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Cablegate: Ecuador Econ Weekly: Energy Bill, Energy Emergency,

VZCZCXYZ0016
OO RUEHWEB

DE RUEHQT #1842 2271621
ZNR UUUUU ZZH
O 151621Z AUG 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7558
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6819
RUEHCV/AMEMBASSY CARACAS PRIORITY 2633
RUEHLP/AMEMBASSY LA PAZ AUG 0675
RUEHPE/AMEMBASSY LIMA PRIORITY 1842
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2664
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 001842

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MMALLOY AND MEWENS

E.O. 12958: N/A
TAGS: ECON EFIN EFIS SENV EC
SUBJECT: ECUADOR ECON WEEKLY: ENERGY BILL, ENERGY EMERGENCY,
ARBITRATION LAWYERS, AND INFLATION.

REF. A: Quito 1424

B: QUITO 1794

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

Congress Approves Energy Sovereignty Bill:
------------------------------------------

2. (SBU) After rejecting the administration's initial energy
sovereignty bill (reftel a), Congress approved a revised version
August 9 after intense debate. The purpose of the bill is to
penalize traffickers of contraband petroleum derivatives. The first
version of the bill proposed extremely severe penalties and
explicitly denied recourse to an administrative injunction, which
industry and Congress rejected. The second version introduced by
the Correa administration allowed recourse to an injunction and all
constitutional rights, and reduced the penalties somewhat (although
they remained stiff). Congress further reduced penalties before
approving the bill. President Correa must review the law and
provide any partial vetoes within 10 days.

Energy Emergency; Petroecuador to Receive $358 Million:
--------------------------------------------- ----------

3. (U) President Rafael Correa declared a state of emergency in the
country's energy sector. The emergency decree allows state oil
company Petroecuador to provide subsidized fuel to thermal
electricity generators with a 90-day credit of $133 million, to be
repaid by the Ministry of Economy, and allows the government to draw
on the Feiseh petroleum reserve fund. Feiseh will give Petroecuador
$358 million that will be used to purchase equipment and materials,
and for work on two Petroecuador projects - a natural gas terminal
and restoration of the aging Esmeraldas refinery. (Feiseh receives
its revenues from petroleum sales from the former Occidental fields
that were seized by the government in 2006.)

GOE Seeks Defense Lawyers for Arbitration Cases:
--------------------------------------------- --

4. (U) The GOE has until September 15 to present its arguments that
the International Centre for Settlement of Investment Disputes
(ICSID) should not have jurisdiction in the Oxy arbitration case.
However, the attorney general's office has apparently not yet hired
a new lawyer to represent the state in its arbitration cases. The
attorney general's office began reviewing bids from three interested
law firms August 6.

Inflation:
----------

5. (U) Ecuador's National Institute of Statistics and Census (INEC)
reported that inflation increased in July (up to 0.42% from 0.39% in
June). This increase was mainly due to price increases for basic
consumption products (reftel b), whose prices increased 2.99% versus
an average of 0.15% for all other products. Even so, the annual
inflation rate remains lower than for the preceding year. Inflation
for July 2006 to July 2007 was 2.58%, while the rate for July 2005
to July 2006 was 2.99%.

BROWN

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