Court sides with U.S. oil firm over Ecuador tax row

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QUITO (Reuters) - An international tribunal has ordered Ecuador to temporarily halt demands to charge U.S.-owned City Oriente a controversial windfall oil tax approved last year, according to court documents released by the company Wednesday.

The action by the World Bank International Center for Settlement of Investment Disputes could help other foreign oil companies make their case against the windfall tax that they say hurts their operations in South America's No. 5 oil producer, industry sources said.

President Rafael Correa shocked investors in October by hiking the tax to 99 percent from 50 percent of the extra oil revenues generated by companies above a contractual price.

Correa, who plans to boost state control over the key oil sector, also wants companies to switch to contracts in which the state will keep all the oil they extract in exchange of a service fee. Most companies have already started talks with the government over the tax and new contracts.

Spain's Repsol and China's Andes Petroleum have threatened to seek international arbitration against Ecuador over the tax hike.

An oil ministry spokesman declined to comment on the court's ruling. The Ecuador attorney general's office has refused to recognize the tribunal's jurisdiction in this case and has not assigned defense lawyers, a government spokesman said.

City, a Panama-based company that produces around 3,000 barrels of oil per day, filed an arbitration claim against Ecuador last year to challenge the windfall tax.

Ecuador's state oil company earlier this month called for the termination of the contract with City for refusing to pay $28 million in windfall royalties. A contract termination could lead to the state take over of the companies' assets.

Petroecuador chief Carlos Pareja told Reuters the company "will seek to charge those debts despite the court's ruling."

Among the provisional measures the tribunal has also ordered Ecuador to refrain from seeking legal actions against the company. These measures are temporary because the tribunal still has to make a final ruling on City's claim.

Other companies affected by the windfall tax hike includes Brazil's Petrobras and France's Perenco. Private oil companies extract nearly half of Ecuador's daily output of 500,00 barrels.

(Reporting by Alonso Soto; Editing by John Picinich)