Ecuador’s Mining Law and the 70% WFT

Ecuador, the only Latin American country that lacks large-scale mining operations, is passing a new mining law that will lift a six-month ban on mining operations. However, a feared windfall tax (WFT) on mining profits — one of the biggest concerns among international investors — is not an issue that is open for debate in the Andean nation. As of this writing, it looks as though applying a WFT on mining profits will be a done deal.

Chatting with Maria Paula Romo, former VP of the mini
Congress, when visiting Ecuador last March 08.

Hoping to influence the interim Congresillo’s legislators, who will be discussing the law in a second debate next week, I recently published an Op-Ed column on the WFT in the Quito-based El Comercio, the nation’s most politically important newspaper. In the piece, I talk about how the U.S. President-elect is backpedaling from his plan to establish a WFT on oil company profits due to the economic downturn:

The United States president-elect, Barack Obama, dismissed his proposal to impose a 20 percent windfall profits tax (WFT) on oil companies in a move to adjust his campaign promises to the global economic recession. His decision was made despite firms such as Exxon Mobil having recorded historic profits in Q3 2008. Ecuador, however, applies not only a WFT to the oil industry in a much higher percentage -70 percent – but will extend it to mining companies if the law that the National Assembly is currently analyzing is approved without amendments.

Read the complete translated Op-Ed

Go to the original Op-Ed – Spanish only –

For many nations of the world, the days of wine and roses have been replaced by an economic downturn. Oil and banana export-dependent Ecuador is no exception. Siphoning resources away from an industry that creates jobs, develops infrastructure and invests in corporate social responsibility programs is not a good idea during an economic downturn.