Volume 45 Number 177,
April-June 2014
The Oil Sector in Ecuador.
2000-2010
Juan Pablo Mateo, Santiago García *
Date received: September 19, 2013. Date accepted: January 30, 2014
Abstract

This text analyzes a variety of aspects related to production, fiscal topics and the external insertion of oil activities in Ecuador since 2000. This time period is when dollarization took place and includes two economic policies for the sector: the first inspired by neoliberal models and the second involving efforts by the government of Rafael Correa to recover oil sovereignty. From a macroeconomic perspective, and taking into account elements of the regulatory framework, the purpose of this work is to demonstrate the relationship between these two ideas using the hypothesis that the productive aspects — this text emphasizes where this area is lacking — constitute the basis of improper income appropriation and dependent insertion into the global oil market.

Keywords: Ecuador, oil, underdevelopment, income.
INTRODUCTION

This article analyzes the oil sector in Ecuador starting in 2000, examining three closely interlinked areas, the productive dimension, fiscal aspects and external insertion.1 Productive factors include the production of crude and its derived products, as well as the role of institutional agents and various insufficiencies, as these particular productive features will define the fiscal imbalances and conditions of external insertion. The fiscal realm encompasses revenue from oil-related activities and the expenses these incur, focusing on a crucial question: subsidy policy. The external dimension reflects oil exports and imports, closely related to production aspects and an essential part of total revenue and expenditures.

This analysis begins with a macroeconomic perspective, prioritizing an explanation of how various entities are related in the framework of the Ecuadorian economic structure and, specifically, positioning the dimensions of the oil sector in an economy that suffers from insufficient industrialization. Because Ecuador is under-developed, there is limited fiscal capacity to retain the surplus in net terms due to the growing presence of fuel consumption subsidies, with socially regressive implications and greater dependency on primary exports, which contribute to reproducing under-development. This work therefore begins with the hypothesis that issues related to oil production — and here we highlight where this aspect is lacking — constitute the basis of the specific features of the fiscal situation and the variety of external insertion, which does not mean we assume unidirectional causality at all.

This work also considers elements of the overall economic environment and regulatory framework; specifically, those needed for analysis. This will need to be defined so as to limit this work to only the most specifically relevant. First, there is a widespread macroeconomic dynamic that supports a globally integrated sector. The oil sector, rather than being purely Ecuadorian, is an eminently global activity, in terms of price setting, productivity variance among oil fields and the appropriation of oil profits. The oil sector is also impacted by a series of dynamics (geopolitics, trans-national companies, futures markets, etc.) that contrast with the economic results of the rest of the economic sectors in Ecuador (Mateo, 2009). Second, the regulatory framework can be explained not only as a framework in which to analyze the limits on oil activities, but also to investigate the extent to which the oil sector can drive neo-developmentalism,2 which will help outline proposals for a national development project. In any event, the most important aspects will be those directly related to the analytical dimensions described in this work.

The period under analysis is characterized by the official dollarization of the Ecuadorian economy, which began in 2000. Neoliberal governments continued until 2007, when power passed to Rafael Correa, a self-proclaimed champion of the left and a critic of neoliberalism. Overall, the 2000s were a period of growth, where the gdp grew at an annual average rate of 4.52 percent, while oil gdp reached 3 percent positive variation (bce, 2013).

For purposes of this analysis, the oil sector will be looked at within the framework of the Ecuadorian economy, examining historical, institutional and macroeconomic aspects. Then we will address the three areas this work will focus on: productive, fiscal and external dimensions. To clarify, we begin with the productive environment because, without denying reciprocities, this is the foundation of the relative under-development of the Ecuadorian economy and will allow us to define the basic pillars of the sections to come. Finally, the conclusions provide an overall look at the Ecuadorian oil sector.

THE REGULATORY FRAMEWORK OF THE OIL SECTOR AND ITS RECENT PRODUCTION DYNAMICS

Contemporary Ecuadorian economic history is strongly marked by oil activities, mainly since the country began to export crude in 1973. This sector has remained one of the major sectors in the country’s productive structure, contributing an average of 12.7 percent of the gdp at constant prices from 2000-2012.

