Ecuador a moderate in Andean oil nationalizations

By Alonso Soto - Analysis

QUITO (Reuters) - Ecuadorean President Rafael Correa is steering away from the energy nationalizations of leftist allies, Venezuela and Bolivia, in a show of moderation that could help him keep oil output steady this year.

Correa spooked investors last year by hiking a sweeping windfall tax and ordering companies to rework contracts, but in recent weeks he secured deals with investors that analysts say will help stabilize weak output after he shunned calls for more aggressive oil field takeovers.

The approach shows the pragmatic streak of a tough-talking leftist, whom investors feared would boost state control over the oil sector with nationalizations in the style of Venezuela's Hugo Chavez or Bolivia's Evo Morales.

"We are pragmatic socialists," Oil Minister Galo Chiriboga told Reuters recently. "Our plan from the start was to reach deals with the companies ... but sometimes you need strong measures to get both sides to sit down and talk."

Correa, a U.S.-trained economist, convinced oil giants including Spain's Repsol (REP.MC) and Brazil's Petrobras (PETR4.SA) to negotiate new service contracts that will make them contractors, as opposed to having the government take over their projects which pump about half of the OPEC nation's 500,000 barrels per day.

Analysts say this could reverse an oil investment slump that has pushed production down by 15,000 bpd in June compared with last year's average as growing energy demand increasingly tests the global supply of oil.

It also avoids costly court battles such as the lawsuit by Exxon Mobil Corp (XOM.N) against Venezuela for the 2007 takeover of multibillion-dollar oil projects and reduces Ecuador's reliance on investment that Chavez has promised but may never deliver.

To defuse a string of suits, Correa agreed oil firms would drop arbitration filed against his government once new deals are signed and settle future disputes in Latin American courts.

Correa's tactics contrast with Chavez's crusade to take over majority stakes in oil projects, which has led to fierce legal bouts, and also contrast with Morales' surprise nationalization of the country's natural gas fields in 2006.

PRAGMATIC STREAK

The 44-year-old Correa, whose threats to default on foreign debt have roiled Wall Street, turned down advice from Venezuela oil nationalization architect Bernard Mommer to follow Chavez's takeover route, according to one government source familiar with the discussions.

"We analyzed that option, but Correa wanted service contracts," said the official linked to oil policy, who asked not be identified because of the sensitivity of the matter.

"At the end of the day, like Venezuela and Bolivia, we are also getting what we want, but using a different route."

Correa's surprise hike of a windfall tax last year rattled investors who still wonder if his moderation might ultimately take a back seat to strong leftist rhetoric, which tends to go over well with voters.

Correa faces a tough referendum vote in September to pass a new constitution that would bolster his powers over the Andean country's economy and key political institutions.