Supplement to Official Gazette 445 of November 1, 2001

Presidential Decree No. 2024 rules the marketing activities of liquid fuels derived from hydrocarbons in Ecuador. These activities include the importation, exportation, storage, transportation, distribution and sale performed by local or foreign, natural or juridical persons on a national level.

Based on the requirements established in the Regulation, the Ministry of Energy and Mines approves, through a ministerial decree, applications to engage in marketing activities of hydrocarbon-derived liquid fuels. Applications must be filed with the Ministry of Energy and Mines along with the required documents in authenticated form.

Authorization will be given for the term stated in the application, without any exclusivity, and can be renewed upon an express request. The term of the authorization will be subject to the results of the monitoring the National Hydrocarbons Office conducts each year.

In case the authorization given to a marketing company has expired, the distributors belonging to the network distribution thereof will have fifteen days to become part of another marketing company in existence. The annual control certificate issued by the National Hydrocarbons Office to the new marketing company must be in effect at the time of expiration of the authorization of the former marketing company. Also, the new company must have a distribution network.

Marketing companies authorized to engage in marketing activities for hydrocarbon-derived liquid fuels are required to fulfill the following requirements:

  • Have a supply of hydrocarbon-derived liquid fuels from PETROCOMERCIAL, under a contract. In addition to the clauses agreed by the parties, the contract must stipulate the suspension of supply or contract termination at the request of the National Hydrocarbons Office.
  • Register with the National Hydrocarbons Office the composition of their distribution networks, including the location and name of owner and/or party responsible for management;
  • Maintain the distribution network described in the authorization request
  • Solely supply their own distribution network and/or contractually related networks and their own customers, only end consumers, with hydrocarbon-derived liquid fuels;
  • Maintain in force an insurance policy with the coverage the regulation requires. The placement of insurance will not release the marketing company from its liability with respect to the compensation it must pay for any accident caused in the performance of its activities; and,
  • Provide basic marketing information and fulfill the responsibilities and obligations of providers referred to in the Consumer Defense Law.

At their expense, authorized marketing companies are required to oversee that the quality and quantity of the hydrocarbon-derived liquid fuel they supply through their distribution networks comply with the regulations in effect and that the services given to end consumers are adequate, efficient and timely.

In order to verify compliance of this provision, each month marketing companies shall submit a report on their activities to the National Hydrocarbons Office.

When a determined geographical area does not have a supply of hydrocarbon-derived liquid fuels or its supply is deficient, marketing companies will be required to satisfy the needs of that market.

Marketing companies cannot suspend hydrocarbon-derived liquid fuel marketing activities because they are a public service, except in the event of force majeure duly justified before the National Hydrocarbons Office.

Importation or exportation: Authorized marketing companies are required to:

  • Request from the Minister of Energy and Mines authorization to import or export fuel; and,
  • Have their own infrastructure or use the infrastructure of third parties, registered with the National The National Hydrocarbons Office shall determine the volumes of hydrocarbon-derived liquid fuels authorized marketing companies can import or export. The volume will be determined based on investment and share in the domestic market.

In a resolution, the Minister of Energy and Mines will authorize the importation of hydrocarbon-derived liquid fuels, based on a report by the National Hydrocarbons Office.

Quality control analyses will be made following the INEN standards in effect and in the presence of a delegate from the National Hydrocarbons Office. When products fail to at least meet the standards, they cannot be unloaded from ships or marketed in the country. In this case, the marketing company must immediately re-export the products.

Distribution Contracts. The relationship between a marketing company and a distribution company is established in a private agreement. The agreement must also stipulate the marketing company’s obligation to monitor the distributor and to suspend the supply or terminate the contract if the National Hydrocarbons Office so requests.

Obligations of Distribution Companies:

  • Be registered as a distribution company with the National Hydrocarbons Office;
  • Be part of a distribution network;
  • Execute a contract establishing a relationship with a distribution network;
  • Have non-contractual civil liability insurance to cover third-party damage, property damage and environmental damage that could occur in the facilities and as a result of handling fuel or other hydrocarbon-derived products. The insurance policy must be issued by an insurance company legally established in the country. Furthermore, the insurance policy must be for at least the minimum sums the Ministry of Energy and Mines determines, beside additional insurance the distribution company may have;
  • Follow the polices and comply with the standardsof design, construction, operation and service the marketing company determines for its distribution network;
  • Acquire hydrocarbon-derived liquid fuel solely from the marketing company to which the distribution network belongs; and,
  • Obtain, under their liability, other clearances, permits or licenses needed to operate.

The storage and transportation of hydrocarbon-derived liquid fuels shall be made by observing the regulations the Minister of Energy and Mines establishes under the control of the National Hydrocarbons Office.

The National Hydrocarbons Office directly or through qualified companies shall monitor the marketing activities of hydrocarbon-derived liquid fuels.

Monitor Mechanisms:

  • Monitoring undertaken by the marketing companies;
  • Each year monitor the requirements on qualification, authorization and registration; and,
  • Based on INEN standards, monitor the quality and quantity of hydrocarbon-derived liquid fuels.

If the monitoring determines that tainted quality and quantity stem from lack of control by the marketing company or errors in monitoring, the National Hydrocarbons Office shall apply the penalties on the marketing company and the distribution company. Before applying the penalty, however, the National Hydrocarbons Office shall inform the marketing company about the penalty and give it a fifteen-day term, which cannot be extended, to either justify or remedy its noncompliance. The notification shall specifically describe the noncompliance the marketing company committed and warn it that failure to justify or remedy such noncompliance will result in the application of a penalty.

Popular action can be taken to denounce at the National Hydrocarbons Office any infringement committed in marketing activities of hydrocarbon-derived liquid fuels. The Ministry of Energy and Mines must implement the systems to permit the efficient processing of accusations.

Customers have the power to accuse marketing companies of any problem detected in marketing hydrocarbon-derived liquid fuels, with respect to quality, quantity, attention and basic services.

PETROECUADOR, through its affiliate PETROCOMERCIAL, will act as the provider of hydrocarbon-derived liquid fuels to authorized marketing companies. In turn, authorized marketing companies will supply registered distribution companies with fuel. For each case, a supply agreement must be executed.

It is important to note that any marketing or distribution company and storage facility currently in operation and not registered with the National Hydrocarbons Office will be required to register. Based on the provisions of this regulation, registration with the National Hydrocarbons Office must be accomplished in a term of ninety days from the date of issuance of this regulation; otherwise, the company or facility will be closed down.

Finally, please bear in mind that the information provided in this Legal Report is merely a brief summary of the legal matters analyzed. Changes in legislation or regulations may broaden or simplify applications of the norms therein. Our Legal Report may not be construed as legal advice but simply as information for our clients. Should you have any doubts or wish to make specific inquiries, please do not hesitate to contact us.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.