Oil revival plan put forth by Ecuador’s president falters amid re-election effort

(Bloomberg) – Ecuador President Daniel Noboa’s plan to revitalize the nation’s biggest oil field is crumbling as he scrambles to secure re-election weeks before a runoff vote.

Since striking a deal last year to hand Ecuador’s Sacha field to Sinopetrol, an obscure consortium of foreign oil companies, Noboa has faced mounting criticism over his handling of the deal. His finance minister, Juan Carlos Vega, resigned over it, according to people familiar with the matter who asked not to be named discussing private matters. And his rival for the presidency, socialist candidate Luisa Gonzalez, has said she would revoke the arrangement if elected in the April 13 runoff. 

Although Sacha’s revival, which is critical for Ecuador’s ailing economy, depends on foreign investment, critics spanning party lines have blasted Noboa’s approach to finding an operator for the asset and questioned whether the consortium – consisting of Amodaimi, a subsidiary of China’s Sinopec, and Petrolia, a unit of Canada’s New Stratus Energy Inc. – has the cash and expertise to boost production.

Amid the controversy, Noboa last week threatened to cancel the contract unless Sinopetrol pays a $1.5 billion entry bonus by March 11, about a month earlier than agreed. The accelerated deadline sets a practically insurmountable challenge for the consortium, leading analysts to speculate that Noboa is deliberately trying to scuttle the deal in an attempt to save his candidacy after edging out Gonzalez by just 15,000 votes in the first round of the election.

“The damage has already been done, but he’s limiting his losses” said Sebastian Hurtado, head of political risk consultancy Prófitas in Quito. Former Oil Minister Fernando Santos separately characterized Noboa’s ultimatum as “a pretext to end the negotiations elegantly.”

Noboa’s office didn’t immediately return a request for comment, but the president affirmed the deadline during an event in Guayaquil Monday. “We are going to keep our word,” he said of the deal, according to newspaper El Universo. “If the bonus isn’t paid tomorrow, then it won’t go ahead.”  

See also: Ecuador’s President Noboa demands $1.5 billion early payment for major oil deal

Raising Sacha’s output would provide revenue for whichever candidate wins the election, but the promised $1.5 billion would have given Noboa an immediate fiscal shot in the arm, regardless of the deal’s long-term benefits. 

Ecuadorian officials have long aimed to boost Ecuador’s output to 1 million barrels a day but financial instability, bureaucratic dysfunction and disputes with foreign oil companies have all hampered progress. Production from the nation’s top field has fallen 15% from a 2014 peak of 560,000 barrels a day. Petroecuador produces 80% of the nation’s output with the rest pumped by a dozen mostly foreign companies.