The Americas: Ecuador Pays a High Environmental Price for Extracting Its Oil: New Pipeline Plans are Not Being Helped by a Big Spillage that Has Polluted Rivers and Scarred the Landscape | Amazon Watch
Amazon Watch

The Americas: Ecuador Pays a High Environmental Price for Extracting Its Oil: New Pipeline Plans are Not Being Helped by a Big Spillage that Has Polluted Rivers and Scarred the Landscape

June 14, 2001 | Nicholas Moss | Financial Times

Patches of oil were still burning across the Andean hillside on Tuesday, the day after mudslides ruptured Ecuador’s crude pipeline, spilling its black cargo near Papallacta and into rivers feeding the Amazon basin.

For environmentalists the charred and polluted landscape was a reminder of what they hoped to prevent by opposing the planned construction of a new oil pipeline in Ecuador, a non-Opec oil-exporting country.

“It shows that increasing crude production and building another pipeline is no panacea for Ecuador’s economic woes,” said Natalia Arias, president of Accion Ecologica, a Quito-based environmental organisation.

Last week the government awarded an environmental licence to the OCP pipeline company, formed by Canada’s Alberta Energy, Italy’s Agip, Kerr-McGee and Occidental of the US, Spain’s Repsol-YPF and Argentina’s Perez Companc.

It was probably the final hurdle for Argentina’s Techint to begin building in August a 450,000 barrel-per-day pipeline in which President Gustavo Noboa has staked the reactivation of the economy. A boom in oil extraction will follow a decade of frustration since a new pipeline was first mooted: OCP members are sitting on large proven reserves, some of which were discovered during the recent rise in world oil prices. But the Sote, the existing state-owned 390,000 b/d pipeline, has had no spare capacity.

“(The OCP creates) a win-win situation for the companies and the state,” said Hernan Lara, the company’s president.

For Mr Noboa, last week’s progress was evidence of his administration getting down to business. “In 18 months we have achieved what couldn’t be done in more than nine years,” he said.

He hopes to offset the country’s image of corruption, short-lived governments under six presidents in five years, and impunity for the culprits of the 1999 banking crisis.

Bailing out the sector nearly bankrupted Ecuador. A deep recession, devaluation of the local currency and the threat of hyperinflation then led Ecuador to adopt the US dollar as its currency.

As well as the potential to kickstart the economy Mr Noboa knows how significant the pipeline project will be in providing foreign income to shore up Ecuador’s dollarised economy. State coffers will receive on average 23 per cent royalties and 25 per cent corporate taxes on the increased oil output as well as boost the nation’s own crude exports.

That prospect formed a cornerstone for renegotiations with external debt bondholders after Ecuador defaulted in 1999. Techint will hire up to 7,000 workers during the 25-month construction of the OCP. A further 50,000 jobs will be created in areas such as catering, transport and hotels. But some analysts question the long-term benefit for most people. In its 30 years as an oil-producing country disparities between rich and poor have magnified. Today some 70 per cent of Ecuador’s 12m people live in poverty and foreign debt has ballooned. According to Accion Ecologica, which flatly opposes a new pipeline, increased oil production will further damage the fragile Amazonian ecosystem and hurt the indigenous communities under whose territories lies much of the black gold.

“We should be conserving the real wealth of this country, which is its biodiversity – the variety of plant and animal species – rather than looking to exploit a non-renewable resource,” said Mrs Arias.

The best way to protect Ecuador’s natural treasures, including threatened mangrove swamps and the Galapagos islands – where an oil spill in January threatened an ecological disaster – is by increasing the overall prosperity of its people, according to the environment minister, Lourdes Luque.

Analysts say that tourism, which is already Ecuador’s second biggest earner, offers that opportunity. However, Ecuador’s attractiveness, and the more sustainable windfall, is jeopardised by the building of the pipeline.

“The pipeline represents a threat to the burgeoning eco-tourism industry, which could bring in upwards of Dollars 600m over the next 20 years,” said Oxfam, Greenpeace and Amazonwatch.

The leak at Papallacta was the 23rd such incident in a 32km stretch of the Sote since it was built in 1972. For the first time last year the pipeline was also the target of terrorist bomb attacks.

The new pipeline will run through the high-risk zone parallel to the Sote, until it takes a controversial diversion north of Quito through the Mindo cloud forest region. OCP, which has given the government a Dollars 50m bond to cover environmental damage, said the route offers the least environmental impact.

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