ECUADOR Trends and Developments Contributed by: Roque Bernardo Bustamante and Claudia Bustamante, Flor Bustamante Pizarro & Hurtado
vate or mixed, to participate. Interested parties must demonstrate: • prior experience in mining activity; • a track record in Ecuador; • technical capacity and economic solvency; • compliance with socio-environmental standards; • the level of investment allocated to each conces - sion; and • their economic offer for the right to subscribe to the commercial agreement. This offer cannot be less than 1% of the total pro - posed investment and must be accompanied by a bank guarantee covering 100% of the economic offer. Once the best economic offer is certified, an upward bidding process is conducted. If the best offer does not correspond to the first bidder, the latter is informed and granted the right of first refusal, allowing it to match or improve the economic offer of a third party. If the first bidder exercises this right, the agreement is awarded to it; if not, the agreement is awarded to the highest bidder. In cases where two or more offers are equal, the award is made to the bidder with the great - est number of mining projects developed. The General Manager of ENAMI EP then signs the award act, and the commercial agreement is subsequently executed. The Framework Commercial Agreement and the Specific Commercial Agreements The Regulation distinguishes between two types of commercial agreements: the Framework Commercial Agreement and the Specific Commercial Agreements. • Framework Agreement – Signed after the award act, this establishes the general obligations of the parties, execution expenses, minimum investment amounts, transfer of know-how, training of ENAMI EP staff and identification of concessions and areas of interest. Following the Framework Agree - ment, ENAMI EP requests the Ministry of Environ - ment and Energy to grant the concessions, unless they are already held by ENAMI EP. • Specific Commercial Agreements – Once the concessions are under ENAMI EP’s name, ENAMI EP and the strategic partner sign Specific Com - mercial Agreements for each mining concession. These agreements must include clauses address -
ing the technical, legal, social, environmental and economic aspects of execution; the environmental and social responsibilities of the strategic part - ner; and the formula for determining the price of assignment and transfer of concessions, which may involve payments in kind, share transfers or exploitation benefits such as Net Smelter Return (NSR) royalties (in addition to the royalties owed to the Ecuadorian State). Project valuation expenses must be assumed by the strategic partner, and the agreements must be registered with the Mercantile Registry to ensure legal enforceability. The risk of project development is borne entirely by the commercial partner, which means that ENAMI EP does not assume financial exposure during the explo - ration phase. Although ENAMI EP is not obliged to pay patentes or other mining fees, the commercial partner must pay an annual administrative fee to ENAMI EP calculated per mining hectare, and this fee cannot be lower than the patente . The term of specific agree - ments for newly granted concessions begins upon the declaration of initial exploration, ensuring that the timeline for obligations is clearly defined. Assignment of mining rights The Regulation also establishes procedures for the assignment and transfer of mining rights from ENA - MI EP to the commercial partner. Such transfer may occur once the concession has reached the advanced exploration stage, and the project has been evaluated economically using international standards. Compen - sation for the assignment and transfer of mining rights must include: • monetary compensation, which may be accepted as a cash payment or equity participation; and • a value for exploitation benefits, such as an NSR royalty, linked to production, smelting, marketing or other factors agreed upon by the parties. ENAMI EP and the commercial partner must request authorisation from the Ministry of Environment and Energy for the assignment of mining rights and sub - sequently execute the transfer agreement, which must be registered in the Mining Registry.
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