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July 21, 2009
Originally published in Forbes.com
A $27 billion lawsuit brought by an Ecuadorian attorney against Chevron-Texaco blames the oil company for crude spills that have polluted Ecuador's formerly pristine Amazon jungle. Yet, in what would be the biggest environmental lawsuit in history (costing the equivalent of half Ecuador's gross domestic product), two important parties are missing from the picture: the Ecuadorian government and its state-owned company, Petroecuador.
Since taking office two years ago, Ecuadorian President Rafael Correa has publicly supported the plaintiffs and denied Petroecuador's responsibility for the jungle's pollution. Meanwhile, Correa and his government blame oil giant Chevron-Texaco for the Lago Agrio oil spills in northeastern Ecuador. They have called the plaintiffs' lawyers "heroes," and indicted two Chevron attorneys and seven former government officials for allegedly falsifying documents which cleared Texaco of additional cleanup responsibilities.
But where were the Ecuadorian government and Petroecuador all these years when remediation at Lago Agrio was badly needed? During the 1970s and 1980s, when the pollution allegedly occurred, Petroecuador did nothing to provide suitable cleanup or social assistance for the Amazonian people. Between 2000 and 2008, 1,415 oil spills occurred in Ecuador under the sole authority of Petroecuador. Chevron-Texaco ceased operations in Ecuador in 1990, and today has no operations or assets in the Andean nation.
Yet the clamor against Chevron shouldn't be surprising. For years, radical environmentalists have blamed American companies for pollution while blithely ignoring the environmental damage wrought by state-owned companies that is commonplace in the Andes.
Consider the case of the Andean community of La Oroya, Peru, in which an antiquated government-operated smelter turned into what Newsweek once described as "a vision from hell." Fortunately for La Oroya, the American mining company Doe Run bought the facility in 2007, installed modern pollution controls and launched numerous civic projects. Nevertheless, several years later, Oxfam and Christian Aid, two of the world's largest nongovernmental organizations, accused Doe Run Peru of polluting the air and water. Neither group ever complained when the state-run company operated and heavily polluted La Oroya.
This is not the first such suit against Chevron. In 1993, Massachusetts-based lawyer Cristobal Bonifaz and New York-based attorney Steven Donziger--who is advising the plaintiffs in the current suit--sued Chevron-Texaco for $1.5 billion, claiming that its operations had led to increased cancer deaths in Ecuador. A court in California dismissed the suit on the grounds that at least three of the plaintiffs did not have cancer at all, and fined Bonifaz $45,000. Now Donziger is back for another round.
Ecuadorian Lawyer Pablo Fajardo represents 48 plaintiffs in the $27 billion suit against Chevron. With Donziger's assistance, the case is now in a Lago Agrio court, which is expected to resolve in October. Chevron rightly complains that it cannot get a fair trial in Ecuador, whose court system has been rated as corrupt by the United Nations, the International Bar Association and the U.S. State Department. And reportedly, Chevron has attempted to discredit Ecuador among American legislators lobbying to revoke Ecuador's Andean Trade Preference Act, and also appealed to the U.S. Supreme Court to share liability with Petroecuador in the alleged oil spills pollution. Both petitions were dismissed.
Yet the oil giant is not the only foreign company targeted by Correa's government. Other oil firms operating in Ecuador have requested the World Bank's Center for Settlement of Investment Disputes to intervene, and have won in arbitration. After those verdicts, Correa has tempered his tone, and renegotiated contracts under fairer terms. Chevron could well consider a similar move.
Correa's hardball tactics against oil companies have helped to scare away foreign investment. The already-high 50% windfall profits tax--raised from 28% six months before Correa took office--was unilaterally increased again, to 99%, in October 2007, and was reduced to a still-confiscatory 70% three months later. Investment is what Ecuador's poor most need.
Lago Agrio, home of the biggest environmental lawsuit in history, is poor in literacy levels, and basic needs. Illiteracy reaches 9.7%, while 62.8% have not advanced beyond primary education. Just 18.9% of Lago Agrio's people enjoy running water, while 57.3% depend on well water, and 14.2%rely on rivers, according to the 2001 Ecuadorian Census, the latest data available. Scaring away investment can only make this situation worse.
Moreover, Correa's tactics have also done very little to remediate the Amazonian people's environmental problems. Only recently, in December 2008, did the government begin helping to relocate those affected by the Lago Agrio oil spills, providing some of them with housing.
Correa calls Fajardo and Donziger "heroes," but they seem more like "accomplices" trying to mine Chevron's deep pockets--while ignoring the responsibility of the Ecuadorian government and of Petroecuador to clean up Lago Agrio. Whether Chevron pays or not, it is Ecuador's poorest settled in the once pristine Amazon jungle who most suffer.