Reuters
Spain's Repsol sues Ecuador over windfall tax
06.12.08, 11:47 AM ET

Ecuador - (Recast, adds analyst's quote, details and background)

QUITO (Reuters) - Spanish oil company Repsol sued Ecuador in international court over a windfall tax, a company spokesman said Thursday, following a string of suits filed by foreign companies that say the tax hurts their businesses.

Repsol filed arbitration at the World Bank International Center for Settlement of Investment Disputes over a windfall tax that forces oil companies to hand to the state nearly all its extra revenues above a set contractual price.

"We have to protect the interest of our partners and shareholders," said Federico Cruz, Repsol's spokesman in Quito. "We hope to reach an agreement (with Ecuador) and immediately remove the charges."

Ecuadorean President Rafael Correa is renegotiating foreign oil contracts to boost the government's share of revenues and downgrade companies' standing from joint ventures to only service operators in South America No 5 oil producer.

The leftist former economy minister wants the state to keep all the oil extracted by the companies and pay them a set fee for their services amid record high oil prices.

Correa is reworking deals with foreign mobile phone operators and plans to rework mining deals in the Andean nation to increase the state control over the economy.

"Correa is running the risk of scaring away current investors in the oil sector unless he is willing to quit his demands of service contracts," said Patrick Esteruelas, an analyst with Eurasia Group in New York.

Other companies renegotiating their deals with Ecuador are Brazil's Petrobras, China's Andes Petroleum consortium and France's Perenco.

Repsol has paid $529.4 million in windfall taxes since 2006 when the law was approved until late May. Ecuador originally approved the law to force companies to pay at least 50 percent of their extraordinary revenues, but Correa surprised investors last year by hiking the tax to 99 percent.

Smaller companies like U.S.-owned City Oriente, Murphy Oil Corp (nyse: MUR - news - people ) and Burlington have already filed suits against Ecuador over the windfall tax. (Reporting by Alonso Soto and Alexandra Valencia; Editing by Christian Wiessner)