EVOLUTION OF ECUADORIAN MINING LAW: MINING RIGHTS AND THE LEGAL AND REGULATORY FRAMEWORK FOR THE MINING CONTRACT
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EVOLUTION OF ECUADORIAN MINING LAW: MINING RIGHTS AND THE LEGAL AND REGULATORY FRAMEWORK FOR THE MINING CONTRACT
Lexim Abogados
Quito Jerónimo
Carcelén Pacheco **
Partner, Carcelén,
Desmadryl, Guzmán & Tapia;
Santiago/International Visiting Advisor
Dechert LLP
Washington, DC
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RODRIGO BORJA CALISTO is a Partner with Lexim Abogados, in Quito. Rodrigo obtained his Doctor Degree from the Pontificia Universidad Católica del Ecuador and his Masters Degree in Business Administration from Tecnológico de Monterrey. He has been legal director of several foreign companies operating in Ecuador, mainly dealing with subjects such as mortgage portfolio securitization, hydrocarbons, and mining, among others. Rodrigo has a deep knowledge of the hydrocarbons and mining industry, both from the internal operations and State regulation and control perspectives. His wide experience with transnational companies has enabled him to advise local and foreign companies throughout their different stages, from the incorporation of the company to the exploration, assessment, negotiation of contracts with the State and vendors, design, construction, development and closing of operations. He has been a member of the executive and administrative committees of the companies where he served as legal director.
JERÓNIMO CARCELÉN PACHECO is a Partner at the Santiago based firm Carcelén, Desmadryl, Guzman & Tapia. He graduated from Pontificia Universidad Católica de Chile (1998), with a degree in Economics and Finance from Universidad de Chile (1999), a Master in International Law from the Georgetown University Law Center (2005), and a Diploma on Mining Investment Projects in Indigenous Land and Territories from Universidad Central de Chile (2010). He served as a Fellow and Research Associate, Institute of International Economic Law, Washington, DC (2004-2005). He is currently an International Visiting Advisor at Dechert LLP in Washington, DC. Admitted to practice in Chile and Ecuador, Mr. Carcelén has developed his career in the international area, advising private companies, governments, cooperation agencies and international organizations on cross-border mining and natural resources legislation. Mr. Carcelén has served as an advisor and consultant to governments and international bodies such as the Inter-American Development Bank and the World Bank in developing public policies and legal frameworks for mining in several countries, including Afghanistan, Bhutan, Chile, Colombia, Dominican Republic, Ecuador, Liberia, Mongolia and Togo. Mr. Carcelén recently served as Senior Counselor for Public Policies in Mining to the President of Ecuador, where he worked as the direct advisor to the President on issues pertaining to the design and implementation of public policies and regulations applicable to mining. His previous experience also includes serving as the Senior Advisor of the former Minister of Mining of Chile, where he assisted with legal, international and mining business matters. Mr. Carcelén is a frequent lecturer on mining issues and currently serves as a Professor of Mining Law at the Universidad Diego Portales; a Professor of Mining Contracts, Master on Administrative Economic Law at the Pontificia Universidad Catolica de Chile; and a Professor of International Mining Contracts and Mining Property, Master on Mining and Water Law at the Universidad Finis Terrae.
Summary
This article analyzes the Mining Laws enacted in Ecuador since 1886 and mainly topics related to mining rights, such as ownership of minerals, types of mining concessions and contracts, granting procedures, transfers and encumbrances, and rights to use the land surface. In the second part, this article reviews the legal and regulatory framework currently set forth in Ecuador for the Exploitation Mining Contract, which includes the legal and regulatory reforms of the Government since 2010, for the purpose of clarifying certain mining and tax matters affecting the mining industry.
I. General overview of the Ecuadorian Mining Laws.
Like many other countries in the region, Ecuador follows the legal framework established by the Kingdom of Spain during the XVI to XVIII centuries, such as the Ordenanzas del Nuevo Cuaderno de San Lorenzo (1584) and the Ordenanzas de Nueva España (1783). These two legal bodies form the pillars for future mining laws. The legal framework consolidated the State domain over the minerals as well as the right to explore and exploit the soil by granting mining concessions or licenses upon fulfilling certain obligations, such as conducting mining works and paying of royalties to the Crown.
