Ecuador increasing state control over oil sector

President Rafael Correa's government has been pressing for change in the contracts

Opec member Ecuador says it will start renegotiating contracts with private oil companies as it moves to increase state control over the sector.

Under a new law, the current production-sharing agreements will be replaced by a flat fee.

The Ecuadorean state will own 100% of the oil and gas produced.

Foreign oil firms in Ecuador, which produces an average of 470,000 barrels per day, are currently responsible for 44% of output.

The new legislation stipulates that the first 25% of gross income from oil sales must go to the state.

Costs, including fees to to the companies, will come from the remainder.

Ecuador's minister for non-renewable resources, Wilson Pastor, said the government would pay a "fair price" to private companies that did not sign a new contract.

Investment fears

The government had been pressing the companies to give up concessions that give them a share of oilfield profits and accept service contracts instead.

Critics say that the new law may deter investors from Ecuador's oil and gas sector, the country's main source of income.

The law automatically came into effect on Tuesday after the Ecuadorean Congress failed to meet the time limit set to vote on it.

President Rafael Correa, speaking on Saturday, said: "With this law, petroleum companies that do not abide by the policies of the state will have their fields nationalised and they will leave the country."

Among the foreign companies operating in Ecuador are Brazil's Petrobras, Repsol-YPF dominated by Spanish and Argentine capital, Agip Oil from Italy and Andes Petroleum, a consortium led by the Chinese National Petroleum Corp.