The hydrocarbons ministry announced on 25 August that international auditors would be brought in to help formally revise the technical and financial terms of five major energy projects in the country. All the contracts were awarded by the previous government, exacerbating the very public spat between President Lenín Moreno and his predecessor Rafael Correa (2007-2017).
These five projects include Ecuador’s main Esmeraldas refinery, which faces closure for 45 days for essential repairs, according to Hydrocarbons Minister Carlos Pérez. Pérez in mid-August said that the refinery, recently upgraded at a cost of just over US$2bn, was in a “critical” state. Most critically, serious problems have been identified with the main catalytic cracking unit, the core of the unit. The refinery is also currently unable to process its sulphur emissions risking environmental pollution, while there have also been rolling problems with the main electric power generator.
Esmeraldas has a refining capacity of 110,000 barrels per day (bpd). Its planned seven-week closure will cost up to US$1.4bn a day, according to Pérez. The stoppage will also oblige the state oil company Petroamazonas to purchase additional imports of oil derivatives to serve the domestic market, which will significantly push up the cash-strapped country’s import bill for the duration.
Also facing audit is the planned Pacific refinery (on which over US$1.5bn has already been spent to date), as well as the US$85m Bajo Alto LNG plant, the US$623m Pascuales-Cuenca multi-use pipeline (awarded to the Brazilian construction firm Odebrecht), and the US$607m Monteverde-El Chorrillo LPG pipeline and gas terminal, 97km west of the coastal city of Guayaquil. In total, these five concessions have cost the state US$5bn to date. Depending on the audit, Ecuador may now seek compensation from those companies that carried out the work. This includes 10 local and foreign companies awarded contracts for the Esmeraldas upgrade.
Along with the main investigation into Odebrecht’s bribery of senior officials to secure major works contracts, plus other suspected cases of public procurement-related corruption, this process will do little to ease investor concerns about doing business in Ecuador.
Foreign direct investment (FDI), which remained stagnant at less than 1% of GDP throughout Correa’s decade in office, was just US$176m in the first quarter, according to preliminary balance of payments data from the central bank (BCE). Despite official efforts to drum up interest in the mining and manufacturing sectors, investors remain wary.
Even as Esmeraldas stalls, Petroamazonas gets output up
Petroamazonas produced 444,000 bpd of oil on average in the first seven months, 78% of total national output. This reflected the company’s sustained efforts to boost stagnant output by opening up new fields, including the Ishpingo-Tambococha-Tiputini (ITT) protected Amazon reserve. (By contrast, output by private producers remains in sustained decline).
Having announced that it would not stick to its Organization of the Petroleum Exporting Countries (Opec) commitment to lower output by 26,000 bpd to 522,000, Ecuador’s total national output was 541,000 bpd in July, not far off the 548,000 bpd it was producing before the Opec quotas took effect in January. First half export data indicated why the new Moreno government opted to break with its Opec quota. Oil export earnings came in at just US$3.3bn, lower than in the same periods of 2016 and 2015, and well down on the US$7.3bn reported in the first half of 2014 (before the global oil price shock hit). Having inherited a fiscal deficit of 7.5% of GDP, the finance ministry said that the government had no option but to increase oil sales beyond the agreed Opec quota.
- Glas travel ban
Accepting a request by the attorney general’s office, the national court of justice has imposed a travel ban on Vice-president Jorge Glas, who is under investigation in relation to the Odebrecht case. Ten other individuals under investigation in relation to the case, including Glas’s uncle, have already been put under preventative detention. As elected vice-president, however, Glas, recently stripped of his official functions by President Moreno, cannot be remanded. Alleging a right-wing conspiracy to tarnish the Citizens’ Revolution, Glas denies all the accusations against him and insists that he intends to remain in Ecuador to clear his name.