ECUADOR PAYS OXY VAT AWARD

C O N F I D E N T I A L QUITO 000314 SIPDIS SIPDIS E.O. 12958: DECL: 04/02/2018 TAGS: EINV EPET EC SUBJECT: ECUADOR PAYS OXY VAT AWARD REF: A. 07 QUITO 2626 ¶B. 06 QUITO 1216 ¶C. 06 QUITO 588 Classified By: Classified by Ambassador Linda Jewell. Reason: 1.4 B a nd D. ¶1. (SBU) Summary. Ecuador paid Occidental Petroleum $100 million to settle an arbitration ruling that the GOE has to refund Oxy for value-added taxes that Oxy had paid. In addition, the GOE placed $32 million into escrow pending the outcome of a second arbitration case filed by Oxy. End summary. ¶2. (SBU) Occidental Petroleum (Oxy) informed the Embassy that the Government of Ecuador paid it $100 million on March 31 to settle an arbitral ruling that the GOE had to rebate Oxy for value-added taxes (VAT) that Oxy had paid when it was operating in Ecuador (reftel c). In addition, the GOE placed another $32 million in escrow; the GOE maintains that this amount of the VAT rebate should be withheld to offset Oxy,s failure to pay the oil windfall tax that was implemented shortly before Oxy,s contact was cancelled in 2006 (reftel b). The status of the amount in escrow will be addressed in a second arbitration case regarding the cancellation of Oxy,s contract and seizure of its assets in Ecuador. Oxy said that it considers the VAT arbitration award closed. ¶3. (SBU) Oxy,s General Counsel was complimentary of the way the GOE handled the award payment in the end. He added that Oxy is discussing whether it would be useful to sit down with the GOE and see if there is any possibility of coming up with a negotiated solution to the second arbitration. ¶4. (U) As of April 2, the GOE had not announced publicly that it had paid Oxy, although it had earlier announced to the media its intent to pay without specifying how much it would pay. ¶5. (C) Comment. In a December meeting, President Correa told the Ambassador that since Ecuador lost the case, it would honor this international arbitral award (reftel a). After some delays as the GOE addressed internal issues and arrived at an agreement with Oxy, the GOE carried through with Correa's instructions. Facilitating this payment is the fact that the GOE is running a sizeable budget surplus. Hopefully the payment of the arbitration award will be a precedent for future arbitral awards or encourage the GOE to settle disputes through negotiations rather than wait for an arbitral decision. Jewell