The country’s economic performance has also been strongly influenced by what happens in this sector, although quantitatively, the total gdp is rather more correlated with non-oil sectors (see Table 1). Branches of economic activity related to oil grew by 7.6 percent from 2000-2006 and fell by 0.8 percent between 2007 and 2012, while non-oil sectors had better performance in this last governmental term, reaching 5.2 percent positive variation on average in comparison with the 4.5 percent achieved from 2000-2006.



The main legal framework regulating oil activities is the Hydrocarbons Law, created in 1978 and still in place today, although it has undergone diverse and significant reforms. Following a neoliberal shift that began in the 1980s, intensified in the 1990s and continued up through the first half of the 2000s, a period of so-called "energy sovereignty" kicked off in 2006. Under the pais Alliance government of Rafael Correa in 2007, the country changed direction, joining opec again and approving the new Constitution of Ecuador in 2008. According to the new constitution, oil is one of the strategic sectors for which section 11 of Article 261 gives exclusive rights to the State as full owners, reserving for the State the right to administer, regulate, control and manage it.3

In Ecuador, the state enterprise Petrolera del Ecuador (Petroecuador), created in 1989 as a system of holding companies,4 exploits oil. Production mainly takes place in the Eastern region of the Amazons, in the Sushufindi, Sacha, Libertador, Cononaco, Cuyabeno, Lago Agrio and Auca oil fields. Historically, oil production has been characterized by market instability, up through the present day. In the 1960s, average production reached 64 million barrels (mb), of which 51 million were exported. Then, production practically doubled to 129 mb on average in the 1990s. Since then, production has hovered around 170-180 mb annually.

In the 2000s, production levels showed relative stagnation, except for 2004, which saw a 25 percent increase, leading to a global increase of 21 percent (bce, 2013). The reason for this was the launch of the Heavy Crude Oil Pipeline (ocp), built by a private consortium led by Techint (Argentina), which greatly expanded transportation capacities, where there had previously been a bottleneck preventing production growth, along with the incentives of high oil prices (bce, 2007). This increase was led by private companies, including Perenco, Occidental, Repsol ypf and aec Ecuador, which accounted for 97 percent of the rise. Between 2003 and 2007, the private sector produced more than half of the total, reaching an all-time high of 63 percent in 2004-2005. This is important from a historical perspective, because private companies have only really begun to play a role in oil production starting in the mid-1990s.5

The subsequent drop is explained by the fact that the contract between the State and the company Occidental expired, along with the fact that Perenco and Petrobras (Grupo Faro, 2012) ceased operations, meaning that their production, of 21.8 mb, and productive assets were shifted to the state enterprise Petroamazonas.6 In this way, Petroecuador has seen production fall, from 85 mb in 2000 to only 49 mb in 2010. However, including Block 15 and Río Napo, there has been some recovery in the share of crude production for the public sector, accounting for 73 percent of the total in 2013 (bce, 2007, 2013).7 As such, in the first half of the decade, the private sector had a notable share of total production, but in the second half, the relative amount of crude produced by state companies practically doubled.



Figure 1. Historical Production of Oil by Type of Company (1972-2012)



Source: Central Bank of Ecuador (2013).



Crude oil is refined in three refineries: Esmeraldas, La Libertad and the Shushufindi Industrial Complex (cis), as well as two refineries located in the Eastern region and three distillation plants. Esmeraldas has over half of the capacity to refine light and heavy crude oil (110,000 barrels per day), although its production fell by one-fifth in the 2000s (bce, 2013). Production of derived products grew by only 21 percent between 2000 and 2012 (although in 2010, it was at the same level as in 2000), with approximately one-fourth gasoline, followed by mixed fuel (fuel oil 4 or 6, or residue), liquefied petroleum gas (lpg) and turbo fuel. The share of national production in the total (national production plus imports) has fallen, going from 86 percent in 2000 to only 58 percent in 2010, but with an increase to 62-63 percent in subsequent years (bce, 2013). In other words, the portion of crude oil produced and sent to refineries is lower and falling, from 39 percent to 28-30 percent between 2000 and 2010-2012 (bce, 2013), which reflects the divestment (primary) in the sector (see Table 2).

