The Attempted Ecuador Coup in Context: Update 1, 2

Posted on October 1, 2010

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Ecuadorian President Rafael Correa, after being gassed by the Ecuadorian national police.

Sometimes in the rush to get a story out there, and enamored of one’s own apparent brilliance, you put something out that’s completely wrong. This is one of those times. In my own defense, I did state repeatedly that there were many possibilities. But, after months of following Eucador, reading scholarly accounts of the so-called coup, and searching for some sign of oil-based malfeasance, I find none. NACLA has a pretty good analysis of the event, from a perspective rooted in a deep understanding of the historical and current context of the police force as a social institution in Ecuador, which you should read if you get the chance in the April issue which is out now, but not available on line. It’s always difficult to admit great errors, but also necessary. J.O.Y. 4-23-11

Surely there’s much more to be written about the attempted Ecuadorian coup. The golpe, ostensibly about wages for military nationl police personnel and officials, must be viewed in the context of the small OPEC country’s recent attempts to recalibrate its relationship with foreign oil giants. According to Reuters, in mid August, the government of Rafael Correa was  in the midst of renegotiating the terms of the foreign oil concessions that represent over forty percent of its oil production.  The Correa government sought to reconfigure its relationship, taking:

85 percent of revenue under a new round of contracts to be negotiated with private petroleum companies…

Companies currently hand over an average of 65 percent of revenues. Firms that do not sign the new deals will be paid for their assets in Ecuador and must leave the country, President Rafael Correa has said.

I don’t imply that I know any of the answers. It’s quite possible that the military coup actually is one rising from dissatisfaction of the military national police officials as a whole.  Ecuador would not be the first country in the developing world forced to cut services and funds to public sectors because of austerity measures demanded by foreign capital and domestic elites; and it’s not that hard to imagine that an armed public sector could revolt independently for such reasons. But it does seem rather coincidental that another Latin American country, rich in oil, and friendly with Latin America’s “bad boy” rulers, endures a coup just a month or so after it attempts a more beneficial restructuring of its oil accounts.

I also want to note that there’s absolutely nothing here that I’ve written that suggests a US sponsored coup. Quite the contrary, Latin American elites are more than capable of upending their governments whenever they see the interests of foreign capital at risk. Like virus-addled bots, such elites have no choice but to view their country in the same way that foreign elites do, lest their standard of living decrease by a few percentile, forcing them to give up their yacht club membership.

The New York Times is reporting on the coup as a military pocket-book insurrection. We’ll see how closely that hews to the reality in the coming days.

Update 1: I used the term military when I first wrote about this. That’s not accurate, and will lead to confusion since a branch of the military intervened on Correa’s behalf. Like many Latin America countries, there’s often no functional difference between national police and the military; and in Ecuador’s case, the National Police, are a subdivision of the military. It’s probably imprecise to call them police in the United States context, because the Ecuadoran National Police are certainly not what we think of when we say police, that is small autonomous and decentralized units. They are much more  like a military. However, just trying to keep things clear.

Update 2: Platt’s Oilgram News (August 19, 2010) reported that:

Ecuador has given foreign and private oil companies deadlines to reach agreement with the government on new exploration and production contracts, oil minister Wilson Pastor said August 17.

Companies with larger contracts such as Chinese-owned Andes Petroleum, as well as Petrobras, Agip and Repsol, will have until November 23 to reach a deal, while smaller producers will have until January 23, 2011, Pastor told reporters in Quito, according to comments reported by the government newswire ANDES.

“We expect to complete the negotiations on the fee during the month of October for the large fields and in December for the rest of the fields, leaving us with prudent time of several weeks to formalize the contracts, instruments, and approvals of each of the contracts,” Pastor said.

So, again, odd timing. Petroleum Intelligence Weekly emphasized that:

The country’s leftist president, Rafael Correa, may in fact want to drive some companies out and take over their fields, suggests a source at one company with a contract to renegotiate. He may also want to offer more attractive terms to firms from Quito’s international political allies, such as China. The government has certainly been playing hardball with Western investors over the past year or so — in July last year, it seized fields belonging to Perenco after the privately owned French independent balked at replacing its existing PSA with a temporary one, and earlier this year it began proceedings to take back gas blocks operated by US-based Noble Energy, alleging that Noble had not met its investment commitments.

