General

Development

Describe the areas of energy development in the country.

Colombia is a growing economy that in recent years has had positive rates of economic growth in the midst of a decade of deceleration and recession. For the period 2017 to 2018, Colombia grew at an average rate of 2.2 per cent, higher than the growth of 1.6 per cent for the term 2016-2017. In addition, according to the Mining and Energy Planning Unit (UPME) for the period 2010 to 2014, the country has grown at an average rate of 4.8 per cent, having an average increase of 1.6 times compared with the 1990s. This rate of growth can be explained by multiple factors, including the steady growth of the energy sectors of the economy. Indeed, the primary and secondary sectors present a robust increase in energy activities: mining has been the most volatile sector ranging from a tremendous rate of growth of 22 per cent in 1999 to a contraction of -9 per cent in 2000. In the 2000s, the mining sector increased steadily, with four years of sound economic growth (10 per cent in 2008, 12 per cent in 2009, 11 per cent in 2010 and 15 per cent in 2011). From 2010 to 2014, the sector grew alongside the economy: the electricity industry has a very similar pattern of growth compared with the general growth of the economy, ranging from a 3.5 per cent increase in 2011 to 4.7 per cent in 2014. It is important to note that the tertiary sector, including transportation, construction and finance has developed at a higher rate than the primary and secondary sectors.

According to the Mining and Energy Statistical Bulletin for the period 2012-2016, and current trends in the energy sector issued or informed by the UPME (available at www1.upme.gov.co/PromocionSector/SeccionesInteres/Documents/Boletines/Boletin_Estadistico_2012_2016.pdf):

  • Capacity to generate electricity as of July 2016 mainly relied on hydro (70 per cent), followed by natural gas (10 per cent) and coal (8 per cent). Wind or other renewables had no participation in the effective capacity to generate electricity in Colombia as per these statistics. However, the information available shows that as of June 2016, thermic, wind and solar technologies are relied on in 19 per cent, 17 per cent and 8 per cent, respectively, of the projects registered before the UPME to generate electricity in the future.
  • Commercial demand for electricity grew from 2012 to 2015 from 59.995,4GWh to 66.885GWh.
  • During 2015, the mining sector received 4.41 per cent of the foreign investment registered in Colombia (US$533 million), contracting by nearly 66.28 per cent when compared with the same period in the previous year (US$1,581.5 million).
  • By October 2018, the UPME had issued favourable opinions to nine projects involving solar technology in Norte de Santander, Colombia.
  • The UPME awarded the expansion of transmission lines for the Caribbean Region (220kv).
  • The UPME is currently working on the necessary documents to complete a public procurement contract for generation of energy projects in addition to those carried out by the Ministry of Energy and Mining.

Finally, the UPME has enacted a document pursuant to which certain objectives and principles must be accomplished by the energy sector by 2050. The 2050 Plan includes the following objectives for the development of the sector:

  • an increase of two-thirds of the global energy demand makes having a policy of environmental responsibility of paramount importance. In line with this, the government supported the drafting of Law 1715 of 2014 by which the non-conventional sources of electricity generation (particularly renewable energy sources) are stimulated;
  • the infrastructure of the territory, especially in the sector of transportation, needs to be rethought and reconstructed in order to be a cornerstone of efficiency for the sector. This involves the development of public-private associations and the simplification of legal and regulatory standards for transportation, among others; and
  • the development of the sector must bear in mind the principle of affordable energy, which involves mapping the social and economic situation of specific communities in order to achieve full interconnection as soon as possible.

Role of government

Describe the government’s role in the ownership and development of energy resources. Outline the current energy policy.

Colombia is a unitary republic with administrative autonomy of its territorial entities (departments and municipalities). The Constitution of Colombia, as per article 332, provides that the state is the owner of the subsoil and all the resources that are contained within. However, the same disposition clarifies that acquired rights of property upon natural resources (before 7 July 1991) are respected in accordance with pre-existing norms. Furthermore, article 360 of the Constitution states that the exploitation of non-renewable resources is permitted, in accordance with laws or decrees that regulate the matter. This activity must, however, involve a royalty in favour of the state (which in accordance with article 361, as amended by the Legislative Act 5 of 2011, purports for the social development of the territorial entities of Colombia).

Regarding oil and other hydrocarbons, article 28 of Law 1753 of 2015 (by virtue of which the National Development Plan is adopted for the term 2014 to 2018) provides that the National Agency of Hydrocarbons (ANH) is responsible for the general administration of the oil reserves and must conduct its duty in order to mitigate the negative effects of the decrease in the world’s oil prices. Additionally, the ANH, pursuant to article 2 of Decree 714 of 2012, is responsible for ensuring the energetic auto-sufficiency of the state and administering the oil reserves in accordance with sustainable development.

The mineral exploitation objectives in Colombia are defined in article 1 of Law 685 of 2001 (Code of Mines). Pursuant to this provision, the extraction of minerals in Colombia is intended to cope with both internal and external demand, taking into consideration that the activity must be consistent with the policy of sustainable exploitation of non-renewable resources. It is important to note that Law 1753 of 2015 provides an incentive for the activity of extraction of minerals through the creation of Mining and Energetic Reserve Areas in the territory. These areas purport to be for the usage of non-renewable minerals in the generation of energy according to international best practices.

Electricity generation in Colombia is regarded as an essential public service according to article 5 of Law 143 of 1994. The state, as ultimately responsible for the service (article 334 of the Constitution) must: ensure the efficiency of the service, prevent cartelisation and other antitrust conducts, and ensure the expansion of the service towards vulnerable populations, among others. In Colombia the generation, commercialisation and distribution of electricity is not restricted to public companies.

