Planned change in electricity rates for mining sparks debate in Ecuador

Ecuadoran President Daniel Noboa's announcement that he will withdraw the electricity subsidy for the mining sector has sparked debate in the country about the need to clarify the per-kilowatt cost of electricity, as there is a national energy crisis that has led to 10-hour daily electricity rationing.

Experts argue that this clarification of costs should be accompanied by policies to encourage investment in the sector and diversify the energy matrix, as 80% of the country's energy comes from hydroelectric sources.

According to current legislation, the government sets electricity rates, making it difficult for the country to attract foreign investment at the levels required to meet growing demand.

“There is a distortion in generation, which leads to the rate deficit. It's essential for the government to clarify all electricity rates,” María Eulalia Silva, executive president of the Ecuadoran mining chamber, told BNamericas.

The chamber argues there is no special or subsidized electricity rate in the case of the mining sector.

"There is no mining rate. Mining companies operating in the country don't receive a subsidized electricity rate, but the sector is willing to discuss rate changes with the government, provided they're based on technical rather than political criteria and don't discriminate against different sectors,” said Carolina Orozco, chair of the mining chamber, during a press conference.

“We aren't seeking preferential treatment. If a review is necessary, it should be technical and not political,” Orozco said.

She added that large electricity consumers in Ecuador have the so-called AV2 rate, established in 2012, seven years before the country’s only two industrial-scale mines, the Fruta del Norte gold mine and Mirador copper mine, began production.

The AV2 rate, set during the Rafael Correa administration, applies to five companies in Ecuador classified as large consumers: state-owned oil company Petroamazonas, Lundin Gold (operator of Fruta del Norte), EcuaCorriente (operator of Mirador) and two steel companies, according to the chamber.

Alberto Acosta, an economist at private consultancy Grupo Spurrier, told BNamericas that Ecuador's biggest problem is the absence of a wholesale electricity market.

“The government arbitrarily sets the price. Now, for instance, it says it will maintain the price for steel companies that fall into the same consumption category as the mining companies, even though they consume more. The solution isn't to set prices at will or raise them for one sector,” Acosta said.

According to Acosta, the solution is to create an energy market governed by supply and demand, allowing commercial and industrial sectors to purchase energy at market prices, while maintaining subsidies or “political pricing” solely for the residential sector.

Although Ecuador only has two industrial-scale mines in production, there are several projects that could go into operation in the next decade.

According to figures from the mining chamber, Ecuador's mining industry exported US$1.88bn in January-July and contributed over US$560mn in taxes.