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Ecuadorian oil policy in the era of sustainable development

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Ecuadorian oil policy in the era of sustainable development
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Ecuadorian oil policy in the era of sustainable development
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Avellán, Marcos G.,
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Oil companies ( jstor )
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Petroleum ( jstor )
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ECUADORIAN OIL POLICY IN THE ERA OF
SUSTAINABLE DEVELOPMENT










By

MARCOS G. AVELLAN JR.


A THESIS PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF ARTS

UNIVERSITY OF FLORIDA


1998














ACKNOWLEDGEMENTS

I wish to express my deepest gratitude to Drs. Terry McCoy, Mark Thurner, and

Philip Williams for providing me with invaluable support, knowledge and understanding

throughout my academic career at the University of Florida. I would especially like to

thank Dr. McCoy for allowing me to work as his assistant, for helping me with the

completion of this thesis and for his guidance.

I would also like to thank my wife, Sylvia, who has made tremendous changes in

her life to be by my side. I hope that someday I can grant her the support and

understanding she needs for attaining any goals she sets for herself.

I cannot express the gratitude I have for my parents. They have made great

sacrifices to provide me with all I needed for success in life. It is because of their efforts

that I can look forward to a life full of opportunity for myself and my family.















TABLE OF CONTENTS

gage

ACKNOW LEDGEMENTS ............................................................................ .......... ii

LIST OF TABLES............................................ ............. ........................................ v

ABSTRACT..................................................................................................... ........... vi

CHAPTERS

1 INTRODUCTION................................................................................................... 1

B background .............................................................................. ................ .............. 2
Central Problem ..................................................................................................... 6
Significance and Literature Review........................................................................... 6
Objectives and Research Approach... ........................... ................................... 9

2 HISTORY OF OIL PRODUCTION IN ECUADOR AND ITS
ENVIRONMENTAL CONSEQUENCES.......................................... ................. 14

History of Ecuadorian Oil.............................................................. .................... 14
The Texaco-Gulf Era.................... ......................................................... 17
Steps in Producing Oil........................................................................................... 25
The Controversy over Contamination...................................................................... 27

3 POLICY RESPONSE.................................... .................................................... 34

Overview................................................................................................................ 34
Executive Decree No. 1802...................................................................................... 37
Executive Decree No. 2982................................................................................... 41
The Committee of Environmental Advisement..................................... 50








iii








4 FACTORS LEADING TO POLICY CHANGES AND
EFFORTS AGAINST OIL CONTAMINATION... ........................................... 59

Analytical Framework ................................................................ ........... ...... 59
The Hemispheric Sustainable Development Regime............................................. 61
M ultilateral Lending Institutions............................................. ........................... 65
Transnational Organizations............................................................................. 67
Legal Action and International Agreements....................................................... 70
A ctors....................................................................................................... ....... 71
M obilizations A against Polluters........................................................................... ..... 75
The Texaco Law suit......................................................................................... 75
The Maxus Controversy................................................................................... 84
C onclusions........................................ ...... ..................................................... ......... 94

5 SUMMARY AND CONCLUSIONS.................................................................. 96

Sum m ary ........................................... ....................... . .................. ....................... 96
The Future of the Environment and Oil in Ecuador.............................................. 102
C onclusions....................................... ...... ....................... ....................................... 104
Recommendations for Future Research...................................... ......... ................. 105

BIBLIO GRAPH Y ......................................... ..................................................... 107

BIO GRAPH ICAL SKETCH .................................................................................... 113














LIST OF TABLES


Table p

2-1 Ecuador: M ajor Oil Concessions 1878-1972.................................................... 16

3-1 Ecuador: Government Oil Revenue and Total Revenue 1991-1995.................. 35

4-1 Major Oil Companies in Ecuador 1997-1999 ................... ........................ 75














Abstract of Thesis Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Master of Arts

ECUADORIAN OIL POLICY IN THE ERA OF SUSTAINABLE DEVELOPMENT

By

Marcos G. Avellan Jr.

May 1998

Chairman: Dr. Terry L. McCoy
Major Department: Latin American Studies

Oil contamination of Ecuador's Amazon Basin by corporations public and private

has been pervasive. Companies such as Texaco and Maxus have been accused of

contaminating water, deforestation, pollution and hurting indigenous groups.

Contamination reached such level of severity that in 1993, Ecuadorian citizens presented a

lawsuit in White Plains, New York, against Texaco. They accused Texaco of harming

their health as a result of the company's contamination. In the aftermath of the Texaco suit

and due to international and domestic pressure, the Ecuadorian state has enacted

legislation to protect the environment from oil production. This legislation appeared in

1994 and has been fortified by subsequent and improved regulatory codes. These

regulatory codes mark a clear departure from the past, especially since there were no

regulations concerning the environment specifically dealing with the oil industry.








Moreover, compliance with such regulations is being monitored not only by the state, but

by private nongovernmental organizations.

The purpose of this thesis is to provide an overview of recent changes in

Ecuadorian oil policy concerning the environment and to explain the factors that have led

to change. This thesis argues that an international regime for environmental protection in

the Americas is forming and that this has led to domestic policy changes in Ecuador.

Hence, this thesis further argues that a combination of large international nongovernmental

organizations joined with smaller Ecuadorian NGOs, international agreements,

international institutions, and grassroots groups has been instrumental in creating an

international normative context unfavorable to contamination. The result of this research,

relying mainly on government documents, interviews, and press accounts, is that there

have been changes in Ecuadorian policy and corporate behavior due primarily to the

impact of international pressure.














CHAPTER 1
INTRODUCTION



Oil exploration and production in Ecuador has led to widespread environmental

damage in its Amazon Basin. In recent years, a response to this contamination has

surfaced from a variety of international and domestic groups--including environmentalists

and advocates of indigenous rights--seeking to stop it. Although the Ecuadorian state has

resisted calls to develop a stronger regulatory framework, and policy makers have been

apprehensive about scaring away foreign investment, Ecuador has adopted environmental

legislation and established a Ministerio de Medio Ambiente.

Pro-environment groups rely on the changing normative international context,

which has become far more favorable to environmental protection, to gain support and

focus international and an individual country's public opinion on specific issue areas. The

discourse on environmental protection has shifted to the confines of the sustainable

development framework and has granted greater legitimacy to those seeking enhanced

regulation. This shift is evident in a series of international agreements--primarily the Rio

Declaration on Environment and Development or Agenda 21. In the Americas, an Inter-

American system on sustainable development is forming and seeks to establish some kind

of enforcement mechanism. What is emerging is what is known in international relations








theory as a regime. This thesis will explain what the regime consists of, and how the

environmental behavior it promotes has led to changes in Ecuadorian oil policy.



Background

Ecuadorian oil production began in 1972 under the military administration of Gen.

Rodriguez Lara. Oil exploration and production were located partly in the Golfo de

Guayaquil but mostly in the Amazon basin. Production ended nearly 150 years of reliance

on commodities such as cocoa, bananas, and marine products for economic growth.

Because of the oil boom, Ecuadorian GDP growth averaged 9% a year during the 1970s

and resulted in expansion of the public sector. The funds generated by oil paid for

infrastructure programs, financed an expansion of social programs, established state

owned corporations, and promoted ISI manufacturing. However, the declining

profitability of oil production as a result of price reductions after the 1t and 2"d oil shocks

had a disastrous effect on Ecuador. The result was an absolute decline of oil production

from 208,000 barrels per day in 1973 to 201,000 in 1978 and new debt obligations

contracted by the military based on the expectation of higher oil prices.' By the early 80s,

Ecuador was US$ 8 billion in debt and oil prices would fall to below $20 a barrel during

the mid 1980s. Oil production went from being an engine for economic growth to

becoming the critical source for debt repayment. Today Ecuador is US$ 13 billion (1998)

in debt with a high debt/GDP ratio of 66%.2 Roughly a third of government revenue


1 Jose Vicente Zevallos. El Estado Ecuatoriano y las Transnacionales Petroleras. (Quito: Pontificia
Universidad Catolica del Ecuador. 1981) 16.

2 The debt to GDP ratio is the standard measure used by economists to monitor the overall foreign
indebtedness of a country. This ratio has declined dramatically throughout the region, with Chile seeing a








comes from oil sales, is the source of most of its hard currency, and 40% of Ecuador's

central budget goes to service debt both foreign and domestic.' By all of these measures,

the Ecuadorian state is highly dependent on oil production and oil exports.

The result of large-scale oil production has been extensive contamination, primarily

in the Amazon Basin's--or Oriente--hydrological system, and deforestation of the

rainforest due to oil infrastructure projects (such as roads). Pollution and deforestation

have been the result of oil spills from both production and transport as well as residue

chemicals contaminating waterways and aquifers. Three companies have been accused of

being primarily responsible for the contamination: Texaco of White Plains, N.Y., Dallas

based Maxus, and Petroecuador, the state oil company.4 Maxus has been accused of

deforesting 29,000 hectares of primary rainforest while Texaco is estimated to have

released 16.8 million gallons of crude oil in the Oriente up to 1992, when its 20 year

presence in Ecuador ended.5 By comparison, the Exxon Valdez disaster dumped 11

million gallons off the coast of Alaska. As a result of contamination, fish and drinking

water have apparently been seriously affected. Moreover, many allege that water




reduction from approximately 120% in the early 1980s to 25% by 1997. Brazil's ratio is approximately
35% (1998). Faster economic growth has allowed Latin American countries to increase their absolute
level of indebtedness while simultaneously reducing its debt burden. The debt to GDP ratio does not
include domestic government borrowing.

3 Economist Intelligence Unit, Country Report 3rd Quarter 1996 (London: EIU, 1996).

4 Maxus is now known as YPF Ecuador S.A. due to its recent acquisition by Argentina's Yacimientos
Petroliferos Fiscales. Only in Ecuador was Maxus' name changed to YPF. Maxus continues to be known
as such in its other operations worldwide.

z According to Acci6n Ecologica and Amazonia por la Vida. Also see Judith Kimerling. "Oil.
Lawlessness. and Indigenous Struggles in Ecuador's Oriente," in Green Guerrillas. ed. Helen Collinson
(London: Latin America Bureau. 1994) 65.








contamination has resulted in a series of serious health problems for settlers and,

especially, indigenous peoples in the production and exploration region.

The contamination reflects a weak regulatory environment, but recent legislation

has sought to strengthen environmental protection Most oil companies, in fact, have

developed drilling and exploration practices that today surpass the standards set by the

state. These companies have gone to great lengths to distance themselves from the

controversy and some have now chosen to use the most environmentally sound technology

available. The initial reluctance on the part of the state to implement and enforce a

stronger regulatory environment stems from fear that added costs to oil exploration will

deter potential foreign investment in the oil sector.6 Although Petroecuador (which

assumed control of Texaco's operations in 1992) produces more than 66% of Ecuador's

oil, foreign investment fills a critical investment and technological gap. Moreover, Ecuador

reimburses those costs to the companies; this provides the state an incentive to keep a

regulatory environment as friendly as possible for exploration as far as costs are

concerned.

Contamination reached such a severe level that a lawsuit was filed in District Court

in 1994 in White Plains, N.Y., by Ecuadorian citizens with the support of environmental

and indigenous rights groups both Ecuadorian and foreign, with assistance from the Sierra

Legal Defense Fund. The suit, Maria Aguinda. et al. v. Texaco, accused Texaco of

negligence in its oil activities in Ecuador which created serious health problems for the

area's residents. The suit was filed in New York because it was alleged that the events that


6 See amicus brief presented by the Duran-Ballen administration in Maria Aguinda et al. and other
plaintiffs v. Texaco Inc.. defendant. U.S. District Court for the Southern District of New York. 93 Civ
7527 850 F. Supp. 282. X.








occurred in Ecuador originated in Texaco's headquarters and that Ecuadorian courts

could not handle the matter appropriately due to Texaco's influence in the country.

However, the court dismissed the suit for two main reasons: first, because the events

transpired in Ecuador, Ecuadorian courts had jurisdiction over the matter and second,

foreigners (residing abroad) could only sue (tort) a United States based defendant in the

U.S. if the action involved a breach of international law or a treaty to which the U.S. is

signatory which the plaintiffs failed to show. Despite this outcome, the case is important in

that it:

* Involved a mobilization of a wide range of national and transnational actors

converging for and against Texaco.

* Explicitly revealed the position of an Ecuadorian administration on environmental

regulations, an opinion which ran counter to a variety of principles, norms, and rules

on the environment agreed to by Ecuador.

* Constituted a vital juncture for grassroots movements because it was the first time that

environmental and indigenous groups in Ecuador were able to place their grievances

so high on the national agenda.

* Presented as evidence international agreements on the environment--such as the 1992

Rio Declaration on Environment and Development--to which Ecuador had agreed to.








Central Problem

The main purpose of this thesis is to study how Ecuadorian environmental oil

policy towards the Oriente has evolved in this decade, especially in light of the

hemispheric push for sustainable development and the 1994 Texaco lawsuit. The suit

constitutes a critical instance of anti-pollution mobilization primarily because after the suit,

the state took the issue of oil contamination far more seriously than it had previously.

Indeed, since the suit Ecuador has adopted a flurry of environmental legislation, a

Ministerio de Medio Ambiente has been created, and adopted oil contracts with clauses

that specifically address the issue of contamination. This does not necessarily mean that

the letter or even the spirit of this regulatory framework has been adhered to but it is clear

that prior to the Rio Declaration and the Texaco suit far less attention was paid to the

issue in terms of legislation and media attention. Moreover, the changes in policy and their

text admit that contamination has in fact occurred. In the past, the problem of

contamination has been denied. Environmental groups have received new legitimacy now

that the state acknowledges the existence of contamination, and by recognizing the

problem a solution might be found. In other words, the terms of the debate have been

recast in such a way that it has made it difficult for the state to ignore the problem and

maintain the prior regulatory framework.



Significance and Literature Review

Although there is little material in terms of academic analyses of Ecuadorian oil

policy in the Amazon Basin specifically, a significant body of scholarly work addresses

state acquiescence to the establishment of stronger international or domestic








environmental regulation--with a sizable number relying heavily on regime theory. Andrew

Hurrell, in his analysis of Brazilian policy towards Amazonia from the 1980s onward,

points out to the emergence of critical international public opinion, the success of

international pro-environment groups in complicating the procedure for financing of

Brazilian development projects, and the emergence of deforestation as an issue in many

areas of Brazil's dealings in the international arena as the main factors propelling a change

away from environmental nationalism.7 Indeed, in Hurrell's analysis it is the changing

international normative context--not domestic pressure--which was pivotal in the

reevaluation by President Collor de Mello of the country's Amazonia policy. For his

analysis, Hurrell constructs an environmental deforestation regime without giving much

detail.8 Martin List goes into much more detail in describing an environmental regime,

specifically a regime for the protection of the marine environment of the Baltic Sea. In this

case, the major statement of principles is the 1974 Helsinki Convention.9 List argues that

the convergence around the principles and norms of the issue area (Baltic Sea pollution)

was strong enough to transcend the enormous differences among them, specifically, the

nature of their political systems (communist states as opposed to liberal or social

democratic democracies). This thesis follows this line of academic work using regime

theory to explain the evolution of Ecuadorian oil policy in recent years.


Andrew Hurell. "Brazil and the International Politics of Amazonian Deforestation." in The International
Politics of the Environment. eds. Hurrell and Kingsbury (New York: Oxford University Press. 1992) 427-
429.

8 See Andrew Hurell. The International Politics of the Environment. eds. Hurrell and Kingsbury (New
York: Oxford University Press. 1992).

9 Martin List. "The Baltic Sea: a Case of International Environmental Management." in International
Regimes in East-West Politics. ed. Volker Rittberger (London: Pinter Publishers. 1990) 94.








There is a substantial amount of literature available to detail the changes in oil

policy and the factors leading to these changes. This includes position papers by NGOs

and corporations, media coverage, Ecuadorian government documents, and court

documents. Given the enormous importance of oil for Ecuador's economy, the lack of

work on the topic by Ecuadorian scholars was surprising. As far as the University of

Florida Latin American collection is concerned, there were several volumes that were

useful, most of which published only recently. There were few works that directly dealt

with the relationship between the Ecuadorian state and oil development. Jose Zevallos

from the Universidad Catolica de Quito wrote a volume that mainly deals with the

relationship between the 1972-1979 Rodriguez Lara military administration and foreign oil

companies at a time when foreign, corporate development of natural resources was highly

controversial. Another volume by Douglas Southgate, a professor of Agricultural

Economics at Ohio State University describes the extent of pollution in the region, anti-oil

campaigns, and the economics of oil production. His main conclusions were: water

pollution as a result of oil exploration and production is severe; that anti-oil campaigns are

a consideration; and finally, because oil exploration requires a minimum amount of direct

infrastructure investment, imposing certain environmental regulations with their

concomitant increase in costs may act to discourage oil production in Ecuador.'o

There is a wealth of primary data in periodical publications with economic

statistics, reports in petroleum trade journals, NGO documents, public documents from

government sources, and documents from international organizations on sustainable

development--of which the OAS and UN positions stand out. Moreover, many of these


10 Douglas Southgate. Petroleum Development in Tropical Rainforests (Quito: Idea. 1992) 20.








items were available on the Internet where they were easily retrievable. Also of interest

was Native Web. This web site featured statements, press releases, position papers and

media reports from a multitude of indigenous groups and NGOs on various topics-

including the controversy over Ecuadorian oil development.



Objectives and Research Approach

Regime theory provides a conceptual framework for understanding why the

Ecuadorian state has chosen to address the issue of oil contamination. Regime theory

seeks to explain restrained state behavior in the absence of international law or hegemonic

dominance by an external actor. This approach is valid in the Ecuadorian case since many

of the actors are foreign--oil companies, for example--possess transnational links and

allies, and it involves a controversy which Ecuador's state has deemed an important

concern for its foreign relations apparatus. Moreover, epistemic communities address

deforestation and oil contamination as problems that transcend borders. All this has led to

an increased formalization of the concept of sustainable development in the hemisphere's

diplomatic discourse and heightened acceptance of the concept and what it entails. Hence,

this thesis argues that a hemispheric sustainable development regime is emerging and that

it has led Ecuador's state to change its policy concerning oil exploration and production in

the Amazon basin.

The main hypothesis guiding this research is that the Ecuadorian state has

addressed the issue of oil contamination since the Texaco lawsuit although the state was

most reluctant to change. The main questions to be answered are the following:

In what ways has oil policy in Ecuador changed since 1994?









* What factors have shaped these changes?

To answer these questions, regime theory is a useful tool in explaining the changes in

Ecuador's oil policy.

Building on the definition of Stephen Krasner, List and Rittberger define regimes

as a form of collective action by states, based on shared principles, norms, rules, and

decision-making procedures which constrain the behavior of states in specific issues areas

and that possess a minimum of effectiveness." The issue area is sustainable development

in Ecuador's Oriente. Principles are defined as beliefs of fact, causation or rectitude;

norms are standards of behavior in terms of rights and obligations; rules are prescriptions

or proscriptions for action; and procedures are practices for making and implementing

collective decisions.12 As McCoy points out, these elements are all present in the

hemisphere's regime.13

The objective of the hemisphere's regime is to encourage sustainable development,

or economic growth that preserves natural resources for both future use and the planet's

bio-diversity. The founding document outlining the characteristics of the regime--or the

"normative nucleus" as List would say--is the Rio Declaration on Environment and

Development or Agenda 21.14 This was adopted in August, 1992, after the United Nations


11 Martin List and Volker Rittberger. "Regime Theory and International Environmental Management." in
The International Politics of the Environment. eds. Hurrell and Kingsbury (New York: Oxford University
Press, 1992) 86-89.

12 Terry L. McCoy, "Sustaining Sustainable Development." Hemisphere V.8 No.1 1997: 16-18.

13 Terry L. McCoy, "Sustaining Sustainable Development." Hemisphere V.8 No.1 1997: 16-18.

4 Martin List and Volker Rittberger, "Regime Theory and International Environmental Management." in
The International Politics of the Environment, eds. Hurrell and Kingsbury (New York: Oxford University
Press. 1992).








Conference on Environment and Development or "Rio Summit." The spirit and letter of

this declaration can be found in most documents pertaining to the environment. In the

Americas, the Inter-American Program of Action for Environmental Protection of 1991,

the 1994 Summit of the Americas, and the Declaration of Santa Cruz de la Sierra of 1996

reaffirm the commitment to the stipulations of the Rio Declaration by signatory

countries--including Ecuador.

The categories of actors relevant in this research are environmental NGOs, the

Ecuadorian state, indigenous movements, and energy corporations. Environmental NGOs

of relevance are both foreign and domestic organizations. The two Ecuadorian

environmental NGOs most involved in the issue of oil contamination are Fundacion

Natura and Accion Ecologica. The main foreign NGOs are the Sierra Club, the Nature

Conservancy, the World Wildlife Fund, and the Rainforest Action Network. A variety of

multinational energy corporations operate in Ecuador: Royal Dutch Shell (Anglo-Dutch),

Arco (U.S.), City Investing (Canada), Petrobras (Brasil), Perez Companc (Argentina), and

YPF Ecuador (Argentine owned unit) are the major players.

Studying changes in the state's policy required a two pronged approach.'5 One

relied on key informant interviews with officials, environmental groups, and oil experts.

Interviews with present and especially former officials that have been policy makers were

critical in determining the factors leading to a change of course. Second, documents and

regulatory codes were reviewed. To determine if an effort at compliance with the


15 This research was conducted between the fall of 1996 and the spring of 1998. Thanks to the generous
support of the Tinker Foundation. field research in Ecuador was made possible. Field work was conducted
in Quito and Guayaquil between July and August 1997 and consisted mainly of interviews. gathering of
press coverage, institutional bulletins and documents, obtaining literature, and discovering and acquiring
copies of relevant regulations.








principles of the regime has been undertaken, it was necessary to look at current

conditions for bidding on oil development and whether or not environmental

considerations are significant in current contractual obligations with oil companies. Also, a

look at legislation and executive decrees were consulted in order to see if the principles of

the sustainable development regime have been adopted into law as the regime asks

member states to do. An analysis to determine whether or not new policies address the

issues that NGOs have prioritized was required. It was necessary to examine the new

regulatory framework and see if the enforcement mechanisms are adequate.

Discussions with NGO staff were necessary to avoid bias in favor of the state's

position. A review of their literature was performed. These groups' interests are similar in

some areas but not in others. Some NGOs are opposed to any kind of oil development in

the Amazon Basin while others grudgingly approve oil development if

exploration/extraction technologies are ecologically sound. It must be noted, though, that

all the NGOs have two things in common: they oppose contamination and they oppose the

destruction of indigenous cultures that oil production processes undoubtedly bring. And,

within the framework of regime theory, it is the NGOs that provide the enforcement

mechanisms for the regime and they are critical elements in attracting attention to Oriente

deforestation and contamination.

"This thesis has three objectives. First, it intends to determine if NGOs and popular

groups can alter hostile state policy by using the international normative context as a

means of exerting pressure on government--even if the issue area is one of extreme

sensitivity for the state. Second, it documents the extent of a significant environmental

disaster in Ecuador's Amazon Basin as well as according serious effects on the health of








people in the region. This is important because there are many in the industry today whom

refuse to acknowledge the existence of a problem. Third, it shows that state policy

towards oil contamination has changed substantially in recent years as a result of a

changing normative context internationally that has been adopted domestically.

Ultimately, this thesis explains how and why Ecuadorian oil policy has changed in

recent years. It is organized into five chapters. Chapter 2 will provide background on the

oil industry in Ecuador and contamination in Oriente, emphasizing the lawlessness in the

industry. Chapter 3 will enumerate and detail the new regulatory codes in Ecuador and

their significance. Chapter 4 will discuss the factors forcing changes in petroleum

environmental policy and detail incidents in which companies have changed their modes of

operation to an environmentally sound approach. Chapter 5 will develop a set of

conclusions and recommendations for future research.

This thesis is important in that it will help understand policy-making in a poor

country and how international, national, and transnational actors shape that policy.

Because the main source of revenue for the state is affected by these actors--in effect, the

money needed for social spending, among other things--an understanding of the system in

which they operate is crucial.














CHAPTER 2
HISTORY OF OIL PRODUCTION IN ECUADOR AND ITS
ENVIRONMENTAL CONSEQUENCES


History of Ecuadorian Oil

Ecuador's oil industry has a long history marred by controversy from the outset.

