Author Topic: Peter Foster: The limits of Ecuador’s shakedown statism  (Read 954 times)

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Offline mayya

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Peter Foster: The limits of Ecuador’s shakedown statism
« on: October 25, 2014, 20:10:50 PM »
Peter Foster: The limits of Ecuador’s shakedown statism

Peter Foster | October 24, 2014 | Last Updated: Oct 24 9:05 AM ET

Ecuador's President Rafael Correa.
      Ecuador is run by the left-wing caudillo windbag Rafael Correa, whose hero was Hugo Chavez

      The great eighteenth century lexicographer and wit Samuel Johnson described second marriage as the “triumph of hope over experience.” How then might one characterize the tendency of Canadian mining companies to return again and again to the altar of commerce with foreign government partners who recall Glenn Close in Fatal Attraction?

      This week, Vancouver-based Lundin Group confirmed that a subsidiary would take over the Fruta del Norte prospect in Ecuador from Toronto-based Kinross Gold Corporation for US$240 million. Ecuador is run by the left-wing caudillo windbag Rafael Correa, whose hero was Hugo Chavez, the man who turned oil-rich Venezuela into a basket case.

      Mr. Correa’s preferred mode of money-raising is the shakedown. The two most spectacular examples in recent years have been an attempt, via the “Yasuni Initiative,” to blackmail the rest of the world into putting up US$3.6 billion in return for Mr. Correa (italics) not (close italics) drilling for oil in an Amazonian nature reserve; then there is a beyond-fiction trumped-up court case against California-based Chevron Corp. seeking (at last count) US$9.5 billion for alleged damage to the rainforest.

      Kinross took a massive flier by buying Fruta del Norte in 2008 for $1.2 billion when Ecuador had no clear mining policy. The company’s attempt to develop FDN turned out to be the proverbial marriage from hell. When that mining policy did emerge, its most significant feature was a crippling “windfall” tax of 70%. Kinross eventually abandoned hope.

      Lundin — a mining and energy conglomerate run by two brothers, Lukas and Ian Lundin — has the advantage of at least offering a fresh start to the relationship. However, given Ecuador’s history, one might be forgiven for thinking that Lundin’s investment is less a matter of hope than confirmation of P.T. Barnum’s insight about the birthrate of suckers.

      Still, if you’re a mining company, you have to go where the minerals are, and FDN’s estimated 6.8 million ounces of high quality gold reserves make it one of the best prospects on earth. Also – as FP’s Peter Koven noted in an analysis on Thursday— Lundin has a record of working in difficult jurisdictions, including Argentina and the Congo. Equally important, there are signs that destructive populism may be on the wane in Ecuador, indeed throughout Latin America, while anti-mining activism in Canada has also been in decline, although that may be partly due to the fact that activists have all decamped to the oil industry.

      The Harper government has stopped CIDA from funding anti-mining NGOs, and Bill C 300, which would have brought Third World standards of truth and jurisprudence to Canada in the service of holding up development, died the death it deserved. Finally, there are encouraging signs that the corporate sector is beginning to fight back against both NGO misinformation and Third World government shake-downs.

      Perhaps the most spectacular example is the aforementioned case of Chevron, which has washed up 
      on the legal shores of Canada. The case dates back to the operations of Texaco, which Chevron acquired in 2002, more than twenty years ago. Texaco in fact paid government-agreed remediation for its activities, and the area in question has since been comprehensively developed/ravaged by State oil company PetroEcuador. The Amazonian natives on whose half the suit is being brought are mere puppets for its main promoters: a corrupt, government-controlled Ecuadorian justice system, and a New York lawyer named Steve Donziger, whose case has been dubbed racketeering by U.S. courts.

      Chevron has appealed to the Supreme Court an Ontario appeals court decision that the case can be pursued against Chevron assets in Canada. Whether the Supremes decide that it can or not, a jurisdictional issue that Chevron may lose, the fact is that the cast against the California-based company is a crock, and a waste of time and money for an already clogged Canadian justice system.
      Meanwhile typical NGO tactics are being brought to bear on the case. An Ecuadorian government-linked group, Apoya Al Ecuador, is organizing a tour of Ontario and Quebec universities to promote its “Dirty Hand of Chevron” campaign. Pressure was also successfully brought on the Canadian Bar 

      Association not to issue a brief supporting Chevron’s position.
      None of this would appear terribly encouraging for anybody planning to invest in Ecuador, but while the Lundins may be entrepreneurial optimists, they are certainly not fools, and they realize that behind all the street theatre and political posturing, the Ecuadorian government is beginning to realize the limits shakedown statism. Just as 70% of nothing is nothing, so an unsuccessful lawsuit for US$9.5 billion will produce a similar result (even though that particular nothing has to be shared with unsuccessful litigation sharks and their backers).

      Whether the price that Lundin is paying for Fruta del Norte turns out to be a bargain remains to be seen, but Ecuador is beginning to show reluctant realization – in the wake of its failures at extortion — that if foreign investors don’t make a return, then neither does the government.