Ecuador gives oil companies one year to change contracts

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Caracas, Venezuela, 14 June 2008. Today and during his weekly TV show and radio programme, Ecuadorian President Rafael Correa gave local oil companies one year to change the terms of their exploitation contracts as to include more governmental control.

Under the current scheme, oil companies handle the government just 18% of their exploitation. Now, Quito attempts to get control over the whole petroleum production by forcing oil companies to migrate into servicing contracts. This move, would allow companies to recover oil exploration and exploitation costs while still securing some extra revenues. Initially, Quito had given oil companies just six months to do such migration to the new servicing schemes but such lapse proved little realistic.  Oil companies were reluctant to migrate in such short period and inisisted on resolving this issue by international arbitration.

In another and related move today, the Correa government also asked oil companies to pay 70% on taxes over their increasing extraordinary revenues due to rising oil prices. It had previously asked for a 99% tax but such figure was rejected during negotiations with oil companies that insisted in bringing their case to international arbitration. After lengthy negotiation, Quito agreed to the extension from six month to one year. On the other hand, oil companies surrender the possibility of resolving disputes by international arbitration. Ecuador currently faces various legal challenges at the International Centre for Settlement of Investment Disputes (ICSID).

 The local oil companies that will have to migrate are Petrobras  (Brazil), Repsol-YPF   (Spain) , Andes Petroleum (China), Perenco (France), Canada Grande, and City Oriente  (USA).  Ecuador re joined OPEC recently. While it only produces 530,00 barrels a day Ecuador was able to export 67% of that production to international markets. Due to increasing oil prices, Quito managed to get US$7,400 millions last year alone. Oil revenues represent 35% of the income in the Ecuadorian GDP.

Sources: El Comercio, Hoy, La Hora, El Financiero, El Tiempo,