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Ecuador will honor the award in favor of Perenco for $374.3 million

Published on June 08, 2021

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The Government of Ecuador declared last week its commitment to respect the arbitration award that obliges it to pay some $374.3 million, plus interest, to the French oil company Perenco, after a long-standing trade dispute tied to a bilateral investment treaty.

The Presidency of Ecuador, in a statement, reported that an Ad-Hoc Committee of the Arbitral Tribunal notified its decision after arguing that in 2007 Perenco was harmed with an Executive decree that increased the state participation in the profit of oil surpluses.

The Tribunal was formed within the framework of the Bilateral Treaty for the Promotion and Protection of Investments between Ecuador and France, at the request of the International Center for Settlement of Investment Disputes (ICSID) of the World Bank.

The court ruled that Executive Decree 662, of October 4, 2007, violated Public International Law to the detriment of the French oil company, although it recognized that the Ecuadorian State has the right to be compensated for environmental damage caused by said company, as it was specified in the text of the Presidency.

For this reason, the source added, “the current government must assume responsibility for actions and decisions taken by previous administrations, when the State’s participation in oil surpluses was increased from 50% to 99%.”

Correa government caused suit

The final amount to be paid by the State in favor of Perenco is $374,373,154.25, plus interest, after discounting the environmental compensation in favor of Ecuador, although the original claim of the French oil company amounted to $1.42 billion.

“The Ecuadorian State will respect and honor its international commitments, despite any legal discrepancy that has been expressed in the process. Contact will be maintained with the company to find alternative solutions,” the statement added.

In addition, the Presidency made it clear that, in order to protect national interests, it will request the competent authorities to initiate “repetition actions” against the public servants and authorities responsible for the decision that led to the arbitration sanction.

The right of repetition is a legal instrument that seeks to recover the amount paid by a State, after a sanction caused by the action of an official.

In this case, the process dates back to October 2007, when former President Rafael Correa, who resides in Belgium and was sentenced in 2019 to eight years in prison for a corruption case that he denies, was in power.

Ecuador will seek ‘payment plan’ with Perneco

Ecuador will seek to negotiate a “payment plan” for the $374.3 million award it owes Perenco, the country’s solicitor general said on Wednesday, citing the South American country’s recession and tight finances.

President Guillermo Lasso’s newly installed government pledged to honor the award, ratified last week by the ICSID.

Solicitor General Inigo Salvador said the Andean nation had 60 days to make the payment and has already contacted Perenco to start negotiations. Ecuador, which in 2020 inked a $6.5 billion emergency deal with the International Monetary Fund (IMF), seeks to emerge from a 7.8% economic contraction in 2020.

“We trust that the French company will keep in mind the difficult situation the Ecuadorean state is going through with regard to its finances, which has been deeply aggravated by the pandemic,” Salvador told reporters. “It would be terrible that during these moments … that money would have to be dedicated to something else.”

Perenco did not immediately respond to a request for comment.

Beyond the Perenco case, Ecuador is facing eight open investment arbitration proceedings in various jurisdictions, according to the solicitor general’s office.

History of the claim

After the Correa government claimed essentially all of the Perenco profits in 2007, in July of 2009, it went a step further and seized control of the Perneco oil fields as part of a long-running tax dispute.

The country had already begun to expropriate oil from the Perenco concessions saying it owed $327m in back taxes. After the fields were seized, Perenco said it would halt production.

The tax dispute dated back to October 2007, when Ecuador increased the windfall tax on oil from 50 per cent to 99 per cent.

Although it later reset the tax at 70 per cent, Perenco disputed its tax bill and has took the issue to ICSID.

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