Since taking office in 2007, Ecuadorean President Rafael Correa has made resource nationalism and leftist populism the hallmarks of his oil policy. He has also been known for making sudden policy shifts.
Yet in recent weeks Correa has made a series of erratic changes that suggest his oil policy is growing increasingly confused and contradictory. The flip-flops concern an environmental initiative to limit oil drilling in the Ishpingo-Tambococha-Tiputini (ITT) field. The resource, estimated to contain over 850 million barrels of oil, is in the Yasuni National Park, an Amazon nature reserve renowned for its high biodiversity.
The initiative, which Correa’s government proposed in 2007, would commit Ecuador to leaving ITT undrilled. In exchange, foreign governments and other donors would pay Ecuador $350 million a year for 10 years. However, last month Correa almost wrecked the initiative by exploding in public and excoriating potential donors.
The timing of Correa’s outburst was puzzling, as Foreign Minister Fander Falconi, who was leading negotiations with possible donors, had reported progress. Germany and Spain had promised funds, the government had said, while other European countries were interested. However, in a radio broadcast on Jan. 9, Correa went on a tirade. He denounced those two countries, alleging they were infringing on Ecuadorean sovereignty by requiring that donated funds be deposited in a trust fund under international supervision. Correa also announced that Ecuador would start drilling in ITT as early as June if funding commitments did not materialize.
Correa apparently made those remarks without consulting Falconi and his negotiating team. Falconi had in fact talked of the plan to create a trust fund during December’s Copenhagen meeting on climate change; Correa did not complain publicly at the time.
After the outburst, Falconi and other key players, including Roque Sevilla, president of the Yasuni-ITT initiative, resigned, and it seemed the proposal was dead. Yet within two weeks, Correa had changed his tune and relaunched the proposal. While the minister of heritage is now responsible for coordinating the project, Correa himself will lead the negotiating team.
Furthermore, Correa has retreated from some of his more overheated rhetoric of recent weeks. Tarsicio Granizo, undersecretary for policy in the heritage ministry, tells Energy Compass that the president no longer plans to drill at ITT in the near term. “That’s changed,” he says. “Now there is no deadline.”
Most observers admit to being taken aback by Correa’s rapid turnabouts. It may be that he thought he could bully foreign donors into relaxing their demands on Ecuador, although, if that was Correa’s plan, it appears to have backfired. Critically, analysts say Correa now faces a much harder battle to convince donors to pony up funding, since his credibility, already low, has fallen further. In addition, Correa’s tough stance seems to have had little impact on the outlines of any agreement with donors. According to Granizo, Correa has now formally accepted the idea of a trust, with just a few minor modifications to its administrative structure.
The matter has been further complicated by the government’s decision to push ahead with development of Block 31, an oil field located next to ITT that was never part of the aid initiative but still lies within Yasuni National Park.
Brazil’s Petrobras returned the block in 2008, and Petroamazonas, a Petroecuador affiliate, now says it will invest $550 million to produce 35,000 barrels per day of oil. Environmentalists say such talk raises doubts about Correa’s commitment to the park’s integrity.
Long Drift
Similarly, a process of drafting new oil contracts for foreign producers has been marked by years of drift and chaos. Since assuming power, Correa has sought to force all private oil companies into service contracts with state-owned Petroecuador. Initially, Correa slapped a 99% tax rate on production sharing contracts, forcing firms to sign interim deals. Final contracts were supposed to be released in 2008, but only came at the end of last year and have not yet been signed.
At the same time, Correa has vacillated on plans for Petroecuador. He brought the navy in to run the state oil company in 2007, hoping that military discipline would improve efficiency and reduce endemic corruption. The navy was to withdraw from the role by the end of last year, but at the last minute Correa announced it would stay for a while longer. There has also been a revolving door in the oil ministry, with four ministers holding the post since 2007. The current minister, Germanico Pinto, had almost no oil experience before taking the post in June 2009.
Some analysts suggest that Correa was never really that interested in the ITT initiative and only signed on because Alberto Acosta, energy minister at the time, was a keen supporter. However, the plan may simply have fallen victim to internal politicking within Correa’s inner circle. Some senior government officials may be more interested in reaping revenues from oil production than protecting the environment, some analysts say.
Compass Points
• SIGNIFICANCE: President Correa’s behavior in recent weeks threatened to derail a major environmental initiative in Ecuador, fueling concerns about the coherence and direction of energy policy.
• CONNECTION: Since Correa defaulted on state debt in 2008, Ecuador has been cut off from global financial markets. An emergency loan from China last year staved off crisis, but Ecuador lacks other obvious benefactors. This month the government announced it would raid the social security trust fund to pay for development of the Panacocha oil field.
• NEXT: The navy is supposed to stop running Petroecuador next month, but Correa has yet to name a new civilian head. Ecuador hopes foreign producers will begin signing new service contracts in March, but some companies are expected to balk at the terms and may exit.
