Eric Watkins
OGJ Oil Diplomacy Editor
LOS ANGELES, June 23 -- Ecuador’s President Rafael Correa said he is studying legal reforms that would allow his government to expel any oil companies that sue the country before international tribunals.
“If [those companies] sue us, let them sue us…but they can get out of the country. I'm not going to let these oligarchies sue the country while they continue to exploit our national riches,” Correa said over national television.
Correa said he met with newly appointed Mines and Petroleum Minister Germanico Pinto to evaluate the contracts that his government has with oil companies as well as the lawsuits that some of the firms have filed with international institutions.
“How is it that there are companies that are suing us but keep working here,” Correa asked, referring to complaints filed by oil companies against Ecuador before the International Center for Settlement of Investment Disputes (ICSID).
“If they sue us, fine, but they can get out of the country,” Correa told his audience, adding that he was not going to put up with “so much disrespect to the country” and that “We’re studying the legal considerations.”
He said that in the past IOC’s have “filled their pockets with money” from contracts that guaranteed them a price of $15/bbl for crude while leaving just $3/bbl for Ecuador.
The president also noted that despite their extraordinary profits, the oil companies formerly never saw a revision of their contracts even when the price of crude rose sharply on the international markets.
By contrast, Correa said he imposed a rule obliging the companies to hand over to the government up to 99% of their wind-fall profits. In response, he said, the oil companies simply sued Ecuador before the ICSID.
However, Correa said that IOC’s “are not on the same level as the government…it’s not an equal-to-equal relationship: it’s the relationship of a sovereign state, owner of the oil, with a company that comes to extract our oil.”
He said, “That means it’s more like the dependent relationship of employer and employee.”
According to analyst BMI, Correa’s threat “comes amid a proliferation of cases against his government.”
Citing reports in the El Comercio newspaper, BMI said that three more companies are expected to announce the launch of legal proceedings in the near future, including Argentina's Compañía General de Combustibles (CGC) which operates around 30 service stations under the Puma brand.
But the analyst also issued a warning: “If Quito carries through with its threats and terminates the contracts with all the legal claimants, it is difficult to see how the country will be able to attract the investment it needs to stem the decline of national oil production.”
That statement coincided with reports that state-owned Petroamazonas SA is seeking partners to develop the Paka Sur, Panacocha and Block 31 projects in Ecuador's eastern jungle.
According to Wilson Pastor, the company's general manager, Petroamazonas needs $844 million, of which 86% will be invested by partners, to develop the three oil projects.
Petroamazonas is a Petroecuador unit which operates fields that were formerly held by Occidental Petroleum Corp. and later seized by the Ecuadoran government. Occidental has since taken its claim for compensation to the ICSID, marking one of the lawsuits that Correa railed about.
Meanwhile, signaling further trouble for Correa, Chevron Corp.'s Vice-President and General Counsel Charles A. James last week said Chevron won't settle a multibillion dollar legal battle with indigenous people in Ecuador. To the contrary, James said that Chevron would go down a long path in resisting enforcement, if it should lose the case now being tried before an Ecuadoran court.
James reiterated Chevron's claim that the lawsuit is a judicial farce and said the Correa government has been heavily intervening in the proceedings and all but siding with the plaintiffs.
The lawsuit stems from alleged environmental damage by Texaco, later acquired by Chevron, in the Ecuadorean Amazon region. Plaintiffs claim the company used out-of-date technology which led to the environmental damage.
Chevron claims the Ecuadorean government and state-owned Petroecuador failed to clean up after Texaco had finished its own remediation efforts, which the country's government at the time had approved.
Contact Eric Watkins at [email protected].