18 reforms to the Hydrocarbons Law were put into effect hand in hand with the Economic Development Law

Eighteen reforms to the Hydrocarbons Law entered into force as part of the Economic Development and Fiscal Sustainability Law. The reforms allow, among other issues, the exceptional delegation of oil exploration and exploitation, the refining of crude oil abroad, the delegation of the exploitation of fields in production to private hands and the voluntary migration of oil contracts. Another important issue is creation of a fund that allows to have resources for the identification of more reserves.

From now on this reform generates reactions for and against, but for the Government these are urgent reforms to make better use of the hydrocarbon resource and lower the costs of production, industrialization, transportation and commercialization of hydrocarbons and their derivatives. The Government has among its goals the doubling of oil production and reach up to 1 million barrels per day by 2025.

In summary, the law says that:

• The State will explore and exploit the deposits, but exceptionally it may delegate the exercise of these activities to national or foreign companies, or consortia made up of them, with proven experience and technical and economic capacity.
• In addition, it may enter into contracts for participation, for the provision of services for exploration and / or exploitation or other contractual forms of delegation in force in Ecuadorian legislation or of usual use in international industry. These contracts may be applied in blocks with hydrocarbon potential or in production and, on the latter, the State may delegate their exploration and exploitation.
• The benefits of the State may not be less than those already obtained in the year immediately preceding the year of modification. From these resources, an investment fund may be formed to search for new hydrocarbon reserves. This fund will be administered by the Ministry of the branch and subject to the control of the Comptroller’s Office.
• In addition, it is indicated that these hydrocarbons will be industrialized within or outside the country and the State may directly subcontract refining services with international refining companies.
• It is also explained that the participation contract means that the private company makes its investments at its own risk, but in the end it has a participation in the production and this will be calculated based on the percentages offered and agreed in the contract.
• It is detailed in the law that the current service contracts may be changed to the participation modality. It also establishes that the contracts may be migrated if the State agrees and if the companies agree.
• Regarding the issue of the delegation of fields in production, the law says that the Government will receive an entry premium set by the ministry of the branch in a bidding process.
• It is also stated in the law that any natural or legal person domiciled or established in the country may import and export hydrocarbons.

In accordance with Gonzalo González, coordinator of the Ecuadorian Petroleum Commission of the Quito Chamber of Commerce, the reforms they do provide the appropriate legal or regulatory environment for the investment to prosper. However, it remains to make decisions and apply the rule immediately, so that the results begin to be seen. González highlights that the legal framework gives these tools to the Government and companies, not only to use new contract models, but also to obtain the necessary risk capital abroad. Also, he says, the modernization of the sector can be achieved, both in the area of ​​exploration and production, as well as in the area of ​​transportation and marketing. He clarified that privatization is not being allowed, but rather its modernization of the sector.

From the other shore for the Association of Workers of the Energy and Petroleum Companies (Asetep), The reform of the Hydrocarbons Law gives the green light to the privatization of the fields operated by Petroecuador, refineries and other hydrocarbon facilities. In this sense, the organization assures that the votes of the UNES bench and the ruling party allowed this, elevating to the category of Law the total privatization of oil fields operated by the State. He also says that this procedure is not new, it only consolidates the privatization policy that began in 2012 in his own government, of course, with the limits that the current Law imposed on them.

The energy and oil workers insist that the figures show that in the last ten years all privatization of fields in production of the state company It has been detrimental to the treasury and to the Ecuadorian people, and they consider that this time it will not be the exception, even more so when the Sacha field is now at stake., called the “Jewel of the Crown” and the three refineries that the country has.

On delegation of the fields in production to the private initiative, argue that this will be done without risk investment or infrastructure construction and will serve only for the usufruct of the income that now belongs to the State.

Meanwhile, they warn that the change from service provision contracts to participation contracts it does not take into account the production volumes committed in oil pre-sale contracts. For the workers, this opens the possibility that in the future Ecuador may have to buy crude oil at an international price to pay its debts incurred in past years.

On the other hand, Henry Llanes, former union leader, believes that the National Assembly should summon the Minister of Energy and Non-Renewable Natural Resources, Juan Carlos Bermeo, to impeachment. because their actions in the management of the hydrocarbon sector are not framed in what Articles 313, 315, 316 and 408 of the Constitution of the Republic provide.

“The oil minister is making use of constitutional exceptionality to deliver oil wealth to economic groups linked to the hydrocarbon business and who have benefited from this business during the last 30 years,” he says. (I)