MercoPress. South Atlantic News Agency

Ecuador's oil production virtually shut down

Ecuador's Defence minister resigned abruptly Friday shortly after the country sent the military to occupy its Amazon region and declared a state of emergency following attacks on infrastructure which cut production 65%.

The armed forces said on Thursday evening they had secured the eastern provinces of Orellana and Sucumbíos, which produce three-quarters of state oil production and about half of private oil production in Ecuador, in order "to guarantee the physical security of the hydrocarbons complex and the return of the flow of oil"

Later in the day President Alfredo Palacio named retired Army General Oswaldo Jarrin to replace General Solon Espinoza.

Jarrin was until his recent retirement chief of the oil rich Andean country Joint Chiefs of Staff. Presidential spokesman Andres Seminario said Solon Espinoza alleged "personal reasons" for his resignation.

Asked if Solon Espinoza's decision was linked to declaration of the state of emergency this week suspending constitutional guarantees in the oil-producing provinces of Orellana and Sucumbios, and the massive deployment of troops in that area, Seminario responded: "You'd have to ask him".

Residents of the two provinces have staged six days of protests, demonstrations and sit-ins as part of what they call a "general strike" to demand government projects in infrastructure, particularly road-building and electrification.

Tension is high in the region, with oil production halted and arrest warrants reportedly issued for protest organizers.

The protests are the latest blow to Ecuador's troubled oil sector, South America's second biggest exporter of crude to the US. No new foreign investors have signed exploration or production contracts since 1996, and some of the largest foreign investors are being forced out.

Occidental, the country's biggest private producer, is mired in a legal dispute with the government, which has accused the California-based company of breaking its contract. EnCana, the second biggest private producer, is desperate to leave Ecuador and is trying to sell its assets to Asian investors.

Production by PetroEcuador, the state oil company, has slipped steadily from 280,000b/d in 1987 to 200,000b/d this year, and it is estimated that its main producing fields are declining at an annual rate of 5%

The poorly managed company recently appointed its third chief executive in nearly four months. Rene Ortiz of the Ecuadorean Association of Oil Companies, which represents private companies in the sector, said that as a result of the protests, oil production by private companies was down to about half its normal level of 340,000b/d.

"This is costing private companies about nine million US dollars a day" revealed Energy Minister Ivan Rodriguez.

Guillermo Munoz, the prefect of Sucumbíos, vowed on Thursday that if security forces gained control of occupied sites, "we will retake the oil installations and the airports". Mr Ortiz said he was concerned that the oil sector was becoming the target of more politically motivated protest in the period leading up to elections in October 2006.

"This started out as a demonstration in favour of more infrastructure spending" he said. "When the companies agreed to spend more, it transformed into a political project; why?, because we are moving into an election year".

Actually protest leaders are now demanding the nationalization of the oil industry.

Mr Rodríguez said that even once the protests are brought under control, getting PetroEcuador back to its usual production level "will take no fewer than 60 days".