Turnaround.

Ecuadoran President Rafael Correa assigned quite an ambitious task to Carlos Pareja Yannuzzelli, executive president of the state-owned petroleum company Petroecuador. Correa wants Petroecuador to create alliances with other state-owned enterprises, preferably in South America, to finance projects that require investments of more than US$10 billion. Despite his optimism, Pareja warns that Petroecuador is in crisis, the result of political maneuvering. The executive, who has been at the helm of Petroecuador three times and who signed the report that led to the expulsion from Ecuador of US. oil giant Occidental, spoke with Maria Elena Verdezoto, LATIN TRADE correspondent in Quito, regarding the crisis and its possible solutions.

What's the current prognosis for Petroecuador?

I am in charge of an enterprise in crisis. Petroecuador is in an undeclared emergency, due to the decline in production and the terrible conditions of state refineries. All of this was brought on because [past] governments turned the enterprise into political booty and ruined it in order to justify its privatization.

What are your plans to come out of this situation?

This year we will make investments of $930 million; with this, we will seek to stabilize production at 270,000 barrels per day. In December, the figure was 188,000 barrels a day. We will boost other projects for the development of mature fields. We are analyzing five international proposals for the construction of an in-ground gas storage system, with an investment of $98 million.

Are there any new exploration projects that could improve the country's petroleum outlook?

The only way is by looking for more oil. That's why we have opened an exploration stage to find new reserves, something that hasn't been done in the last 12 years. Among the most important is the development of the production axis Ishpingo-Tambococha and Tiputini (ITT), which has proven reserves of 1.50 billion barrels and which would require an investment of $5 billion.

What contract model will be applied to this project?

There are various choices. The first, supported by President Correa, is to have environmental defense entities give Ecuador at least $350 million each year, for 30 years, to stop its development. Another option is to arrive at an agreement with the consortium formed by the state-owned enterprises in China, Chile and Brazil, with whom we have a memorandum of intent. Another way is to open it to bids.

Which is the most viable?

What's viable is an international bid, given the avalanche of world interest for ITT. State enterprises in Indonesia, Japan, Malaysia, India, Turkey, Argentina, Brazil, Colombia, Venezuela, Peru, and privately held Total of France have expressed interest.

Do you think the success of ITT will prove that the expulsion of Occidental failed to sow uncertainty among investors?

The lack of confidence incited by Occidental has not had results, because those who are knowledgeable can confirm that the company violated its contract, failed to respect the law and that's why [its contract] was terminated.

What other projects are being planned?

The immediate thing is the rehabilitation of the Esmeraldas refinery, for which we have budgeted $130 million. In addition, we will build a new refinery in Manabi province, with a production capacity above 300,000 barrels a day, for which we have estimated an investment of $4 billion.

What will you do with all that fuel?

The main objective is for Ecuador to become an exporter of petroleum products. If all goes well, this will become possible in four years, which is how long it will take to build the new refinery. With that we will solve one of the gravest problems the country has, which is the high cost of importing fuel to satisfy internal demand.

How much do you import?

This year imports will take up $2.50 billion of the national budget. Nearly all the surplus generated by the rise in oil prices, since 2000, has been destined to cover this cost.

What's the production goal for this year?

We want to stabilize the situation, so that we can then increase state production above 260,000 barrels and seek to have private enterprise maintain an average of 250,000 barrels a day. To achieve that, we will execute a plan to convert mature fields into intelligent fields, through the incorporation of undeveloped fields and the use of clean technology. Private enterprise will also contribute with the discovery of reserves in various blocs that we will put up for bidding this year.

How can it be that, even in an emergency mode, Petroecuador is the largest Ecuadoran enterprise and that it provides nearly 40% of the government's budget?

One of the founders of OPEC said: 'A badly managed petroleum industry is a good business; if it's well managed, it's an extraordinary business.' That's the only way to understand that in 2006 Petroecuador contributed income of $3.18 billion, or the equivalent of 45% of the country's total income.