Ecuador ‘was right to revoke Occidental licence’

The frontrunner in Ecuador’s presidential race has backed the government’s decision to revoke Occidental’s operating contract and seize $1bn of its assets in the Andean country, saying it was the correct response to the US oil company’s “unethical and illegal” actions.

In an interview with the Financial Times, León Roldós, usually a firm critic of President Alfredo Palacio, said the administration had acted within Ecuadorean law and dismissed as “absurd” the idea that by expelling Occidental the government had drawn closer to radical nationalist leaders in the Andes such as Hugo Chávez of Venezuela and Evo Morales of Bolivia.

Ecuador revoked Occidental’s operating contract last week after the energy ministry ruled that the company had improperly transferred a 40 per cent interest in its oil fields to EnCana of Canada in 2000. The government argues that this constituted a breach of contract and demanded that Occidental turn over its assets to Petroecuador, the state oil company.

Occidental, which had been the largest foreign investor in Ecuador, filed an arbitration claim last week at the International Centre for Settlement of Investment Disputes in Washington.

The company is seeking to prevent the government from allowing another foreign investor to operate its oil facilities until the dispute is resolved, which could take more than a year.

“There’s a law and there’s a contract,” Mr Roldós said. “The law says that if you transfer rights without permission, that breaks the contract. The result is that all the assets pass to the state.”

“What Occidental did was deliberate and therefore unethical. Without any doubt, if I were president I would have acted in the same way.”

Mr Roldós leads the polls ahead of elections in October with some 23 per cent of the vote. A centre-leftist who is backed by the Izquierda Democratica, one of the country’s main socialist groups, he is also a former vice-president and brother of Jaime Roldós, a charismatic president who died in an aircraft crash 25 years ago this week.

He said he was disturbed by the way the case had been reported internationally. “This has been portrayed as another case of a third world country that does not respect contracts,” Mr Roldós said. “That is entirely inaccurate.”

“The reason I support the government’s decision is not because I wanted to get a US company out, but because of the company’s unethical and illegal behaviour.”

Mr Roldós rejected the idea that multinational companies would be scared off from investing in Ecuador because of the government’s actions.

“This should not affect the way that potential foreign investors view Ecuador, so long as they are given a full explanation of what happened,” he said. “At the moment all they see are the headlines that say ‘Ecuador kicks out Oxy’.”

In the wake of the Occidental ruling, the Bush administration called a halt to trade talks, but Mr Roldós said progress in the negotiations had stopped before then. “The trade negotiations were effectively over before the ruling in the Occidental case.”

He lamented the breakdown in talks, saying a trade deal was “indispensable” for Ecuador. “I have always opposed the US blockade on Cuba – so why would I voluntarily blockade Ecuador off from the US?”

He said that if elected he would press for agreement and would then present the pact to the electorate in a referendum.

He accepted that the trade negotiations were not currently popular in Ecuador but said he was confident that “a good trade agreement would win the approval of the people”.

Because it came in the wake of tough action against foreign investors in Venezuela and Bolivia in recent months, and because it provoked a strong negative reaction from Washington, many observers viewed Ecuador’s move against Occidental as a sign that the country was shifting further towards the sort of radical nationalism espoused by Mr Chávez.

Mr Roldós characterised that as “absurd” and said that if elected he would not seek closer ties with Caracas. “Whoever I speak to, be it an official of the Bush administration or Fidel Castro, I will always defend the position of a sovereign Ecuador,” he said.

“We should have the same relations with Venezuela as with any other Latin American country. We are both oil producers, so we might want to seek a strategic alliance, but it should not be an ideological alliance.

“I reject this idea that a country such as Ecuador has to choose between Washington and Caracas, between Bush and Chávez.”