How will you attract the international investment you need to double oil and gas production?
Minister Bermeo: Investors are obviously concerned with returns but that is not the only factor. The regulatory framework and judicial security are also big drivers in attracting investors. We need to analyse the barriers that are currently impeding investment and the remove them. After Guillermo Lasso’s victory the country risk – as measured by JP Morgan’s Emerging Market Bond Index – dropped sharply. That shows that international investors have faith in the new president. It’s clear that just with the change of president, there is a new perception about Ecuador. A recent survey showed that Lasso is the most popular president in Latin America. So right now, there is a big opportunity that we have to take advantage of and make further changes so that the international investment we need comes to the country.
Will Ecuador need to change the contracts it offers oil companies to boost production?
MB: I think that one of the best signals that the government can give is a rational analysis of its options. If the trend in the oil and gas industry is participation contracts, then we will follow that path because we want to attract the best international companies. But we can’t enforce these changes to existing contracts. Right now, the Ecuadorian Hydrocarbon Law, does not allow us to have participation contracts for oil fields that are already in production. So, we can’t introduce that type of contract in much of the country. The law only allows us to use participation contracts for new fields, because the point of participation contracts is that they encourage risk capital that makes oil discoveries. The current contract has incentives for increased production. That works when the tariff is fair for both the company and the government. That wasn’t the case with the infamous ‘carry forward’ clause.
Why should LatAm INVESTOR readers invest in Ecuadorian oil and gas?
MB: The main reason is the dollar. All of your costs will be in dollars, as will your sales revenues – so there is no exchange rate risk. No other oil economy in Latin America can offer that. It means you don’t have to spend money on hedging your exchange rate risks and makes us a paradise for oil companies.
In recent years we have climbed up the league table of Latin American oil producers but that is because other countries – particularly Venezuela – have had severe problems. That doesn’t make me happy. I want the best for my fellow Latin Americans and I don’t want Ecuador to improve its regional oil standing just because other countries are failing. I want us to do it through increased production. It won’t be easy because lots of our fields have naturally high decline rates so it requires investment just to maintain production at current levels.
Last year Ecuador signed up to EITI; why is that significant?
MB: Yes, we have been part of the Extractive Industry Transparency Initiative since October 2020. It isn’t just a sign of goodwill but involves a series of commitments and obligations to ensure that we comply with the strict requirements. In fact, we have someone in the Ministry who is completely dedicated to compiling information for EITI. It’s all about transparency and what that means in practice is providing reliable, timely and relevant information that allows people to make decisions. That can be information about the terms of contracts and royalties to analysis of how communities are impacted by projects.
“it’s not just the companies that lose out when delays slow down their investments – Ecuador also suffers because it means we can’t build the projects we need…”
We are also working closely with the Ministry of Environment, Water and Ecological Transition and its Minister, Gustavo Manrique. It is well-known that under the previous administration, environmental permits were one of the bottlenecks holding back the mining industry. We don’t expect Minister Manrique to rush permit decisions, or not subject projects to proper analysis, but we will be working with them to see how we can accelerate the environmental permitting process. Because it’s not just the companies that lose out when delays slow down their investments. Ecuador also suffers because it means we can’t build the projects we need, so this government will work as a team to make permitting more efficient.
When will the mining cadastre reopen?
MB: That’s a bit like asking me for next week’s winning lottery numbers. I can’t predict an exact date but I can tell you that we are approaching this with a calm, technical analysis. We are exploring a partnership with the Inter-American Development Bank, to help us define the quality and accuracy of the content inside the cadastre so that when it opens it works well. We know that reopening the cadastre is the key to attracting new investment and companies to Ecuador and creating a pipeline of projects.
How will you counter anti-mining sentiment in Ecuador?
MB: As a government we are clear that mining needs to develop because it is the future of the country. But we also realise that Ecuadorian mining has to incorporate the best environmental and social practices. We don’t want mining at any cost and we will only allow mining that respects the environment and communities. We understand that there are some places, such as protected areas, where mining can’t take place, and that is fine. Meanwhile we will improve the regulations to ensure that the mining that does happen is responsible.
Obviously, it is down to other ministries to police illegal mining. That has nothing to do with us. However, we will ensure that only miners with the best practices will have official authorisation from this ministry.
How quickly could Ecuadorian mining become comparable to the industry in Chile or Peru?
MB: We have to recognise that this isn’t just down to the government and our laws and regulation – we must also understand the mining industry. It takes some years to discover and define deposits, then even more time to build a mine. I would love it, if the mining industry could accelerate this timeframe but that is not realistic. Nobody is going to invest billions of dollars until they have everything in place and as much information about the deposit, production volumes and economic feasibility. We want mining to be done right, so we have to accept that will take time. Especially in a country like Ecuador where the deposits are very large.
But we are clear about one thing – 2020 to 2030 will be the decade of mining in Ecuador. It will be up to history to decide if I have been a successful minister or not. I was proud to serve as a Vice Minister under former minister Carlos Pérez, and now I will try my hardest to leave my stamp on the development of Ecuador’s energy and non-renewable natural resources.
By 2030 we hope that mining will be attracting billions of dollars of investment, generating billions of dollars in annual exports and employing hundreds of thousands of Ecuadorians. We will have the best companies in the world working here because our geology is spectacular. We have the same geology as Peru and Chile and even the little exploration that has happened so far has found some massive deposits. When these are turned into mines they will be among the biggest in the world, which is why we want to attract the largest, most responsible mining companies.