In early August 2020, the Ministry of Mines and Energy and the Ministry of Finance and Public Credit submitted to Congress a draft law "by means of which the organization and operation of the General System of Royalties are regulated" (the "Draft Law").

The Draft Law seeks to establish a new distribution, administration, and efficient use of the income resulting from the exploitation of the State's non-renewable natural resources, so that the producing municipalities and departments can perceive the benefits of the activities, projects or works carried out within their territories in an equitably and tangibly way.

Some of the issues addressed in the Draft Law in respect to the distribution of royalties are summarized below:

1. The allocation for producing regions is increased from 11% to 25%.
2. The allocation for the poorest municipalities goes from 10.7% to 15%.
3. The protection of strategic environmental areas, the fight against deforestation, and science, technology, and innovation municipal projects in environmental matters will allocated a 5%.
4. The allocation for education will be 5%.
5. The allocation for science, technology, and innovation increases to 10%.

Once the Draft Law started proceedings in Congress, the Chamber of Representatives approved the 212 articles of the Draft Law at the end of August. However, during the last plenary debate in the Senate, the text of the Draft Law was approved with exception of article 210, which was rejected after a vote of 44 against and 39 in favor, since, according to the majority of the Senators, this article endorsed  the fracking legalization in Colombia.

Given the above and in application of Article 161 of the Political Constitution of Colombia, on 7 September 2020, after the conciliation hearing between the Senate and the Chambers of Representatives, it was decided to eliminate Article 210 the Draft Law.

It is worth mentioning that Article 210 was intended to leave in force the provision of the first paragraph of Article 14 of Law 1530 of 2012, which established for unconventional field projects would pay 60% of the royalty payable for the exploitation of conventional fields, and extend it to the Integral Research Pilot Projects ("PPII"). With its elimination, the  reduced royalties for the development of unconventional deposits has been eliminated; therefore, unconventional projects will pay the same percentage of royalties as the conventional deposits’ projects. The rules, as mentioned above, are transcribed below:
 

The elimination of Article 210 of the Draft Law does not limit the possibility of carrying out PPII in Colombia but eliminates the incentive of reduced royalties for the development of all unconventional deposits.

Click on the following link to consult the Draft Law