation by lease the deposits covered by this law, shall formulate his proposal in a memorial addressed to the Minister of Public Works and presented personally by the petitioner or by his attorney at the Department of Public Works, or to the highest political or judicial authority in the place of his residence.

The proposals will be taken into account by the Government in the order in which they are presented. For this purpose there shall be opened in such offices special books in which will be registered the proposals with a notation of the day, hour, and place in which they were presented.

Article 15: The memorial containing the proposal shall be made in the following form:

–The Municipality in which the deposits occur must be indicated, and a description of their location given.
–The zone of exploitation shall be determined by definite limits and shall not exceed 5000 hectares nor be less than 1000. For this purpose the memorial must be accompanied by a topographic and geologic plan which will give a clear idea of the zone in question and of the deposits which it is desired to exploit.
–There shall be expressed the names and nationalities of each one of the individuals for whom the lease is desired and the participation which each one has in the proposal.
This does not prohibit subsequent alterations in the proposal in this respect, which may be expressed by written declaration addressed to the Minister of Public Works. In order that such declarations may be effective it is indispensable that they be signed by each interested party and presented in person as provided in article 14.
–If the contract is for a company, the name and residence of its legal representative must be given.
–When any of the persons who figure in the proposal are not Colombians, the requirements of article 6 shall be fulfilled.
–In the memorial the applicant must declare that he submits to the dispositions of this law, and especially to the supervision of the Government, payment of taxes, rental fees, causes of expiration, etc.
–There shall be expressed the amount of rental offered and other circumstances making the contract advantageous for the Nation under the general conditions of the law.

Article 16: If there shall have been but one applicant for a given deposit the contract may be celebrated with him, providing there shall have been a favorable decision by the Junta de Hacienda created by Law 109 of this year, and by the Council of Ministers to the effect that the contract is advantageous to the interests of the country.

Article 17: In case of several proposals, other things being equal, the contract shall be celebrated with the discoverer of the deposit. If none of the applicants is the discoverer, preference shall be given, other things being equal, to the persons or entities who can duly guarantee compliance with their contractual obligations or who are in position to undertake the exploitation for their own account, and as between such persons preference shall be given to those who furnish the best guarantees of solvency, respectability or security.

The proprietors of the soil of lands ceded or adjudicated as public lands subsequent to October 28, 1873 and before the enactment of Law No. 30 of 1903, shall be given preference, in equality of circumstances, for the period of two years, counting from the enactment of the present law, for the celebration of a lease contract. After this period has elapsed the provisions of the first part of this article shall apply.

The Government shall dictate necessary measures to assure itself that deposits of hydrocarbons on lands belonging to the Nation, under any title whatsoever, are not exploited as private property. Every exploiter of petroleum deposits situated in lands distinct from those referred to in article 3 of this Law must prove before the respective departmental government (Gobernacion) that the municipal, departmental and national taxes on the lands exploited have been paid by the owner of soil for a continuous period of at least ten years last previous.

Article 18: The rights legitimately acquired previous to the enactment of this law cannot be affected by contracts celebrated by virtue of it, and the Nation does not assume responsibility for the perturbations or limitations in the enjoyment of the lease arising from the legal exercise of such rights.

It is understood that the exploitation tax shall be covered in every case by the exploiter (por quien lo verifique).

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Article 19: Upon receipt of the proposals if, before passing on them, the Department (of Public Works) should have any doubt as to the authenticity of documents or accuracy of the plans, as to the responsibility and solvency of the applicants, or as to any other point requiring to be cleared up, an investigation shall be ordered at the expense of the interested parties.

Article 20: Before passing on the proposal the Department (of Public Works) will cause a synopsis of it to be published in the Diario Oficial, specifying the location, the number of hectares, the rental, and other pertinent data. Judgment shall not be passed until 90 days after the publication of the first proposal.

The same proposal shall be communicated to the Municipal Council of the place where the deposit is situated and shall be published also in the official gazette of the respective department.

