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Monday, September 21, 2009

INTERVIEW-Ecuador could nationalize oil operations

By Alexandra Valencia

QUITO (Reuters) - Ecuador could nationalize private oil operations in the country if the companies are found to have irregularities in their contracts with the state, Strategic Sectors Minister Galo Borja told Reuters on Thursday.

The socialist government is seeking to renegotiate contracts with companies in order to take more control of the South American country's natural resources.

Asked if the new contracts could result in the state takeover of companies, Borja responded: "The idea is to nationalize what it irregular."

He did not define what would constitute an "irregular" contract. Last year, the government of President Rafael Correa defaulted on $3.2 billion in global bonds after an auditing committee called the debt "illegitimate", a term that left many market analysts scratching their heads.

"We have to act in a serious, transparent way," Borja said in a telephone interview. "There has been a lot of weakness on the part of the state in the negotiation of contracts. We want to strengthen those contracts to show that Ecuador's natural resources belong to the state, from beginning to end."

The government will soon present its new proposals to oil firms, Borja said.

"We will be negotiating with the companies using a new contract model starting in October," he said.

Correa's government has clashed often with the private sector as he promises to expand his policies aimed at narrowing the gap between rich and poor. Critics say his state-centric approach is scarring off private investment and weakening the economy..

The government wants foreign oil investors to surrender profit-sharing contracts to become service providers in exchange for fees and operators have held back investment in the OPEC nation while negotiations drag on.

An Ecuadorean judge presiding over a $27 billion lawsuit against Chevron Corp recused himself from the case earlier this month after the oil company accused him of misconduct and involvement in a bribery scheme.

The 16-year-old case against Chevron is registered in the Ecuadorean oil town of Lago Agrio, where indigenous communities have accused Texaco, which was bought by Chevron in 2001, of damaging the environment and their health while operating petroleum facilities in the region.

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