The latest edition of Leaders League 2021 includes the firm as recommended and highly recommended in the areas of Arbitration, Competition & Antitrust, M&A and Corporate Tax for Ecuador. Team members are also recognized in their respective areas. Oscar Vela and Andres Larrea for Arbitration; Bernardo Tobar and Cesar Zumarraga for M&A; and Alvaro Sevilla and Bernardo Tobar for Competition & Antitrust.
Visit the full rankings in Leaders League.
The Ecuadorian Hydrocarbons Minister, along with other authorities of this field, visited Houston the first days of October to promote new projects and investment opportunities in the oil & gas sector. These projects and investment opportunities are both in the upstream and downstream sectors.
Positive news for investors seeking upstream projects, a sector that has been left almost exclusively to public investment, is the return to a participation sharing agreement, leaving behind the failed and most controversial service contract agreement that set a tariff per produced barrel of oil.
With the return to the participation sharing agreement under which the investor directly participates from the oilfield production, the Ecuadorian government sends a clear signal to the private investors seeking to improve oil production and stimulate the exploration of the South East of the Ecuadorian Amazon region.
These are the 4 investment projects in the agenda of the Ecuadorian government:
1. Intracampos Bid Round
The so-‐called “Intracampos” fields are composed by 8 blocks that include 13 fields, located in the Northeastern Ecuadorian Amazon region and are amongst oilfields in production. The total amount of proven reserves of the Intracampos oilfields is 157.3 MM bls of oil (907.5 MM bls of OOIP).
For the development of the Intracampos oilfields, the Ecuadorian government is expecting an approximate investment of USD 1.2 billion.
The Intracampos bidding round will probably be launched by the end of November or first days of December 2017.
2. South East Blocks
The South East of the Ecuadorian Amazon Region continues to be unexplored. Notwithstanding, it is an area that holds high expectations as there have been found 2 oil bearing reservoirs in Block 80 and the discovery in Block 64 of Peru (Situche Central) that is located in the border between Ecuador and Peru.
After the failed South East bidding round of 2013, under a service contract model by which the investor was paid with a tariff per produced barrel, this time the Government has made it clear that this new bid will be held under a participation sharing agreement, a model where investors are given an incentive as they can take advantage of any upside during the life of the contract.
This bidding is expected to be launched by the Ecuadorian government the first half of 2018.
3. Pacific Refinery
This was the flagship project of former President Rafael Correa´s administration, but it didn’t manage to attract investors due to the high amount of investment and unclear business model proposed.
This project’s justification is the limited refinery capacity of the country that is still unable to meet the internal fuel demand and, in turn, forces the government to make imports.
The Ecuadorian government has announced that this project requires an investment of USD 8.2 billion, almost half the sum announced by the prior government. Now the government expects private investment for the development of this project as it has stated that it would not compromise public funds.
The business model proposed for the development of this project has two options: (1) the payment by the Ecuadorian State of a tariff per refined barrel, which involves a BOT project; or, (2) the Ecuadorian State would sell the oil to the refiner at international price, and the Ecuadorian State would commit to buy the refined oil products from the refiner at international price.
Unlike the proposal by the former Government to refine oil imported from Venezuela, the current proposal is to refine the oil produced from the called ITT (Ishpingo-‐Tambococha-‐Tiputini) Blocks located in the Ecuadorian Amazon Region. Currently, the Tiputini oilfield produces 50,000 bpd, and the Government expects to increase its production to 100,000 bpd. The Ishpingo and Tambococha oilfields are expected to be developed in the short term.
The processing capacity of the Pacific Refinery has been proposed on 300,000 barrels per day.
4. Monteverde Maritime Project
The maritime terminal of Monteverde is an infrastructure in which the Government has already invested close to USD 600 million. The proposal is to find either a strategic partner to invest approximately USD 300 million for the development of a Regional Hub Storage and Distribution Center, or a private investor to buy this project to directly develop it.
This project finds attractive the fact that the Pacific Coast has a storage deficit for liquid products (fuel, chemicals) that, in turn, becomes an opportunity for the development of a Regional Hub Storage and Distribution Center. Moreover, taking into account the strategic position of Ecuador in the Pacific and the existence of infrastructure that needs to be improved and maximized.
