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Instability in Ecuador Could Derail Energy Reform Movement
Description: Andrés Mejía Acosta,, a research fellow at the University of British of Columbia’s Liu Institute for Global Issues comments on the effects of the political upheaval in Ecuador.
Date: 18 April 2005
Author: Terrence Murray, New York
Source: Oil Daily, Energy Intelligence<br>Vol. 55, No. 74
The political upheaval pitting Ecuadorian
President Lucio Guttierez versus his opposition
— which led to a short-lived state of emergency
and the sacking of the country’s entire supreme
court — could squash long-awaited plans to
reform Ecuador’s critical energy sector.

Gutierrez appointed the judges in the fall
because he said the traditionally conservative
magistrates sitting on the bench at the time
were biased against him. Although the sacking
of the judges may have helped diffuse the country’s
volatile political climate in the short term,
analysts agree that with zero political capital left,
the days of President Guttierez’s reform agenda
are numbered. ”In the coming months it is going
to be very difficult to pass anything,“ said
Andrés Mejía Acosta, a research fellow at the
University of British of Columbia’s Liu Institute
for Global Issues. ”Right now [Guttierez] is not
committed to democracy or reform but he is
just trying to stay in power.“

Energy reform in Ecuador has been an uphill
battle regardless, but it is rendered more difficult
by the events of the past weekend. So far,
Guttierez’s attempts to overhaul the country’s oil
sector have been rejected twice by Congress,
where the president holds a razor thin majority.

The legislation would have enabled foreign
companies to gain access to producing fields
owned by state oil company Petroecuador,
which has been trying to boost lagging production
of Oriente crude. In 2004, average state
production declined 3.6% to just under
197,000 barrels per day. On the other hand,
production by private operator, benefiting from
the added transportation capacity offered by the
new OCP pipeline, surged 52% to 329,000 b/d.

Also earmarked for reform this year was the
restructuring of Petroecuador into a slimeddown,
efficient corporate entity. But in today’s
volatile climate, the corporate overhaul is not
likely to take place. ”I think the political situation
is going to delay any economic reforms at
least until the end of the year,“ said Bear Stearns
Latin America analyst Jose Cerritelli.

Ecuador’s Ministry of Mines and Energy has
launched tenders this year to revive production
at 11 oil fields, which are considered marginal
because they account for less than 1% of national
crude output. Petroecuador is organizing a bid to attract international companies to increase
output at the country’s main producing
fields, including Shushufindi, Auca, Lago Agrio
and Culebra-Yulebra-Anaconda fields. However,
these tenders have been delayed twice.

Despite what some see as a reform stalemate,
Rene Ortiz, former energy minister who now
represents private oil companies active in
Ecuador, says firms are likely ”to lobby the government
to reactivate the reforms.“ He predicts
Guttierrez could resubmit the energy legislation
by the end of the month. Petrobras Energia, a
unit of Brazil’s state oil company Petrobras
which produces about 21,000 b/d in Ecuador,
says it will maintain its $80 million exploration
and production investment slated for this year.
”We will continue our plans for developments
of our two blocks,“ said a company official.

”Furthermore, we will consider new investment
opportunities.“ Although Cerritelli maintains
that at least in the short- to medium-term reforms
are unlikely, he says Gutierrez is likely to
stay in power until next year’s elections, lifting
hopes for 2006.

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