VZCZCXYZ0000
PP RUEHWEB

DE RUEHQT #0196 0591922
ZNR UUUUU ZZH
P 281922Z FEB 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC PRIORITY 8516
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 7349
RUEHCV/AMEMBASSY CARACAS PRIORITY 2885
RUEHLP/AMEMBASSY LA PAZ FEB 0912
RUEHPE/AMEMBASSY LIMA PRIORITY 2396
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 3320
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 000196 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PHSA EFIN EPET PREL EC
SUBJECT: ECUADOR ECON WEEKLY:  Assembly Debates Law of the Sea, Tax 
Revenues Increase, Oil Cooperation with Venezuela; 
 
¶1.  (U) The following is a weekly economic update for Ecuador that 
reports notable developments that are not reported by individual 
cables. 
 
Assembly Debates Law of the Sea 
------------------------------- 
 
¶2. (U) On February 21 Jaime Barberis, Under Secretary for 
Sovereignty of the Ministry of Foreign Affairs, informed the 
Constituent Assembly that the ministry supports adoption of the 
United Nations Convention on the Law of the Sea, currently under 
review by the Assembly's Sovereignty Committee.  Adopting the treaty 
would define Ecuador's territorial waters as the first twelve 
nautical miles offshore (reducing their current claim of 200 miles) 
and give it a 200 mile exclusive economic zone (EEZ).  While 
indications have been that the Assembly will indeed follow that 
recommendation, the issue remains controversial.  The morning of 
February 28, the Foreign Minister was interviewed on local 
television and - apparently in response to concerns that have been 
raised --  said that more study was still needed, noting in 
particular that the implications for air space territoriality had 
not yet been reviewed. 
 
Tax Collection Increase 
----------------------- 
 
¶3. (U) The Internal Revenue Service of Ecuador (SRI) reported 
increased tax collection in January compared to last year. In 
January 2008, tax revenue was $557.4 million, an increase of 29%. 
This increase does not reflect the total increase that will result 
from the tax law reform passed in December, however, because the 
reform has not yet been entirely implemented.  Because the reform's 
implementation regulations have not yet been finalized, Carlos Marx 
Carrasco, Director of the SRI, said that some of the $2.34 million 
already mistakenly collected via the 0.5 percent tax on capital 
outflows would need to be refunded. 
 
Ecuador and Venezuela's Petroleum Relationship 
--------------------------------------------- - 
 
¶4. (U) On February 21, in Sucumbios province, President Correa 
inaugurated a Venezuelan drilling rig, part of a drilling program 
that that is supposed to increase Ecuadorian oil production by 10-15 
thousand barrels.  PDVSA rents the drills at a lower-than-market 
price to Ecuador and provides technical support.  President Correa 
thanked Venezuela for the rig and announced that a second drill will 
arrive in March, and that his administration plans to work with 
Venezuela to increase production at a second mature Petroecuador 
field. 
 
¶5. (U) In March a Venezuelan ship will arrive to begin seismic 
studies to quantify gas reserves in the Gulf of Guayaquil.  Ecuador 
and Venezuela are continuing with their crude-for-derivatives swap 
progam, which supposedly has saved Ecuador S50 million dollars 
(although the GOE has not published information on how the program 
works). 
 
¶6.  (SBU) Comment:  These Venezuelan/Ecuadorian projects have 
received some media coverage, but with less fanfare than the initial 
plans for cooperation which were announced early in 2007 but are 
only now beginning to see some modest practical results. 
Ironically, as the Venezuelan drilling rig was being brought into 
Ecuador, some private drilling companies have been shipping their 
rigs out of Ecuador because of insufficient work as private oil 
companies have cut back on their investment programs.  Also ironic 
is that Petroecuador claims that it wants to work with the private 
oil service companies to restore production in some of the same 
mature oil fields where it is working with PDVSA. 
 
 
JEWELL