OF PIPELINES AND LIFELINES: PETROECUADOR AND THE

C O N F I D E N T I A L QUITO 002497

SIPDIS

SIPDIS

DEPT OF COMMERCE WASHDC
TREASURY FOR SGOOCH

E.O. 12958: DECL: 10/10/2016
TAGS: SENV EPET ECON EAGR EAID PGOV SOCI EC
SUBJECT: OF PIPELINES AND LIFELINES: PETROECUADOR AND THE
CUYABENO OIL SPILL

REF: QUITO 1920

Classified By: Deputy Chief of Mission Jefferson T. Brown for Reasons 1
.4(b) and (d)


1. (U) Summary: On August 19 a story broke in the Ecuadorian
media about a pipeline leak and oil spill near the
environmentally sensitive Cuyabeno Animal Reserve in
Ecuador's Amazon region. In extensive coverage, the media
has speculated on the causes and environmental effects of the
spill. The U/S for Environment said that the media coverage
was "exaggerated", but the reporting did highlight the
problems with state-owned oil company Petroecuador's leaky
pipeline system and its slow response to oil spills. On
October 5 Petroecuador convened a round-table meeting with
international donors to present a company action plan in the
wake of the pipeline leak. What began as a straightforward
defense of the company's cleanup efforts turned into an
admission by company management of Petroecuador's dire
financial shape, and of its inability to upgrade its
antiquated technology and mount any credible effort to
prevent further damage to Ecuador's fragile rainforests
absent international financial aid and technical assistance.
End comment.

SPILL SPREADS FAST, TRUTH SEEPS OUT SLOWLY
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2. (C) See reftel for detailed background on Ecuadorian
state-owned oil company Petroecuador.


3. (U) News broke in the Ecuadorian media on August 19 about
a devastating oil spill the day before near the Cuyabeno
Animal Reserve in Ecuador's Sucumbios Province. According to
press reports, a pipeline from Cuyabeno Well Number Eight,
operated by Petroecuador subsidiary Petroproduccion, was cut
by "unknown persons", resulting in the spillage of up to 500
barrels of oil into the waters of the Little Cuyabeno River
and thence into several connected lagoons. The lagoon
reserve is home to several endangered species including the
manatee and pink dolphin.


4. (U) In spite of Petroproduccion Vice President Jaime
Crow's efforts both to minimize the extent of the damage and
trumpet the company's contingency efforts, the press swirled
with accusations by local residents and park officials that
Petroproduccion had not activated its emergency plan for
several hours after learning of the leak. Petroproduccion
workers later commented that local residents were demanding
payment for damages before granting access to their
properties to cleanup workers.


5. (U) The spill occurred on or near lands claimed by the
Sion and Secoya indigenous groups, and leaders of these soon
echoed the sentiments of Luis Borbor, Director of the
Cuyabeno Reserve, in claiming that Petroproduccion staff did
not act in a timely fashion to stem the leak. Residents
claimed that by August 27, over a week after the spill was
discovered, the oil still had not stopped spreading. Borbor
concluded that the equivalent of up to 900 barrels had
spilled and that only one-third of this had been recovered.
He estimated that seven of the fourteen lagoons had been
contaminated and that up to 35,000 hectares of rainforest had
been damaged.

RECRIMINATIONS AND LEGAL ACTION
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6. (U) The week of September 4, the press reported that the
municipality of Putumayo, through a newly-created entity
called the "Committee for the Defense of Natural Resources in
Sucumbions", had initiated legal action against
Petroproduccion for environmental crimes. The same week, the
Ecuadorian Ministry of Environment filed a complaint against
Petroproduccion requesting that its local superintendent be
investigated for environmental crimes.


7. (U) The Sion indigenous group also launched threats in the
media. Sion leader William Criollo said that Petroecuador
must "accept the terms of bioremediation put forth by the
Sion community. If there is no response, we will take
forceful action." Criollo also added that the Sion community
had retained "international advisers" to help draft the

document that it submitted to Petroecuador.


8. (C) Negative press attention also focused on the
environmental remediation company Ecuavital, the company
which Petroecuador contracted to help with cleanup efforts.
Ecuavital was founded by a former Catholic University (Quito)
professor and has garnered the lion's share of environmental
cleanup contracts since 2002. According to press reports,
Ecuavital has earned $33.4 million for its remediation work
since 2002, and has been widely criticized for performing
substandard work. (Comment: EconOff is in possession of a
video expose in which Ecuavital staff simply bury
environmental waste by covering it with dirt. Embassy
sources indicate that Ecuavital is assumed to pay kickbacks
to its contractors in Petroecuador, hence its success in
winning projects. End comment)


9. (U) On September 13, the police announced the detention of
two local residents on suspicion of the assault on the
pipeline. Petroecuador claimed that the mother of the
suspects had demanded $100,000 in reparations for the spill,
because it allegedly contaminated the family's land.
Neighbors of the woman smelled a cover-up, claiming that
incriminating testimony came from Petroecuador staff who were
looking for a scapegoat.