We can divide the history of oil production in Ecuador into three stages: the period of

British domination from 1880-1970, the Texaco-Gulf era from 1964-1992, and the

contemporary period from 1992 onward. This long history of oil in Ecuador is often

forgotten since the petroleum "boom" of the 1970s has received the most attention and

overshadowed the previous 100 years of the industry's past.

The earliest references to oil in Ecuadorian literature are attributed to Manuel

Villavicencio in his geography of the country. Ecuador's Congress awarded the first oil

concession to M.G. Mier & Cia. in 1878, granting it the right to produce oil in the Santa

Elena region of Ecuador's coast.'

In 1886, Congress, declared state ownership of mines (underground wealth) much

like other countries in Latin America. The "Mining Code of Ecuador," as it was known,

was reformed in order to allow the renting of mines to individuals or entities. The first

concession under this framework was to Mr. Carlton Dunne of England in 1909. Under


1 Admiral Gustavo Jarrin Ampudia. Personal notes.
The Peninsula de Santa Elena is the land mass between the city of Guayaquil and the resort city of
Salinas. A variety of fossil fuels are believed to exist in the nearby Golfo de Guayaquil.








this arrangement Ecuador was to receive 10% of net earnings, the building of a railroad,

and 70,000 pounds sterling in stock. In addition, an oil company was to be formed in

England in which Ecuador was to have two directors on the board. The first successful

well was developed in 1911 at Santa Elena.2 The Mining code was once more reformed in

1914 by President Leonidas Plaza, this time to explicitly declare the state's ownership of

all fossil fuels.3 Two British companies at this point began to dominate the landscape, the

largest and most powerful being Anglo Ecuadorian Oil Fields Ltd. formed in 1918. Anglo

began oil production in Santa Elena in 1923. Its dominance was so powerful that

"(Anglo)...conducted its operations on a truly colonial scale, paying no taxes at all until it

was forced to adhere to certain fiscal requirements in 1938 at the behest of the

government of General Alberto Enriquez.'" A massive concession was given to another

British producer, The Leonard Exploration Company, for 50 years. This concession

consisted of 25,000 square kilometers in the Oriente--or roughly 10% of Ecuador's

current territory. In 1933 the Direcci6n General de Minas y Petroleos, the forerunner to

the Ministry of Energy, was created. The Direcci6n de Minas was responsible for

concessions and the elaboration of a regulatory framework for the industry. In 1937, the

Direccion de Minas enacted the Petroleum Law which was written by its director, Enrique

Coloma, who was also CEO of Anglo Ecuadorian. A few other large concessions were

given afterwards, notably to Standard Royal (1948) and Minas y Petroleos (1961).





2 Judith Kimerling. Crudo Amaz6nico (Quito: Abya Yala. 1993) 19.

3 Admiral Gustavo Jarrin Ampudia. Personal notes.

4 Osvaldo Hurtado. Political Power in Ecuador (Boulder. CO.: Westview Press. 1985) 83.









Table 2-1
Ecuador: Major Oil Concessions 1878-1972
Year Company Size Location

1878 M.G. Mier v Cia. na Santa Elena
1910 Mr. Carlton Dunne na Santa Elena
1921 The Leonard Exploration 25000 Sq. km. Oriente
1923 Anglo Ecuadorian Oil Fields na Santa Elena
1948 Standard Royal (Esso-Shell) 4000000 hectares Oriente
1961 Minas y Petroleos 4350000 hectares Oriente
1964 Texaco Gulf 1431450 hectares Oriente
1972 CEPE na Nationwide


In order to circumvent legal restrictions that limited the amount of land that the

state could award in concession to a corporation, some companies proceeded to

practically sell their concession to other interested parties. The goal of the Petroleum Law

of 1937 was to limit one company from being overly dominant and it sought to do this by

having the state limit the size of the concession awarded to any individual company.

However, some companies realized that they were not precluded from "ceding" their

rights to another party in exchange for money--in effect rendering useless the size

limitations of concessions. For example Minas y Petroleos "ceded" to the Texaco-Gulf

consortium the rights on part of its concession for millions of dollars while simultaneously

paying the state 4 cents of Sucre per hectare annually. Another, more dramatic incident

involved the granting of 4 million hectares to seven foreign oil companies. This was done

by the granting of concessions to six Ecuadorian nationals who then "ceded" their rights

to the foreign firms. Of the six, one was dead by the date the concession was awarded.5


5 Admiral Gustavo Jarrin Ampudia. Personal notes.







The early phase of the oil industry in Ecuador possessed three central

characteristics. First, there were constant regulatory changes resulting from the

inexperience of policy makers with the peculiarities of the oil industry. This led to frequent

changes in contracts, many of which had to be entirely re-written. Second, a pattern

emerged in which Ecuadorian and international oil companies sought to circumvent laws

by surreptitious manipulation of regulatory codes. Third, at this early stage in the

industry's development, it was foreign oil companies who dominated the scene and they

were able to twist regulation in their favor. It seems that initially, the interests of

multinational companies were able to dominate in negotiations in which the state

increasingly sought to increase its royalties.



The Texaco-Gulf Era

The consortium Texaco-Gulf in 1964 was awarded a 1.413 million hectare

concession in the Oriente.6 The adjudicated territory consisted predominantly tropical

rainforest in an area with a complex hydrological system. The emergence of Texaco-Gulf

is noteworthy for various reasons: these were two of the most advanced oil companies at

the time; they brought with them great technical and financial resources which essentially

"guaranteed" enormous infrastructure development if indeed oil was found; it was

Texaco-Gulfthat first began large scale and widespread oil production in the Oriente; and

finally, they were willing to work with a state that was increasingly hostile and

nationalistic, to the point where the state became a majority partner with Texaco through

the Corporaci6n Estatal Petrolera Ecuatoriana (or CEPE).







After intense efforts, Texaco located the Oriente 's first large scale oil deposits in

the Lago Agrio vicinity in 1967.7 This coincided with the announcement by Anglo that the

deposits at Santa Elena had been depleted.8 Given the decline of the Santa Elena oil fields,

the emergence of the Oriente as a source of oil was of singular importance. Texaco

immediately installed refinement facilities in the region capable of handling 1000 barrels

per day. 9 However, the first Lago Agrio well was soon producing 2640 barrels per day

and it became evident that a massive discovery had taken place.10 Large deposits began to

appear in the Oriente (such as Shushufindi) and other companies began knocking on

Ecuador's door.

The appearance of large oil deposits was a dramatic turn of events that caught

many Ecuadorians--more so those in government--by surprise. Shell had abandoned the

country in 1948 after unsuccessfully prospecting for 11 years in the Oriente, leading then

president Galo Plaza to his famous comment that "the Oriente was a myth."" However,

the reality that Ecuador was at the dawn of a new economic era began to sink in thanks to

the 1967 discoveries and the urgent need for foreign exchange faced by successive

governments.12 The large discoveries and the eagerness with which large multinationals



6 Admiral Gustavo Jarrin Ampudia. Personal notes.

SJudith Kimerling. Crudo Amazonico (Quito: Abya Yala. 1993) 19.
8 Admiral Gustavo Jarrin Ampudia. Personal notes.

9 Judith Kimerling. Crudo Amazdnico (Quito: Abya Yala, 1993) 19.

1o Admiral Gustavo Jarrin Ampudia. Personal notes.

" "Parte Primera:1961-1973." La Gestacidn de una Politica Petrolera 19 October 1978: 352.

" "Parte Primera:1961-1973." La Gestaci6n de una Politica Perrolera 19 October 1978: 352.







approached the state soon made Ecuadorian policy makers aware that they had substantial

leverage in dealing with them. A determination appeared, particularly in the military, not

to allow the prior swindling of the state by foreign corporations (such as the granting of

paltry royalties), the use of subterfuge to obtain larger concessions, low concession rates

for adjudicated land, and limited taxation of corporate earnings to occur again.

This led to a significant change in regulatory codes to bring the operations of

foreign corporations under closer scrutiny. This process began in 1967 under president

Otto Arosemena, followed by president Jose Maria Velasco Ibarra, and continuing into the

military governments of the 1970s.13 Arosemena realized the importance of either

upgrading or replacing the 1937 Petroleum Law as the potential of oil for government

coffers became clear. However, there was little experience in dealing with the oil

multinationals and this hindered the drafting of a new regulatory body until 1972.

Nevertheless, Arosemena was also able to secure much better terms from the oil

companies seeking to obtain or retain their concession rights through the use of "model

contracts." Model contracts were a device used by the Arosemena administration to

impose his new regulatory code for the petroleum industry which had languished in

congress.14 Arosemena included the principles of his proposed regulatory code in the

contracts. The option would have been to allow the oil companies win much more

favorable terms for themselves through the 1937 law: "...bills were sent to Congress...but

none...read or much less studied...Convinced that the legislation would never emerge as a


13 See Judith Kimerling, Crudo Amaz6nico (Quito: Abya Yala. 1993) 19, "Parte Primera:1961-1973." La
Gestaci6n de una Politica Petrolera 19 October 1978: 353. and Admiral Gustavo Jarrin Ampudia.
Personal notes.
14 "Parte Primera:1961-1973." La Gestaci6n de una Politica Petrolera 19 October 1978: 352.








result of eternal discussions in National Congresses...my administration prepared a

contract project known as "Model Contract," through which the conditions would be

imposed on the companies." Among the changes that began to take place in 1967 were:

* The state reclaimed two-thirds of the land granted in concession to Texaco-Gulf.

* The state increased its share of royalties.

* Took a more active role in production processes.

* Instituted a territorial tax on the lands conceded.

* Increased infrastructure development by companies.

* Petroleum was nationalized.

* A national oil company, CEPE, was created.

* Ecuador sought to ally itself with other oil producers.

* Older contracts and concessions were subject to a process of renegotiation.1

In 1972, the new military government finally passed a reformed Law of Hydrocarbons to

replace the 1937 Petroleum Law. It essentially invalidated all prior contracts and led to the

signing of new ones.16 These sought to secure better terms for the state as outlined above.

New contracts, with more favorable terms for the state, were signed with Texaco-Gulf,

Sun Oil, Anglo, Cautivo, Cayman, and OKC. Other contracts were nullified, declared

expired, or were refused by oil firms. By 1972, Texaco-Gulf completed Ecuador's main oil

pipeline, the 500 kilometer long Sistema de Oleoducto Trans-Ecuatoriano or SOTE,




'5 See Admiral Gustavo Jarrin Ampudia. Personal notes and Judith Kimerling. Crudo Ainaz6nico (Quito:
Abya Yala. 1993) 19-21.
16 Admiral Gustavo Jarrin Ampudia. Personal notes.








connecting the fields in Oriente with the port and refinery ofEsmeraldas. Ecuador became

a major oil exporter and joined OPEC in 1972.

A major controversy emerged with the passage of the 1972 law. When the original

law was published in the Registro Oficial in 1971, there were several typographical errors

which warranted the temporary removal of the law from the books in order to correct the

mistakes." When the law was placed back into the Registro, it was missing article 86.

Article 86 stipulated that all the proceeds (in U.S. dollars) from petroleum sales had to be

placed in a Central Bank (Banco Central) account. With this article omitted, such

requirement was terminated. This omission was later reversed, with one adviser resigning

his position.18

During the rest of the 1970s, the state increased its power vis-a-vis foreign

multinationals by strengthening CEPE. This period has been characterized as one of

"independence and sovereignty" for Ecuador's oil industry by one ex-Minister of Energy,

Admiral Gustavo Jarrin Ampudia, key figure between 1972 and 1974 when he negotiated

the contracts with the oil companies and established a clear petroleum policy for

Ecuador.19 The strengthening of the state's role as a player in Ecuador's oil industry was

done by forcing Gulf Oil to withdraw from the Texaco-Gulf consortium and by the

repositioning of the Ecuadorian state as a majority stakeholder in Texaco's operations in





7 The Registro Oficial is Ecuador's national registry of laws approved by the executive. A bill approved
by the president could not become law unless said bill was published in the Registro and remained there.
18 "Parte Primera:1961-1973." La Gestaci6n de una Politica Petrolera 19 October 1978: 355.

19 Admiral Gustavo Jarrin Ampudia. Personal notes.








the country.20 CEPE acquired in 1974 25% of the Texaco-Gulf consortium while Texaco

and Gulf Oil each retained 37.5%; in 1977 Gulf was eliminated from the consortium and

CEPE became the dominant partner with 62.5%, the rest remaining in Texaco's hands.21

Part of the state's success was due to the impact on Ecuadorian public opinion of a 1972

book by Jaime Galarza, Festin del Petr6leo. It was a study of oil policy in Ecuador and

the world that accused the large oil companies as well as the state of corruption and lack

of scruples.22 Galarza was invited to participate in a televised discussion on the issue that

same year with the Texaco spokesperson, Rene Bucaram. The TV audience learned during

the discussion about the Minas y Petroleos' dubious transfer of land to Texaco--in

exchange for 2% royalty and heard Bucaram himself say that the state could still intervene

on the matter.2' Although technically legal, the transfer of land to Texaco was done

through a loophole in the law and clearly violated the spirit of the 1937 Petroleum Law.

Following Bucaram's recommendation, the state did intervene in the matter which was

unfortunate for Texaco. Public outrage led to the retroactive application of the 1972 law

limiting the size of concessions. This forced Texaco to return part of the lands ceded to it

by Minas y Petroleos, the company was required to pay higher land use fees, and had to

re-negotiate contracts under the stipulations set forth in the new petroleum law.24 This

reinforced the resolve of the military to exert more control over the oil companies,


20 Judith Kimerling. Crudo Amaz6nico (Quito: Abya Yala, 1993) 21.

21 Unidad de Protecci6n Ambiental de Petroecuador. Analisis de la Operacidn de Texaco y del Plan de
Remediaci6n Ambienntal (Quito: Petroecuador UPA, 1997) 1.

22 "Parte Primera: 1961-1973." La Gestacidn de una Politica Petrolera 19 October 1978: 355.
23 "Parte Primera:1961-1973." La Gestaci6n de una Politica Petrolera 19 October 1978: 357.

24 "Parte Primera:1961-1973." La Gestaci6n de una Politica Petrolera 19 October 1978: 357.








particularly Texaco. Jarrin's policy had the goal of "reconciling the contracts with the

letter of the law" and he accomplished this.25

Jarrin used several factors to squeeze the most he could out of the oil companies

through the contracts, and he obtained the most not only in terms of control but also in

terms of fees and royalties for the state. The contract explicitly notes that Texaco-Gulf had

1.4 million hectares and that the consortium had returned to the state the amount in

excess of the maximum of 496,000 permitted by law.26 The royalties set at 12.5% of gross

revenue of petroleum exports were to be paid on a monthly basis.27 Texaco also had to

pay an initial fee of US$ 2,973,868 which was to be used by the state for the construction

of airports in Esmeraldas and Coca; the urbanization of Aguarico and Coca; and the

upgrading of a major highway in the Oriente, all important to the oil production process.28

The contract was to last for 20 years instead of the usual 40.29 These stipulations were in

addition to standard corporate taxes as required by Ecuador's tax code.' Moreover, a

whole variety of charges were assessed and detailed, contingency plans elaborated, and

investment commitments for infrastructure were secured from Texaco. This was all done

by Jarrin Ampudia under the aegis of the "modernizing" and nationalistic military


25 "Parte Primera: 1961-1973," La Gestacidn de una Politica Petrolera 19 October 1978: 357.

26 Introduction ofDecreto Supremo No. 925 4 August 1973.
Texaco returned to the state a total of 940.104 hectares of the 1.431.459 it had accumulated. The final size
of the Texaco concession was 491,355 hectares.

27 Chapter 8 (29) (1) of Decreto Supremo No. 925 4 August 1973.

28 Chapter 8 (27) (1) (a): (b): (c); (d): (e) ofDecreto Supremo No. 925 4 August 1973.

29 The contract duly expired in 1992. with Texaco's operations and facilities becoming a part of state oil
company Petroecuador.

30 Chapter 8 (33) (1) of Decreto Supremo No. 925 4 August 1973.








government of Gen. Rodriguez Lara, which sought to break with a past. As Jarrin

Ampudia notes:

In this confrontation with different interests that would not admit that
times change, that Ecuador is a sovereign country, owner of its petroleum
and that in the world the remnant forms of imperialist exploitation are
coming to an end, solid steps were taken for the elaboration of the new
contracts.1

The government's hand was strengthened by a favorable international climate including

high oil prices and Ecuador's entry into OPEC in 1973. With the culmination and signing

of the new contracts, the state strengthened its own position vis-i-vis the oil companies,

exert some degree of control over the companies in the country, and boost its revenue.

However, no one realized the ecological disaster that would result from Ecuador's

newfound source of hard currency and the extent to which the one clause in the contract

that deals with the environment would be disregarded--not only by Texaco but by other

corporations in other contracts as well.2

Texaco was able to generate a vast sum of revenue from its large Ecuadorian

operations. According to an audit by HBT-AGRA, Texaco extracted over 1.377 billion

barrels of oil from the Oriente. This amounts to more than $30 billion in an operation that

lasted 18 years from 1972 to 1990, when full operational control was relinquished to the

Ecuadorian state until Texaco's ultimate departure upon the expiration of the contract in

1992. Texaco ultimately had 15 oil fields, 22 production stations, and 325 oil fields (each



31 Declarations of Rear Admiral Gustavo Jarrin Ampudia on the new contracts 6 August 1973.
32 See Chapter 9 (46) (1) ofDecreto Supremo No. 925 4 August 1973 which states:
"The contractor (Texaco) will adopt measures convenient for the protection of the flora, fauna and other
natural resources, as well as avoid the contamination of waters, air. and lands. under the control of the
pertinent government organizations."








accompanied by one or two pools for toxic waste disposal). Approximately 632 toxic

waste pools were constructed.3



Steps in Producing Oil

In order to understand the way in which oil contamination is produced and its

characteristics, a basic understanding of how oil is sought and extracted is necessary.

There are several steps in the oil production process. The first step is exploration in which

oil deposits are discovered. An oil company may either search for oil itself or employ the

services of a contractor for this phase. There are several methods for searching for oil

deposits, but for our purposes the most pertinent method is the seismic exploration

method through the use of explosives.34 This is done by laying wires through the rainforest

connected to explosive charges that are placed in small holes. When the charges are

detonated, this sends shock waves through the ground which travel at different speeds

according to the terrain they encounter. Hence, they move faster through liquid than

through rock and this is presented in visual format through the use of seismic instruments.

The presence of waves moving at high rates of speed and the visual image they form are a

clear indication of possible deposits. During this stage, a variety of environmental

problems may arise: the clearing of paths of rainforests to lay the wire; use of powerful

explosives which kill or scare wildlife; clearing large tracts of rainforests in order to

establish camps and heliports; the clearance of huge tracts of lands to build roads to reach


33 Ivan Narviez. "El Ecuador de Texaco." ECO Poldmica Revista de la Unidad de Proteccidn Ambiental
de Petroecuador August 1997: 14-16.

3 Oil exploration methods vary according to the terrain. Underwater terrains involve the use of acoustic
techniques. whereas in the desert one finds ground level explosions the method of choice.








the camp site, with the subsequent invasion of colonists from other parts of the country; a

social and health issues arising if any contact is made with local indigenous groups; and

the killing of animals in the area if hunters are brought in order to secure the area's wiring

for the protection of workers.

If a deposit is believed to hold enough promise, it may warrant the initiation of

actual test drilling--second phase--to ascertain if indeed the suspected deposit is

petroleum. This step involves moving heavy drills into the area to penetrate the earth and

unleash the deposit's contents in order for the testing of samples in order to determine if

it's commercial grade crude.35 During this process, the main environmental threat is water

contamination since the materials in and around the deposits are toxic for plant and animal

life and may be spilled into the area's hydrological system. Also, this process requires the

use of large amounts of water, which may then be discharged untreated contaminating the

water supply for the forest and animal life.

If a commercial grade well is found, then the next step is the production process in

which wells are built to extract the oil. Besides some of the environmental problems noted

above, air contamination is a possibility due to the presence of gases (methane,

occasionally natural gas) which rise through the well and are burned off at the top of the

oil well.


35 On average, wells penetrate 10.000 feet into the ground.








The Controversy Over Contamination

The emergence of oil exploration and production in the Oriente has led to

dramatic, widespread, and costly contamination and deforestation of the region. Because

Texaco was the single largest producer during the 1972-1992 period when the bulk of

contamination occurred, it appears as the single largest polluter in the history of oil in

Ecuador. However, contamination linked to other companies has stirred their share of

controversy. Nevertheless, Texaco has been accused not only causing the worst damage in

the Oriente, but also of failing to live up to the commitments it made to clean up its areas

of operations. There is considerable debate as to the extent of contamination, and Texaco

continues to deny any wrongdoing alleging it followed all that was required of the

regulatory codes of the time and that it was a minority partner in a state led and approved

oil production process.3 However, there is a large body of knowledge and a growing

group of industry experts that provides ample evidence and knowledge of pervasive

contamination in the Oriente.f7 It is only very recently that a consensus has begun to

emerge around some numbers researched by former New York State Department of

Environmental Protection official Judith Kimerling, environmental audits by HBT-AGRA

and Petroecuador, NGOs, government agencies, and analyses by foreign and domestic



36 See Ricardo R. Veiga. Vice President Texaco Petroleum Company. "To the Editor," The New York
Times 6 February 1998: A22.

37 Miss Lucia Burgos of Fundaci6n Natura, one of the NGO's experts on the oil issue. agreed to speak
independently of Fundaci6n Natura. Her views are hers only and do not necessarily represent those of
Fundaci6n Natura.
Personal interview with Lucia Burgos, Fundaci6n Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province. Quito. Ecuador, 11 July 1997; personal interview with
Dr. Rene Ortiz. ex Secretary General of the Organization of Petroleum Exporting Countries (1978-1982),
Quito. Ecuador. 15 July 1997: and personal interview with Oscar Garz6n. Minister of Energy under the
Borja administration. Quito. Ecuador. August 1997.








academics becoming much more accepted."8 Initially, some of the figures presented were

received by hostility from all sectors of the industry.

There are four areas in which oil production and pollution has had a major impact:

water, land, air, and deforestation. A good part of this is due to the fact that, especially in

the past, all chemical byproducts and waters used in the production process were released

into the environment completely untreated.39 In addition, there has been a strongly

negative impact among indigenous communities that live in the Oriente not only in terms

of their health but also in the threat to their culture as contact with the dominant

American-Iberian culture expands due to individuals working in the Oriente.

Water contamination has been the most severe result of oil production in Oriente

and the best documented. According to an environmental audit of Texaco's operations

(until 1990) by HBT-AGRA, a well known petroleum consulting firm, over 376 million

barrels of water was released "contaminated with heavy metals, oils, chemicals, and other

contaminants, without prior treatment, which caused environmental deterioration of the

ecosystems of the Ecuadorian Amazon, in many cases of an irreversible nature."40

Underground water arising from the drilling process, formation water, is highly toxic,

contaminated with chemicals used in the production or exploration process, and is



38 The independent environmental audit of Texaco's operations by Canadian company HBT-AGRA was
agreed to by both Texaco and Petroecuador. The audit, conducted in the aftermath of Texaco's departure
in 1992, has not been released in its final form pending approval from the government. All references to
information in the audit are from the Unidad de Protecci6n Ambiental de Petroecuador (Environmental
Protection Unit of Petroecuador), which presumably has access to the document. The audit was to be the
basic document on which remediation agreements between Texaco and the state were to revolve.

39 Unidad de Protecci6n Ambiental de Petroecuador. Analisis de la Operaci6n de Texaco y del Plan de
Remediaci6n Ambiental (Quito: Petroecuador UPA, 1997) 2.
40 Unidad de Protecci6n Ambiental de Petroecuador. Analisis de la Operaci6n tde Texaco y del Plan de
Remediaci6n Ambiental (Quito: Petroecuador UPA, 1997) 4.







disbursed into waterways at very high temperatures, usually between 90 and 168 degrees

Farenheit. The toxicity of the water from geologic formation is mainly due to its high level

of salinity, between 70,000 and 110,000 parts per million (p.p.m.) although in can be as

high as 200,000 p.p.m.41 Saltwater normally contains 35,000 p.p.m. and non-contaminated

freshwater rivers in the Oriente does not surpass 6 or 7 p.p.m.42 Subterranean aquifers

have been affected through the leakage of fluids used and resulting from perforation

because of improper handling techniques and the lack of lined pools for waste material.43

Water used in the production process has been found to contain "sulfates, bicarbonates,

hydrogen sulfides, carbon dioxide, cyanide, and heavy metals such as arsenic, cadmium,

chrome, lead, mercury, vanadium, and zinc."44 The result has been the contamination of

fish and death resulting from oxygen deprivation in petroleum laced waters.45

Petroleum itself is another contaminant found in large concentrations in Oriente

waterways. Although it is believed to inflict harm in aquatic organisms in concentrations

as low as 100 parts per billion (ppb), it has been found in concentrations as high as 5,000

parts per million (ppm) with an average of roughly 1,000 ppm according to Fernando

Reyes of the Direccion Nacional del Medio Ambiente (National Directorate of the

Environment), the predecessor of the Ministerio de Medio Ambiente (Ministry of the



41 Judith Kimerling. Crudo Amazdnico (Quito: Abya Yala. 1993) 44.
42 Judith Kimerling. Crudo Amazonico (Quito: Abya Yala. 1993) 74.

