MercoPress. South Atlantic News Agency

“Friendly” Ecuador on collision course with US

Ecuador is a “friendly” country but will defend its interests warned Ecuadorian president Alfredo Palacio in a live national broadcast in direct reference to dispute with U.S. Occidental Petroleum which is also threatening a free trade agreement with United States.

Last week Petroecuador, the government owned oil company begun taking over Occidental Petroleum's operations in the country. Previously prosecutors and Ecuador's Energy ministry accepted Petroecuador's request to cancel Occidental Petroleum contracts because the company did not officially report the transfer of assets to Canada's EnCana.

Occidental actually sold 40% of its concession to Canada's EnCana, which in turn traded it with a Chinese oil consortium.

Oxy's production (as the company is referred to in Ecuador) is in the range of 111.000 barrels per day from Block 15 in the Amazonian basin where the company alleges to have invested over 6 billion US dollars.

"The world knows that Ecuador is a friendly country, but we are also determined to defend the interests of our motherland, the well being of the Ecuadorian people and the integrity of its territory" emphasized President Palacio during a national address Saturday.

The Bush administration announced last Tuesday it was ceasing negotiations of a free trade treaty in response to Ecuador's decision to cancel Oxy's contract.

Meanwhile Occidental Petroleum filed last week a demand before a U.S. arbitration panel asking for a billion US dollars in compensation from Ecuador for contract cancelling.

Any attempt by Petroecuador to operate the deposits "will certainly diminish the block's productivity and irreparably harm wells and equipment", cautioned the US oil company.

The complaint was presented before the International Centre for the Settlement of Investment Disputes, ICSID, which oversees conditions established by a bilateral US/Ecuador accord for investment protection. Oxy is not ruling out further legal actions in Ecuador.

Ecuador's oil output is 530.000 bpd and oil exports are the country's main source of revenue, 4.5 billion US dollars last year. Oil also helps finance 40% of the government's budget.