Statement of Lawrence P. Meriage, vice president, Executive Services and Public Affairs, Occidental Oil and Gas Corporation

Statement of Lawrence P. Meriage, vice president, Executive Services and Public Affairs, Occidental Oil and Gas Corporation
Testimony of Lawrence P. Meriage
Vice President, Executive Services and Public Affairs
Occidental Oil and Gas Corporation
Before the House Government Reform Subcommittee on Criminal Justice, Drug Policy and Human Resources
Hearing on Colombia

February 15, 2000

Thank you, Mr. Chairman. I am honored to have the opportunity to testify before this distinguished subcommittee regarding the U.S. response to the crisis in Colombia. This is a subject of paramount importance to my company, Occidental Petroleum Corporation ("Oxy"), and one that I believe should be at the forefront of America's foreign policy agenda.

In my testimony today, I will present a private sector perspective on Colombia based on nearly three decades of business experience in the country. I will offer our observations highlighting the vital U.S. economic interests in Colombia and how those interests are being undermined by the dramatic rise in narcotics cultivation that is tied directly to the sharp increase in violence perpetrated by subversive groups operating throughout the country. I also want to call attention to the critical importance of foreign investment in Colombia's energy sector and, finally, to present our thoughts on the aid package submitted by the Administration.

Importance of Economic Ties with United States

Often overlooked in discussions regarding Colombia is the vital, strategic nature of the U.S.-Colombia relationship from an economic and commercial perspective. Colombia is the 5th largest economy in Latin America. Colombia also is the 5th largest trading partner of the United States in the region, with two-way trade in 1998 reaching nearly $11 billion. The United States has long been Colombia's top supplier. The total value of U.S. exports to Colombia in 1998 was nearly $5 billion, accounting for roughly 32 percent of Colombia's total imports. On a worldwide basis, this Andean nation ranks as our 26th largest export market. U.S. products sold in Colombia include telecommunications and computer equipment, energy components and auto parts. The U.S. is the number one foreign investor in Colombia, accounting for 28 percent of accumulated foreign direct investment in 1998 (not including petroleum).

Colombia also is the 8th largest supplier of foreign crude oil to the United States, with more than 330,000 barrels per day shipped primarily to Gulf coast refineries in Texas and Louisiana. Colombian oil is of a vital strategic importance to the United States because it reduces our dependence on oil imports from the volatile Middle East. Colombia's current oil production is 820,000 barrels per day, and the potential to add new production is very high because large areas of the country are unexplored.

Despite an increasingly difficult operating environment characterized by the escalation of the country's long-standing civil conflict, Colombia remains an attractive market for U.S. firms due to a combination of demographic, geographic and cultural factors. Colombia is strategically located at the northwest tip of South America with only a two-hour plane ride separating Miami from the Colombian port city of Cartagena. With a shoreline that touches both the Atlantic and Pacific oceans, the economic activity of this nation of more than 40 million inhabitants is as varied as its topography.

The capital city of Bogota is home to 6 million residents. Over 70 percent of the population live in urban areas, including more than 30 cities with populations in excess of 100,000. Medellin, a city of nearly 2 million in western Colombia, is a major industrial center that produces textiles, clothing, chemicals, plastics and printed materials. A large number of foreign multinationals have established manufacturing plants in Cali, the third largest city. Other cities with important industrial activity are Barranquilla, Cartagena, Bucaramanga and Pereira.

Occidental's Experience in Colombia - The Explosive Growth of Subversive Groups

Since the early 1980's, Occidental has operated the billion-barrel Caño Limon oil field in the northeastern part of the country in the Department of Arauca - adjacent to the Venezuelan border. Occidental's 1983 discovery of this giant field transformed Colombia from a net importer of crude oil into a major oil-exporting nation.

In the more than three decades Occidental has operated in Colombia, we have seen a steep rise in the number of subversive groups operating throughout the country - in both the North and the South. Since 1964, much of the Department of Arauca has been controlled by the Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN). As illustrated by Exhibits 1-18, the growth of both FARC and ELN units in this region has been especially pronounced since the mid-1990s.

