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Thu 1 Feb 2007 09:39 PM

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Ecuador gets tough on foreign companies

Ecuador's president, Rafael Correa plans to renegotiate foreign oil contracts in an attempt to quadruple the share of crude oil volume received by the state.

Ecuador's president, Rafael Correa plans to renegotiate foreign oil contracts in an attempt to quadruple the share of crude oil volume received by the state. The move will affect all contracts for oil exploration in Ecuador and may lead to some deals being cancelled.

"We are going to review all oil contracts because in many cases various clauses have not been respected, for example on environmental protection or investment plans," said Correa at a presidential summit.

He also hinted at plans to increase the share of oil revenue private companies are forced to give the state. The oil contract renegotiation was a key part of Correa's campaign platform before being inaugurated as president in January.

His pledge to increase state control over energy resources has come under fire from critics who are concerned the state will meddle with private energy companies and drive some away. Last May the government in Quito cancelled a contract with US oil giant Occidental, in a move that suspended negotiations towards a free trade agreement with the US.

"[Now] he is in power, perhaps reality will sink in and he will slowly reach a pragmatic middle ground that works for everything, like in Bolivia," said Roger Tissot, Latin American analyst with Washington-based consultancy, PFC Energy.

Correa said the state currently retains 20% of Ecuador's crude oil, but intends to increase that share to around 85%. He stressed the need for balance between environmental and energy concerns, admitting oil exploration cannot be carried out without an impact on the environment.

Foreign oil operators have opposed the new hydrocarbons law which, if approved later this year, will require them to give the state 50% of oil revenue above a set benchmark.

Ecuador has an output of around 530 000 barrels of oil per day (bpd). This is extracted evenly between the state oil company and foreign operators.

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