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MeneameThe new terms for Ecuador's hydrocarbons sector proposed in a bill drafted by the mines and oil ministry would take the country "from bad to worse" in terms of attracting private investment, Gianna Bern, president of Chicago-based Brookshire Advisory and Research, told BNamericas.
Among other things, the bill aims to give the state control over the oil sector through public companies or public-private JVs and would reduce exclusively private participation to only exceptional cases. Companies would largely be paid as service firms with the intent to channel all crude produced to the state, BNamericas reported previously.
"Changing any kind of royalty structures or payment structures where the state increases its take will have the continued effect of deterring investment in the country. It sends a very negative signal to the investment community and as the country tries to attract third-party producers I think they're going to find that the current regulatory regime there is not investor-friendly," Bern said.
"It's a shame, because they do have some attractive reserves and they're just not going to have any significant opportunity to exploit them because producers are going to walk from that kind of cost structure," she added.
The bill would establish a timeline for renegotiation of existing contracts.
The CEO and president of Venezuela-based Global Business Consultants, Alberto Cisneros, told BNamericas that it is Ecuador's repeated failure to honor contracts that marks the difference between it and countries like Brazil, where the government is currently attempting to create a new investment framework for its massive pre-salt finds.
"Brazil has a long-standing tradition of private capital, foreign direct investment (FDI), safe rules of the game for investors and political stability. The reason that pre-salt would be state-owned would not preclude the interest of FDI and private capital into other areas at all," Cisneros said.
"Ecuador is not one of the most likely intriguing places to go with FDI," he said.
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