Energy surge in the pipeline
THE KEY ENERGY SECTOR IS TO SEE FUNDAMENTAL CHANGES IN THE COMING YEARS AS NEW LAWS PAVE THE WAY FOR PRIVATE INVESTORS AND THE NEW OCP PIPELINE BOOSTS ECUADOR'S PRODUCTION CAPACITY

THE MINISTRY OF ENERGY AND MINES is digging deep in its efforts to attract private companies to Ecuador.

The energy and mining sectors are vital to the economy of Ecuador. Oil, in particular, is the base of the country’s economy and, in December 2001, proven reserves were estimated at 2.1 billion barrels, with crude production around 415,000 barrels per day during the first ten months of 2001, according to the U.S. Energy Information Administration. Oil accounted for 14.6% of the GDP in 2000, and this figure has now risen to 20%. As the oil sector is mainly controlled by the state company, Petroecuador, the authorities are now looking to attract foreign investment to develop the country’s largest oil fields and boost production. The Minister of Energy and Mines, Pablo Teran, explains that, “the legislative reforms that introduced the dollarization of the economy, which was a fundamental structural change, also included a new law for the oil and gas sector which opens up the door to private investment. Now, any private company can come and develop a project in the oil sector.”

One very important project will help the country boost its production and find new markets. The heavy crude pipeline project (OCP in its Spanish acronym) will, according to Mr. Teran, “have a huge impact on our economy because, until now, our oil sector was limited by the transportation capacity. We had only one pipeline, the Trans-ecuatoriano, which was used at full capacity and this limitation prevented investors to come and exploit new fields.” The minister adds that, “this pipeline, whose capacity will be of 450,000 barrels a day when it is fully operational, will very quickly be able to transport as much as 390,000 barrels a day.” Construction of the OCP pipeline began in June 2001 and is expected to be completed by late 2003.

RODOLFO BARNIOL ZEGERA Executive President of Petroecuador

The national petroleum company, Petroecuador, is a major player in the national oil sector. It is divided in three main subsidiaries, Petroproducción, Petroindustrial and Petrocomercial, and its governing council includes representatives of the main ministries of the country–Energy, Economy, Defense, Industry, and the Presidency. The company is currently looking for international investment to enhance production and implement new
projects. By increasing the participation of new strategic partners it hopes to obtain the required capital to increase its production of crude oil from 230,000 barrels a day–around 56% of the national production–to 330,000 barrels a day. Its executive president, Rodolfo Barniol Zegera, believes that the ecuadorian oil sector “is about to register a tremendous development and offers new opportunities to foreign investors.”

The company invests around 60% of its resources in developing its infrastructure and modernizing its equipment. A substantial part of this investment also goes to environmental projects. “We routinely upgrade industrial installations, inspect underwater pipelines and carry out periodic quality control checks,” says Mr. Barniol Zegera. Petroecuador has set up a specific department whose mission is to oversee the environmental aspects of the operations and “develop better relations with the local communities.”
The policy of liberalization has also brought changes to other energy sectors apart from oil. In the electricity field, for example, where the percentage of shares of operating companies up for sale has risen from 39 to 51, there are 17 businesses being sold for a total of $1.6 billion with 1,600 megawatts ready for installation once these sales are finalized.

In the mining sector, traditional special privileges (regalías) have been eliminated in order to transform it into a normal business, covering items like income tax and a concessionary rent. Ecuador also has a large dry gas potential to generate electricity for domestic use. The gas-producing company, Energy Development Corporation Ecuador, is already drawing gas from two of its eight wells in the Gulf of Guayaquil, one of 20 million cubic feet per day and the other of 29 million cubic feet.