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Cablegate: Ecuador Econ Weekly: Assembly Debates Law of the Sea, Tax

VZCZCXYZ0000
PP RUEHWEB

DE RUEHQT #0196 0591922
ZNR UUUUU ZZH
P 281922Z FEB 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC PRIORITY 8516
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 7349
RUEHCV/AMEMBASSY CARACAS PRIORITY 2885
RUEHLP/AMEMBASSY LA PAZ FEB 0912
RUEHPE/AMEMBASSY LIMA PRIORITY 2396
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 3320
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 000196

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON PHSA EFIN EPET PREL EC
SUBJECT: ECUADOR ECON WEEKLY: Assembly Debates Law of the Sea, Tax
Revenues Increase, Oil Cooperation with Venezuela;

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

Assembly Debates Law of the Sea
-------------------------------

2. (U) On February 21 Jaime Barberis, Under Secretary for
Sovereignty of the Ministry of Foreign Affairs, informed the
Constituent Assembly that the ministry supports adoption of the
United Nations Convention on the Law of the Sea, currently under
review by the Assembly's Sovereignty Committee. Adopting the treaty
would define Ecuador's territorial waters as the first twelve
nautical miles offshore (reducing their current claim of 200 miles)
and give it a 200 mile exclusive economic zone (EEZ). While
indications have been that the Assembly will indeed follow that
recommendation, the issue remains controversial. The morning of
February 28, the Foreign Minister was interviewed on local
television and - apparently in response to concerns that have been
raised -- said that more study was still needed, noting in
particular that the implications for air space territoriality had
not yet been reviewed.

Tax Collection Increase
-----------------------

3. (U) The Internal Revenue Service of Ecuador (SRI) reported
increased tax collection in January compared to last year. In
January 2008, tax revenue was $557.4 million, an increase of 29%.
This increase does not reflect the total increase that will result
from the tax law reform passed in December, however, because the
reform has not yet been entirely implemented. Because the reform's
implementation regulations have not yet been finalized, Carlos Marx
Carrasco, Director of the SRI, said that some of the $2.34 million
already mistakenly collected via the 0.5 percent tax on capital
outflows would need to be refunded.

Ecuador and Venezuela's Petroleum Relationship
--------------------------------------------- -

4. (U) On February 21, in Sucumbios province, President Correa
inaugurated a Venezuelan drilling rig, part of a drilling program
that that is supposed to increase Ecuadorian oil production by 10-15
thousand barrels. PDVSA rents the drills at a lower-than-market
price to Ecuador and provides technical support. President Correa
thanked Venezuela for the rig and announced that a second drill will
arrive in March, and that his administration plans to work with
Venezuela to increase production at a second mature Petroecuador
field.

5. (U) In March a Venezuelan ship will arrive to begin seismic
studies to quantify gas reserves in the Gulf of Guayaquil. Ecuador
and Venezuela are continuing with their crude-for-derivatives swap
progam, which supposedly has saved Ecuador S50 million dollars
(although the GOE has not published information on how the program
works).

6. (SBU) Comment: These Venezuelan/Ecuadorian projects have
received some media coverage, but with less fanfare than the initial
plans for cooperation which were announced early in 2007 but are
only now beginning to see some modest practical results.
Ironically, as the Venezuelan drilling rig was being brought into
Ecuador, some private drilling companies have been shipping their
rigs out of Ecuador because of insufficient work as private oil
companies have cut back on their investment programs. Also ironic
is that Petroecuador claims that it wants to work with the private
oil service companies to restore production in some of the same
mature oil fields where it is working with PDVSA.


JEWELL

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