Despite efforts by units of Colombia's armed forces to maintain security in the area surrounding Caño Limon production facilities, units of both the FARC and ELN have attacked the government operated 483-mile pipeline that transports oil from Caño Limon to the Caribbean port of Covenas over 700 times since operations began - 79 times in 1999 alone. These attacks have caused nearly $100 million in losses (including lost production) and more than 1.7 million barrels have been lost. As the violence perpetrated by leftist groups has increased in geographic scope and intensity, the rise of competing paramilitary forces on the right over the last five years have raised the level of violence to new heights.

Alongside the rise of these subversive activities in the northern regions of the country, we have witnessed a parallel, exponential expansion of the cultivation, processing, and export of illegal narcotics - predominantly cocaine and heroin. In 1999, some 4 square miles in the Department of Arauca were planted with coca. In the neighboring Department of North Santander, where we are preparing to drill an important exploration well, the 1999 planting of more than 30 square miles of new coca plants represents an increase of approximately 300 percent over the previous year.

Occidental representatives, who have over-flown the border regions of North Santander, have observed lush, green terrain on the Venezuelan side and large charred areas on the Colombian side where native vegetation has been burned to clear land for the planting of coca and heroin poppies. The environmental degradation resulting from the slash and burn activities of Colombia's drug cartels, under the protection of the guerillas and paramilitaries, is significant.

Oil's Impact on Colombia's Economy

Armed assaults by leftist guerillas on Colombia's oil infrastructure are intended to deprive the government of its principal source of foreign exchange - the revenue derived from oil exports. Such attacks not only weaken the government by undermining the national economy, but they also strip away vital resources that could be deployed in the fight against the subversive groups. In 1999, oil was Colombia's largest export, accounting for approximately 31 percent of the country's total exports and 24 percent of the central government's income.

There are other factors, however, that account for the attacks on oil projects. For example, Occidental's operations in Colombia represent more than just newfound government revenue (it is important to note that the Colombian government receives 85 percent of the net revenues generated by our Caño Limon project - including a 20 percent royalty on production at the wellhead distributed to local and regional jurisdictions). Both Caño Limon and planned drilling activities in the North Santander region have led to an increased police and military presence in areas where subversive elements previously operated with little or no restraints. In addition, our investments result directly in the creation of good jobs in the legitimate economy and provide ancillary benefits to the local population that contradict the rhetoric of the guerilla groups regarding "exploitation by foreign multinationals." Here are a few examples.

When Occidental's exploration activities began in Colombia in 1981, the surrounding countryside was sparsely populated. There were no roads connecting the provincial capital (also named Arauca) with the rest of Colombia. Residents eked out a meager subsistence in tiny, isolated hamlets by cultivating corn, plantain and yucca, and by fishing in nearby rivers. Illiteracy, high infant mortality rates, infectious disease and poverty were endemic. The few existing schools, clinics and other public services were concentrated in the towns of Arauca, Saravena and Arauquita.

Occidental has played an important role in helping the area to overcome its economic and social isolation. In 1985, Occidental completed the first permanent road linking Arauca to other parts of Colombia. The company also connected the area to the country's electric system, and constructed a bridge across the Caño de Agua Limon River that eliminated a major obstacle that effectively prevented local people from selling their products in the regional and national marketplace. Occidental has paid over $1 billion in royalties that have been distributed among the provincial and local governments.

Part of this income has been invested in building new roads, hospitals, schools and other public works projects. Occidental itself has built or renovated over 30 schools and provided materials and equipment for the establishment of a network of 12 regional health clinics. Since 1986, Occidental and its partners have provided roughly $2 million annually to local communities to support sustainable initiatives in health, education and micro-enterprise development that will directly raise living standards by means that are not dependent on oil revenues.

The impact of oil development is perhaps of even greater importance to the country as a whole, particularly with respect to the implementation of "Plan Colombia" and the revival of the country's battered economy. Between 1994 and 1998, Colombia's oil sector accounted for nearly 23 percent of total foreign investment. The Colombia Petroleum Association estimates that crude oil sales produced nearly $3.2 billion in revenues for the central government in 1999 - more than double the revenue generated by coffee sales.

