Ecuador threatens oil companies with eviction

By Mercedes Alvaro

QUITO (MarketWatch) -- President Rafael Correa said on Saturday that oil private companies that don't sign new services-based contracts must leave the Andean country.

"I'm not playing," Correa said during his weekly media address. "The rules are proposed. Take it or leave it. If they don't like it, farewell and we will pay for their investments."

The Correa statement came just 10 days before the deadline he gave for the five biggest private producers to sign new contracts.

Ecuador wants to switch all current production-sharing deals with private companies to service contracts, in order to tighten its control over its natural resources.

Under service contracts, private oil companies will be paid a production fee while the government would own 100% of the oil and gas produced.

According to Correa, Ecuador's state-owned oil companies Petroecuador and Petroamazonas can assume operations from private oil companies if agreements can't be reached.

The government has set Nov. 23 as a deadline to wrap up the five biggest renegotiations with Spain's Repsol YPF SA (REP, REP.MC), Italy's Eni SpA (E, ENI.MI) and Brazil's state-run Petroleo Brasileiro SA (PBR, PETR4.BR), and Chinese Andes Petroleum and PetroOriental.

Other contracts should be unchanged until January.

Correa added that the process to change the contracts is "hard" and some companies are "reluctant" to sign new contracts, but he didn't provide further details.

Last month, in a letter sent to high-level government officials, Andes Petroleum Co. and PetroOriental said that they are concerned about the process of changing their current oil contracts, and are considering international arbitration against Ecuador if their contract renegotiations fail and there is no agreement on investment compensation.

Both companies criticized the negotiation process "by a lack of transparency and unequal conditions in terms of take-it-or-leave-it and heavy state pressure to accept the conditions quickly, without the possibility of reasoned negotiation."

The new service contracts prevent private companies from using the option of international arbitration at the World Bank's International Center for Settlement of Investment Disputes. Instead, legal conflicts would be settled at the United Nations Commission on International Trade Law, or Uncitral.

The new contracts also said that before the state pays production fees to private companies, it will retain 25% of gross income from sales of extracted oil.

A close ally of Venezuela's Hugo Chavez, Correa has ramped up state intervention in major areas of the economy, such as energy, mining and banking, and has increased spending to try to reduce poverty