43 Unidad de Protecci6n Ambiental de Petroecuador. Analisis de la Operacion de Texaco y del Plan de
Remediacidn Ambienntal (Quito: Petroecuador UPA. 1997) 5.

44 Unidad de Protecci6n Ambiental de Petroecuador. Analisis de la Operaci6n de Texaco y del Plan de
Remediaci6n Ambienntal (Quito: Petroecuador UPA. 1997) 2.

45 Judith Kimerling. Crudo Amazonico (Quito: Abya Yala. 1993) 54.








Environment).46 Such concentrations should come as no surprise considering that over

16.8 million gallons of crude oil have been accidentally spilled mainly in the Amazon Basin

in 30 large mishaps, most of them the result of ruptures during the transportation phase.47

Land--or soil--contamination is mainly a result of contaminated waters being

employed in agricultural processes or oil spills reaching agricultural lands. This has

destroyed crops or reduced their quantity and quality causing significant deprivation and

malnutrition in affected areas. A large oil spill in 1989 of over 294,000 gallons in the Napo

River reportedly caused serious effects on soils in the Comuna de San Carlos, including

the death of crops two weeks after the event. The result was the destruction of crops

belonging to 560 families in 31 communities.48

Air pollution is largely a result of the burning of natural gas at the top of wells.

Gas, found in or around oil deposits, is unleashed when the well enters production.

According to HBT-AGRA, 248.8 million cubic feet of gases were burned although this

resource could have been exploited. The impact of this on the environment has been great,

causing alterations of"local climactic patterns, air contamination, affecting flying insects,


46 Judith Kimerling. Crudo Amazdnico (Quito: Abya Yala. 1993) 29, 44, 74.

4 For a comparison, the Exxon Valdez disaster spilled 10.8 million gallons of crude oil into Prince
William Sound. It should be noted that there is some controversy surrounding these figures. Douglas
Southgate believes that the figures (16.8 million gallons of oil or 400.000 barrels) may be a "little high
since no more than 50.000 barrels were spilled when 25 KM of the pipeline were destroyed in the 1987
earthquake." Nevertheless. the 400.000 figure is widely used today not only by environmentalists but by
the state oil company, government officials, and private individuals in the business.
See Douglas Southgate. Petroleum Development in Tropical Rainforests: the Economics of Pollution
Control in Eastern Ecuador (Quito: Instituto de Estrategias Agropecuarias. 1992) 4-5 and Judith
Kimerling, Crudo Amaz6nico (Quito: Abya Yala. 1993) 1, 50.

8 For a detailed account of the health effects of the Napo River spill on local communities see Doris
Herrera. "Petr6leo. Deterioro Ambiental y Salud." in La Cuenca Amaz6nica de Cara al Nuevo Siglo, ed.
Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 313-356. Kimerling discusses the impact on the are
in lesser detail. Judith Kimerling. Crudo Amazonico (Quito: Abya Yala. 1993) 52.








soil erosion, affecting the forest and other impacts.""9 Burning emits nitrogen oxide,

sulfur, and carbon as well as heavy metals, hydrocarbons, and carbon particles into the

atmosphere. Acid rain and black rains have contaminated the Oriente with powerful

effects on crops and people in addition to wildlife.

Deforestation is the result of three factors. First, the practice of clearing lands in

order to conduct exploration operations such as the installation of drilling equipment,

heliports seismic lines, and base camps. The use of seismic lines, for example, could

involve the clearing of swaths of land as much as 2-3 meters wide, creating boundaries in

sensitive environments. Second, the building of roads can cause massive amounts of

deforestation when paths are cleared in the rainforest and through the colonization process

which until recently normally accompanied the development of new oil fields. More than

500 kilometers of roads have been built in Oriente by oil companies, and they can vary in

width from 10 to 15 meters; more deforestation is caused when wood from forests

adjacent to the new roads are cut down to be used in their construction.50 This road

building process, the presence of well paid oil workers that in effect constitute a new

market in the area, and the presence of land and government policies that permits their

colonization, leads to large migration to the Oriente. Most colonists tend to come from

the impoverished south-central Andes and are in dire straits.51 Some end up in the informal


49 Unidad de Protecci6n Ambiental de Petroecuador. Analisis de la Operaci6n de Texaco y del Plan de
Remediaci6n Ambienntal (Quito: Petroecuador UPA. 1997) 4-5.

5o Judith Kimerling, Crudo Amaz6nico (Quito: Abya Yala. 1993) 56.

51 This same region is the source of much of the undocumented aliens fleeing oppressive economic
conditions towards the United States. Venezuela. and other Latin American countries.
Amazonia por la Vida. Debate Ecologico Sobre el Problema Petrolero en el Ecuador (Quito: Acci6n
Ecol6gica. 1993) Appendix.







sector and set up small shops or peddle goods in areas where the oil workers live. Others

attempt to establish farms or cattle ranching on lands that they assumed control of and

which the state is incapable of controlling.52 Sewage and garbage disposal alone has

become a significant problem. The result has been over one million hectares of rainforest

lost to colonization.53 A third cause has been the clearing of land for oil pipelines. The

primary pipeline is the Trans-Ecuadorian pipeline which extends 500 kilometers through

Ecuador with a width between 20 and 26 inches. It begins in Lago Agrio (Oriente) and

ends in Balao (Esmeraldas Province), although most of it extends beyond Oriente.54 Such

pipelines involved the clearing of swaths of land approximately 30 meters in length.

Fourth, the spilling of oil has caused the death of vegetation in the Oriente. As mentioned,

this is due to the ill effects of oil and production chemical byproducts.

This entire process of deforestation, contamination, and colonization has led to

health problems, the destruction of indigenous cultures, and overall reduction in the

quality of life of residents of the Oriente. Doris Herrera from FLACSO Quito has studied

the issue of contamination, its health and nutritional effects on the inhabitants of the

Comuna San Carlos, located 25 kilometers from Coca on the Napo River.55 This area has

been periodically affected by oil spills, mostly flowing from the Napo River. Her

interviews of older indigenous group members reveal awareness that something has


2 See Douglas Southgate and Morris Whitaker. Economic Progress and the Environment (New York:
Oxford University Press. 1994) 33-47.

5 Judith Kimerling. Crudo Amazonico (Quito: Abya Yala. 1993) 56.

54 Petroecuador.

55 Coca is the main hub of the petroleum industry in Oriente.
Doris Herrera. "Petroleo. Deterioro Ambiental y Salud." in La Cuenca Amaz6nica de Cara al Nuevo
Siglo. ed. Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 313.








changed. A frequent complaint has been illness from drinking river water, which in the

past had not occurred.56 Other illnesses or symptoms that have been on the rise are

frequent nausea, diarrhea, stomach aches, skin infections, and malnutrition."7

The goal of this chapter was to highlight a sense of lawlessness in the history of the

industry's operations in Ecuador and conduct a general overview of the environmental

impact that the Oriente has suffered. This is a result of the impunity with which oil

companies operated, aided by the lack of effective oversight. Chapter 3 will seek to

demonstrate that, at least as far as the environment is concerned, there have been very

substantial policy changes in favor of environmental protection in the oil industry and that

these moves directly address many of the problems highlighted in this chapter and others

that have been noted by environmentalists and indigenous groups.





















56 Doris Herrera. "Petr61eo. Deterioro Ambiental v Salud." in La Cuenca Amaz6nica de Cara al Nuevo
Siglo, ed. Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 324.

57 Doris Herrera. "Petr6leo. Deterioro Ambiental y Salud." in La Cuenca Amazonica de Cara al Nuevo
Siglo, ed. Doris Herrera (Quito: FLACSO Sede Ecuador, 1997) 325.















CHAPTER 3
POLICY RESPONSE


Overview

The oil industry is economically critical for Ecuador. For a variety of reasons,

Ecuador's economy has grown at a sluggish pace, well below the Latin American average

for most of the 1990s. In 1997, while regional GDP grew by 5.5%, Ecuador grew by a

slow 3%, with a 1998 growth forecast of 2.5%.' Ecuador's poverty rate has been on the

rise and is now estimated to comprise 50% of the population, up from around 40% in the

early 1990s, and bucking the regional trend of stable or slightly declining poverty rates.2

Ecuador depends greatly on oil for the hard currency it needs to service the country's

large foreign debt estimated at $13 billion, is a source of government funds since tax

collection is lax and regressive, it is the single largest export product, and for employment

purposes--a staggering 66% of the country's labor force is in the informal sector.3 The

industry generates approximately $1.8 billion a year for Ecuador in oil and oil product



' See Economist Intelligence Unit. Ecuador Country Report 3rd Quarter 1997 (London: Economist
Intelligence Unit. 1997) 5 and Reuters. "Ecuador Cuts Growth Forecast. Proposes Higher Tax" Finance 4
March 1997.

- Regional poverty rates today vary between 20% in Chile and 73% in Honduras (1994). with Latin
American total poverty rates estimates now at about 35-40%. See Economic Commission for Latin
America and the Caribbean. Social Panorama ofLatin America 1996 (Santiago, Chile: ECLAC, 1996)
193-194.

3 Even by Latin American standards. the size of Ecuador's informal sector is large. Most countries in the
region have between 30% to 50% of their labor force in the informal sector.

34








exports and generated 14% of its output in 1996.4 Within this context of commodity

dependence as both a source of government revenue and hard currency, any changes in

policy that increases the cost of oil production can be detrimental to state coffers and

economic growth.

Table 3-1
Ecuador: Government Oil Revenue and Total Revenue 1991-1995


1991
765.3
1650


01al enue
Total rwrue


3500,
i
3000


020001
215001



O 10001
I


1992
99.1
1970


1993
1079
2250


1994
1067
2570


1995
1189
3125


|03 TcM ral E


1991 1992 1993 1994 1995


Recently enacted legislation concerning oil exploration consists of two main

pieces. The first was President Sixto Duran Ballen's Executive Decree No. 1802 of 1994

which essentially constituted a policy statement concerning sustainable development and




4 Economist Intelligence Unit, Ecuador Country Report 3rd Quarter 1997 (London: Economist
Intelligence Unit 1997) 5.








the state's role.5 The second was Duran Ballen's Executive Decree 2982 of 1995. Decree

2982 is the current and first environmental code specifically aimed at the oil industry.

These decrees are tantamount to the Ecuadorian state's acceptance of the changing

normative international context concerning the environment and they are reflective of

current thinking about how sustainable oil exploration and extraction should be

conducted. Decree 2982 is regarded as very advanced, addressing many of the problematic

issues oil exploration has raised and marking a clear departure from past practice in the

Oriented 6 As Southgate notes, writing in 1992, "neither the state company nor the national

government has developed a detailed set of environmental guidelines for petroleum

exploration and extraction. ...Under these circumstances, foreign companies find it difficult

to convince skeptics that their Ecuadorian operations will indeed be conducted in an

environmentally sound manner."7 The new legislation marks dramatic changes in the

books. Although changes in legal codes without adequate enforcement may fall into

formalism, they are nonetheless valuable in that they grant legitimacy to those who in the

past have voiced their opposition to environmentally unsound oil exploration and

extraction and give juridical instruments through which violators may be conceivably

punished. Furthermore, there is evidence to suggest that corporate behavior is indeed

changing, an issue which will be pursued in Chapter 4.


5 All references to Executive Decrees (Decreto Ejecutivo) are listed in the bibliography with Presidencia
de la Republica del Ecuador as the author.
6 Personal interview with Dr. Rene Ortiz, ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982), Quito. Ecuador. 15 July 1997 and personal interview with Lucia
Burgos, Fundaci6n Natura Coordinator for the Provincial Commission for the Monitoring of Oil Activities
in Napo Province. Quito, Ecuador. 11 July 1997.

Douglas Southgate. Petroleum Development in Tropical Rainforests: the Economics of Pollution
Control in Eastern Ecuador (Quito: Instituto de Estrategias Agropecuarias. 1992) 9.










Executive Decree 1802

Executive Decree No. 1802, authored by the Presidencia de la Republica del

Ecuador (the presidency) under President Sixto Duran-Ballen, is an extraordinary

document for several reasons. Most important, however, is the statement which admits

serious damage to Ecuador's Amazon Basin as a result of oil extraction.

Decree 1802 outlines basic policy principles which Ecuador is to follow and which

are to become the basis of other Ecuadorian environmental initiatives such as Decree

2982. These are: Ecuadorian society is to minimize environmental damage and risk

while maintaining socially and economically sustainable development; it is the

responsibility of every citizen and institution to act in a way that is socially just,

economically profitable, and environmentally sustainable; the private and public sector are

called upon to provide policy guidelines and ideas to insure sustained development; all

economic activities are to consider the environment; environmental initiatives are to based

on solidarity, mutual responsibility, cooperation, and coordination--and this also applies to

Ecuador's foreign relations; it is the state's responsibility to elaborate incentives and

regulations to promote sustainable development; the state is to promote environmental

awareness and education; Ecuador's government is to maintain an open attitude with other

states and secure cooperation and develop treaties; special attention is to be placed on

prevention and control of environmental damage resulting from contamination and

degradation; a priority will be the maintenance of equipment and services and efficiency

needs more attention; environmental impact studies and environmental mitigation

programs are required; multinationals are to maintain the highest environmental








technology required in their country of origin; certain problems, industries, and geographic

areas are to receive special attention.8

Executive Decree No. 1802 constitutes a straightforward admission of the state's

failure in protecting the Oriente from oil contamination and the enormous havoc wreaked

on the area's environment. The decree's tone is set at the very beginning of the document

by the title and subtitles: Sustainable Petroleum Development in Ecuador; Rectifying the

Mistakes of the Past.9 The first paragraph begins with the statement:

The grave environmental impacts produced in the Ecuadorian
Amazon Region since 1970 as a consequence of petroleum
operations are due to, in large part, to the system of oil exploitation
which failed to consider the most elemental norms of environmental
protection prevalent at the time and to the carelessness of the state
in their control.'0

This statement is a dramatic departure from prior statements in which the state kept a low

profile while private companies were roundly criticized for their alleged disregard of the

environment's well-being. It admits four key events long noted by environmental groups

but initially denied by corporations and policy makers. The first is the severity of oil

contamination in the region and its environmental impact. Second, it describes Ecuador's

oil industry as a system instead of a decentralized structure in which the private sector

operates in its own sphere independent of the state. It acknowledges that both the state

and the private sector have played major roles in the industry's development and that the

links between the different parts are strong. Third, it admits that even the weak



8 Comision Asesora Ambiental de la Presidencia de la Republica. Plan Ambiental Ecuatoriano. (1996. Pp.
20-21.

9 Executive Decree No. 1802 pg. 1.

10 Executive Decree No. 1802 pg. 1.







environmental codes of the past were completely disregarded." Finally, it admits that the

state shares part of the responsibility for the problem because it failed in the supervision

and enforcement of environmental codes in place at the time.

The decree then goes into more detail and mentions ways how the Oriente

suffered large-scale damage. These broadly fall into two categories, technology and

infrastructure. Technological problems due to obsolete equipment used by oil companies

are pointed to as a major source of environmental damage. Antiquated machinery used

for drilling by Texaco has indeed been noted as a suspect by opponents of the oil industry.

Older helicopters with shorter ranges have been a problem as well since these require the

creation of heliports (land clearing) scattered throughout the Oriente. The infrastructure

problems noted in the document includes roads. The building of roads, according to the

decree, causes problems because the road itself requires the clearing of large tracts of land.

Also, roads facilitate the flow of colonists into the Oriente--which are widely regarded as

the prime cause of deforestation--who end up clearing land for crops. These factors had

been long noticed by environmental activists, but they finally have received recognition

from the state.12

The decree also attempts to offer some solutions of its own to the problem. It

notes efforts to maintain spills under control through the purchase of new equipment and

advanced maintenance of pipelines and other machinery. It provides:





1 The only industry environmental code was the paragraph in the Texaco contracts which stated that the
environment would be respected.

2 Executive Decree No. 1802 pg. 4.








* For the expansion of surveillance of the Oriente.

* Reduction in the number of access points to oil fields.

* Reduction in the size of petroleum installations.

* Boundaries for indigenous peoples' territories and ecologically sensitive zones.

* Reforestation by Petroecuador.

* An effort to remove obsolete equipment from all facets of the oil

production process.

It also notes the process of incorporation of environmental protection in Petroecuador,

focusing attention on the state's own role as a source of environmental degradation in

Oriente. It highlights the creation of the Environmental Protection Unit (UPA--Unidad de

Proteccion Ambiental) within Petroecuador and the UPA's elaboration of the Plan

Integral de Manejo Ambiental de las Actividades Hidrocarburiferas (Integrated Plan for

Environmental Management of Hydrocarbon Activities). It establishes guidelines for the

management socio-economic activities (i.e. impact on indigenous groups and colonists),

stability control, recovery of contaminated areas, waste management monitoring, and

contingency planning."1 These guidelines are to regulate the conduct in environmental

matters not only of Petroecuador but its sub-contractors as well, for which Petroecuador

would share some responsibility for their action when Executive Decree 2982.

Executive Decree 1802 is clearly a public relations response to the highly

publicized Texaco lawsuit and the perception of government incompetence in enforcing

environmental regulations in Ecuador. Its publication in English as well as Spanish


13 Executive Decree No. 1802 pg. 12.








indicates the importance Ecuador's government placed on responding to foreign critiques

of oil exploration in Oriente.14 Moreover, Ecuadorian executive decrees are pieces of law

and regulation. Decree 1802 is clearly different: it is actually a direct response--in the form

of a policy statement--to criticism of oil exploration and makes those interested aware of

the steps that the government is taking to address the issues stirring the controversy. It

admits past shortcomings in terms of environmental protection of oil production processes

in Oriente, the lackluster role of the state in enforcing environmental regulations, and

hence leaves a feeling that the regulatory codes prevailing at the time were inadequate at

the very least.



Executive Decree No. 2982

Executive Decree No. 2982 is the legal embodiment of the principles outlined in

1802. Decree 2982 clearly spells out all the minimum requirements for sustainable oil

production and even addresses some of its socio-economic aspects. Most important,

however, is the high degree of expertise in environmental matters shown by its drafters. It

explicitly deals with the causes of contamination and deforestation.

Decree 2982 clearly stipulates the right of Ecuadorians to live in an environment

free of contamination and the constitutional role of the state as the main protector of that

right." Its goal is to regulate all oil production activities in Ecuador which have an

environmental impact regardless of the source of the activity, i.e. it regulates the public




14 The material published in the Registro Oficial is rarely translated into English.

15 Executive Decree 2982 pg. 1.







sector as well as the private sector.16 The provisions are: first, all new activity in the

industry is to be preceded by an environmental impact study approved by the Ministry of

the Environment (formerly the Subsecretariat for the Environment of the Ministry of

Energy and Mines); second, Petroecuador is responsible for any environmental damages

caused by the activities of its subcontractors or affiliates--without exonerating any

individual subcontractor from violations of the law. This is applicable to all facets of the of

the production process regardless of whether it is seismic exploration or actual drilling.

Decree 2982 specifically addresses controversial issues, including helicopter use,

roads, and water contamination. Road construction and water contamination in particular

pose significant problems.

Helicopter use has been controversial because the construction of heliports has led

to significant deforestation, and the use of short range aircraft has created a need for a

large number of heliports big enough to provide them with fuel and support. They are also

a source of noise pollution. Decree 2982 barred the construction of heliports in many

areas--areas where wildlife feeds and reproduces, areas with sensitive flora, archaeological

sites, areas with human inhabitants, rivers, lakes, mangroves, and estuaries.

Heliports in protected areas are to be built in accordance with guidelines set forth in the

attached appendix." During their construction, advanced crews are to cut the minimum

amount possible of vegetation for paths and camps. For the heliports, they are prohibited

from eliminating ground vegetation and only "environmentally safe" helicopters are to be

flown. Oil wells are, in fact, limited to 5000 square meters in size--inclusive of the


16 Executive Decree 2982 pg. 2-3.

'' Executive Decree 2982 pg. 5.







heliport--by the decree. Helicopters are to transport most cargo through "long-sling"

techniques which allow them to withhold landing for deliveries. To avoid the need for

roads, helicopters are to be used for the transportation of most items. For example, during

the oil exploration stage they are to be used for moving most equipment. This prevents

roads, which can be used by colonists or squatters to move in and destroy forests. This

encourages the use of longer range helicopters as sites are limited for the construction of

heliports. This is of particular importance today since many new oil fields are being

developed.

Another issue that is addressed by Decree 2982 is deforestation by road and

pipeline construction, especially in biologically diverse and sensitive areas. Roads and

pipelines are a tremendous source of deforestation for several reasons. Most relevant are

those pertaining to the size of the road and their ability to attract people. If one builds a

straight 50 km. long road with a width of 8 ms. and clearing a swath of 15 ms., the result

is 750,000 sq. ms. of deforestation. Pipelines usually require clearing swaths of forest 30

ms. wide, becoming a huge source of deforestation. Another reason is colonization.

Ecuador is poor and construction attracts migrants to any part of the country where

opportunities for economic improvement are perceived as better. Acci6n Ecologica

considers the south-central Andes region of Ecuador as the primary source of Oriente

colonists--the same region is also the source of millions of illegal/undocumented aliens in

the United States. The construction of roads opens access to relatively wealthy petroleum

workers for vendors to tap as a market. Also, roadside real-estate is considered premium

in rural Ecuador since it provides access to markets and easy transportation. Colonists are

widely considered to be the primary source of Oriente deforestations, although they do not







seem to be considered substantial polluters. Hence, NGOs consider a slowdown in road

construction positive because of the resulting reduction in new colonists.

Article 17 explicitly prohibits road construction in the area during the exploratory

phase--unless absolutely necessary. If an exception is sought, it must be approved by the

Ministry of the Environment and INEFAN after considering technical and economic

justifications for approval."8 In any case, access roads must not exceed 5 ms. in width and

exploratory drilling camps may not exceed 1.5 hectares. Anything larger has to be

approved by the Ministry of the Environment and previously stipulated in the company's

environmental impact study. If exploratory drilling is unsuccessful and the well is dry, then

the site has to be restored and access roads have to be lifted. Organic waste has to be

processed in environmentally sound ways according to an environmental management

plan. Inorganic waste has to recycled or buried. If buried, it has to be done in impermeable

pits.19

Decree 2982 sets clear guidelines for the manner in which production waste has to

be dealt with. Exploratory wells are required to have sewage systems to capture any water

or leaks from the site. All wastewater has to be treated prior to discharge. Guidelines are

set in the legislation as to what maximum level of contaminants will be allowed before

discharge into the environment. Wastewater is then injected into impermeable bedrock so

as to reduce the threat of surface contamination. Government approval of an injection site

depends on the location into which waste is pumped. This is because groundwater may be

contaminated if wastewater is injected into the wrong kind of bedrock. To be avoided :


18 Executive Decree 2982 pg. 9.

19 Executive Decree 2982 pg. 11.







freshwater formations which are used for human consumption or irrigation. The goal is to

prevent the kind of water contamination which has caused much health damage through

the years.

Many wells in the Oriente have been abandoned with complete disregard for the

damage their presence has caused or will cause because of continued leakage from old

fields. Now companies must go through a process before operation of a well can go off

line. Their waste must be classified. All sites must have their drainage pipes restored or

bought new. Also, the party responsible for the deforestation has to re-forest the land as

well as remove the contaminants. Once cleaned up and the waste is removed the well must

be capped with a concrete plug. Responsibility for the supervision of this process falls with

Petroecuador's Unidad de Proteccion Ambiental and with the Ministry of the

Environment.20

For the management and storage of fuel, a series of regulations were established.

Their intention is to reduce the amount of oil and chemical byproducts that are released

into the environment at all stages of the production process--not only of oil but also of its

derivatives, such as gasoline.