The business model for this project has been left open to the investor needs, and can be developed under a concession model, a contract for the use of the infrastructure, a joint venture, or any other business model proposed by the investor.
By Tobar Bernardo in CORPORATE, M&A , Featured , News and Bulletins
We are very proud to share the 2019 rankings of our firm and our specialists, published by Leaders League, with our continued commitment to offer our highest standards and to permanently seek to improve our clients’ satisfaction.
By ZVS Tobar in CORPORATE AND M&A , CORPORATE, M&A , Featured , INTELLECTUAL PROPERTY AND ANTI-PIRACY , News and Bulletins
On January 15, 1986, Ecuador signed the International Center of Settlement of Investment Disputes (ICSID) Convention which offers a neutral forum for international dispute resolution. During the 90´s, Ecuador followed the general trend adopted by many other South American countries of signing Bilateral Investment Treaties (BITs) with the intention of attracting foreign investment. On April 19, 2001, Ecuador ratified the convention during former President Gustavo Noboa Bejarano´s administration. Several years later, Ecuador became one of the most sued countries under the ICSID convention.
Since the beginning of President Rafael Correa administration (2007-2017) he manifested his hostility towards the ICSID convention: “withdrawing from ICSID is necessary for the liberation of our countries because [ICSID] signifies colonialism, slavery with respect to transnationals (…) I cannot tolerate this”, the former President said in public interviews.
Correa´s feud against ICSID basically compromised 4 steps: i) In 2008, Ecuador denounced over a third of its BITs; ii) Later in 2008, the new Constitution of Ecuador came into force and it contained a confusing provision which seemed to prohibit the country from submitting disputes to international arbitral tribunals; iii) On July 2, 2009, President Correa issued Executive Decree Nº 1823 denouncing the ICSID Convention and declared its termination; iv) A couple of years later, Ecuador denounced the termination of all of its BITs. It is worth mentioning that most of the BITs contained survival clauses, so the investors were not prevented from commencing ICSID arbitrations against Ecuador.
One of the main accusations that Correa used for terminating the BITs is that they were “unconstitutional” pursuant article 422. However, the Constitution forbids entering intro treaties or international instruments that submit jurisdiction to international arbitration tribunals in contractual or commercial disputes and investment arbitration is a complete different creature. Unfortunately, the Constitutional Court did not consider that investment arbitration is different from commercial (or contractual) arbitration and declared that the BITs were unconstitutional; The unconstitutionality argument was seconded by the National Assembly and a special committee (CAITISA) in charge of reviewing the denunciations which reached to the same conclusion.
In the 2021 presidential elections, Guillermo Lasso, a former banker, was elected as the President of Ecuador. President Lasso has vowed to attract foreign investment and break away from the leftist policies adopted during Correa´s administration. It came as no surprise that one of the first things that President Lasso would do is try to find ways for regaining the trust of foreign investors after years of political instability. On June 21, 2021, the State signed the ICSID convention and now the next step is ratification.
There is an ongoing discussion on whether the ICSID convention needs to be previously approved by the National Assembly in accordance to article 419 of Constitution. Pursuant to article 419, the ratification of international treaties will require the approval of the National Assembly in the following cases: 1) They refer to territorial or boundaries matters; ii) They establish political or military alliances; iii) They contain the commitment to issue, modify or repeal a law; iv) they refer to rights guaranteed in the Constitution; v) They compromise the State´s economic policy to international financial institutions or international companies; vi) compromise the country to integration and trade agreements; vii) They give competences of internal legal order to an international or supranational organization and; viii) They compromise the country´s natural resources, water, biodiversity, etc. In my view, the ICSID does not require the approval of the National Assembly as it does not fall in any of the categories previously mentioned; Its very nature is to offer a neutral forum to solve international disputes.
Another relevant aspect is that Ecuador will consent to submit specific disputes to that mechanism on separate instruments to be signed with foreign investors. For instance, Ecuador could be part of the ICSID convention and not have a BIT containing a standing offer to arbitrate under said convention; Hence, being part of ICSID does not equals to automatic consent to arbitrate all disputes under that forum.
