Ecuador's Mining Industry Opposes 70 Percent Windfall Tax
January 1, 2008 4:22 p.m. EST
Vittorio Hernandez - AHN News Writer
Quito, Ecuador (AHN) - Ecuadorian mining firms are opposing a recently approved 70 percent windfall tax on the industry. The tax will destroy the margins of mining companies operating in the country, Haywood Securities mining equity analyst Eric Zaunscherb said.
Zaunscherb told Business News America, "As an economist, the President (Rafael Correa) should know that costs move up and down, as well as the (price of) commodities, and so by setting a windfall tax based on a price you can totally destroy the margins of companies operating in the country."
The new law, approved by Ecuador's constituent assembly, mandates mining firms to pay in advance income tax and other fees due on its assets. It also imposes taxes on idle lands. The windfall tax will be applied only when prices of copper, gold and other commodities exceed a benchmark, explained Ecuadorian Oil and Mining Minister Galo Chiriboga.
It sought to boost the government's control over the local economy and the nation's natural resources. President Correa patterned the windfall tax on similar levies imposed by Venezuela and Bolivia to have more control over their country's resources and for the state coffers to benefit from rising petroleum and metal prices.
A similar windfall tax was made by Ecuador on foreign oil companies. Like the mining industry, the oil industry earlier opposed the tax.
The new tax is risky for many foreign mining companies that have spent millions exploring and developing their ventures in Ecuador, but may yield zero results. It includes companies like the Torontonian Aurelian Resources and the Corriente Resources, both Canadian firms.
Zaunscherb added, "The President and the Ministers of Energy and Mines have already stated that they would go for a contractual arrangement on a one-to-one bases, so there is still a hope if i were an investor in those companies."