It is important to note, however, that Colombia is permanently faced with the El Niño and La Niña weather phenomena, resulting in electricity generation becoming unstable. Indeed, according to the UPME (agency responsible for the planning of electricity demand and offer) in 2015 (and this result is unlikely to vary for 2017) Colombia relied for its electricity generation mostly upon: hydroelectric plants (accounting for 70 per cent of the total generation) and natural gas (24.8 per cent). Colombia is therefore providing incentives to develop renewable energy sources, by means mainly of tax cuts. These incentives are disciplined by Law 1715 of 2014. One important statement that this law makes is that it conceives the production and utilisation of non-conventional energies, especially renewable ones, as being of public utility.

Commercial/civil law – substantive

Rules and industry standards

Describe any industry-standard form contracts used in the energy sector in your jurisdiction.

The ANH was vested with the authority of providing the general terms and conditions with respect to the contracts for the exploration and production of oil and other conventional hydrocarbons in accordance with article 76 of Law 80 of 1993 (Public Procurement Statute). Pursuant to this, the ANH enacted Agreement 4 of 2012, pursuant to which the standard contract of Exploration and Production (E&P) was regulated. By means of the E&P contract the ANH, as the agency representing the Colombian state, concedes the right to explore the contracted area to the contractor, which bears all the risk of the enterprise in this phase. As consideration, the ANH receives a price from the contractor for the surface that includes the contracted area.

If the contractor succeeds in finding significant oil reserves, the second phase starts, namely the production phase. This phase entitles the contractor to extract hydrocarbons for a period of up to 24 years, extendable by petition of the interested party. The ANH receives a mutually convened price proportional to the production of the field.

Midstream services depend on the destination of the oil. Colombia is an oil-exporting country and some of its production is sold abroad; the part of the production that is not exported is generally sold to ECOPETROL (the partly state-owned oil producer and refiner in Colombia) for its refinery.

With respect to mining standard contracts, article 14 of Law 685 of 2001 (Mining Code) provides that the only title for appropriation of mineral resources is the mining concession. Article 45 of the same law provides that this contract is different to that of public construction and public service concession. Indeed, by means of this contract, the National Mining Agency (ANM) concedes the right to explore and extract, in an exclusive manner, the area described in the contract. The duration of the contract cannot exceed the term of 30 years (article 70 of the Law), except for a unique extension of two years. The person or company must pay the mining title (the negotiable title that constitutes proof of the right that the bearer has upon the extraction of the mineral in the conceded area).

In the electricity sector, the wholesale electricity market is highly liberalised and hence the agents can celebrate one or many of the following contracts, according to their needs: firm energy auctions (disciplined by resolution 056 of 2011 of the Regulatory Commission of Energy and Gas (CREG)); bilateral contracts between generators and commercialisation companies (in the form usually of distribution contracts); and energy spot market transactions according to the price and offer set forth on the energy exchange on an hourly basis.

What rules govern contractual interpretation in (non-consumer) contracts in general? Do these rules apply to energy contracts?

The general rules that govern contractual interpretation are contained mainly in the Civil Code. There are multiple canons for interpretation:

  • subjective interpretation (articles 1618 of the Civil Code) by which the interpreter must establish the real will of the parties above all other indications;
  • authentic interpretation, in which the interpreter must establish the subsequent practices and acts of the parties so as to determine the sense of a primal assertion;
  • systematic interpretation (article 1622 of the Civil Code) in which a determinate clause must be given the interpretation that would best fit the totality of the contractual rights and obligations;
  • effective interpretation, in a disjunctive between two interpretations, the one that provides an effet utile to the clause must be preferred to the one that renders the same clause redundant or useless; and
  • interpretation against the drafter of the clause (article 1624, last subparagraph), as a subsidiary interpretation rule (which in fact constitutes a sanction) the clause that is obscure or ambiguous will be interpreted against the drafter of the clause.

There are no special rules of interpretation for any of the contracts regarding energy, even though many of these contracts interact within highly regulated industries. However, that E&P and mining concession contracts are public in nature and hence article 28 of the Public Procurement Statute provides that contractual clauses must be interpreted in good faith in accordance with the ends and objectives of public procurement and bearing in mind the principles of equality and equilibrium between the rights and obligations of the parties.

Describe any commonly recognised industry standards for establishing liability.

In Colombia, liability is established ab initio by analysing whether the activity involves private or public parties. In the first scenario liability is analysed from a private law perspective, while in the latter liability will be established based upon public law standards.

Regarding activities that involve private individuals or companies, furthermore it is important to remark that liability can be either contractual or tort, depending on whether the operator had a pre-­existing legal relationship that is also singular and concrete in nature (decision dated 18 September 2005 by the Supreme Court of Justice).

In tort law, industry standards are defined mainly by decisions of the Civil Cassation Chamber of the Supreme Court of Justice, in the absence of a list of activities with a predetermined standard of liability. However, the tendency is to define activities concerning energy as ‘hazardous activities’. This legal category provides that when a third party suffers injury or losses resulting from one of these activities, the victim must only establish: the loss or harm and the causation of the harm with the activity; in other words the standard of liability is, for practical purposes, objective (Supreme Court of Justice decision dated 26 August 2010). An activity will be hazardous when, due to the handling of certain objects or to the exercise of a specific conduct that is intrinsically apt to produce harm, there is a possibility that the forces multiply and the result becomes concrete (Supreme Court of Justice decision dated 23 October 2001). There are several activities that have been described as hazardous by the Supreme Court of Justice, including the transport and carrying of oil (decision dated 13 August 2001) and the generation of electricity (decision dated 13 August 2015). If harm is caused by the operator, the Supreme Court of Justice has adopted the theory of ‘shared guardianship’ (decision dated 13 May 2008) provided, respective of third parties, both the owner of the assets and the operator are held liable.

