Thu, Jun 01, 2006 - Page 7 News List

Chavez inks oil, gas deals with Ecuador

AGENCIES , QUITO AND CARACAS

Venezuelan President Hugo Chavez signed crude oil and natural gas deals with Ecuador on Tuesday in a move that extends the leftist leader's clout in Latin America.

Chavez visited the Ecuadorean capital weeks after Quito terminated a contract with Occidental Petroleum, straining relations with Washington and sparking fears of an oil nationalization.

Chavez's commitment to refining up to 100,000 barrels of Ecuadorean oil per day is the latest example of his use of his Venezuela's oil operations to build regional support.

The two countries agreed to create joint companies to improve Ecuadorean refineries as well as the transportation and storage of natural gas. The joint companies will also facilitate the exploration, production and refining of oil.

"We respect the internal politics of each country ... We only want integration, to get closer because it is essential to the future of our people," Chavez said inside the national palace during a scheduled six-hour stay in Ecuador.

Chavez congratulated President Alfredo Palacio for recovering "Ecuador's natural resources." He was referring to Ecuador's decision to terminate Occidental's contract.

Outside the palace a cheering crowd held banners welcoming the Venezuelan leaders.

In a similar trip to Bolivia last week, Chavez promised to invest US$1.5 billion in that country's natural gas industry.

Bolivian President Evo Morales nationalized the energy sector earlier this month.

"This is not going to make it easier to reach an understanding and overcome the problems raised by the Occidental issue," said Michael Shifter of Inter-American Dialogue, a Washington-based think tank.

He said Chavez's compromise "is not a recipe [for Ecuador] to have a warm relation with the United States."

Chavez again called for a Latin American political and economic alliance to challenge the US' commercial ambitions in the region.

Ecuador has scarce refining capacity and this year expects to spend US$1.7 billion on petroleum-based products imports, or 20 percent of the national budget. It stands to save US$300 million a year on fuel imports through the deal with Venezuela to refine Ecuadorean crude at a lower cost. The deal will start in about 45 days, officials said.

Earlier this month, Ecuador terminated its contract with Los Angeles-based Occidental over accusations the company illegally sold part of an oil block without government authorization.

The company says it did nothing wrong and has filed an arbitration claim in Washington seeking US$1 billion in damages.

State oil company Petroecuador took over operations at the oilfields, but many doubt it can keep up production for long.

Ecuador says it wants to forge a joint venture with another Latin American oil company to operate the oilfields. Venezuela's PDVSA is one of the candidates.

Meanwhile, Chavez told a press conference in Quito that Russia will help Venezuela build plants to make Kalashnikov rifles and ammunition after the US restricted arms sales to it. He said 30,000 Kalashnikovs were due to arrive from Russia early next month.

"The Russians are going to install a Kalashnikov rifle plant and a munitions factory. So we can defend every street, every hill, every corner," he said.

The US banned all weapons sales to Chavez's government this month because of its concern about his ties with Cuba and Iran and what it called his inaction against guerrillas in Colombia.

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