Judgment will not be passed on proposals without there having been obtained all the data possible relative to the greater or inferior richness of the deposit, the quality of its product and other circumstances which might influence the profits of the exploitation.

Article 21: When the proposals are passed by the Department (of Public Works) they shall be submitted to the judgment of the Junta de Hacienda, created by Law No. 109 of this year, and of the Council of Ministers, and the contract shall be celebrated with the person whom the Junta and the Council jointly prefer.

Article 22: If, within the three months following the date of making the choice provided for in the preceding article, the person accepted by the Junta de Hacienda and the Council of Ministers does not appear to celebrate the contract, the remaining proposals, and the new ones which may have been submitted, will be passed on, being taken in their respective order and in accord with the dispositions of the preceding article.

Article 23: The contract shall contain:

–The boundaries of the zone comprising the tract, with an indication of the azimuth of the lines which form the constitutive rectangle of the zone.
–The names of the contractors, their nationality and residence. If the contractor is a company or juridical person, there shall be expressed the company name and the name and residence of its legal representative.
–The declaration of foreigners or foreign corporation with whom a lease may be contracted, or the foreigners who may be co-participants in a lease, that they expressly submitted themselves to Law 145 of 1888 relative to aliens and naturalization, and its additions and amendments, and that they subject themselves to the jurisdiction of the authorities of the Republic.
–The prohibition of transferring the contract or of subletting it to foreign Governments or of admitting them as associates, under [Page 790] penalty of cancellation of the contract ipso facto. Any other transfer or sublease can be made with the approval of the Government.
–The declaration that the Government reserves the right to exercise vigilance, in the form it deems most convenient, over the operations of the enterprise, and the manner in which the lessee complies with his obligations, including the technical as well as the fiscal and economic phase [aspects], and to take measures conducive to the full observance of the rights of the Nation.
–The declaration that the lease is contracted for the period of 20 years; extensible for 10 years more at the option of the Government. During the term of the extension of the contract its observance will be governed by the law then in force.
–The declaration that at the expiration of the contract or of its extension, and in any of the cases of cancellation detailed in article 29 of this law, the Nation acquires gratuitously the ownership of the machinery and installations existing within the perimeter of the concession, of all of which it can take possession in fact, without the necessity of any procedure whatever.
–The declarations required by the Fiscal Code and Law 53 of 1909 relative to surety and penal clause. The amount of the bond shall be fixed by the Government and shall not be less than $20,000.
–The clauses providing for cancellation expressed in this Law and in the Fiscal Code, and
–The declaration that to become valid the contract requires the approval of the President of the Republic, based upon the favorable concept [report] of the Junta de Hacienda and the Council of Ministers, and the review of the Council of State, in conformity with article 37 of the Fiscal Code.

Article 24: In the same Department, Intendencia or Comisaria, no one person, natural or juridical, can acquire a lease, either by direct contract or by cession or transfer, of more than three zones of exploitation of 5000 hectares each.

Chapter III: Exploitation

Article 25: By exploitation is understood the extraction of the mineral wealth or of the gross product of the deposit or bed; and a deposit or bed of the products covered by this Law shall be considered in exploitation when there has been installed and in operation a plant with the machinery and other equipment deemed necessary for working the substances referred to in the contract, and provided that the extraction of the mineral has commenced.

Each deposit of petroleum shall be exploited in accord with its capacity. The Government will supervise the efficiency of the exploitation and is empowered to fix the minimum of the production in each case.

Article 26: All exploitation of deposits of hydrocarbons in the territory of the Republic shall be subject to the regulations which may be dictated by the Government to guarantee public and private [Page 791] security, the health and life of workmen employed, and the due fiscalization [supervision] of the operations effected in the wells, tanks, deposits, pipelines, carriers and refineries.

Article 27: Each producer (exploiter) is obliged to supply the Government with such technical and economic data as may be required in relation to the enterprise; to admit in their operations the students of official schools who may go to make practical studies of the industry which is the subject of this Law, and to employ in their exploitation, so far as possible, Colombian workmen in a proportion not less than 50%.