Decree 2982 stresses the need to train workers in the proper handling of petroleum

and petroleum byproducts. They are to handle their output according to industrial safety

norms. Proper labeling and signs are also required.21 Storage tanks are to be built at
ground level; they are to be surrounded by a liquid-proof barrier in which 110% of the

largest tank's capacity can be withheld. Storage tanks for fuels or chemicals must be fitted


20 Executive Decree 2982 pg. 13.

2 Executive Decree 2982 pg. 14.








with oil traps. Article 22 explicitly prohibits the use of obsolete equipment and urges the

use of modern equipment which are "internationally accepted in the oil industry...and

compatible with environmental protection." Special attention is placed on the prohibition

of old, used equipment. The equipment to be used must be listed in the Plan de Manejo

Ambiental. Also prohibited is hunting, fishing, and the collection of different species of

plant and wildlife. Wildlife cannot be held captive and the introduction of species not

native to the area of operations is forbidden--even pets. Drilling and the injection of

contaminants into the ground is guided by the principle that the process or equipment used

cannot contaminate fresh water. Natural drainage patterns are to be protected whenever

installations are built. The drainage system of the sites must flow into special channels that

separate water from oil or in collection pools. All production facilities must have a spill--

control team as part of its' contingency plan. Such facilities or their equivalent must also

possess a treatment system for the fluids resulting from the process. Wells that are

abandoned or no longer productive are to be rehabilitated so that they may be used for the

injection of waste. Again, the discharge of contaminated waters is not allowed--until they

are treated. Gas (not gasoline) resulting from the process is to be a priority since it has

several uses once re-injected and recovery improved. During production testing, the fluids

that appear as a result must be shipped or pumped to a production station where they will

be treated and any oil obtained is to enter the production process.22

Article 30 deals with the rehabilitation of abandoned and badly plugged pools. The

goal is to recover as much oil as possible from them in the hope they can used later on for

either refining or any other process. Anything that is left over can used on roads as a sort


" Executive Decree 2982 pp. 18-20.







of asphalt. Oil that cannot be removed must be treated in the pool or at another site. Once

the recovery process is completed, the pool has to be covered and plugged with dirt and

later on, re-planted. 23

Special provisions for wildlife are contained in article 34. A facility has to be

covered by a fence to prevent animals from wandering into the site. The fence is to be

covered with vegetation as well. Any diesel fuel used in vehicles has to conform to

international norms; diesel produces less contamination than gasoline. Acid rain is a

possibility, another reason for burning diesel. Noise pollution is also considered a threat

and that issue is gaining prominence.

An environmental impact study is required of any new application for oil

exploration and production. It must be presented to the Ministry of the Environment 45

days before any oil related construction begins.24 Chapter 10 of Decree 2982 provides the

methodology to be used in the elaboration of the Environmental Impact Study studioo de

impact ambiental--EIA). Article 52 notes that they are to be elaborated in all stages of

the oil production process and the importance the decree attaches to them:

The Environmental Impact Studies will be required prior to the development
of each phase of oil activity, pursuant to the criteria in this decree. In the case
of contracts for the exploration and production of oil, the juridical regulatory
code of each contract will be kept in consideration. For the preparation of the
Environmental Impact Studies, internationally accepted state of the art technology
will be used, compatible with environmental protection.25





23 Executive Decree 2982 pg. 20.
24 Executive Decree 2982 pg. 37.

25 Executive Decree 2982 pg. 43.







The article then proceeds with an outline of what is required of the EIAs, each outline

including specific regulations dealing with issues particular of the project to be

undertaken. Thirty days after the submission of the EIA, the contractor will receive the

revised EIA and will have 15 days to make any changes. Also, companies that at the time

of enactment of Decree 2982 already had facilities in operation are required to submit

(within 180 days after the approval of 2982 on August 24, 1995) the Environmental

Management Plan.26 Ultimately, all projects have to be designed with their potential

environmental impact in mind.27

The Ministry of the Environment is also responsible for the execution of an

environmental audit every two years. This audit applies to all stages of production and to

Petroecuador and all contractors. The extent and type of the audit is to be determined by

the Ministry. An additional--and extensive--environmental audit is to be conducted upon

the cessation of operations of a company in an area to determine what damages have

occurred and how to repair them.

Under special circumstances, an emergency environmental audit known as an

Examen Especial Ambiental (Special Environmental Exam) can be carried out by the

Ministry of the Environment on its own or by "request of Petroecuador, its affiliates, or

authorized oil companies...."28 Once an environmental audit or emergency audit is

conducted, a technical report must be elaborated. The Ministry of the Environment must

present the report to the audited entity within 15 days after its completion. The company


26 Executive Decree 2982 pg. 22.

? Executive Decree 2982 pg. 22.

28 Executive Decree 2982 pg. 58.








audited must provide the auditors with an appropriate work environment, food, shelter,

and transportation.29

Articles 62 to 63 establish guidelines for the punishment of those found guilty of

violations to Decree 2982. Punishment may consist of

* Fines ranging from 20 to 500 minimum monthly salaries according to the severity of

the infraction.30

* The perpetrators are responsible for compensatory damages.

* The perpetrators are responsible for reparation and/or restoration of affected areas

(polluter pays principle).

* Guilty subcontractors may also be eliminated from the central registry of qualified

firms for future contracts.

* Local health authorities, at the request of the Ministry of the Environment, can also

sanction infractions that violate health codes.

* Punishment imposed for violations of Decree 2982 can be appealed to the Ministry of

Energy and Mines.

* Punishment imposed for violations of public health codes can be appealed to the

Ministry of Public Health."




29 Executive Decree 2982 pg. 59.

30 The minimum monthly base salary as of 11 January. 1998. was 100.000 Sucres or $22.5 (4.450 Sucres
per U.S. dollar). This is not monthly take home pay, which is approximately 800.000 Sucres or $180. For
purposes of fines. references are to the minimum monthly base salary of S/. 100.000 ($22.5). so they range
from $450 to $11.230.

31 Executive Decree 2982 pg. 60.








Article 64 is interesting in that allows for "popular action for denouncing before the

Subsecretariat of the Environment (now the Ministry of the Environment) any event that

produces contamination in oil activities, which will study and analyze the allegations..."-2

It is clearly aimed towards NGOs and grassroots organizations. Such organized groups

have the resources and willingness to present claims and the law grants them what is

tantamount to the power of citizen arrest. Since the areas of exploration are not private

property but public lands, this concession allows NGOs and grassroots groups the ability

to monitor and denounce events which may go ignored or otherwise unnoticed by

government regulators or officials. The recent formation and proliferation of citizen

watchdog groups incorporating different elements of civil society for the purpose of

monitoring what Petroecuador and private companies do is testimony of the possibilities

that Article 64 allows. Such groups have been particularly active in the areas of heavy

prior contamination in the northeastern Oriente, where they have been monitoring oil

fields with the assistance of NGOs. It also firmly establishes the "polluter pays" principle.

Polluter pays principles is viewed by environmentalists as an important deterrent for

contamination since clean up costs can be extraordinarily costly in both economic and

public relations considerations. Although firmly enshrined in American law, the notion of

polluter pays is new to Ecuador and the industry and is a critical accomplishment.



The Committee of Environmental Advisement

Another entity recently created to deal with the issue of sustainable development is

the Comisi6n Asesora Ambiental de la Presidencia de la Republica (CAAM or the


32 Executive Decree 2982 pg. 60.








Committee of Environmental Advisement). The CAAM works through a series of

conferences, workshops and congresses with "ample participation" from different

segments of society. The CAAM itself is composed of a representative from the

presidency (who is the chair), one from the public sector, one from business, and one

from civil society--the environmental NGOs.33 The CAAM was directly involved in the

process of elaborating Decree 1802 and was one of the first public institutions to

recognize the variety of problems afflicting Ecuador's environment (1993).

The result of the CAAM's efforts is the Plan Ambiental Ecuatoriano (PAE or

Ecuadorian Environmental Management Plan), the elaboration of which received support

from Fundacion Natura, AID, the Inter-American Development Bank, and the World

Resources Institute. The objective of the PAE is to

implement a process of permanent planning for environmental management
that contributes to the sustainable development of Ecuador, fomenting the
participation of society as a fundamental element, fomenting change of attitudes
at all levels, orienting the behavior of governmental agencies, private sector,
organizations of civil society and NGOs, and promoting environmental
management at the national, regional, and local levels.34

The PAE is based on the general policy principles present in Decree 1802.35 It relies on

local as well as central government to adopt its principles, with the Municipality of Quito

being at the forefront of environmental protection in Ecuador.36 Moreover, the PAE



33 CAAM. 1996. Pg. 16.

34 CAAM. 1996. Pg. 5.

35 CAAM. 1996. Pg. 9.
36 Among the measures taken by the Municipality of Quito was the acquisition of electrically powered
"trole-buses" instead of internal combustion powered buses and the ban of lead in gasoline which will
begin in 1998.








reflects the hemispheric move towards sustainable development and recognizes as much

when it states the following:

the concerns, ever growing, of the international community over environmental
problems that are affecting the planet and that requires effective participation of all
countries in the world. Ecuador has subscribed to various agreements that benefit
and commit it, which would be best to execute in integrated and planned context.3

In Chapter 1, a sketch is presented of the major environmental problems of

Ecuador and the areas affected by them. It points out environmental problems that are a

well-known result of oil exploitation such as: deforestation, loss of biodiversity,

contamination in different environments, and badly managed toxic waste, among others.38

The CAAM singles out all oil-related activities as actual or potential sources of

contamination. It points out the Oriente as an area with major environmental problems. 9

The PAE stresses the need to create a process conducive to environmental

management. To foster this process, four elements are mentioned as important and these

are the National Strategy for Development, the Basic Environmental Principles, Basic

Environmental Policies, and the Ecuadorian Environmental Management Plan. Of interest

here are the Basic Environmental Principles.

The Basic Environmental Principles seek to promote interaction among different

actors in a conciliatory, participatory way, leading primarily to the conclusion that

consensus building is deemed necessary. They were enacted in 1993. The basic principles

are:



37 CAAM, 1996. Pg. 17.

38 CAAM. 1996. Pg. 11.

39 CAAM, 1996. Pg. 12.








* Environmental initiative is everyone's duty in every instance.

* The responsibility of one party cannot be passed along to another--although the state

is to play the role of final arbiter.

* Environmental action has to be socially just, economically profitable and

environmentally sustainable.

* Conflicts are to be resolved by the reconciliation of the interests of different actors,

and decisions are to arrived at in a participatory fashion.

* The basic strategy of environmental initiative is based on solidarity and an equilibrium

between society, the economy, and the environment.40

In the chapter on specific environmental policies in the PAE, special attention is

paid to international aspects affecting or influencing Ecuador. It states that: Ecuador's

external debt is not an excuse for violations of Ecuador's sovereignty nor the reckless

exploitation of the country's natural resources; foreign investment and transnational

corporations should use environmentally friendly (and modern) technology; they also need

to respect Ecuador's sovereignty, the rights of its citizens to live in a healthy environment,

and that they observe the regulations prevalent in their home country; international

commerce has to form a part of the concept of sustainable development and must not

foster an economic environment that is predatory towards natural resources; the use of

environmental loans should be optimized; obtain real support from developed nations for

the preservation of Ecuadorian environments considered unique in the world.4'


40 CAAM. 1996. Pg. 19.

41 CAAM, 1996. Pg. 36.








These statements deal with several of the international issues raised by exploitation

of oil in the Oriente. Critics frequently state one of the causes of such widespread

contamination is the capitalist world system in which Ecuador participates as a producer

of commodity or primary products for the developed world--and as a debtor country.42

In order to satisfy the requirements of debt servicing, Ecuador must exploit

primary products such as oil to pay its international financial obligations.4' As paying debt

becomes more burdensome, the result could be increased recklessness in oil production.

Based on the high level of debt Ecuador has acquired and that oil is one of the few reliable

sources of revenue for the state, it seems likely that debt servicing is part of the problem.

However, it would be a simplification to say that debt servicing is a major source of the

problem. It is difficult to conceive that today's environmental problems would not exist or

be less severe if the debt did not exist.

When the PAE declares that companies need to use modem technology and follow

the environmental regulations of their country of origin, it is implied that the contrary has

been occurring. Indeed, in the Texaco controversy, the company's use of obsolete

equipment and lack of adherence to any environmental code is pointed out as the primary

cause of the massive contamination that has hit Oriente. This was given the force of law in

Decree 2982 which made the use of obsolete equipment illegal. Most of the equipment

used up to recent years in Ecuador relied on technology developed well before

environmental concerns in oil development became a major issue. Such equipment was



4 Anamaria Varea. "Amazonia," in Marea Negra en la Amazonia. ed. Anamaria Varea (Quito: Ediciones
Abya Yala. 1995) 25-37.

43 Debt servicing usually consumes between 40 and 60% of Ecuador's fiscal budget.








"recycled" by transferring it from countries where it was outlawed to those were

regulatory environments were not so strong. Massive oil spills and the draining of

chemical byproducts of oil production into the area's hydrographic system were the

results. Such behavior would not be tolerated in the company's country of origin--which is

why the PAE demands that they engage in corporate behavior akin to what would occur in

the home country. by stressing the point that they have to respect the health of

Ecuadorians the PAE hints at Decree 2982: companies may have to answer to local health

authorities for their actions.

The other international link established in this section of the plan is that between

trade and the environment. It argues that the monies to be made from trade should not

constitute an excuse for disregarding the environment in product manufacturing. The

concern is that widespread desire for economic well-being may lead to an assault on

Ecuador's natural resources; indeed, there has been some debate as to the merits of

Western/U.S. style consumerism and especially its impact on the environment. This

concern is widespread although the relationship between trade and sustainable

development is not at all clear. Whereas many NGOs operating in Latin America are

opposed to extensive free trade pacts on grounds that they constitute an acquiescence to

Western models of economic development--and the concomitant environmental

degradation--the opposite may also be true. One of the most pressing concerns for Latin

American governments seeking to enter free trade pacts is that of "linkage" between trade

issues and environmental ones. Linkage usually involves that a country with higher

environmental standards demands that another adopt those standards in order to "level the

playing field" between the companies operating in potential trade partners, since it is








unlikely that a lowering of environmental standards would be politically feasible. Countries

that have lower environmental standards in would find it difficult to implement to new

standards in a short period of time. The result is that NGOs fear trade pacts because of the

push it may give to environmental degradation, but governments and companies also fear

them because an upgrading of environmental standards may place them at a competitive

disadvantage.

The issue of obtaining support from developed countries for environmental

protection is based on three factors: first, the belief that the industrialized world is chiefly

responsible and accountable for the current state of the environment; second, possession

of what is considered by many to be a valuable resource such as the rain-forest can be an

asset in international negotiations; and third, there are many groups willing to help finance

environmental projects. There is much truth in the fact that the environment has suffered

because of industrial development. This has been a premise used in a variety of forums by

developing countries versus developed ones, such as Rio and the Kyoto Treaty.

Ecuadorian policy makers are acutely aware of this and firmly believe that there is a sense

of regret and a need to make amends by industrialized countries.44 There seems to be a

sense among Ecuadorian policy makers that groups or governments in the developed

world are willing to assist poorer countries in developing there own environmental

programs with funds and expertise as a way to make reparations for the damage their

development has caused. There also is a notion that the issue of Amazonian contamination

can be an instrument in international relations for a developing country. This idea was



44 Personal interview with Oscar Garz6n, Minister of Energy under the Borja administration. Quito,
Ecuador, August 1997.








advanced by Hurell in his analysis of the deforestation issue in Brazil. The way this has

been used has varied from "economic contraction can accelerate deforestation" in order to

secure better terms in trade negotiations to "debt for nature" swaps in which certain

environmental commitments are made by Ecuador in exchange for better international loan

terms. Finally, it is clear to the CAAM that many groups are willing to help financially

with the cost of environmental protection and that this is a potential source of much

needed funding. Many of Fundaci6n Natura 's programs are at least partially funded by the

World Wildlife Fund, among others.

The PAE makes some policy recommendations for implementation of its goals.

among the most relevant ones are the following:

The state's environmental policies should focus on conservation and regulation of

natural resources instead of their exploitation.

Environmental accounting.

The state should develop and advanced regulatory framework and adopt "polluter
pays" strategies.

It calls for an environmental fund to finance various projects.

Government budgets should promote sustainable development.

Tight credit and monetary policies may increase poverty, leading to migration other

behavior that is environmentally destructive.

Trade policies geared towards the promotion of non-traditional exports may be

harmful as these new exports bring more land under cultivation.

These recommendations are finding their way into the books, as can be observed from the







variety of regulations being established at different levels of government concerning the

environment. Moreover, public awareness of these issues is being promoted through

private and public sector initiatives.

The overall goal of this chapter was to detail and highlight the major policy

initiatives concerning the oil industry of the last four years, setting them against a

background of prior regulatory absence. It is worthwhile to note that although in period

from 1972 to 1992 the industry was lacking of appropriate regulation--as was the whole

country--the last few years have seen a flurry of initiatives concerning the environment.

Moreover, entities in other fields are now being affected by policy changes that seek to

reduce environmental degradation. The oil industry was the first to come under intense

scrutiny, but the initiatives to change its practices have had a spill-over effect leading to

regulatory improvements in certain industries. The following chapter will detail the factors

that have led to the changes in the oil industry's environmental regulation.














CHAPTER 4
FACTORS LEADING TO POLICY CHANGES AND EFFORTS AGAINST OIL
CONTAMINATION




Analytical Framework

The goal of this chapter is to explain the factors that have propelled the changes in

the Ecuadorian state's policies as outlined in Chapter 3 and to provide cases which show

how groups opposed to environmental degradation achieved their goals. In these cases,

changes in actor behavior or loss of wealth or prestige were the results. This chapter

argues that recent changes in policy stem from a changing normative international context,

favorable to concepts of environmental protection and sustainable development. This

environment means that oil companies do not operate in a vacuum where corporate

prerogatives are the sole determinant of the management of their operations. Moreover, it

is now also difficult for governments to exploit natural resources and to condone

environmental damage by the state and/or private corporations. Pursuing such behavior

leads to loss of prestige for offending actors, or increasingly, to costly legal battles and

public-relations nightmares.

The main force driving policy changes in Ecuador is the emerging sustainable

development regime. As noted in Chapter 1, List and Rittberger define regimes as a form

of collective action by states, based on shared principles, norms, rules, and decision-








making procedures which constrain the behavior of states in specific issues areas and that

possess a minimum of effectiveness.' The regime forces change by: condemning reckless

disregard for the environment; providing a framework via agreements through which

countries can incorporate sustainable development into their own regulatory codes; urging

member states to incorporate the concept of sustainable development into policy; fostering

the development of mechanisms which allow for affected or concerned citizens to engage

offenders; by using multilateral institutions to further its principles; and granting legitimacy

and a strong participatory role to private groups that seek to protect the environment.

The Ecuadorian case is particularly well suited to a regime theory framework for

several reasons. First, the complexity of actors and forces involved requires a framework

that can incorporate many different elements and place them within a system in which one

can see the relationships. Second, Ecuador presents a situation in which there are linkages

between domestic and international actors in issues that are both international and

domestic in nature. Because of the peculiar nature of both the petroleum industry and the

Oriented, the issues involved are ones that have international ramifications and

repercussions. These lead to the presence of international forces that become influences on

Ecuador. These influences can take the form--for example--of multinational energy

corporations or international environmental groups. Regime theory is useful since it seeks

to explain precisely such kinds of linkages among both non-state and state actors and how

they impact state behavior. Regime theory also helps explains how relatively small groups

through their links, such as environmentalists in Ecuador and other social movements, are


Martin List and Volker Rittberger, "Regime Theory and International Environmental Management," in
The International Politics of the Environment, eds. Hurrell and Kingsbury (New York: Oxford University
Press. 1992) 86-89.








able to influence domestic policy to an extent that has not been obtained by much larger

groups.2 Fourth, because of the work of epistemic (or knowledge based, scientific)

communities, a consensus has emerged that the environment needs to be protected.

Finally, the environment is an issue area in which a regime approach is promising because

there is no generally agreed upon body of comprehensive international law for

environmental protection, yet we find a multitude of agreements appearing in recent years

that run counter to the professed interests to the state.3 In other words, states have been

forced to change their conduct and policies even if the result is an economic or political

loss.



The Hemispheric Sustainable Development Regime

Five principles form the heart of the emerging sustainable development regime of

the Americas and can be found permeating most discussions on the environment at the

hemispheric level:

* Human beings and their achieving a harmonious relation with nature are its main

concern.

* States are sovereign in their domestic policies but must respect their neighbors'

environments.

* Current development must keep in mind future needs.

* Environmental protection is an integral part of the development process.

Z For example. Oriente indigenous groups such as the Huaorani have managed to place their concerns at
the highest levels of the national agenda, whereas infinitely larger groups such as the Quichua dominated
Conaie have gone through great troubles to have their concerns noticed by the state.

3 Such agreements include the Climate Change Treaty of Kyoto. the Rio Declaration of 1992. inter-
American agreements, and environmental agreements in free trade pacts such as NAFTA.









* The needs of developing countries shall receive special priority.

The norms of most relevance are the following:

* International environmental cooperation shall be carried out by states with

differentiated responsibilities.

* The regime is to be inclusive and participatory.

* States should promote a free trade environment favorable to sustainable development

and should not use environmental legislation to the effect of a non-tariff barrier.

* States should cooperate to limit the amount of hazardous material being transferred

from country to country.

* The state is to promote the internalization of environmental costs.

* Effective environmental legislation is to be passed by each state.

The central rules consist of

* States are to notify other states of situations in which environmental problems may

have consequences on their own environment.

* Environmental impact assessments are to be conducted whenever large scale projects

that are likely to have adverse effects on the environment are planned.4

These elements are important in that they are factors that constrain the behavior of the

Ecuadorian state in certain areas of domestic policy.

The sustainable development regime has been bolstered by hemispheric efforts at

trade integration. The efforts to integrate trade among the nations of the Americas have



4 United Nations. Report of the United Nations Conference on Environment and
Development 12 August 1992: gopher://gopher.un.org/00/conflunced/English/riodecl.txt.







opened windows of opportunity in which environmental conditions are debated and

policies are scrutinized. This is because of several factors, primarily efforts at eliminating

non-tariff barriers to trade among partners. Countries with higher environmental

standards--and higher production costs--try to secure improved standards from their

partners in order to eliminate any cost advantages to be gained from environmental

degradation. This pulls in actors that represent the interests of private corporations (that

may see increased competition) into efforts to secure environmental agreements in trade

pacts.5 On the other hand, environmental and labor organizations see two distinct threats

in trading with countries with lower standards. The former see a threat to domestic

environmental regulations since countries that see themselves disadvantaged may lower

standards to enhance competitiveness; they also recognize that shifting towards a more

competitive trading environment may lead developing nations to further erode their own

regulations to gain competitiveness. Labor sees a threat in the developing world stemming

from lower costs due to both cheap labor and lower environmental. This was evident in

the NAFTA negotiations. The result has been the incorporation of diverse groups of

actors into hemispheric environmental negotiations.

The main agreements of the hemisphere's emerging regime to which Ecuador

subscribes, are the following:

* The Report of the United Nations Conference on Environment and Development (Rio

Declaration of 1992).

* The Declaration of Belem do Para (1994).

5 This was evident, for example, in the Kyoto agreements on global warming in which U.S. corporations
advertised strongly against allowing developing nations to incorporate emissions targets on a relaxed time
frame. Industrialized countries were to be subject to a tighter schedule.









* Plan of Action of the Summit of the Americas (1994).

* The Declaration of Santa Cruz de la Sierra (1996).

* The Inter-American Program of Action for Environmental Protection (1990).

These agreements strive to incorporate sustainable development into regional and

hemispheric integration efforts. They provide mechanisms to achieve greater

environmental protection and institution building concerning the environment. They also

have value in that their principles are a recognition of the validity of the claims by

environmentalists that environmental protection in the Americas has long been neglected.

What they do not provide--to date--are enforcement mechanisms that can effectively

punish or deter would be transgressors of the regime. This is what limits the possibility of

concluding that a sustainable development regime is effectively in place. However, an

argument underlying this thesis--especially this chapter--is that there are mechanisms that,

although they may not be institutionalized, have the effect of being enforcement elements

for the regime. Moreover, the principles, norms, and rules of the regime have been

translated into national policy in many countries. In Ecuador, this is manifested through

Executive Decrees 1802 and 2982, Ecuador's Environmental Management Plan, and

increasingly through local governments' environmental policies.