This productive environment suffers from a variety of decisive problems. First, Ecuador has already reached its Hubbert peak of reserves8 (Acosta, 2011b), which means that half or more of its reserves have been exploited.9 Because fewer and fewer oil fields are being discovered, and those that are found are smaller, more expensive and full of heavier crude (lower api degrees) (Acosta, 2009a), and given the restrictions on expanding the oil border towards the Amazons, Ecuador would appear to be on the edge of its current extractionist economic model (Villavicencio, 2010).10

Second, there has been a lack of investment in the sector with regards to oil exploration and extraction, restructuring of oil deposits, equipment maintenance, etc. whose roots can be found in the neoliberal shift in the 1990s. In this sense, between 2006 and 2009, private companies reduced investment from 772 to 281 million dollars, which explains the relative decrease in production (Aráuz, 2010a, Grupo Faro, 2012),11 while Petroecuador has suffered from insufficient financing to undertake investment projects (Grupo Faro, 2009). Petroecuador’s costs have not been acknowledged, even as it must assume the costs of importing derived items and absorbing fuel subsidy payments. Petroecuador's earnings per exported barrel are substantially lower than the revenue of private companies and are not correlated with the price of crude oil.12 The state enterprise is also hurting from deliberate economic strangulation that has prevented it from improving its productive capacity, and whose ultimate purpose has been to push forward privatization.13 Its obsolete production infrastructure has also prevented it from undertaking investment projects (mem, 2007). Consequently, oil field production has continued to fall, and the enterprise has been unable to extend the useful lives of its reservoirs. They have had to close hundreds of deposits due to damaged structure and equipment. Nor is there a program to apply new technologies (Acosta et al., 2009; mem, 2007).



Insufficient crude oil refining and processing capacity is one of the main problems for the oil sector in Ecuador, and by extension, its efforts to industrialize. Let us keep in mind that this is the phase in which it is possible to obtain the greatest benefits, as it reflects the degree of productive development of the country. The consequence, as we shall see later, would be the need to import derived products.14 Moving away from the typology of these products, it is useful to note that in 2000, internal production of derived products, like gasoline, which we saw accounted for the greatest percentage (about 25 percent of the total) required the import of high octane nafta. To these insufficiencies, we must add inefficiency (mem, 2007): facilities are not prepared to process 23 degree api crude oil, heavier than the level for which they were designed, 28 degrees, and there is not enough investment in replacement parts. There is widespread neglect in preventive and corrective maintenance, as well. Likewise, there is over-dependency on the Esmeraldas refinery, although this has been reduced over time due to a drop in its production to 80,000 barrels per day in 2010 (bce, 2013).15

FISCAL ASPECTS

Analyzing fiscal aspects, including income and spending, is the most complex task in discussing the Ecuadorian oil sector, due to limited availability of information.16 Taking into account these difficulties, this work estimates income and uses an indirect approach to spending, by looking at it in terms of opportunity cost.

Revenue

The State share of the income derived from oil is currently determined by the regulatory framework and, here is where it gets complicated, the opaque practices of private companies. In this text, we refer to oil revenue as all inflows resulting from oil activities and included in the State budget.17

Since the 1980s, legislative modifications have led to the consequence that, whether intended or not, the portion of revenue appropriated by the State has fallen. Sometimes, trans-national companies were able to declare themselves lost, in this way avoiding paying taxes, and this has been true of various contracts set up with private companies.18 In 2006, when oil prices were high, Ecuador enacted Law 42-2006, which reformed the historic Hydrocarbons Law. It stipulated that the State would receive at least 50 percent of extraordinary revenues obtained for exploiting crude oil in the modality of participation contracts.19 One year later, in October 2007, Executive Decree 662 declared that the State would receive 99 percent of revenue, although by the middle of the following year this was reduced to 70 percent, pursuant to Article 170 of the Reformatory Law for Tax Equality. Along these lines, negotiations have been ongoing since early 2008 to modify contracts.

In October, contracts were enacted to provide services, and they would acquire legal validity in July 2010. Under this new modality, companies would receive a previously stipulated rate for services, which involved extracting and delivering crude oil to the State, when they found commercially exploitable hydrocarbons in a contractually determined area. The State fixed an average rate for private companies at 32.79 dollars per barrel extracted, as compared to the 35.13 dollars it paid earlier, which would mean an increase in state oil revenue. Also, if the contractor were to go beyond forecast production, the State would receive 80 percent of the profit and the companies 20 percent (Acosta, 2011a). Article 16 of the Hydrocarbons Law stipulates that:

Of the revenue coming from production in the area determined in the contract, the Ecuadorian State reserves 25 percent of gross income as its sovereignty margin. The remaining value will cover transport costs and commercialization costs incurred by the State. Once these deductions are made, the rate for services provided will be covered.20

In addition, these companies would have to pay a corporate tax of 25 percent, lower than what it was before, 44 percent.