Article 28: The beds or deposits situated in lands distinct from those enumerated in article 3 cannot be exploited without giving at least 60 days notice to the respective Department (Department of Public Works), and there shall be presented to the said Department within a year from the beginning of the exploitation, a plan of the zone of operations, containing the details specified in ordinal No. 1 of article 23.

To the plan shall be attached a report of the study of the exploitation, of the works which have been begun, of the wells or shafts which may have been opened, of their depth, of the class and quality of the substances extracted, and other statistical and illustrative data, such as drawings of the geological strata exploited.

The infraction of this disposition, in the part relating to the notice will give rise to a penalty consisting of doubling the tax for a period of not less than one year; and in the part relating to other obligations the Government will fix corresponding penalties.

The other infractions committed by exploiters of the deposits covered by this Law shall be submitted to the common laws applicable.

Article 29: The expiration of lease contracts shall be declared administratively by the Government in the following cases:

1–In case of transfer to foreign Government[s] or their admission as associates in the exploitation of the deposit leased.

2–When there is any hindrance to or evasion of the Government’s right of supervision, in accord with paragraph 5 of article 23, and the putting into effect of the measures taken by the Government for the defense of the Nation’s rights.

3–When the rental and the taxes imposed are not paid integrally and punctually. It is understood that the rental and the taxes are not paid punctually when they are not covered within the periods fixed by the corresponding articles of this law.

4–When, after five years from the date of the concession, the deposits are not in a condition of continuous production, this being understood according to the conditions expressed in article 25, or when, being in such state of production, the work is suspended for an entire year, except in the event of superior force or a fortuitous case conforming to the civil laws.

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In order that the declaration of cancellation shall be effective it is required that the lessee, or his legal representative, be notified personally or in the manner indicated in article 25 et seq of Law 105 of 1890.

The resolution declaring a contract cancelled shall be published in the Diario Oficial and in the official gazette of the respective Department.

Chapter IV: Fiscal Dispositions

Article 30: The Government may exact the tax referred to in article 2 either in the product or in money at its option. In the first case the percentage shall be delivered in the tanks or storage reservoirs which each enterprise has in the port of embarkation which it uses for its own product, and, in the second, the value of the percentage in money shall be fixed by the Government, taking as a base the average of the New York market prices in the preceding quarter, according to the quality and character of the products of the exploitation. To this effect the Government will cause to be taken samples and other data which may be necessary at the points of embarkation, and will duly inform itself as to current prices.

Article 31: The deposits of petroleum adjudicated during the effective period of article 112 of Law 110 of 1912 shall pay the rental provided for in article 3 from the date of the enactment of this law, taking into account the size of the concession, excepting those not exploited which are in litigation with the Nation.

Also these will pay the corresponding percentage in conformity with the provisions of article 2 of the present law.

The exploiters of these deposits shall comply with the obligations expressed in article 28.

The dispositions of this article do not imply recognition of the validity of the adjudications to which it refers.

Article 32: The payment of the taxes and dues established by this law shall be made within the periods which the Government will determine.

Article 33: In order that the Government may assure itself that the liquidation of the exploitation tax is exact, it has the right at any time to inspect and examine the account books, balances, copy books, and in general all the accounting of the enterprise with its respective vouchers, by any employee or employees which it may designate for that purpose.

The accounting of the enterprise shall be done in the country, in the Spanish language, and in accord with the Commercial Code of the Republic.

Article 34: Of the integral product of the taxes on exploitation of hydrocarbons in any section, 30% shall go to the Department, 5% to the Municipality and the rest to the Nation.

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Semi-annually the respective liquidation will be made by the Treasury General of the Republic and the quotas corresponding to the Departments and Municipalities will be delivered to them.

Article 35: The exploration and exploitation of the deposits referred to in this Law, the transportation of their products, the machinery and other necessary equipment for their extraction and for the construction and maintenance of pipe lines shall be exempt from all classes of departmental and municipal taxes direct or indirect.

