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Cablegate: Ecuador Econ Weekly: Oxy Arbitration, Reduced Import

VZCZCXYZ0001
OO RUEHWEB

DE RUEHQT #1969 2401341
ZNR UUUUU ZZH
O 281341Z AUG 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7634
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6849
RUEHCV/AMEMBASSY CARACAS PRIORITY 2654
RUEHLP/AMEMBASSY LA PAZ AUG 0697
RUEHPE/AMEMBASSY LIMA PRIORITY 1874
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2731
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 001969

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MMALLOY AND MEWENS

E.O. 12958: N/A
TAGS: ECON EFIN EFIS SENV EC
SUBJECT: ECUADOR ECON WEEKLY: OXY ARBITRATION, REDUCED IMPORT
TARIFFS, NEW ENERGY PROJECTS


1. (U) The following is a weekly economic update for Ecuador that
reports notable developments that are not reported by individual
cables.

ICSID Tribunal Denies Provisional Measures for Oxy
--------------------------------------------- -----

2. (U) On August 21, a World Bank arbitration panel denied granting
provisional measures to Occidental Petroleum (Oxy) in its
arbitration case against Ecuador for the May 2006 seizure of its
petroleum operations. The Ecuadorian Attorney General characterized
the decision as "great news" for Ecuador, although it was not
unexpected. Among the denied provisional measures was a request for
Ecuador to continue with Oxy's investment schedule and for a new
joint committee of GOE and Oxy managers to oversee operations of
Oxy's former block. The Attorney General is expected to announce
shortly the selection of the law firm that will represent the GOE in
the next phase of the arbitration process. Two U.S. firms and one
European firm are competing for the job.

GOE to Lower Tariffs on Inputs
------------------------------

3. (SBU) The GOE announced August 21 that tariffs on 1,957 products
(raw materials, inputs, and capital goods) will be reduced, as part
of a new policy to help industry and combat rising prices. Minister
for Coordination of Economic Policy and Production Mauricio Davalos
presented the new policy to members of the Council on Foreign Trade
and Investment (Comexi), who unanimously expressed their support.
Tariffs for covered goods will be reduced from 5-20 percent to 0-5
percent. As an effort to help maintain bread prices in the face of
rapidly rising international wheat flour prices, the tariff on this
input will fall from 20 percent to zero. However, one well-known
trade observer suggested that reducing the tariff for flour was a
political maneuver aimed at Alvaro Noboa, Ecuador's largest miller,
largest banana exporter and frequent presidential candidate.

New Energy Projects
-------------------

4. (U) The technical committee of the FEISEH petroleum fund for
energy sector projects (financed by revenues from Oxy's former Block
15) approved studies for funding for four hydroelectric projects.
The projects are projected to provide additional installed power of
2,175 megawatts, which would represent 64 percent of current energy
demand. However, the plants are not expected to be completed for a
number of years. Minister of Electricity Alecksey Mosquera noted
the GOE will also seek other investment in the projects.

5. (U) Venezuela plans to rent two drilling rigs to Ecuador to
facilitate oil production. Minister of Petroleum and Mines Galo
Chiriboga claims this will increase Ecuador's petroleum production
by 10,000 barrels per day.

BROWN

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