Ecuador relaxes mining law with new "reforms"Published by MAC on 2013-06-21
Source: Reuters, statement (2013-06-17)
As noted in a recent article, mentioning Kinross Gold's walking away from Ecuador (see: Kinross Cancels Plan to Develop Ecuadorean Gold Mine), the Legislative Assembly has been debating mining reforms, focussed on relaxing the taxation regime.
It is denying indigenous organizations pre-legislative consultation, while loosening environmental and social controls which had been included in the 2009 mining law reforms.
That law has now been passed. As a result, where mining happens is no longer subject to land use planning processes, and those required to obtain environmental and local approvals are also considerably weakened.
Ecuador Congress OKs law to ease mining investment terms
By Eduardo Garcia
14 June 2013
- Law delays windfall tax, sets royalty minimums
- Approval follows Kinross' decision to leave Ecuador
QUITO - Ecuador's lawmakers on Thursday approved a mining law that should speed the development of small and medium-size ventures, only days after Canada's Kinross canceled a massive $1.2 billion gold project in the country over a tax dispute.
Ecuador's mining industry is at its infancy, but the Andean nation is largely unexplored and could potentially have big copper, gold and silver deposits.
Socialist President Rafael Correa, who won a sweeping re-election victory in February, is eager to attract investment to reduce the economy's dependence on oil exports and help finance social spending - the key to his high popularity.
But the U.S.-trained economist wants the Ecuadorean state to take the lion's share of mining revenues. That prompted Kinross Gold to halt the development of its Fruta del Norte gold project on Monday because it considered the tax burden would have made the project inviable.
Yet the new mining law, approved with 105 votes in favor, 14 votes against and 14 abstentions, has generally been applauded by other investors.
"The law makes it very attractive to invest in small and medium-size projects in Ecuador. Regarding large-scale mining, the tax burden is still a big problem, especially the windfall tax," said the head of the Ecuadorean mining chamber Pablo Acosta.
The law seeks to ease investment terms by delaying the coming into force of the windfall tax until miners recover their investments. It also sets a ceiling on mining royalties of 8 percent for exports of gold, copper and silver.
It states that small-size mines will have to pay 3 percent in royalties, compared with 4 percent for medium-size and a minimum of 5 percent for large-scale mines.
Meanwhile, small and medium-size miners can push ahead with their projects signing more flexible "concession" deals, instead of having to negotiate exploitation contracts with the government.
The law also seeks to eliminate red tape so that investors can push ahead faster with their projects.
It calls for tougher penalties on illegal miners and it tightens environmental protection rules.
Last year, Correa signed the nation's first large-scale mining contract, under which Chinese-owned Ecuacorriente is due to invest $1.4 billion in the El Mirador copper project.
Kinross' decision to put an end to Fruta del Norte is a blow to the government's plan to attract large mining investors, but the mining chamber said there will be no shortage of companies interested in taking over the project.
"The state will have to put it up for tender, or it will look for a partner to exploit it ... But you can be sure that this deposit will be exploited," said Acosta as he hailed Fruta del Norte's potential to become a top-class gold mine.
David West, an analyst with Salman Partners in London said Ecuador's failure to sign a contract with Kinross is unlikely to have a negative impact on negotiations with other mining companies.
"My assumption is each negotiation is a one-off. There's no direct link between how one is going compared to another," West told Reuters, adding that even though Ecuador is trying to ease investment terms for miners, the country remains "a difficult place to do business."
"I can't see mining companies spending a large amount of money in Ecuador over the next little while. And you could even point directly to this as a reason why they wouldn't," he said.
Ecuador also plans to negotiate contracts with International Minerals Corp over its Rio Blanco gold-silver project, with Ecuacorriente over its Panantza-San Carlos copper deposit, and with INV Metals Inc, which plans to develop the Loma Larga gold-copper-silver mine.
Those three are in relatively advanced stages of exploration, but junior miners have about 15 other exploration projects under way.
How the Correa Government is Neoliberalizing Ecuador's Mining Legislation
by Carlos Zorrilla
13 June 2013
The last time Ecuador "reformed" its mining legislation was in 2000. Back then, the World Bank was going around the world merrily "modernizing" everyone's mining legislation (in more than 100 countries), to make the world safer and easier for transnational mining corporations to pillage the world's resources and ship them North. The reforms were put in place and, decades later, many countries are still suffering from the massive natural resource curse that the laws inspired and made happen. The impacts were so negative that many are currently trying to undo some of the changes. But not Ecuador.
