ECUADOR ECON WEEKLY: OXY ARBITRATION, REDUCED IMPORT

UNCLAS QUITO 001969 SIPDIS SENSITIVE SIPDIS TREASURY FOR MMALLOY AND MEWENS E.O. 12958: N/A TAGS: ECON EFIN EFIS SENV EC SUBJECT: ECUADOR ECON WEEKLY: OXY ARBITRATION, REDUCED IMPORT TARIFFS, NEW ENERGY PROJECTS ¶1. (U) The following is a weekly economic update for Ecuador that reports notable developments that are not reported by individual cables. ICSID Tribunal Denies Provisional Measures for Oxy -------------- -------------- ¶2. (U) On August 21, a World Bank arbitration panel denied granting provisional measures to Occidental Petroleum (Oxy) in its arbitration case against Ecuador for the May 2006 seizure of its petroleum operations. The Ecuadorian Attorney General characterized the decision as "great news" for Ecuador, although it was not unexpected. Among the denied provisional measures was a request for Ecuador to continue with Oxy's investment schedule and for a new joint committee of GOE and Oxy managers to oversee operations of Oxy's former block. The Attorney General is expected to announce shortly the selection of the law firm that will represent the GOE in the next phase of the arbitration process. Two U.S. firms and one European firm are competing for the job. GOE to Lower Tariffs on Inputs -------------- ¶3. (SBU) The GOE announced August 21 that tariffs on 1,957 products (raw materials, inputs, and capital goods) will be reduced, as part of a new policy to help industry and combat rising prices. Minister for Coordination of Economic Policy and Production Mauricio Davalos presented the new policy to members of the Council on Foreign Trade and Investment (Comexi),who unanimously expressed their support. Tariffs for covered goods will be reduced from 5-20 percent to 0-5 percent. As an effort to help maintain bread prices in the face of rapidly rising international wheat flour prices, the tariff on this input will fall from 20 percent to zero. However, one well-known trade observer suggested that reducing the tariff for flour was a political maneuver aimed at Alvaro Noboa, Ecuador's largest miller, largest banana exporter and frequent presidential candidate. New Energy Projects -------------- ¶4. (U) The technical committee of the FEISEH petroleum fund for energy sector projects (financed by revenues from Oxy's former Block 15) approved studies for funding for four hydroelectric projects. The projects are projected to provide additional installed power of 2,175 megawatts, which would represent 64 percent of current energy demand. However, the plants are not expected to be completed for a number of years. Minister of Electricity Alecksey Mosquera noted the GOE will also seek other investment in the projects. ¶5. (U) Venezuela plans to rent two drilling rigs to Ecuador to facilitate oil production. Minister of Petroleum and Mines Galo Chiriboga claims this will increase Ecuador's petroleum production by 10,000 barrels per day. BROWN