Cablegate: Congress Rejects President's Petroleum Bill

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FM AMEMBASSY QUITO
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RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

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DEPT FOR WHA/EPSC FAITH CORNEILLE
TREASURY FOR SGOOCH

E.O. 12958: N/A
TAGS: EPET ECON PGOV EC
SUBJECT: CONGRESS REJECTS PRESIDENT'S PETROLEUM BILL

REFTEL: QUITO 1422

1. (SBU) Summary: The Correa administration's bill to sanction
trafficking in contraband petroleum and its derivatives was rejected
June 19 by Congress on the grounds that it was too broad, the
penalties were too heavy, it referred to more than one issue, and
certain parts of it were unconstitutional. Congress returned the
law to the President suggesting revisions. End Summary.

2. (U) The Correa administration presented Congress with a measure
to stop the rampant illegal trade in petroleum derivatives. Because
derivatives are highly subsidized in Ecuador, contraband derivatives
are often smuggled to Peru and Colombia. The issue is also
problematic in the marine sector, where fishing boats sell
contraband subsidized diesel at sea.

3. (SBU) The bill would have allowed the Ministry of Energy, the
Director for Hydrocarbons, or a designated party to essentially fine
and suspend operations of anyone they determined was permitting
trafficking, intending to traffic, or actually trafficking in
contraband petroleum or its derivatives. It specifically denied
recourse to an injunction ("recurso amparo") or administrative
review for those sanctioned. A U.S. oil company expressed concern
that the bill provided for fines and payment of damages for
unspecified contract violations, which they feared could be used
against them or other foreign oil companies. Fines for many
violations could have reached up to approximately USD 500,000.

4. (SBU) COMMENT: This is the third measure that Correa has
supported that has been rejected or substantially modified by
Congress in the past two weeks (see reftel on the Santa Elena
province proposal, septel on the banking law). While the version
Correa presented was not acceptable to Congress, it also contained
provisions to promote the development of natural gas fields.
Congress might also support more limited measures to combat
contraband. A new, more focused law could gain passage. END
COMMENT.

JEWELL

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