Through a press release, ISA informed the appointment was also confirmed by the Chamber of Commerce of Medellín for Antioquia on January 10, despite opposition from an investor who filed a complaint against the registration. “Based on the decisions from the Chamber of Commerce of Medellín and the Superintendence of Companies, as of today, the appointment of Jorge Andrés Carrillo as ISA’s legal representative is officially registered,” the communication stated.

Carrillo’s appointment, made on August 15, 2024, was not unanimous and sparked significant polarization within the board. Five members of the board supported his appointment, while the other four opposed having Carrillo lead the energy company. This division has continued to fuel the controversy surrounding his election.

ISA’s board of directors have nine members, of whom only two are not independent members of the company: Ricardo Roa Barragán (president of Ecopetrol) and David Alfredo Riaño (vice president of Low Emissions Solutions at Ecopetrol).

Critics of Carrillo’s appointment argued there was a lack of transparency in the selection process. The discontent over his election was significant enough to reach the Council of State, the process lacked clarity due to missing records and documents from the meeting in which the decision was made.

In mid-December, local newspaper El Tiempo revealed that the Council of State requested ISA’s board of directors to submit the procedures related to Carrillo’s appointment. The court demanded verification of the registration with the Chamber of Commerce of Medellín. “At this point, it must be indicated whether the individual in question has effectively assumed the position and whether it is producing legal effects,” the tribunal stated.

Further concerns were raised by Empresas Públicas de Medellín (EPM), which holds 8.8% of ISA’s shares. EPM expressed unease after learning that Carrillo had received one of the lowest scores in the selection process for the role. Additionally, key testimonies that highlighted negative experiences, especially during his tenure as the general manager of EPM, were allegedly overlooked. “[EPM] reaffirms its commitment to the defense of corporate governance,” highlighted their official press release.

While Carrillo’s appointment has now been legally confirmed, the dispute over his election is far from resolved, with new revelations and various parties questioning the transparency and integrity of the process and Carrillo’s performance.

Carlos Raúl Yepes, former president of Bancolombia, last Thursday, February 13, sent his resignation letter to the board of directors arguing his disagreement with the election of Carrillo as ISA administrator.

“I declare myself against the flagrant and recurring violation of the by-laws, regulations and internal agreements, legal provisions and the code of good corporate governance in the selection and election of Jorge Andrés Carrillo Cardoso as president of ISA,” explained Yepes to El Tiempo as he resigned from being a member of the board.

Headline photo: Jorge Andrés Carrillo (Photo: ISA)

In October, the State Council or Consejo de Estado, struck down a decree that said all oil and mining companies working in the country can deduct royalties from their taxable income.

The recent decision by the State Council says that it was illegal for DIAN to allow every company in the country to deduct royalties by decree.

The decree, issued in 2005 by Colombian tax agency DIAN, had been issued with the aim of promoting investment and creating a level playing field between private firms and Colombia’s state-controlled oil company Ecopetrol.

But in 2013, a group of academics and leftist senators, including current presidential candidate Jorge Robledo, challenged DIAN’s decree on royalties in Colombian courts, saying that companies were benefiting from a “legal loophole” that was costing the Colombian state massive amounts of money.

According to Alvaro Pardo, an economist who backed the lawsuit, the Colombian state was losing around $1.2 billion per year by allowing oil and mining companies to deduct royalties from their taxable income.

The recent decision by the State Council says that it was illegal for DIAN to allow every company in the country to deduct royalties by decree. The court ordered the taxation agency to work with each company and decide on a case-by-case basis whether they could deduct royalties from their taxable income.

Colombia’s National Oil Association (ACP) a trade group, argues that while the court’s ruling eliminates the DIAN decree on royalties, it does not touch a crucial article of Colombia’s tax code that could still enable companies to deduct royalties.

Nohora Celedon, a spokeswoman for ACP, told Finance Colombia that Article 107 of Colombia’s tax code enables companies to deduct “obligatory costs” from their taxable income. Celedon believes that this part of the law applies to royalties, because they are a cost that companies are forced to pay when they do business in Colombia.

“You would have to make a very strange legal argument to deny a company that pays royalties the chance to deduct those costs from their (annual) income,” Celedon told Finance Colombia. “I think the norm (on deductions) is very clear, and it fits companies paying royalties like a glove.”

Colombia’s National Oil Association, meanwhile, is maintaining its argument that Article 107 of the tax code will still enable companies to deduct royalties.

But as often happens in Colombia, this is a legal issue that is open for debate.

Guillermo Rudas, a prominent economics professor who backed the lawsuit, wrote recently that royalties cannot be counted as “costs.” Rudas argues that royalties should be defined as the income the state gets from participating in a joint oil or mining venture, as it shares its underground resources with companies.

“The royalties are the earnings that the state gets (from a joint venture) after it supplies its natural capital,” Rudas wrote in a recent article for Razon Publice.“Therefore royalties are not a cost for a mining and oil firm, as DIAN’s decree had erroneously argued 12 years ago.”

Rudas told El Espectador that the State Council’s ruling, as it stands, does not give the Colombian government the power to charge companies retroactively for money that was “lost” as royalties were deducted from taxable income. But he hopes that Colombia’s Comptroller General takes action on the matter.

Colombia’s National Oil Association, meanwhile, is maintaining its argument that Article 107 of the tax code will still enable companies to deduct royalties.

“Royalties are a resource that belongs to the state,” the ACP said in a statement. “It wouldn’t make sense for companies to pay taxes on a product that does not belong to them.”

Oil companies operating in Colombia give up anywhere from 8% to 25% of their yearly production in royalties, while mining firms are on a scale that varies according to their product and how much its price changes in international markets.

ACP says oil companies have paid the Colombian state more than $200 billion in royalties, taxes and drilling rights over the past 10 years.