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Latino Daily News

Sunday October 7, 2012

Ecuador Ordered to Pay $1.7 Billion for Oil Contract Termination

Ecuador Ordered to Pay $1.7 Billion for Oil Contract Termination

Photo: Occidental Petroleum

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The International Center for Settlement of Investment Disputes has ordered Ecuador to pay more than $1.7 billion in damages to U.S. oil company Occidental Petroleum for terminating its contract in 2006.

The ruling, published Friday on the Washington-based World Bank arbitration tribunal’s Web site, said Ecuador’s decision to terminate Oxy’s contract for an oil block in the Amazon region was “tantamount to expropriation.”

According to the ICSID, the action carried out during the administration of former Ecuadorian President Alfredo Palacio also was in violation of the country’s bilateral investment treaty with the United States.

Ecuador canceled Oxy’s contract for Block 15 in May 2006 because the firm had allegedly sold a 40 percent stake to AEC, a unit of Canada’s Encana, without government authorization.

Ecuador said that Oxy illegally “created a consortium to operate the block in secret,” while the U.S. company maintains that AEC had no control over the block’s operations and merely provided financing.

AEC eventually sold its interest in Block 15 to China’s Andes Petroleum.

The block’s value was estimated at $3.4 billion by Oxy and $417 million by the Ecuadorian government, while an experts’ report commissioned by the ICSID put the value at $2.4 billion.

Ecuador’s government said it will appeal the ruling to the ICSID’s Annulment Committee.

“We’re used to confronting these abuses, these obstacles. We’ll continue defending the country’s interests,” Correa told reporters Friday at the presidential residence after receiving Spain’s Crown Prince Felipe and his wife Letizia.

“They can’t deny that Oxy broke Ecuadorian law,” the leftist president said, adding that what they are arguing is that “it’s a very rigorous, very drastic, law.”

Correa said there were “unacceptable things” in the ruling, including a damages award for Andes Petroleum even though as a Chinese company it is not protected by the U.S.-Ecuador investment treaty that was the basis for Oxy’s request for arbitration.