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WWW.GLOBALAWARE.ORG: Dossier on the OCP (Oleoducto de Crudos Pesados) pipeline in Ecuador:
Essays and reports on a controversial pipeline to take
crude oil from the Amazon to the Pacific Ocean.

In Whose Interest?

Canadian interests and the OCP crude oil pipeline in Ecuado

By Dr. Leslie Jermyn

By Dr. LESLIE JERMYN © 2002
leslie@GlobalAware.org

Ecuador is getting a new oil pipeline and Canada leads the list of beneficiaries in the deal. There is no doubt that this pipeline is good business for foreign oil interests like EnCana of Calgary. It may even be good business for the Ecuadorian state. What is not clear is whether it’s good for Ecuadorian citizens, their environment, or indeed for conscientious Canadians.

Foreign oil interests in Ecuador have been clamouring for a second pipeline to ship their exports since 1989. In February of 2001, the OCP Consortium of six international oil companies and an Argentine construction company signed a contract with the Ecuadorian government to build the US$1.2 billion pipeline. The OCP (Heavy Crude Pipeline) is slated to ship 450,000 barrels per day. Consortium members currently pay a tariff to ship through the state-owned pipeline, built by Texaco in 1972 and devolved to PetroEcuador, the state owned company in 1992. After the completion of the OCP, they will pay themselves.

EnCana is the largest shareholder in the Consortium with 31.4% interest and is Ecuador’s largest foreign investor. Last year, Alberta Energy declared US$6.3 billion in global net revenues and shipped over 18 million barrels of crude from its Ecuadorian holdings. EnCana plans to double this production to 36 million barrels in time for the opening of the OCP in mid 2003.

President Gustavo Noboa accepted the deal because it will allow Ecuador to more than double its current export production. The state loses the transport fee but, the pro-OCP argument goes, gains from increased investment in the country (an estimated $2.5 billion over the next 2 years), increased income tax from the Consortium and all of its members, and the ability to ship more of its own reserves – PetroEcuador even gets a preferential rate to use the OCP and will own the pipeline in 2023.

There are a few catches however. To get the promised investment and export income, Ecuador has to ransom its biodiversity and suppress local opposition to foreign oil interests whenever and however necessary.

Nature for Ransom

One of the hotspots of resistance to the pipeline is Mindo Nambillo Cloudforest Reserve where concerned citizens were living in tree camps to prevent OCP construction earlier this year. Many national and international environmental organizations do not oppose the pipeline per se, but argue that it should have gone south around Quito to avoid Mindo.

The Hamilton born Director of Environment and Community Relations for OCP, Ray Kohut, says “the southern route is impossible and also impacts the Important Bird Area of which Mindo is a part.” What Mr. Kohut does not make clear is that the southern region is mostly deforested and not considered critical by conservationists. In contrast, Mindo lies within the Choco forest, one of the world’s most biodiverse areas and home to 450 species of birds, ten of which are globally threatened. The Ecuadorian Committee for the Route of Least Impact argues that a further 50 species of Canadian migratory birds depend on forests in the path of the OCP. In a letter to Gwyn Morgan, President of Alberta Energy/EnCana, they compare the OCP to “building a pipeline through the heart of the Whooping Crane staging areas in Alberta or through pristine areas of Banff or Jasper National Parks.”

Canadian Ian Davidson, Head of the Americas Division of Birdlife International, points out that the OCP Environmental Impact Assessment (EIA) only properly evaluated the northern route. “This isn’t normal,” he says, “usually you analyze 2 or 3 routes in a project of this type before deciding on the best one. This process would not be acceptable in North America, or in most European countries where many of the consortium members reside.”
Mr. Kohut defends the EIA, “You have to do an impact study over something. So we looked at different routes and decided that this is the best one.” In response to allegations that the company hired to do the assessment, Entrix International, was influenced by OCP’s preferences, Mr. Kohut used a very interesting analogy, “You have a situation in this world – let me give you an example – accounting auditors. Enron hires Arthur Anderson to do its study, you have to pay somebody to audit your books. Arthur Anderson then has to do an audit, thoroughly independent, and give it then to the company who shares with the shareholders and with the board. That’s true everywhere in the world – auditors are paid by somebody.” That particular conflict of interest ended with both companies’ demise. Coincidentally, Entrix also worked for Enron doing an EIA on Enron’s pipeline in Bolivia. The study was so flawed that Enron eventually had to contract another firm despite the fact that Entrix approved its choice of route through Bolivia’s sensitive Dry Chaco Forest. Finally, Williams International originally bid to construct the pipeline and offered to take a southern route for half the cost. They did not think it was impossible to avoid Mindo.

