Ecuador defends cancelling contract with U.S. firm

Ecuador's government on Tuesday defended its decision to revoke a contract with the U.S. oil company Occidental Petroleum, saying the cancellation would bring order to its oil industry.

The Interior Minister Felipe Vega told local television, Gamavision, that his government cancelled the contract because Occidental had transferred 40 percent of its Canadian oil company EnCana without government permission, adding that the decision was made strictly according to the laws.

Vega described the move as "sovereign, patriotic, legal... the government has done justice in the area of petroleum in Ecuador."

On Monday, Ecuador canceled Occidental's operating contracts over a dispute that had dragged on for several years.

The announcement came hours after Fernando Gonzalez, the head of state-run Petroecuador, had ruled out a negotiated settlement, saying that a deal proposed by Occidental would undermine the interests of Petroecuador.

The U.S. firm was required to immediately hand back its oil fields and hand over all equipment, machinery and other elements of exploration and production to Petroecuador.

Occidental produces about 100,000 barrels of crude per day in Ecuador, about 20 percent of the country's total output, and is a main investor in the country's oil industry.

In Washington, the U.S. Trade Representative's office announced on Tuesday the suspension of its negotiations with Ecuador on a free trade agreement (FTA).

"We are very disappointed at the decision of Ecuador, which

appears to constitute a seizure of assets of a U.S. company," said spokeswoman Neena Moorjani in a statement.

"At this time no further (FTA) discussions are scheduled," she added.

The United States started FTA negotiations with Ecuador, Peru and Colombia in May 2004. The talks with Peru concluded in December and a deal with Colombia was reached in February.

Source: Xinhua