Ecuador introduces mining law amid protest threats
QUITO Nov 17 (Reuters) - Ecuador introduced a new mining law to the legislature that bolsters the leftist's government control over the industry, in a move rejected by environmentalists and Indians threatening street protests.
The legislation, sent late on Friday, is key for the future of world-class gold, copper and silver projects, but its ambiguity over contract types and a new tax scheme could hurt an industry already hit hard by a global credit crunch and falling metal prices.
President Rafael Correa, who enjoys a majority in the legislature, has said he wants to jump-start the mining sector to diversify the OPEC nation's economy that is mostly dependent on oil and agriculture exports. The new law is expected to be approved in early January.
Correa warned the more radical factions inside his "Alianza Pais" party not to make deep changes to the bill or he will veto the law and put it up for a popular referendum.
Influential Indian groups have threatened with street marches to reject a law they say will push forward an industry that will damage the environment of ancestral lands.
But analysts say the biggest threat to the industry continues to be the government's lack of clarity in mining regulation and its known arm-twisting tactics with foreign companies to get more benefits to the state in negotiations.
"Although the law clearly represents an improvement... contractual uncertainty bodes poorly for Ecuador's future mining prospects," Eurasia Group analyst Patrick Esteruelas told clients in a note.
Unlike neighboring Peru and Colombia where miners have a clear set of rules, Ecuador's legislation calls for negotiations to set royalties and the contract model.
The new law set royalties of "not less" than 5 percent based on sales, forcing companies to negotiate the percentage with the state.
Mining companies could also opt for service deals, in which the state pays companies a fee for miners to extract the metal. Still, the law is not clear on when the government will seek those contracts instead of traditional extraction contract.
Worldwide mining companies are slashing investment plans and selling assets to keep much-needed capital as international credit grows scarce and the price of industrial metals plummet on fears of a global recession.
Foreign mining companies including Corriente Resources CTQ.TO and Kinross (K.TO) have found huge precious metal deposits in southern Ecuador, but analysts say the development of those projects could be delayed due to the global crisis and unclear legislature.
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