Now, this contract modality was not exempt from criticism. Inexplicably, the State gave Petroamazonas and Petroecuador costs of production of between seven and five dollars per barrel, respectively, for crude oil very similar to that extracted by foreign companies, which would receive rates of 35-41 dollars per barrel (Villavicencio, 2010; Acosta, 2011b). The only condition was that these companies make certain investments not oriented toward discovering new reserves (Acosta, 2011). Also, private companies tended to artificially inflate costs in these contracts to avoid paying the part that corresponded to the State. There was also a heterogeneous set of irregularities in the contracts signed by Petroecuador, many of which were denounced, but they led to a decrease in revenue for the national treasury (Acosta, 2009a and Araúz, 2010b).

Now we will move on to the quantitative analysis of the revenue that the State would receive. In the period of reference, oil income for the non-financial public sector was extremely volatile, oscillating between a low of 22 percent in 2002 and a high of 40 percent in 2011-2012 (see Table 3). In the first half of the decade, income from the sale of derived products was marginal, but later disappeared completely, meaning that practically all oil revenue came from exports.

The change resulting from “oil sovereignty” beginning in 2007 (concretely, in 2008) is evident in the gdp, as oil revenue went from an average of 6.2 to 12 percent.

Spending

The other side of oil revenue has to do with the spending required for this activity. It would not be possible, nor is it the objective of this work, to perform a systematic study of every expenditure required, but we can summarize two main items. First, Ecuador imports derived products, which will be addressed in the next section on external insertion. Second, which will be analyzed below, we must keep in mind the degree of State subsidies and their implications for the oil sector.21 The relevance of this private sector support mechanism is likely related to the fact that the State is absent in Ecuador from the productive process, unlike in other countries, like Mexico, Argentina, Brazil, or even Peru and Bolivia (Acosta, 2009a).22

Ecuador stands out in Latin America for the significant subsidies it provides for fuel, mainly diesel, gasoline (extra and super) and lpg (mcpec, 2010), which provide a considerable domestic discount for the price of these products.23 Specifically, this policy has been consolidated since 2000. Table 4 shows a diverse series of estimates on the subsidies volume, based on analysis of various institutions and methodologies. Table 5 links this data with Petroecuador revenue for exports of crude oil and derived products and the non-financial public sector budget. Here, what is important is the difference between import prices and internal sale prices, as the latter were reduced by governmental decision, on average, to half (from 60 to 30 dollars a barrel) throughout the decade in reference.



  

  

Based on these tables, it emerges that in the second half of the decade subsidies increased the most, accounting for around 2-3 percent of gdp, which in terms of opportunity cost would be 5-7 percent. Due to the data sources chosen (see Table 3), discrepancies are substantial, accounting for between 19 and 37 percent of oil revenue in the nfps budget (without considering opportunity cost) and around 10 to 15 percent of revenue from exporting crude oil and derived products.

Besides noting how high these expenditures are, and they are considerably high, they have economic implications. First, the subsidies policy: "favors higher income groups that consume the most fuel," and therefore constitute "an incentive to generate sumptuary consumption" (mcpec, 2010: 109).24 While the poorest quintile consumes merely 3 percent of fuel, the wealthiest consumed 55 percent in 2009 (ibid.).This highly polarized consumption of a subsidized product is related to the way in which these groups benefit from subsidies. In 2009, the Ministry calculated that the poorest quintile received 23 percent of the subsidies received by the highest income quintile (96 vs. 419 dollars a year), which, in terms of opportunity cost, means that the poorest and wealthiest quintiles appropriate 9.4 and 41.3 percent of total subsidies, respectively (mcpec, 2010).

Another consequence of the generous subsidies policy has been to encourage smuggling. Around 20 percent of lpg consumed is diverted to Colombia and Peru, attracted by the price differential, which can reach nearly 800 percent (Castillo, 2007; Ríos et al., 2007; mcpec, 2010). It is estimated that 30 and 9 percent of diesel 1 and 2, respectively, is lost, and 2-5 percent of gasoline extra and super is lost.

