US embassy cable - 05QUITO798

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 000798 
 
SIPDIS 
 
DEPT PASS USTR BENNETT HARMAN 
 
E.O. 12958: DECL: 04/12/2015 
TAGS: EINV, ETRD, EPET, ECON, EC 
SUBJECT: OXY: SERIOUS DIALOGUE WITH GOE 
 
REF: QUITO 681 
 
Classified By: Ambassador Kristie A. Kenney Reasons 1.4 (b),(d) 
 
1. (C) Summary.  President Gutierrez's assignment of a close 
advisor to resolve commercial disputes seems to have 
energized GOE efforts.  Ambassador and Embassy officials 
continue to encourage dialogue between the parties.  Serious 
discussions and information trading represent the first real 
progress in resolving Oxy's problems with the GOE.  However, 
it is only a start and many issues, including Oxy's $75 
million arbitration award are not yet on the table.  End 
Summary. 
 
Polit Becomes the Go-To Guy 
--------------------------- 
 
2. (C) President Gutierrez, with the encouragement of Trade 
Minister Ivonne Baki and the Ambassador, named his close 
advisor and Secretary of the Presidency Carlos Polit as his 
point person for resolving commercial disputes.  Gutierrez 
gave Polit marching orders to resolve outstanding disputes, 
beginning with Occidental Petroleum (Oxy).  Oxy had, most 
recently, been negotiating with state oil company 
PetroEcuador President Hugo Bonilla (reftel).  Though 
receptive to discussions with Oxy, it quickly became clear 
that Bonilla would not be able to close the deal.  Polit too 
recognized that Bonilla was too concerned about possible 
future repercussions against him and has played an active 
role in negotiations. 
 
Encouraging Action 
------------------ 
 
3. (C) In the past week, the Ambassador met with President 
Gutierrez, Minister of Economy and Finance Yepez, Minister of 
Trade Baki and Carlos Polit urging all to take action now to 
resolve the Oxy dispute.  She also met with former Minister 
of Economy and Ecuador's next Ambassador to Washington 
Mauricio Pozo about Oxy.  Polit told the Ambassador April 12 
that the President had given him clear orders to resolve 
Oxy's and other disputes with US companies. 
 
4. (C) Oxy Ecuador President and GM Jerry Ellis said that Oxy 
has provided "generous" offers to the GOE.  Ellis said that 
Bonilla was afraid to make a final deal and had provided Oxy 
with very unrealistic settlement numbers.  Ellis said he 
understood Bonilla's realistic fear of possible legal actions 
against him in the future if it were perceived that Bonilla 
did not sufficiently protect the national patrimony and 
squeeze more out of Oxy.  Polit looked at Oxy's offer much 
more favorably and Oxy has since sweetened the deal even more 
for the GOE. 
 
A Long Way to Go 
---------------- 
 
5. (C) The negotiations are currently focused on resolving 
the matter of the GOE threat to expropriate Oxy's assets for 
alleged failures to comply with Ecuadorian law, chiefly on 
the transfer of a financial interest in one of its blocks to 
Canadian oil company EnCana.  Oxy and Bonilla have expressed 
interest in resolving all outstanding disputes, including 
Oxy's $75 million (and growing) international arbitration 
award, deductibility of interest for related-company loans, 
regulatory treatment (discrimination), etc.  For now though, 
both sides appear encouraged that serious discussions are 
being held to resolve the expropriation (caducity) issue. 
 
6. (C) If an agreement can be reached, Polit and we have 
received assurances from Ecuador's Procurador Jose Maria 
Borja (Solicitor General equivalent) that he would support a 
fairly negotiated agreement.  Numerous GOE officials, 
including Polit and Borja, have also said that the negotiated 
agreement might also have to be put to Congress for approval. 
 Congressional approval is not required under the contract or 
by Ecuadorian law.  However, it may be necessary for 
political purposes.  Borja has also told us that with his 
concurrence he is sure he can win approval by the Ecuadorian 
Congress. 
 
Comment 
------- 
 
7. (C) We will continue to press for dialogue and action by 
the GOE.  Oxy has shown good faith in providing solid offers 
to the GOE.  We are wary about the idea of seeking 
congressional approval, but will wait to cross that bridge 
until an agreement is reached. While there are many details 
to be worked out, this is the most progress we have seen on 
the matter in a long time. 
KENNEY