Quito pans Opec inaction, selling assets to cope

OREANDA-NEWS. June 15, 2016.  Ecuador's President Rafael Correa bemoaned Opec?s dismissal of a proposal to freeze production, a "very costly strategy" especially for small producers such as Ecuador.

Ecuador?s oil export revenue sank by 45pc in January-April year-on-year to \\$1.28bn and by 70pc compared to the same period of 2014. Ecuadorean Oriente and Napo crude prices tumbled from an average of \\$95.6/bl in the first four months of 2014 to \\$22.6/bl in January-April 2016, according to the latest central bank figures.

"I have been ruling this country with zero oil revenue for the last year and a half," Correa told reporters last week. Ecuador's dollarized and oil-dependent economy suffered a \\$7bn loss or the equivalent to 7pc of its GDP in 2015 after oil prices collapsed, and losses were even steeper over first five months of 2016, according to Correa.

Quito forecasts a WTI price close to \\$50/bl for the rest of the year, but Correa says that for Ecuador a \\$50-60/bl price range is still not enough alleviate financial strain, including a current account deficit of 2.2pc of GDP in 2015, the largest since 2010, according to the World Bank.

"It's still a low price but surpassing that range will be very difficult considering that (above these prices) shale oil production will re-enter the market, increasing supply" and forcing prices down again, Correa said.

But for Correa remains hopeful after the 2 June Opec summit when "at least the production cap issue was discussed and not excluded like in previous meetings. In addition, we witnessed a more harmonious dynamic between Saudi Arabia and Iran," he said.

Ecuador has been hit by a number of shocks in the last six months, including the US dollar appreciation; an economic slowdown in China, Quito's main funding source; and a \\$650mn global bond repayment last December.

A November ruling from World Bank's International Center for Settlement of Investment Disputes (Icsid) ordering Ecuador to pay \\$1bn to US independent Occidental for revoking the company's upstream contract in 2006 added to the country's liquidity crunch.

Ecuador has by now paid in full the compensation to Occidental, according to Correa.

The country has no oil left in 2016 to sign new oil-backed loans agreements since 100pc of the Napo and Oriente export volumes for this year are already committed to such agreements with China's state-owned PetroChina and Unipec, and with Thailand's state-controlled PTT, according to Celsa Rojas, state-owned PetroEcuador's deputy international trade manager.

Economic growth has been also hit by a 16-month turnaround at state-owned PetroEcuador?s 110,000 b/d Esmeraldas refinery that was completed in November, and by a devastating 7.8 magnitude earthquake on 16 April, that will slash GDP's growth this year by 0.7pc, Correa said.

Although Correa says Ecuador's economy will grow modestly in 2016, the World Bank forecasts a 4.0pc GDP contraction this year and another 4.0pc GDP decline in 2017.

The government is now working to sell state-owned assets, including up to 100pc in money-losing TAME airline, 49pc stake of oil shipping firm Flopec worth more than \\$500mn and the new 487MW Sopladora hydroelectric plant worth \\$1bn.

The government is in talks with investment banks to start the divestiture program "as soon as possible but we will not to sell the assets below their equity value," Correa said.

To fund the reconstruction after the April earthquake Quito has also secured emergency credit lines from multilateral banks totaling \\$660mn, plus a \\$400mn credit from IMF; received a \\$100mn donation from France, and has temporarily hiked taxes to collect an extra \\$1bn.