Interview with René Ortiz, Ecuador’s Minister of Energy and Non-Renewable Resources
How did your ministry help mining firms during coronavirus?
Minister Ortiz: Even during the depths of the crisis we never lost sight of our primary goal. We are turning Ecuador into a major exporter of copper, gold and silver. We know that we have great geological potential, strong legal security and the ability to adapt to new situations.
Our biggest achievement was to overcome the necessary pause in production and get everything back to full operation by the start of the third quarter. To make that happen we had to fight the fear and panic created by the pandemic. Our two largest mines, copper producer Mirador and goldminer Fruta del Norte, are in the province of Zamora Chinchipe on the eastern side of the Andes. The people there were very nervous about the virus and the risk that the daily flow of mining supplies could bring to their communities. So the government had to design specific protocols for the mining industry, and ensure that they were implemented by everyone right down to the sub-contractors. That helped reassure the residents of Zamora Chinchipe that it was safe to restart mining. We also held coronavirus workshops in the province to educate people about how they could manage the risks of the virus. That was important as there was a lot of misinformation. Now the communities are reassured, production has resumed and exports are being sent to Puerto Bolivar and Guayaquil.
Do Ecuadorians see mining as a solution to the economic crisis?
MO: Ecuador is a dollarized country where, according to recent polls, 97% of the population, support our use of the US dollar. Given our past of inflation and instability, people here would do anything needed to maintain the dollar. As a result, it’s the policy of this government, and any future government, to maintain the dollar. There are only three ways for us to secure the flow of dollars we need: exports, foreign direct investment and debt. We’ve clearly exhausted our capacity to take on debt – indeed we are currently trying to restructure our obligations. So that means we have to focus on exports and FDI – and mining generates both.
If you look at our negotiations with bondholders, we have demonstrated a responsibility that will reassure international mining investors…
During the pandemic the price of oil went into negative territory. That sent another message to the Ecuadorian people that the country needs to develop other industries. Meanwhile gold, which has been an investor safe haven for thousands of years, reached $1,800 up from $1,200. But if our gold is stuck under the ground then it can’t help Ecuador – we need to extract, process and ship it. So Covid-19 has demonstrated why it’s so important that we kickstart our mining industry.
Finally, with regards to the country’s economic situation. If you look at our negotiations with bondholders, we have demonstrated a responsibility that will reassure international mining investors. We are trying to regain the credibility that was lost with the last administration. The fact that we repaid a loan payment in the midst of the pandemic, was a strong signal that we are a serious country that is keen to respect its obligations. The fact that we have signed agreements with the IMF and our bondholders shows that they share that view.
Is the very existence of mining in Ecuador under threat?
MO: One of the aims of this government is to restore the freedom of expressions, which sadly was undermined in the last administration. There were journalists in jail or monitored with ankle tags. We realise that dynamic and free public discussion is a vital part of our democracy. That might mean that mining investors hear radical views that make them uncomfortable but in the long-run it strengthens Ecuador as an investment destination because it enhances our democracy. Also, I would like to point out that although the anti-mining crowd makes a lot of political noise, that has never been translated into real power by the voters at the ballot box. I’m pretty sure that in the 2021 elections the strident anti-mining candidates will remain a minority.
The other reassuring factor for international investors is the important improvements in the judiciary. Until recently, Ecuador’s judicial system was being very poorly administered. If we say that the executive, legislative, judiciary and media are the four pillars of a state, then the fact that one of them wasn’t working well was a major structural flaw. This administration has been working to clean up the judiciary and while I can’t pretend that everything is perfect, it is a lot better. Sadly, there were many public officials that were profiting from our state health system, which weakened our response to coronavirus. This prosecutor has uncovered the cases and put the guilty in jail.
Can Ecuador’s oil and gas experience help with mining?
MO: Yes – definitely. One of the main lessons we learned in oil and gas was the importance of applying the best international technology. In the Upper Amazon Basin we use lots of offshore technology, even though they are onshore fields. We do so because of the unique environmental conditions there. The strict environmental regulations mean that you want to touch the ‘green sea’ of the Amazon rainforest as little as possible, which means that some offshore technology, despite being expensive, is the best solution.
Indeed, the lessons that the whole Ecuadorian oil and gas supply chain had to learn about environmental and social sustainability will also help the country in mining. At first it was the larger international companies that brought these standards. Then the local regulators caught up and began developing strict domestic standards. Eventually this new attitude filtered down to smaller local companies. As a Ministry, one specific experience that we have learned from hydrocarbons and will apply to mining is the importance of educating the communities around projects. The extractive industries create a lot of wealth but unless they have the education to use it wisely it will not necessarily benefit local people.
You are the third minister in nine months; will political instability undermine Ecuador’s mining efforts?
MO: The political direction of this government hasn’t changed. The people implementing that policy have changed the goal remains the same – to foster Ecuador’s mining industry. Indeed, I share the perspective of Carlos Perez, the then minister that LatAm INVESTOR interviewed in 2019. We both want the private sector to develop Ecuador’s mineral resources, with the state just acting as a guide and regulator. This government is removing Ecuador’s state monopolies – for example the Esmeraldas refinery will be taken over by the private sector. That process was delayed slightly by the pandemic, because site visits and inspections couldn’t take place, but it will continue. In this ministry we manage the country’s three strategic industries – hydrocarbons, mining and electricity – and we are keen to reduce the power of the state monopolies in all of them.
We know that Ecuador has incredible geological resources but to attract international investment we need to provide companies with a fair business environment. The cadastre has been closed for too long but I guarantee it will be open before this government leaves office. Likewise, we are working with our fellow ministries to ensure that there are less delays in permitting mining projects.