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Ecuador gives oil companies one year to change contracts
by rahul | June 14, 2008 at 04:33 pm | 569 views | 7 comments | 15 recommendations
by rahul
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,
June 14, 2008 at 04:33 pm by rahul, 569 views, 7 comments
Most RecentMost Recommended Comments (7)
at 16:41 on June 14th, 2008
rahul, I like this story. It's good stuff.
at 18:38 on June 14th, 2008
I wish Petrobras migrates out of Ecuador, Bolivia and Venezuela forever.
at 20:20 on June 14th, 2008
Ifcastro, may I bring to your attention that oil companies look for profit and not personal liking. In addition, Brazil is not a member of OPEC either. Had Petrobras found enough oil in Brazil to exploit or export, it would have certainly remained there forever. But it ventured into Latin America and Africa...looking for profits. They way your sentence was worded seemed like it had been asked by Ecuador, Bolivia or Venezuela to enter into the oil business and not the other way around.
at 06:03 on June 15th, 2008
I agree, companies are for profit and that is the matter,Petrobras belongs to the Brazilian people,government owned, I don't care if a private company goes however they want to go and make profits or loose money, that is business. Petrobras is different, that is my money, my tax investment, and I don't agree with Petrobras doing investments abroad and being used to fulfill imperialist dreams of Mr. Lula da Silva, that is realy a personal linkage, Lula is bonded to Chavez, Morales, and Correa, I wish Petrobras never go to these specially high risk markets, it is a waist of tax Brazilian tax's payers money. When I say high risk, that means lack of stability business, Bolivia, Venezuela, and Ecuador are changing laws and rules every single day, no company can afford that, specially if that company belong to tax payers. Petrobras must stay in Brazil to serve the Brazilian people, we have enough problems in Brazil, we don't need any more, or be privatized and take the path however that it will be, but without public money sponsorship, if that happens, I will not scream, it is not my problem. In a personal field I really love Venezuela, I have been there many times and it is a great place, very nice people, one of most beautiful countries I ever visited. The food is awesome too, I miss my arepa's breakfast, I have such great friends in Venezuela but that don't means I want to see my money going in that direction. Just to make sure I am clear on my point of view, what happens on the political scenario in Venezuela, Bolivia and Ecuador is not my business, I believe each of these countries have to make their choices and nobody abroad should say a word. About Petrobras, that is my problem, so I can always say however I think I should say and I don't know if Petrobras was asked to go to these countries, but I wish they had never go.
at 07:29 on June 15th, 2008
Ifcastro, thanks for expressing your personal views and concerns over this Petrobras matter. However, you never mentioned Petrobras business in Africa. What about those investments? Do they have any effect on African conflict at all? Do you feel comfortable with Brazilian investments in conflict areas in Africa at all? Maybe, regional investments in Latin America represent good and less riskier business opportunities for Petrobras.
As you live abroad, it is hard for me to think of your concerns as a taxpayer in Brazil. Do you pay taxes in both US and Brazil at the same time?
Furthermore, I am not quite sure whether Petrobras would take directions from the Brazilian public over their investment opportunities abroad. Most probably they would listen to their own economic advisers only. I imagine Petrobras would invest where it can secure profits. Risky business are all over in the financial markets. Oil business would not be different. A riskier investment usually offers faster or greater profits if successful. I can only think that like any other state-owned oil company, Petrobras profits would eventually end up in the Brazilian financial budget. By taxing its profits abroad, Brazil would force Petrobras to fund government project locally. Perhaps you should write to Petrobras to clarify such matters and let us know.
at 08:50 on June 15th, 2008
Petrobras is expanding its business all over the world that includes Latin America, Africa and North America. Actually nowadays Petrobras is the 4th biggest company of the western hemisphere, and I think they are overall doing a great job. I never heard anything about an African nation making changes on contracts and laws after Petrobras was with a contract signed and invested in a Country as Venezuela, Bolivia and Ecuador did, even not being a very stable Countries is not of knowledge Africans have nationalized Brazilian assets, like Bolivia did, confiscating over a 1.0 Billion dollars in Petrobras assets. The only reaction of Lula's government on the nationalization was agreement, I hope on my life time see Lula being prosecuted for his negligent action over the nationalization and paying back the 1.0 billion dollars of public Brazilian money he left behind.
Your question about my taxes is a kind of funny, "Do you pay taxes in both US and Brazil at the same time?" Where I pay taxes? I am a Brazilian citizen still, I did not give up my citizenship and I will never do, that is what matter, weather if I pay taxes for Brazil, US or both that is a personal issue and I am not sharing that detail here.The weather Petrobras will not taking my advising or even from any other Brazilians, I wish they would, and they will, because we vote, and the government we elect manages Petrobras. Now we have Lula, but he will not stand forever, and public opinion matters for government owned companies. Again, I have a great appreciation for Venezuela, Ecuador and Bolivia’s people and culture but I would rather to see Petrobras out of these Countries, I would like to see our 1.0 Billion dollar invested wasted in Bolivia applied in different way, inside Brazil but if not on Lula's administration, maybe on the next one. I will vote for that, I may not win, but my vote will be counted.
at 21:57 on June 14th, 2008
rahul, I like this story. It's good stuff.