Third, the issue of insufficient, varied and inefficient domestic supply of derived products has been exacerbated by excessive energy consumption. Energy consumption per inhabitant measured in equivalent barrels of oil25 has increased among the population, while self-supply of primary and final energy has fallen in the country. Over this past decade, Ecuador’s share of total oil consumption on the global scale went from 0.18 to 0.26 percent (British Petroleum, 2013). In 1990, Ecuador managed to cover 94-96 percent of domestic demand, but by mid-2000, it only covered 60 percent, meaning it had to import the other 40 percent of final energy (mem, 2007). Ecuador is therefore now in a situation in which it must export primary energy to import final energy.

Although the cost of these imports is high, maintaining artificially low final prices favors more fuel-intensive techniques, like using lpg and diesel 2 in industrial applications, which are also two of the most important sectors of imports. In this way, the use of fuel oil 6, where national supply does meet demand and it must be exported, is not incentivized, nor is electricity.26 We should add here that receive the relatively greatest benefits due to these subsidies — quantified by the percentage that oil derived products represent in total inputs — are those in the primary area, the non-tradable goods sector and low added value tertiary goods: transportation, fishing, mining and quarry exploitation, oil refining, electrical power generation, manufacturing non-metal mineral products, sugar production, forestry, public administration and defense and oil extraction (mcpec, 2010). There is no push to use available alternative and renewable energies (hydraulic, solar, wind, geothermal, etc.), which reproduces external dependence, as will be analyzed in the next section.

EXTERNAL ASPECTS

The relative productive under-development in Ecuador is evident in its participation in the global market and, more concretely, the makeup of its oil exports and imports. Although we may consider that the economic conditions in which a country maintains foreign relations are a corollary for the degree of development of its productive forces as a “conceptually primary” concept, a diachronic study requires an explanation of the reciprocity of influence in diverse aspects of the economic process. In Ecuador, its own domestic problems are the cause of the degree to which the external sector plays a role in domestic economic evolution and the form of external insertion.

Over the past two decades, a bit more than 60 percent of internal production has been exported, with an increase from the low of 60 percent from 1999-2003 up to 67-69 percent since 2004. Given the evolution of crude oil production, the number of exported barrels has risen by 44 percent over the decade. Even so, it must be clarified that this increase almost completely corresponds to the increase registered between 2003 and 2004, when the figure rose 40 percent, from 92 to 129 mb, with a high of 136 mb exported in 2006. Although exports were divided equally between Petroecuador and private companies in the first half of the decade (both in barrels and in dollars received), since 2004, the state enterprise has increased its share of exports, reaching 75 percent. In this way, Petroecuador has exported 116 percent more barrels, while private companies have seen a drop of 28 percent, and at similar prices, with a slight difference in favor of Petroecuador.26

The weight of oil exports with respect to total exports has gained relevance in recent years (see Figure 2). Oil sales went from 41 percent of total exports in 2001 to 59 percent in 2006, 62 percent in 2008 and back down to 58 percent of the total in 2012.

Throughout the decade, the years of growth were characterized by a greater show of oil exports in the gdp, which went from 6.4 to 17.1 percent between 2002 and 2008, falling to 14.5 percent of gdp in 2012. These exports are fundamentally crude oil, which accounts for 83-90 percent of the total value exported by this sector, reflecting primary-dependent insertion of the Ecuadorian economy in the global market.

This type of insertion, alongside the analysis related to Ecuador’s productive aspects, is also evident in imports, where Ecuador is dependent on importing derived products.28 Fuel imports and lubricants went from 7.5 percent of total imports in 2000 to 21.1 percent in 2006, reaching 22.5 percent in 2012. In other words, they have practically tripled in little more than a decade. This period has also seen demand rise considerable due to the extraordinary increase in domestic consumption, as well as certain stagnation in national production. The total supply went from 67.9 mb to 106.1 mb, which represents an increase of 56 percent between 2000 and 2010, requiring the country to import 41 percent of this amount (bce, 2011b).