Construction at Mindo was halted in March by the Ministry of the Environment for failure to comply with regulations. Construction was already stalled by the rainy season so this wasn’t a major inconvenience for the OCP. They also managed to rid themselves of the protestors with an army raid on the tree camp in late March. Seventeen people were taken into custody by a force of 60 soldiers and transported to Quito in OCP buses. They were not properly fed or given the right to a telephone call on the first day. The case was brought before the office of the Mayor of Quito on the charge that the arrest was unlawful. In a powerful plea for justice, the lawyer for their case, Julio Cesar Trujillo said “these young people were defending the patrimony of the human race against a company whose only interest is money.” After hours of testimony and moving statements by the captives, the office of Mayor Paco Moncayo decided in their favour and released them.

Construction has since resumed in Mindo, but local environmentalists are vigilant. They have recently questioned Ecuador’s Minister of the Environment, Lourdes Luque, if she had approved the use of heavy bulldozers in the area since it was not part of the OCP EIA or their Management Plan. The environmental license they received from the government in February of 2001 only permits the use of equipment outlined in these documents. The OCP had no comment on the matter. Human Costs
On February 18 of this year, the people of the Amazonian province of Sucumbíos took to the streets to protest the way the OCP has dealt with them. They will have to live with Amazonas Platform, the storage and initial pumping station of the OCP. Only 600m from existing settlement and in the path of expansion of Lago Agrio, the province’s largest city, Amazonas Platform is where heavy crude will be heated for transport. Máximo Abad, twice-elected mayor of Lago, has opposed the location of the platform since day one, “this installation will be a source of constant noise and chemical pollution and presents a clear risk to the population of this city.” The OCP argues that its decision was based purely on ‘technical merit.’ Softspoken Abad fears that it was chosen so that the people of Lago would form a “human shield” against possible terrorist attack and he wants the OCP to pay a higher price for this luxury.
Orellana Province residents joined the strike a week later. Like Sucumbíos, Orellana is an oil producing region whose natives are tired of “living like beggars in a bag of gold.” Residents of both areas have insufficient potable water, electricity cuts for up to eight hours a day (from diesel burning generators) and few paved roads while oil supplies 42% of national revenues. Protestors blocked roads and pressured oil workers to shut down facilities. President Noboa declared a state of emergency, ordering his army to quell the protest. The government reports one civilian death and EnCana spokesman Alan Boras in Calgary concurs, but the District Attorney of Sucumbíos, Luis Bermeo, insists that 3 people are dead – two of them children who died from asphyxiation in teargas attacks. Both EnCana and OCP claim that the protests have nothing to do with them.

Nice Guys or the Least of All Evils

As lead investor in Ecuador’s latest oil project, EnCana/Alberta is proud of their environmental and community relations record in Sucumbíos Province. They sponsor their own NGO, ÑanPaz meaning ‘path of peace.’ “The success of Alberta Energy and ÑanPaz in northeast Ecuador will provide a model for social responsibility,” according to President Morgan. Their neighbours beg to differ.
According to Segundo Coello, head of ÑanPaz, Alberta has followed the model of their predecessors in the region, City Investing and Pacalta, by investing in the “power of the chequebook.”

Luis Merino is the municipal Director of Environment in Tarapoa where field headquarters of EnCana are located. The former biology professor sees his role as “helping local people and the local environment defend themselves from ‘the Company.’” He explains how EnCana works, “when a farm is contaminated by their installations, they simply buy it – cheap. If a school gets in their way, they buy all the farms in the area until there are no students left. And if local people protest, they are harassed by the army.” He can relate case after case of injustice, intimidation and chequebook development involving the all-powerful triumvirate of EnCana/Alberta, ÑanPaz and the Ecuadorian Armed Forces.

In Aguas Negras, a small farming village in the heart of Alberta/EnCana territory, the leader of the peasant organization, Bolivar Chavez, has consistently been a thorn in the side of the Company. He has criticized the work of ÑanPaz in his community and organized strikes to get the Company’s attention. In August 2001, he and his grown children were working in their fields when they noticed that they had attracted the attention of Company private security forces. Alberta’s paramilitary patrol the area in sand coloured jumpsuits, bandanas and dark sunglasses – lending otherwise bucolic rural scenes a ‘Desert Storm’ aura. The guards called in the Army. When Chavez refused to allow them to take his two sons into custody, they started shooting. “There were so many shots that the neighbours thought someone was killing a snake,” reports Irma Chavez who tried to shield her brothers and father. The elder Chavez decided to press charges against the army and the Company for harassment. Within hours of filing the charge, Company community relations people visited Irma to apologize, “we made a mistake because your father is new around here and you all had machetes.” The Chavez’s have been farming this land for 15 years and here, everyone has machetes. When Mr. Chavez refused to drop the charges, Fernando Quintero, Chief of Community Relations for Alberta told Irma “go ahead with the case, we are much richer than you and you will die poor pursuing it.” Bolivar Chavez finally accepted $3,610 from Alberta’s security firm to drop the charges.

The peasant organization of Aguas Negras runs a model integrated farm, rice and coffee mills for their members. They recently received a pigsty and a paintjob for their coop from ÑanPaz. They are very proud of what they have accomplished here but attribute little of their success to ÑanPaz or the Company. “We have learned that the only way to get something from them is to demand results before signing,” says the local mill operator. They are referring to the fact that ÑanPaz was restructured by the Company last year and now has the mandate of seeking more outside funding. To get this funding, they must prove that there are beneficiaries for their projects – that requires signatures.

