#mining concessions

Map of the mining concessions

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New Post has been published on http://www.miningsite.info/mining-law-current-situation-in-ecuador

Mining Law - Current Situation in Ecuador

MINING SECTOR – CURRENT SITUATION IN ECUADOR BACKGROUND:

In 2000, the Mining Law was reformed, it guaranteed free access to concessions unless someone else had applied before, no minimum investment commitments, no royalties, no special taxes.

Despite the advantages, major mining companies either left Ecuador or were no longer interested in mining in the country.

Small mining investors and speculators applied for most mining concessions.

In 2008, a constitutional mandate suspended all mining activities, except for a few mines already in production.

Many mining concessions were revoked, mainly for lack of approved environmental impact studies.

In 2009, a new Mining Law was passed.

NEW RULES FOR MINING:

Mining title is not freely accessible; it has to be obtained after bidding processes organized by the government.

Mining title allows for exploration in stages, then the company needs to submit a feasibility study and negotiate a contract if it is going to start the construction of a mine and production.

Royalties, at least 5% of gross production.

Windfall tax, 70% of price above a price limit established in the contract.

In March of 2012, the first mining contract with big multinationals under the new Mining Law was executed and other mining contracts are likely to be executed in the following weeks.

The government negotiating team is the same one that negotiated main oil contracts in 2010 and 2011.

CUSTOMARY CONTRACTUAL TERMS IN OIL & MINING:

1. Applicable Law

Ecuadorian, which include future changes

2. Dispute Resolution

International arbitration, UNCITRAL, tribunals based in Latin America, i.e. Chile, caducity and taxes are subject to local courts, no arbitration

3. Government’s right to terminate the contract for a cause

No compensation

4. Transfer of rights needs approval 5. Economic stability clause or investment agreement

OUR VIEW ABOUT RECENT CONTRACT NEGOTIATIONS:

1. 2010 and 2011 have witnessed increased activity, more than in recent years. If the trend continues, we might new and increasing investment in Ecuador. 2. The government wants more stringent terms, while offering more stability once the contract is executed. 3. Price of oil and minerals is helping the execution of new contracts. 4. Based on our opinion, foreign investors in natural resources in Ecuador usually have problems with: • taxes • social – employment • environment • contractual issues with the government

COMMON WRONG IDEAS – GENERAL RECOMMENDATIONS/IDEAS TO REDUCE ISSUES: 1. TAXES a. We did what the big xyz auditing firm told us to do. We even got a written opinion from them. They told us it is acceptable to do it.

i. Only SRI (IRS) can give binding opinions in Ecuador. Your own local in-house people should be familiarized with your contract, amortization schemes, cost, investments, etc. Nobody can understand your contract and your company better than your own people. They need to understand tax rules from the beginning.

b. We cannot do it that way because it does not match our parent company procedures and policies.

i. Parent company policies are important, but if they do not match

local regulations, there would be negative consequences.

2. SOCIAL – EMPLOYMENT a. We need to bring qualified employees and contractors from other parts of the country or from abroad.

i. After 30 years of oil production, the people of the cities and towns surrounding oil fields are not integrated into the industry. From what we heard, at least one mining company is planning to change that. It will make a big difference in people’s perception about the company and the industry.

b. Our company’s standards are higher than local law.

i. Comply first with local law

3. ENVIRONMENT AND COMMUNITIES a. I have been complying with all international standards. I have been doing the same thing I do in my home country.

i. Focus on getting all permits as per Ecuadorian laws. It does not matter if they do not appear to be material or logical. Ecuador is very permit-oriented, it is not enough that you are complying, you may need a document certifying that you are complying.

b. We are complying with environmental procedures, but the community does not understand and requests something different.

i. Based on past experiences, we must say this: Remember it’s their home, you are just a guest. Try to explain and understand their view.

ii. Is your key focus the environment and the communities living at the mine, or hundreds of kilometers away at the home office?

4. CONTRACTUAL ISSUES WITH THE GOVERNMENT a. The Ministry of Non Renewable Resources is supporting my company,…the community, employees, NGOs and the IRS are the ones that do not understand, but I don’t have any problem with the government of Ecuador.

i. Remember, it is difficult to support a company that has issues with several of the stakeholders of the project.

ii. Usually, taxes, communities, employment and environmental issues lead to problems with the government with respect to the contract.

BANGALORE, 16 MAY – Illegal mining concessions have put in trouble the former Prime Minister of Karnataka. B S Yeddyurappa’s house was raided by agents of the CBI: it was discovered that the leader of the BJP has received 200 million rupees, about 3 million euros, from the South West Mining Company for mining concessions.