Figure 2. Oil Exports



Source: Central Bank of Ecuador



There is also an imbalance between the domestic supply of oil derived products and demand. Domestic consumption of derived products is focused on four, by order of importance: diesel 2, gasoline extra, lpg and fuel oil, which account for more or less 80 percent of domestic demand, although other products are growing in importance, going from 10 percent in 2000 to over 20 percent by the end of the decade. Nearly one third of consumption is diesel 2, 18-22 percent is gas extra, although with a downward trend, and between 10-15 percent is fuel oil and lpg. The share of the latter is falling and the share of the second has remained constant (bce, 2013). As a result, Ecuador fundamentally imports three derived products: lpg, high octane nafta and diesel to supply domestic demand, although in recent years, the share of premium diesel has increased, as well as cutter stock and thinners.29 Also, the composition has changed due to the decreasing share of lpg, which represented half of these imports in 2000 and now only represents a quarter, although the volume of barrels doubled between 2000 and 2010.





Exports of refined oil products, meanwhile, were much lower than imports, between 12 and 15 mb per year, with little variation in the 2000s. Only fuel oil 6, mixed fuel (residue) produced by the Esmeraldas refinery, which represents 85 percent of the total, some 10-13 mb annually, and high octane nafta or base nafta were of some relevance.30 In other words, derived product exports, in reality, are mainly fuel residue, and their price is therefore lower even than that of crude oil (Grupo Faro, 2009). The average price of crude exported by Petroecuador was 44.39 dollars, as compared to only 39 dollars a barrel of refined product exported throughout the decade (bce, 2013). In general, this asymmetry is evident in the contrast with the imported price per barrel, whose average in 2000 was nearly 60.5 dollars a barrel, while the price for an exported barrel was 43.7 dollars. This means that foreign acquisitions per barrel were 38.4 percent higher than those sold (bce, 2013).

The cost of importing derived products has risen over the decade with respect to revenue for exports, both for crude oil and derived products. In other words, a greater percentage of sales revenue ends up abroad, because the country has to import derived products, which figure somewhere around 40-50 percent. This is definitely a mechanism that divests the surplus associated with domestic productive under-development.

FINAL REFLECTIONS

The contemporary economic history of Argentina is marked by two main factors: i] the official start of dollarization in the Ecuadorian economy in April 2000, as an act of last resort to overcome a severe financial crisis resulting from a true systemic crisis at the end of the 1990s and ii] the launch of a heterodox socioeconomic project under the leadership of Rafael Correa, starting in 2007, and followed by constitutional change in 2008. In this context, oil resource management has become a key topic for Ecuadorian officials, because this product is so important to the nation’s social, economic and political structures. It also brings up old topics related to development with regards to external insertion, productive diversification and social equality.





Taking this last stage since 2000 as a reference, there was an important shift in the dimension of oil production, as the national government took back the reigns of exploitation through its state enterprises, starting in 2007, breaking a trend previously marked by trans-national companies. This meant that the State began to maintain a greater portion of oil revenue, which is also one of the supports for a neo-developmentalist strategy.

Unfortunately, this neo-developmentalism is not perfect either. A significant amount of oil revenue flows out of the country due to the need to import derived products as a result of the failed industrialization of the sector, and is also used to finance fuel consumption subsidies, which take on a regressive form of income distribution, mainly to benefit the middle and upper classes, lead to smuggling activities, and, moreover, foster an accumulation model overly focused on energy consumption. The primary export model illustrated in Ecuador due to the increase in crude oil exports, alongside deficient industrialization, limited to residue products, implies growing dependence on the import of derived products. This divestment of part of the surplus means that the State is unable to redistribute income and transform its accumulation model, which simultaneously strengthens the influence of high income social groups that benefit from the subsidies policy or an overly energy consumption-intensive pattern of growth. Throughout this entire period, Correa’s government has not demonstrated political will to review these subsidies, although it has constantly expressed its concern with this onerous fiscal burden, which is becoming unsustainable.

International specialization is questionable due to its limited scope in terms of dangerous dependence on fragile markets. However, given the profound ways in which the global economy has evolved in recent years, due to growing demand for raw materials from China and other major emerging countries, it does not appear that maintaining high prices for raw materials like oil is merely circumstantial. In fact, Ecuador has certainly benefited from the resources generated by oil prices.

Consequently, in Ecuador, its main product of oil is a good example of the weaknesses and strengths that coexist in a neo-developmentalist s trategy that is beginning to gain ground in Latin America. In other words, an attempt to leave behind mere industrialization and the promotion of systemic competitiveness as fundamental tools to achieve advantageous external insertion, in favor of a strong state presence to support greater and better social, economic and environmental balance.

