ECUADOR ECON WEEKLY: OIL CONTRACT RENEGOTIATIONS; CUSTOMS

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


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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


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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


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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