In Ecuador, regime enforcement has been primarily through three channels:

multilateral lending institutions, nongovernmental organizations, and through legal actions

and international agreements.








Multilateral Lending Institutions

Because of charges of environmental damage inflicted in the past, international

multilateral development organizations such as United States Agency for International

Development, the Inter-American Development Bank and the World Bank now require

environmental assessments of projects that seek funds. The World Bank, for example,

while observing that environmental protection and management are relatively new issues in

Latin American mining, notes that "environmental awareness is sweeping the world and

the mining industry is under particular pressure to adopt sound policies."6 Moreover, The

World Bank's definition of an environmentally sound mining industry is broad, consisting

of"one which exploits mineral resources with maximum economic efficiency without

harming human health, damaging local communities or biological diversity while

maintaining ecological stability."7 The World Bank also recommends key steps and

policies for environmentally sound mining which are addressed by Ecuador's Executive

Decrees 1802 and 2982, as well in Ecuador's Environmental Management Plan--the latter

having received support from both the Agency for International Development and the

Inter-American Development Bank for its development.8

The World Bank's lending portfolio for Latin American environmental projects has

increased from $2.91 billion or 3.1% of bank lending for the 1980-1986 period, to $8.84




6 Industry and Energy Department of The World Bank. A Mlining Strategy for Latin America and the
Caribbean (Washington. D.C.: The World Bank. 1996) 63.

7 Industry and Energy Department of The World Bank. A Mining Strategyfor Latin America and the
Caribbean (Washington. D.C.: The World Bank. 1996) 65.

8 See the different documents published by the CAAM.








billion or 5.2% for 1987-1994, excluding controversial loans for forestry.9 Most of the

multilateral bank lending is targeted towards urban environmental management rather than

resource conservation by a margin of 4 or 2 to 1, varying by year. 0 Nevertheless, World

Bank lending for "green projects" increased to $2.78 billion during 1987-1994, from

$132.2 million from 1980-1986. In Ecuador, environmental loans represented

approximately 2% of total multilateral development bank borrowing during the 1980-1986

period." However, this increased to approximately 9% during 1987-1994 with "green

projects" comprising a significant portion of this borrowing.12 The increases in lending for

environmental projects is attributed to environmentalists' efforts during the 1980s leading

to pressure from United States government officials, some of whom were alarmed at







9 The authors excluded forestry from their analysis due to its controversial nature. There is an ongoing
dispute as to whether lending for forestry promotes sustainable development or merely facilitates logging.
They also limited their analysis to the 10 largest Latin American countries, so presumably the amount of
environmental lending should be greater.
See David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America." in Latin American Environmental Policy in International
Perspective. ed. Gordon J. MacDonald. Daniel L. Nielson. and Marc A. Ster (Boulder. CO.: Westview
Press. 1997) 132.

o1 David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America," in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald, Daniel L. Nielson. and Marc A. Ster (Boulder. CO.: Westview
Press. 1997) 131.

" David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Enmironmental Lending in Latin America." in Latin American Environmental Policy in International
Perspective. ed. Gordon J. MacDonald. Daniel L. Nielson. and Marc A. Stem (Boulder. CO.: Westview
Press. 1997) 131.

12 David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America." in Latin American Environmental Policy in International
Perspective. ed. Gordon J. MacDonald. Daniel L. Nielson. and Marc A. Ster (Boulder. CO.: Westview
Press. 1997) 131.








environmental disasters resulting from multilateral development bank lending and

threatened to cut United States funds for the IDB and The World Bank.13

This has given such multilateral development banks increasing say on the

environmental policies of countries receiving lending in Latin America, including Ecuador.

In Peru, changes in environmental policy concerning oil exploration and production similar

to those in Ecuador have been attributed to multilateral development banks.14 However,

their role was explicitly observed by Dr. Rene Ortiz: "if a country opts for financing from

the Inter-American Development Bank, The World Bank, or the Corporaci6n Andina de

Fomento, it must accept environmental regulations, they are the ones exercising

pressure."'5 While multilateral banks have been urging and promoting sustainable

development, they have done so after being targeted by environmental transnational

organizations, a group which is widely accepted as being the primary motor of changing

attitudes towards the environment.

Transnational NGOs

A critical role is played by nongovernmental organizations in enforcing the

principles of the regime, often through international networks. Environmental NGOs have

become powerful in Ecuador where they constantly publish materials on environmental

conditions in the country, monitor private and public behavior, mobilize grassroots


13 David L. Nielson and Marc A. Stern "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America." in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson. and Marc A. Stem (Boulder. CO.: Westview
Press. 1997) 132.
14 Personal consultation with Carlos Mora, Chevron Social Program for Peru, Executive for Community
Relations, Gainesville. Florida. 10 February 1998.

15 Personal interview with Dr. Rene Ortiz. ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982). Quito. Ecuador. 15 July 1997.








movements, and influence public opinion through use of the media and advertisement.

Links with foreign NGOs grants an international audience which can be incorporated as an

additional supporter. Alliances with groups in other issue areas such as human rights and,

especially, indigenous rights groups, have strengthened their ability to influence public

opinion and raise awareness. The powerful combination of environmental protection and

the defense of indigenous rights has boosted the effectiveness of both substantially.

The success of environmental NGOs in Ecuador is a result of two developments:

the decline of the state and the traditional conceptualization of sovereignty; and the

international arena is now more sympathetic to the causes of sustainable development and

indigenous rights.

Whereas there is some debate as to the future of the state, the opinions expressed

today agree on several points: first, that the state in any case will remain much weaker

than the strong state that has characterized most of this century; second, the resulting

vacuum will be increasingly filled by networks, be they of businesses, environmentalists,

indigenous groups, or crime syndicates; third, a decline of sovereignty for the state; finally,

the strengthening of local governments in individual countries.16 According to Mathews,

the reduction of state power has diminished its ability to control its borders, facilitating a

reduction in its monopoly of information. This has occurred simultaneously with--some





16 See Anne-Marie Slaughter, "The Real New World Order." Foreign Affairs September/October 1997:
183-186: Alison Brysk, "Acting Globally: Indian Rights and International Politics in Latin America." in
Indigenous Peoples and Democracy in Latin America. ed. Donna Lee Van Cott (New York: St. Martin's
Press. 1994) 29-31: Kathryn Sikkink. "Reconceptualizing Sovereignty in the Americas: Historical
Precursors and Current Practices." Houston Journal ofInternational Law Spring 1997: 705-729; and
Jessica Mathews. "Are Networks Better than Nations?," New Perspectives Quarterly Spring 1997: 10-14.








argue a result of--the communications revolution sweeping the world. 1 The resulting

reduction in the cost of communication has led to an explosion in the ability of

transnational organizations such as NGOs to disseminate information virtually

instantaneously with little possibility for government interference of this flow. Where

governments once set the agenda, NGOs are now dominant in some issue areas. Mathews

presents as an example of changes in sovereignty the global climate treaty in which NGOs

conceptualized the treaty, devised its content, and set the agenda. Governments were

presented this treaty and signed it after much wrangling, in spite of the significant

implications for domestic policies." As Sikkink notes, internal sovereignty has never been

absolute, and the current push for regional integration--for example--further exposes the

state to outside interference on how it treats its citizens, or in this case, the environment.19

This presents a scenario in which transnational groups such as NGOs will continue

to influence policy. In Ecuador, faith in the state's management capacity has decreased

while a recovery of local government within major urban areas (Guayaquil, Quito,

Milagro, Cuenca, Machala) is underway. This increases the scope of operation for NGOs

to continue to influence policy. The formation of provincial committees to monitor oil

production activities in the Oriente, a result of efforts by local government, NGOs

(particularly Fundaci6n Natura), and grass roots organizations, is a reflection of the

increasing strength of local versus central government in Ecuador. It also justifies the



'7 Jessica Mathews. "Are Networks Better than Nations?." New Perspectives Quarterly Spring 1997: 11.

18 Jessica Mathews. "Are Networks Better than Nations?." Xew Perspectives Quarterly Spring 1997: 10-
14.

9 Kathrvn Sikkink. 'Reconceptualizing Sovereignty in the Americas: Historical Precursors and Current
Practices." Houston Journal oflnternational Law Spring 1997: 705-707.








current strategy by Ecuadorian NGOs and regional groups at local empowerment and

using existing legal mechanisms at the local government level to attain their goals.



Legal Action and International Agreements

The strongest channel leading to enforcement of the regime are legal actions and

international agreements. Lawsuits or contamination charges carry many risks for

companies in the oil industry. They combine the possibility of civil or criminal penalties,

tremendous loss of public prestige, and costly and protracted legal battles. Furthermore,

legal action has now become more sophisticated, with environmental and grassroots

groups using all legal resources at their disposal, including instruments designed for the

protection of human rights, local and national health codes, and strategically locating the

venue where legal action is to occur. This has resulted in several efforts which, at least,

have succeeded in achieving public sympathy to the detriment of oil operators and at best

halted oil exploration and production in sensitive areas altogether.

Groups concerned about the environment in Ecuador now have a variety of legal

instruments at their disposal as well as international accords. The Ecuadorian Constitution

guarantees the right of Ecuadorian citizens to live in a pollution free environment.

Executive Decrees 1802 and 2982 provide groups or communities with the legal backing

for denouncing and suing for environmental damages.20 Numerous other codes also



20 For example, a "small" spill of 100 barrels of crude oil by Petroecuador on 18 January 1998 was
denounced near Coca. In this incident, the individuals affected (loss of crops) noted that a much larger
spill had occurred a few years before. They received minimal compensation for their losses but seek a
peaceful resolution of the problem with the local manager of Petroecuador. This case is unique in that
press coverage of Petroecuador contamination is rare.
El Universe. "Denuncian Derrame de Petr6leo." El Universo 29 January 1998.








provide some legal base for citizen protection, such as article 2241 of the civil code, local

regulations such as Ordenanzas 2910 of Quito and Ordenanza 222 of Cuenca, and health

and civil codes at different levels of government.21 The Civil Code allows for lawsuits in

cases where one party causes economic loss to another, for example, when oil spills lead

to a loss of crops. Moreover, international agreements carry with them the commitment of

the signatory country to fulfill its stipulations at the domestic level. This is the reason why

there is a general similarity between Ecuadorian environmental codes and the agreements

on the environment which Ecuador signs. Indeed the Rio Declaration appears to be

influential as it is referred to in petroleum industry forums. Dr. Rene Ortiz observed that

international environmental agreements are one of the main factors leading to change in

domestic policies.22

Actors

Another component of the regime are its actors. These include the state,

environmental NGOs and indigenous groups, private companies, and private citizens.

States that are pursuing national development have an interest in what type of

solutions are found for the problem of environmental degradation. This is particularly true

for states that rely on mining as a source of fiscal revenue. Mining in its different

variations has significant impact on the environment even when the environment is

considered during the planning stage. As one staff member of Fundacion Natura points


21 See Byron Real L6pez. "C6mo Defendernos de la Barbarie Ambiental." in Debate Ecologico sobre el
Problem Petrolero en el Ecuador. ed. Esperanza Martinez (Quito. Ecuador: Acci6n Ecol6gica. 1993) 91-
93 and Giuseppina Da Ros, "Anailisis Econ6mico de la Contaminaci6n de Aguas en America Latina: el
Caso de Ecuador." in. ndlisis Econ6mico de la Contaminaci6n de Aguas en America Latina. ed. Jorge A.
Quiroz (Santiago, Chile: Centro Internacional para el Desarrollo Econ6mico, 1995) 280-284.








out, regardless of any environmental protection plans that companies undertake, negative

environmental impacts are unavoidable.2 This was also noted by one ex-minister of

energy.24 The result is a difficult choice for the state, one of self-imposed regulation for its

revenue generating petroleum industry.25 Oscar Garz6n noted that Maxus (now YPF

Ecuador Inc.) has significantly seen its production costs increase as it has moved towards

stronger environmental protection. This means less revenue for the state. Petroecuador

itself is moving towards higher environmental standards with support from its

Environmental Protection Unit (Unidad de Protecci6n Ambiental), although it remains a

significant polluter according to ex-OPEC Secretary General Rene Ortiz. 26 Of interest is

the future course that Petroecuador will take concerning environmental protection. Its

Environmental Protection Unit has certainly taken a strong stand on the Texaco issue.27



22 Personal interview with Dr. Rene Ortiz. ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982), Quito. Ecuador. 15 July 1997.

23 Miss Lucia Burgos of Fundaci6n Natura. one of the NGO's experts on the oil issue, agreed to speak
independently of Fundaci6n Natura. Her views are hers only and do not necessarily represent those of
Fundaci6n Natura.
Personal interview with Lucia Burgos. Fundaci6n Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province. Quito. Ecuador, 11 July 1997.

24 Personal interview with Oscar Garz6n, ex Minister of Energy under the Borja administration, Quito.
Ecuador. August 1997.

25 Environmentally sound industry practices does increase significantly the cost of production. This is
according to Douglas Southgate's research and Oscar Garzon. ex-Minister of Energy during the Borja
administration. See personal interview with Oscar Garzon ETC. and Douglas Southgate. Petroleum
Development in Tropical Rainforests: the Economics of Pollution Control in Eastern Ecuador (Quito:
Institute de Estrategias Agropecuarias. 1992) 14-17.

26 See ECO Polemica Revista de la Unidad de Protecci6n Ambiental de Petroecuador August 1997 and
personal interview with Dr. Rene Ortiz. ex Secretary General of the Organization of Petroleum Exporting
Countries (1978-1982). Quito. Ecuador, 15 July 1997.

27 See ECO Polemica Revista de la Unidad de Protecci6n Ambiental de Petroecuador August 1997 and
Unidad de Protecci6n Ambiental de Petroecuador. Analisis de la Operacidn de Texaco y del Plan de
Remediaci6n Ambiental (Quito: Petroecuador UPA. 1997).







The state, nevertheless, has changed policies only in the 1990s as a result of the emerging

consensus around sustainable development and has done so only reluctantly.

The main domestic environmental groups are Fundacion Natura and Acci6n

Ecologica. Fundaci6n Natura, affiliated with the World Wildlife Fund, is the largest with

1200 members and most influential with enough financial resources to carry on national

advertising campaigns aimed at promoting environmental awareness. Fundaci6n Natura's

position concerning oil exploration and production is that it has to be done with as little

environmental damage as possible. If oil exploration and production in ecologically

sensitive areas is necessary, Fundacion Natura determines what are the potential

economic gains compared with the losses. If the losses are excessive, then it will not

support a project.28 It also promotes local monitoring of oil activities and because of its

"moderate" position, participates with government in environmental policy making.

Acci6n Ecologica, a more radical and smaller group, is affiliated with Greenpeace

International and the Rainforest Action Network. It seeks to protect the Oriente through

activism such as picketing, public protest rallies, organizing letter-writing campaigns, and

through publishing research on the Oriente region and the impact of oil production. A

movement affiliated with Acci6n Ecologica is Amazonia por la Vida which attempts to

educate the public on the events of the Oriente and oil. Both groups are based in Quito,

with Fundaci6n Natura having an apparently well financed operation in the city and

Acci6n Ecologica running a far more modest operation in the Quito offices of the

Facultad Latinoamericana de Comunicacidn Social (FLACSO). Some indigenous groups


28 Personal interview with Lucia Burgos, Fundaci6n Natura Coordinator for the Provincial Commission
for the Monitoring of Oil Activities in Napo Province. Quito. Ecuador. 11 July 1997.








have supported the efforts of environmentalists in what Brysk considers a bright maneuver

on their part to defend their interests by "harnessing the power of the international

environmental regime" which she considers to be stronger than others--such as the regime

for the protection of indigenous rights.29 The influence of environmental groups on

Ecuador is strong, and they are perceived to be the voices of the international

environmental community.30 As such, they "speak" more loudly than their numbers would

suggest.

There are several companies operating in Ecuador's oil industry. The single largest

producer is PetroProducci6n (a unit of Petroecuador) with 60% of output. The other large

producers in order of importance are: YPF of Argentina (the single largest private

operator in Ecuador), Oryx, Occidental Petroleum (Oxy), City Investing (Canada),

PetroBras (Brazil), and Arco, which is scheduled to begin production in 1999. Because of

delays in the processing of required documentation, an unstable investment climate,

pressure from environmentalists, and preferential treatment for government favorites such

as Petroecuador and its subsidiaries, several companies have abandoned Ecuador in recent

years including Conoco and Elf Aquitaine."3



29 Alison Brysk, "Acting Globally: Indian Rights and International Politics in Latin America." in
Indigenous Peoples and Democracy in Latin America, ed. Donna Lee Van Cott (New York: St. Martin's
Press. 1994) 30-31.
30 Personal interview with Oscar Garz6n. ex Minister of Energy under the Borja administration. Quito,
Ecuador, August 1997 and personal interview with Dr. Rene Ortiz. ex Secretary General of the
Organization of Petroleum Exporting Countries (1978-1982), Quito. Ecuador. 15 July 1997.

31 Elf recently announced it will leave its Ecuador operations. This was ostensibly due to a reduction in the
company's production ceilings by the government from 2,225 barrels per day to 1.100. All other
companies were hit by ceiling changes which they have contested in court: PetroProducci6n and City
Investing have seen their production ceilings increased. The problem arose because Ecuador has limited
pipeline capacity (currently 400.000 barrels per day at over-capacity) and the government is apparently
trying to secure more transportation capacity for itself. The expansion of the pipeline has been planned for










Table 4-1
Major Oil Companies in Ecuador: 1997-1999
PRODUCTION PROJECTIONS 1997-1999
(barrels per day)
PetroProduccion YPF Oryx Oxy City Elf PetroBras
1997 302,500 52,699 25,370 24,690 12,073 9,278 1,852
1998 319,968 49,976 20,936 29,140 12,990 11,789 4,652
1999 340,836 89,221 17,398 22,480 14,093 12,487 11,247

Source: PetroEcuador 1997.
Note: Data includes Elf Aquitane which will no longer operate in Ecuador. Oxy is short for
Occidental Petroleum


TOTAL
428,462
449,451
535,622


YPF (Yacimientos Petroliferos Fiscales) entered the Ecuadorian oil industry in an

expanded role in 1995 through the acquisition of Maxus.



Mobilizations Against Polluters

Several cases have developed in the 1990s in which companies were targeted for

their lax--or nonexistent--environmental policies. These cases reflect the use of legal

mechanisms, NGO and grassroots mobilizations, and use of sympathetic international

audience in order to secure environmentally sound policies. These cases are primarily the

lawsuit against Texaco and the Maxus controversy (now YPF Ecuador Inc.).



The Texaco Lawsuit

The lawsuit filed against Texaco Corporation in Federal District Court in White

Plains, New York, by Ecuadorian indigenous peoples in November of 1993 provides a



several years but constant bickering among interested parties has delayed its construction. See "Elf pulls
out of Ecuador." The Oil Daily 29 January 1998: 6 and PetroEcuador 1997.








concrete example of how the regime's de facto enforcement mechanism operates. It is

illustrative of how the different forces that have shaped Ecuadorian oil policy in recent

years converge, interact, and influence different actors in different arenas. It has become a

public relations nightmare for Texaco and its persistence plagues the company to this day.

Key events in the Texaco Lawsuit are the following:

* The original suit was filed in November, 1993.

* Was decided on December 17, 1994, in favor of Texaco, but evidence gathering was

allowed until final dismissal in 1996; reinstatement was an option if Ecuador's

government chose to support it.

* It was a class-action lawsuit seeking $1.5 billion in damages.

* Ecuador's government initially (1994) opposed the suit.

* Former U.S. Attorney General Griffin B. Bell defended Texaco.

* Rulings have been unfavorable to the plaintiffs, with the courts stating that the case

should be tried in Ecuador.

* The Ecuadorian government decided to support the suit in 1997.

The lawsuit was filed in White Plains because the plaintiffs alleged that the events

that transpired in Ecuador were contrived from Texaco's corporate headquarters there.

Thirty Oriente Indians presented themselves in court to present the suit which was

registered as Maria Aguinda et al v. Texaco.Texaco was sued for "pollution of land and

rivers in the Amazon Basin" and charged that its primitive waste disposal systems had

created conditions that could lead to a public health crisis.32 It sought over $1.5 billion in


32 "Ecuadorean Indians sue Texaco for Damage to Rivers. Land in Amazon Basin." BNA International
Emnironment Daily 5 November 1993: 2.








compensatory and remedial damages. A lawsuit by foreigners in the United States for acts

committed abroad is permitted by the Alien Tort Victims Act, which allows aliens to sue

U.S. entities for any personal injury they may have caused. Texaco respondeded that it did

nothing wrong and complied with industry practices of the time and with Ecuadorian

regulatory codes.33

The organizations participating in this effort were a combination of indigenous and

environmental groups. The indigenous groups included the Coordinadora de

Organizaciones Indigenas de la Cuenca Amazonica (Coica), the Confederaci6n de

Nacionalidades Indigenas del Ecuador (Conaie), the Confederaci6n de Nacionalidades

Indigenas de la Amazonia Ecuatoriana (Confeniae), and the Federaci6n de Comunas

Uni6n de Nativos de la Amazonia Ecuatoriana (Fcunae). Among the environmental

groups participating were the component members of the Campana Amazonia por la Vida

including Acci6n Ecologica. They organized the first boycott of Texaco in Ecuador,

known as "Texaco week" from July 5 to 9, 1993. The goals of the boycott were: to raise

public awareness, to make Texaco responsible for a clean-up of the areas affected, to

make public the HBT Agra audit (which was believed at that time to relieve Texaco of

responsibility), and to hurt Texaco financially through boycotts not only in Ecuador but in

Norway. There were additional anti-Texaco efforts in England, Denmark, and Holland.34


33 See Ricardo R. Veiga, Vice President Texaco Petroleum Company. "To the Editor," The New York
Times 6 February 1998: A22 and "Ecuadorean Indians Sue Texaco for Damage to Rivers, Land in
Amazon Basin." BNA International Environment Daily 5 November 1993: 2.

34 The independent HBT Agra was initially believed to have been another Texaco and government public
relations maneuver aimed at diffusing growing public outcry over Oriente contamination. Part of the
problem was that the parameters had been set by the government and these did not include local input into
the audit. However. the audit was apparently done professionally within the parameters placed. See
Rainforest Action Network. "Ecuadorian Indigenous People. Environmental Acitivists call for
International Boycott of Texaco." Urgent Appeal 5 August 1993 posted to Native Web








Texaco customers were urged to return their credit cards with a letter stating that "(I)

refuse to purchase your products until Texaco cleans up their mess in the Ecuadorian

Amazon...Where clean up is not possible, the company should provide full

indemnification to the individuals and communities affected...and to install injection wells

and pollution controls to avoid further environmental disasters in the future."35

The boycott attracted initial public attention to the events that had occurred in

Ecuador. The lawsuit added a much more potent element because it pitted the poor

Oriented Indians against one of the largest and most powerful corporations in the world.

The plaintiffs chose to sue in the United States for several stated reasons. First was

because they felt they would not receive a fair hearing in Ecuador because of Texaco's

influence there, the slowness of Ecuador's legal system, and endemic corruption.

Moreover, Ecuador's judiciary has little experience with this kind of issue which could

work in Texaco's favor. However, it should be noted that the difficulties with Ecuador's

judicial system could work both ways. The presence of corruptible judges does not

necessarily mean that they would actually be corrupted--especially in light of the Foreign

Powers Corruption Act. Later litigation in Ecuador on a variety of issues shows that the

judiciary, for all its failures, cannot avoid sanctioning patent violations of the law and is

capable of going against powerful interests. Moreover, Texaco opponents are not

necessarily all NGOs and activists. As shown by the position taken by the Petroecuador's



www.nativeweb.org and Glenn Siitkes, "The People vs. Texaco" North American Congress on Latin
America (1994).

35 Rainforest Action Network. "Ecuadorian Indigenous People, Environmental Activists call for
International Boycott of Texaco." UrgentAppeal 5 August 1993 posted to Native Web
www.nativeweb.org.








Environmental Protection Unit and the current government's hostile stance towards the

company, it is also possible to develop enemies within players in the industry.