ACKNOWLEDGEMENTS

This article constitutes the outcome of the research project “Exploiting Hydrocarbons and Fostering Development in Latin America: Bolivia, Brazil and Ecuador” (Cealci 05/10) for the Ecuador portion, conducted by the Political Economy Studies Group: Capitalism and Unequal Development, of the Universidad Complutense de Madrid, which has been funded by Fundación Carolina. We thank this institution for their academic support.

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mrnnr (Ministerio de Recursos Naturales No Renovables) (2011), Cooperación Ecuador-Venezuela, Quito, Ecuador.

Refinería del Pacífico Eloy Alfaro (rdp) (2011), web page (consulted May 5, 2011), available at: <http://www.rdp.ec>

Ríos, Álvaro et al. (2007), “Focalización de los subsidios a los combustibles en América Latina y el Caribe. Análisis y propuesta”, technical document, Organización Latinoamericana de Energía, Quito, Ecuador.

Villavicencio, Fernando (2010), “Renegociación: la fiesta de las petroleras”, Kaos en la Red, December 11 (consulted July 8, 2012), available at: <http://www.kaosenlared.net/noticia/ecuador-renegociacion-fiesta-petroleras>

______ (2011), “Ecuador: paraíso de intermediarios petroleros. El reinado de la “mafiosa” Trafigura”, Kaos en la Red, July 22 (consulted July 15, 2012), available at: <http://old.kaosenlared.net/noticia/ecuador-paraiso-intermediarios-petroleros-reinado-mafiosa-trafigura>


* Universidad Complutense de Madrid and Universidad Central de Ecuador. jpmateotome@hotmail.com and santygarcial@yahoo.es, respectively.



1 The period 2000-2010 is used in the analysis, although in some cases, values are taken from subsequent years due to the availability of statistics.

2 There has been a significant debate in Latin America in recent years with regards to developmentalism and neo-developmentalism. See Gudynas (2011) for more information.

3 This is also the case for all forms of energy, telecommunications, non-renewable natural resources, transportation and hydrocarbon refining, biodiversity and genetic wealth, the electromagnetic spectrum and water. New reforms to the hydrocarbon law took effect in July 2010, although the majority of this study is focused on the 2000s.

4 Petroecuador currently performs oil exploration and exploitation activities. The industrialization of oil, transportation and commercialization of final products are done through its associated companies, now subsidiaries after the Public Enterprise Law of 2010 (third transitory provision): Petroproducción, Petroindustrial and Petrocomercial, and is also in charge of administering and exploiting the Trans-Ecuadorian Oil Pipeline System (sote).

5 Between 1972 and 1992, private company production did not even account for 2 percent of the total. It would not be until the mid-1990s with neoliberal reforms that they would begin to account for one-fifth of total production, which would increase in subsequent years.

6 Subsidiary of Petroecuador created in April 2010, acting on behalf of Petroamazonas, S.A. to operate Block 15 and the unified fields of Edén Yuturi and Limoncocha, which were returned to the state when the contract with Occidental (oxy) expired due to contractual non-compliance. Moreover, this company received Block 7 and 21 facilities in August 2010, which were left behind by the French company Perenco. Petroecuador also exported Napo crude, albeit of lower quality than from the east.

7 It should be noted that Operaciones Río Napo is a mixed company formed by Petroecuador and the Venezuelan pdvsa.

8 Even so, this depends on the definition of reserves, which means that peak production will be somewhere between 2010 and 2037, as Fontaine (2010) explains.

9 Analysts do not agree on the oil reserves left in Ecuador. According to data from the Ministry of Non-Renewable Natural Resources, proven oil reserves in the country reach 8.30 million barrels and the remaining reach 3.323 million barrels. Given current export levels, these reserves would allow the country to continue exporting for no longer than two or three more decades.

10 In these circumstances, the national government chose to cancel the Yasuní-itt Initiative in August 2013, with the expectation of adding nearly 846 mb of crude oil, equivalent to 20 percent of proven reserves, and generating an additional 18 billion dollars at present value in 23 years of exploitation of oil blocks found in the Yasuní National Park.

11 Keep in mind that in previous years, around 90 percent of investment was made by private companies (see Espinasa, 2007).

