LatinNews Daily Report - 14 June 2013

Controversial mining reform approved in Ecuador

Development: On 13 June Ecuador’s national assembly approved the ‘mining and equitable tax reform’ bill, which can now be sanctioned by President Rafael Correa.

Significance: The reform, which seeks to promote increased investment in Ecuador’s underdeveloped mining sector by providing a new framework for awarding mining concessions to the private sector, is highly controversial. It is resisted by environmentalists and the politically influential indigenous movement in the country which argue that the indiscriminate exploitation of the country’s resources could have very negative effects. There are also more general doubts about whether the reform, which establishes new taxes on mining, can successfully attract the necessary investment for the sector.

Key points:

  • The bill was approved with 105 votes in favour, 14 against and 14 abstentions in the newly expanded 137-seat unicameral chamber. This as Correa’s Alianza País (AP) for the first time showed off the decisive two-thirds majority (100 seats) it obtained in February’s general elections.

  • Besides a new concession framework for large mining projects, the bill also introduces new regulations for ‘mid-sized mining activity’ (producing between 300 and 1,000 tonnes of minerals per day) aimed at promoting its development. For example the bill establishes regulations that would allow the central bank to directly purchase gold from ‘artisanal miners’. The bill also introduces a 70% windfall tax on mining profits that is to take effect once developers achieve a return on their investment.

  • Strategic sectors’ coordinating minister, Rafael Poveda, hailed the reform’s approval. He said it would not only generate “more certainty” in the sector, but would also allow for its “sustainable development” as the bill calls for stricter environmental standards and clamps down on illegal mining.

  • Yet the proliferation of projects is what worries opponents of the measure such as the powerful Confederación de Nacionalidades Indígenas de Ecuador (Conaie) indigenous organisation. Humberto Cholango, Conaie’s president, said that the organisation opposes the reform as it could “affect the environment, indigenous communities, destroy our biodiversity”. Cholango expressed concerns that the reform would only attract more transnational mining firms to Ecuador and suggested that the windfall tax would not act as a deterrent.

  • This is debatable. In fact the approval of the reform comes just days after a Canadian mining firm, Kinross Gold, decided to cancel a major mining project in Ecuador over concerns about the uncertain operating environment. When asked about this yesterday, Poveda denied that Kinross’s decision had affected the sector’s prospects in Ecuador, insisting it was a “purely economic” decision by the firm.