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  • GDP, US$bn: 97.8
  • GDP per capita, US$: 5,969.0
  • Population, mn: 16.1
  • Inflation, CPI ave: 1.7
  • FX, LCY/US$: 1.0
  • Budget Balance, % of GDP: -7.5
  • Mining GVA, US$bn: 5.3
  • Mining Industry Value, US$bn: 9.0
Regulatory Risk Rating
37
0
100
Score: 37
Severe Risk
It is an interesting exercise to compare the mining law of Ecuador to that of the Dominican Republic; both are concession arrangements that involve an exploration and exploitation phase, but the Dominican Republic consistently reaches out to the investor through its drafting to provide reassurance as to the safety of an investment; Ecuador, on the other hand, persistently needles the investor in the finger reminding the investor that the state is larger and more important than his or her mining and economic rights and there are many things that may require the restoration of the land into state hands, such as issues concerning human rights, the environment, labour and the local community.

Corruption Potential Index

Score: 35
Very High Corruption Potential

Corruption Risk Index

Score: 62
Low Corruption Risk

Regulatory Risk Rating

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Mining Overview Commentary plus sign

ECUADOR MINING REGULATION

GENERAL

Ecuador, officially the Republic of Ecuador, is located in the northwest of South America, bordered by Colombia on the north, Peru on the east and south, and the Pacific Ocean to the west, with the Galapagos Islands archipelago located around 1000 km west of the mainland.

The country, a former part of the ancient Inca Empire, gained independence from the Spanish in 1822 and became an independent republic in 1830 following the dissolution of the Republic of Gran Colombia. Nowadays the country is a democratic presidential republic. Ecuador’s economy is largely based upon commodities and agriculture, with oil, bananas and cocoa major exports.

Mining plays a relatively small role in the national economy, partly due to the lack of infrastructure in many parts of the country. Ecuador has reserves of gold, silver, copper, zinc, uranium, lead, sulphur, kaolin and limestone, but it is the latter that dominates production in the industry.

PRINCIPAL LEGISLATION AND REGULATOR

Ecuador’s Constitution states that the ownership of all non-renewable resources, underground resources, minerals and hydrocarbons, as well as substances from the soil, rests with the state. The state has a right to participate in mining profits, which shall be not less than the mine developer. The main sources of mining regulation are the Mining Act 2009 and its Regulation. Additionally, Ecuador passed an “Organic Law” amending the Mining Act, and the Artisanal and Small-Scale Mining Regulation. According to the Mining Act and Decree No. 578 (2009): the Ministry of Mining (Ministerio de Minería) and The Mining Regulation and Control Agency (Agencia de Regulación y Control Minero (ARCOM)), are jointly considered the principal authorities for the mining industry; while additional regulatory bodies of relevance are The Geological, Mining, Metallurgical and Investigation National Institute, The National Mining Company; and the Municipalities, which play a somewhat minor role.

GRANTS AND FORMS OF MINERAL

Any person or entity, domestic or foreign, may conduct reconnaissance activity in search of mineral deposits within the territory of the Republic, except in protected areas. A mining concession is necessary in order to commence exploration activities. The Ministry of Mining shall convene an auction or public bidding process to grant mining concessions. The concessions shall be granted to the best technical, environmental and economic offer. A mining concession confers the exclusive right to prospect, explore, exploit, beneficiate, smelt, refine, sell and transfer all mineral substances.

Mining concessions have a duration of 25 years and may be renewed before their expiration for equal periods. Where the Ministry of Mining has not replied to a renewal request within 90 days from the application date, the law provides for a deemed approval but the renewal period is reduced to ten years. A mining concession is divided into an exploration stage and an exploitation stage, which have the following characteristics.

  • Exploration Phase: Upon the grant of a mining concession, the holder may carry out exploration for a period of four years, extendable for another four years if engaged in advanced exploration activities and upon the relinquishment of land. Once the initial four-year period, or its four-year extension, has expired, the titleholder has two years to complete a feasibility study. During the economic assessment period, the titleholder may apply for the commencement of the exploitation stage and seek a mining contract or supply of services contract. By March 31 in each year and throughout the duration of the exploration stage, the concessionaire must file with the Ministry of Mining an annual report regarding the exploration activities and investments made in the mining concession area during the previous year and an investment plan for the current year. If the investment is not made, 80% of the deficiency must be paid to the state (Art. 39, Mining Act)

 

  • Exploitation Concession: An exploitation contract is necessary in order to carry out mining activities. The mining area shall not exceed five thousand mining hectares under any circumstances. In the event that, as a result of the economic evaluation of the deposit, a mining operator decides not to commence mining, mine development activities may be suspended for a period of up to two years with compensation to the state. The terms of the mining contract are negotiated. During the exploitation of the deposit, mining concession holders must submit to the Ministry of Mining, on a biannual basis, prior to January 15 and July 15 in each year, audited production reports regarding the preceding period, in accordance with the technical guides prepared by ARCOM. Mining concession holders may freely sell their production both within the country and abroad.