Nevertheless, corruption in Ecuador's judicial system raises poses uncertainties that some

organizations are not willing or capable of affording. As Dr. Rene Ortiz observes,

"demanding Texaco in the United States for damages is a recognition of a corrupt and

unreliable judicial administration in Ecuador."36

Another reason for the venue was the attention that the lawsuit would receive in

the press and in the industry. The lawsuit was a public relations bonanza for

environmentalists. Texaco's dumping of millions of gallons of crude oil and toxic waters in

such ecologically sensitive areas was the perfect example of a corporation operating

without regulation and causing vast damages. Coverage of the suit and Texaco's

contamination of the Oriente was significant in The New York Times, The New Yorker, The

Oil Daily, North American Congress on Latin America, El Comercio, El hUniverso,

Diario Hoy, in addition to the publications of a large number of environmental groups.

Press coverage continues to this day, with articles reporting on the environmental damage

provoking a response from Texaco in its "to the editor" pages.

Texaco now finds itself consistently on the defensive, as illustrated by the presence

on its web site of an area dedicated to the environment, including updates on the situation

in Ecuador. Texaco's position on the issue has always been the following:






36 Personal interview with Dr. Rene Ortiz. ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982), Quito, Ecuador. 15 July 1997.








Texaco was a minority owner with Petroecuador, the state oil company,
in an exploration and production consortium...Texaco was in full compliance
with environmental laws and regulation, and the state oil company and the
Government approved all investments and operations. After concluding
operations in 1990, Texaco undertook a remediation program with the
approval of Petroecuador and the Government.37

And the company views its presence in Ecuador as environmentally sound in an official

statement on the issue: "...Contrary to the impression conveyed, Texaco Petroleum

Company (Texpet) conducted its business with the utmost care and concern for the

Ecuadorian rainforest and the people who live there..."38 In the same statement, Texaco

Petroleum Company president Janet Stoner adds that "As a company, we can look at our

record in Ecuador with great pride...We conducted a successful business operation, while

also protecting a fragile environment and providing major benefits to the people."39

However, there is widespread acceptance in Ecuador that Texaco has polluted its

areas of operations in the Oriente extensively. In addition to the previously discussed HBT

Agra audit, the analysis by Petroecuador's Environmental Protection Unit, and

Kimerling's study, there was extensive media coverage in Ecuador showing damage on

television, newspaper stories, and individuals familiar with the industry. Although qualified

as an "allegation," coverage notes that contamination exists and was caused by private

multinational energy companies, referring to time periods when Texaco was the only

company operating on a large scale. Environmentalists speak freely in the media. For

example, Fundaci6n Natura's former executive director, Dr. Roberto Troya in discussing


7 Ricardo R. Veiga. Vice President Texaco Petroleum Company. "To the Editor." The New York Times 6
February 1998: A22

38 Texaco Petroleum Company, "An Update on Ecuador." www.texaco.com.

39 Texaco Petroleum Company. "An Update on Ecuador." wvw.texaco.com.








future oil concessions notes that "we believe that we cannot fall into the mistakes of the

past, we think that the lessons lived with Petroecuador, as well as Texaco, and other

companies both domestic and foreign, should open our eyes and the government will need

to make serious decisions to avoid that the damages...will be repeated in other parts of the

country."0 Others are even more direct, with Dr. Rene Ortiz calling Texaco's

contamination "malpractice" and Oscar Garz6n noting that there was either "bad practice,

intention, or faith (mala fe)" in the way Texaco conducted itself environmentally.41

Overall, there is widespread acceptance that Texaco's environmental controls were faulty,

but that the state is partly to blame as well because of its majority stake in Texaco's

Ecuadorian operations.

The suit was also important in that it shed some light on how United States courts

view international environmental agreements. Under the Alien Torts Victims Act, a breach

of international treaty needed to be shown in order to proceed against Texaco. However,

the treaties on sustainable development are agreements and at best constitute a--non-

treaty--international consensus. Nevertheless, such agreements are now treated by United

States courts as the "sober second thought of the (international) community" that all law

ultimately rests on.42 Greater strength is added to such agreements in United States courts

when they concur with "domestic law and its objectives."43



40 Quoted in El Universo, "Contaminaci6n en el Oriente." El Universo 2 March 1994: El Pais 1.

41 Personal interview with Dr. Rene Ortiz. ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982). Quito. Ecuador. 15 July 1997 and personal interview with Oscar
Garz6n, Minister of Energy under the Borja administration. Quito. Ecuador. August 1997.

42 Aguinda v. Texaco 17.

3 Aguinda v. Texaco 17.








The Rio Declaration of 1992 was presented by the plaintiffs as an agreement which

Texaco did not comply with, and it was deemed the most pertinent of such documents by

the court because it constitutes a broad guideline on what sustainable development is and

the role of the state in its promotion. On this issue, the judge noted that agreements such

as the Rio Declaration eventually become international law through "accretion." By this

process, as more countries incorporate the principles, rules, and norms of the agreement

into their own legal systems and regulatory codes, they become international law since the

behavior that the declaration seeks to correct becomes increasingly unacceptable. There is

increasing acceptance that this is indeed happening among legal scholars and some

political scientists, who note the rapid proliferation of environmental legislation worldwide

regardless of whether the state favors them or not. Latin America has been one of the

regions that has seen rapid development of environmental protection codes, in spite of the

professed opposition of some governments to such regulatory additions or changes.

Treaties such as that on Climate Change signed in Kyoto in 1997 will only strengthen

previous agreements. However, the judge observed that for the purposes of the suit, the

Rio Declaration was not relevant because it was not a treaty to which the United States

was a signatory country, a prerequisite for conducting a tort trial in the country under the

Alien Torts Act.

A controversial position was that assumed by the Ecuadorian state in support of

Texaco during the first suit in 1994. The Duran-Ballen administration presented an amicus

brief (friend of the court) asking for the suit's dismissal. The brief argued that if such a

trial were to proceed it would be a disincentive for foreign investment in Ecuador because

firms expect such problems to be resolved through the Ecuadorian judicial system and not








United States courts. The judge noted the difficulties confronting countries such as

Ecuador which require capital to develop:

Developing nations such as Ecuador benefit from foreign investment but
are injured by environmental pollution. As indicated by the amicus brief, in
order to attract investment such countries often seek to create the most
favorable climate possible....44

But the judge also noted that the government could create a favorable investment climate

through investor protection, adding that "any disincentive caused by exercise of

jurisdiction here (in the United States) would not be to investment in Ecuador...but to

conduct likely to violate applicable legal norms regardless of the site of the property

affected." The judge recognized the power of the suit, which environmentalists realized as

well. A lawsuit or even a threat of lawsuit in the United States could have a deterrent

effect against contamination.

The Texaco suit was ultimately dismissed in November 1996 on the grounds that

Ecuador, not the United States, was the proper forum for the trial, because the

participation of Petroecuador and the state was deemed necessary, and because the

plaintiffs had failed to show that Ecuadorian courts could not handle the case.45

Petroecuador and the state's participation was considered necessary because of their role

as majority stakeholders in Texaco's Ecuadorian operations. Immediately thereafter, the

Ecuadorian government entertained the idea of joining the suit against Texaco. It

resurrected the case once more in 1997 when it finally joined. This in spite of warnings

from Texaco that noted it would sue Ecuador's government if it went ahead, and would


44 Aguinda v. Texaco 19.

45 Mark O. Donoghue and Eduardo Brito, "Texaco's Strategy in Ecuador," International Commercial
Litigation November 1997: 42-44.







be responsible for 62.5% of any damages awarded (Ecuador's share in Texaco's

operations there).46

Texaco, however, has already agreed to clean up part of its area of operations and

to settle with regional municipalities as part of a little publicized May 1995 deal with the

government. Municipalities such as Lago Agrio received $1 million from Texaco without

an admission of guilt. Texaco has not escaped the stigma from its Ecuadorian operations,

however. At its annual shareholders meeting on 13 May 1997, in Rye Brook, New York,

protesters--some from the Rainforest Action Network--focused attention on the

Ecuadorian allegations as well as problems with contamination and deforestation in

Myanmar. They were joined by members of the Rainbow Coalition upset at racial

discrimination at the company.7



The Maxus Controversy

In 1991, Maxus was awarded a 200,000 hectare concession in Block 16, one of

the most environmentally sensitive areas of the entire Oriente. It is also the home of the

Huaorani indigenous group who were adjudicated that same land in 1990 by the

government of President Rodrigo Borja. Block 16 is simultaneously the location of Yasuni

National Park, which was declared a reserve because of its extraordinary bio-diversity.

Maxus was granted the concession by the Borja administration in 1991. Maxus is a

Dallas based oil exploration and production company which has operations in the United

States, Asia, and Latin America. The root of the conflict lies in the fact that, since Block


46 "Texaco Eyes Suing Ecuador." The Oil Daily 30 April 1997: 5.

47 "Texaco Meeting Is Hit by Protests." The New York Times 14 May 1997: D2.








16 is legally Huoarani territory, the Huoarani are supposed to have the right to determine

how the land under their control is used. At least at the beginning, they were hostile to oil

exploration in their lands and refused to negotiate a deal after prior experiences with

Conoco attempts to operate in their area. Maxus, however, decided to proceed regardless,

and seismic exploration began in 1991 and was completed in 1992. On 28 January 1992

Maxus and the government of president Borja signed a letter of understanding which

contained some provisions for protection of the Huaorani--apparently without consulting

the Huaorani.4 However, the building of roads and the realization of its consequences led

to a bitter dispute between environmentalists and indigenous groups against Maxus.

The dispute reached Quito in October 1992, when Conaie issued a press release in

which they accused Maxus of invading private property. In it, they reveal their greatest

fears, oil companies and settlers. They explicitly accused settlers who bring "their

"civilization," destroy everything in their path: our culture, our territory, our lives."49

Indigenous leaders from the Oriente and those in Quito as part of Conaie sought to meet

with the president of Petroecuador, the president of Congress, Maxus executives at their

Quito offices, and the Minister of Energy. They were able to meet with the Ecuadorian

government representatives. The president of Petroecuador offered to search for a

"reasonable solution" after having met with Conaie, Confeniae, and Onhae representatives

on 27 October 1992. The indigenous representatives also met for two hours with Carlos

Vallejo, then president of Congress, who also offered his support but without noting any


4 Ivan Narviez. Huaorani vs laxus (Quito: Corporaci6n de Estudios y Promoci6n Cultural. 1996)
Annex 7.

49 Confederaci6n de Nacionalidades Indigenas del Ecuador. "The Huaorani People Will Stay in Quito
until their Demands are Met." Press Release 28 October 1992: 1.







specific action that he would pursue. However, they were less fortunate in meeting with

Maxus executives. After appearing at their offices, they not only refused to receive the

indigenous representatives but also called the police and had them removed. In order to

establish negotiations, Maxus demanded that the indigenous representatives had to dialog

through its public relations specialist, Rosana Fayeta, who was accused of continuously

attempting to undermine the unity of the indigenous groups. The dispute began to receive

worldwide attention, with journalist Joe Kane, formerly of the Rainforest Action Network,

publishing two extensive and damning articles in the New Yorker magazine. In them, he

depicted a two-faced Ecuadorian administration (that of president Duran-Ballen) that,

while professing support for the indigenous cause, conspired against them.50

Negotiations between the company and the Huaorani dragged on as they accused

Maxus of using gifts to divide the loyalties of the Hiaorani. Accion Ecologica released a

statement in which they alleged that Maxus engaged in the destruction of Hiaorani

culture, bio-prospecting (granting educational, hence pharmaceutical institutions access to

local biological organisms), deforestation of 29,355 hectares of primary rainforest, leaving

toxic debris on roads, and releasing toxic fluids--among other allegations.1 On 19 April

1995, the Huaorani peacefully occupied Maxus' installations, accusing the company of

failing to meet the terms of the agreement signed with the government and lied about

certain environmental impacts. Besides the allegations made public by Accion Ecologica,

they were also upset at the fact that the agreement did mention, cultural, and economic



50 See Joe Kane. "With Spears from All Sides." The New Yorker 27 September 1993: 54-79 and Joe Kane.
"Moi Goes to Washington." The New Yorker 2 May 1994: 74-81.

51 Amazonia por la Vida. "Maxus and the Ecuadorian Amazon." Acci6n Ecologica Bulletin 21 April
1995:1.








impacts and the contracting of Brazilian transnational Andrade Gutierrez for road and

infrastructure development.52 Andrade Gutierrez had been sanctioned in Brazil for bribing

government officials. 3 The Huaorani wanted the following:

* Protection of their organizational, cultural, and territorial rights.

* Their participation for decisions affecting the areas which they influenced.

* Guarantees of their economic, social, and organizational rights.

* Consolidation of the integration process with the rest of Ecuadorian society on

a basis of mutual respect.

* Economic participation on just terms for their integral and autonomous development

* Overall, called for respect of their human rights and dialog with the actors involved.54

The Huoarani had the most to lose. Among the indigenous groups living in the

Oriente, the Huaorani were among the last to establish contact with Ecuador (in the

middle of the 20th century), a country they were technically citizens of. Their main initial

contact was with American missionaries, some of which were killed in encounters with the

Huoarani whom they sought to convert.55 For the last 40 years, though, they had been

able to live relatively isolated from other inhabitants of the Oriente and from the state.

The presence of oil in their territory led to new threats, particularly the presence of

workers, settlers, and other, much larger indigenous groups. Two processes were



52 Onhae. "Pueblo Huaorani se Levanta en Defensa de sus Derechos," Boletin de Prensa 19 April 1995: 1.

53 Onhae. "Pueblo Huaorani se Levanta en Defensa de sus Derechos." Boletin de Prensa 19 April 1995: 1.

54 Onhae. "Pueblo Huaorani se Levanta en Defensa de sus Derechos." Boletin de Prensa 19 April 1995: 1-
2.

55 See Ivan Narviez. Huaorani vs Maxus (Quito: Corporaci6n de Estudios y Promoci6n Cultural. 1996)
32-34 and Joe Kane. "With Spears from All Sides." The New Yorker 27 September 1993: 57-58.







particularly threatening concerning Maxus--the impact that the oil exploration and

production would have on their environment and settlers that would come in whenever the

company built roads. These settlers would potentially be mestizos or Quichna Indians,

with cultural traits and organizations that have dominated smaller indigenous groups.56 A

process of"quichuaizaci6n" of the Huoarani has already had an impact, with their outlook

on material goods, their relationship with the state, and their political system being

significantly altered as a result.57 The threat of contact with settlers can be potentially

devastating, since such contact with the Ecuadorian nation will also mean incorporation

into the world capitalist system, one into which they will probably enter in a position of

dependency and poverty.58

To further their own interests, the Huoarani organized the Organization of the

Huoarani Nation of the Ecuadorian Amazon, or Onhae. Originally led by Huaorani men

Moi, Amo, and Enqueri, the organization forged an alliance with the Confeniae and

Conaie. Together, they demanded: a moratorium to Maxus' oil exploration in Block 16,

suspension of work on oil roads, and the right to manage their own territory.59

The road in question consisted of a 150 kilometer freeway connecting main oil distribution

facilities with Maxus sites in Block 16. The construction of this freeway came under fierce


56 Ivan Narviez. Huaorani vs Maxus (Quito: Corporaci6n de Estudios v Promoci6n Cultural. 1996)
79-85.
57 Such process of quichuaizaci6n has also occurred with the Aucas. another Amazonian indigenous
group.
58 See Ivan Narviez. Huaorani vs Maxus (Quito: Corporaci6n de Estudios y Promoci6n Cultural, 1996)
81 and Judith Kimerling, El Derecho del Tambor (Quito: Ediciones Abya-Yala, 1996) 193-202.

59 Confederation of Indigenous Nationalities of Ecuador. "The Huaorani People will Stay in Quito Until
their Demands are Met." Press Release 28 October 1992.







attack because it would destroy large swaths of rainforest as workers received the right to

cut and sell forest woods a total of 60 meters deep on either side of the road. The fauna of

the area would also suffer as habitats and hunting grounds were physically altered.

Deforestation, pollution, erosion, and sedimentation would also alter the ecosystem in the

areas affected. At the time, all freeways built in Ecuador were free and accessible to the

public. Even if access to the freeway were controlled, and military personnel were to

guard it, that would still not avoid the problem of settlers during the construction phase.

Moreover, the military itself has traditionally been a significant source of settlers.

The freeway was approved by the Ecuadorian government. Activists in the area

immediately mobilized to peacefully block construction crews and their machinery.

Congress, however, was contemplating a moratorium on all exploration in the area and

this led to appeals pressure Congress, the president of Ecuador, and Maxus offices in

Quito and Dallas.

The response from activists was sharp. YPF (Maxus' parent company) CEO

Roberto Monti received a bouquet of oil drenched roses symbolizing the contamination

that Maxus had allegedly caused in Block 16. It was presented to him by activists from

Acci6n Ecologica; pictures of the event show an upset Monti receiving the flowers.

The response of Maxus to criticism was one of accommodation. Maxus

implemented several policies aimed at reducing pollution and colonization. It should be

noted that the greatest efforts at satisfying criticism began in 1995, when Decree 2982

became law and Maxus was acquired by YPF of Argentina. By renaming Maxus Ecuador

Inc. to YPF Ecuador Inc. in 1997, an act which did not occur with the rest of Maxus'

operations around the world, YPF was apparently trying to break with the negative image







associated in Ecuador with the Maxus name. This however, was denied by YPF Ecuador's

public relations coordinator, Lucia Rivas, noting that YPF Ecuador has addressed public

concerns about its operations. 60

Several innovations were adopted by Maxus (YPF Ecuador Inc.). One was the

construction of roads using Geotextil. Geotextil is a highly resistant material designed to

contain asphalt. This minimizes the amount of spreading of asphalt and permits the

clearing of a minimum amount of land when compared to non-Geotextil roads, requiring

only 8 meters of road (2 meters to the sides). Moreover, the use of Geotextil eliminates

the need for hardwoods as a base for the roads. The use of these woods, obtained by

cutting down trees in the rainforest, leads to enormous loss of vegetation, as much as 30

meters to either side of a road. The longer the road, the greater the amount of

deforestation. Geotextil essentially replaces the wood in road construction. This is an

expensive process; however, environmental groups applaud the use of Geotextil. Another

innovation is the underground installation of oilducts. They are inserted into channels that

are filled with compact granular filling. This translates into less exposure for the ducts to

the elements, earthquakes and minimizes the impact of leakage, reducing the risk of

contamination for the rivers of the area. The underground placement ofoilducts reduces

the deforested area from an average 60 meter tract of forest to approximately 10 meters,

representing an enormous saving of vegetation. Furthermore, Maxus placed the ducts

underground immediately to the side of the road, reducing costs for the company and the




60 Personal interview with Lucia Rivas. Public Relations Coordinator. YPF Ecuador Inc.. Quito. Ecuador,
21 July 1997.







total amount of forest cleared. Maxus also adopted a policy of re-vegetating with native

plants the areas that are cleared and are not used for roads.

A final innovation adopted by Maxus is the practice of perforation in clusters.

Cluster perforation involves the construction of one platform that drills twelve wells into

the ground. Conventional methods would require the construction of twelve individual

platforms, each with its own support facilities and roads, with the corresponding threat of

colonization and deforestation. In cluster perforation, wells are reached by the use of

special machinery capable of directional (lateral) perforation. This way, the amount of

deforested lands is reduced by approximately 70%. The toxic underground "formation"

waters are dealt with by Maxus. When these waters are extracted from their underground

reservoir, they are re-injected into the same reservoir they came from through machinery

located at a different location.

The Maxus innovation that has received the most applause, however, is its strict

control of colonization in the areas under its concession. Maxus simply does not allow

settlers from outside the area to enter its concession. Its guidelines are clear:

* Use of ferries to cross the Napo River in lieu of bridges.

* Establishment of control points at strategic locations for settler control.

* Indigenous cooperation as park keepers and supervisors, both Quichua Huaorani.

* Identification cards for employees and contractors sensitivity training concerning

policies for the respect of the indigenous population and their territory.








* Approval for the entry into the Maxus concession to be granted by INEFAN and

the armed forces.61

The president of Maxus Ecuador in 1994, William Hutton, noted:

This operation is placed within the framework of sustainable development,
combining the most advanced technologies in perforation, production, and
transport of heavy crude with the most sophisticated programs of environmental
protection and of absolute respect for the indigenous communities that inhabit
the areas of influence.62

Testimony to the change of behavior by Maxus came from former Energy Minister

Garzon who noted that because of its environmental policies, its costs had increased

substantially and were being offset by cuts in other areas of its operations--something

which he did not approve of.63 Lucia Burgos of Fmdaci6n Natura also approved of the

company's efforts, particularly the use of Geotextil and its strict policy of denying access

to the areas under its concession without proper clearance since these efforts reduce the

possibility of colonization of Block 16.64 Perhaps the strongest indication that there has

been some change by YPF, particularly concerning pollution and deforestation, has been

the fading away of criticism from activists. Public appeals and literature on the issue of

YPF Ecuador's operations practically disappeared by 1996, and the company's

headquarters in Quito is no longer surrounded by groups of protesters.


61 Petroecuador and Maxus Ecuador Inc.. "Nueva Era Petrolera en el Ecuador." Un Nuevo Modelo de
Desarollo 21 April 1994: 14.
62 Petroecuador and Maxus Ecuador Inc.. "Nueva Era Petrolera en el Ecuador." Un Nuevo Modelo de
Desarollo 21 April 1994: 3.
63 Personal interview with Oscar Garz6n. ex Minister of Energy under the Borja administration. Quito.
Ecuador. August 1997.
64 Miss Burgos adds. however, that any oil operation will produce at least a minimum of contamination.
Personal interview with Lucia Burgos. Fundaci6n Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province. Quito. Ecuador. 11 July 1997.








Nevertheless, YPF Ecuador continues to receive some critiques in the handling of

its relations with the Huoarani. One charge is that it seeks to create a culture of

dependence among the Huaorani for material goods, thereby securing their acquiescence

to oil exploration; another is that it seeks to divide the Huaorani into two groups and

isolate them, which explains YPF Ecuador's policy of denying entry to individuals

without clearance. These arguments are posed by the head of Petroecuador's

Environmental Protection Unit, Ivan Narvaez, and similar ones within other social-

environmental conflicts are posed by Anamaria Varea of the Facultad Latinoamericana de

Ciencias Sociales Sede 01uito.65

The issue of creating dependency among the Huaorani is complex. The Huaorani

and Onhae are split between its leaders Moi and Enqueri, the current leader of Onhae. Moi

advocates a split from YPF Ecuador to secure the traditional way of life of the Huaorani,

whereas Enqueri believed that the Hzuaorani could benefit economically from a

relationship with the company. Enqueri, once he replaced Moi as the president of Onhae in

1994, agreed to Huaorani support for YPF Ecuador in exchange for a wide variety of

services, primarily medical care, education, and community facilities. As Narvaez himself

notes, the Huaorani had been deprived of basic social services by the state and YPF

Ecuador came to fill that role. However, that role also gives the company powers similar

to that of the state, in which it exchanges services and goods for obedience to its

authority, an argument echoed by Varea. It does seem clear, however, that the Huaorani

entered the agreement on their own free will and they demanded the services in exchange


65 See Ivan Narvaez. Huaorani vsMAaxus (Quito: Corporaci6n de Estudios y Promoci6n Cultural. 1996)
62-67 and Anamaria Varea. "El Manejo Alternativo de Conflictos." in Marea Negra en la Amazonia. ed.
Anamaria Varea (Quito: Ediciones Abya Yala. 1995) 150-162.




Full Text
17
The early phase of the oil industry in Ecuador possessed three central
characteristics. First, there were constant regulatory changes resulting from the
inexperience of policy makers with the peculiarities of the oil industry. This led to frequent
changes in contracts, many of which had to be entirely re-written. Second, a pattern
emerged in which Ecuadorian and international oil companies sought to circumvent laws
by surreptitious manipulation of regulatory codes. Third, at this early stage in the
industrys development, it was foreign oil companies who dominated the scene and they
were able to twist regulation in their favor. It seems that initially, the interests of
multinational companies were able to dominate in negotiations in which the state
increasingly sought to increase its royalties.
The Texaco-Gulf Era
The consortium Texaco-Gulf in 1964 was awarded a 1.413 million hectare
concession in the Oriente6 The adjudicated territory consisted predominantly tropical
rainforest in an area with a complex hydrological system. The emergence of Texaco-Gulf
is noteworthy for various reasons: these were two of the most advanced oil companies at
the time; they brought with them great technical and financial resources which essentially
guaranteed enormous infrastructure development if indeed oil was found; it was
Texaco-Gulf that first began large scale and widespread oil production in the Oriente; and
finally, they were willing to work with a state that was increasingly hostile and
nationalistic, to the point where the state became a majority partner with Texaco through
the Corporacin Estatal Petrolera Ecuatoriana (or CEPE).


