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Interview with Eduardo Naranjo,
Director of Institutional Relations, PetroEcuador

Quito, Ecuador
March 7, 2002

Ecuador became an oil producing nation when Texaco hit the jackpot in 1967 in the northeastern Amazon province of Sucumbíos. The first barrel of oil was ceremoniously paraded through the streets while jubilant crowds were sprayed with crude in Independence Plaza in Quito. This barrel now stands alongside monuments to other Ecuadorian national heroes bearing the coat of arms on one side and the Texaco logo on the other. Oil has been a symbol of both hope and despair in this tiny Andean country. It has fueled economic growth and contraction, and is key to understanding national policy and international relations over the last 35 years.

Eduardo Naranjo has spent 22 years of his life working for the state oil company, PetroEcuador (formerly CEPE). He has watched presidents come and go and policies shift with the tides of international political economy. He is soft-spoken but direct and has a unique perspective on oil and its power to redeem or corrupt in turns.

What is PetroEcuador’s role in the Ecuadorian state and economy?
Naranjo: PetroEcuador (PE) was established by the military in the 70s as the state owned oil company, CEPE. The name changed in 1989. It is the only profitable state industry producing about $1.3 billion for state coffers each year since PE turns over all earnings after costs. Since 1992, PE also controls the main pipeline from the oil fields in the Amazon to the refinery on the Pacific coast - this will soon be joined by a second privately owned pipeline known as the OCP for heavy crude.

The OCP has sparked much debate here in terms of its benefit to Ecuador. Is this project good for the country?
Naranjo: The existing pipeline, known as SOTE, was built by Texaco in 1972 with a 20 year lease. In 1992 it reverted to the state and PE began to collect revenue from private companies for shipping. SOTE operates at a capacity of about 390,000 bpd (barrels per day) and carries both PE’s light crude and the heavy crude mined by the private companies. There are two problems with this:
1. We lose money by combining our higher priced crude with private cheaper crude - something known as factor K - which benefits them.
2. Nobody can expand oil production given the limitations on shipping.
From this point of view, the OCP is necessary for continued development of existing fields or justification for further exploration. Once it’s completed in 2003, we will use SOTE for our own crude only, thus gaining in selling price what we lose in shipping fees. As well, our refinery in Esmeraldas will work more efficiently when the api of the crude is higher since it was never designed to process heavy crude.

In February 2002, people in Sucumbíos and Orellana provinces went on strike to protest against the OCP and oil in general. As well, people in Mindo, northwest of Quito, are trying to block construction of the OCP and there were also road blocks in Nono. It looks as if there is a lot of resistance to this project. If it’s good for PE and the state, why all the fuss?
Naranjo: The people of Ecuador are tired of the corruption that surrounds the oil business. They are tired of being promised things that never materialize and this has been a characteristic of both private and state dealings with the people. Oil supplies about 45% of export revenue these days and yet the people living in oil country have the lowest standard of living in the country. The government has a big challenge ahead of it right now in terms of restructuring how the business of oil is conducted. We’ve had years of mismanagement and pandering to private interests and we have to try to correct this. The current administration [Gustavo Noboa] is the first one in a long time to see the potential of oil and try to direct this potential to future development. As well, the government has to address the relationship between private companies and communities to guarantee protection of both people and their environment. This is the reason that the Ninth Round of Concessions has been stalled for so long.

What’s the problem with the next round of oil rights concessions?
Naranjo: The Ninth Round was to include 13 new blocks in the southern Amazon region. The first problem was that we didn’t actually know what these blocks might contain and after years of neoliberal government policy, we didn’t have the money to find out. Under Noboa, we have been able to do some exploratory work in the region and have cut back on what’s on offer to the private companies to 3 blocks. We also have to work out a suitable environmental protection plan with CONAIE, the federation of indigenous nations of Ecuador. They want - and rightfully so - guarantees that the private companies will have to respect certain standards in the area. They do not want to see their traditional lands converted to wastelands the way Texaco destroyed the northern Amazon.
[As at December, 2002, the Ninth Round is in process but only 4 coastal blocks are currently offered for concession.]

Are there no laws in place to protect the people?
Naranjo: Sure, there are laws that say the companies can’t go into an area without a signed agreement with local communities, but companies have been known to promise nothing more than a few soccer balls in return for the right to earn millions - it’s truly scandalous.

You mentioned ‘neoliberal’ policies, can you elaborate?
Naranjo: Under the presidency of Sixto Durán Bellén [1992-96], the government plundered the country to the advantage of private foreign interests. Bellén and that scoundrel of a vice-president, Alarcón, reversed a law that said 10% of PE’s earnings had to be reinvested in exploration and maintenance, claiming that PE was inefficient. This was an outright lie as PE has always been the only efficient state company. They also designed concessions in which the state retains only 20% of a barrel of oil mined by the privates. For this reason, there is no money left over for us to expand. In fact, we have about 90 wells sitting idle because we don’t have the money to maintain them in working order. We have only been able to do seismic testing for new reserves in the last couple of years so that our production curve has steadily declined through the last decade. If we operated honestly and efficiently for the next 5 years, we may be able to come up with some investment capital of our own, but I doubt very much if this will happen.

Could the banks step in with investment capital?
Naranjo: Ecuadorian banks are hopelessly corrupt vehicles for the rich to get richer at the expense of everyone else. They do not invest in Ecuador, only in Miami.

You’ve mentioned corruption a few times, what is the relationship between oil and corruption?
Naranjo: Money, lots of money. This is a big business with big profits and that means whenever somebody wants to gain an advantage or avoid an obligation, it’s good business to bribe a government official and this is true from the lowest to the highest ranks of bureaucrats and politicians. When this doesn’t work, the privates waylay us in expensive legal battles as they’ve done over the 8th Round agreements. They were supposed to pay a percentage of their earnings as income tax but most of them never have. Ironically, PE itself is never excused from paying its taxes - from us they get the taxes tzack tzack, but from the privates, never!

There are two opposing views of oil here in Ecuador:
1. It is argued by the current government and the private companies that oil is the only hope for future development of the country because agricultural exports like bananas and shrimp are unstable.
2. Critics can demonstrate that since the beginning of the oil era, Ecuador’s external debt has increased dramatically (by a factor of 3 between 1980 and 2000 alone) and is now greater than the GDP, over 1/3 of Ecuadorians are still poor and more join their ranks daily, and there is no indication that future oil development will reverse these trends.
What do you think?
Naranjo: I think that oil is a fundamental resource for this country; it sustains the economy and could be the hope of the future. But there are big problems such as enormous political mismanagement, huge corruption, and external pressure from the foreign companies. After 35 years of the Oil Miracle, we are left asking “So much money produced, where did it go?” In the past there have been a few benefits for even fewer people, but in the future if we learn from experience and if there is honesty then we could have a good country as a result of oil. These are all very big ‘ifs’…

According to Petroecuadors own figures their resources will be depleted inside the next 18 years.

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