The heavy blow of not receiving 1.2 billion dollars of revenue per year for the state, the decompensation of the oil and trade balance and the need to take drastic measures to compensate for the gap that would be created by stopping the exploitation of the Yasuní ITT are part of the scenario that the government sees in the future, if the thesis wins next August at the public consultation to leave the oil on land.
For the Yasunidos and the academics promoting the initiative to leave crude oil onshore, the amount that would not be received would be much less ($148 million per year at present values), and the way to compensate would be through reduced exemptions and collection of tax debts to the wealthiest .
So, less than three months after the consultation in Yasuní, measures are already being considered in case the Yes vote wins. Among them: increasing taxes, abolishing fuel subsidies, collecting tax debts or reducing exemptions, and even rearranging import subsidy policies.
According to Energy Minister Fernando Santos, if we consider that ITT is currently producing 55,000 barrels per day, at a price of $60 per barrel, that would be $99 million in lower revenues per month. This represents 1.188 million dollars per year. To that should be added the costs of dismantling buildings, fees to contractor companies. That is why we are talking about more than 14 billion dollars in 15 years, according to Petroecuador’s own calculations, he says.
The minister also points out that with the drop in crude oil prices, and due to the increase in imports, the oil trade balance suffers from imbalances. Already last year in March, revenues from the export of crude oil and derivatives amounted to 570 million dollars, while imports of diesel gasoline and liquefied gas were 590 million dollars. If 55,000 barrels per day are withdrawn, it will create a huge gap between exports and imports and affect the global trade balance, supporting dollarization.
What can be done to fill the gap that ITT would not use?
The Minister mentions Article 294 of the Constitution, which talks about four-year budgets that the Assembly must approve, at the moment the budget is approved until 2026, which includes the entry of ITT oil into the budget. For this reason, he says, the possible suspension of income from this area should wait after 2027. In between, several options could be sought.
In any case, he assures that an increase in taxes or an increase in the price of fuel would cause citizens to protest.
Regarding the possibility of Ambassador Ivonne Baki asking for the reactivation of the ITT initiative, in order for the international community to support the environmental initiative of leaving crude oil on land, Santos comments that the results are not yet known. In any case, he claims that in the seven years that Petroecuador has been operating there has been no oil spill and that the operation has been carried out in an environmentally friendly manner. The occupied area is one tenth of 1% of the park. He admits that Petroecuador has shown that healthy nature can coexist with a well-run oil business.
In this sense, he hopes that the public will weigh the pros and cons and make an informed decision.
About $16.4 billion in less revenue would hit the state treasury if the case for leaving crude oil on ITT soil prevails, officials say, while the area’s indigenous population supports oil extraction
On the other hand, Vilma Salgado, former Minister of Finance and advisor for economic issues in the Yasunidos campaign, explains that calculations have been made that show that the effect would be much smaller and tolerable. Based on Petroecuador’s own data, submitted to the Constitutional Court, it is estimated that production would amount to 52,000 barrels per day. Petroecuador estimated the price at $89.05, which is not real now. This shows that if a value of $64.8 is put (the Central Bank’s estimate), it would no longer be $900 million less revenue, as Petroecuador said, but $523 million. This figure is obtained by calculating net income, but also by deducting operational and transport costs, which would no longer exist. He explains that the cost of extraction at ITT is known to be high, as it would be $31.35 per barrel.
Salgado says that Petroecuador itself indicated before the Court that in 33 years (from 2023 to 2055) the income would be $7.967 million at current values, but at current values it would be $4.883 million in 33 years.
Therefore, the collective Yasunidos claims that this gap of 33 years is surmountable. For example, this is equivalent to one year of tax exemptions, incentives and benefits: $6.338 million, in 2021 alone.
For Salgado, if it is taken into account that according to the data of the Tax Administration (SRI), the richest 10% of natural persons are exempted from paying various taxes for a total of 598 million dollars, only withdrawing this aid would already compensate for the lack of funds.
The economic panorama in Ecuador darkens at the door of the extended election period, consultations on Yasuní and the El Niño phenomenon
Additionally, in ranking of SRI debts, there are 500 largest debtors who owe $1.983 million (solid debts), and this could also be offset. Salgado adds that since the ITT is one of the most biodiverse nature reserves in the world and there are issues with climate change, it does not make sense to extract such heavy crude oil at a high price, destroying natural wealth, to get a miniscule income. These funds can be “easily replaced by withdrawing the subsidies that we Ecuadorians give to the 10% or 1% of the richest natural persons”.
And it does not rule out the possibility of exchanging nature conservation debt, as was recently done with the Galapagos issue.
For Alberto Acosta Burne, editor of Análisis Semanal, the figures and the alternatives managed by Yasunidos are wrong: the only real way to compensate would be to increase fuel prices, and the other alternative that has been discussed is to increase taxes, such as VAT. The issue of abolishing tax incentives, which could generate capital flight, he says.
Darío Dávalos, an expert on energy issues, assures that the Government, considering the possible approval of the thesis on leaving oil on land, should review three directions of its energy policy. The first thing, he points out, is to provide state investments for the reactivation of oil. It shows that no proposals from the private sector could materialize, while oil production declined: “we stopped exporting $1,060 million, roughly, between 2021, 2022 and so far in 2023. The country cannot continue to wait” .
But Where would these state investments come from if there are no resources? In order to have resources, he believes that the policy of importing derivatives should be reviewed. 95 octane gasoline should not continue to be imported to blend 90% for Extra and Ecopaís and sell only 10% as Super Premium. He explains that the subsidy for diesel amounted to 384 million dollars, according to the data of the Central Bank, which should follow the example of Brazil, where the import of Russian diesel at reduced prices is not prohibited.
For Dávalos, the Government should no longer waste time on the tender for Campo Amistad, it should do its best and stop any purpose of importing this product. Due to the El Niño phenomenon, there will be strong waves along our coasts, if the ships cannot unload the imported product because of these waves, there is no point in rushing with these imports.
Source: Eluniverso
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