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Instability in Ecuador Could Derail Energy Reform Movement
Instability in Ecuador Could Derail Energy Reform Movement
Terrence Murray, New York
April 19, 2005
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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