CHAPTER 2
HISTORY OF OIL PRODUCTION IN ECUADOR AND ITS
ENVIRONMENTAL CONSEQUENCES
History of Ecuadorian Oil
Ecuadors oil industry has a long history marred by controversy from the outset.
We can divide the history of oil production in Ecuador into three stages: the period of
British domination from 1880-1970, the Texaco-Gulf era from 1964-1992, and the
contemporary period from 1992 onward. This long history of oil in Ecuador is often
forgotten since the petroleum boom of the 1970s has received the most attention and
overshadowed the previous 100 years of the industrys past.
The earliest references to oil in Ecuadorian literature are attributed to Manuel
Villavicencio in his geography of the country. Ecuadors Congress awarded the first oil
concession to M.G. Mier & Ca. in 1878, granting it the right to produce oil in the Santa
Elena region of Ecuadors coast.1
In 1886, Congress, declared state ownership of mines (underground wealth) much
like other countries in Latin America. The Mining Code of Ecuador, as it was known,
was reformed in order to allow the renting of mines to individuals or entities. The first
concession under this framework was to Mr. Carlton Dunne of England in 1909. Under
1 Admiral Gustavo Jarrin Ampudia. Personal notes.
The Peninsula de Santa Elena is the land mass between the city of Guayaquil and the resort city of
Salinas. A variety of fossil fuels are believed to exist in the nearby Golfo de Guayaquil.
14


18
After intense efforts, Texaco located the Oriente's first large scale oil deposits in
the Lago Agrio vicinity in 1967.7 This coincided with the announcement by Anglo that the
deposits at Santa Elena had been depleted.8 Given the decline of the Santa Elena oil fields,
the emergence of the Oriente as a source of oil was of singular importance. Texaco
immediately installed refinement facilities in the region capable of handling 1000 barrels
per day.9 However, the first Lago Agrio well was soon producing 2640 barrels per day
and it became evident that a massive discovery had taken place.10 Large deposits began to
appear in the Oriente (such as Shushufindi) and other companies began knocking on
Ecuadors door.
The appearance of large oil deposits was a dramatic turn of events that caught
many Ecuadoriansmore so those in governmentby surprise. Shell had abandoned the
country in 1948 after unsuccessfully prospecting for 11 years in the Oriente, leading then
president Galo Plaza to his famous comment that the Oriente was a myth.11 However,
the reality that Ecuador was at the dawn of a new economic era began to sink in thanks to
the 1967 discoveries and the urgent need for foreign exchange faced by successive
governments.12 The large discoveries and the eagerness with which large multinationals
6 Admiral Gustavo Jarrin Ampudia. Personal notes.
' Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 19.
8 Admiral Gustavo Jarrin Ampudia. Personal notes.
9 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 19.
10 Admiral Gustavo Jarrin Ampudia. Personal notes.
11 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 352.
12 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 352.


41
indicates the importance Ecuadors government placed on responding to foreign critiques
of oil exploration in Oriente.14 Moreover, Ecuadorian executive decrees are pieces of law
and regulation. Decree 1802 is clearly different: it is actually a direct responsein the form
of a policy statementto criticism of oil exploration and makes those interested aware of
the steps that the government is taking to address the issues stirring the controversy. It
admits past shortcomings in terms of environmental protection of oil production processes
in Oriente, the lackluster role of the state in enforcing environmental regulations, and
hence leaves a feeling that the regulatory codes prevailing at the time were inadequate at
the very least.
Executive Decree No, 2982
Executive Decree No. 2982 is the legal embodiment of the principles outlined in
1802. Decree 2982 clearly spells out all the minimum requirements for sustainable oil
production and even addresses some of its socio-economic aspects. Most important,
however, is the high degree of expertise in environmental matters shown by its drafters. It
explicitly deals with the causes of contamination and deforestation.
Decree 2982 clearly stipulates the right of Ecuadorians to live in an environment
free of contamination and the constitutional role of the state as the main protector of that
right.15 Its goal is to regulate all oil production activities in Ecuador which have an
environmental impact regardless of the source of the activity, i.e. it regulates the public
14 The material published in the Registro Oficial is rarely translated into English.
15 Executive Decree 2982 pg. 1.


106
Do they destroy or save local culture? Finally, a deeper exploration into the connections
between local and international NGOs would be of interest in order to further explain
domestic NGO effectiveness in spite of their tiny memberships. In the future, it would
interesting to see more widespread citizen participation in the efforts to s~ '-e Oriente
from its own precious resource and human ambition.


9
items were available on the Internet where they were easily retrievable. Also of interest
was Native Web. This web site featured statements, press releases, position papers and
media reports from a multitude of indigenous groups and NGOs on various topics
including the controversy over Ecuadorian oil development.
Objectives and Research Approach
Regime theory provides a conceptual framework for understanding why the
Ecuadorian state has chosen to address the issue of oil contamination. Regime theory
seeks to explain restrained state behavior in the absence of international law or hegemonic
dominance by an external actor. This approach is valid in the Ecuadorian case since many
of the actors are foreign-oil companies, for examplepossess transnational links and
allies, and it involves a controversy which Ecuadors state has deemed an important
concern for its foreign relations apparatus. Moreover, epistemic communities address
deforestation and oil contamination as problems that transcend borders. All this has led to
an increased formalization of the concept of sustainable development in the hemispheres
diplomatic discourse and heightened acceptance of the concept and what it entails. Hence,
this thesis argues that a hemispheric sustainable development regime is emerging and that
it has led Ecuadors state to change its policy concerning oil exploration and production in
the Amazon basin.
The main hypothesis guiding this research is that the Ecuadorian state has
addressed the issue of oil contamination since the Texaco lawsuit although the state was
most reluctant to change. The main questions to be answered are the following:
In what ways has oil policy in Ecuador changed since 1994?


102
The Future of the Environment and Oil in Ecuador
There are several reasons to be guardedly optimistic concerning oil production and
the environment in Ecuador. First, the power and legitimacy that trans-national and
national NGOs have acquired is substantial. Their representatives, local and international,
have access to the highest levels of government and find sympathetic ears among local
elites. Indeed, membership in environmental groups in Ecuador continues to be confined
among upper and upper middle class citizens who have influence and contacts throughout
society. Moreover, public awareness continues to increase, with environmental awareness
fairs now present in Quito shopping malls. Committees have been formed in oil production
and exploration regions incorporating representatives from NGOs, civil society, the
military, and local government, with the task of monitoring oil sites and any potential
contamination. Second, technological advances continue to cheapen the cost of oil
exploration and production machinery, creating less of a financial burden for corporations
that seek to produce oil in an environmentally friendly manner. Third, the increasing
power of indigenous groups in Ecuador, which now have congressional representation,
makes them foes that companies are not willing to take on. The growing influence of
parties such as Pachakutic-Movimiento Nuevo Pais can well translate into positions of
power where they can have an impact on oil operations; they seem unlikely to support oil
companies against other indigenous groups. Fourth, the renaissance of local government in
several Ecuadorian regions has made them capable of enactingand enforcinglocal
environmental codes, such as those now present in Quito and Cuenca. In Guayaquil, the
building of a canal by the Port Authority had ignored the elaboration of an environmental
impact study, something which the press noted and led to the recent contracting of the


24
government of Gen. Rodriguez Lara, which sought to break with a past. As Jarrin
Ampudia notes:
In this confrontation with different interests that would not admit that
times change, that Ecuador is a sovereign country, owner of its petroleum
and that in the world the remnant forms of imperialist exploitation are
coming to an end, solid steps were taken for the elaboration of the new
contracts.'1
The governments hand was strengthened by a favorable international climate including
high oil prices and Ecuadors entry into OPEC in 1973. With the culmination and signing
of the new contracts, the state strengthened its own position vis-a-vis the oil companies,
exert some degree of control over the companies in the country, and boost its revenue.
However, no one realized the ecological disaster that would result from Ecuadors
newfound source of hard currency and the extent to which the one clause in the contract
that deals with the environment would be disregardednot only by Texaco but by other
corporations in other contracts as well.32
Texaco was able to generate a vast sum of revenue from its large Ecuadorian
operations. According to an audit by HBT-AGRA, Texaco extracted over 1.377 billion
barrels of oil from the Oriente. This amounts to more than $30 billion in an operation that
lasted 18 years from 1972 to 1990, when full operational control was relinquished to the
Ecuadorian state until Texacos ultimate departure upon the expiration of the contract in
1992. Texaco ultimately had 15 oil fields, 22 production stations, and 325 oil fields (each
31 Declarations of Rear Admiral Gustavo Jarrin Ampudia on the new contracts 6 August 1973.
32 See Chapter 9 (46) (1) of Decreto Supremo No. 925 4 August 1973 which states:
The contractor (Texaco) will adopt measures convenient for the protection of the flora, fauna and other
natural resources, as well as avoid the contamination of waters, air. and lands, under the control of the
pertinent government organizations/


2
theory as a regime. This thesis will explain what the regime consists of, and how the
environmental behavior it promotes has led to changes in Ecuadorian oil policy.
Background
Ecuadorian oil production began in 1972 under the military administration of Gen.
Rodriguez Lara. Oil exploration and production were located partly in the Golfo de
Guayaquil but mostly in the Amazon basin. Production ended nearly 150 years of reliance
on commodities such as cocoa, bananas, and marine products for economic growth.
Because of the oil boom, Ecuadorian GDP growth averaged 9% a year during the 1970s
and resulted in expansion of the public sector. The funds generated by oil paid for
infrastructure programs, financed an expansion of social programs, established state
owned corporations, and promoted ISI manufacturing. However, the declining
profitability of oil production as a result of price reductions after the 1st and 2nd oil shocks
had a disastrous effect on Ecuador. The result was an absolute decline of oil production
from 208,000 barrels per day in 1973 to 201,000 in 1978 and new debt obligations
contracted by the military based on the expectation of higher oil prices.1 By the early 80s,
Ecuador was US$ 8 billion in debt and oil prices would fall to below $20 a barrel during
the mid 1980s. Oil production went from being an engine for economic growth to
becoming the critical source for debt repayment. Today Ecuador is US$ 13 billion (1998)
in debt with a high debt/GDP ratio of 66%.2 Roughly a third of government revenue
1 Jose Vicente Zevallos. El Estado Ecuatoriano y las Transnacionales Petroleras. (Quito: Pontificia
Universidad Catlica del Ecuador. 1981) 16.
2 The debt to GDP ratio is the standard measure used by economists to monitor the overall foreign
indebtedness of a country. This ratio has declined dramatically throughout the region, with Chile seeing a


92
Approval for the entry into the Maxus concession to be granted by INEFAN and
the armed forces.61
The president of Maxus Ecuador in 1994, William Hutton, noted:
This operation is placed within the framework of sustainable development,
combining the most advanced technologies in perforation, production, and
transport of heavy crude with the most sophisticated programs of environmental
protection and of absolute respect for the indigenous communities that inhabit
the areas of influence.62
Testimony to the change of behavior by Maxus came from former Energy Minister
Garzn who noted that because of its environmental policies, its costs had increased
substantially and were being offset by cuts in other areas of its operationssomething
which he did not approve of.6' Lucia Burgos of Fundacin Natura also approved of the
companys efforts, particularly the use of Geotextil and its strict policy of denying access
to the areas under its concession without proper clearance since these efforts reduce the
possibility of colonization of Block 16.64 Perhaps the strongest indication that there has
been some change by YPF, particularly concerning pollution and deforestation, has been
the fading away of criticism from activists. Public appeals and literature on the issue of
YPF Ecuadors operations practically disappeared by 1996, and the companys
headquarters in Quito is no longer surrounded by groups of protesters.
61 Petroecuador and Maxus Ecuador Inc.. "Nueva Era Petrolera en el Ecuador. Un Nuevo Modelo de
Desarollo 21 April 1994: 14.
62 Petroecuador and Maxus Ecuador Inc.. "Nueva Era Petrolera en el Ecuador. Un Nuevo Modelo de
Desarollo 21 April 1994: 3.
63 Personal interview with Oscar Garzn, ex Minister of Energy under the Boija administration. Quito,
Ecuador. August 1997.
64 Miss Burgos adds, however, that any oil operation will produce at least a minimum of contamination.
Personal interview with Lucia Burgos. Fundacin Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province. Quito. Ecuador. 11 July 1997.


CHAPTER 1
INTRODUCTION
Oil exploration and production in Ecuador has led to widespread environmental
damage in its Amazon Basin. In recent years, a response to this contamination has
surfaced from a variety of international and domestic groupsincluding environmentalists
and advocates of indigenous rightsseeking to stop it. Although the Ecuadorian state has
resisted calls to develop a stronger regulatory framework, and policy makers have been
apprehensive about scaring away foreign investment, Ecuador has adopted environmental
legislation and established a Ministerio de Medio Ambiente.
Pro-environment groups rely on the changing normative international context,
which has become far more favorable to environmental protection, to gain support and
focus international and an individual countrys public opinion on specific issue areas. The
discourse on environmental protection has shifted to the confines of the sustainable
development framework and has granted greater legitimacy to those seeking enhanced
regulation. This shift is evident in a series of international agreementsprimarily the Rio
Declaration on Environment and Development or Agenda 21. In the Americas, an Inter-
American system on sustainable development is forming and seeks to establish some kind
of enforcement mechanism. What is emerging is what is known in international relations
1


comes from oil sales, is the source of most of its hard currency, and 40% of Ecuadors
central budget goes to service debt both foreign and domestic/' By all of these measures,
the Ecuadorian state is highly dependent on oil production and oil exports.
The result of large-scale oil production has been extensive contamination, primarily
in the Amazon Basinsor Orientehydrological system, and deforestation of the
rainforest due to oil infrastructure projects (such as roads). Pollution and deforestation
have been the result of oil spills from both production and transport as well as residue
chemicals contaminating waterways and aquifers. Three companies have been accused of
being primarily responsible for the contamination: Texaco of White Plains, N.Y., Dallas
based Maxus, and Petroecuador, the state oil company.4 Maxus has been accused of
deforesting 29,000 hectares of primary rainforest while Texaco is estimated to have
released 16.8 million gallons of crude oil in the Oriente up to 1992, when its 20 year
presence in Ecuador ended.5 By comparison, the Exxon Valdez disaster dumped 11
million gallons off the coast of Alaska. As a result of contamination, fish and drinking
water have apparently been seriously affected. Moreover, many allege that water
reduction from approximately 120% in the early 1980s to 25%by 1997. Brazils ratio is approximately
35% (1998). Faster economic growth has allowed Latin American countries to increase their absolute
level of indebtedness while simultaneously reducing its debt burden. The debt to GDP ratio does not
include domestic government borrowing.
3 Economist Intelligence Unit, Country Report 3rd Quarter 1996 (London: EIU, 1996).
4 Maxus is now known as YPF Ecuador S.A. due to its recent acquisition by Argentinas Yacimientos
Petrolferos Fiscales. Only in Ecuador was Maxus name changed to YPF. Maxus continues to be known
as such in its other operations worldwide.
According to Accin Ecolgica and Amazonia por la Vida. Also see Judith Kimerling. "Oil.
Lawlessness, and Indigenous Struggles in Ecuadors Oriente, in Green Guerrillas, ed. Helen Collinson
(London: Latin America Bureau. 1994) 65.


85
16 is legally Huoarcmi territory, the Huoarani are supposed to have the right to determine
how the land under their control is used. At least at the beginning, they were hostile to oil
exploration in their lands and refused to negotiate a deal after prior experiences with
Conoco attempts to operate in their area. Maxus, however, decided to proceed regardless,,
and seismic exploration began in 1991 and was completed in 1992. On 28 January 1992
Maxus and the government of president Boija signed a letter of understanding which
contained some provisions for protection of the Huaoraniapparently without consulting
the HuaoraniHowever, the building of roads and the realization of its consequences led
to a bitter dispute between environmentalists and indigenous groups against Maxus.
The dispute reached Quito in October 1992, when Conaie issued a press release in
which they accused Maxus of invading private property. In it, they reveal their greatest
fears, oil companies and settlers. They explicitly accused settlers who bring their
civilization, destroy everything in their path: our culture, our territory, our lives.49
Indigenous leaders from the Oriente and those in Quito as part of Conaie sought to meet
with the president of Petroecuador, the president of Congress, Maxus executives at their
Quito offices, and the Minister of Energy. They were able to meet with the Ecuadorian
government representatives. The president of Petroecuador offered to search for a
reasonable solution after having met with Conaie, Confeniae, and Onhae representatives
on 27 October 1992. The indigenous representatives also met for two hours with Carlos
Vallejo, then president of Congress, who also offered his support but without noting any
48 Ivan Narvez. Huaorani vs Maxus (Quito: Corporacin de Estudios y Promocin Cultural. 19%)
Annex 7.
49 Confederacin de Nacionalidades Indgenas del Ecuador. The Huaorani People Will Stay in Quito
until their Demands are Met. Press Release 28 October 1992: 1.


62
The needs of developing countries shall receive special priority.
The norms of most relevance are the following:
International environmental cooperation shall be carried out by states with
differentiated responsibilities.
The regime is to be inclusive and participatory.
States should promote a free trade environment favorable to sustainable development
and should not use environmental legislation to the effect of a non-tariff barrier.
States should cooperate to limit the amount of hazardous material being transferred
from country to country.
The state is to promote the internalization of environmental costs.
Effective environmental legislation is to be passed by each state.
The central rules consist of:
States are to notify other states of situations in which environmental problems may
have consequences on their own environment.
Environmental impact assessments are to be conducted whenever large scale projects
that are likely to have adverse effects on the environment are planned.4
These elements are important in that they are factors that constrain the behavior of the
Ecuadorian state in certain areas of domestic policy.
The sustainable development regime has been bolstered by hemispheric efforts at
trade integration. The efforts to integrate trade among the nations of the Americas have
4 United Nations. Report of the United Nations Conference on Environment and
Development 12 August 1992: gopher://gopher.un.org/00/coni7unced/English/riodecl.Lxt.


67
environmental disasters resulting from multilateral development bank lending and
threatened to cut United States funds for the IDB and The World Bank.13
This has given such multilateral development banks increasing say on the
environmental policies of countries receiving lending in Latin America, including Ecuador.
In Peru, changes in environmental policy concerning oil exploration and production similar
to those in Ecuador have been attributed to multilateral development banks.14 However,
their role was explicitly observed by Dr. Rene Ortiz: if a country opts for financing from
the Inter-American Development Bank, The World Bank, or the Corporacin Andina de
Fomento, it must accept environmental regulations, they are the ones exercising
pressure.15 While multilateral banks have been urging and promoting sustainable
development, they have done so after being targeted by environmental transnational
organizations, a group which is widely accepted as being the primary motor of changing
attitudes towards the environment.
Transnational NGOs
A critical role is played by nongovernmental organizations in enforcing the
principles of the regime, often through international networks. Environmental NGOs have
become powerful in Ecuador where they constantly publish materials on environmental
conditions in the country, monitor private and public behavior, mobilize grassroots
13 David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO.: Westview
Press. 1997) 132.
14 Personal consultation with Carlos Mora. Chevron Social Program for Peru, Executive for Community
Relations. Gainesville. Florida. 10 February 1998.
15 Personal interview w ith Dr. Rene Ortiz, ex Secretan' General of the Organization of Petroleum
Exporting Countries (1978-1982). Quito. Ecuador. 15 July 1997.


94
for use of their land. As far as YPF Ecuador is concerned, it is a fair deal that addresses a
problem that has arisen in the past: criticism of oil companiesand the state as wellfor
not delivering resources and services to the areas from which they profit.
The issue of isolating and dividing the Huaorani community is also complex. The
division, as noted above, stems from differing views among the Huaorani as to how to
address an uncertain future. They can opt to cling to the past, or they can enter
modernity in a disadvantaged position. Because the Huaorani had already maintained
outside contacts with Ecuadorians, Quichuas, and missionaries, it is reasonable to assume
that a significant segment of the community had already embraced some of the services
and wants present in the dominating Ecuadorian mestizo culture. If they had not been
isolated, the result would likely have been a further integration into the Quichua group,
also in a disadvantaged position. Both propositions are difficult and in any case, in an
increasingly smaller world in the Oriente, some decline of ethnic identity seems
unavoidable. The question is whether or not YPF Ecuadors operation accelerate or brake
such a decline, which is almost impossible to answer.
Conclusions
The primary goal of this chapter was to show what factors have led to changes in
policy outlined in Chapter 3 and to link those factors to the international context. Through
the Texaco and Maxus examples, this chapter shows what resources groups have to
produce change, links to international groups, and highlights the dangers that may strike
companies that do not engage in environmentally sound oil exploration and production
practices. While Texaco continues to deny any wrongdoing, it continues to receive bad


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Presidencia de la Repblica del Ecuador. Decreto Ejecutivo No. 1802. Quito, Ecuador:
Registro Oficial 456, 7 June 1994.
Presidencia de la Repblica del Ecuador. Decreto Ejecutivo No. 2982. Quito, Ecuador:
Registro Oficial 766, 24 August 1995.
Rainforest Action Network. Ecuadorian Indigenous People, Environmental Activists Call
for International Boycott of Texaco. Urgent Appeal 5 August 1993: 1.
Rivas, Lucia, Public Relations Coordinator, YPF Ecuador Inc., Quito, Ecuador. Personal
Interview. 21 July 1997.
Segura, Olman, ed. Desarrollo Sostenible y Polticas Economicas en America Latina.
San Jose, Costa Rica: Editorial Dei, 1992.
Schreckinger, Ignacio. Mineray Medio Ambiente. Quito, Ecuador: Fundacin Natura,
1990.


Moreover, compliance with such regulations is being monitored not only by the state, but
by private nongovernmental organizations.
The purpose of this thesis is to provide an overview of recent changes in
Ecuadorian oil policy concerning the environment and to explain the factors that have led
to change. This thesis argues that an international regime for environmental protection in
the Americas is forming and that this has led to domestic policy changes in Ecuador.
Hence, this thesis further argues that a combination of large international nongovernmental
organizations joined with smaller Ecuadorian NGOs, international agreements,
international institutions, and grassroots groups has been instrumental in creating an
international normative context unfavorable to contamination. The result of this research,
relying mainly on government documents, interviews, and press accounts, is that there
have been changes in Ecuadorian policy and corporate behavior due primarily to the
impact of international pressure.
Vll


97
an increasing willingness from a variety of actors to question the environmental soundness
of Petroecuadors operations. Worldwide, it is increasingly difficult for corporations,
public or private, to find places where they can conduct unsound operations with
impunity. In Latin America, controversy has surrounded many development projects that
are now readily scrutinized for their environmental impact.
This thesis builds its arguments by looking briefly at the past and then detailing the
present. Chapter 1 sought to give an overview of how this thesis is organized and a
general outline of what has happened in Ecuador. It stresses that a problem concerning oil
and the environment in Oriente exists and that their has been a reluctant response from the
state which addressed the issue of oil contamination. Chapter 2 provided the historical
background to oil development in Ecuador and described the nature and extent of
contamination in the Oriente. The goal was to portray the history of oil in Ecuador as
lawless, with corporations seeking to reduce regulation and maximize profitability. They
were largely successful thanks to the acquiescence of the state and its corruption. In such
a unregulated environment, it should not be a surprise that the environmental disaster that
still afflicts the Oriente occurred. The chapter continues detailing how contamination has
occurred, its dangers, and its extent. Chapter 3 details the policies developed in recent
years. It shows that an environmental regulatory code aimed directly at oil production
Executive Decree 2982has not only been adopted, but addresses the issues that have
been most contentious for environmentalists. The chapter also shows that the government
now publicly admits, through Executive Decree 1802, that a problem exists in Oriente and
that it needs to be addressed. The Ecuadorian Environmental Management Plan shows
that government is now being forced to address the issue of sustainable development and


LIST OF TABLES
Table page
2-1 Ecuador: Major Oil Concessions 1878-1972 16
3-1 Ecuador: Government Oil Revenue and Total Revenue 1991-1995 35
4-1 Major Oil Companies in Ecuador 1997-1999 75
v


changed. A frequent complaint has been illness from drinking river water, which in the
past had not occurred.56 Other illnesses or symptoms that have been on the rise are
frequent nausea, diarrhea, stomach aches, skin infections, and malnutrition.57
The goal of this chapter was to highlight a sense of lawlessness in the history of the
industrys operations in Ecuador and conduct a general overview of the environmental
impact that the Oriente has suffered. This is a result of the impunity with which oil
companies operated, aided by the lack of effective oversight. Chapter 3 will seek to
demonstrate that, at least as far as the environment is concerned, there have been very
substantial policy changes in favor of environmental protection in the oil industry and that
these moves directly address many of the problems highlighted in this chapter and others
that have been noted by environmentalists and indigenous groups.
56 Doris Herrera. Petrleo. Deterioro Ambiental y Salud. in La Cuenca Amaznica de Cara al Nuevo
Siglo, ed. Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 324.
57 Doris Herrera. Petrleo. Deterioro Ambiental y Salud. in La Cuenca Amaznica de Cara al Nuevo
Siglo, ed. Doris Herrera (Quito: FLACSO Sede Ecuador, 1997) 325.


