IMF Official: Ecuador's Extra Oil Revenue Could Reach $3.35B
QUITO Aug 14, 2006 (Dow Jones Commodities News)
Additional revenue from changes in Ecuador's hydrocarbons law and the state's takeover of oil fields previously operated by Occidental Petroleum Co. (OXY) could reach $3.35 billion between May 2006 and December 2007, a senior official from the International Monetary Fund said Monday.
"In terms of the fiscal impact, there will be a large increase in income for the government," Trevor Alleyne, chief of the IMF's technical mission to Ecuador, told Dow Jones Newswires by telephone from Washington. "It's important that it be used prudently, avoiding an increase in spending."
According to Alleyne, non-budgeted revenue through the end of 2006 could reach $1.3 billion. Half of this amount will come from Block 15 and the Eden Yuturi and Limoncocha oil fields, which Ecuador took over from Occidental when it canceled the U.S. company's operating contract in mid-May. The government said Occidental had violated the terms of its agreement.
The other $650 million in extra revenue will come from changes to Ecuador's hydrocarbons law that were introduced in May and obligate private oil companies to deliver to the state at least 50% of extraordinary revenues when oil prices climb above contractual levels.
The IMF's estimate tops the latest forecast from Economy Minister Armando Rodas, who gave a figure of $951 million. Alleyne said the multilateral lender's numbers are provisional and will be analyzed together with Ecuadorean authorities.
"In order to verify the numbers, we'll be in Quito from the 21st to the 27th of August," Alleyne said. "It's important to emphasize that for now, we haven't had an opportunity to meet with the authorities, so our numbers are preliminary."
For all of 2007, the IMF estimates that Ecuador will receive $2.05 billion in additional revenue: $1.1 billion for the former Occidental fields and $950 million through the revised hydrocarbons law.
Alleyne said the IMF assumed an average oil price of $71 a barrel in 2006 and $78/bbl in 2007. These levels are subject to price differentials based on the price of West Texas Intermediate, or WTI, crude.
Last week, the executive branch sent Congress urgent draft legislation to create a trust fund to manage the additional oil revenue, seeking to shield the money from political maneuvering. Alleyne also said he considers the proposal positive but insufficient.
"In principle, the idea is good if it's assured that the income isn't squandered," Alleyne said. "But at the same time, it should avoid creating more ways of pre-assigning (revenues). And it's time to think not of protecting only those resources, but also the entire budget. That is the point."
During the IMF mission's visit, officials will also evaluate Ecuador's economic program and general performance during the first six months of the year, as well as the government's outlook for the second half.
Ecuador doesn't have a loan agreement with the IMF, but it submits to quarterly economic reviews that are used for loan disbursements from other multilateral lending agencies.
Copyright (c) 2006 Dow Jones & Company, Inc.
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