QUITO (Reuters) - Conflicts with indigenous communities have stalled operations at Ecuador’s San Carlos Panantza copper mining project, which the government of President Lenin Moreno had long pointed to as an example of mining sector expansion that would generate $40 billion in export revenue over the next decade.

Many now view the $3 billion project bankrolled by China’s ExplorCobres S.A. as emblematic of the turmoil impeding Ecuador’s push to become an Andean mining power to rival Peru and Chile.

The project had been slated to start exporting copper this year, but a dispute with the Shuar indigenous community led ExplorCobres to halt the project nearly two years ago, according to the country’s mining authority, which says the company does not believe conditions on the ground are suitable to resume work.

Unknown assailants in March set fire to mine installations and stole equipment.

In a series of complaints, indigenous groups say the government did not adequately consult them about projects. The strife is undermining Ecuador’s ambitious plans to develop large-scale mining as an alternative to its oil industry.

“There is not a consensus on what role mining should play in the development of economy, and communities often feel like they’ve been run over,” said Sergio Guzman, Andean region director for consultancy group Colombia Risk Analysis.

“A conciliation is needed between the (government’s) mining objectives, and how this results in (benefits) for the communities.”

AMPLE DEPOSITS

Of the five projects with $7 billion in investment that form the backbone of the mining effort, two - including San Carlos Panantza - have completely halted. A third is relocating some facilities due to local opposition.

Other projects that are less advanced face pushback from local leaders still unconvinced their communities will benefit from an industry plagued by worries about environmental damage and limited job creation.

On Wednesday, Ecuador’s electoral court approved a referendum to be held in February that will ask voters if they want to outlaw mining near rivers that run through the city of Cuenca. The results would be binding but not retroactive.

Mining industry leaders complain that such referendums change the goal posts on projects that were developed under a different set of guidelines from Ecuador’s government.

The resistance could undermine Ecuador’s efforts to generate tax revenue to ensure a return to economic growth and bolster state finances after an IMF-backed debt restructuring plan this year.

Ecuador lags Chile and Peru in mining development despite having what are believed to be ample deposits of copper and gold. It has not completed enough exploration to determine total mineral reserves, according to the government.

The industry will generate about $4 billion in tax revenue and some $40 billion in export earnings over the next decade, according to the government’s most conservative estimates.

Mining Deputy Minister Cesar Vasquez told Reuters in a recent interview that Ecuador is prepared to adjust timeframes so concessions do not expire due to social conflicts. Still, he acknowledged that community resistance was dampening investor enthusiasm.

“There are people who are opposed to mining activity and they are going to (oppose it) with or without the law,” he said. “The state will always act within the law to defend the interests of the country.”

STANDOFF

Ecuador’s mining effort can boast some success stories.

The Fruta del Norte gold mine led by Canada’s Lundin Gold Inc is already exporting. The same is true of the Mirador copper mine owned by a subsidiary of Chinese consortium CRCC-Tongguan Investment, the ultimate parent of ExplorCobres.

Canada’s Solaris Resources, in charge of the now-exploratory Warintza copper-molybdenum project, created a strategic alliance with two communities of the Shuar people in September after three years of dialogue.

But community opposition has taken its toll - particularly at San Carlos Panantza, which has never been on good terms with the local community.

“The government approved concessions years ago without providing information and without the knowledge of the Shuar-Arutam people,” said Josefina Tunki, president of the Shuar-Arutam. “The people have said ‘no’ to having this large-scale extractivist company in our territory.”

Indigenous activists said the mine’s first camp in 2016 displaced eight families and eliminated the ancestral village of Nankints, triggering a standoff with the Shuar people that year that left one police officer dead and five wounded.

Then-president Rafael Correa described them as a “minuscule group of extremists,” denying the area was ancestral territory and ordering a military occupation.

ExplorCobres did not reply to a request for comment.

In March, it issued a statement condemning the attack on the project, calling them “delinquent acts by armed groups that came from outside the zones of influence of the project.”

Moreno, elected in 2017, hoped to turn the page on the incident. But by 2018, the mining authority had agreed to indefinitely extend the time frame during which ExplorCobres could carry out exploration, citing social conflict.

The Shuar people filed a lawsuit to have the entire project scrapped and demanded damage payments from ExplorCobres for the forced displacement of its people, but the case was thrown out by a provincial court in 2019.

The Shuar are now taking the fight beyond Ecuador’s borders, saying in November they will file a complaint with the International Labor Organization against Ecuador. The complaint will argue that granting the mine concessions without the group’s permissions violates ILO statutes on the rights of indigenous peoples.

Though an ILO decision alone would not alter the course of the mine, a negative recommendation would pressure authorities by staining Ecuador’s reputation in the diplomatic community.

The office of Ecuador’s attorney general, which represents the country in international legal disputes, said it had not been informed about the complaint.

“We will never allow extractivist companies into our territory, we want to live in a territory without pollution,” said Tunki at a press conference.