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FM AMEMBASSY QUITO
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA
RUEHCV/AMEMBASSY CARACAS
RUEHGL/AMCONSUL GUAYAQUIL
RUEHLP/AMEMBASSY LA PAZ
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO
RUEHSG/AMEMBASSY SANTIAGO

C O N F I D E N T I A L QUITO 000087 
 
SENSITIVE 
SIPDIS 
DEPT FOR WHA/AND AND EEB/ESC/IEC 
 
E.O. 12958: DECL: 2020/02/17 
TAGS: ECON EPET EMIN SENV ETRD EFIN USTR EC
SUBJECT: Ecuador's Minister of Non-Renewable Natural Resources 
Reveals Little on GoE Oil and Mining Policies 
 
REF: 09 QUITO 1080; QUITO 05 
 
CLASSIFIED BY: Heather Hodges, Ambassador, State, Exec; REASON: 
1.4(B), (D) 
 
¶1.  (C)  Summary.  During a February 2 courtesy call with 
Ambassador, Minister for Non-Renewable Natural Resources Germanico 
Pinto reiterated the GoE's intention to focus on partnerships with 
foreign state-owned companies for exploration and development 
within the mining and petroleum sectors, but insisted that good 
opportunities existed for U.S. companies in the sale of services 
and equipment.  Pinto also confirmed the Navy should complete its 
hand-over of management of Petroecuador by the end of March 2010. 
Pinto said that as part of the Ministry's judicial process to 
review/terminate the government's contract with Noble Energy's 
natural gas subsidiary EDC, the company must submit documentation 
supporting its position.  He claimed the Ministry typically was 
disposed to finding a resolution to such disputes rather than 
seeking a legal outcome.  In an exchange on the Yasuni-ITT 
conservation initiative, Pinto expressed optimism about eventual 
success, despite the GoE's failure to gain its acceptance during 
the Copenhagen Climate Summit and subsequent resignation of the 
GoE's negotiating team (ref A).  However, he was unable to identify 
changes that would make the GoE's proposal more attractive from a 
donor's perspective. End Summary. 
 
¶2.  (SBU)  The Ambassador discussed a wide range of issues with 
Minister for Non-Renewable Natural Resources Germanico Pinto on 
February 2.  Pinto, who has a background in electrical engineering 
and software design, was named Minister of Mining and Petroleum in 
June 2009; the Ministry changed names several months later.  Pinto, 
a member of the ruling political party Alianza Pais, previously 
served in the Constitutional Assembly and as deputy in the 
Coordinating Ministry for Strategic Sectors. 
 
Petroleum Sector 
 
¶3.  (SBU)  First turning to the petroleum sector, Pinto claimed the 
Navy's turnover of management of state oil company Petroecuador was 
proceeding in an organized manner and that the Navy would 
relinquish control of the company by the end of March.  (The Navy 
has been running Petroecuador since November 2007).  Pinto said the 
framework for reorganization of Petroecuador was based on the 
Public Company Law and on a study performed by the Wood Mackenzie 
consulting firm.  As a part of the reorganization, Petroecuador's 
subsidiaries (Petroproduccion, Petroindustrial, and 
Petrocomercial), which currently operate more or less 
independently, will be converted into separate divisions within 
Petroecuador.  The entire reorganization is not expected to be 
completed until the end of 2010. 
 
¶4.  (SBU)  On foreign investment in the petroleum sector, Pinto 
reiterated the GoE's intention to pursue exploration and 
development within the sector primarily through "strategic 
alliances" of Petroecuador with other foreign state oil and gas 
companies.  Pinto added, however, that numerous opportunities exist 
for private U.S. companies in the supply of services and equipment 
as the GoE ramps up investment in this sector; he mentioned the 
Refinery of the Pacific as a specific example, despite the 
construction contract being awarded to a South Korean firm.   Pinto 
noted that Ecuadorian legislation allows for "fast-track" 
government procurement for strategic projects, including 
exploration and development activities within the petroleum sector. 
Pinto emphasized that bids for services or equipment that included 
financing would be viewed most favorably, and would enable the 
purchase process to proceed most quickly.   Pinto mentioned that a 
U.S. firm had won a contract to supply gas storage equipment to the 
Ecuadorian Petroleum Fleet (FLOPEC).  (Post does not have details 
about this sale.) 
 
