China to loan Ecuador $1b for oil

Ecuador plans energy and infrastructure investment

by Lu Feng 14/4/09

IN LESS than two months China has signed billions of dollars worth of ‘loan-for-oil’ deals with Russia and Brazil. And this week China will sign another with Ecuador, the smallest member in the Organisation of Petroleum Exporting Countries or OPEC.

Ecuador president Rafael Correa announced the news on the 5 April during a televised speech. He said China has abundant financial capabilities, but is short of natural resources, especially hydrocarbons.

China Development Bank will be instructed to loan out $1b to finance Equador’s energy and infrastructure projects, including building roads, ports, airports, refineries and hydropower stations and so on, while Ecuador will use oil shipments to repay most of the loan.

Equador’s economy minister Diego Borja said once the deal is signed, the first installment will arrive within 60 days, noting that the cash will likely be distributed over several years as deserving projects develop.

The proven oil reserve in Ecuador is around 6.03b bbl, making it the 24^th largest worldwide and the 3^rd in South America after Venezuela and Brazil.. It sells about 300,000 bbl/d abroad, using the proceeds to finance nearly 40% of its budget. But a 66% drop in world crude oil prices since July’s peak has slashed public income and helped run up a $1.5b deficit.

Wu Hongying, director of the Latin American office of the China Institute of Contemporary International Relations, said “oil and gas exportations are the main revenue source for Ecuador, so under the stricken global economic tsunami which led to the slump in oil prices, Ecuador earnestly needs capital from outside to stimulate its economy.”

In easing the impact from the global economic tsunami, the Ecuador government is in talks with several other countries regarding capital loans issues. Not long ago it reached an agreement with Iran to borrow $280m to develop its oil projects.