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