Ecuador would defy arbitration ruling for Perenco

July 24, 2009

By JEANNETH VALDIVIESO

Associated Press

QUITO -- Ecuador will defy a World Bank arbitration body if it rules in favor of the Paris-based oil company Perenco SA in a dispute over $357 million in taxes, President Rafael Correa said Thursday.

``We are willing to take this to its ultimate consequences with Perenco. We are not going to let these multinational companies continue to treat us like colonies,'' Correa told Quito-based Sonoram radio.

Perenco is challenging a 2007 increase in Ecuador's windfall profits tax, calling it a unilateral and illegal modification of the company's contracts, which end in 2010 and 2012.

The company filed suit at the Washington-based International Center for Investment Disputes, a body with 143 participating countries, including Ecuador, that is meant to assure investors that governments will not arbitrarily toss out contracts or confiscate property.

Correa says the process infringes on his country's sovereignty and insists he will ignore any ruling in favor of Perenco, which is seeking $430 million in damages.

``We are not going to pay them; their motives are completely contemptible and illegitimate,'' Correa said when asked if he would comply with a ruling that supports the French company.

The leftist president had previously threatened to pull out of the arbitration body, but this was the first time he specifically said he would defy a court ruling on a standing case.

Since March, Ecuador has seized some 70 percent of oil produced daily by Perenco to collect the company's contested back taxes, nearly quadrupling its cut.

The World Bank arbitration body told Ecuador in May to stop collecting the taxes and refrain from canceling the company's contracts until a final ruling in the case is reached. No date is set for the ruling.

Ecuador ignored the order, prompting Perenco to threaten to halt operations. In response, Ecuador last week ordered an affiliate of the state oil company to supervise Perenco's oil fields to guarantee production.

Perenco, which then fired all of its 250 workers in the country, accused the government of orchestrating ``a de facto takeover'' of its oil fields and the French government criticized Ecuador, saying its actions hurt bilateral relations.

Los Angeles-based Occidental Petroleum Corp. also has a suit before the arbitration body challenging Ecuador's 2006 cancellation of its contract.

Ecuador relies on oil exports for 40 percent of its national budget. It has renegotiated energy deals with Spanish oil company Repsol-YPF, China's Andes Petroleum and Brazil's state-run Petrobras SA to boost its share in oil profits by trying to switch to fee-for-service rather than per-barrel contracts.