In the case of this Andean country, in the 1990s the World Bank lent it $14 million dollars to help it carry out the changes, plus prospect for minerals in all of Western Ecuador, including inside seven protected areas. The upshot was that the changes to the law removed all kinds of "obstacles" that mining companies always complain about, including reducing or doing away with most taxes and eliminating royalties, in addition to abolishing all environmental regulations. The incentives, together with the creation of mineralization maps showing areas of interest, were meant to attract all kinds of mining companies and open the country to mining. And that it did. All of a sudden, the country, which had only small-scale mining experience, was flooded by small and large companies led by no lack of sleazy individuals trying to make a fast buck with their fly-by-night mining companies
The consequences of the World Bank's neoliberal policies here and elsewhere, were not surprising: large-scale social conflicts, violence, social unrest. Luckily, in Ecuador communities were able to stop large-scale mines from opening, otherwise the country would also be burdened by enduring environmental problems. As it stands right now, Ecuador is the only Andean Nation without any large-scale metal mines (such as copper and gold). But that is about to change with the reforms to the mining legislation being debated in the National Assembly as I write this.
Two decades after the World Bank "modernized" Ecuador's mining legislation, communities are still suffering the impacts of the World Bank's neoliberalist policies, even after some of the more outrageous changes were undone in 2009 when the country overhauled its mining legislation. The changes brought back royalty payments, raised exploration and extraction fees and taxes, and instituted tough social and environmental regulations. The feeling in those in power was: "well, if we are going to be ripped off, we might as well get something out of it." That something - as little as it was - became intolerable for the transnational mining companies who, in August of last year, were able to meet with and convince Ecuador's President Correa and ten of his Ministers to relax the law and regulations to near-World Bank inspired ones.(1)
The indigenous peoples have said they will not recognize neither the reforms nor the law, and say these changes would be in clear violation of the country's Constitution. Earlier this month both Ecuarunari and Conaie, the two most powerful indigenous groups, openly said they will resist the reforms.(2) Non-indigenous communities affected will also outright reject them since they are seen to be one-sided in favor of the companies. Environmental organizations will side with the communities and will present Constitutional injunctions to try to prevent them being applied. On the other hand, the national government will use all of its institutions to assure they are complied with. Local governments will be caught in the middle. And who will have to bear the brunt of the anger generated by their inevitable approval are the members of the National Assembly. Given that the president's party has overwhelming majority in the Assembly there's no question about their approval, even if some of the reforms violate hard-won rights for indigenous peoples and local communities, and present a worrying precedent. For example, the relaxing of the legislation could set in motion a "race to the bottom" scenario, with neighboring countries pressured into relaxing their legislation to be in line with what Ecuador is proposing in order to keep attracting mining investments.
One of the reforms Correa is asking the National Assembly to approve in a hurry (30 days maximum) seeks to practically do away with the windfall profit tax. Windfall taxes are normally applied when the price of commodities increase above an established base price so that the companies can share their unexpected fortunes with the countries they are extracting the resources from. With the reforms, which the companies asked for specifically, the companies can wait to start paying the taxes once they recuperate all their investments. In some cases, however, this can be nearly two decades, which is the life of many mines.
Another of the thirty-two reforms will reduce the annual exploitation and advanced exploration fees companies pay by as much as 80%. Besides making mining cheaper for companies, the deep cut in rents will likely curtail the government's capacity to monitor the companies' compliance with environmental and social legislation. This, in case you have any doubt, suits the transnationals just fine.
A little context may shine light on the unusual character of these steps: currently all around the world developing countries with mining economies are raising their taxes and fees that the mining companies must pay in order to keep mining metals. Ecuador is one of the very few that are lowering the taxes.
Other reforms eliminate what the companies see as bothersome red tape, such as the one asking the National Patrimony Institute to gauge the possible impacts of a mining project on the country's archeological patrimony. With the reforms, the companies are left on their own to inform the government of such possible impacts. Another red tape removal, if approved, will do away with asking seven other state institutions (including local governments) to okay mining activities within their jurisdiction, or to gauge the activities' impact on their public works (such as electric line transmission). The World Bank is smiling, I can tell!!
Yet another reform will scrap all limitations as to where mining can or not take place. This means, among other things, that all the millions of dollars recently spent on creating development and land-use plans by the national and local governments, meant to bring some kind of order to development and create different zoning areas to restrict land use, are useless and can now be used to start fires. In effect, outside protected areas (for the moment) all of Ecuador is open to mining. This would hold true in areas especially rich in water, biological or archeological resources, or having exceptional tourism potential. It's neoliberalist wet dream; all made possible by a so-called progressive-liberal-leftist government.
But if you think those reforms are troubling, the most troubling of all may be the impact the reforms will have on the indigenous people's right to free, prior and informed consent. The indigenous people, supported by most academics, social, human-rights and environmental organizations, argue that since the reforms are likely to affect their rights, their culture and their environment, they should have been consulted before the reforms were presented to the National Assembly. In fact, a recent Constitutional Court case gives weight to their argument.
And there's little doubt the reforms will be approved; it's inevitable. The government's ample majority in the Assembly will see to it, coupled with the lack of critical voices that has made the Assembly into a rubber-stamp institution. However, it is also inevitable that the reforms will spark another round of anti-government protests. If the mining companies think that the neoliberalization of the mining law will make their work easier, they should think again. Since the communities affected by mining development - especially the indigenous sector - see the reforms as unconstitutional and openly pro-industry, the effect on the ground will be to reignite the anti-mining movement.