In cases where the Supreme Court of Justice has not defined an activity as hazardous, the standard will be usually determined on the basis of professional responsibility (as a subsidiary regime), which in turn mean that the standard is that of a reasonable and prudent operator so long as this regime is subjective (negligence or other title of fault must be established).

Performance mitigation

Are concepts of force majeure, commercial impracticability or frustration, or other concepts that would excuse performance during periods of commodity price or supply volatility, recognised in your jurisdiction?

Force majeure and the theory of unforeseen events (similar to that of commercial impracticability) are recognised in Colombia as legal concepts that excuse performance of contractual obligations. In this sense, the general theory is plainly applicable (Council of State, Third Chamber, Decision dated 29 May 2003).

Notwithstanding the previous assertion, in Colombia E&P contracts have a special clause that enables the parties to face price volatility; this clause is used in a standard form by the ANH and is known as the ‘high price’ clause. Pursuant to this clause, when the oil barrel reference price is higher than the one established by the ANH, and a certain goal of production is achieved, the ANH recognises a prime for that production. This clause enables the producer to be in a financially better off position, in situations when oil prices are low.

Additionally, the ANH has enacted Agreement 003 of 2015 pursuant to which, provided the collapse of global oil prices, E&P contractors are given certain benefits, for instance they are excused from of the breach of certain obligations or are given extendable terms to perform them.

Nuisance

What are the rules on claims of nuisance to obstruct energy development? May operators be subject to nuisance and negligence claims from third parties?

The majority of activities in the energy sector are of public interest:

  • Oil: the Petroleum Code (Decree 1056 of 1953) provides as per article 4 that the petroleum industry in the phases of exploration, exploitation, refining, transportation and distribution is of public utility.
  • Electricity generation: article 5 of Law 143 of 1994 provides that the generation, interconnection, transmission, distribution and commercialisation are activities of public utility.
  • Mining: article 13 of Law 685 of 2001 declares of public utility the mining activity in all its phases and modalities.

The previous statements are important as, according to article 58 of the Colombian Constitution, when private interest collides with activities of public interest, the latter shall prevail. Thus, claims on nuisance have to be analysed from this perspective.

One example of nuisance to the enjoyment of land rights is the legal easement for the exploration, exploitation and transportation of oil. Law 1274 of 2009 provides that the interested party shall negotiate directly with the owner of land rights about the duration and compensation for the easement (article 2). If no direct arrangement is achieved, the municipal civil judge of the territory where the land is located has the authority to valuate and decide upon the controversy (article 4). The easements must be registered in the registry that the Office of Public Instruments holds for transactions upon immovable property (article 7).

Claims of third parties can obstruct energy development. In Colombia a significant issue regarding this is the protection of the right of previous consultation that indigenous and African-descendant groups bear upon the activities and decisions that will affect their ancestral territories (see question 25).

Liability and limitations

How may parties limit remedies by agreement?

In Colombia, two institutions are of significant importance when limiting remedies: liquidated damages clauses and liability limitation or exoneration clauses.

A liquidated damages clause is defined as the contractual agreement pursuant to which parties convene to do or give something in the event of a breach of their contractual obligations, both in event of imperfect performance or retardation in its compliance (article 1592 of the Civil Code). There is unanimous doctrinal consent that the liquidated damages clause can serve these two purposes: dissuasive, inasmuch as the debtor is fully aware of the consequence of a breach of contract; and indemnifying, because parties agree in an anticipated manner the quantum of remedies. Pursuant to this function, the debtor cannot defend his or her case arguing that the breach did not result in effective loss or harm (article 1599 of the Civil Code), and it can serve the purpose of a security, especially in those cases were assets guarantee the performance (in the form of a mortgage, for instance).

Liability limitation or exoneration clauses are, on the other hand, perfectly legitimate in the Colombian legal system provided that the last subparagraph of article 1604 of the Civil Code enable parties to modify the rules of liability, with some limitations. Indeed, parties can aggravate, exonerate or limit their liability if no public policy norms are contravened. The settled opinion among doctrine agrees that examples of public policy norms that cannot be modified or contravened by the clause are:

  • the anticipated exoneration of wilful misconduct or gross negligence is not valid (article 63 and 1522 of the Civil Code);
  • those that go against a constitutionally protected right (article 4 of the Constitution of Colombia);
  • those that limit or are contrary to good faith principles; and
  • those that alter the essence of the contract or are contrary to the nature of the structure of obligations (ie, those that state that an absolute breach of the essential contractual obligations will not result in any damages in favour of the creditor).

Is strict liability applicable for damage resulting from any activities in the energy sector?

The general description of liability applicable to activities in the energy sector depends upon the qualification of the activity as hazardous or not. If the activity is determined as hazardous, for practical purposes, the liability regime is strict. If activities are non-hazardous the general regime of liability is applicable. In many cases, however, activities in the energy sector have been described as hazardous (see question 5).

Commercial/civil law – procedural

Enforcement

How do courts in your jurisdiction resolve competing clauses in multiple contracts relating to a single transaction, lease, licence or concession, with respect to choice of forum, choice of law or mode of dispute resolution?

