EXTRACTING VALUE

Ecuador 2020 | MINING & INDUSTRY | VIP INTERVIEW

TBY talks to José Augusto Briones, Minister of Energy & Non-Renewable Natural Resources, on the Social Energy Agreement, boosting the mining sector, and international best practices.

The development of the extractive sector depends on agreements with social groups. How can the announced Social Energy agreement achieve this goal?

The Social Energy Agreement (Pacto Social Energético) seeks to implement a number of actions that go hand-in-hand with the national government's policies to strengthen the sector, endorse positive changes, respect established principles, gain transparency, prioritize national interests, and open more spaces to attract new investment. By doing all this, companies will positively see Ecuador as a investment destination, incentivize institutional efficiency, and show the human face of the sector with activities that are completely sustainable and inclusive, while benefiting the most vulnerable areas of Ecuador. The actions will be implemented across the board through spaces for dialog that we are creating in order to generate consensus among all the related sectors.

Ecuador has left OPEC as of January 1, 2020. What effect will this decision have on the sector?

The decision of the Ecuadorian government to leave OPEC is related to internal matters and challenges that the country must overcome, particularly in connection with fiscal sustainability. The measure taken also allows us to generate new investments in the hydrocarbon sector for exploration and production to increase domestic production, which is one of the axes of the policies that we want to implement. This will be achieved through the oil rounds Intracampos II and Suroriente, in addition to the development of the Ishpingo field, which is part of the bloc 43 – I, in the province of Orellana. Ecuador's production level is low as compared to other OPEC countries; however, we have fulfilled the agreed measures and have achieved better results in terms of cost, without halting the main projects that are being developed with the environment and social responsibility in mind.

How would you asses the future of the refinery industry in Ecuador?

As a country, we have to cover the fuel market, which are currently produced locally as well as imported to meet domestic demand. This is the reason why we want to launch a bidding process to build, through private investment, a new refinery that will process 300,000bpd, according to Executive Decree 861, which authorizes the ministry to develop a refinery on the Ecuadorian coast. In the first stage, we obtained expressions of interest from five companies and a consortium that is interested in the process, which are currently being evaluated according to their technical capacities as well as their proven experience in the sector. We want to conclude the bidding process in May 2020. We also plan to launch a bidding process to administer and operate the Esmeraldas refinery. The goal is to improve environmental conditions and efficiency, and produce fuel according to the international regulation Euro 5.

What steps are being taken to create clarity and legal certainty in the mining sector?

We have conducted a number of policies. First, we launched a national plan for the mining sector that establishes a forecast for 2030 and is aligned with the UN's Sustainable Development Goals. This tool will have plans, programs, and projects that have to meet the axis of the public mining policy. One of the goals is to improve the investment climate and the legal certainty of the mining companies. We expect to have the plan ready in 1Q2020. Second, we have a new regulation to hold public consultations. This new regulation will ensure a participative process for consultations and provide information on the activities of extractive industries in the territories of the ancestral people. Third, we are updating the mining regulation in line with the current needs of the industry and prioritize areas like obtaining the authorization for plants. Also, this regulation envisions the approval of the design, construction, and operations of deposits of trails. These regulations will regulate mining operations and will provide more clarity about the administrative process and the control of operations.

Can we expect a mining round in 2020?

In January 2018, the government closed the mining cadastre. The government, with the support of multilaterals, has worked to strengthen the administration of the mining cadastre. The objective of this project is to identify eventual situations, administer solutions, and suggest processes to award the mining concessions based on good international practices. The process will conclude in 2020, and once we have the conclusions and recommendations for the project, we will make the decisions on whether to open the cadastre and approve new auctions.

How can the ministry optimize its cooperation with other government entities to boost the mining sector?

The government works with different institutions (Minister of Environment, Secretariat of Water or ARCOM, Agency of Regulation and Monitoring of Mining) to attend the needs of the industry, particularly in relation with the environmental regulation of water required to develop the mining project. This work has provided good results. As an example, we were able to regulate the drilling and exploration periods that companies require to speed up their investments. We have also created a new regulation on the process to obtain a certification regarding a project's possible effect on water reserves. However, the largest concern that the industry has in terms of hydric resources is the time that it currently takes to obtain the certificate, which eventually delays the palming of the project, reduces investment and employment, and generates uncertainty.

What are your priorities for 2020?

We have outlined four axes of management. First, we seek a steady increase in production of natural resources, institutional efficiency, and the energy social agreement with the goal of improving the work that we are carrying out in the electric, hydrocarbon, and mining sectors. With these goals, we will continue developing the natural resources of the country in a responsible and sustainable way. We want to optimize the resources and be open to new investments with technical and economical solvency according to the constitution. As part of the master plan for the energy sector, we have a portfolio of 49 projects, of which 21 are of renewable. We have launched two important projects so far: the solar power project in El Aromo and wind projects Villonaco II and III in Loja. These projects will reduce CO2 emissions and will be 100% financed with private capital.