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Cablegate: Ecuador Econ Weekly: Petroleum Contracts, Business

VZCZCXYZ0003
OO RUEHWEB

DE RUEHQT #0131 0422001
ZNR UUUUU ZZH
O 112001Z FEB 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8450
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 7316
RUEHCV/AMEMBASSY CARACAS PRIORITY 2868
RUEHLP/AMEMBASSY LA PAZ FEB 0895
RUEHPE/AMEMBASSY LIMA PRIORITY 2358
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 3270
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 000131

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MEWENS

E.O. 12958: N/A
TAGS: ECON EPET EAGR EMIN EC
SUBJECT: ECUADOR ECON WEEKLY: Petroleum Contracts, Business
Outreach, New Agriculture Minister, State Mining Company

REF: 0025 GUAYAQUIL

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

Oil Contract Renegotiations Given 45 Days
-----------------------------------------

2. (U) In his January 26 weekly radio address, President Correa said
that petroleum companies would have 45 days to finish petroleum
contract renegotiations. Correa said that oil companies have three
options: accept the 99% decree on extraordinary income; change
exploration and production contracts to service contracts; or the
GOE will reimburse them for their investment and they can leave the
country. On January 30, Rene Ortiz, representative of the
Hydrocarbon Industry Association, presented a written statement from
five companies expressing their openness to change their
participation contracts to risk service contracts. However, Ortiz
claims that the GOE does not yet have a clear proposal for a new
service contract model, making the 45 day deadline for negotiation
seem clearly unrealistic.

Correa Meets with the Private Sector
------------------------------------

4. (SBU) On January 30, Correa met for seven hours with business
representatives to demonstrate that his administration is willing to
work with the business sector. Correa met with selected sector
representatives, rather than representatives of the broader commerce
and industry chambers. (Comment: when the Correa administration
took office in January 2007, it initially had almost no contact with
the business community. Over time, administration officials began
to increase contacts with specific sectors. This was the first
time, though, the Correa met a broad range of business
representatives in a public event.)

New Minister of Agriculture
---------------------------

6. (U) On January 21, Walter Poveda was sworn is as the new Minister
of Agriculture, replacing Carlos Vallejo. Poveda is an economist
from Guayaquil. In 2007, he was General Manager of the National
Development Bank (BNF), a government financial institution that
loans to the agriculture sector. Poveda also represented the
Ecuadorian rice negotiating table at the US FTA negotiations in
2003. In the past, Poveda was an importer of agro-industrial
machinery, designer and constructor of agro-industrial plants and
machineries for rice and corn. When he took office, Poveda said
that he does not agree with price controls and that he plans to meet
with sector representatives to negotiate on price ceilings. On
January 29, Poveda clarified that the GOE will maintain controls on
rice, milk, corn, bananas and wheat flour. The Ambassador had a
cordial courtesy call on the new Minister, accompanied by the
Agricultural Attache. Prospects seem good for continued, even
improved, cooperation on FAS and PL-480 programs.

State Mining Company
--------------------

7. (U) The GOE is drafting a new Mining Law that might be presented
to the Constituent Assembly in February. It appears that key
elements of the law are still in flux, but according to media
reports one provision would call for the creation of a state mining
company, along the lines of state oil company Petroecuador,
purportedly to improve regulation in the sector. The company would
focus on strategic alliances with private mining companies to
mitigate exploration risk of the state company working on projects
alone. Supposedly the first strategic alliances company would be
with the Chimborazo and Guapan Cement companies (both are state
owned) to mine limestone.

JEWELL

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