Miami Herald - March 7, 2006
Jane Bussey, jbussey@MiamiHerald.com

"The contracts that we have signed in the past have not been totally fair," Palacio said during a meeting with The Miami Herald editorial board.

Ecuador, the fifth-largest oil producer in Latin America, produces more than 500,000 barrels of crude oil daily with companies from China, the United States, Canada, Italy, France and Brazil accounting for three-fifths of the total. It is one of the top Latin American oil suppliers to the United States.

Palacio said in the future he wants more oil revenue to stay in Ecuador and is proposing a 50-50 split of windfall profits between foreign companies and the government.

The Ecuadorean leader said it has been impossible to renegotiate past oil contracts signed during a wave of privatization in the late 1990s when oil prices hovered at $15 a barrel.

Those contracts establish royalties ranging from 12.5 percent to 18 percent per barrel, depending on the quantity of oil pumped by each company. Oil firms are also exempt from paying value added taxes.

Palacio said that the royalties may have worked when oil prices were $15 a barrel, but they have become obsolete with petroleum prices soaring to more than $60 a barrel while costs have remained the same.

"There is more than $30 remaining [in profit] from each barrel," he said. ``People resent this."

Palacio, who came to office after President Lucio Guti rrez was voted out by Congress in April 2005 for abandoning his post, has faced widespread protests in oil-producing regions since he took the helm. Besides long-simmering problems over contamination of the zones, residents have protested the lack of jobs and government spending on promised transportation projects. In February, protesters in the province of Napo temporarily seized an oil pumping station to press their demands that the Palacio government build roads and other projects.

The president also took oil companies to task for failing to protect the environment. "There are oil spills that have contaminated the water and people don't have water," he said.

But Palacio said the country's problems were more than economic, with Ecuador in desperate need of political reform.

"People have stopped believing in democracy," he said, adding that the former government had dismantled the justice system.

"There was some sort of sinister plan to demolish the fundamental institutions of democracy," Palacio said, adding that he found himself trying to confront the situation alone, without a justice system or a Congress. His proposal to create two chambers in Congress to establish more popular representation has met stiff opposition in political circles. Ecuador's lawmakers and electoral officials have also stymied his efforts to hold a referendum on the country's political future.

"Legislators obey [political] leaders who are far away and outdated," Palacio said.

The Ecuadorean president said that trade negotiations with the United States were set to restart on March 23. The stumbling blocks in a bilateral trade and investment treaty were U.S. demands that Ecuador toughen patent protection for a number of pharmaceuticals -- a move that critics contend would make it difficult to offer low-cost medicines for HIV-AIDS patients.

Palacio said that his government has no intentions of walking out on the negotiations because globalization is a reality. "We are not in any position to say that we don't want a treaty because that would mean we were outside history," he said. Peru and Colombia have already signed bilateral trade and investment accords with the United States.

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