Andean Group - November 2006 (ISSN 1741-4466)

One of major policy differences between the two candidates for the presidency is over how the oil industry should develop. Rafael Correa, from the left, has no plans to expand the country's oil production but he does want to increase the state's share of oil output. Alvaro Noboa, from the right, is keen on the neo-liberal recipe of boosting output by attracting foreign investment. He wants to lower taxes and deregulate the industry. 

It is not clear whether Noboa would go as far as attempting to privatise the state oil company Petroecuador: only Argentina, of the region's oil exporters, has privatised the state oil company. Colombia is attempting a partial (20%) privatisation of its state oil company, Ecopetrol, while Bolivia is attempting to reverse, at least partly, the privatisation/capitalisation of its energy industry under previous governments.

The oil industry is vital to Ecuador economically. Oil exports bring in over half the country's total exports revenues and provide the government with 35% of its revenues. The oil industry is currently a mix of public and private sector investment. 

Ecuador produces around 550,000bpd of crude oil. Just over half this amount comes from the state oil company, Petroecuador. The rest comes from a dozen foreign oil companies. Petroecuador's production has been inflated recently by its annexation of the oilfields operated by the US company, Occidental. On 15 May, the government stripped Oxy of its right to the fields after Oxy broke the terms of its concession by selling a stake in the field to a Canadian company, Encana, which then sold the stake on to a Chinese company, Andes Petroleum.

Correa is on record as saying that he will renegotiate all contracts with private oil companies and conduct an audit of all firms. He claimed that the contracts were unfair because the foreign firms took 80% of earnings from the oil they produced. "That is absolutely unacceptable," Correa told foreign correspondents before the first round of the elections. "We're going to revise and renegotiate these contracts." 

Correa also claimed that foreign energy companies misled the government over the profitability of their operations in Ecuador. "The mafias of the right and the abusive multinationals, among them Spanish ones, have consistently violated the Constitution_I'm going to display the tax statements of some Spanish oil companies so they'll be seen like Mother Teresa of Calcutta, working here for free because they always declare losses." The only Spanish oil company that operates in Ecuador is Repsol-YPF.

During his brief stint as economy minister, Correa drew up legislation that forced private oil companies to deliver to the state at least 50% of their windfall oil revenues. These windfalls were produced by the surge in international oil prices. Correa said the contract renegotiations would seek to increase the state's share of the companies' production. 

He accused the oil companies of violating their contracts in Ecuador by failing to meet minimum established investment requirements, use environmentally friendly technology and comply with environmental standards. "It's not just (Occidental) that has broken its contract," Correa said. "There's a pattern of breaking contracts out of disrespect for the state by certain multinational companies."