But known reserves of crude oil are being rapidly depleted. Unless new reserves are discovered, Colombia will become a net importer of oil by 2004 (See Exhibit 19). The importation of nearly 200,000 barrels per day at today's oil prices ($25-28 per barrel) would have a devastating impact on the country's balance of payments and impede the government's efforts to stage a recovery from what is currently among the worst economic recessions the country's history.

It is for these reasons that our new exploration project in North Santander has received nearly universal support in Colombia - including the strong backing of President Pastrana. Only two groups are intent on blocking the project - leftist guerillas who seek to undermine the country's democratically elected government and several fringe non-governmental organizations (NGOs) in the U.S. Both groups are united in their opposition to oil exploration and development.

The opposition of Marxist rebels is driven by their goal of toppling the Colombian government. They attack foreign oil interests, while couched in ideological terms related to excessive foreign involvement in Colombia's oil industry, in practical terms is bent on depriving the government of vital oil revenues. The guerillas know that oil projects in remote areas will lead to a stronger central government presence in parts of Colombia they have long dominated.

The opposition of these NGOs to this project is part of their global drive against the development and use of fossil. These groups have deliberately and irresponsibly misrepresented the facts in their campaign to halt this project, thereby serving as de facto allies of the subversive forces that are attacking oil installations, electric power stations and other legitimate businesses enterprises that are vital to Colombian civil society.

Indeed, these non-Colombian organizations have pursued their own narrow self-interests with total disregard for the harmful impact their actions have on the lives of 40 million Colombians. Moreover, their tactics have the effect of undermining efforts by President Pastrana's government to promote economic development that is a vital component of "Plan Colombia".

The guerillas and the U.S.-based radical NGOs are both engaged in the cynical manipulation of the small indigenous U'wa community in order to advance their own agendas. The undeniable truth is that the U'wa live in a guerilla infested area that has seen a spectacular increase in the production of illegal drugs bound for the U.S., and the community has been under intense pressure by the guerillas to oppose oil development anywhere in the region. These uncontested facts are well known in Colombia. Rather than acknowledge the truth, namely that the U'wa are in no position to speak openly about what is really happening, the NGOs continue to attack Occidental - not the guerillas and drug traffickers - for threatening the survival of the U'wa. The stridency of the NGO assaults on Occidental to the total exclusion of any reference to the region having a serious problem with guerillas and narcotics should at least raise some intriguing questions about the real agenda of the NGOs.

Economic development and the creation of jobs in the legitimate economy are essential if Colombia is to break the cycle of drugs and violence inflicted on Colombian victims by left-wing guerillas and right-wing paramilitaries - both of which are in partnership with the drug cartels. Drug trafficking is the engine of violence driving Colombia down the road to ruin - not economic development of which oil exploration is a key component.

If Occidental's current attempts to explore for oil in North Santander succeed in finding up to 1.4 billion barrels of reserves, it would produce an estimated $14 billion in new revenues for Colombia - including $4.8 billion for the regional governments. A discovery also would lead to the creation of an estimated 400-500 high paying, long - term jobs for Colombian citizens (Occidental's current workforce, from top to bottom, is virtually all comprised of Colombians.) Moreover, it would provide the means to enhance the regional infrastructure including the building of new schools, health clinics, and water purification facilities, and provide new income generating opportunities to a broad array of local contractors and subcontractors, thereby boosting living standards throughout the region.

Without question, reviving the economy is absolutely fundamental in order to address the array of problems faced by Colombia today. Oil development is the foundation for this recovery. According to the Financial Times, approximately $2 billion in oil investment has been "deferred" over the past decade due to guerilla attacks on production facilities and pipelines.

The U.S. Response to Colombia's Crisis

Mr. Chairman, I share your view that the United States is confronting a humanitarian crisis of dramatic proportions right in our own backyard. According to Colombia's Human Rights & Displacement Consulting Office (HRDCO), armed conflict brought on by both guerilla groups and paramilitary organizations have led to the displacement of an estimated 1.7 million Colombians since 1990. Sixty percent of the total (1.06 million) occurred just in the past 5 years. These numbers are well in excess of the displacements we witnessed in Bosnia, Kosovo and East Timor. The international community has largely ignored this problem since the overwhelming majority of displaced persons remain in Colombia. This level of displacement has helped undermine Colombia's legitimate economy, resulting in heightened illiteracy rates (according to HRDCO, 77 percent of displaced school-age children do not return to school) and negatively impacting standards of living, land ownership, agricultural production and animal husbandry.