 

Once issued, a mining concession must be registered in the mining registry and can be transferred, subject to prior approval of the Ministry. A separate regime exists for regulating small-scale and artisanal mining

DEVELOPMENT CONSIDERATIONS

The titleholder is required to pay an annual patent fee per hectare, which increases with each stage of development. As well, Article 92 of the Mining Act requires mining operators to pay a royalty for carrying out mining activities based on a percentage of sales. Mining rights holders may seek an easement for surface rights in return for compensation to any landowners in respect of use and damage. If an agreement is not possible between the parties, ARCOM determines the compensation (Art. 100, Mining Act).

A new environmental licence is required for each of the applicable development phases (initial exploration, advanced exploration, exploitation, smelting, refining, etc.). Prior to carry out mining activities, the mining operator must prepare and submit an environmental impact study to prevent, mitigate, control and repair the environmental and address broader social impacts. Once this documentation is received and approved, the Ministry of Environment issues an environmental license. Additionally, one year after the issuance of the environmental licence, and bi-annually thereafter, the holder of the mining concession is obliged to submit an environmental compliance audit.

ENVIRONMENTAL REGULATION

See Ecuador- Environmental Overview Commentary.

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Environmental Overview Commentary plus sign

ECUADOR- ENVIRONMENTAL OVERVIEW COMMENTARY

GENERAL

Ecuador, officially the Republic of Ecuador, is located in the northwest of South America, bordered by Colombia on the north, Peru on the east and south, and the Pacific Ocean to the west. With an area of less than 300,000 square kilometers, the country is one of the smallest in South America; however, what Ecuador lacks in size it makes up for in environmental diversity. The country is recognised as one of the world’s seventeen mega-diverse countries and it has arguably the richest biodiversity of all, with greater biodiversity per square kilometer than any other nation. It includes World Heritage Sites, such as the Galápagos Islands, and an array of national parks, such as the Yasuni National Park, which is covered by the Amazon Rainforest and is a recognised UNESCO Biosphere Reserve and Cotopaxi National Park, a largely volcanic region just south of the Ecuadorian capital, Quito.

The Galápagos Islands, which lie around 1,000km off the coast of the Ecuadorian mainland, are a well-known region of unique and distinctive fauna, which informed Darwin’s Theory of Evolution and are home to species such as the Galapagos finches, Galapagos tortoises and Galapagos marine iguana, all of which are endemic to the islands. In total Ecuador contains almost 20,000 species of plants, over 1,500 species of birds, more than 340 species of mammals and more than 840 species of reptiles and amphibians.

Ecuador’s constitution was the first to recognize the rights of nature. The National Plan of "Buen Vivir" or “good living” (Plan Nacional para el Buen Vivir) highlights the protection of Ecuador’s rich biodiversity as a national priority and the government has gone to considerable lengths to honour this pledge by creating an array of national parks, wildlife refuges and ecological reserves. A primary object of Buen Vivir is the protection of land, with an overall objective to have at least 32% of the country’s total land area classified as protected. Additionally, Sociobosque (a program initiated in 2008) aims to protect an additional 2.3% of total land area (6,295 km²); this will be achieved by paying private or community landowners (such as indigenous tribes) incentives to maintain their land as native ecosystems.

In spite of these noble efforts the country still faces considerable environmental challenges. The Galapagos Islands are threatened due to the increasing influx of foreign tourists and, as a result, the introduction of foreign species to the island; oils spills, illegal fishing and expansion of the island’s villages are also considerable issues. On the mainland, pollution, specifically of water, deforestation and over-exploitation of oil in the Amazon region are all challenges facing the country.

PRINCIPAL LEGISLATION AND REGULATION

The principal environmental legislation applicable to the mining industry includes: the Ecuadorian Constitution (2008); The Environmental Management Act (EMA); The Environmental Mining Regulation (Regulation); The Water Act; The Unified Text of Environmental Secondary Legislation; and The Prevention and Control Environmental Contamination Act. The Ministry of Environment (Ministerio del Ambiente) is the responsible authority for the regulation and control of the environment. The Ecuadorian Constitution has incorporated the principle known as ‘sumak kawsay’ an ancient phrase from the Quechan language with a similar but deeper meaning than buen vivir; this principle although not defined in the Constitution itself has many facets including that resources and wealth be equitably and fairly distributed amongst society.

EIA PROCESS

The Ministry of Environment requires a mine developer to lodge a formal notice with the Ministry and complete an environmental impact study (EIS); this must be done prior to undertaking any mining. The process begins with the selection of a consultant to prepare the EIS. The EIS must include an environmental management plan that contains actions required to prevent, mitigate, monitor, compensate, correct and repair the possible negative effects and extract the maximize positive impacts. Once approved, the Ministry of Environment notifies the applicant to submit: (i) proof of payment for the review of the EIS, as well as the issuance of an environmental permit, and (ii) a performance bond to underpin the environmental management plan and liability policy. The permit is then issued.

Mining operators must present, before the Ministry of Environment, during the first year of the environmental license issuance date, and every two years thereafter, an environmental audit.

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