US embassy cable - 05QUITO681

UNCLAS QUITO 000681 
 
SIPDIS 
 
SENSITIVE 
 
DEPT PLEASE PASS TO USTR BENNETT HARMAN 
 
E.O. 12958: N/A 
TAGS: EINV, EPET, ETRD, ECON, EC 
SUBJECT: OXY: PRESSING THE GOE TO NEGOTIATE 
 
REF: A. QUITO 667 
     B. QUITO 611 
     C. QUITO 601 
 
1. (SBU) Summary.  Ambassador met March 28 with President 
Gutierrez to urge him to allow time for the parties to 
negotiate a solution to Occidental Petroleum's (Oxy) problems 
in Ecuador.  The DCM phoned newly appointed commercial 
dispute czar with the same message.  Econoffs also met with 
the Ministers of Trade and Economy and PetroEcuador President 
Bonilla to express concerns about the latest threat to 
expropriate Oxy's assets in Ecuador.  The AmCham is providing 
a legal analysis to Bonilla that will give him additional 
legal grounds for not declaring caducity.  Though Bonilla 
said he has a report finding grounds for caducity, Gutierrez 
will meet with his cabinet March 28 to press for additional 
time for negotiations.  End summary. 
 
Heading Off GOE Caducity Declaration 
------------------------------------ 
 
2. (SBU) The Ambassador met with President Gutierrez March 28 
to explain that a declaration of caducity (contract 
nullification and seizure of assets) against Oxy would cost 
the GOE the support of the USG. Gutierrez said he understood, 
but that the Social Christian (PSC) and Democratic Left (ID) 
parties had threatened him with an impeachment trial in 
Congress if he did not declare caducity.  The Ambassador 
suggested that Gutierrez buy some time to allow the parties 
to negotiate a solution.  She noted that Oxy was willing to 
talk on that and other pending problems it had in Ecuador. 
Gutierrez said he would meet with his cabinet on March 28 to 
press for additional time for negotiations. 
 
3. (SBU) The DCM spoke with newly designated commercial 
dispute czar and Presidential confidant Carlos Polit over the 
Easter holiday weekend.  He urged Polit to reach out to the 
Procurador and PetroEcuador President Bonilla to encourage 
them to permit serious negotiations to take place and keep 
the matter out of the press.  Econ Counselor met with 
Minister of Economy Yepez and Minister of Trade Baki with 
similar messages.  Polit also joined Econ Counselor's meeting 
with Baki and called Procurador Borja urging him to permit 
time for the parties to negotiate before publicly challenging 
the GOE to declare caducity.  Econoff met with Bonilla March 
22 urging him to talk with Oxy.  The AmCham is providing 
Bonilla with its Energy Committee's legal analysis on the 
lack of legal grounds to declare caducity against Oxy. 
 
Oxy Meetings with PetroEcuador 
------------------------------ 
 
4. (SBU) Oxy officials met with Bonilla on March 23.  As a 
result, they will meet again March 28 to offer more details 
toward a possible resolution of outstanding problems between 
Oxy and the GOE.  Oxy told econoff on March 28 that Oxy would 
submit a "generous" written offer for consideration, but it 
will be conditioned on resolving a number of matters.  We 
will keep Washington advised of further developments. 
KENNEY