12 According to the study by Espinasa (2007), it reaches a minimum in 2000, with 1.5 dollars per barrel ($7b), and the maximum level was equivalent to the minimum of private companies, calculating that they have earned up to four times more revenue per barrel exported than the state enterprise through 2005, and the state enterprise even had greater costs than income in 2001-2004.

13 See more on this topic in mem (2007).

14 This lack is functional to the role of intermediaries in the foreign trade of fuel (see Mateo, 2013) and, according to Araúz (2009), this may help us understand why more refineries have not been built.

15 This refinery is an example of the insufficiencies described here, as plans to renovate and expand it have been proposed. It continues to operate with severe deficiencies, reflected in the number of unscheduled shutdowns of its various units and systems (mem, 2007). Still, as a result of cooperation with Venezuela, various agreements were made in 2007 to explore and trade crude for derived products and build the Pacific Refinery, etc. See Mateo and García (2012), rdp (2011) and mrnnr (2011) for more information.

16 The World Bank (2005) points to the lack of precision and transparency in information regarding oil income, and we must keep in mind that Petroecuador receives the part that corresponds to the State for operations with contractors, adds it to its oil production and, moreover, includes it in its accounting with subsidies for internal prices and the own complexities of its management, which makes it hard to establish consistent figures.

17 Conceptually, then, the World Bank (2005) definition of oil revenue transcends. In practice, due to the availability of statistical information, this will be limited to the revenue that figures in the budget of the non-financial public sector, according to the Central Bank.

18 In effect, Araúz (2010b) indicates that the State only received 11.84 percent of oil extracted by companies working under service provision contracts and, on occasion, did not receive any revenue at all, while in participation contracts, it was calculated that the State appropriate approximately 18 percent of total oil revenue (Correa, 2011).

19 With reference to profits derived from increasing crude oil prices above contractually established values. It is necessary to clarify that this additional revenue is not calculated within oil export revenue (Artola and Pazmiño, 2007).

20 For more detailed analysis, see Mateo and García (2012) and Acosta (2011).

21 Similarly, it should be clarified that this work does not aim to investigate the reasons behind such high subsidies. Rather, it focuses on the meaning of these policies from an analytical perspective. Even so, they are socially regressive, and at the very least, this is a central element of their explanation, to which we can add, tentatively, the influence of some intermediaries. Refer to Villavicencio (2011).

22 It could be added that the use of oil revenue to pay external public debt, stipulated in Law 44 in 1993, has already obligated Petroecuador to comprehensively turn over its earnings to the Central Bank for this purpose (Fontaine, 2008).

23 In a comparative study, Campodónico (2009) stresses that these price levels are only surpassed by Venezuela, was similar to Bolivia and was much, much cheaper than the rest: Chile, Peru, Brazil, Colombia, Mexico and Argentina. The study also ascertains that with respect to gdp, Ecuador has higher subsidy levels, over 5 percent. Others, like Ríos et al. (2007) rank Ecuador third on the continent in terms of relative spending on fuel subsidies, only behind Suriname and Venezuela.

24 As demonstrated by studies from Ríos et al. (2007), Castillo (2007), bce (2010), Grupo Faro (2009) and Acosta (2011), which also contradicts the progressive character that Article 285 of the Constitution attributes to the fiscal policy.

25 The term primary energy refers to the total energy that feeds the energy system and includes energy used in generating electricity (hydro-energy, oil derived products and natural gas), oil and gas processed in refineries and gas plants, imports an any form of energy (biomass) used directly by final consumers without undergoing any type of transformation.

26 The mcpec (2010) report recommends progressively replacing lpg consumption with hydroelectric and renewable energy, where Ecuador has significant endowment, or replacing it with natural gas to take advantage of the broad availability in South America.

27 With the new legislation (services contracts), private company exports disappeared, and the State became the only exporter. The data comes from the bce (2013).

28 We should remember that import spending is the gdp item that has grown the most over this decade (bce, 2013).

29 Premium diesel imports respond to domestic inefficiencies, while cutter stock can be explained by its use as a thinner to produce mixed fuel (fuel oil), which is later exported.

30 Fuel oil 6 is known as a residue or heavy because it is a fuel manufactured using residual products of the refining process, that is, what is left over from the crude oil after extracting gasoline and after distilling fuel oil. Nafta is higher quality from the perspective of the antiknock quality of the gas for fuel.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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