TBY talks to Jorge Glas Espinel, Minister of Coordination of the Strategic Sectors, on Ecuador’s energy matrix, developments in the telecoms sector, and minerals sector opportunities.
TBY What are the main responsibilities for the coordination of Ecuador’s strategic sectors?
JORGE GLAS We have been through some deep political and structural transformations over the last few years in Ecuador. In the new constitution, passed in 2008, our President rescued the role of the strategic sectors, defining them and changing their historical mission for the development of Ecuador. Previously, public companies were part of a holding called the Solidarity Fund, which I was the president of at the beginning of the new government’s term. It was a shareholder of the electric and telecommunications companies that were in state hands, in which it was forbidden by law to invest because they were to be privatized. Inefficient electricity companies accumulated more and more losses due to the investment prohibition, despite the 30-year backwardness, bad service, and lack of investment. Therefore, we had to enact a constitutional mandate for the state to be able to invest in these companies. This was then consecrated in the constitution, which also includes a new legal framework. We achieved the Hydrocarbons Law, and soon we will propose a new Electricity Law. The Mining Law is new as well. There’s a law project in the National Assembly for discussions in relation to telecommunications as well. Because of the mainstreaming of these sectors, our government decided to create the coordinating ministries. These ministries manage several areas. The Ministry of Strategic Sectors coordinates the National Secretariat of Water (SENAGUA), the Telecommunications and Information Society Ministry, the Ministry of Non-Renewable Natural Resources, and the Ministry of Electricity and Renewable Energies. Before this government there wasn’t a ministry to exercise stewardship in ICT, the aspects of which are of vital importance in the development of a country.
What are the main aspects and projects coordinated by your Ministry to change the energy matrix?
The vision by 2016 is that 93% of energy sources in the matrix will be hydroelectric. This is a small country where there is petroleum. Nevertheless, we bet on renewable energies and not only for the sovereignty of Ecuador in renewable energy, but also to be able to export energy. In 2010, Ecuador held the pro-tempore presidency of the Union of South American Nations (UNASUR), and we proposed taking advantage of our hydroelectric potential to export renewable electric energy to the region, not only to Colombia and Peru, but also to Venezuela, Chile, and Uruguay. We also promoted at the Andean Community level a transversal regulation that is valid for Ecuador, Colombia, and Peru. We now have eight new hydroelectric power plants under construction. We have also consolidated our thermal park through our energy sovereignty, to improve the reliability of the service. Our energy reserves have increased considerably and we have substituted a lot of the generating capacity that used diesel to fuel oil, a product available in Ecuador. The goal by 2013 is for Ecuador to consume no diesel in the electric sector. In 2012 it will already represent less than 1%, because we have been substituting it for fuel oil and natural gas. In the future, the country will have a strong hydroelectric component. By 2016 we will double the installed capacity of electric generation across the whole territory.
What aspirations exist for the export of renewable energy?
We want to become a center for the export of renewable energy. With all the projects that we mentioned, Ecuador won’t even use 30% of its hydroelectric potential. There is a matter of economic efficiency. We haven’t utilized our geothermal potential yet, which is very important in Ecuador. At least 2,000 MW could be generated via geothermal means. However, this will be a later phase because today we face a huge technical, financial, and managerial challenge with the hydroelectric plants, which are already funded in part by the national budget and partly by foreign funding. At the same time, Ecuador exports petroleum with financial assistance and we import derivatives. This affects the balance of trade and balance of payments. In 2008 we decided to implement the most ambitious project of our government, which is the Refinery of the Pacific, with a capacity of 300,000 bbl/d. We started this project together with Venezuela, and we have invested approximately $500 million. We have hired an international investment house, MizuhoBank, to set up the financial structure. Over 2012 we’ll be doing some presentation rounds in Europe, China, Russia, and Brazil to promote the project and find at least a third partner for financial leverage. This is the big challenge for 2012; to solidify the interest of potential partners.
What has been the Ministry’s role in the recent changes to the telecommunications sector in the country?
In 2006 the previous government tried to conclude a contract with mobile telecommunications operators. The vision was to get $70 million for the licenses. We negotiated with the operators for $700 million plus 1% of the raw revenues for the IT development fund. Everyone thought that rates were going to increase, that the networks were not going to be developed, that service penetration wouldn’t increase, and that traffic was going to decrease, but at the end of the day the situation was the opposite. Rates actually decreased, companies paid corporate taxes, coverage increased, and penetration grew exponentially. The state will get $700 million over the next 15 years. Also, investment over the next five years will be around $900 million through the public company to improve services. Before, we had 1,400 kilometers of fiber-optic cable under the public company, and now we have almost 7,500 kilometers, while broadband prices have decreased. Public companies have managed to reduce the costs of the entire industry. For the first time in history, our 23 provinces are connected by fiber-optic cables. Before, this public policy didn’t exist. Despite this situation, the profits of the public companies have increased. Almost 4,000 schools are also connected to the internet through the Scholar Connectivity Plan.
Currently the country is looking at the mining sector as the engine for the next economic boom. Is this a real possibility?
We are finalizing negotiations for contracts with two private mining companies. One is EcuaCorriente (copper) and the other is Kinross (gold). Foreign investment by mining companies will be at least $1.5 billion over the development periods, and I am sure that when the negotiations are done, Ecuador will receive a significant amount of mining income. After that, we are planning to launch a bid for the exploration of new areas. The constitution obliges us to keep at least 50% of mining income for the state, while maintaining a tremendous respect for nature. These resources will be invested by the government in infrastructure and in development projects in nearby towns. This is a new issue in Ecuador; we are at the beginning, but now there is a clear legal framework. The takeoff of mining in the country is going to be very important.
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