Courts in Colombia will, as a general rule, with very few exceptions, apply the procedural and substantial rules set out in the General Code of Procedure (CGP) and the laws vis-à-vis the contract and the controversy, respectively. Indeed, Colombian courts have to apply the domestic procedural rules as they constitute public policy rules (article 13 of the CGP). Regarding substantial rules, article 869 of the Code of Commerce provides that when a contract shall be performed in Colombia, the applicable law is Colombian law. In this sense, the courts will apply the norms of conflict and determine whether the dispute is to be adjudicated following domestic or foreign rules. There is a discussion whether parties can modify domestic norms of conflict by means of introducing a choice of law clause. Clients should be wary of engaging in this discussion as many judges will give effects to conflict of norm rules alleging that they constitute public policy rules.

Choice of forum and choice of law rules are, hence, usually introduced in international arbitration proceedings (article 93 and 101 of the Arbitration Statute) and not in contracts that are to be adjudicated by national courts. As per article 62 of the Arbitration Statute, the arbitration will be international if:

  • the parties in an arbitration agreement have, at the moment of the conclusion of that agreement, their domiciles in different states;
  • the place of the performance of a substantial part of the contractual obligations or the place where the controversy has closer links is located outside the state where the parties have their domicile; or
  • the controversy affects the interests of international trade.

If no arbitration is agreed upon the parties, courts:

  • with respect to competing clauses of choice of forum are likely to give no effect whatsoever to any of them. It is important to bear in mind that in Colombia exclusive jurisdiction clauses are likely to be unenforceable because there is a Constitutional right (article 29) to the access to the administration of justice. The Constitutional Court has understood that the access to the administration of justice cannot be limited by private individuals (decision C-222 of 2013). As a matter of forum choice, domestic courts have to decide upon jurisdiction based on the factors of competence (territorial, objective, subjective, functional) described in the CGP;
  • with respect to conflicting choice of law: courts are likely to disregard the fact that multiple contracts pertain a single transaction since usually the conflict of norms rules will be applied; and
  • with respect to mode of dispute resolution, court will enforce arbitration clauses within the contracts that contain it, unless both parties renounce the arbitration clause, whether explicit or tacitly (article 21 of the Arbitration Statute).

Are stepped and split dispute clauses common? Are they enforceable under the law of your jurisdiction?

Stepped clauses are common, especially in E&P contracts. Indeed, in E&P contracts when a controversy arises between the parties, as a first instance the individuals authorised to negotiate must, in good faith endeavour to settle it. If this settlement intention fails, the parties must communicate the controversy to the chief executives of each entity (ANH and the contractor). If no settlement is reached within 30 days of the communication of the controversy, the parties shall initiate proceedings, in accordance with the nature of the dispute:

  • if the controversy is technical in nature, an expert named by the parties (or by the professional association that best relates to the topic of dispute) will proffer its concept after 30 days of the initiation of the proceeding;
  • if the controversy regards accounting issues, a panel of three experts will decide upon the controversy; and
  • if the controversy does not regard a technical or accounting issue, the controversy shall be settled by arbitration - preferably local - following the rules of arbitration usually of the Chamber of Commerce of Bogota and having Colombian law as applicable law. Arbitration tribunals are composed of three arbitrators.

In mining concession contracts (standard contract adopted by Resolution 181728 of 6 October 2009, by the Ministry of Mining and Energy), controversies of a technical nature shall be settled by an expert, while controversies of a legal or economic nature shall be resolved by domestic courts. If there is no agreement on the nature of the dispute, it shall be regarded as legal.

However, it is important to bear in mind that even if stepped clauses are theoretically permitted under Colombian contract law, they may not be enforceable under judicial or arbitral proceedings. Article 13 of the CGP allows any party to initiate judicial or arbitral proceedings contrary to the procedures set forth in stepped clauses, as well as stating that such disregard cannot be considered as a breach of contract. Thus, following the procedures set forth in such clauses, it becomes a matter of cordiality and good faith between the parties to the contract.

How is expert evidence used in your courts? What are the rules on engagement and use of experts?

As a general summary, expert evidence is used in Colombia in order to clarify facts that require special knowledge, whether scientific, technical or artistic (article 226 of the CGP); only one expert opinion is admissible per fact. No expert evidence is permissible when legal points are the core of the opinion, albeit they can be admitted by the courts when foreign law or customary rules must be proven (article 177 and 179 of the CGP).

The expert opinion must contain a positive statement given by the expert where he or she declares that his or her opinion is independent and corresponds to his or her real professional conviction. The opinion must be accompanied by all the documents that reflect the methodology used that support the opinion (subparagraph 4 of article 226 of the CGP). The Supreme Court of Justice has concluded that an opinion without a proper methodology has little probative value (decision dated 23 November 2010).

Expert opinions can be either party-appointed (article 227 of the CGP) or court-appointed (article 230 of the CGP). In the former, the party must bring in the opinion in the corresponding procedural opportunity (with the statement of claim, the statement of defence or the rejoinder to the defence). In the latter, the court adjourns the hearing where the expert must give its conclusions.

Note that as a matter of due process (article 29 of the Constitution of Colombia), the parties have the right to controvert the opinion of the expert whether with the presentation of other expert opinion or by cross-examining the expert in an oral hearing (article 231 of the CGP). Also note that in the Code of Administrative Procedure and of the Contentious Administrative (CPACA) there are special rules upon the practice and contradiction of expert evidence that will constitute lex specialis with respect to that herein described from the CGP.

What interim and emergency relief may a court in your jurisdiction grant for energy disputes?

