Following our interview with Ecuador’s Mining Minister Javier Cordova at the recent Prospectors & Developers Association of Canada convention (PDAC), The Northern Miner interviewed Ecuador’s Minister of Strategic Sectors, Rafael Poveda. Minister Poveda responded to the questions by email, after a Spanish presentation at PDAC. Ecuador plans to make mining integral to the country’s economy by 2021, and as Strategic Sectors Minister, Poveda is responsible for coordinating the activities of several ministries, including mining, oil and gas, environment and power.
The Northern Miner: The mining sector is going through a downturn. As such, mining companies are risk-averse and have much less capital to invest. How does Ecuador plan to compete for mining investment in this environment?
Rafael Poveda: The particularities of the mining sector include fluctuations in international prices and investment — that was considered when identifying our strengths as a mining destination and as an input for the legal reforms conducted during 2014. In particular, we defined three differentiators for the benefit of sector development.
The first is the creation of investment contracts and tax stability for up to 30 years for companies investing in projects of medium and large scale [with no minimum amount].
Second, to allow mining projects to reach operational phase, we are allowing accelerated depreciation of assets, as well as allowing companies to recover their investments before applying specific mining taxes [excluding value-added tax (VAT) and income taxes].
Third is Ecuador’s comparative regional advantages in the region, such as the high quality of our roads, seaports, energy costs, access to water and, of course, the mineral wealth of our subsoil.
TNM: You mentioned in a presentation that Ecuador’s constitution says that a company cannot benefit more than the state from natural resources. Do you think this is a barrier to Ecuador being competitive in terms of attracting mineral investment?
RP: Ecuador is a really competitive country for mining investment, as I mentioned we’ve been doing some important tax changes, plus we have excellent geological potential and low-cost basic services like water supplies, electricity and others. The Constitution of Ecuador guarantees that the state will always perceive a higher level than the operator of a non-renewable natural resource benefit, however, this benefit includes payment of all taxes received by the state from the mining company and royalties from the sale of minerals and participation of workers. That is, the state considers for the benefit calculation payment of VAT and income tax that are common taxes to virtually all countries, royalties, which is also a common practice in nations that exploit minerals, and even the participation of workers for the calculation of the benefit. With this consideration, in addition to those previously mentioned, we are confident that our tax burden is below the average for Latin America. In conclusion, I do not consider that this constitutes a barrier to investment.
TNM: Miners would be more likely to invest in Ecuador if the windfall profits tax were eliminated. Is this something that could be eliminated in the near- to medium-term?
RP: I do not think the windfall tax constitutes a barrier to foreign investment in the mining sector in Ecuador. Our analysis has shown that mining companies seek countries with legal and political stability, with a clear tax burden, with control entities specialized and essentially not maintaining social conflict with the development of activity. This is why we have worked to modify the rules and even created the Ministry of Mines.
TNM: Lundin Gold’s Fruta del Norte (FDN) project will be a test for miners watching Ecuador. Did the government play any role in selling the FDN project to Lundin Gold, for example in reassuring the company about changes to the country’s mining laws? How does the government plan to make development easier or faster at Fruta del Norte?
RP: The arrival of Lundin to Ecuador to take on a project of the magnitude of FDN demonstrates several aspects worth mentioning. The first is the determination of the company in negotiating the purchase of the project from the previous owner. The second is the speed with which these negotiations took place and the minimal state intervention … the third is that it demonstrates comparative advantages and that our tax burden does not scare off private investment when companies have the experience and funds to develop large-scale mining in Ecuador, and make the decision to do it.
TNM: During a presentation at PDAC, you talked about how important it is to communicate with communities about mining. Does the country’s mining law require consultation of local communities? How do you include them in decision-making around mining? Do communities have a veto over resource development?
RP: The communities in the areas of influence are of vital importance to Ecuador, which is reflected in royalties generated by mining projects invested precisely in these communities in health projects, sewage, education, housing and others aimed at improving their quality of life. The government has institutionalized this, to fulfill the policies of “Ecuador Estrategico.” In two years, we have invested more than US$800 million in the mining and oil project influence zones.
Ecuadorian law requires informed consultation with all communities in the area of influence. The needs and concerns of each community are fed back to the mining and environmental authorities, so that they are effectively considered in the environmental licensing processes and permanent control.
In conclusion, the consultations with communities are not binding for a government decision to approve mining projects.
TNM: During PDAC, Mines Minister Javier Cordova mentioned the Llurimagua project, which is being advanced by the Ecuadorian Mining Co. (Enami) and Chile’s Codelco. He said the partners are now advancing the project, but only five years ago, it was not feasible socially. Can you give more detail on how the government built trust with the community when there was a negative history there between the community and the project’s advancement under a previous owner?
RP: The correct word is precisely confidence, and this cannot be achieved if the populations in the area of influence of a mining project do not have adequate and accurate information. Building processes for communication channels are required to explain the benefits of the development of a mining project, and how it applies in these populations in areas such as direct and indirect labour, health, utilities, etc. It was this open and ongoing communication that generated the confidence that today allows the project to develop between Enami and Codelco.
This in fact proves that we have been working to improve our government institutions for an adequate organization of the mining sector.
The local communities and social organizations of FDN and Mirador projects influence areas ask: What has the Ecuador Minister of Strategic Sectors to say about the death of local leader Jose Tendetza, who opposed Mirador project in Tundayme area and represented the official position of local communities and the Shuar people agains mining in south Ecuadorian Amazonia?
Local communities and social organizations of the southern Amazonia in Ecuador have absolutely declared its opposition to mining activities and do demand a real consult process to local people, which has not yet been taken place as Rafael Poveda argues.
Dear readers, we have a lot of documents that probe local opossition to mining industry in Zamora Chinchipe and Morona Santiago province which are de official position of local organizations. We can share these documents to let you know the reality of what our people think here in the field.
Please read what local actors such as Organizacion Social Condor Mirador CASCOMI say, They are located at the incidence area of mirador project in Tundayme, one of the main mining project for Ecuadorian goverment. Read it carefully and you will note what are the real thinking of people hereby. https://www.facebook.com/organisoconmira?pnref=story
We hope the general public reach our message and do not follow just the governmental possitions which do no reflect what do it happens in the real context of local landers and indigenous communities of Morona Santiago and Zamora Chinchipe