Ecuador reaches agreement with Occidental in tax dispute

QUITO, Ecuador: IHT, 16 April, 2008: Ecuador has settled a dispute with the U.S. oil company Occidental and will return US$100 million (€63 million) in taxes, the energy minister said Wednesday.

But another dispute with foreign investors appeared to be brewing, as members of the assembly writing a new constitution said it will probably cancel most of the country's mining concessions.

In 2006, the government canceled the contract of California-based Occidental Petroleum Corp., accusing the company of violating its terms. But industry observers believed a major reason for the cancellation was the company's demand for a return of tax payments.

Occidental at the time said it was due a US$171 million (€108 million) refund.

Energy Minister Galo Chiriboga told a news conference on Wednesday that the settlement on a US$100 million (€63 million) payment was a success for Ecuador.

In Los Angeles, Occidental spokesman Richard S. Kline called it an equitable settlement for both sides. He said the dispute involved the company's requested refund of some value-added tax payments between 2001 and 2006.

The agreement was reached March 31 within the framework of the World Bank's International Center for Settlement of Investment Disputes, said Attorney General Xavier Garaicoa, who also attended the news conference.

Occidental operated in Ecuador from 1999 to 2006.

Ecuador's previous administration said the company illegally sold 40 percent of its concession to EnCana Corp. of Canada without Energy Ministry authorization.

In a separate arbitration claim, Occidental is seeking US$1 billion (€630 million) in damages, alleging its property was confiscated illegally. Occidental, whose production represented about 20 percent of Ecuador's total output, also is seeking to recover the oil fields.

Separately Wednesday, three members of the government majority that controls an assembly writing a new constitution said the body was close to approving a decree that would cancel 80 percent of Ecuador's mining concessions.

Assemblywoman Rossana Alvarado said the objective is "to prevent the abuses that have been made in mining in this country."

Xavier Cruz, executive director of the National Mining Chamber, called the proposed decree "a confiscation" that would "drive away foreign investment."

"It will hurt the country's growth and development," he said in a telephone interview with The Associated Press.

A number of large Canadian mining companies have concessions and could be affected.
The decree has been approved in a commission and delivered to the body's president, who is expected to bring it up for a vote later this week, Alvarado said.

The proposal would cancel 3,100 of the country's 4,112 concessions and suspend another 1,220 that are in the process of being registered.

Lawmaker Betty Tola, also a member of the majority, said only about 7 percent of concessions are actually being exploited.

The proposed decree would end all concessions that showed no actual investment by the end of last year.

Companies not affected would still have to renegotiate their contracts within a new mining law that is being prepared.