As stated earlier, E&P contracts and mining concession contracts are public in nature and, thus, many industry-standard contracts will be of the administrative jurisdiction, rather than the ordinary civil jurisdiction.

Pursuant to article 229 of the CPACA in declarative proceedings, the interested party may, before the statement of claim or during the procedure, request interim and emergency relief. The court can grant any remedy or emergency relief that it deems necessary for the protection of the rights that are controverted within the procedure. The granting of emergency relief does not translate in prejudgment.

The interim measures can serve four different purposes (which may or not concur): preventive, conservative, pre-emptive or of suspension. As an illustrative list of measures, a court may grant an:

  • injunction consisting of the cessation or conservation of a specific situation;
  • order suspending an administrative procedure or action, even of a contractual nature;
  • order of provisional suspension of an administrative act;
  • order consisting of the imposition of an obligation to do or not to do either to the administration or to the person or company party to the dispute; and
  • order directed to the administration in order to compel it to adopt a decision that will conserve or prevent the harm of a specific right.

It is important to highlight that in situations where the collective interest is under threat (such as in the case of potential or actual harm of the environment), the administrative judge may grant emergency relief on an ex officio basis. In any case, a security must be posted by the interested party in order to guarantee the indemnification or harm that may arise by the granting of such interim relief (article 232 of the CPACA).

What is the enforcement process for foreign judgments and foreign arbitral awards in energy disputes in your jurisdiction?

There are no special proceedings through which energy-related foreign judgments or arbitral awards are enforced. The general regime applies to these disputes.

Regarding arbitral awards, the Arbitration Statute, applicable since 12 July 2012, governs the recognition and enforcement of arbitral awards in Colombia. The Arbitration Statute sets forth the Colombian general regime on arbitration, adopting a dual arbitration system with different rules for domestic arbitrations (section I) and international arbitrations whether seated in Colombia or abroad (section III).

Domestic awards and awards of international arbitrations seated in Colombia (except where the parties have waived set aside proceedings under article 107 of the Arbitration Statute) are not subject to recognition proceedings, and they may be enforced immediately before the competent courts (Arbitration Statute, articles 43, 111(2) and 11(3)). Foreign arbitral awards are subject to recognition and enforcement procedures as set forth in articles 111 to 116 of the Arbitration Statute and the applicable international treaties to which Colombia is a party (New York Convention of 1958, Panama Convention, etc).

The competent court for the purpose of recognition and enforcement of international arbitral awards is determined by means of identifying whether a Colombian state entity is party to the arbitration (Arbitration Statute, article 68).

The Council of State (in the Plenary Chamber of the Third Section of the Administrative Litigation Chamber) is the competent court for the recognition and enforcement of an award rendered by an arbitral tribunal not seated in Colombia where a Colombian state entity was a party to the arbitration. On the contrary, where a Colombian state entity is not a party to the arbitration, the competent court for the recognition proceeding is the Supreme Court of Justice. Following recognition of the foreign arbitral award, collection proceedings are governed by articles 422 et seq of the CGP and the competent courts will be the civil circuit courts.

Recognition of foreign court judgments is subject to a recognition proceeding known as exequatur, which is ruled by article 605 of the CGP.

Alternative dispute resolution

Are there any arbitration institutions that specifically administer energy disputes in your jurisdiction?

There are no specific arbitration institutions that administer energy disputes. However, the preferred arbitration centre In Colombia corresponds to the Centre of Conciliation and Arbitration of the Chamber of Commerce of Bogotá, followed by the arbitrations centres of the Chambers of Commerce of Medellín and Barranquilla.

Is there any general preference for litigation over arbitration or vice versa in the energy sector in your jurisdiction?

In Colombia, the decision whether to enable transitorily private individuals as arbitrators (permitted by article 116 of the Constitution of Colombia) does not necessarily depend on the general preferences of the parties to energy contracts. Indeed, as stated in question 11, the ANH does include arbitration clauses in its E&P model contracts while the ANM does not include this clause in its standard concession contracts. This means that in public contracts it is not up to the parties whether to prefer arbitration or litigation, as the decision is made by public entities.

In electricity generation, commercialisation and distribution contracts, this is permitted so long as the entities are private in nature (private enterprises can enter the wholesale electricity market by virtue of Laws 142 and 143 of 1994). Arbitration is usually preferred over litigation in domestic courts for the following reasons:

  • celerity: according to article 10 of the Arbitration Statute the award must be decided by the arbitral tribunal within six months after the procedure hearing, extendable for a maximum period of six additional months (this maximum term contrasts the legal one-year duration that is established for court decisions by article 121 of the CGP since the statement of claim is admitted by the court, which in fact is not normally respected, as it takes longer for a court to decide any case);
  • specialisation of the judge: by virtue of the arbitration clause the parties can either vest a specific person or delegate this responsibility to the institutional entity that administers the arbitration. However, in both scenarios the individual that acts as an arbitrator is chosen based upon his or her specific knowledge of the issue, which tends to be preferable to adjudicate technical and complex matters that are not the specialty of general-advocacy trained judges; and
  • economy: because arbitration proceedings are more agile than court proceedings, costs associated with the duration of process are mitigated by the former.

 

Finally, in the directive of 4 May 2018, the president ordered public entitites or companies administering public funds, including those in the energy sector, to evaluate the convenience of entering into arbitration agreements instead of litigating their disputes in the administrative jurisdiction of Colombia, and to manifest such decision in an explicit manner for each case in which arbitration was decided. As regards international arbitration, a favourable prior opinion from the National Agency for State Defence is required for the public entity to agree on such dispute resolution mechanism. Agreement upon a CIADI dispute resolution mechanism is strictly forbidden.

