Head of Ecuadorian State Oil Company Steps Down

The board of directors of the state oil company Petroecuador has this week appointed retired vice-admiral Manuel Zapater Ramos as its new president. He replaces another naval officer, Luis Jaramillo Arias, who returns to the navy. Three new members of Peroecuador's Administrative Council and vice presidents of the company’s affiliates were also appointed. Rosendo Machado will take over the vice presidency of Petroindustrial, Carlos Ordoñez will head Petrocomercial, and Rafael Navarrete will oversee Petroecuador's production affiliate Petroproducción. Like his predecessor, Zapater, a former head of the joint command of the armed forces, does not have any prior experience of the hydrocarbons sector, although investors will be pleased to see that those appointed to head Petroecuador's affiliates have some technical experience.

President Rafael Correa declared Petroecuador to be in a state of emergency in November 2007 and at the same time appointed a navy team to run the company. The state of emergency expired on 18 March and the tenure of the navy has officially come to an end. However, the choice of a retired naval officer to succeed him means that in practice full civilian control has not been restored. In addition a group of five naval officers are expected to continue advising the company and supervising a restructuring process from the Ministry of Non-Renewable Resources, according to local press reports.

Outlook and Implications

The legacy of the navy leadership is a mixed one. Production by Petroproducción has risen from 162,000 b/d to an average of 183,000 b/d last year, while new investments have led to the incorporation of additional reserves. Taking into account output from Petroamazonas, which is responsible for operating Occidental Petroleum Corp's former assets, the state oil company Petroecuador produced an average of 281,553 b/d of crude oil last year, while fields operated by private companies produced 204,496 b/d, bringing total national production to 486,049 b/d. Other benefits have been a narrowing of the price differential between West Texas Intermediate (WTI) and Ecuadorean crude through an increase of sales directly to consumers, some advances on a project to build a new refinery (although a financing deal has yet to be finalised), and some success in the fight against corruption and fuel theft. Nonetheless, the navy's administration has not been an unqualified success. Disappointing exploration results at Puno Island and an oil spill have raised questions about the benefits of Petroecuador aligning itself so closely with the Venezuelan state oil company, while tough financing conditions imposed by China for a hydroelectric power project also suggest that there are limits to this friendship as well. Additionally, an increase in Petroecuador's payroll from 5,930 employees two years ago to 6,028 people currently may prompt doubts about the navy's achievements in terms of increasing efficiency and cutting costs. It is also too early to tell whether the planned implementation of a new organisational structure, which has increased the authority of Petroecuador's president vis-à-vis the vice-presidents of its affiliates and which will eventually transform the affiliates into separate management bodies, has been a success. Meanwhile, an increase in government take and continued uncertainty over new contracts has resulted in a freeze in new investment by private companies, compounding Petroecuador's efforts to reverse the decline in national production.