Ecuador says to present mining bill this week

10th November 2008

QUITO - Ecuadorean President Rafael Correa said he will propose this week a bill to overhaul the nascent sector, and warned his allies in the legislature not to make deep changes to the legislation.

Correa, a leftist former economy minister, has said he wants to jump-start mining of precious metals from large deposits to diversify the oil-dependent economy and share its revenues with the poor.

"If there are deep changes to the law I will veto it and put it up for a popular referendum," Correa said during his weekly media address on Saturday. "The government's political decision is to develop the mining sector."

Correa, who enjoys a majority in the legislature, has clashed with more radical factions inside his "Alianza Pais" party that say large-scale mining will hurt the country's pristine environment and indigenous communities in the jungle.

The new mining law is key for foreign miners who have found massive gold and copper deposits in southern Ecuador. If approved the law will lift a government ban on mining activity approved in April that hurt the stock price of Canadian miners such as Corriente Resources and Iamgold.

Mining development in Ecuador should raise revenue for the government at a time when its income from oil sales is likely to be lower than in previous years.

Foreign companies have waited months for details of the government's legislation to see whether doing business in Ecuador will be viable.

The new bill -- expected to be approved by early 2009 -- will set royalties and tougher environmental controls over miners, government officials said.

Deputy Mining Minister Jose Serrano told Reuters that under the draft law companies could opt to exploit minerals under a service contract with the government, although that would not be obligatory. Companies had lobbied for such flexibility.

Serrano also said the law would levy a 5 percent royalty on sales but would allow companies to deduct some operational costs, such as refining and transport. At times during the drafting of the law, companies had feared a higher levy.

Ecuador will also apply a windfall tax to what it considers extraordinary revenue due to high metal prices, he added.

Correa also warned environmentalists and Indian groups who have threatened road blockades and massive protests to reject the new bill.

"These groups can do whatever they want peacefully, but if they block roads and act against private property we will act firmly," Correa said. "It will be irresponsible to sit on these world-class gold, copper and silver reserves and leave it underground."

Influential Indian groups have threatened with massive marches to reject the new law they say it benefits foreign companies to the detriment of the environment.