Ecuador softens tone in oil deals renegotiation
Reuters - 1 hour 14 minutes ago
Alonso Soto

QUITO, Feb 1 - Ecuador is willing to temporarily maintain current deals with foreign oil firms to reach agreements in renegotiation talks aimed at increasing the state's participation in contracts, top officials said on Friday.

That signals a softer approach to talks from President Rafael Correa who has said firms should immediately switch from deals that allow them to keep part of the oil they extract to contracts permitting the state to keep that crude and pay them a service fee.

Correa, a leftist former economy minister, launched an aggressive drive last year to boost state control over natural resources, reworking oil and mining deals he says are unfair to OPEC's smallest member.

"There could be a transition period in which we will maintain participation contracts, but later move to service deals," Deputy Mining Minister Jose Serrano, who is part of the country's oil renegotiating team, told reporters. He said the duration of that period is negotiable.

In earlier comments from Vienna, Oil and Mines Minister Galo Chiriboga said there was a possibility of having "a space of transition from one contract to the other to avoid problems."

Chiriboga said some companies are opposed to immediately switching contracts with South America's No. 5 oil producer.

The U.S.-trained economist, who said oil renegotiations should end by early March, surprised investors last year by hiking a windfall tax, a move that companies said makes their business inviable.

The hike catapulted his popularity among the country's poor majority who say they were cheated out of the country's wealth.

The windfall tax forces companies to share with the state nearly all of their extra revenues above a set contractual price as they enjoy high global prices.

Some companies such as Spain's Repsol and China's Andes Petroleum have threatened to sue Ecuador over the hike. Other firms affected and also participating in renegotiations are Brazil's Petrobras , France's Perenco and U.S.-owned City Oriente.

"They are paving the way to get the public opinion ready," said a senior industry executive who asked not to be named. "This is a less radical way out and they want to save face."

A top government official involved in the negotiations said the state plans to modify current participation contracts, which would lower the windfall tax burden due to recently passed tax reforms that apply to new deals.

The reforms say new oil and mining deals will have to pay the state a 70 percent windfall tax. Correa hiked the windfall tax to 99 percent from 50 percent last year.