For those companies that decide to reject the new contract terms and quit, the path ahead is not entirely clear. The government has not disclosed how it will pay compensation, and there are now question marks over how readily Quito would accept international arbitration ( PIW Feb.16’09,p2 ). The compensation issue is complicated by the hole declining oil output has left in Ecuador’s public finances — indeed, recent contract uncertainty has prompted private companies to reduce investment in the country, and oil production is now around 480,000 barrels per day, down from 520,000 b/d in early 2008. Furthermore, Ecuador this year formally left the World Bank’s International Center for Settlement of Investment Disputes, and it is not now certain that the government would respect any international arbitrator’s findings in favor of a foreign company.

I’ve also written about the curse of resource wealth in other contexts here:


Ecuador has given foreign and private oil companies deadlines to reach agreement with the government on new exploration and production contracts, oil minister Wilson Pastor said August 17.

Companies with larger contracts such as Chinese-owned Andes Petroleum, as well as Petrobras, Agip and Repsol, will have until November 23 to reach a deal, while smaller producers will have until January 23, 2011, Pastor told reporters in Quito, according to comments reported by the government newswire ANDES.

“We expect to complete the negotiations on the fee during the month of October for the large fields and in December for the rest of the fields, leaving us with prudent time of several weeks to formalize the contracts, instruments, and approvals of each of the contracts,” Pastor said.

Petroleum Intelligence Weekly
August 30, 2010
Ecuador Starts Contract Talks With Investors

SECTION: FEATURE STORIES

LENGTH: 601 words

For private oil companies operating in Ecuador, the uncertainty over their future will soon be over. This month the government formally presented its long-awaited new contract model, which would replace private operators’ existing production sharing agreements (PSAs) with service deals with state Petroecuador. Quito says companies that do not sign up to new deals will have to leave the country, although they will be compensated for past investment. Most contracts will have to be renegotiated by a tight Nov. 23 deadline, although operators of fields designated as marginal will have an extra month. Contracts will be renegotiated on a rolling basis, the energy ministry says, with Spain’s Repsol YPF

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and Sipec, a subsidiary of Chile’s state Enap, up first. In total, 33 contracts with 13 firms are in line for renegotiation.

The government claims the new contracts will raise its share of oil revenues to 85%-90% from a current average of 65%. The new contract model reserves 25% of gross oil revenues up-front for the state, with Quito paying private firms a fixed rate per barrel produced out of the remaining 75%. Companies will pay a 25% income tax and must reserve 12% of their net earnings for development projects in the communities where they operate, plus 3% for oil workers.

That revenue projection assumes that all private companies stay put, and industry sources suggest at least some will opt to negotiate their exit from the country rather than accept the new terms. The main sticking point will be the rate of return Quito offers companies via the fixed payments. The energy ministry insists firms will make a reasonable profit — 15%-18% for fields currently in production and 18%-22% for new fields needing investment to bring them on stream. It has not explained how fixed payments will be set, although it has said that actual rates will vary by company to reflect differences in the size of each firm’s fields, the quality of crude produced and the distance between fields and pipeline infrastructure.

The country’s leftist president, Rafael Correa, may in fact want to drive some companies out and take over their fields, suggests a source at one company with a contract to renegotiate. He may also want to offer more attractive terms to firms from Quito’s international political allies, such as China. The government has certainly been playing hardball with Western investors over the past year or so — in July last year, it seized fields belonging to Perenco after the privately owned French independent balked at replacing its existing PSA with a temporary one, and earlier this year it began proceedings to take back gas blocks operated by US-based Noble Energy, alleging that Noble had not met its investment commitments.

For those companies that decide to reject the new contract terms and quit, the path ahead is not entirely clear. The government has not disclosed how it will pay compensation, and there are now question marks over how readily Quito would accept international arbitration ( PIW Feb.16’09,p2 ). The compensation issue is complicated by the hole declining oil output has left in Ecuador’s public finances — indeed, recent contract uncertainty has prompted private companies to reduce investment in the country, and oil production is now around 480,000 barrels per day, down from 520,000 b/d in early 2008. Furthermore, Ecuador this year formally left the World Bank’s International Center for Settlement of Investment Disputes, and it is not now certain that the government would respect any international arbitrator’s findings in favor of a foreign company.

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