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 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ¶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 -- -- -- -- -- -- -- -- -- -- -- ¶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 -- -- -- -- -- -- -- -- ¶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? -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ¶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