Correa's tightrope

Ecuador invites Iranian and Chinese investment in a planned refinery on the Pacific Coast.

From Southern Pulse Network, 30/07/08, via ISN

Ecuadorian President Rafael Correa announced on a 19 July radio show that Iran and China may invest in the planned refinery to be constructed in Ecuador's Manabi province on the Pacific coast.

It was an announcement loaded with political innuendo yet takes a step in the direction toward Correa's pragmatic plan to make Ecuador a regional hub of international trade between Asia and South America.

The refinery, named Eloy Alfaro Delgado is the result of a joint venture between Petroecuador and PDVSA, with 51 and 49 percent shares respectively. Correa and Venezuelan President Hugo Chavez were present for the ground breaking ceremony on 15 July, the same day the accords forming the joint venture were signed.

Construction on the US$6 billion refinery is expected to end in 2013, with the refinery supplying 300,000 barrels of oil a day to foreign markets and quite possibly to China alone.

China's involvement is more pragmatic than political. Ever eager for South American natural resources, China's involvement in the refinery is a clear-cut business decision, one that will lock up more refined petrol products for China and increase the likelihood that the refinery will actually be built.

Money from both Iran and Venezuela, however, remains in question.

Just three days prior to his radio announcement, Correa had met with a high-level member of Iran's Trade office, Majid Salehi. The two discussed trade cooperation and bilateral relations, according to a presidential office announcement. This meeting came on the heels of a May agreement for both countries to open trade offices in Quito and Tehran. Political ties between the two countries seem to have tightened, but it is not clear if this will translate for an real economic upshot for Correa.

Iran's ability to lend strong financial support to Ecuador's blossoming trade position is limited, according to World Markets Research, but the country's name on the project allows Correa plenty of rhetorical space, allowing him an opportunity to stoke nationalistic fires.

When announcing Iran's involvement Correa stated that "Iran has a lot of experience in the oil field, it has been a producer for a long time, almost a century.

Somebody may say: Iran, Axis of Evil, but what do I care what other countries think? We have to be masters of our own destiny. We have nothing against Iran. Iran has done nothing to us," Correa said.

Venezuela's participation in this project is under an equal amount of financial uncertainty, generating a level of instability in both this project and Ecuador's overall trade relationship with its South American ally.

According to testimony heard on 17 July before the US' Congressional Committee on House Foreign Affairs Subcommittee on the Western Hemisphere, PDVSA had to borrow some US$16 billion in 2007 to maintain operations. The company is under a number of international lawsuits for its inability to keep up with the deliverables as stipulated by supply contracts. And the company has in some cases sold off international assets to assuage its cash flow problem.

Meanwhile, Ecuador's Central Bank published in early February trade figures revealing that Venezuela has surpassed the United States as Ecuador's leading supplier of fuel. The small country does export crude oil, but has no refining capability, forcing it to import diesel, petrol, and other refined products.

In 2007, Ecuador imported some US$262 million diesel from the US, down from US$628 in 2006. Venezuela filled this gap with some US$423 in diesel exports in 2007. This growing dependence on Venezuela is yet another reason why Ecuador has pushed ahead with plans for a refinery.

Despite Venezuela's possible financial shortfall, Ecuador may find all the project financing it needs from China. The small South American country is an increasingly interesting position vis-a-vis its geographic advantages. And the Manabi refinery is but one development.

When the US military's lease on Manta terminates in 2009, Ecuador will likely use the Manta port and heavy-duty runway to construct a regional import/export center. If plans for a cargo rail line that will link Manta with Manaus in Brazil's Amazonas state come to fruition, Manta would indeed become a regional hub of trade activity, and with the refinery, make Ecuador that much more attractive in Asia's eyes.