Opec member Ecuador said it enacted a law aimed at increasing state control over the oil sector and that the legislation would permit the state to “liquidate” contracts of non-complying companies.

Oil is Ecuador’s top export and President Rafael Correa’s government wants foreign companies to give up profit-sharing deals and become service providers in exchange for a flat fee.

Wilson Pastor, Ecuador’s minister for nonrenewable resources, said the government would pay “a just price” to private companies that do not sign new contracts.

“Our priority is to renegotiate the contracts but if not then we will proceed as the law says. We will pay them a just price,” Pastor told reporters.

“The contracts will be liquidated,” he said, adding that the new contract model would be sent to companies this week.
The law governs new contracts the government is preparing, aimed at increasing state oil revenues.

The bill says 25 per cent of gross income generated from oil sales will go to the state, which will pay costs, including to companies, from the remaining income.

The government hopes that the law would encourage corporate investment in oil fields, exploration and production, which is estimated to total $418 million this year.

Spain’s Repsol-YPF, Brazil’s Petrobras, the Chinese Andes Petroleum consortium and Italy’s ENI are among the nation’s top investors.

Analysts say that some firms may resist signing the deals, and there could be less interest in future oil tenders.
Congress failed to vote on the legislation, which was marked “urgent,” meaning the legislature had only 30 days to act before the bill would pass automatically.

Correa left the door open to dissolving the country’s legislature and calling for new elections due to the legislature’s slowness to take up key bills.