Moreover, subversive elements have targeted legitimate business enterprises for extortion. Our contractors are forced to pay a "war tax" or face the very real threat of having their equipment destroyed and their personnel attacked. Local workers at our facilities must pay "protection" money or place their personal safety and that of their families at risk. And these problems are becoming regional in nature, as subversive forces from Colombia routinely cross into Venezuela, Panama, Ecuador and Peru.

It is clear that urgent action must be taken. The "Plan Colombia" put forward by the Pastrana Administration presents a comprehensive strategy designed to address the range of challenges faced by Colombia. U.S. support of President Pastrana will be critical to the Plan's success, which is why we strongly support the provision of a substantial supplemental aid package.

Let me offer a few comments and observations on a possible aid package based on our experience in Colombia.

We have witnessed firsthand the tremendous successes of the Colombian National Police (CNP), and can offer nothing but high praise for the courage and dedication they have shown under the leadership of General Rosso José Serrano. But while the DANTI, the CNP's ant-narcotics unit, is a highly capable and professional organization, it is comprised of only 2,500 men. This unit cannot possibly be expected to confront guerilla forces whose estimated numbers exceed 20,000, as well as 6,000 paramilitaries, all of whom are heavily armed and well financed by drug money and other illegal activities.

If the police are to be effective in carrying out counter-narcotics activities, it is essential that they have the backing of Colombia's armed forces. But Colombia's military forces also have been disadvantaged in their efforts to engage the guerillas. They lack mobility, equipment, and perhaps most serious, they lack the intelligence gathering capabilities afforded to their better-funded adversaries. The counter-narcotics battle simply cannot be won without a stronger, better equipped and highly disciplined military force. We would urge members to ensure that whatever aid package emerges ensures a careful balance of support between the CNP and the military.

I believe we all share a common interest and concern regarding the observance of human rights practices by the Colombian military. From our vantage point, we have seen a dramatic shift in emphasis on human rights issues in Colombia, from the President on down through the ranks of the armed forces. President Pastrana has acknowledged that there had been problems involving some units and their commanders and he has taken the initiative to address the problem. Occidental has supported these initiatives by sponsoring workshops and symposiums on human rights and International Humanitarian Law in the northeast part of the country under the auspices of the International Red Cross and the Roman Catholic Church.

We understand that the package put forward by the Administration targets aid for counter-narcotics activities in the southern part of the country in the Putumayo region near the Ecuadorian border. We have two concerns relating to this approach. It does not address the explosion of coca cultivation that is occurring in other parts of the country, particularly the northern regions where the bulk of existing and prospective oil development takes place. Moreover, a massive concentration of force in the Putumayo region could ultimately lead narco-guerilla forces to move operations further south into Ecuador. Occidental also has operations in Ecuador some 40 kilometers from the Colombian border. Recent kidnappings near our area of operation in Ecuador have been attributed to the FARC.

It will be critical to ensure that the implementation of the strategy does not have the unintended consequence of heightening regional instability. Moreover, I would urge you to consider support of counter-narcotics operations in the northern regions as well as the south. This will help augment security for oil development operations, which, as noted earlier, are fundamental to the success of "Plan Colombia."

Mr. Chairman, I wish the Members of the subcommittee could meet some of the fine people we have working for us in Colombia. They and their families are the ones that will suffer most if we fail to support the Pastrana government and "Plan Colombia". The supplemental request - if approved - will benefit the United States as well, by giving the Pastrana government the tools needed give them a fighting chance to retake Colombia from the outlaws and the drug lords. Taking the drug war to its source is not the only answer in defeating what has become a serious national problem in the streets and homes of America. But, it is one answer, and failure to act here and now will only worsen the situation.

Thank you.

As of March 18, 2000, this document is also available at http://www.house.gov/reform/cj/hearings/00.02.15/Meriage.htm