On June 21, 2021, President Lasso´s General Legal Secretary sent a communication to the Constitutional Court asking them to clarify on whether ICSID needs the prior approval by the National Assembly. In this document, the General Legal Secretary clearly explained that due to ICSID´s nature it does not require the National Assembly prior approval in accordance with article 419. In addition, he said the President has the legal capacity to sign and ratify international treaties according to article 418: “the President of the Republic is responsible for signing and ratifying treaties and other international instruments. The President will immediately inform the National Assembly of all the treaties that it sings, with a precise indication of their nature cand content (…)”. Currently, the Constitutional Court has not issued a decision on this.
The signature of the ICSID convention shows the current administration´s compromise of protecting foreign investment and attracting capital to the economy. In my view, this is a positive and important step taken by President Lasso because it allows Ecuador to enter into important new agreements with the international community, which will contribute to the country´s economic growth and result in the generation of jobs for its citizens and development of important projects for their well-being.
By ZVS Tobar in Featured , NEGOTIATION, CONFLICT RESOLUTION AND DISPUTES , NEGOTIATION, CONFLICT RESOLUTION AND DISPUTES , News and Bulletins
On June 30, 2021, the Constitutional Court put an end to the discussion on weather ICSID required prior legislative approval pursuant to article 419 of the Constitution. The Court concluded that ICSID does not require such an approval.
On January 21, 2021, Ecuador signed ICSID and now the next step is ratification. In the past days, an internal discussion took place on whether ICSID required prior legislative approval. Pursuant to article 419, the ratification of international treaties will require the approval of the National Assembly in the following cases: 1) They refer to territorial or boundaries matters; ii) They establish political or military alliances; iii) They contain the commitment to enact, modify or repeal a law; iv) they refer to rights guaranteed in the Constitution; v) They compromise the State´s economic policy to international financial institutions or international companies; vi) compromise the country to integration and trade agreements; vii) They confer competences of internal legal order to an international or supranational organization and; viii) They compromise the country´s natural resources, water, biodiversity, etc.
The President´s position was that the ratification of ICSID did not require legislative approval. On June 21, 2021, President Lasso´s General Legal Secretary sent a communication to the Constitutional Court asking them to clarify on whether ICSID needs the prior approval by the National Assembly.
The Constitutional Court explained that ICSID does not refer to territorial or boundary matters, it does not establish political or military alliances, it does not enact, modify or repeal a law, it does not refer to rights guaranteed in the Constitution, comprise the State´s economic policy or its natural heritage.
Perhaps two of the most controversial aspects were deciding on whether ICSID compromises the country to integration and trade agreements or confers competences of internal legal order to an international or supranational organization. Regarding the first aspect, the Court mentioned that although ICSID´s preamble talks about the “necessity of international cooperation for economic development” this does not imply that an obligation of commerce or integration is being acquired. The Court went on and said that the sole mention of commerce or integration does not mean that this treaty requires legislative approval.
Regarding the conferring of competences of internal legal order to an international or supranational organization, the Court explained that ICSID offers the possibility, not the obligation, for its member States to arbitrate. Arbitration is consensual; thus Ecuador would have to consent to arbitrate an investment dispute on a separate instrument such as a BIT, bilateral investment contract or investment protection law. In other words, signing ICSID does not mean acquiring an obligation to arbitrate all investment disputes. The Court also mentioned that in case 34-19-IT they concluded that “the resolution of disputes between States is not a competence of internal order”, hence resorting to ICSID does not imply conferring competence of internal legal order to international organizations.
It is worth mentioning that it was not a unanimous vote: 6 votes in favor (Judges Salazar, Andrade, Nuques, Corral, Salgado, Lozada) two dissenting votes (Judges Herrería y Ávila) and one against (Judge Grijalva). On their dissenting opinions, Judges Herrería y Ávila explained that the National Assembly should have been participated in the dialogue process of such an important topic. They also mentioned that there is a constitutional prohibition to submit disputes to international arbitral tribunals (art. 422). This is not true, because article 422 refers to commercial or contractual disputes and investment arbitration is a whole different creature. Hence ICSID is not incompatible with the constitution.
The Court´s decision is positive as ICSID did not require prior legislative approval for its ratification. Returning to ICSID will bring many benefits for the county and will attract foreign investment, which is one of the key aspects for the new government.
By Vela Óscar in Featured , NEGOTIATION, CONFLICT RESOLUTION AND DISPUTES , NEGOTIATION, CONFLICT RESOLUTION AND DISPUTES , News and Bulletins