Mining 
 
¶5.  (SBU)  Pinto briefly reviewed the state of play in the mining 
sector, noting that existing, large mining concessions were still 
in the exploratory phase.  Pinto explained that a framework for 
further development of the sector had been established with 
Ecuador's new mining law and implementing regulations, as well as 
regulations covering environmental issues and small mining.  He 
mentioned the recent creation of the state mining company, Enami, 
and said one of its major roles would be to manage strategic 
 
 
alliances with other foreign state mining companies.  Pinto 
suggested that even though there were no U.S. investors currently 
active in the mining sector, export opportunities would exist once 
concession holders moved into a development/extraction phase. 
 
Noble/EDC Dispute with GoE 
 
¶6.  (C)  The Ambassador stated that Noble Energy's subsidiary EDC's 
investment dispute with the GoE should be dealt with in a fair and 
impartial manner.  Pinto said the matter was being considered 
within the Ministry.  He declined to offer any details, but claimed 
his ministry was disposed in general to resolving disputes with 
private companies rather than seeking legal solutions. 
[Background: On January 22, the Ministry officially accepted a 
recommendation from Petroecuador to initiate a process to terminate 
EDC's gas concession off the coast in Block 3, claiming EDC had not 
complied with investment commitments within its contract.  Within 
60 days from that date, EDC must provide information to the 
Ministry and Minister Pinto is supposed to render a final decision. 
(Note: as part of its written contract, Noble/EDC may not seek 
diplomatic mediation regarding the dispute.  For more details on 
the dispute see ref A.  End Note.) ] 
 
Yasuni-ITT 
 
¶7.  (C)  Pinto expressed optimism about the eventual success of the 
GoE's Yasuni-ITT conservation initiative, despite the GoE's failure 
to gain international support for the proposal during the recent 
Copenhagen Climate Summit, and the subsequent resignation of the 
GoE's negotiating team, including the Foreign Minister, over 
criticism by President Correa over "conditions" they were willing 
to accept from international donors (ref B).  Pinto was unable to 
explain to the Ambassador in what way the GoE was planning to 
modify its proposal to generate greater interest by potential 
international donors.  The Ambassador pointed out that financial 
support was rarely given without conditions that ensured the funds 
would be used as intended.  Pinto noted the initiative was a 
10-year proposal and claimed the fund for the initiative would be 
structured so that donors would be able to retrieve their 
contributions should a future Ecuadorian government decide to 
develop the oil tract.  He also suggested that there were private 
groups within the United States that might want to participate, 
even if the USG did not.  [Note: President Correa named former 
Ambassador to the United States, Ivonne Baki, on February 2 as the 
head of a new negotiating team.] 
 
Comment 
 
¶8.  (C)  Pinto was cordial and took pains to emphasize ways in 
which U.S. companies could participate in both the mining and 
petroleum sectors.  However, the message was clear and consistent 
with President Correa's agenda, that the GoE exert maximum control 
over these two sectors and pursue development primarily, if not 
exclusively, through strategic partnerships with state companies of 
"friendly" countries, i.e., not through foreign private investment. 
On the Yasuni-ITT initiative, it is difficult to understand the 
basis for Pinto's confidence.  Nonetheless, the GoE seems intent to 
plow ahead in high profile fashion as it starts anew to pitch its 
proposal to potential international donors.  The first stop on the 
new team's international roadshow is Iran, and then other Middle 
Eastern countries (septel). 
HODGES