CORREA REPLACES PETROLEUM MINISTER

C O N F I D E N T I A L QUITO 000515 SIPDIS DEPT FOR WHA/EPSC FAITH CORNEILLE E.O. 12958: DECL 06/25/2019 TAGS: EPET ENRG EINV ECON EC SUBJECT: CORREA REPLACES PETROLEUM MINISTER Classified By: DCM Andrew Chritton, Reasons 1.4 (b&d) Reftel A: Quito 173 B: Quito 13 ¶1. (C) Summary: On June 8, President Correa replaced his Minister of Petroleum and Mines in a surprise appointment. New Minister Germanico Pinto is a former Constitutional Assembly member with a teaching background and little experience in the sector, but is strongly aligned with Correa's ideologies. Embassy contacts expect him to be much more ideological in dealing with foreign investors in the sector. End Summary. ¶2. (C) In a surprise appointment on June 8, Correa replaced Derlis Palacios, who had been in office only since October 2008, with new Minister of Petroleum and Mines Germanico Pinto. Although Minister Palacios had technically submitted his resignation a month before, along with the rest of the cabinet, the sudden replacement was a surprise to many in the sector. Industry insiders claimed he was replaced mainly because the President disagreed with his handling of French company Perenco's investment dispute. ¶3. (C)Perenco is the only foreign oil company that has not yet negotiated a new contract with the GOE. Negotiations are at a standstill, largely because Perenco cannot agree on a common approach with its minority U.S. partner, Burlington (reftels A, B). Perenco filed for arbitration over Ecuador's windfall oil revenue tax; Minister Palacios was involved in the GOE decision to embargo Perenco's oil for not paying the tax and attempting to auction it. The auction ended up being an embarrassment for the GOE, as there were no buyers. ¶4. (U) Before his appointment as Minister, Pinto served as Under Secretary in the Ministry for the Coordination of Strategic Sectors since October 2008, where he was involved with hydroelectric and mining projects. He worked on development issues from November 2007-September 2008, as a member of the Constitutional Assembly from Correa's movement. Before that, he was a math teacher. He has a background in electrical engineering and economics, but little experience with oil or mining issues until recently. However, he is reportedly strongly aligned with Correa's ideologies, and on his swearing in, promised "profound change in the management of energy and environmental issues." ¶5. (SBU) Correa used Pinto's confirmation as an opportunity to criticize foreign oil companies. He announced that he was entrusting the new minister with "radicalizing the defense of the interests of the country before the demands of foreign companies that have benefitted from Ecuador's natural resources." He added that the country needed to take a much firmer stance with companies that "still continue abusing the country, without paying taxes, while bringing arbitrations and judicial cases and asking for millions," and suggested such companies leave Ecuador (this last dig seemed to be aimed at Perenco). ¶6. (C) Canadian commercial officer Ryan Kuffner noted that his Embassy has dealt with Pinto in his role as Under Secretary of Strategic Sectors on issues related to Canadian mining companies. He commented that Pinto seemed like "a nice guy," but was "much more ideological" than the former Minister. He added that he was afraid Pinto was going to be much tougher than Palacios on sovereignty and contract issues. ¶7. (SBU) One of Pinto's main tasks will be negotiating new long term contracts with oil companies (they are now operating under short term transitional contracts) and convincing them to increase investment. Petroleum production has fallen in 2009, from 510,000 barrels/day in April 2008 to 495,000 in April 2009. The decline can be attributed to private companies - although state production has increased, private production has fallen, reflecting uncertainty in the investment environment. ¶8. (C) Comment: Mining and petroleum are key to Correa's hopes to obtain both the income needed to put his social programs into action and the financial independence to thumb his nose at international financial institutions and countries he disagrees with. Replacing his Petroleum and Mining Minister reflects his frustration that things were not going the way he wanted in these sectors. Whether Pinto will succeed in completing new contracts with foreign oil companies and convincing them to invest significantly in Ecuador is unclear, but his and President Correa's rhetoric have done little to alleviate concerns in the sector. HODGES