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58 | WALTER SPURRIER BAQUERIZO OIL AND THE TRANSFORMATION OF THE ECUADORIAN STATE | 59 The relationship of the state to the private oil companies has been conflic- tive. The discovery of crude in the late 1960s took Ecuador by surprise; a new Law on Hydrocarbons was adopted and a state oil company established only a few months before the crude began to flow in the early 1970s. Immediately thereafter, the oil contracts were renegotiated. That conflictive relationship coin- cided with the first oil shock. Midway through the current decade, when oil prices were once again on the rise, the conflict was played out again with the private oil operators. The Ecuadorian government believed that its share of the new oil revenues was insuf- ficient. Ecuador adopted a law by which the state can determine what percent- age of the revenues from the price increase will accrue to the state and what share will go to the private companies. This has led various oil companies, most importantly Repsol, to seek international arbitration. At the same time, in 2006 the state determined that a transaction between Occidental Petroleum and the Canadian company EnCana3 constituted a sale of rights that, under Ecuadorian law, cannot take place without prior authoriza- tion. (Along with Repsol, Occidental is the largest of all the private producers in Ecuador.) Accordingly, the Ecuadorian government declared that Occidental’s rights to its concession had lapsed (prematurely expired) and there- fore that its holdings reverted to the state, without compensation. Occidental has filed a complaint before the International Center for Settlement of Investment Disputes (ICSID) of the World Bank. Currently, Ecuadorian authorities are investigating whether a similar transaction between Petrobrás and the Japanese firm Teikoku also might result in a finding that Petrobrás’ rights had also “lapsed.” REGIONAL ENERGY INTEGRATION There has not been integration with respect to oil. The only exception worth noting is that when Ecuador lacked sufficient capacity to transport crude, it used the oil pipeline in southern Colombia. The first ambitious oil integration projects are those that have been announced by Presidents Correa and Chávez involving the construction of a new refinery that would process Venezuelan crude for export to Asia. As for electrical energy, Ecuador is currently connected to the electrical grids of Colombia and Peru and buys electricity in the spot market. To generate elec- tricity Ecuador also buys gas from a foreign-owned, offshore concession in Northern Peru. CONCLUSION Oil has transformed Ecuador in a number of ways. First, the import-substitu- tion model in place from the 1950s until 1982 succeeded in attracting invest- ment only when the discovery of oil augured the expansion of the domestic mar- ket. Second, the existence of oil prompted the settlement of the Amazon region as infrastructure for oil exploitation was built. Third, oil made it possible for the state to grow in size without having to adopt policies for the redistribution of national income. Fourth, oil caused social conflict, but the extent of conflict in Ecuador compared to the conflicts in other oil-producing countries is some- thing to be studied comparatively. At first glance it would seem that Ecuador has suffered less conflict than, for example, Bolivia, which is rich in natural gas, or various other oil-producing countries of Africa and the Middle East. Finally, the existence of oil resources appears to have generated complacency regarding the need to design economic policies conducive to development. This phenom- enon is known as “Dutch disease.” NOTES 1. A crude shipment may be sold two or three times before reaching port, so there is no certainty as to its final destination. 2. If one includes crude oil in this calculation, Ecuador is a net exporter. 3. EnCana is a private oil and gas company based in Calgary, Alberta. [Eds.]PDF Image | Energy and Development in South America
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