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Cablegate: Ecuador Econ Weekly: Petrobras Gets Environmental License;

VZCZCXYZ0006
OO RUEHWEB

DE RUEHQT #2426 3041601
ZNR UUUUU ZZH
O 311601Z OCT 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7986
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 7021
RUEHCV/AMEMBASSY CARACAS PRIORITY 2729
RUEHLP/AMEMBASSY LA PAZ OCT 0770
RUEHPE/AMEMBASSY LIMA PRIORITY 2053
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2977
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 002426

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MMALLOY AND MEWENS

E.O. 12958: N/A
TAGS: ECON ETRD EINV EPET EC
SUBJECT: ECUADOR ECON WEEKLY: PETROBRAS GETS ENVIRONMENTAL LICENSE;
MACHALA POWER LAWSUIT REJECTED; RICE EXPORT BAN

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

Environmental License Granted to Petrobras
------------------------------------------

2. (SBU) On October 23, the GOE granted an environmental license to
Brazilian oil company Petrobras, which would allow it to start
commercial production in Block 31 in 2009. The GOE initially
granted Petrobras the environmental license in 2004, but the
Ministry of Environment suspended it in August 2005 due to
environmental sensitivities over the block being located next to the
Yasuni National Park. The issuance of the license comes on the
heels of a surprise GOE decree to increase the state share of
foreign oil companies' "extraordinary oil revenue" to 99 percent and
threats to Petrobras for nonpayment of extraordinary revenues over
the last year.

3. (SBU) Petrobras had previously anticipated investing $300 million
to obtain up to 40,000 barrels of crude per day from the block, but
plans are now on hold pending contract renegotiations with the GOE
over the "99 percent" decree. The company argues that its new
environmental plan contains proposals that will reduce the
environmental impact of drilling; for example, it plans to minimize
access routes to the oil field, bury pipelines underground, and
place the oil processing center outside Yasuni National Park.
However, several environmental organizations and indigenous groups
oppose the decision, arguing that it will damage the Amazon
ecosystem.

Machala Power Lawsuit Rejected
------------------------------

4. (SBU) The Tribunal of Administrative Disputes of Quito rejected
U.S electricity company Machala Power's lawsuit against Conelec and
Categ October 16 for administrative reasons. Machala Power had
filed a case against the National Council of Electricity (Conelec)
and the Temporary Administration Corporation of Guayaquil (Categ)
for nonpayment for electricity generated and sold to Categ in 2004
and 2005. The company demanded USD 77 million in payment. The
court claimed it did not have jurisdiction over Categ because the
company is registered in Guayaquil, and in addition does not take
commercial cases. This was not an unexpected outcome. Meanwhile,
Machala Power is proceeding with international arbitration because
of the payment arrears, but maintains that it would prefer a
negotiated settlement.

Ban on Rice Exports Leads to Increased Contraband
--------------------------------------------- ----

5. (SBU) Despite a September ban on rice exports from Ecuador
intended to prevent domestic rice prices from increasing, members of
the Rice Industrialists Corporation of Ecuador (Corpcom) claim
Ecuadorian rice is being smuggled over the border to Colombia and
Peru where prices are higher. Corpcom representatives made a
statement October 23 demanding the GOE exercise greater control of
the borders. According to Hugo Poveda, Corpcom's President, the
prohibition was initially effective in controlling rice prices but
contraband is now causing prices to rise.
JEWELL

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