Ecuador's solutions

Economic pressures continue for Ecuador, and increasing oil revenues is its best hope for relief.

Economic pressures continue for Ecuador, and increasing oil revenues is its best hope for relief.

Oil exports are Ecuador's leading source of foreign earnings. In the first 9 months of the year, those exports injected $1.6 billion into the economy.

Recently, the financially strapped government made a deal to sell crude in advance to Uruguay's state oil company Ancap and Nicaragua's Petronic.

But the big oil news last month was Ecuadorean President Gustavo Noboa's decision not to decide on a heavy oil export pipeline.

Two consortiums have been competing to build the line across the Andes Mountains. Noboa was expected to pick a winner.

Instead, he deferred the decision to Energy Minister Pablo Terán, who will continue talks with the firms and negotiate a contract with one of them early next year.

The existing 311-mile Trans-Ecuadorian pipeline is at capacity, moving nearly 400,000 b/d. The lack of pipeline space is preventing oil companies from producing more than 100,000 b/d from Oriente basin fields.

Need questioned

The OCP Ltd. consortium, consisting mostly of producing companies, have proposed a $593 million line to move up to 450,000 b/d. It would be built along a route north of the existing line.

The Williams pipeline construction firm proposed a $544 million, 434,000-b/d project following the Trans-Andean pipeline from the Lago Agrio area to the port of Esmeraldas.

State oil company Petroecuador, which produces 60% of the nation's oil exports, is anxious for the heavy oil line to be built, so it can move more light crude through the existing pipeline.

Also, the government says the construction project would be a $3 billion for the Ecuadorean economy.

But many observers say it's doubtful that there's enough production for one, let alone two, heavy oil pipelines. They say heavy oil output is about 150,000 b/d and Petroecuador could not produce that much more light crude, especially since its output has been declining since 1995.

Military budget

Meanwhile, President Noboa and Congress are at odds over the use of oil revenues to fund the Ecuadorian military.

For 30 years, the Ecuadorian armed forces automatically have received 50% of the nation's 18.5% royalty share.

That law is expiring, so President Noboa proposed an indefinite extension.

Congress balked, wanting more transparency in military spending. It voted 63-3 to give the military 45% of state royalties, or about $180 million, next year.

And it proposed that in the budget that begins Jan. 1, 2002, the armed forces would be funded only through the legislative appropriations process.

Noboa vetoed the bill. Saying that the armed forces need certainty in their funding, he proposed using 45% of the royalties for 5 years.

Congress must accept that counteroffer or muster a two thirds majority to override Noboa's veto.

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