821.6363/8–3046: Airgram

The Ambassador in Colombia ( Wiley ) to the Secretary of State


A–319. After the return of President Ospina from the United States, in an effort to determine the real difficulties handicapping the [Page 676] Colombian petroleum industry by reason of existing legislation, he asked Dr. Eduardo Zuleta Angel, one of Colombia’s most prominent attorneys, and member of the President’s official party in the United States, to study the situation in cooperation with the oil companies, and to give him a memorandum on the subject. Dr. Zuleta Angel has been conferring with oil company representatives for the past few weeks. He told them that he wished to avoid a highly controversial report and for that reason has been closely consulting the representatives and has revised his original report on several occasions. His memorandum, as presented to the President 3 days ago is summarized as follows:

After the application of existing Colombian oil legislation over the past 15 years there are only 30 exploration contracts now in force, although 455 applications have been filed, and there is only 1 producing field, plus 16 additional productive wells, in the entire country.

Impediments to the developments of the petroleum industry are:

The delay with which applications are considered in the Ministry of Mines and in the courts.
The bureaucratic tendency to complicate and delay the handling of all details in connection with matters pending between oil companies and the government.
The unexplainable tendency to subject present applications to the conditions of hypothetical legislation distinct from that now in effect.
The lack of definite and complete jurisprudence covering the proof of title to the subsoil.
The lack of confidence, the situation of instability, and even of anxiety caused by the habit of the government to present to Congress, year after year, since 1942, long, complicated, and even contradictory projects of law designed to change substantially existing legislation. There are many features of these projects that are completely impractical for the development of the industry and would place Colombia in a noncompetitive situation in world markets.

The existing legislation (laws 37 of 1931 and 160 of 1936) is generally satisfactory and with a few modifications would be not only acceptable but good.

. . . . . . . . . . . . . .

The following modifications are indicated:

That after a concession has been solicited there should only be one suit to determine ownership of the subsoil, before the concession is granted, and
If drilling is commenced on a property where subsoil rights are believed to belong to the nation, the latter may only once and within a determined period sue to determine subsoil ownership.

. . . . . . . . . . . . . .

… The oil companies appear to agree in general terms with Zuleta’s conclusions, but do not think they go far enough. Some companies, [Page 677] particularly Shell and Gulf, definitely oppose the whole idea of Zuleta Angel’s preparing this memorandum in the form described as they consider it dangerous for an outsider to be in a position of acting as spokesman before the government for the industry. The oil companies definitely have not authorized Zuleta Angel to speak for them, but it is feared that the government might consider him as representing industry views. They are apprehensive that in discussions between him and the government he might not adequately answer objections or arguments brought up by government representatives.

. . . . . . . . . . . . . .

Dr. Zuleta told me after completing his memorandum that he was in favor of any and all kinds of stimulation and encouragement to the industry as long as the companies did not use Colombia to set up reserves. He stated that he was, therefore, definitely against the removal or increase of the drilling obligation period. He felt that the period established by existing laws was adequate and that this was the only protection the State had against “hogging” of concessions by any company. Dr. Zuleta also felt that if the companies should insist on an increase or elimination of the drilling obligation period, it would not be considered justifiable by the government and would bring forth counter-proposals which would result in a cumbersome law unsatisfactory to all concerned.

Nevertheless, since this conversation with Dr. Zuleta, oil company representatives have continued to discuss the question with him, emphasizing that Venezuela and Peru have no fixed drilling obligation period but operate on the basis of a sliding scale concession fee which eventually makes it prohibitive for companies indefinitely to hold concessions without drilling. According to industry representatives, Dr. Zuleta appears to have become partly convinced.

Another point about which some of the local company managers are not at all happy is the Zuleta proposal to bring an impartial mission to Colombia to determine possible royalty and tax increases. They feel that it would be impossible for any experts, no matter how competent, to determine justly and accurately the amount of taxes and royalties the industry should pay at this stage of its development in Colombia. They do not object to the idea of eventual increases, but believe they should have a breathing spell in which to develop some profits before new rates are fixed.

When I was last in New York, all of the American companies with whom I talked, except Sinclair, favored the idea that the firm of Curtice and Hoover should come down here to conduct an industry survey. I recently heard, however, that Curtice and Hoover have applied for oil concessions of their own in Costa Rica. If this should be true, it might affect their classification as impartial experts. I will be grateful [Page 678] for any suggestions the Department may have as to suitable experts, in case the government decides to follow the Zuleta recommendation.

A complete translation of the Zuleta memorandum67 is being forwarded under later report. In the meantime, I would greatly appreciate your comments and guidance on this situation as soon as possible.

  1. Not printed.