Are statements made in settlement discussions (including mediation) confidential, discoverable or without prejudice?

Conciliation is confidential under Colombian law (article 76 of Law 23 of 1991). This means that statements made by the parties within the hearing or extrajudicial proceeding cannot be disclosed by the parties without incurring in civil liability for the harm made. Also, mediation is, according to the Constitutional Court, confidential (decision C-1195 of 2001).

Privacy and privilege

Are there any data protection, trade secret or other privacy issues for the purposes of e-disclosure/e-discovery in a proceeding?

With regard to e-disclosure and e-discovery, there are no specific rules relating to this matter. In general terms a party must submit or present to the court any documents requested by it, except those documents that are confidential by law. With regard to any other documents containing trade secrets or other confidential information, the party may argue before the court that the requested documents contain confidential information that cannot be revealed, and it will be up to the court to review whether the objections to the discovery or disclosure of such documents are justified.

What are the rules in your jurisdiction regarding attorney-client privilege and work product privileges?

In Colombia, professional secrecy is a constitutional right (subparagraph 2 of article 74 of the Constitution of Colombia). This constitutional right corresponds to a genre that has different branches such as medical, attorney, etc. The same provision states that professional secrecy is inviolable.

The Constitutional Court has consistently broadly protected attorney-­client privilege so long as it is understood to comprehend ‘all confidential or reserved information that has come to the knowledge of the attorney in relation to or regarding the exercise of its profession or activity’ (decision C-301 of 2012). Hence, all products that have a reserved or secret nature are protected constitutionally.

It is important to note that attorney-client privilege is not only a constitutional right but a legal duty of the attorney, as pursuant to article 28 of Law 1123 of 2007 (Disciplinary Code of the Attorney), professional secrecy is owed to the client even after the cessation of the professional relationship.

Jurisdiction

Must some energy disputes, as a matter of jurisdiction, first be heard before an administrative agency?

As a matter of general administrative law, pursuant to article 161, section 2 of the CPACA, whereas a dispute arises with regard to an administrative act emitted by a state entity, previous to filing claims before administrative courts, the claimant must present to the state entity a request of reconsideration and if applicable an appeal. The request for reconsideration must be filed before the functionary of the entity that issued the decision and it is decided by the same functionary. The appeal is requested by the functionary of the entity that emitted the decision and must be decided by the superior of such functionary (article 74, section 2 of the CPACA). It is important to note that appeal will only be mandatory when the act that is controverted was enacted by an officer that has a functional superior. This is why, as per article 74 there are no appeals of acts enacted by ministries, administrative department directors, superintendents and legal representatives of territorial entities (eg, the mayor of a city). In energy disputes there is no special rule, but the general ones drafted in the CPACA must be observed.

Regulatory

Relevant agencies

Identify the principal agencies that regulate the energy sector and briefly describe their general jurisdiction.

The following administrative entities are broadly speaking, responsible for the regulation of the energy sector:

  • The Ministry of Mining and Energy: manages non-renewable natural resources. This is a national entity at centralised level whose main responsibility is to design and adopt public policies and sectorial guidelines to ensure the efficient and sustainable development of mining and energy resources to contribute to Colombia’s social and economic development. As a national authority, every five years, the ministry elaborates a plan of expansion for the public service under its competence and promotes, in coordination with other competent entities, international negotiations concerning the public service.
  • The ANH: The main faculties of the agency are: to identify and evaluate the hydro-carbonic potential of the country; to design, promote, negotiate, keep and administer the E&P contracts and agreements on hydrocarbons as the property of the country, except those held by ECOPETROL until December 2003.
  • The ANM: This is a technical entity in charge of the integral administration of the state’s mineral resources and the promotion of their optimum use, in accordance with the principle of sustainability and in coordination with the state’s environmental agencies.
  • The UPME: special administrative unit ascribed to the Ministry of Mining and Energy. Among its competences, the UPME has the integral planning of the mining sector through evaluations, offer and demand diagnosis. Its primary responsibility is to elaborate and update the national energy plan. Moreover, it manages and administers the mining sector’s information to underpin public and private decisions.
  • The CREG: This is a special administrative unit entrusted with the regulation and promotion of competition in the energy business in order to ensure an efficient and high-quality service. To that purpose, it prepares draft legislation and recommends the adoption of regulatory acts when needed; it defines the efficiency criteria and develops indicators and models to evaluate the financial, technical and administrative management of public services’ enterprises; it establishes the methodology for calculating usage charges for the regulated markets. The CREG’s resolutions are applicable to the activities of generation, transmission, distribution and commercialisation.
  • Superintendency of Domiciliary Public Utilities (SSPD): The SSPD is a decentralised entity that has been created to be the overseeing authority for public services companies. Its main purpose is to ensure public utilities are provided uninterrupted and with high-quality standards. To that end, it monitors the public utilities companies’ compliance with the regulation and code of operations; it can take over public services companies whenever the rendering of their services or viability is at risk and it can impose sanctions for violations of the code of operations.
  • National Agency of Environmental Licensing (ANLA): The ANLA is a special administrative unit entrusted with the surveillance of the compliance of the environmental regulation of all projects subject to licensing or permit or having any environmental impact in Colombia (Decree 5373/2011, article 2).

Access to infrastructure

Do new entrants to the market have rights to access infrastructure? If so, may the regulator intervene to facilitate access?