PETROECUADOR HAS A PLAN
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10. (U) According to press reports, Petroecuador pipelines
spilled oil 226 times in 2006; 177 of these leaks were caused
by corroded pipes and faulty installations and 46 by sabotage
of the pipelines. Petroecuador claimed that it has spent an
average of $3 million in cleanup efforts for each of 40
incidences of pipeline sabotage in 2006.


11. (U) Petroecuador president Chiriboga opened his meeting
with international donors on October 5th by saying "thanks to
God, and more so thanks to the measures we took, disaster was
averted" in Cuyabeno in the preceding weeks. Chiriboga then
went on to tout Petroecuador's creation of an independent
environmental "oversight committee", composed of
representatives of local environmental NGOs, whose purpose
would be "to propose measures to improve Petroecuador's
environmental action plan... and to establish an
international cooperation policy" for Petroecuador. Before
handing the meeting over to Environment Manager Lucy Ruiz,
Chiriboga admitted that Petroecuador's environmental record
was poor, but then seemed to shift blame to residents of the
Oriente, where "the poverty and lack of services is
substantial."


12. (U) Ms. Ruiz elaborated on Dr. Chiriboga's reference to
the "international cooperation policy" by explaining to the
assembled donor organization representatives that money was
required to "fund the oversight committee". The donors were
stunned by the request, and many requested clarification on
why they were being asked to donate to a theoretically
private enterprise. Ms. Ruiz and a colleague from
Petroproduccion apologized but explained that "Petroecuador
is on the verge of collapse", and that no funding was
available for environmental programs. The company
representatives said that the government was not interested
in investing in infrastructure improvement, claiming that
"the government just tells us to get the oil from the ground."


13. (U) EconOff suggested that in absence of major
company-wide reforms, it would be unlikely that Petroecuador
could act on any of the environmental oversight committee's
recommendations, and therefore what might be more useful
would be an independent committee to oversee an overall
corporate re-engineering. The Petroecuador representatives
and many NGO representatives agreed, but said that the
environmental oversight committee was a good place to start.
Several attendees also registered concern that the Ecuadorian
Ministries of Environment (MOE) and Energy were also
conspicuously absent from Petroecuador's oversight committee.

WHAT HAPPENED TO THE MINISTRY OF ENVIRONMENT?
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14. (C) On October 10 EconOff met with MOE Under Secretary
Alfredo Carrasco, who said that he thought media reports on

the damage in Cuyabeno had been "exaggerated. But it was an
extremely disagreeable event. Even if even a liter of petrol
spills, it's inexcusable." Carrasco said that the MOE had
sent technicians into the Cuyabeno reserve to assess the
damage and confirmed that "the cleanup efforts are
concluding, and now we need to see whether remediation is
needed." Carrasco suggested that the Cuyabeno spill
attracted so much attention because "Cuyabeno is one of the
most important biodiversity reserves in South America or even
globally."


15. (C) EconOff asked what role the MOE was playing in the
cleanup evaluation. Carrasco explained that the MOE's
jurisdiction begins and ends at the borders of the reserve.
He explained that in the year 2000, responsibility for
enforcing environmental regulations with respect to
hydrocarbons exploration was shifted from the MOE to the
Ministry of Energy and Mines. Therefore at present the MOE
by law cannot involve itself in Petroecuador's environmental
policies unless a spill affects protected zones. When asked
about Petroecuador's appeal for funding for the oversight
committee, Carrasco commented that "Petroecuador should not
pay the oversight committee, because then the committee could
not truly be independent." He believes that the NGO
representatives selected for the committee are competent and
"will propose an actionable plan", but he still believes that
environmental oversight should be shifted back to the MOE
with a concomitant increase in resources available for
environmental damage prevention.

COMMENT
-- -- --

16 (C) The response to the Cuyabeno oil spill brings into
bold focus the Government of Ecuador's failure to create an
institutional framework capable of balancing the economic
need for continued petroleum exploration with protection of
Ecuador's unique "environmental patrimony". A state oil
company on the verge of financial collapse; an eviscerated
Ministry of Environment; corruption and incompetence in the
growing "environmental remediation industry"; and a political
leadership that has shown a readiness to coopt private oil
companies' assets and profits without demonstrating the
political will to invest in improving the state company's
technology -- all these ingredients create a toxic mixture
that virtually guarantees further environmental damage to
Ecuador's sensitive ecosystems. Post's AID mission already
supports some indigenous land management programs in the
area; with additional funding Post would aim to work with the
MOE and environmental NGO community to bolster accident
prevention programs with technical assistance that targets
the sensitive nexus of petroleum exploration and
environmental protection. End comment.
JEWELL