Controversial Sacha oil deal is dead as Chinese-led consortium fails to deliver a $1.5 billion payment

The Sacha oil field deal with Chinese-led consortium Sinopetrol is dead, at least for now. Energy Minister Inés Manzano said Wednesday morning Sinopetrol did not meet a contractual agreement to deliver a $1.5 billion payment to the government by the Tuesday deadline.

The government said Wednesday that the Sacha oil contract is terminated.

“The president [Daniel Noboa] made it clear that the deal would be null if funds were not transferred,” Manzano said. “At this point, there is nothing more to talk about regarding the arrangement.”

The Sacha field, located in the northeastern Amazon region of Ecuador, is believed to hold the country’s largest untapped oil reserves. The Energy Ministry awarded the 20-year contract to Sinopetrol, contingent on the pre-payment, without going through a formal bidding process. The Chinese Amodaimi Oil Company holds a 60% stake in Sinopetrol while the Canadian firm Petrolia owns 40%.

Currently, 77,000 barrels of oil a day are pumped from the Sacha fields but the government says the amount can increase to 100,000 barrels within three years and to 140,000 within five with an expansion of operations.

The agreement with Sinopetrol had become a political issue in next month’s runoff election between Noboa and challenger Luisa González, with González promising to cancel it if she’s elected. The deal has also been opposed by indigenous groups who want to stop oil production at Sacha entirely. Others, including labor unions and González, want national oil company Petroecuador to develop the new fields.

The Energy Ministry claims that Petroecuador does not have the funds or the capability of opening new fields and that only a private contractor can manage the work.

Following Manzano’s announcement, the Chinese embassy in Ecuador expressed disappointment that the deal had fallen through. “We hope all parties concerned will continue to promote project cooperation on the basis of mutual benefit,” adding that the Sacha contract was a “win-win situation.”

In the past, China has objected to Ecuador’s “lack of control of local populations” who have interrupted or stopped oil and mining operations. China lodged a formal complaint with the government in 2022 after protesters closed the Chinese-operated Rio Blanco gold mine in Molleturo, west of Cuenca, destroying several millions of dollars of equipment in the process.

In addition to environmental and contractual objections, opponents of the Sacha deal claimed it did not provide sufficient financial return to the government. González claimed it was a “give away” to foreign companies.

In making her announcement, Manzano said the government would “pursue other options” but offered no details.