Legal Issues

A Possible Overture From Ecuador in the Chevron Pollution Mess


An employee of state-owned Petroecuador working on environmental cleansing operations at a 30-year old oil spillage at Rumipamba commune in 2011

Photograph by Rodrigo Buendia/AFP via Getty Images

An employee of state-owned Petroecuador working on environmental cleansing operations at a 30-year old oil spillage at Rumipamba commune in 2011

One of the biggest environmental controversies brewing anywhere in the world right now concerns oil pollution in tiny Ecuador. A federal judge in New York is poised to rule in coming months on an audacious attempt by Chevron (CVX) to use American anti-racketeering law to snuff out a multibillion-dollar contamination judgment the company incurred in Ecuador in February 2011. Meanwhile, squads of plaintiffs’ lawyers are seeking to enforce the Ecuadorian verdict by grabbing Chevron assets in Canada, Argentina, and Brazil.

The far-flung legal war raises the question of what Ecuadorians think about the accusations and counter-accusations about the side-effects of industrialization in the Amazonian rainforest. After all, most of the benefits from oil production have flowed to Ecuador. (You read that correctly; we’ll come back to that point in a moment.) And all the nasty pollution has harmed the ecology and poor population near that country’s petroleum operations.

The other day I sat down with Ecuador’s ambassador to the United States, Nathalie Cely Suarez, an economist and career public servant. We spoke in English at Ecuador’s New York trade office, where I found her reviewing diplomatic papers, an afternoon cup of coffee steaming within easy reach.

Cely has an impressive grasp of the relevant history: Texaco’s drilling in the rainforest from the 1960s through the 1980s, Chevron’s acquisition of Texaco in 2001, litigation that began in the U.S. and in 2003 shifted to Ecuador, Chevron’s claims that it has been the victim of an extortionate conspiracy involving fabricated evidence and coercion, and the plaintiffs’ position that the company is exaggerating the quirks of the Ecuadorian legal system to distract from its liability (now valued at $9.5 billion).

“After 20 years of lawsuits, people in the Oriente [the rainforest region east of the Andes] remain in the same condition, suffering from terrible oil contamination and related health problems,” Cely told me. “The people of Lago Agrio [the main oil town in the rainforest] are caught amid all the legalities.”

While lawyers have battled in multiple countries, poor farmers and Indians in the Oriente continue to suffer. The question is not whether there has been degradation. The question is who will take responsibility for improving matters.

Cely frames the problem as “a fight between private parties”: Chevron and the Ecuadorian plaintiffs, who over the years have been represented by a variety of lawyers, most notably a New York solo practitioner named Steven Donziger. The ambassador says the government of Ecuador “doesn’t want to interfere.” That’s where I had to disagree with her. The pros and cons of oil development in Ecuador have always concerned the leadership of Ecuador and the society as a whole, a reality obscured by the cloud of confusion kicked up by unrelenting litigation.

The Ecuadorian government invited Texaco into the country in the first place. It drove a tough economic bargain with the company, which resulted in some 90 percent of the oil proceeds remaining in Ecuador. (Relevant financial records are summarized in Derecho Petrolero Ecuatoriano, the definitive book on Ecuadorian oil law, written by Luis Alberto Arauz, the corporate lawyer who represented Ecuador in its negotiations with Texaco in the 1970s.)

While Ecuador in the aggregate benefited economically from the 1970s oil boom, it left Texaco to its own devices in the rainforest, and the oil company generated a serious mess. If Texaco had operated more responsibly decades ago, Chevron shareholders would not still be paying big legal bills to fend off Ecuadorian pollution liability.

In the early 1990s, when Ecuador sent Texaco packing, the national oil company, Petroecuador, agreed to clean up two-thirds of the former Texaco sites, with the departing multinational taking responsibility for only one-third. The wisdom of that deal and Texaco’s diligence in carrying out its share of the remediation are both subject to debate. What’s not subject to debate is that Petroecuador has not done its share of the cleanup. Instead, the state  company and the government that owns it have been content to continue to operate the oil fields with little regard for the environment while American lawyers sued the deep-pocketed American-based energy corporation (first Texaco, later Chevron).

To her credit, Cely acknowledged that her country should have done more by now to help its own people. She blamed “the lawyers”—Ecuador’s government lawyers—for telling other elements of the Quito leadership not to clean up waste oil pits and spills because that would “interfere” with the pending litigation. That’s a fascinating admission, even if it’s also a misdirection play. If Ecuador stays out of the fray, it doesn’t have to pay for the cleanup and can try to channel voters’ discontent toward a distant foreign foe.

Ecuador’s populist president, Rafael Correa, has made Chevron a symbol of northern hemisphere villainy. Since taking office in 2007, Correa has railed against the American company, condemned its Ecuadorian defense lawyers as traitors, and hailed Donziger and his clients as heroic victims. This rhetoric plays well in Ecuador. It does not do anything, however, to help the poor people of the Oriente.

Cely disagreed with my analysis. She said that Correa doesn’t need U.S. corporate boogeymen to maintain his impressive popularity ratings. That may be true, but it’s beside the point. As my Bogota (Colombia)-based colleague Raul Gallegos of Bloomberg View has written, the campaign against Chevron “is the type of David-and-Goliath story President Rafael Correa uses to define his mandate”—whether or not he could get reelected without indulging in atavistic anti-Americanism.

The ambassador and I found some common ground. We agreed that as long as the Oriente pollution problem remains exclusively in the hands of litigators, the unfortunate citizens of rainforest precincts aren’t likely to get much relief. She had nothing flattering to say about Donziger, whom she described as an opportunist (if not necessarily the fraud maven Chevron portrays). Donziger denies wrongdoing.

Cely said she resents that the American lawyer has justified his unconventional litigation tactics in Ecuador by asserting that her country’s judiciary is deeply corrupt, requiring corners to be cut. “That is condescending, and I reject it,” the ambassador said. “If you have principles, they remain the same, wherever you are.”

So, I asked the diplomat, what’s the solution? “Politics,” she said. “There has to be a political compromise.” Cely hinted, without saying explicitly, that the Ecuadorian government might consider a deal with Chevron that would marginalize the American plaintiffs’ lawyer and dispose of a pending commercial arbitration dispute between the company and Ecuador.

Intriguing, to say the least. I believe the politicians and embassy types refer to that as a trial balloon.

“I am not a lawyer,” Cely told me several times. She meant to be self-deprecating. In this context, it might have been a sly boast as well.

Barrett_190
Barrett is an assistant managing editor and senior writer at Bloomberg Businessweek. His new book, Law of the Jungle, which tells the story of the Chevron oil pollution case in Ecuador, will be published by Crown in September 2014.

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