[Economics] $9.68 billion in crude guarantees a $2 billion tranche of Chinese debt

[#Wittels-]

Petroecuador indicates that there are 121 million pending delivery until 2024. President Lasso has said that these contracts are harmful to the country.

 

 

An equivalent of $9.68 billion in crude currently guarantees Ecuador's $2 billion debt to China. The calculation is obtained by multiplying the 121 million barrels that Ecuador has pending delivery to two Chinese companies: Petrochina and Unipec, by a crude oil price of $80 (less than the current price). Thus the collateral is almost five times the debt related to oil.

According to information issued by Petroecuador before the National Assembly, as of November 2021, Ecuador has three current contracts that, when they were signed, accounted for a total of 494.8 million barrels for delivery. The two contracts with Petrochina were signed in 2011 and 2016 and will end in December and April 2024, respectively, and the third was built with Unipec in 2014, and ends in December 2024. Currently the balance is 121 million barrels.

 

The issue of untying crude oil contracts with debt loans is one of the issues that the Government intends to negotiate in the coming months, through a dialogue table in which the Ministers of Economy of Ecuador and China will participate, according to President Guillermo Lasso announced it yesterday, upon his return from the Asian country.

According to Jaime Carrera, from the Fiscal Policy Observatory (OPF), it is precisely this kind of guarantee that makes these loans so onerous for the country. On the other hand, these contracts have rates between 6.97% to 7.37%, while the price traded was at least $3.6 less than the market. "The Chinese won everywhere," says Carrera.

This situation was ratified by President Guillermo Lasso, yesterday, when he said that crude oil marketing contracts with China were harmful to Ecuador's interests. The total debt with China is $4,600, of which about $2,000 million are related to this type of contract from which Ecuadorian and international intermediaries benefit.

 

The government's stance against President Xi Jinping has been to extend terms of the total debt, lower rates and, finally, decouple crude oil from those contracts where there are Ecuadorian and foreign intermediaries who have taken advantage of it.

Indeed, from what has been known in Ecuador, reports from Petroecuador, revealed before the Supervisory Commission of the Assembly, confirm that the loss for the commercialization of crude oil in contracts with Asian companies has been $3.6 per barrel.

In addition, the awarding of non-transparent contracts is contaminated by corruption schemes and bribery payments that have been revealed in US courts by Raymond Kohut, a former Gunvor (Russian oil broker) strongman. Recently, this newspaper revealed how European banks that worked with the intermediaries also participate in the intermediation plot.

 

Lasso said that his government is going to act with transparency, and announced the delivery of information to the Prosecutor's Office and the Attorney General's Office.

According to Alberto Acosta Burneo, editor of Analysis Weekly, the visit made by President Lasso is positive, since an agreement of understanding has been reached to negotiate the different issues: one of those issues is indebtedness. Acosta Burneo explains that during the Correísta government several mistakes were made regarding the debt.

The first was that having declared a moratorium on the debt, he was left with almost no financing options and must "give himself body and soul to China", with credits with high and onerous conditions, and short terms. This also appeared a kind of monopsony, in which the buyer of crude oil, with excess power, set his conditions that were detrimental to the country.

 

He said that now there is the possibility of correcting these errors, through these agreed dialogue tables.

According to Acosta Burneo, it is a great step to have been able to place these issues on the table. For Ecuador, China is not only a debt issue, but trade and investment options in infrastructure and mining. China, in addition to the interest in this type of economic issues, seeks to cultivate a closeness with Ecuador and the region, due to geopolitical issues, explained.

From 2009 to 2016, Petroecuador made 13 crude oil marketing contracts with China and Thailand, of which eight were with Petrochina, three with Unipec and two with Petrothailand. In total, the delivery of $1.3 billion barrels was promised.

 

Link: https://www.eluniverso.com/noticias/economia/9680-millones-en-crudo-garantizan-un-tramo-de-la-deuda-china-por-2000-millones-nota/