Publish in Perspectives - Monday, May 20, 2013
Ecuador's production has been in a range of 480,000-520,000 barrels per day for years. (Photo: Ministerio de Recursos Naturales no Renovables)
Wilson Pastor renegotiated oil contracts but failed to get new investors necessary to boost output and reserves. (Photo: El Ciudadano)
What is the legacy of Wilson Pastor, Ecuador’s minister for non-renewable resources the past three years?
BY LATIN AMERICA ADVISOR
Wilson Pastor, Ecuador's minister for non-renewable resources, stepped down this month after three years in the position. Pastor oversaw the country's oil and gas sector under leftist President Rafael Correa at a time when the government established more control of the industry, embraced unprecedented large-scale financing from China and engaged in costly legal battles with a number of international energy companies. What are Pastor's biggest accomplishments and shortcomings as minister? What condition is Ecuador's oil sector in today? What challenges and priorities will his successor at the ministry face?
Ramiro Crespo, president of Analytica Securities in Quito: In his first three years in office, President Rafael Correa went through a left-wing environmentalist, a lawyer, an engineer and a mathematician before finally settling on career oilman Wilson Pastor in April 2010. Pastor managed the renegotiation of oil contracts that Correa had demanded since taking office, but which the ministers he first put in charge were unable to manage. Most companies other than oil major Petrobras stayed on, helping to end the fall in output that had left Ecuador producing just 485,000 barrels of crude a day, down from around 535,000 before Correa took office. His long stay in office reveals how valuable Pastor was, with oil production seeing a relevant recovery to 525,000 barrels at present. Still, aside from that success, Pastor failed to put the industry on the footing it needs to allow it to recover Ecuador's fast declining reserves. Companies have failed to show more than tepid interest in the tender of oil blocks offered in the Amazon southeast, which indigenous organizations with some reason vehemently oppose. Pastor's designated successor, Pedro Merizalde, will try to take the tender to a successful conclusion and will have to help Correa face reality: PetroEcuador has to follow the path of Petrobras and Ecopetrol, listing itself in the international securities exchanges and expanding abroad. He will also seek to complete the major new refinery project that he led before taking office, which Pastor opposed. Despite breaking ground on the plant last year, he has so far been unable to raise the project's necessary $12 billion in funding.
Francisco X. Swett, chairman of Pallas Management Corp. and former Ecuadorean minister of finance, member of Congress, and central bank president: I met Wilson Pastor some 25 years ago when I was in government and he was trying to find a way into the public sector. He struck me as a sensible person, though weighed down by the illusion that the government knows better than the market, and that control over 'strategic' production is paramount. In all these years I have come to conclude that one of the fundamental differences between doing business from the left and from the enterprise perspective is that the former is keen on hands-on control no matter what the costs or the ultimate size of the pie, whereas the latter prefers to look at bottom lines, cost efficiency of operations and economic results. Today, Mr. Pastor continues in government, whereas I did my last tour of duty some 15 years ago. He has carried out his duties as minister in a government bent on control, and so far, what he has to show for it is stagnant production levels, an ITT initiative that is going nowhere, a refinery project that may materialize, if it does, after the socialist government has run its course, an increasingly distorted domestic price structure for fuels and a virtual shutdown in foreign investment in all sectors of the Ecuadorean economy. Correa and his cohorts have been lucky to live through the expansion phase of the oil price cycle which, as it winds down, will reveal the true, deleterious effects of a misguided oil policy lacking in vision and guidance for the future.
José Valera, partner at MayerBrown LLP in Houston: Mr. Pastor concluded the conversion of the country's oil contracts into service agreements and presided over the merger of Petroecuador and Petroamazonas under a single holding company. His biggest shortcoming, of course, is that the country's production remains stagnant. In a country like Ecuador, however, energy policy is made almost exclusively by the president himself. The minister for nonrenewable resources carries out presidential directives and has little role in policy. This dynamic is not going to change under Pedro Merizalde, Mr. Pastor's successor. Ecuador's hydrocarbons sector today is in serious condition. Due to stagnant production, the increasing domestic demand means that there are ever smaller volumes available for export. Production has been in a range of 480,000-520,000 barrels per day for years. Oil is by far Ecuador's biggest export, and the treasury depends heavily on these export revenues. The biggest challenge is increasing the production of oil and gas. Ecuador takes pride in having one of the highest government takes in the world under its contracts with private-sector companies. This is only a short-term gain because the current model of service contacts does not reward the risk inherent in carrying our exploration activities. Most of the country's production is from fields discovered years ago, and as these fields are depleted there are no new replacement reserves to come online as a result of exploration that should have taken place at the same time. Ecuador is unlikely to overcome its biggest challenge without a fundamental change in the policy related to the terms of engagement with the private-sector. This will have to come from the top, but there is little chance of that happening since the president just won a third term promising more of the same.