Occidental awarded $1.77 billion in Ecuador case

WASHINGTON DC -- A World Bank arbitration tribunal has aawarded Occidental damages of $1.77 billion in a claim the United States oil company brought against the government of Ecuador, according to the ruling posted on the International Centre for Settlement of Investment Disputes website.
The Washington based arbitration tribunal ruled that Ecuador illegally nullified Occidental's exploration and production rights in 2006, violating the Ecuador Bilateral Investment Treaty.
The country violated the treaty by "failing to accord fair and equitable treatment to Occidental's investment," and by "expropriating" the company's investment, according to the written ruling released by the tribunal.
Ecuador canceled Occidental's operating contract in May 2006, during the administration of President Alfredo Palacio, alleging that Occidental broke the terms of its contract by transferring a 40% stake to Encana without obtaining approval from the country's energy ministry.
The tribunal agreed that Occidental did fail to get approval for its farm out agreement, so the $1.77 billion award is a 25% reduction from what the tribunal otherwise would have awarded.
The tribunal also ordered Ecuador to pay interest on the award at the rate of 4.188% per year, compounded annually from May 16 of 2006. Ecuador's government, currently led by President Rafael Correa, has taken a hard-line stance with resource-extraction companies operating in the Andean nation, legislating to increase the government's control of production.
Mr. Correa told to reporters in Quito that the Andean country would ask for the ruling to be declared null. Mr. Correa said the country is reviewing the ruling, although there are "unacceptable things" and his government "will appeal" the tribunal decision and "will ask to annul it."
Previously, the office of Ecuador's attorney general said the government "categorically rejects this award," claiming the annulment of Occidental's contract in Ecuador was "in compliance with our domestic laws and the contract." The attorney general's office said it will make an official announcement, although it added Ecuador respects domestic and international laws and investment treaties.
Raymond James analyst Pavel Molchanov said the tribunal has no mechanism to enforce its ruling if Ecuador doesn't comply. The Ecuadorean government previously has said it would pay up to $417 million, and Mr. Molchanov said Occidental may be unable to recover more than that.
I think Occidental is going to find it very difficult to make Ecuador pay anything more than what Ecuador wants to pay, he said.