ECUADOR - Energy & Mining
Minister of Non-Renewable Natural Resources, Ecuador
Wilson Pástor graduated from the Universidad Pierre Mí¨ndes in France with a Master’s degree in Economics. He has been the Minister of Non-Renewable Natural Resources since April 21, 2010. His previous experience includes serving in various senior roles within Petroamazonas from 1990 to 2007. He was appointed Executive President of Petroecuador in 1999. He also held the position of General Coordinator at the Unidad de Contratación Petrolera from 1984 to 1987. He has published a wealth of material regarding the oil and gas industry and energy sector of Ecuador, for which he has received significant recognition.
Traditionally, Ecuador has focused on exploiting the oil industry. Five years ago, we also prioritized the development of such strategic sectors as mining, boosted by high mineral prices around the world and investors that looked at Ecuador as a key investment destination within the mining industry. We see the mining sector as a key industry to change the energy matrix of the country and further create a competitive economy in Ecuador at the international level. Today, the mining industry still plays a minor role in the country’s economy—2.5% of GDP as compared to 14% for the oil industry—and that is why we have yet to fully exploit the potential of the mining sector, which is still focused on the small scale. Due to the high prices of minerals in international markets, and the increasing interest in investing in the Ecuadorean mining sector, we currently have five ongoing strategic projects that we believe can give the sector the push it needs and develop rural areas of our country. In addition, we have an additional 20 junior projects that are small to medium scale in size that require high levels of investment to exploit their reserves. The government is to update the mining regulatory framework to facilitate the development of these projects, and we expect to see results in the short to medium term. Right now, the sector is structured according to a technical categorization; artisanal mining, mines with production limits, and large-scale mines. We are in the process of adding a new category, medium-scale projects, which is the key element to boost productive activity in the sector, and give more room to development and production to the small-scale mines. Small- and medium-scale mining projects don’t need a 25-year contract and can start producing immediately. A better categorization, which will be accompanied by clearer rules of the game, will be beneficial to the development of the entire sector, from small-scale projects to the largest ones.
Constitutionally, natural resources are preferably exploited by the government through either public companies or the so-called mixed economy. Ecuador is still in the first stages of development of the mining industry, and we believe that it is not the best option for a public company to get involved in projects that require large amounts of capital with high risk levels. In this context, we set up ENAMI some two to three years ago. Today, this company already has an attractive exploration and operating portfolio, and when it comes to large-scale projects, its main priority is to seek partnerships at the international level. In future, we see ENAMI as an institution capable of handling and operating large-scale projects.
Ecuador has three oil refineries; two very small, old and outdated plants, and one medium-sized refinery. They have an overall processing capacity of 175,000 barrels at the moment. The level of technology in these plants is rather low and the output of these refineries does not suit the country’s current needs. In addition, Ecuador imports oil-related goods worth $4 billion, which posses a high risk to our economy. For these reasons, President Correa decided to develop a new project, the Pacific Refinery, to change this situation and become an exporting economy in terms of oil-related products. We have completed the engineering works after redesigning the project. We envisaged a refinery plant with an initial processing capacity of 200,000 barrels to be expanded to 300,000 barrels in the second phase. Right now, we are holding talks with several companies to secure the financial resources to develop the project, and we expect to close a deal very soon with the Chinese company CNPC, which would enter the project as a partner and stakeholder owning 30% of the company; 51% would belong to Petroecuador, and the remaining 19% to Pedevesa. We hope to close a funding agreement with Industrial and Commercial Bank of China based on 70% financing and 30% equity.
We need to launch more extensive and in-depth exploration and exploitation campaigns in both the oil and mining sectors. In the case of the latter, I think the key would be to conduct geological reports and studies across the country, which would give as a better picture of the country’s future potential in the field. In terms of oil exploration, I think there is room to expand activities in the country without entering territory within the national parks of Ecuador. The new tender process is vital for the future of the industry. In this context, we have a clear strategy to diversify financial resources for the industry in order to attract more foreign investment and combine it with public capital. We also need to apply the highest international standards and technologies in these two strategic sectors through international partnerships and agreements. In addition, we increasingly promote the use of clean energies to produce electricity as well as in other productive activities in the energy sector.
We already have several companies conducting exploration works in the area, and we believe that in the near future we will see further developments in terms of production. I think Petroecuador could soon look for potential partners to carry out both exploration and exploitation activities. In this context, we have a proposal from Gazprom to come to Ecuador to develop exploration activities in the gas industry, and we will also tender some areas of the Gulf of Guayaquil very soon.
The new tendering process will bring new contracting models under tariff structures. Although we know the first round could be the hardest one, around 50% of the area already has exploration proposals. I believe that in three to four tendering rounds, we could cover the entire area. Such contract models have already been applied in countries like Iraq, Angola, and Mexico. In this context, cooperation and technological transfer between the public and private sectors are key to further boost activity in the sector. For example, recovering techniques must be improved through new and more advanced technology and methods. In addition, by boosting capital investment, we will be able to improve production and recovery figures. We think we can double production figures and the proven reserves in the country. Ecuador welcomes international companies to come to our country to invest in the oil industry.
© The Business Year – April 2013
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