Coca Codo Sinclair deal puts much of Ecuador’s future energy projects in China’s hands

In July, Ecuador reached an agreement with PowerChina, Sinohydro’s parent company, to resolve the long-standing dispute over structural failures at the Coca Codo Sinclair hydroelectric plant. According to the country’s Energy Ministry,, the Chinese company will pay $400 million to Quito and take over the operation and maintenance of the plant, one of the country’s most important.

A turbine at the Coca Codo Sinclair hydroelectric plant.

Inaugurated in 2016, Coca Codo Sinclair has never operated at full capacity. From the outset, it suffered technical failures and now has more than 17,000 cracks in its turbine distributors. The plant has also contributed to the regressive erosion of the Coca River.

“The agreement reflects China’s soft power strategy. It seeks to improve its image in the region through compensation and reparations but maintains a high degree of control over the processes, which leaves countries with limited room for maneuver,” Sergio Cesarin, coordinator of the Center for Asia-Pacific and India Studies at Argentina’s Tres de Febrero National University, told Diálogo.

The agreement, signed after President Daniel Noboa’s visit to China in June, has drawn scrutiny. One of its most controversial aspects is that PowerChina will manage the plant for 25 years, while Ecuador will make annual payments of $60 million for its operations, totaling at least $1.5 billion — a figure that exceeds the compensation. According to Ecuadorian daily El Universo, experts have questioned the $400 million amount, considering it insufficient to cover the costs of repairs and accumulated losses. The lack of transparency in the terms has also raised doubts about the real benefits for the country.

The deal ends the arbitration initiated in 2021 by the Ecuadorian Electricity Corporation (CELEC EP). According to Reuters, the Ministry of Energy confirmed that both parties withdrew from the litigation and formed technical committees to follow up on the repairs.

“When disputes arise with China, it tends to opt for prolonged and asymmetrical negotiations, changing the terms in its favor,” Cesarin said. “Although the agreements mention arbitration, Beijing avoids international courts and prefers to resolve disputes ‘amicably’ or in Beijing courts, which puts the other party at a disadvantage.”

Risks and strategic vision
The transfer of operations to a foreign state-owned company gives it day-to-day control of a critical national asset. PowerChina arrives with a controversial background, including sanctions from the World Bank for fraud, fines in Bolivia for illegal logging, and questions in Tanzania about environmental impacts, which led to its exclusion from international funds, Colombian daily El Heraldo reported.

“This situation is exceptional and worrisome,” Cesarin said. “The handover of the administration of Ecuador’s main hydroelectric plant to PowerChina, in a context of possible debt pressure, could favor the interests of the Chinese state-owned company over local autonomy.”

The technological angle adds another layer of risk. In the Philippines, the participation of the State Grid Corporation of China in the National Grid Corporation prompted Senate investigations into possible remote access to the electricity system. This case illustrates what can happen when foreign actors manage critical infrastructure, a report by the Association of Southeast Asian Nations (ASEAN) Centre for Energy, indicated.

Chinese loans often lack transparency. An AidData analysis of 100 contracts with governments in 24 countries revealed confidentiality clauses and other mechanisms that allow the lender to influence internal and external policies.

Ecuador is a prime example: A 2010 $1 billion loan was secured by oil, forcing PetroEcuador to deliver crude oil to PetroChina and deposit the proceeds in accounts controlled by the China Development Bank.

“Ecuador maintains a structural dependence on China, inherited from the Rafael Correa government through oil-backed debt agreements, a situation that remains essentially unchanged,” Cesarin said. “As a result, China could respond with retaliatory measures such as suspending purchases or affecting trade, which is a significant risk for Ecuador.”

Geopolitical outlook
The Coca Codo Sinclair agreement is part of China’s broader strategy in the energy sector, by which it seeks to “own the light” through investments in electricity generation, distribution, and transmission throughout the region.

The Boston University Center for Global Development Policy highlights the global reach of this strategy, noting that Chinese banks and companies have financed more than 648 plants abroad.

The progress in the region is evident. On August 1, Ecuador announced a new $600 million loan from China for energy. In 2020, China Three Gorges acquired the Luz del Sur distribution company in Peru, gaining access to strategic operational data on the electricity system. This concentration of capabilities gives Beijing leverage over sovereign decisions.

Data from Boston University confirm the magnitude of this deployment: Chinese firms have conducted more than 114 mergers, acquisitions, and financing operations in Brazil’s electricity sector, with others in Chile, Mexico, Peru, and Ecuador. “The room for maneuver for countries in this type of agreement is limited, which opens up the possibility for China to influence strategic decisions in the sector,” Cesarin said.

To reduce risks, electricity markets should separate generation, transmission, and distribution. The operation of Chinese companies in these segments presents a global challenge, as their parent companies and subsidiaries are aligned with the strategy of the Chinese Communist Party, Latinoamérica 21 reported.

A key risk is handing over control of the electricity supply to China, whose state-owned companies are instruments of its economic and geopolitical objectives.

“With the entry into force of the agreement with China, Ecuador runs the risk of repeating old practices: indebtedness, opaque contracts, and corruption,” warned Cesarin. “Only transparency and public scrutiny can make a difference. The challenge will be to demonstrate whether Ecuador has learned from its past experience or whether it will repeat history.”
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Credit: Dialogo