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December 20, 2022

Ecuador’s golden age of oil ‘has passed’

By Seth O'Farrell

Energy minister on how mining will become the country’s main source of income

After a decade under the government of president Rafael Correa and his leftist Citizens’ Revolution, followed by an unremarkable presidential term of his protégé-turned-foe, Lenín Moreno, Ecuador has pivoted since Guillermo Lasso was elected in 2021, to show the world that Ecuador is “open for business”.

Lasso has passed legislation, with varying degrees of success, to liberalise key sectors, such as oil, mining and telecoms. Ecuador’s energy minister, Fernando Santos, tells Sustainable Views’ sister title fDi Intelligence that mining will replace oil as Ecuador’s main source of income and discusses the uncomfortable legacy left by Chinese infrastructure contractors.

Q: Why does Ecuador need foreign investment in oil and gas?

A: For the first half of next year, we want to focus on the upstream of the oil and gas industry, especially oil. We believe we have huge reserves, but we need to go into secondary and tertiary recovery processes, which involve injecting water or gas and other extractive techniques, and for this we need foreign investment to assist Petroecuador to recover more oil.

We want to attract investment in two key fields, Sacha and ITT, which produce 60,000 barrels and 50,000 barrels a day, respectively. We believe that if we contract foreign companies with those two fields, we can reap the benefits of these ‘crown jewels’ of Ecuador.

Q: But isn’t the golden age of oil over? Are you not concerned about oil extraction being a sustainable source of revenue for the future?

A: I agree that the golden age of oil has passed. Oil transformed Ecuador from a poor country into a middle-income country. But we are aware that oil will not be able to support our economy forever.

Fortunately, we believe that the mining of copper and gold will replace oil as the main source of income for the coming years. There are bigger mines in the late stages of exploration that we are excited to see come online soon, as mining overtakes oil. For instance, Canadian company Lundin has recently launched a new gold exploration programme. We expect the value of mining exports to rise from $2bn in 2021 to at least $4bn by 2025.

Q: Ecuador is still considered a high-risk country for investment. What are you doing to assuage concerns among foreign companies?

A: Our reputation for foreign investment was tarnished by Correa’s presidency. Our new president has passed laws giving guarantees to foreign companies to come back to Ecuador, and has rejoined the International Centre for Settlement of Investment Disputes.

Lasso has also been active with the indigenous communities to educate them on the benefits of foreign investment. This is a big challenge — engaging with the indigenous communities. We have to right the wrongs against them. We have to work in harmony with them and make sure that the extractive industries do not destroy their lives, but rather improve them.

Q: In September, Ecuador reached a debt restructuring deal worth $1.4bn with Chinese banks. Given the corruption allegations levelled at Chinese contracts in Ecuador, is there likely to be less Chinese investment in future?

A: Yes. Chinese public contracts, such as the Coca Codo Sinclair Hydroelectric Project, have been a fiasco, not only because of the high interest rates, but because of the quality of these projects. The hydro plant is about to collapse: it has 20,000 cracks and only generates half of its capacity because there is not enough water.

We therefore want to align ourselves more with Western countries and businesses. It is not a question of excluding Chinese companies, but meeting standards and ethics. If they show as high standards as Western companies, they are of course welcome.

This article first appeared in fDi Intelligence. Image via Lundin Gold.

A service from the Financial Times