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State-Owned Company to Operate with Revoked Concessions

Photo Caption — Venezuelan and Ecuadorian MMP Ministers Sign Bilateral Agreements, with witnesses Presidents Hugo Chavez and Rafael Correa.

By Silvia Santacruz*

Washington D.C., May 27, 2009 — More than 13 months after the Constituent Assembly’s April 2008 mining mandate, large-scale mining projects in Ecuador have yet to recommence.

President Rafael Correa has made recent – and repeated — statements praising Canadian firms’ environmentally friendly mining techniques and has made pronouncements welcoming new international investors. Yet, the investment community faces another threat: the yet-to-be-created state-owned National Mining Enterprise.

“We’ll constitute a great national mining enterprise, in association with Venezuela and Bolivia, to exploit some mining sites that were revoked by the state, and were in private hands,” Minister of Mines and Petroleum (MMP) Derlis Palacios said to the news website Ecuador Inmediato last Monday. The minister also mentioned that the first projects would be gold ones located in Portovelo, El Oro province, those in the Amazonian province of Sucumbíos, and “some more –including copper ones— that we are analyzing.”

The statement comes shortly after Correa said that “key sectors of the economy, including oil and mines, must be in government hands,” during a joint news conference with Venezuelan President Hugo Chavez, as reported by Reuters. Before the mining mandate was issued, the MMP revoked 80 percent of all concessions mainly to stifle land speculators. Nonetheless, many lawful companies also faced revocation of their concessions by the MMP, which argued they failed to make payments even as firms said they have honored all payments.

The government when undertaking its mass rescission said it was “putting its house in order” and never mentioned it had planned to control the same projects through a state owned enterprise. Rather, first drafts of the new industry law suggested that companies whose concessions were revoked would have preference in a concessions auction, now a privileged afforded to the National Mining Enterprise.

MMP Deputy Minister José Serrano also revealed the state entity’s true purpose. “The new national mining company would have control of almost two dozen projects ranging from copper and gold to cement,” he said in an interview with Bloomberg. He further explained that the company would be comprised of 23 projects returned to the state – ready to be managed immediately – covering non-metallic resources plus metallic ones such as copper and gold.

Meanwhile the MMP and the Ministry of the Environment (MAE) issued an instructivo – or directive – that reverses the April 2008 mining mandate exclusively for those companies that didn’t suffer a revocation of their concession. The instructivo is a temporarily rule until the new mining law regulations are published in the official gazette, expected at the end of the month.

“Ecuador’s mining future is in a parenthesis. The success of mining in Ecuador depends on the most developed exploration projects: Kinross and Corriente. I think we have to wait several years until the country matures on the mining issue and establishes a clear framework to get new investment,” said National Mining Chamber executive director Santiago Cordovez.

“We are living in tremendous uncertainty. President Correa says one thing, and the MMP minister does another. We do not know if our company will be next. [The MMP and MAE] resolutions are completely arbitrary, without any technical support or studies. They just apply everything they can to frustrate private investment and scare the few of us who continue to be here,” said a disappointed manager of a foreign firm with Ecuador holdings in a telephone interview with EMN.

* Silvia Santacruz is the Warren Brookes Journalism Fellow at the Competitive Enterprise Institute and Writer-Editor at Ecuador Mining News

Your Comments

James Dean: This whole process is becomomg a joke. This mining law and anything related should have been cleared by now it's as if Correa is just playing a game to move his agenda forward. When will we actually here from him? He's already a month late, from what I hear he was supposed to address mining law back at the end of May.

DALE HERMAN: what is holding up Corriente and Kinross projects from going ahead at this time. I heard Kincross is the new gold company and Corriente is up for sale maybe. Any outstanding issues, like water, or electrical problems? If you are able to shed a light on the situation it would be appreciated. Thankyou. Sincerely, Dale Herman.

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