Ecuador's pending tasks to become a key mining jurisdiction

Since the start of production at the Fruta del Norte gold mine and the Mirador copper operation in 2019, Ecuador’s mining sector has had its eyes set on at least five projects that should begin construction in the next six years, and expectations that additional assets in different stages of exploration will follow.

Although experts agree that Ecuador has important geological advantages to position the country as a significant mining jurisdiction, it first needs to address issues such as political risk, which breeds legal uncertainty; opposition from anti-mining groups, and court rulings that have hurt the sector.

BNamericas spoke with Elisa Morán, a lawyer with a focus on mining, environmental and water laws at the Puente & Asociados firm, about projects such as Curipamba, Loma Larga, La Plata, Cascabel and Cangrejo.

BNamericas: Social and political conflicts, as well as rulings by judges in certain cases, have delayed planned investments?

Morán: Of course, investment decision-making is influenced by the political aspect that can create the perception of an environment of legal insecurity. The anti-mining movement, for example, has led to constitutional actions that tend to veto or paralyze projects.

On the other hand, investment decisions are also influenced by the actions of the State, especially to grant the necessary environmental and water permits for the development of projects.

Several projects could move faster as permits are obtained, but many times they’re halted due to lack of permits.

In the case of the national water department [Senagua], which is now part of the environment ministry, officials were fired, which delayed procedures.

Additionally, a lot of discretion has been given to officials on the ground and this has generated delays.

On the government side, there is openness and support from President Guillermo Lasso, as seen in last year’s decree on the action plan for the mining sector; but on the other hand, we don't have the necessary speed in agencies such as the environment ministry, which has the documentation and technical instruments necessary for companies to develop projects.

BNamericas: How long do permits for the mining sector take in Ecuador?

Morán: If we count the terms and periods established by law, a procedure that should not last more than eight months, here it can last three, four or five years.

BNamericas: What procedures, for example?

Morán: A procedure for authorization to use water takes three years. At the moment, there’s only one technician, which is not enough to carry out inspections to produce the documents.

BNamericas: In January the constitutional court declared the water resources law passed in 2014 unconstitutional. What does this mean for the mining sector?

Morán: That ruling, which upheld a 2015 lawsuit filed by the confederation of indigenous nationalities, gave the executive a year to make a draft regulation, although it left the law in force until the new legislation is in place.

The plaintiffs said that the prior consultation process carried out by the legislature for the passing of the law [pre-legislative consultation] was not properly conducted with the indigenous communities that would be affected by the norm.

I believe that users, managers and companies that will want to obtain permits before a regulation comes into force will be desperate, as we don’t know how it will turn out.

This is something that generates legal insecurity and the State, as far as I know, has not taken measures to at least strengthen procedures that have been pending for a few years or a few months.

There’s more burden on the State that’s not being efficient in processing paperwork.

Ecuador seeks to attract investment, and we have a production ministry that’s promoting the country so that investment comes, but we don’t see efficiency in the processes for investors who are already here and are growing.

BNamericas: Is the executive the one that should send the new law to the national assembly?

Moran: That's right. The president must prepare and present a bill to send it to the national assembly, so it can debate it, in accordance with the provisions of the constitution and respecting international standards on pre-legislative consultation.

This is a clear issue of legal insecurity because we don’t know the terms of the new law.

BNamericas: How have the latest constitutional court rulings influenced the mining sector?

Morán: Rulings are an issue that contributes to legal insecurity. We had a constitutional court that has not been very objective, but quite discretionary, since it has even annulled administrative acts, as in the case of the ruling on the Los Cedros protected forest, which affected the Río Magdalena project, a concession of state-owned Enami and the Cornerstone company.

In that case, the court annulled the environmental license and the water authorization, arguing that the proper procedure was not followed because the protection of the rights of the peoples was not guaranteed, but the process that was followed was the one that corresponded at that time.

So the concern is that if I now comply with a norm, they later declare that it was not adequate, that it was not constitutional.

In the aforementioned case, they could have generated a transition or a regulation process, but not annulled the permits.

BNamericas: Although the constitutional court is the highest instance for constitutional purposes, with the Los Cedros case it seems that it legislated retroactively.

Morán: That's right, that is the question that this sentence has raised, it’s made with retroactive application and also has implications for administrative acts.

In my opinion, that ruling exceeds its competence, exceeds its powers.

BNamericas: In addition to the Los Cedros case, what other court rulings have generated legal uncertainty for mining?

Morán: The case of the Loma Larga project in which there were two legal actions filed under the umbrella of the right to citizen participation.

On the one hand, is the measure regarding the participation that the communities claim they should have but say they were not previously consulted; and the popular consultation to ban metallic mining in Cuenca.

The company had to change the design of the mine and relocate it to another sector from the one planned.

BNamericas: In the Loma Larga case, the court said that the consultation results are not retroactive, although opponents say the operator will not be able to move forward with the mine.

Morán: Indeed, in the popular consultation, respect for previously acquired rights was established, which is a legal and constitutional principle. However, the local authorities themselves have been against the project.

In that case, I would say that the opponents are testing how far they can go with such discretionary rulings by the magistrates when deciding on mining.

Although mining is a technical activity, it can reach a point where the opposition probably weighs much more heavily in the country, which is an issue where the State has a big challenge: to communicate adequately and not allow politics to interfere in making decisions on such important issues.

BNamericas: Another important point for the sector is the absence of the prior consultation law.

Moran: That's right. There has been an omission by governments and in December 2019 the constitutional court gave the baton to the national assembly to produce the law.

At the moment there’s already a bill, presented in February in the assembly by the legislator of the Pachakutik movement, Luis Segovia, which has several shortcomings.

Under the parameters of ILO Convention 169 and taking advantage of the experiences of Peru and Colombia, an adequate instrument should be generated.

We have successful examples in Ecuador, such as the case of Warintza of Solaris Resources.

The company, together with the energy ministry, reached a cooperation agreement to test a prior consultation methodology and the result is a participatory project.

In terms of prior consultation, the great challenge facing the State is to be able to guide a process based on effective dialogue, in which the needs of both sides are heard.

The Warintza case is an example that good community relations can be achieved with adequate social management.

It is evident that without a good social component duly worked on by the State and the companies, no investment is going to be sustainable over time.

BNamericas: So, the main challenges for Ecuador’s mining sector are guaranteeing legal certainty and gaining the support of the communities?

Morán: That's right, and a vital point is dialogue. If the State doesn’t know how to manage adequate dialogue processes, all its efforts to attract investment will not bear fruit.

So it’s in the dialogue where the greatest emphasis must be placed, understanding the true needs of the communities, properly channeling the resources.

The big challenge for the State is to better regulate dialogue and the management of community relations because we’re a diverse country.

BNamericas: It seems that neither the State nor the mining companies have an adequate communication policy and that's where the problems with the communities arise.

Morán: That is a big problem. The State doesn’t have adequate communication policies; companies have something but it’s not precisely where they invest.

Many companies believe that they don’t need this policy in the exploratory stage, but this is a mistake. It’s in exploration that their first presence is generated, and that’s where they must take care of their reputation the most and generate a strong bond with the community.

Strategic communication is a fundamental edge for mining activity.

BNamericas: Regarding the partial renewal of the constitutional court in January, what does it mean for the mining sector?

It's like a lottery because we don't know what the vision of the new judges is regarding the extractive sector. Unfortunately, with the judges who left, we saw that they exceeded the legal norms, verging on emotional discretion. They focused only on analyzing the rights of nature and not the right to work, the right that the State has in administration and management of natural resources and their delegation to private initiative, the right of free enterprise.