Oil companies force Ecuador to take another step forward in Audits

23 March 2013 by Stéphanie Jacquemont , Mike Krolikowski

President Raphael Correa of Ecuador has decided that the arrogance of Chevron and Occidental Petroleum has gone far enough. These two North American oil companies are pursuing the Ecuadorian government by all the means possible in order to achieve international court rulings that sovereign decisions, unfavorable to their interests, be judged illegal and subject to compensation. In reaction Raphael Correa is planning to take a leaf out of his own book by applying the previous debt audit experience to bilateral investment treaties and international investment arbitration.

When Chevron took over Texaco in 2001 it found a claim in the basket from the Ecuadorian people for environemental damages to its Amazon region amounting to $19 billion, and is still, as Texaco before, refusing this compensation. The Hague’s international Arbitration Tribunal has recently created a ’legal aberration’. Texaco left Ecuador in 1992, but on the basis of investment treaties completed in 1997, five years afterwards, the court ruled that although Texaco had departed their investments had remained and so were protected by these treaties. It was thus illegal on the part of Ecuador to have permitted the enforcement of previous judgements, issued by this same court, against Texaco and Chevron.

In 2012, Occidental won damages of $1.77 billion in a case brought before the International Centre for Settlement of Investment Disputes (ICSID ICSID The International Centre for the Settlement of Investment Disputes (ICSID) is a World Bank arbitration mechanism for resolving disputes that may arise between States and foreign investors. It was established in 1965 when the Washington Convention of that year entered into force.

Contrary to some opinions defending the fact that ICSID mechanism has been widely accepted in the American hemisphere, many States in the region continue to keep their distance: Canada, Cuba, Mexico and Dominican Republic are not party to the Convention. In the case of Mexico, this attitude is rated by specialists as “wise and rebellious”. We must also recall that the following Caribbean States remain outside the ICSID jurisdiction: Antigua and Barbuda, Belize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not ratified (or even signed) the ICSID convention and the 6th most powerful world economy seems to show no special interest in doing so.

In the case of Costa Rica, access to ICSID system is extremely interesting: Costa Rica signed the ICSID Convention in September, 1981 but didn’t ratify it until 12 years later, in 1993. We read in a memorandum of GCAB (Global Committee of Argentina Bondholders) that Costa Rica`s decision resulted from direct United States pressure due to the Santa Elena expropriation case, which was decided in 2000 :
"In the 1990s, following the expropriation of property owned allegedly by an American investor, Costa Rica refused to submit the dispute to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID proceedings, and the American investor ultimately recovered U.S. $ 16 million”.

), the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 180 members in 1997), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

tribunal. Ecuador had, in 2006, abrogated Occidental’s operating contract after it unilaterally transferred 40% of its interests to another company ’Encana Corporation’ without authorisation from the energy ministry. The judgement considered that the annulment was no less than “tantamount to expropriation”, and violated the Ecuador – US Bilateral Investment Treaty. Ecuador is appealing against this decision.

Either one of these procedures could ruin the country

After the succes of the debt audit in and around 2008, which brought to light illegal and illegitimate practices, proceedures and engagements, Raphael Correa intends to apply the same processus to challenge a number of International Investment Treaties. The debt audit was carried out by a team of experts, national and international, and representants of the civil society. They found that much of the debt was illegitimate and/or illegal and thus should not be repaid. Based on these results, President Correa decided to suspend payment on some bonds, and saved some 7 billion dollars, resources that were then used for social programmes.

Raphael Correa is reported as saying, “Individually, these multinational corporations can trample our countries, can impose their abuses. Regionally, we impose our conditions to multinationals,” and “There will be a response from Unasur, from ALBA.”

Mutual support, exchange of information and strategies in the face of legal attacks by multinational organisations will be on the agenda of the April meeting of the ALBA members.

Ecuador has already abrogated several bilateral investment treaties at the same time as it has left the ISCID.

Other articles in English by Stéphanie Jacquemont (8)

Other articles in English by Mike Krolikowski (1)



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