The right to resistance is a Constitutional guarantee that is dear to many people and movements, and it will be used. Companies that rely solely on Executive backing of projects and do not seriously consider genuine local community approval for their activities will risk seeing their multi-million dollar projects go up in smoke. This is aggravated when reforms such as the ones being introduced are seen as lacking in legitimacy, and so openly favoring the corporations.
Perhaps it is pure coincidence, but then again possibly seeing the widespread opposition that the reforms will likely provoke, late last week President Correa issued bylaws to deeply regulate Non-Governmental Organizations working in Ecuador. It's hard not to see the irony, but at the same time the government is eliminating all kinds of red tape for the transnational mining corporations to do their business in the country, it is introducing a whole series of them to control what NGO's can do and what they can't do in the country, and to gather detailed information about each and every one. The regulations also force foreign foundations and other donors donating to NGOs in Ecuador to register with the government and turn over institutional information about their work.
The need for control reached ridiculous levels when the bylaws establish that the country's president can veto a NG0's internal bylaws, and that an organization will not be able to turn away someone supposedly wanting to join an organization, regardless of their personal history!! Compliance with all the regulations seems so onerous and time consuming, that it is likely only a handful of NGOs will be able to fully comply; those that can afford full time lawyers. All the other ones will very likely be eliminated. And perhaps this is the intent of the measure.
It remains to be seen whether the regulations can be applied to organizations or groups that have chosen not to register with the government. If so, it's likely they will affect the fundamental Constitutional right to assembly. In any case, if the measure was taken to try and curtail the community's right to resist extractive projects that threaten their livelihood, their land, their water or their rights, I believe it will not work.7
History is replete of examples of communities overcoming all kinds of obstacles to safeguard their rights. Intag, the place that I call home, is just one of those examples.
Mining Reforms, Press Muzzle and more
17 June 2013
This has been a tough last week or so. Yesterday, the National Assembly passed, by a vote of 105-14, the reforms to the country's mining legislation, which according to Ecuador's main indigenous organizations, violates their Constitutional Rights (see below for more). Then, today, the same Assembly overwhelmingly approved a communication law that is seen by most human rights and journalistic organization as draconian in limiting the free press and free speech(1). Human Rights Watch called it an assault on free speech(1a).
The assaults on civil rights was made complete when the Correa government imposed another draconian regulation to stifle the operation of Non-governmental organizations. In the face of so much media competition from the other two laws, this last one did not get much attention, but it is no less worrying.
To summarize: the reforms will usher in a new phase of social conflicts in mining areas. The reforms: make it easier (less paperwork), cheaper (less taxes and fees) for mining companies to come to Ecuador to exploit its minerals. There is less environmental protection, not more, like the government is saying. Less protection for the communities and the country's great biological and archaeological wealth (by cutting down on the number of permits required by the companies, and simplifying and cheapening the environmental impact studies). The reforms reflect the wishes of most mining companies in that it- in practice- did away with the windfall tax and drastically cut back on permitting time. For example, after the reforms, the companies can wait to pay the windfall tax until they recoup all their investments; which could take decades. The most troubling was that the National Assembly did not consult with the indigenous people about the reforms' impact on their culture and environment; which would be a Constitutional violation. For that oversight, the most important indigenous groups have openly said they will not abide by the law, and are in open resistance to it(2).
In any case, it seems the Correa government is not really interested in keeping the private mining companies around too long, as recently seen when it refused to negotiate further with Canadian Kinross, who had the very juicy Fruta del Norte gold mine project in the south of the country. The same day the mining reforms were being voted on, the company declared that it was abandoning the gold mining project, after years of working on it(3). It seems Ecuador is more interested in giving these juicy concessions to either wholly or partially state owned mining companies. So far three big copper-gold projects are in the hands of Chinese mixed corporations, and the other one, Junín, in the hands of Chile's state-owned Codelco. If you are interested in more details about the reforms, you may ]want to read an article I recently wrote for Upside Down World [see above or http://upsidedownworld.org/main/ecuador-archives-49/4333-how-the-correa-government-is-neoliberalizing-ecuadors-mining-legislation]
As for the muzzling of the country's NGOs, basically, there will be no Non-governmental organizations in Ecuador if these regulations are really able to be put into place. That is due to the fact that the government will aggressively regulate everything they do.
I mean, it's to the point that the president of the country now has the power to veto any bylaws of any NGO in the country. The amount of red tape that NGOs will have to deal with and the hoops they'll have to jump through, will make it impossible but all but a very few NGOs, likely friendly to the regime, to survive. And it goes down-hill from there.
Is the muzzling of the NGOs unconstitutional? Are the mining reforms and the communication law unconstitutional? Is anything unconstitutional if there is no independence of power whatsoever?