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ICSID orders Ecuador to pay $1.7 billion to Occidental Petroleum – Interview with the Ecuador Decide Network

October, 2012

By Aldo Orellana López, for NJGI

In recent weeks Ecuadorian authorities and civil society have been hit with a worrying piece of news. The Ecuadorian state has been ordered to pay $ 1.7 billion plus interest to the U.S. Company Occidental Petroleum Corporation (Oxy) for having canceled its operating contract in 2006. The authorities’ argument at the time was that the company had illegally transferred a portion of its shares to a Canadian company. Oxy immediately sued the country under the US-Ecuador BIT at the International Centre for Settlement of Investment Disputes, ICSID, whose decision in early October this year was in favor of the company. Ecuador’s government subsequently appealed the court’s decision, a legal measure which could take many months to settle and which will surely cost the Ecuadorian state many thousands of dollars in interest and lawyers’ fees.

For this reason, NJGI decided to contact Ecuador Decide to hear their perspective on the case. Ecuador Decide is a network of diverse social organizations that was formed in 2004 to prevent the signing of a free trade agreement between Ecuador and the United States.  Among other things, they are currently keeping track of the EU-Ecuador Association Agreement negotiations, which according to the network is a free trade agreement in disguise.

The interview was with Pablo Jose Iturralde Ruiz. As well as being a member of Ecuador Decide, Pablo also works as a researcher at the Center for Economic and Social Rights-CDES. The purpose of the conversation was to explore the history of the case, to get the reaction of social organizations to the ruling, to explore possible coordinated actions, to hear about the social costs involved in paying this amount of money, and finally, to review the investment policy of the government in its current negotiations on trade and investment agreements.

Network for Justice in Global Investment (NJGI): Pablo, could you give us some background to the Oxy vs. Ecuador case, and the role of social organizations in this conflict?

Ecuador Decide (ED): In 2005, organizations and social movements mobilized around what was called the Bi-provincial Assembly. This assembly managed to mobilize organizations and bring them to the oil-producing Amazon provinces of Orellana and Sucumbios. The resulting uprising was strongly repressed, but it succeeded in putting the problems with Occidental Petroleum in to the national debate.

The organizations’ legal argument was that there had been an illegal transfer of rights (from Oxy to another company) without consultation with the public authorities of Ecuador. That was the legal argument, but there were also complaints from the social organizations regarding breaches of environmental norms and negative social impacts. In addition, there were demands that some of the earnings being generated by Oxy be redistributed to benefit the provinces of Sucumbios, Orellana and Napo, Amazonian provinces that are affected by the oil industry and that make up the poorest region in the country.

In this way, the indigenous movement and the small farmer movement, which at that time were at the forefront of the national social movements, incorporated the cancellation of the Oxy contract into their demands.  Supporting these claims and the other demands of the indigenous social movement, such as the rejection of any Free Trade Agreements, the then presidential candidate, Rafael Correa, made his campaign proposals and became president.

The cancellation of the Oxy contract and the transfer of its production operations to the public company Petroamazonas in 2006 is a milestone that marked a major shift in the country’s oil policy. From there on, the state’s participation in hydrocarbon resources has been growing, the state has participated more.

 (NJGI): What has been the reaction of social organizations and civil society to this ruling? Are there any initiatives or actions planned apart from the legal strategy of the government?

 (ED): Social organizations have rejected the ICSID ruling on the grounds that it is an attack on our national sovereignty and that the impact of this debt will be felt in most of the population, mainly in the poorest sectors. Just to be clear, the full magnitude of this debt is around $2.3 billion. The award that we are ordered to pay to Oxy is $1.769 billion in compensation and about $530 million in interest.

In addition, social organizations have criticized the state for its poor defense and for its doublespeak on the issue which have resulted in this outrageous debt for the country. Why the doublespeak that the social organizations are complaining about? Because the state’s legal strategy has been inconsistent as well as incoherent. The government has been speaking out of both sides of its mouth in a way that has been irresponsible and secretive.  From the start, the correct position should have been for the state to reject any international arbitration. However, the government has not been clear at all in this regard.

In 2006, the newly elected president (Rafael Correa) said that it was treason to recognize any international arbitration and that Ecuador has not accepted, and there is no reason for it to accept, international arbitration.  This is what the newly elected president said in 2006.  Then, in 2007, Ecuadorian foreign minister, Maria Fernanda Espinoza, stated that the ICSID process was legitimate and that Ecuador would accept any ICSID ruling. While in 2008, the state attorney, who is the state’s legal representative, said that the state would be willing to pay compensation to the U.S. Company Oxy if ICSID were to rule against Ecuador.  This doublespeak has been pointed out by social organizations because it has seriously affected the interests of the Ecuadorian State.

At the moment there is no coordinated activity.  There are no coordinated actions or discourse directly related to the Oxy issue and the ICSID ruling. This is because there is no dialogue with the government and there is now a significant divide between the government and the social organizations. The movement (from 2005) was basically made up of the indigenous and small farmer organizations, grouped under the umbrella of the CONAIE; but due to the promotion of an extractivist policy by the government there is now a divide which doesn’t allow for dialogue.  So for now, there is no coordinated action, but there are voices from the social organizations that can take a position on this issue.

 (NJGI): In social terms, what does it mean for the people of Ecuador to pay $2.3 billion from state coffers to Oxy? How does this affect social policy and the implementation of public policies in general?

 (ED): The $2.3 billion ICSID award that Ecuador must pay will mean less health, less education and less social spending for Ecuador. To give you an idea: in our country the state gives a human development voucher to people who are in extreme poverty. The human development voucher means an income of $30 per family; the award is the equivalent of 15-years of human development vouchers for Ecuador’s poorest families.

The problems don’t end with the $2.3 billion ruling.  Oxy has claims for up to $13 billion against Ecuador. If the Ecuadorian defense continues with its grand public discourse while acting incoherently and without sovereignty in its legal strategy, our country is going to be irreparably damaged. We may be affected to the tune of billions of dollars, acquiring a debt of historic proportions.

The ICSID ruling marks an important precedent which opens the possibility for more cases that will again threaten the sovereignty of national laws as well as state sovereignty.

(NJGI): What is the current investment policy of the government of Ecuador regarding its trade and investment agreements? Are social organizations and civil society being listened to?

(ED): I think that the Occidental judgment should be considered in the context of international trade negotiations that the government is undertaking. The most important of these would be the Association Agreement with the European Union, which is a free trade agreement by another name. The government’s discourse in this regard has sometimes been against a free trade agreement, and sometimes the opposite, as is the case with its foreign minister and other government officials, who have been in favor of negotiations with the European Union. These negotiations have been ongoing for about four years and Ecuadorians still don’t know what the official position of the state is on this issue.  So there is much uncertainty on behalf of the organizations and people are keen to see what the outcome will be. The last strong signal on the issue of the Association Agreement with the European Union was the resignation of assistant foreign minister, Kintto Lucas, who resigned without making any public statements because of the lack of consistency of the government of Ecuador in these negotiations.

Faced with this situation, there is not much consultation with civil society, and there is no relationship at the moment between the state and the social movement organizations.  There is dialogue between the state and NGO’s and foundations, which bring together civil society voices, but more from a technical point of view, from the business sector, from the chambers of commerce and production etc., but really there are neither official channels for consultation with civil society, nor is there a willingness to listen to social organizations regarding other important issues being discussed in the country.

* Translated by Thomas Mc Donagh

 

Related notes:

Ecuador to appeal against $1.8 bn ruling in oil dispute / Source: Brecorder.com

Ecuador ordered to pay Occidental $1.77 billion in damages / Source: Brecorder.com

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