OXY: SERIOUS DIALOGUE WITH GOE

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 000798

SIPDIS

DEPT PASS USTR BENNETT HARMAN

E.O. 12958: DECL: 04/12/2015
TAGS: EINV ETRD EPET ECON EC
SUBJECT: OXY: SERIOUS DIALOGUE WITH GOE

REF: QUITO 681

Classified By: Ambassador Kristie A. Kenney Reasons 1.4 (b),(d)


1. (C) Summary. President Gutierrez's assignment of a close
advisor to resolve commercial disputes seems to have
energized GOE efforts. Ambassador and Embassy officials
continue to encourage dialogue between the parties. Serious
discussions and information trading represent the first real
progress in resolving Oxy's problems with the GOE. However,
it is only a start and many issues, including Oxy's $75
million arbitration award are not yet on the table. End
Summary.

Polit Becomes the Go-To Guy
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2. (C) President Gutierrez, with the encouragement of Trade
Minister Ivonne Baki and the Ambassador, named his close
advisor and Secretary of the Presidency Carlos Polit as his
point person for resolving commercial disputes. Gutierrez
gave Polit marching orders to resolve outstanding disputes,
beginning with Occidental Petroleum (Oxy). Oxy had, most
recently, been negotiating with state oil company
PetroEcuador President Hugo Bonilla (reftel). Though
receptive to discussions with Oxy, it quickly became clear
that Bonilla would not be able to close the deal. Polit too
recognized that Bonilla was too concerned about possible
future repercussions against him and has played an active
role in negotiations.

Encouraging Action
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3. (C) In the past week, the Ambassador met with President
Gutierrez, Minister of Economy and Finance Yepez, Minister of
Trade Baki and Carlos Polit urging all to take action now to
resolve the Oxy dispute. She also met with former Minister
of Economy and Ecuador's next Ambassador to Washington
Mauricio Pozo about Oxy. Polit told the Ambassador April 12
that the President had given him clear orders to resolve
Oxy's and other disputes with US companies.


4. (C) Oxy Ecuador President and GM Jerry Ellis said that Oxy
has provided "generous" offers to the GOE. Ellis said that
Bonilla was afraid to make a final deal and had provided Oxy
with very unrealistic settlement numbers. Ellis said he
understood Bonilla's realistic fear of possible legal actions
against him in the future if it were perceived that Bonilla
did not sufficiently protect the national patrimony and
squeeze more out of Oxy. Polit looked at Oxy's offer much
more favorably and Oxy has since sweetened the deal even more
for the GOE.

A Long Way to Go
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5. (C) The negotiations are currently focused on resolving
the matter of the GOE threat to expropriate Oxy's assets for
alleged failures to comply with Ecuadorian law, chiefly on
the transfer of a financial interest in one of its blocks to
Canadian oil company EnCana. Oxy and Bonilla have expressed
interest in resolving all outstanding disputes, including
Oxy's $75 million (and growing) international arbitration
award, deductibility of interest for related-company loans,
regulatory treatment (discrimination),etc. For now though,
both sides appear encouraged that serious discussions are
being held to resolve the expropriation (caducity) issue.


6. (C) If an agreement can be reached, Polit and we have
received assurances from Ecuador's Procurador Jose Maria
Borja (Solicitor General equivalent) that he would support a
fairly negotiated agreement. Numerous GOE officials,
including Polit and Borja, have also said that the negotiated
agreement might also have to be put to Congress for approval.
Congressional approval is not required under the contract or
by Ecuadorian law. However, it may be necessary for
political purposes. Borja has also told us that with his
concurrence he is sure he can win approval by the Ecuadorian
Congress.

Comment
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7. (C) We will continue to press for dialogue and action by
the GOE. Oxy has shown good faith in providing solid offers
to the GOE. We are wary about the idea of seeking
congressional approval, but will wait to cross that bridge
until an agreement is reached. While there are many details
to be worked out, this is the most progress we have seen on
the matter in a long time.
KENNEY