Chinese influence plays a pivotal role in Ecuador’s delay in dismantling Yasuní oil operations

Jun 14, 2024 | 0 comments

By Gabriela Mesones Rojo and Alicia Chen

Last August, Ecuadorians made history by voting to permanently keep over 700 million barrels of crude oil in the ground beneath Yasuní National Park, one of the most biodiverse areas on earth. This made Ecuador the first country in the world to halt oil exploitation through a referendum.

Despite the pressure from environmental groups and Indigenous communities, Ecuador’s government is delaying action on the popular vote, at first arguing that the decision is necessary to fund the country’s efforts to stop a surge in drug cartel violence. Meanwhile, Sinopec and CDEC, Chinese oil companies that hold several oil drilling contracts in the reserve, have remained silent on the government’s decision.

Manuel Bayón Jiménez from YASunidos, an activist group that has fought for more than a decade against the oil drilling in the Ishpingo-Tiputini-Tambococha block of the Yasuní, some 675 square miles of pristine Amazon Rainforest, says China’s silence is no surprise.

Morning mist hovers above the canopy in Ecuador’s Yasuní National Park, one of the richest biodiversity areas on earth.

The Chinese oil groups, Sinopec and CDEC, usually leave on-the-ground operations and social responsibility to Petroecuador, the national oil company of Ecuador, Jiménez said. “I have not seen a single Chinese worker at the ITT.”

Ecuador’s government has awarded four sensitive oil drilling contracts in the ITT block, worth billions of US dollars, to the two companies, which are subsidiaries of the state-owned China National Petroleum Corporation (CNPC). The country’s long-term debt to China is one of the key reasons driving oil expansion in the ITT block, as it has agreed to pay off the debt via oil shipments until 2025 at least, according to its debt restructuring plan. Under the current plan, they have to cease all activities in the ITT block within a year regardless of their contractual or operational status.

The debt of climate justice
In recent years, China has committed to promoting green energy and to “stop building new coal-fired power projects abroad.” Complying with the result could be a good opportunity for China to gain recognition of its commitment, yet China’s attitude toward the decision is still uncertain.

“Today more than ever, China is at a crossroads: support Ecuador to protect the Yasuní and its ancestral peoples or promote projects that destroy it,” said Latinoamérica Sustentable (LAS), an Ecuador-based organization dedicated to environmental protection in Latin America with a focus on Chinese investments, in a 2023 report urging China to consider its commitment to address climate issues.

In April, the government announced the formation of a committee to begin dismantling oil production in Yasuní National Park but environmental groups claim the government continues to delay action on the public referendum.

In fact, despite China’s ambition to address global warming, more than 80 percent of the financing from Chinese policy banks and half of the loans from Chinese commercial banks directed towards the energy sector in Latin America are predominantly focused on the oil industry.

China’s presence in Ecuador’s oil industry dates back to the mid-1990s when several Chinese companies entered the sector as subcontractors. Starting around 2008, then-President Rafael Corea signed a series of loan agreements with China, agreeing to exchange the country’s oil for Chinese funding. Until now, Ecuador has borrowed more than USD 15 billion from China, making the Andean country the third largest recipient of Chinese financing in the South America, behind only Venezuela and Brazil.

A former Ecuadorian leader and manager of Petroecuador both admitted that the contracts with China, all tied to the sale of oil or with crude oil as collateral, were “harmful” to the country.

Ecuador has not only lost its sovereignty in managing its oil independently due to the contract conditions but has also put its diverse ecosystem and social wealth at stake.

Since 2016, seven new oil contracts have been awarded to Sinopec and CDEC, with four allowing the exploitation of the ITT Block. The most recent one was signed in February 2022 between Petroecuador and CDEC, marking the first instance of a Chinese company operating in the Ishpingo north field. This field is situated just 300 meters from the buffer strip, where two Indigenous tribes — the Tagaeri and Taromenane — reside in voluntary isolation.

The public outrage led almost 60 percent of Ecuadorian voters to choose to stop the development of the ITT block. Before the referendum, it was producing around 57,000 barrels per day and was expected to bring in around USD 14 billion over the next 20 years, according to Petroecuador. The output amounted to about 12% of Ecuador’s total production.

The referendum did not happen without economic rationale. The result doesn’t stop all the oil blocks in the National Yasuní Park, where more than one billion barrels of crude oil are believed to be reserved underground. Chinese oil companies have operated in five other zones in the country.

Additionally, the Ecuadorian government in 2010 initiated a trust fund from rich countries to stop the exploitation of the ITT and to protect the park. However, the initiative failed to attract the $3.6 billion, half of the expected earnings from the oil sales at the time. Environmental and indigenous groups claimed the plan was a scam and that government knew the money would never be collected and that plans to drill were already underway.

Secretly, the government had began to negotiate a deal with a Chinese bank, trading drilling access in the ITT block in exchange for Chinese loans.

Activist groups like YASunidos have fought to protect the area over the past ten years. Their activism has gained overwhelming support, to the point that the recently-elected President Daniel Noba used the referendum as one of his campaign promises in the October Presidential Elections.

However, in January, after an armed gang stormed an Ecuador TV station, Noba announced his support for a “moratorium” on ending oil operations for at least one year. Other officials and legislators are exploring ways to circumvent the decision of Ecuadorians, citing the country’s economic instability. More recently, Noboa announced new plans to cease operations, but it was vague on details.

In the meantime, China has stayed noncommittal about the dispute. The Chinese Embassy of Ecuador has not yet made a public comment on the result of the referendum. Sinopec, for example, did not mention Ecuador or the Yasuní Park in its 2023 sustainable report.

Perhaps the only glimpse into China’s attitude from the public came from an article published by the Ministry of Commerce of the PRC a few weeks before the referendum was held. It intentionally quoted Ecuador’s Minister of Energy and Mining, who said that opposing oil and mineral extraction would be tantamount to “suicide” and send a “negative signal” to investors.

Ecuadorian citizens made their country the first in the world to stop oil extraction through a democratic vote. Ecuador is also one of the first nations to recognize the rights of nature in its constitution. Its people will not easily compromise.

YASunidos reiterated that it would take further steps if the government breaks the promise again. If necessary, they would call for the dismissal of ministers and even the president.

“They are already late with removing the infrastructure,” said Jiménez.
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Credit: Global Voices

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