In relation to the oil and gas industry, in general terms, new entrants to the market have the right to access the existing infrastructure, provided that they fulfil the requirements and regulations set forth by the Ministry of Mines and Energy and the ANH. For instance, as a general rule, provided the fulfilment of all regulations and requirements, if a pipeline carrier has capacity to accept and transport commodities from third parties, it must do so and for its service it should charge the rates established by the Ministry of Mines and Energy.

In relation to the electricity sector, new entrants to the National Interconnected System may access the existing infrastructure. It is important to note that for a new entrant to the market to be accepted in the National Interconnected System it must comply with all the requirements set forth by the Ministry of Mines and Energy, the Regulation Commission on Gas and Energy and the environmental state agencies.

Judicial review

What is the mechanism for judicial review of decisions relating to the sector taken by administrative agencies and other public bodies? Are non-judicial procedures to challenge the decisions of the energy regulator available?

In Colombia judicial mechanisms to review decisions made by administrative agencies are disciplined by the CPACA, articles 135 et seq. These mechanisms are:

  1. annulment owing to unconstitutional defects of the act (article 135);
  2. simple annulment: requested against administrative acts of general nature (ie, government decrees, ministerial resolutions, etc);
  3. annulment with re-establishment of individual rights: requested against administrative acts of concrete nature;
  4. electoral annulment;
  5. direct reparation: for cases of damages caused by actions and omissions of the administration when those are not the result of a wilful decision; and
  6. contractual controversies.

In the energy sector, mechanisms (ii), (iii), (v) and especially (vi) are to be used owing to the nature of the acts concluded between private individuals and legal entities and their administration.

Regarding non-judicial procedures, the request for revocation of the administrative act is disciplined by article 93 et seq of the CPACA. This mechanism shall be decided by the same administrative entity that proffered the act (article 93 of the CPACA). It can be requested until the administrative courts admit the statement of claim and can be based on the following arguments: the act is contrary to the constitution or the law; the act is contrary to the public interest; or the act caused unjustified prejudice against a third party. Take into account for this section the answers provided for question 20 in relation to the administrative proceedings that must be followed before presenting judicial claims to administrative courts in certain cases.

Fracking

What is the legal and regulatory position on hydraulic fracturing in your jurisdiction?

Up to now no authorisation has been granted to any of the applicants for the development of hydraulic fracturing projects. While the Council of State decided to suspend the enforceability of Decree 3004 of 26 December 2013 and Resolution 90341 of 27 March 2017 that established the technical conditions to approve hydraulic fracturing in Colombia, the ANLA decided in November 2018 to deny ConocoPhillips its petition for environmental licensing of two hydraulic fracturing projects as it considered that the petition was, allegedly, not well sustained or did not comply with the technical formalities required to undertake this projects. The ANLA decision was appealed and its decision is currently pending.

As a general rule, in Colombia, there is no legal provision that disciplines hydraulic fracturing projects. However, the Ministry of Mines and Energy enacted decree 3004 dated 26 December 2013 by means of which the stimulation of non-conventional deposits is regulated. The decree provided that these technologies were to be regulated in technical matters by a further resolution (which was in effect enacted by the same ministry, namely Resolution 90341 of 2014). As such, in Colombia this technology is regulated both administratively and technically and was notified to the Technical Barriers on Trade Committee of the World Trade Organization.

Other regulatory issues

Describe any statutory or regulatory protection for indigenous groups.

In compliance with the International Labour Organization’s Convention No. 169, internally adopted by means of Law 21 of 1991, Colombian laws and jurisprudence recognise the right of indigenous people to participate in the decision-making processes regarding any decision or project that might affect them directly (usually called consulta previa or prior consultation). In this sense, the Constitutional Court of Colombia established that the consulta previa is a fundamental right of indigenous groups as ‘exploitation of natural resources within the territory where indigenous groups are located must be compatible with the social, cultural and economic integrity of such groups; compatibility that is to be protected by the State’ (Decision SU-039 de 1997).

The correct and compatible integration, in the words of the Constitutional Court, is paramount to protect the fundamental rights of those groups as such resources necessarily are closely linked with the community’s means of subsistence as a human and a cultural group. Therefore, the participation of the community is paramount for receiving authorisation to carry out any project involving the economic exploitation of natural resources.

Based on article 333 of the Constitution, Law 70 of 1993 and article 76 of Law 99 of 1993 mandates that the exploitation of natural resources must be exercised without diminishing the cultural, social or economic integrity of indigenous communities and to that end, all decisions regarding the matter require prior consultation with the communities’ representatives.

It is for the Ministry of the Interior to coordinate the prior consultation procedure as it is the authority vested with that responsibility. Non-compliance with the procedure is a reason for the act or decision to be declared null by the competent authority, which is generally the Council of State. Furthermore, because it has been recognised as a fundamental right (decision SU 039/1997 of the Constitutional Court), prior consultation can be protected by means of a tutela writ, a special and expedited constitutional mechanism that must be resolved by a judge within 10 days of its presentation (article 86 of the Constitution).

Describe any legal or regulatory barriers to entry for foreign companies looking to participate in energy development in your jurisdiction.

There are no legal or regulatory barriers to enter the energy sector that are specifically aimed at foreign companies. Indeed, the energy sector is strongly regulated and administrative entities are entrusted with the responsibility to observe that rules, both legal and technical, are observed. However, regulation is uniformly designed, regardless of the nationality of the company. Regulation applied on the basis of foreign nationality would result in violation of the National Treatment clause included in many BITs (see question 30) and protected in article III of the GATT.

