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Analysis: Ecuador wants steady oil flow

Lago Agrio, a center of oil production in the Oriente region of Ecuador. Photo Credit: Chevron Corporation.
by Carmen Gentile
Miami (UPI) Nov 12, 2008
Ecuador has asked OPEC leaders to allow the country to maintain its oil production levels, despite cuts across the board for the cartel member nations, saying its federal budget depends heavily on current levels of production.

Ecuadorian Oil Minister Derlis Palacios said his country could hardly afford to cut production, which is slightly less than 500,000 barrels a day, making the South American country the smallest producer among OPEC member nations.

Palacios cited the country's dependence on oil exports to cover about 40 percent of its national budget costs as the reason for asking for the OPEC exemption.

The request by Ecuadorian energy officials appears to be the latest in a series of moves by the country to reassert its control of a sector some contend has been thoroughly dominated by outside interests over the last few years.

Earlier this month Ecuador unexpectedly reached an agreement with Spanish oil company Repsol for a temporary one-year contract. The deal came just days after the government terminated Repsol's contract.

The agreement is just the latest in a series of what amounts to renegotiations of contracts with foreign oil firms operating in Ecuador.

President Rafael Correa and foreign oil companies like Repsol, whose operations in Ecuador represent 12 percent of all production in the country, have been at odds since last year when the Ecuadorian government raised windfall taxes on foreign oil firms from 50 percent to 99 percent and restructured contracts.

Correa's restructuring of the sector initiative was bolstered in October when the leftist leader won a sweeping victory in a referendum vote on a new constitution.

Correa, an open critic of multinational petroleum corporations he says operated with impunity for decades in Ecuador, said the referendum would enable him to spend additional oil revenue on social welfare programs.

He also said foreign oil interests should be prepared to turn over a larger portion of revenues, saying his administration would "demand fair compensation" for years of oil extraction in which Ecuador was not fairly compensated, according to Correa.

Critics of the president said the success of the referendum gives Correa too much executive influence over Ecuador's economy and will lead to rampant government spending.

However, his supporters praised his insistence on greater accountability in the oil sector, where the OPEC member nation hopes to increase output for sale on the international market in the near future to capitalize on inflated prices.

"Though Correa's socialist rhetoric has roused negative sentiment among Ecuadorian elites, his policies up to now have been enormously popular among the country's poor," read a recent analysis by the Washington-based Council on Hemispheric Affairs.

Oil has been something of a mixed blessing for the South American country, which hopes to join the ranks of Venezuela and Brazil, the continent's top two oil producers.

Much of Ecuador's foreign debt, totaling more than $16 billion, was incurred during the country's recent oil bonanza, during which time most of the oil revenue went straight into the coffers of foreign countries.

Oil dominates the country's economy and accounts for some 40 percent of export earnings and one-third of all tax revenues, according to the U.S. Energy Information Administration, the Department of Energy's data arm.

The country had proven oil reserves of 4.6 billion barrels in January 2006, the third-largest in South America, according to the Oil and Gas Journal. It is the fifth-largest producer of oil in South America, producing 538,000 barrels per day of crude in 2005. More than half its oil is sold to the United States.

With a leader intent on rectifying years of what he sees as unfair oil-wealth distribution, it remains to be seen if oil firms will be willing to weather the change in attitudes in Ecuador.

"I think that the oil companies have shown that they are quite pragmatic. ... Venezuela had quite a large increase in royalties, and they are still there and still investing," Mark Weisbrot, co-director of the Washington-based Center for Economic and Policy Research, told United Press International.

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Analysis: Chad exemplies oil corruption
Washington DC (UPI) Nov 13, 2008
An oil pipeline running from Chad to Cameroon that generates more than a billion dollars annually for the Chadian government is being touted as an example of World Bank and International Monetary Fund failures to foster "fundamental measures of transparency in the oil, gas and mining industries," according to a joint report by two watchdog groups with a particular eye on the international lenders.

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