Article 36: The hydrocarbons extracted from the deposits referred to in this Law cannot be assessed with departmental or municipal taxes.

Chapter V: Final Dispositions

Article 37: The contracts which may be celebrated for leases within the following zone:

“from a point 18 kilometers east of Point Arboletes, a straight line which terminates at Cape Tiburon; to the east and west two parallel lines which run south from the points indicated to points 60 kilometers south of the head of the Gulf of Uraba; on the south the union of these two parallel lines by a line drawn from east to west”,

shall be governed by the provisions of the present Law insofar as they are not incompatible with the following prescriptions:

(a) In the zone expressed there shall be no preferential right by reason of discoveries.

(b) The minimum exploitation tax shall be 20% of the gross product, and

(c) To no one person or entity can be given a lease in said zone of a tract greater than 5000 hectares, except when the respective con-tract comprehends fiscal operations authorized by present laws and which involve the acquisition of resources by the Treasury of not less than $20,000,000; in this case the zone leased for the exploitation of hydrocarbons may contain up to 100,000 hectares in one tract.

If, for the fiscal operation relating to the acquisition of the loan for the sum above indicated, it shall be necessary to constitute as surety or guarantee the percentage of the exploitation which corresponds to the Nation in the tract which is leased, the Government is authorized to grant it.

In these cases the exploitation tax which is fixed on the minimum contemplated in this article shall be distributed in the form prescribed in article 34 of this Law.

The provisions of this article shall be applied also to the following zone for lands of the Nation: From a point between Cocalito and La Ardita to the frontier with Ecuador, a strip 20 kilometers wide, besides the territorial sea zone.

No contract shall be entered into covering the deposits existing in the zone referred to in this article until the Government shall have made a study, by competent geologists, as to the richness of the deposits.

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Article 38: The Nation reserves the right to exploit the deposits which may occur beneath territorial waters, lakes and navigable rivers. By virtue of this it is required that all contracts for the exploitation of such deposits shall be approved by Congress.

Article 39: The bureau of mines of the Department of Public Works shall consist of two sections, one in charge of administrative and judicial business relating to mines and the other in charge of engineering and geology.

The first section shall consist of a chief, expert in mining legislation and jurisprudence, and three subordinate employees.

The second shall consist of a chief who must be a mining engineer or geologist, an assistant engineer and three geologists who are experts in petroleum.

For the payment of the personnel and material of the office of mines, for the installation of a laboratory, a mineralogical and pale-ontological museum, publication of the monthly mining bulletin, library, etc., etc., there is appropriated beginning the next fiscal year the sum of $100,000.00 annually.

The Government may select geologists within or outside the country endeavoring to obtain the most competent and impartial service.

Article 40: The Government will make appointments to the bureau referred to in the preceding article as the needs of the service require, and is authorized to fix salaries and to celebrate contracts with technical experts without the subsequent approval of Congress.

Article 41: The contracts for the exploitation of petroliferous deposits celebrated with the Department of Public Works, which should be or may have been submitted to Congress for its approval, and which shall not have been expressly approved before the enactment of the present Law, shall be considered disapproved.

Article 42: The lease contracts treated in this Law do not require the approval of Congress except those referred to in article 38.

Article 43: The Government is amply authorized to promulgate regulations for carrying this Law into effect.

Article 44: A special edition of this Law shall be made, in the languages which the Government deems necessary, for profuse circulation both in and outside the country, and this publication shall contain the legal dispositions in force concerning aliens and naturalization.

Article 45: The Nation reserves the exploitation of radio-active substances such as radium and helium (heilo-radio).

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Article 46: All legal dispositions contrary to the present law are hereby annulled.

  1. Ante p. 778.
  2. Ante, p. 781.
  3. Nos. 189 and 195 not printed.
  4. Foreign Relations, 1914, p. 163.
  5. The translation here used is the one forwarded to the Department by the Consul at Barranquilla with his despatch No. 924, Jan. 20, 1920 (File No. 821.6363/105).