One such donor is the Canadian Ecuadorian Fund for Development (CEFD), a unique organization that takes money Ecuadorian businesses would usually pay to Canadian businesses to purchase technology and uses it to promote sustainable development among Ecuador’s poorest. Canadian businesses are paid by CIDA from public funds for their products. In this way, public aid monies are used to sponsor both Canadian and Ecuadorian enterprises. ÑanPaz received $270,000 from the Fund in 1998 for Aguas Negras and renewed this grant for another 3 years this spring.

Gustavo Paredes, Project Manager of the CEFD has the job of reviewing ÑanPaz’s application for funding. “Any organization receiving CEFD money must have the full participation of the people,” he says. “Our projects are approved by the Canadian Embassy and we visit them every three months to monitor their progress.” While Mr. Paredes is aware of the close connection between ÑanPaz and EnCana and knows of the potential for conflict of interest, he was ‘surprised’ to hear of local dissatisfaction with ÑanPaz. “We have met with ÑanPaz and their beneficiaries often and never hear complaints.” He admits that CEFD monitors have never met the farmers in the absence of ÑanPaz personnel. Given that Mr. Paredes was not surprised to here of the threat local peasants feel from EnCana’s security forces and the Ecuadorian military, this may be considered a gross ethical oversight in the use of Canadian public monies.

Canadian oil interests have a long history in Ecuador, dating back to the Canadian acquisition of UK based City Investing. One knows when one has entered Canadian controlled Tarapoa Block because of the always polite signage proclaiming Alberta’s respect for its workers and neighbours and the speed control signs on the dirt roads (these may be the only roads in Ecuador with speed limits regularly posted). Many oil critics concede that the Canadians are not the worst of the oil pack here, but they are far from operating as transparently and responsibly as Canadian standards would demand or as their own signs proclaim. As primary shareholder in the OCP Consortium, and with their own man now in charge - Andy Patterson of EnCana took over the OCP in August 2002 - the responsibility for continued abuses in their concession and along the length of the new pipeline falls squarely on their shoulders.

Endless Contradictions

The new pipeline was supposed to usher in another oil boom for cash-strapped and debt-burdened Ecuador. Now, the private companies, including EnCana are threatening to withhold the promised investment pending the settlement of a tax issue. The privates claim that they are entitled to a rebate on Value Added Tax charged for shipping oil to port. This rebate has been withheld since August 2001, costing EnCana US$70 million in revenues. The privates have threatened to go to the WTO for a settlement on this issue but so far, the government is not budging. The state company, PetroEcuador, says that many of the privates owe substantial sums in unpaid shipping fees in the state pipeline so perhaps they will countersue.

In September 2002, Robert Goodland, former Chief of the Environmental Department of the World Bank, completed an independent report for Amazon Watch and Environmental Defense. He was asked to evaluate the OCP’s claims that it was adhering to World Bank guidelines. As a tropical ecologist and the author of many of the “Social & Environmental Safeguard Policies” the Bank upholds, he was well-suited to the task. After field research in Ecuador in August, he concluded that the OCP is non-compliant in four critical areas: Operational Policies on Environmental Assessment; Natural Habitats; Involuntary Resettlement; and, Indigenous Peoples.

EnCana is now North America’s biggest independent gas and oil producer. It is also part of Ethical Funds’ Portfolios including the Balanced Fund, Growth Fund and Canadian Equity Fund. In the US, Citizens’ Global Equity and International Growth Funds have holdings in EnCana. The idea behind these investment portfolios is that companies must meet basic criteria in terms of their commitment to sound environmental practice and sustainability in order to qualify. It would seem that even the rather lax guidelines of the World Bank, never known as a bastion of tree-huggers, eludes EnCana’s pet project in Ecuador. Recently, the Globe and Mail compared President and CEO Gwyn Morgan to a ‘Meat Cleaver’ in his opposition to Canada’s ratification of the Kyoto Protocal. If EnCana’s environmentalism qualifies as ‘leading edge’ as required by Ethical Funds, one wonders if the bar shouldn’t be set a little higher.

As a closing thought, the combined volume of both oil pipelines working to capacity is 900,000 bpd. PetroEcuador says the country has proven reserves of nearly 4 billion barrels and possible reserves of 6 billion barrels. That means that Ecuador will run out of oil in 12 to 18 years – two years short of when the OCP becomes Ecuadorian property. In the meantime, a lot of people, many of them Canadian, will make a lot of money from Ecuador’s single most important resource but how much of this wealth will benefit Ecuador?

This article is based on research and interviews conducted in Ecuador and Canada from January to October 2002.
© Dr. Leslie Jermyn and the The Global Aware Cooperative
Contact cooperative@globalaware.org

Images available at photo@GlobalAware.org