OGJ Oil Diplomacy Editor
LOS ANGELES, June 16 -- Ecuador President Rafael Correa, vowing to crack down on international oil companies operating in his country, has sworn in Germanico Pinto as the country’s oil and mining minister.
"We're going to radicalize our citizens' revolution…and that radicalization implies demanding respect," said Correa after Pinto was sworn in. "Germanico will take a much firmer approach toward all these companies that think they can still keep abusing the country."
Correa said of the companies: "They refuse to pay taxes, and on top of that, they take us to arbitration and press charges against us seeking millions,” adding, “We are heading in the right direction. These multinational companies know they can't play around with Ecuador anymore.”
Shortly after assuming his new position, Pinto—essentially playing with words—said there was no need for the government to nationalize the oil industry “because the oil already belongs to the state.”
Without providing any details, Pinto said he will promote "a deep change in…how we have been developing productive activities as well as energy and environment activities."
Pinto also said current oil prices are reasonable, adding that he sees no need for a cut in output by the Organization of Petroleum Exporting Countries, which Ecuador rejoined last year.
Pinto succeeds Derlis Palacios, who offered his resignation last month after failing to resolve several key disputes, including one with Perenco SA, which has declined to pay $338 million that Ecuador claims since raising taxes in 2007 to 99% on windfall oil earnings.
Perenco claims that the windfall tax violates its contract and has taken its case to the International Center for Settlement of Investment Disputes (ICSID), a branch of the World Bank.
In response, the Ecuadoran government seized 70% of Perenco’s output in March and tried to auction it in May, despite a ruling by ICSID calling for suspension of the sale until a final judgment had been reached.
Repsol YPF SA also has approached ICSID for resolution of the tax issue, while Occidental Petroleum Corp. has applied to ICSID for $1 billion in compensation for oil fields seized by Correa's predecessor in 2006.
Following Perenco's lawsuit, and faced with those of Repsol YPF and Oxy, Ecuador announced its intention to withdraw from ICSID on May 31, claiming that the court had a bias in favor of Western corporate interests.
According to analyst BMI, Palacios’s departure “heralds a further leftward shift of Correa's administration, whose radical agenda has been emboldened by a comprehensive victory following the April 2009 elections.”
In view of this, BMI said it expects the government to drive a harder bargain during the ongoing restructuring of the Ecuadorian oil industry, which aims to confine oil operators to a position of service providers to state-run Petroecuador.
“Given the continuously deteriorating operating terms, further exits by foreign players may be expected over the next few years,” BMI said.
BMI added, “Barring a drastic change of government, Ecuador's oil industry is set to become increasingly dominated by politically-driven national oil companies and smaller independents.”
Contact Eric Watkins at email@example.com.