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The two legal bodies, providing the first comprehensive legal framework for mining, were followed by: the Mining Code approved in 1886, which adheres to the principles and wording of both Ordenanzas; the Mining Regulations promulgated by Simon Bolivar, as President of the then called Republic of Colombia; and a law passed in 1830 for promoting the development of mines (Ley Para Promover el Fomento de las Minas).
As part of this research, we have found Mining Laws passed in 1886, 1937, 1961, 1974, 1985, 1991 and 2009. Moreover, some relevant amendments were approved in 1900, 2000 and 2013.
We have focused this paper on those topics related to the mining property system, including a description of how certain principles have changed, or not, in different legal rules and regulations. This analysis serves as the context for a further review of the legal structure set forth for the so called Exploitation Mining Contracts; in particular, the one entered into by the Republic of Ecuador and Aurelian Ecuador S. A. for the development of the large-scale gold project Fruta del Norte.1
II. Ownership of minerals and mining rights.
There are three basic ways in which a country's law can treat mineral ownership:
a) The State owns the minerals and gives private parties the right to extract and sell the minerals (known as the 'regalian' system).
b) The State owns the minerals but cannot alienate them, so mining is performed by State-owned enterprises or by private parties contracted by the government.
c) The minerals are owned by whoever owns the land in which they are located, and that land owner can transfer to others the rights to those minerals (known as the 'accesion' system). 2
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Generally, the system applied in Latin America is the one inherited from colonial times, Ecuador is no exception. With slight differences, the Mining Laws passed since 1886 have incorporated, implicitly or explicitly, the principle that the State owns the mineral resources.
This concept has evolved from implied references in the real property regulations (Civil Code) in the 1886 Law; to a general reference in the Civil Code concept of ownership in the 1937 and 1961 Laws; and finally to language directly borrowed from the Constitution's concept of domain in the 1974, 1985, 1991 and 2009 Laws.
In the first mining laws we find concepts like "All minerals and fossil substances found underground are assets directly owned by the Nation"3 or "The State directly owns the mines...as well as all minerals or substances that in veins, reef or deposits, constitute deposits or concentrations whose nature is diverse from soil".4
Interestingly, both of the previously referenced laws in other paragraphs and articles expressly state that the Nation or State domain is "inalienable and imprescriptible". These concepts are found in the consecutive mining laws, which reproduce the Constitutional principle of full and complete domain over all mines and minerals.
These concepts confirm the right of each State to exercise full authority over its natural wealth and the ancillary right to dispose fully and freely of its resources.5
In the same path, the 1974, 1985 and 1991 Laws declare this absolute State domain - inalienable and imprescriptible - over the "mines",6 "mineral deposits"7 and "mineral substances".8
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Currently, and using a similar wording, both the Constitution9 and the 2009 Law provide that "nonrenewable natural resources and subsoil products, minerals and substances other than that of soil, including the resources and substances located in areas covered by territorial sea waters and maritime areas, are the inalienable, imprescriptible, non-seizable and non-renounceable property of the State".10
III. Reserved areas and State's rights.
The role of the State varies in the Ecuadorean Mining Laws. Because there is no clear evolution from the 1886 Law to the 2009 Law, we may conclude that this is factor depending on the political cycle and the economic views and policies of the Government in office. In fact, the first two Laws - 1886 and 1937 - make no reference to a special State's right to pursue mining activities either directly or by way of a specific public entity.
This neutral position changed in the 1961 Law. It sets forth that "the State shall preferably and directly exploit"11 mineral resources. This preference can be undertaken by the State granting mining concessions to private parties if the former is "provided a fair and equitable participation in the performance of the company and upon the latter's obligation to invest a reasonable part of its profits in benefit of the national economy".12
Along the same lines, the 1974 Law mandates the State to conduct mining activities, directly or through contracts established in the Law. For the first time, this Law includes the concept of "radioactive minerals and others considered strategic",13 which shall be directly exploited by the State, or by third parties in exceptional circumstances.
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The 1974 Law is also innovative because it includes a concept that is reiterated in successive Mining Laws and that relates to the way in which...
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