Under the old contracts, signed in the mid-1990s, the state took 17-27% of the first $15-$17 in revenue for each barrel sold. The companies kept the remainder and any proceeds above the $15-$17 cutoff, a highly favourable arrangement for them. In 2006, after the world oil price reached $70 a barrel, Mr Correa’s predecessor, Alfredo Palacio, imposed an additional 50% tax on the firms’ revenues, ensuring that the state would receive a healthy share of the windfall. The companies continued to produce oil in spite of the new levy, although some of them also sued the government before international arbitrators.

After taking office in 2006, Mr Correa announced he was unsatisfied with the system he inherited, and that he hoped to move to a fee-for-service system like Mexico’s, in which the government would pay the companies a fixed amount for their work and keep all revenues from oil sales for itself. His government never made a formal proposal to the companies along these lines until August of this year. But in the meantime, he increased the windfall-profits tax to 99%, and seized the assets of Perenco, a French energy company, while threatening to do the same to the other firms. In response, the companies began cutting back on their business in Ecuador. Since Mr Correa took office in January 2007, private oil production in the country has fallen from 255,700 barrels per day to 162,000—a gap worth $2.3 billion a year, or 4% of GDP, at current prices.

Once the government unveiled its plans this year, negotiations with the companies took just a few months. Firms representing more than 80% of current foreign-produced oil have now signed new deals, which will increase the state’s share of the profits from production from 70% to 80%. But in exchange for this extra revenue, the government had to accept that the companies would only invest a paltry $1.2 billion in Ecuador over the next four years—the same amount they invested in 2006 alone, and a figure far too small to stop production from declining. The country’s oil-industry trade group says that if firms were given more incentive to invest, they could double production in just a few years. A handful of companies, including Brazil’s Petrobras, are leaving the country entirely.

Mr Correa insists that the renegotiation was worth it, calling the new agreements “very beneficial to the country”. His treasurers will be hard-pressed to agree.