Ecuador: Can They All Just Get Along?

Abstract: Ecuador's struggling economy desperately needs the revenue from the new OCP Pipeline. But will the efforts of indigenous peoples and environmentalists be so effective that the pipeline's operation will either never come into being or never reach full capacity?

Analysis: A newly constructed pipeline from Ecuador's Amazon interior to the Pacific coast -- the Oleoducto de Crudos Pesados or OCP -- will soon begin transporting heavy crude oil. The line, which cost about $1.4 billion, should allow an immediate 20 percent increase in Ecuador's badly needed oil exports and it will carry even more as new Amazon wells come into production.

But the OCP line has been built splitting Ecuador's Mindo-Nambillo Cloudforest ecological reserve down the middle. The reserve is a major destination of ecotourists. It contains an estimated 450 species of birds, including 12 classified as threatened or near-threatened, as well as other rare species like the spectacled bear. Natives, ecologists, environmentalists, and the tourism industry are angry.

When the pipeline was planned through the Mindo-Nambillo reserve, it so alarmed these groups that they sued to force a detour. Ecuador's Constitutional Tribunal, the country's highest constitutional authority, upheld the route in August 2001. A statement from Ecuador's Energy Ministry at the time said the Tribunal resolved: "[T]he route selected has been designed so that there is no damage to the right to live in a healthy, ecologically balanced and pollution-free environment."

The ruling became a lightning rod for environmentalists and Ecuadorian natives. Protests against it grew with acts ranging from civil disobedience to violent attacks which continue today.

Pipeline Positives
The 503-kilometer-long, OCP pipeline is designed to transport between 200,000 and 230,000 barrels a day, with volume rising to 450,000 barrels per day within five to 10 years. The cost of the project is estimated to be $1.4 billion. Its capacity will complement the existing Sote pipeline, which has been in operation for 30 years and transports close to 400,000 barrels per day of lightweight crude oils. The two together can transport 850,000 barrels per day, doubling Ecuador's potential production.

OCP Ecuador SA, a consortium, built the line. It was designed to pump crude from Lago Agrio up to an elevation of 4,062 meters before crossing the Andes. The oil is heavy--24 gravity--so will be heated to 75 degrees C at four pump stations on the uphill side of the line.

Besides Techint, which has a 4.1 percent interest in the line, OCP Ecuador is made up of five oil companies that produce oil in the Oriente basin: Occidental Ecuador (12.3 percent), Alberta Energy Co., Canada, (31.4 percent), Kerr-McGee Corp. (4 percent), Perez Companc (15 percent), Repsol-YPF SA (25.7 percent), and Agip SPA (7.5 percent).

The government hopes the new pipeline also will encourage foreign companies to ratchet up exploration and production in the oil-rich Andean country. Ecuador's oil sector accounts for about 20 percent of the economy and is the country's most important source of foreign exchange, ahead of coffee, fish, and bananas, according to the U.S. Energy Information Administration (EIA).

Revenues just from the construction of the OCP pipeline are already helping. Ecuador has $2.7 billion in debt payments due this year. It has been carrying out structural economic reforms under guidelines from the International Monetary Fund. These guidelines stress further structural reform, privatization, foreign investment, and other factors. Opposition from unions, indigenous groups, nationalists, and others has slowed the process. More than 90 percent of foreign investment is going into the oil sector.

Political Situation
In Ecuador's national election in October 2002, leftist former army colonel Lucio Gutierrez was elected president. Gutierrez is the country's fifth president since 1997. His platform included expanding social programs, creating jobs, redistributing wealth, ending political corruption, ending many free-market policies, and increasing the state's role in the economy. The program contrasts sharply with that of former president Noboa, who began many of the reforms, and with IMF policies as well. However, Gutierrez has not backed away from fiscal reform measures. He has said that the government will not default on the $2.7 billion foreign debt repayment due this year and will cooperate with the IMF.

He has also shown no sign of accommodating opponents of the OCP pipeline. Oil has become increasingly important in Ecuador's economy since its discovery in the 1970s. The country has 4.6 billion barrels of proven oil reserves. During 2003, production averaged around 390,000 barrels per day, down from 422,000 in 2001. The main cause of the drop, according to EIA, has been underinvestment and aging fields. Ecuador consumes about 137,000 barrels per day internally.

Conflicts and Battles
While the pipeline was being constructed, there were pollution episodes as well as conflict with natives and environmentalists. In addition to the Mindo-Nambillo Cloudforest reserve, the pipeline traverses six national parks and protected areas. Critics argue that ruptures in the OCP are inevitable and will cause ecological disaster by spilling more oil into forest ecosystems than the Sote oil pipeline. This line has ruptured many times due to landslides, earthquakes, volcanic eruptions, and insurgent bombings.

Spill management has also been a bone of contention ever since Texaco's early operations in the northern Amazon. Allegations of pools of oil left near people's homes and spilled into rivers are common.

The following are some recent incidents:
In Mindo-Nambillo, in March, police evicted 17 activists blockading the OCP pipeline route. Residents of Mindo along with students and members of the Italian Green Party occupied a construction site inside the reserve, blocking construction workers and machinery throughout the day. They were sprayed with tear gas in skirmishes with military police.

Members of Acción por la Vida ascended to the Cloudforest ridgeline known as "Guarumos" to re-occupy their property where they allege construction continues illegally. After about 10 hours on the ridgeline, Mindo residents and an Italian Green Party representative were arrested.

Many national and international environmental organizations who do not oppose the pipeline per se, do feel that it should have gone south around Quito to avoid Mindo.

Natives have attacked seismic crews. In October last year, a French geophysical company was chased off land near Sarayacu by natives wielding shotguns and lances. They took 10 hostages, whom they later released, and burned their camps. More seismic work is slated for these lands and more resistance can be expected.

Just last month a tank holding 59,000 barrels of crude oil ruptured losing some 5,000 barrels into the Blanco River. The pipeline was not damaged.

A Bright Economic Sore Spot
The pipeline is a bright economic spot. While its operation may not create actual prosperity--the Ecuadorian economy appears to be in too bad a shape for that--it should help support the government's attempts to dig out from under crushing debt. And if it just helps create some civil and economic stability, it could markedly improve the climate for investment and growth.

Obviously the future is indeterminate. But on balance, the larger challenge may be the human one. The operating line may face serious difficulty unless ways are found to defuse the sore spots: restore damaged countryside and heal the rift with indigenous peoples and environmentalists.

That's a tall order in Ecuador today. There's a lot to be done to bring the parties together. Oil export revenues can only create a small part of the solution, but it's a positive part--something that much of the country is bound to find welcome.