OIL-ECUADOR: Fate of State Enterprise Up for Bid

By IPS Correspondents Reprint | | Print |

Kintto Lucas

QUITO, Apr 24 2003 (IPS) - The debate in Ecuador about the future of the state-run oil company Petroecuador heats up apace with government efforts to attract private investment to the country’s petroleum industry.

Amidst the recent wrangling within the Lucio Gutiérrez government about this pillar of the national economy came an offer for technical assistance from another government enterprise, Petróleos de Venezuela (PDVSA), which has its eye on a regional strategic alliance.

Despite the continued controversy about oil industry privatisation, international bidding opened Thursday for private concessions to operate Ecuador’s major oil fields Shushufindi, Sacha, Libertador, Auca and Cononaco, located in the Amazon region and currently in the hands of Petroecuador.

Average daily production in March at Shushufindi was nearly 56,000 barrels (159 litres each), at Sacha 41,00 barrels, and Auca more than 16,000 barrels – three oil fields whose combined output was more than half the total average daily production in all Ecuador.

The bidding process, the first involving Petroecaudor’s productive oil wells since the 1993 fossil fuel reform law, is part of the petroleum plan laid out by energy and mining minister, Carlos Arboleda. The Petroecuador board last week approved the plan, although the workers’ delegate voted against it.

The initiative includes ceding other oil fields in concession for exploration and exploitation, updating the refineries and building terminals for storing petroleum derivatives and liquefied gas, and construction of new oil and gas pipelines.

Mounting a strong opposition to admitting private capital in Petroecuador is the indigenous movement, particularly the Pachakutik Plurinational Unity Movement, one of the leading members of the coalition that put Gutiérrez in the presidency in January.

This highly organised and powerful social and political force is not letting up in its efforts to fight the move towards privatisation.

And the political climate has rarefied in the past three weeks amidst debate about the possible privatisation of Petroecuador and the alliance with PDVSA.

Two ruptures in the Trans-Ecuador Pipeline, which caused environmental damage in the Amazon, and an explosion near Quito at a gas-oil pipeline, which killed several people, were seen by trade unions and President Gutiérrez as possible acts of sabotage intended to better the chances of selling off Petroecuador.

Petroleum is the leading source of revenues for Ecuador, with exports surpassing 2.1 billion dollars annually, representing 30 percent of the state budget.

"There are pressures from economic groups linked to the oil sector that want the state to hand over the exploitation of fossil fuels completely," says oil expert and Petroecuador auditor Henry Llanes.

"Many groups have been insisting since 1998, pressing the various administrations, that the petroleum industry should be managed by them, not the state," Llanes, a former parliamentarian for the Democratic Left and currently with ties to the oil trade unions and the Pachakutik movement, said in a conversation with IPS.

The past few governments have been in tune to those interests, says Llanes, "which has generated a scenario of economic asphyxiation with the financial boycott from the ministries of Economy and Finance and of Energy and Mining."

"As a result of that pressure, investment in Petroecuador diminished and a propaganda campaign was begun through the media to discredit the state-run oil company," he said.

One of the commitments in the letter of intent that the Gutiérrez administration signed with the International Monetary Fund (IMF) in February was to implement a 200-million-dollar cut in state investment in Petroecuador this year.

"Economy and finance minister Mauricio Poso is promoting a policy similar to that of previous governments, reducing the budget so that the enterprise will collapse, in spite of the fact that a large part of that budget is sustained by petroleum exports," commented Llanes.

The digging of Petroecuador’s grave, says Llanes, began in 1993, when then-president of Ecuador, Sixto Durán Ballén (1992-1996), pushed through the fossil fuel reform law.

The change in legislation enables the "transfer to private capital, national or foreign, of the entire petroleum industry, beginning with exploration and exploitation, transport and storage, refining and marketing," he said.

Foreign investment is appropriate if the established terms are beneficial for the country, said the expert. But because "Petroecuador was excluded from the latest oil bidding processes, 90 percent of fossil fuel exploration and exploitation is carried out by private firms."

All of the oil wells in the Ecuadorian Amazon are run by foreign firms, through contracts for partnerships or joint management implemented by interim president Fabián Alarcón (1997-1998).

Llanes sees granting concessions for the five oil fields up for bidding as of Thursday as leaving Petroecuador virtually without any oil producing power.

If private participation in the petroleum industry is to benefit the country, the rules of the game would have to change, he said. "It is essential to define the percentage of participation for these private firms and for the state, the amount of royalties that should be paid, and require the payment of export taxes and tariffs."

In Venezuela, for example, President Hugo Chávez boosted the required royalty payments from 18 to 30 percent, and the private oil companies were not pleased, but they ultimately accepted it, Llanes said.

"That is why future assessment from Venezuela is a positive step," he added.

PDVSA executives pledged last week to provide technical assistance to Petroecuador, and Venezuelan representatives visited Ecuador to discuss joint projects involving the two Andean nations.

The plans involve assessment in fossil fuel exploration, drilling and refining, as well as rehabilitating abandoned oil wells, marketing high-octane gasoline and natural gas, and distributing lubricants under the Petroil trademark.

Mario Isea, adviser to PDVSA president Alí Rodríguez, said that the results of the visit will soon be presented in a report to the company’s board in order to determine what sort of accords should be pursued.

"In this way we can clearly define how Venezuela can best provide technical or economic assistance, and thus for which different areas agreements would need to be signed," added Isea, coordinator of the multidisciplinary PDVSA team that visited Ecuador.

PDVSA is the largest oil company in South America and one of the word leaders, with daily output surpassing three million barrels.