A legal barrier that foreign companies must face is that when undergoing business in Colombia, they must establish a branch office in the territory, with the compliance of the requisites included in article 471 of the Code of Commerce.

What criminal, health and safety, and environmental liability do companies in the energy sector most commonly face, and what are the associated penalties?

The most common liability that energy sector companies must face is of an environmental nature. Law 1333 of 2009 created and regulated the environmental administrative proceeding that configures as sanctions any infringement to the provisions of Decree Law 2811 of 1974 (the Renewable Resources Code). These provisions are principally aimed at preserving natural resources such as water, soil, clean air and natural reserves. When contamination of the renewable resources is made, the authorities (Ministry of Environment and Sustainable Development, Autonomous Regional Corporations, etc) can impose the following sanctions (article 40 of Law 1333 of 2009):

  • daily fines of up to five times the minimum wage;
  • temporary or definitive closure of the service, edification or office;
  • revocation of the environmental licence, permit or registry;
  • demolition of the public work;
  • confiscation of specimens, wildlife or mechanisms used as means to commit the infraction; or
  • community work.

Criminal charges can also be raised to the legal representatives of the companies that operate in the energy sector (in Colombia, criminal responsibility is individual). These criminal offences are regulated by the Criminal Code (Law 599 of 2000) from articles 328 to 339 and relate to environmental issues. Usually the criminal offences relate to serious contamination or illicit appropriation of natural resources. The sanctions are severe: they include stays in penitentiary centres ranging from two to eight years. Fines up to 50 times the minimum wage can be cumulatively imposed.

Other

Sovereign boundary disputes

Describe any actual or anticipated sovereign boundary disputes involving your jurisdiction that could affect the energy sector.

Colombia has two potential sovereign disputes regarding sovereign boundaries that have not yet been settled:

  • with Venezuela regarding the gulf in coordinates 11°56’00’’. This controversy has not been settled since it first started in 1941 after the signing of the Pact of Bogota where submarine boundaries were not delimited. In 1958 the United Nations Convention on the Law of Seas provided a medium line to delimit shared waters. Nevertheless, Venezuela is not party to the Convention; and
  • with Costa Rica: the boundary for shared waters in the Caribbean Sea was settled by treaty Fernández-Facio in 1977. It was ratified by Colombia but it is not part of Costa Rican legislation because it was not approved by the legislative assembly of this state. This poses a contingency, although it is not probable that it will result in a controversy.

The most relevant dispute was initiated by Nicaragua before the International Court of Justice in 2001 regarding sovereign domain over certain Caribbean islands and maritime delimitation. Even though the Esguerra-Barcenas treaty of 1928 had given Colombia the sovereign right to San Andres, Santa Catalina and other islands in the Caribbean Sea, the International Court of Justice decided that it had jurisdiction to delimit the maritime frontiers. Later on, in 2012, the court delimited the maritime border beyond the 82 meridian to the east, giving Nicaragua sovereignty over more than 200 nautical miles. Colombia did not accept the decision; instead, the government denounced the Bogota Pact by which compulsory jurisdiction of the International Court of Justice was accepted by Colombia.

There is no clear indication of how these sovereign boundary disputes can affect the energy sector. In the case of Nicaragua, it is believed that there are significant offshore reserves of oil and gas. However, in the area there is a biosphere coralline reserve (the Seaflower reserve) posing difficulties towards the exploitation of resources.

Energy treaties

Is your jurisdiction party to the Energy Charter Treaty or any other energy treaty?

Colombia signed the International Energy Charter in the Hague Conference of 20 and 21 May 2015. The country is also party to several energy-related treaties, namely:

  • the Agreement enacted by the Latin American Energy Organization (OLADE) as adopted by Law 6 of 1976;
  • the Agreement between the Republic of Colombia and the International Atomic Energy Agency for the application of safeguards in relation to the prohibition of nuclear weapons of Latin America and the Caribbean (adopted by Law 47 of 1982); and
  • the Agreement concluded between the United States and Colombia relating to the civil uses of nuclear energy of 1981 (adopted by Law 7 of 1983).

Investment protection

Describe any available measures for protecting investors in the energy industry in your jurisdiction.

Colombia is part of several bilateral investment treaties (BITs) and free trade agreements with a specific chapter that provides protection to investors from the other part’s nationality. Colombia is part of 10 BITs, including those with Japan, Singapore, the United Kingdom, Switzerland, France and Canada, among others. It is also part of 10 free trade agreements, all of them with a specific investment chapter, with: the United States, Mexico, Chile, El Salvador, Guatemala and Honduras, among others.

In these treaties, investors are provided with the following standards of protection, which constitute obligations imposed to the parties of the treaty: national treatment, most-favoured nation, fair and equitable treatment, compensation for damages resulting from civil or armed disturbance, prohibition of expropriation (whether direct or indirect), and free transfer of investment, among others.

In case of breach of these standards, the investor can submit a notice for arbitration proceedings, which are normally administered by the ICSID, having the Treaty and International Public Law applicable as law. The arbitral tribunal may adjudicate compensation for damage occurred owing to violation of the standards set out by the state.

Cybersecurity

Describe any legal standards or best practices regarding cybersecurity relevant to the energy industry in your jurisdiction, including those related to the applicable standard of care.

There are no specific legal standards or best practices regarding cybersecurity relevant to the energy industry.

Update and trends

Update and trends

List any major developments (case law, statute or regulation) that are anticipated to affect the energy sector in your jurisdiction in the next 12 months, including any developments related to the taxation of energy projects. What is the anticipated impact of climate change regulations, treaties and public opinion on energy disputes?

No updates at this time.