VZCZCXYZ0027
OO RUEHWEB

DE RUEHQT #2142 2621436
ZNR UUUUU ZZH
O 191436Z SEP 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7749
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6908
RUEHCV/AMEMBASSY CARACAS PRIORITY 2680
RUEHLP/AMEMBASSY LA PAZ SEP 0717
RUEHPE/AMEMBASSY LIMA PRIORITY 1940
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2814
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 002142 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR MMALLOY AND MEWENS 
 
E.O. 12958: N/A 
TAGS: ECON EPET ETRD EINV EFIN EC
SUBJECT: ECUADOR ECON WEEKLY: OIL CONTRACT RENEGOTIATIONS; CUSTOMS 
LAW REFORM; FISCAL TRANSPARENCY LAW 
 
Reftel: Quito 1678 
 
¶1.  (U) The following is a weekly economic update for Ecuador that 
reports notable developments that are not reported by individual 
cables. 
 
Oil Contract Renegotiations Imminent 
------------------------------------ 
 
¶2. (U) Minister of Petroleum and Mining Galo Chiriboga announced 
September 11 that the GOE will begin "amicable" oil contract 
renegotiations in mid-September.  Chiriboga noted that the 
renegotiations are mainly designed to increase the State's share of 
revenues, which he claims is 20% but should be 50% with last year's 
reform to the hydrocarbons law.  He asserts that Chinese oil company 
Andes Petroleum and Spanish firm Repsol YPF have already lined up 
for renegotiations.  Although Chiriboga claims the renegotiations 
are "voluntary," President Correa has commented several times that 
oil companies should "renegotiate or leave," and Brazilian firm 
Petrobras is once again being threatened with contract annulment for 
unknowingly operating "unified fields" that may not be unified 
(reftel). 
 
Customs Law Reform 
------------------ 
 
¶3. (SBU) Congress approved on September 13 an administration 
proposal to reform the Customs Law and utilize risk analysis 
performed by Ecuadorian Customs in lieu of the current system of 
pre-shipment inspections performed by contract companies.  Exporters 
and importers appear largely in favor of the change as it would save 
them time and money (they currently pay close to $75 million per 
year for inspections).  However, they noted a potential problem that 
arose when Congress amended the proposal to eliminate the current 
inspection system immediately.  The contract companies claim that 
 
changing over to a new system requires more time and terminating 
pre-shipment inspections immediately would violate their contracts 
that are valid through 2009.  President Correa could use his partial 
veto to modify the transition period.  In a related development, the 
GOE has formed a working group (composed of representatives from the 
MFA, Customs, the Anti-Narcotics Police, the Competitiveness 
Council, and CORPEI - the export promotion agency) to improve 
container security in Ecuador's ports, consistent with elements of 
the new law.  They have requested a meeting with the Embassy to 
discuss plans and seek assistance. 
 
Proposed Changes to the Fiscal Transparency Law 
--------------------------------------------- -- 
 
¶4. (U) President Correa sent a draft "Social Responsibility" law to 
Congress on August 21 that would set the legal framework to fulfill 
his campaign promise to increase education and health spending by 
0.5% of GDP per year, until education expenditures reach 6% of GDP 
and health spending reaches 4% of GDP.  Former Minister of Economy 
Mauricio Pozo criticized the bill for eliminating one of the key 
elements of Ecuador's Fiscal Responsibility Law, which stipulates 
that current expenditures cannot grow in real terms by more than 
3.5% of GDP each year. 
 
BROWN