47
of asphalt. Oil that cannot be removed must be treated in the pool or at another site. Once
the recovery process is completed, the pool has to be covered and plugged with dirt and
later on, re-planted.23
Special provisions for wildlife are contained in article 34. A facility has to be
covered by a fence to prevent animals from wandering into the site. The fence is to be
covered with vegetation as well. Any diesel fuel used in vehicles has to conform to
international norms; diesel produces less contamination than gasoline. Acid rain is a
possibility, another reason for burning diesel. Noise pollution is also considered a threat
and that issue is gaining prominence.
An environmental impact study is required of any new application for oil
exploration and production. It must be presented to the Ministry of the Environment 45
days before any oil related construction begins.24 Chapter 10 of Decree 2982 provides the
methodology to be used in the elaboration of the Environmental Impact Study (estudio de
impacto ambientalEIA). Article 52 notes that they are to be elaborated in all stages of
the oil production process and the importance the decree attaches to them:
The Environmental Impact Studies will be required prior to the development
of each phase of oil activity, pursuant to the criteria in this decree. In the case
of contracts for the exploration and production of oil, the juridical regulatory
code of each contract will be kept in consideration. For the preparation of the
Environmental Impact Studies, internationally accepted state of the art technology
will be used, compatible with environmental protection.25
33 Executive Decree 2982 pg. 20.
34 Executive Decree 2982 pg. 37.
35 Executive Decree 2982 pg. 43.


84
be responsible for 62.5% of any damages awarded (Ecuadors share in Texacos
operations there).46
Texaco, however, has already agreed to clean up part of its area of operations and
to settle with regional municipalities as part of a little publicized May 1995 deal with the
government. Municipalities such as Lago Agrio received $1 million from Texaco without
an admission of guilt. Texaco has not escaped the stigma from its Ecuadorian operations,
however. At its annual shareholders meeting on 13 May 1997, in Rye Brook, New York,
protesters-some from the Rainforest Action Networkfocused attention on the
Ecuadorian allegations as well as problems with contamination and deforestation in
Myanmar. They were joined by members of the Rainbow Coalition upset at racial
discrimination at the company.47
The Maxus Controversy
In 1991, Maxus was awarded a 200,000 hectare concession in Block 16, one of
the most environmentally sensitive areas of the entire Oriente. It is also the home of the
Huaorani indigenous group who were adjudicated that same land in 1990 by the
government of President Rodrigo Borja. Block 16 is simultaneously the location of Yasuni
National Park, which was declared a reserve because of its extraordinary bio-diversity.
Maxus was granted the concession by the Boija administration in 1991. Maxus is a
Dallas based oil exploration and production company which has operations in the United
States, Asia, and Latin America. The root of the conflict lies in the fact that, since Block
46 Texaco Eyes Suing Ecuador. The Oil Daily 30 April 1997: 5.
47 Texaco Meeting Is Hit by Protests. The New York Times 14 May 1997: D2.


54
These statements deal with several of the international issues raised by exploitation
of oil in the Oriente. Critics frequently state one of the causes of such widespread
contamination is the capitalist world system in which Ecuador participates as a producer
of commodity or primary products for the developed worldand as a debtor country.42
In order to satisfy the requirements of debt servicing, Ecuador must exploit
primary products such as oil to pay its international financial obligations.4'' As paying debt
becomes more burdensome, the result could be increased recklessness in oil production.
Based on the high level of debt Ecuador has acquired and that oil is one of the few reliable
sources of revenue for the state, it seems likely that debt servicing is part of the problem.
However, it would be a simplification to say that debt servicing is a major source of the
problem. It is difficult to conceive that todays environmental problems would not exist or
be less severe if the debt did not exist.
When the PAE declares that companies need to use modem technology and follow
the environmental regulations of their country of origin, it is implied that the contrary has
been occurring. Indeed, in the Texaco controversy, the companys use of obsolete
equipment and lack of adherence to any environmental code is pointed out as the primary
cause of the massive contamination that has hit Oriente. This was given the force of law in
Decree 2982 which made the use of obsolete equipment illegal. Most of the equipment
used up to recent years in Ecuador relied on technology developed well before
environmental concerns in oil development became a major issue. Such equipment was
42 Anamara Varea. "Amazonia. in Marea Negra en la Amazonia, ed. Anamara Varea (Quito: Ediciones
AbvaYala. 1995) 25-37.
43 Debt sen icing usually consumes between 40 and 60% of Ecuador's fiscal budget.


79
Environmental Protection Unit and the current governments hostile stance towards the
company, it is also possible to develop enemies within players in the industry.
Nevertheless, corruption in Ecuadors judicial system raises poses uncertainties that some
organizations are not willing or capable of affording. As Dr. Rene Ortiz observes,
demanding Texaco in the United States for damages is a recognition of a corrupt and
unreliable judicial administration in Ecuador.36
Another reason for the venue was the attention that the lawsuit would receive in
the press and in the industry. The lawsuit was a public relations bonanza for
environmentalists. Texacos dumping of millions of gallons of crude oil and toxic waters in
such ecologically sensitive areas was the perfect example of a corporation operating
without regulation and causing vast damages. Coverage of the suit and Texacos
contamination of the Oriente was significant in The New York Times, The New Yorker, The
Oil Daily, North American Congress on Latin America, El Comercio, El Universo,
Diario Hoy, in addition to the publications of a large number of environmental groups.
Press coverage continues to this day, with articles reporting on the environmental damage
provoking a response from Texaco in its to the editor pages.
Texaco now finds itself consistently on the defensive, as illustrated by the presence
on its web site of an area dedicated to the environment, including updates on the situation
in Ecuador. Texacos position on the issue has always been the following:
36 Personal interview with Dr. Rene Ortiz, ex Secretan General of the Organization of Petroleum
Exporting Countries (1978-1982), Quito. Ecuador. 15 July 1997.


104
encountered, and a change of the environment they live in due to development.5 Another
problem is the issue of contamination by Petroecuador, the state oil company. According
to Executive Decree 2982, Petroecuador is to follow all the regulations detailed in the
decree. However, it is clear that Petroecuador is a significant polluter which people and
organizations are not willing to confront for fear of reprisals. For example, only Dr. Rene
Ortiz was willing to go on record as stating that Petroecuador does indeed contaminate. It
should be noted, however, that contamination by Petroecuador does not seem to approach
the levels produced by Texaco.
Conclusions
There are three main conclusions that this thesis reaches. The primary conclusion is
that oil policy concerning the environment has changed in a manner consistent with a
sustainable development frameworkthis in spite of state reluctance. Changes in policy are
now occurring at the local level, and more industries are coming under scrutiny such as
shrimp farming which destroys and pollutes mangroves. Second, that this change is due to
and international normative context that is creating a sustainable development regime,
leading a variety of actors to behave in ways that result in the defense of the principles of
the regime. The power of transnational organizations and their domestic counterparts is
substantial and, in Ecuador, increasing. Third, that because of the continued and growing
influence of trans-national and domestic organizations, it seems likely that the situation
will improve rather than worsen in the Oriente. Management recommendations for
5 See Ivan Narvez. Huaorani vsMaxus (Quito: Corporacin de Estudios y Promocin Cultural, 1996)
37-45.


13
people in the region. This is important because there are many in the industry today whom
refuse to acknowledge the existence of a problem. Third, it shows that state policy
towards oil contamination has changed substantially in recent years as a result of a
changing normative context internationally that has been adopted domestically.
Ultimately, this thesis explains how and why Ecuadorian oil policy has changed in
recent years. It is organized into five chapters. Chapter 2 will provide background on the
oil industry in Ecuador and contamination in Oriente, emphasizing the lawlessness in the
industry. Chapter 3 will enumerate and detail the new regulatory codes in Ecuador and
their significance. Chapter 4 will discuss the factors forcing changes in petroleum
environmental policy and detail incidents in which companies have changed their modes of
operation to an environmentally sound approach. Chapter 5 will develop a set of
conclusions and recommendations for future research.
This thesis is important in that it will help understand policy-making in a poor
country and how international, national, and transnational actors shape that policy.
Because the main source of revenue for the state is affected by these actorsin effect, the
money needed for social spending, among other thingsan understanding of the system in
which they operate is crucial.


66
billion or 5.2% for 1987-1994, excluding controversial loans for forestry.9 Most of the
multilateral bank lending is targeted towards urban environmental management rather than
resource conservation by a margin of 4 or 2 to 1, varying by year.10 Nevertheless, World
Bank lending for green projects increased to $2.78 billion during 1987-1994, from
$132.2 million from 1980-1986. In Ecuador, environmental loans represented
approximately 2% of total multilateral development bank borrowing during the 1980-1986
period.11 However, this increased to approximately 9% during 1987-1994 with green
projects comprising a significant portion of this borrowing.12 The increases in lending for
environmental projects is attributed to environmentalists efforts during the 1980s leading
to pressure from United States government officials, some of whom were alarmed at
9 The authors excluded foresto from their analysis due to its controversial nature. There is an ongoing
dispute as to whether lending for forestry' promotes sustainable development or merely facilitates logging.
They also limited their analysis to the 10 largest Latin American countries, so presumably the amount of
environmental lending should be greater.
See David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO.: Wcstview
Press. 1997) 132.
10 David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO. : Westview
Press. 1997) 131.
11 David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO.: Wcstview
Press. 1997) 131.
12 David L. Nielson and Marc A. Stem. Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO.: Westview
Press. 1997) 131.


49
audited must provide the auditors with an appropriate work environment, food, shelter,
and transportation.29
Articles 62 to 63 establish guidelines for the punishment of those found guilty of
violations to Decree 2982. Punishment may consist of:
Fines ranging from 20 to 500 minimum monthly salaries according to the severity of
the infraction.0
The perpetrators are responsible for compensatory damages.
The perpetrators are responsible for reparation and/or restoration of affected areas
(polluter pays principle).
Guilty subcontractors may also be eliminated from the central registry of qualified
firms for future contracts.
Local health authorities, at the request of the Ministry of the Environment, can also
sanction infractions that violate health codes.
Punishment imposed for violations of Decree 2982 can be appealed to the Ministry of
Energy and Mines.
Punishment imposed for violations of public health codes can be appealed to the
Ministry of Public Health. '1
29 Executive Decree 2982 pg. 59.
30 The minimum monthly base salary as of 11 January. 1998. was 100.000 Sucres or $22.5 (4.450 Sucres
per U.S. dollar). This is not monthly take home pay, which is approximately 800.000 Sucres or $180. For
purposes of fines, references are to the minimum monthly base salary of S/. 100.000 ($22.5). so they range
from $450 to $11,230.
31 Executive Decree 2982 pg. 60.


70
current strategy by Ecuadorian NGOs and regional groups at local empowerment and
using existing legal mechanisms at the local government level to attain their goals.
Leaal Action and International Agreements
The strongest channel leading to enforcement of the regime are legal actions and
international agreements. Lawsuits or contamination charges carry many risks for
companies in the oil industry. They combine the possibility of civil or criminal penalties,
tremendous loss of public prestige, and costly and protracted legal battles. Furthermore,
legal action has now become more sophisticated, with environmental and grassroots
groups using all legal resources at their disposal, including instruments designed for the
protection of human rights, local and national health codes, and strategically locating the
venue where legal action is to occur. This has resulted in several efforts which, at least,
have succeeded in achieving public sympathy to the detriment of oil operators and at best
halted oil exploration and production in sensitive areas altogether.
Groups concerned about the environment in Ecuador now have a variety of legal
instruments at their disposal as well as international accords. The Ecuadorian Constitution
guarantees the right of Ecuadorian citizens to live in a pollution free environment.
Executive Decrees 1802 and 2982 provide groups or communities with the legal backing
for denouncing and suing for environmental damages.20 Numerous other codes also
20 For example, a small spill of 100 barrels of crude oil by Petroecuador oil 18 January 1998 was
denounced near Coca. In this incident, the individuals affected (loss of crops) noted that a much larger
spill had occurred a few years before. They received minimal compensation for their losses but seek a
peaceful resolution of the problem with the local manager of Petroecuador. This case is unique in that
press coverage of Petroecuador contamination is rare.
El Universo. Denuncian Derrame de Petrleo. El Universo 29 January 1998.


32
sector and set up small shops or peddle goods in areas where the oil workers live. Others
attempt to establish farms or cattle ranching on lands that they assumed control of and
which the state is incapable of controlling.52 Sewage and garbage disposal alone has
become a significant problem. The result has been over one million hectares of rainforest
lost to colonization.53 A third cause has been the clearing of land for oil pipelines. The
primary pipeline is the Trans-Ecuadorian pipeline which extends 500 kilometers through
Ecuador with a width between 20 and 26 inches. It begins in Lago Agrio (Oriente) and
ends in Balao (Esmeraldas Province), although most of it extends beyond Oriente 54 Such
pipelines involved the clearing of swaths of land approximately 30 meters in length.
Fourth, the spilling of oil has caused the death of vegetation in the Oriente. As mentioned,
this is due to the ill effects of oil and production chemical byproducts.
This entire process of deforestation, contamination, and colonization has led to
health problems, the destruction of indigenous cultures, and overall reduction in the
quality of life of residents of the Oriente. Doris Herrera from FLACSO Quito has studied
the issue of contamination, its health and nutritional effects on the inhabitants of the
Comuna San Carlos, located 25 kilometers from Coca on the Napo River.35 This area has
been periodically affected by oil spills, mostly flowing from the Napo River. Her
interviews of older indigenous group members reveal awareness that something has
See Douglas Southgate and Morris Whitaker. Economic Progress and the Environment (New York:
Oxford University Press. 1994) 33-47.
53 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 56.
54 Petroecuador.
,5 Coca is the main hub of the petroleum industry in Oriente.
Doris Herrera. Petrleo. Deterioro Ambiental y Salud. in La Cuenca Amaznica de Cara al Nuevo
Siglo, ed. Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 313.


109
Hurtado, Osvaldo. Political Power in Ecuador. Boulder, CO: Westview Press, 1985.
Industry and Energy Department of The World Bank. A Mining Strategy for Latin
America and the Caribbean. Washington, DC: The World Bank, 1996.
Instituto Nacional de Estadstica y Censos. Estado Actual de la Informacin Ambiental en
el Ecuador. Quito, Ecuador: INEC, 1996.
Inter-American Commission on Human Rights. Report on the Situation of Human Rights
in Ecuador. Washington, DC: General Secretariat Organization of American
States, 1997.
Jarrin, Gustavo. Minister of Energy under Rodriguez Lara. Personal Notes.
Kane, Joe. Moi Goes to Washington. The New Yorker 2 May 1994: 74-81.
Kane, Joe. With Spears from All Sides. The New Yorker 27 September 1993: 54-79.
Kimerling, Judith. Crudo Amaznico. Quito, Ecuador: Abya Yala, 1993.
Kimerling, Judith. El Derecho del Tambor. Quito, Ecuador: Ediciones Abya-Yala, 1996.
Kimerling, Judith. Oil, Lawlessness, and Indigenous Struggles in Ecuadors Oriente. In
Green Guerrillas. Ed. Helen Collinson. London: Latin America Bureau, 1994.
61-73.
Leon, Francisco, ed. Conocimiento y Sustentabilidad Ambiental del Desarrollo en
America Latina y el Caribe. Santiago, Chile: Dolmen Ediciones, 1994.
List, Martin. The Baltic Sea: A Case of International Environmental Management. In
International Regimes in East-West Politics. Ed. Volker Rittberger. London:
Pinter Publishers, 1990.
MacDonald, Gordon J., Daniel L. Nielson, and Marc A. Stem, eds. Latin American
Environmental Policy in International Perspective. Boulder, CO.: Westview
Press, 1997.
Mathews, Jessica. Are Networks Better Than Nations? New Perspectives Quarterly
Spring 1997: 10-14.
McCoy, Terry L. Sustaining Sustainable Development. Hemisphere 8 (1) 1997:
16-18.
Ministry of Energy and Mines. Ecuador: a Country of Opportunities. Quito, Ecuador:
Ministry of Energy and Mines, 1997.


93
Nevertheless, YPF Ecuador continues to receive some critiques in the handling of
its relations with the Huoarani. One charge is that it seeks to create a culture of
dependence among the Huaorani for material goods, thereby securing their acquiescence
to oil exploration; another is that it seeks to divide the Huaorani into two groups and
isolate them, which explains YPF Ecuadors policy of denying entry to individuals
without clearance. These arguments are posed by the head of Petroecuadors
Environmental Protection Unit, Ivan Narvaez, and similar ones within other social-
environmental conflicts are posed by Anamaria Varea of the Facultad Latinoamericana de
Ciencias Sociales Sede Quito65
The issue of creating dependency among the Huaorani is complex. The Huaorani
and Onhae are split between its leaders Moi and Enqueri, the current leader of Onhae. Moi
advocates a split from YPF Ecuador to secure the traditional way of life of the Huaorani,
whereas Enqueri believed that the Huaorani could benefit economically from a
relationship with the company. Enqueri, once he replaced Moi as the president of Onhae in
1994, agreed to Huaorani support for YPF Ecuador in exchange for a wide variety of
services, primarily medical care, education, and community facilities. As Narvaez himself
notes, the Huaorani had been deprived of basic social services by the state and YPF
Ecuador came to fill that role. However, that role also gives the company powers similar
to that of the state, in which it exchanges services and goods for obedience to its
authority, an argument echoed by Varea. It does seem clear, however, that the Huaorani
entered the agreement on their own free will and they demanded the services in exchange
65 See Ivan Narvaez. Huaorani vs Alaxus (Quito: Corporacin de Estudios y Promocin Cultural. 1996)
62-67 and Anamara Varea. "El Manejo Alternativo de Conflictos." in Marea Negra en la Amazonia, ed.
Anamaria Varea (Quito: Ediciones Abva Yala. 1995) 150-162.


20
result of eternal discussions in National Congresses...my administration prepared a
contract project known as Model Contract, through which the conditions would be
imposed on the companies. Among the changes that began to take place in 1967 were:
The state reclaimed two-thirds of the land granted in concession to Texaco-Gulf.
The state increased its share of royalties.
Took a more active role in production processes.
Instituted a territorial tax on the lands conceded.
Increased infrastructure development by companies.
Petroleum was nationalized.
A national oil company, CEPE, was created.
Ecuador sought to ally itself with other oil producers.
Older contracts and concessions were subject to a process of renegotiation.15
In 1972, the new military government finally passed a reformed Law of Hydrocarbons to
replace the 1937 Petroleum Law. It essentially invalidated all prior contracts and led to the
signing of new ones.16 These sought to secure better terms for the state as outlined above.
New contracts, with more favorable terms for the state, were signed with Texaco-Gulf,
Sun Oil, Anglo, Cautivo, Cayman, and OKC. Other contracts were nullified, declared
expired, or were refused by oil firms. By 1972, Texaco-Gulf completed Ecuadors main oil
pipeline, the 500 kilometer long Sistema de Oleoducto Trans-Ecuatoriano or SOTE,
15 See Admiral Gustavo Jarrin Ampudia. Personal notes and Judith Kimerling. Crudo Amaznico (Quito:
AbyaYala. 1993) 19-21.
16 Admiral Gustavo Jarrin Ampudia. Personal notes.


52
reflects the hemispheric move towards sustainable development and recognizes as much
when it states the following:
the concerns, ever growing, of the international community over environmental
problems that are affecting the planet and that requires effective participation of all
countries in the world. Ecuador has subscribed to various agreements that benefit
and commit it, which would be best to execute in integrated and planned context.37
In Chapter 1, a sketch is presented of the major environmental problems of
Ecuador and the areas affected by them. It points out environmental problems that are a
well-known result of oil exploitation such as: deforestation, loss of biodiversity,
contamination in different environments, and badly managed toxic waste, among others.38
The CAAM singles out all oil-related activities as actual or potential sources of
contamination. It points out the Oriente as an area with major environmental problems.39
The PAE stresses the need to create a process conducive to environmental
management. To foster this process, four elements are mentioned as important and these
are the National Strategy for Development, the Basic Environmental Principles, Basic
Environmental Policies, and the Ecuadorian Environmental Management Plan. Of interest
here are the Basic Environmental Principles.
The Basic Environmental Principles seek to promote interaction among different
actors in a conciliatory, participatory way, leading primarily to the conclusion that
consensus building is deemed necessary. They were enacted in 1993. The basic principles
are:
37 CAAM. 1996. Pg. 17.
38 CAAM. 1996. Pg. 11.
39 CAAM. 1996. Pg. 12.


occurred in Ecuador originated in Texacos headquarters and that Ecuadorian courts
could not handle the matter appropriately due to Texacos influence in the country.
However, the court dismissed the suit for two main reasons: first, because the events
transpired in Ecuador, Ecuadorian courts had jurisdiction over the matter and second,
foreigners (residing abroad) could only sue (tort) a United States based defendant in the
U.S. if the action involved a breach of international law or a treaty to which the U.S. is
signatory which the plaintiffs failed to show. Despite this outcome, the case is important in
that it:
Involved a mobilization of a wide range of national and transnational actors
converging for and against Texaco.
Explicitly revealed the position of an Ecuadorian administration on environmental
regulations, an opinion which ran counter to a variety of principles, norms, and rules
on the environment agreed to by Ecuador.
Constituted a vital juncture for grassroots movements because it was the first time that
environmental and indigenous groups in Ecuador were able to place their grievances
so high on the national agenda.
Presented as evidence international agreements on the environmentsuch as the 1992
Rio Declaration on Environment and Developmentto which Ecuador had agreed to.


64
Plan of Action of the Summit of the Americas (1994).
The Declaration of Santa Cruz de la Sierra (1996).
The Inter-American Program of Action for Environmental Protection (1990).
These agreements strive to incorporate sustainable development into regional and
hemispheric integration efforts. They provide mechanisms to achieve greater
environmental protection and institution building concerning the environment. They also
have value in that their principles are a recognition of the validity of the claims by
environmentalists that environmental protection in the Americas has long been neglected.
What they do not provideto dateare enforcement mechanisms that can effectively
punish or deter would be transgressors of the regime. This is what limits the possibility of
concluding that a sustainable development regime is effectively in place. However, an
argument underlying this thesis-especially this chapter-is that there are mechanisms that,
although they may not be institutionalized, have the effect of being enforcement elements
for the regime. Moreover, the principles, norms, and rules of the regime have been
translated into national policy in many countries. In Ecuador, this is manifested through
Executive Decrees 1802 and 2982, Ecuadors Environmental Management Plan, and
increasingly through local governments environmental policies.
In Ecuador, regime enforcement has been primarily through three channels:
multilateral lending institutions, nongovernmental organizations, and through legal actions
and international agreements.


88
particularly threatening concerning Maxusthe impact that the oil exploration and
production would have on their environment and settlers that would come in whenever the
company built roads. These settlers would potentially be mestizos or Quichua Indians,
with cultural traits and organizations that have dominated smaller indigenous groups.56 A
process of quichuaizacin of the Huoarani has already had an impact, with their outlook
on material goods, their relationship with the state, and their political system being
significantly altered as a result.37 The threat of contact with settlers can be potentially
devastating, since such contact with the Ecuadorian nation will also mean incorporation
into the world capitalist system, one into which they will probably enter in a position of
dependency and poverty.38
To further their own interests, the Huoarani organized the Organization of the
Huoarani Nation of the Ecuadorian Amazon, or Onhae. Originally led by Huaorani men
Moi, Amo, and Enqueri, the organization forged an alliance with the Confeniae and
Conaie. Together, they demanded: a moratorium to Maxus oil exploration in Block 16,
suspension of work on oil roads, and the right to manage their own territory.39
The road in question consisted of a 150 kilometer freeway connecting main oil distribution
facilities with Maxus sites in Block 16. The construction of this freeway came under fierce
56 Ivan Narvez. Huaorani vs Maxus (Quito: Corporacin de Estudios y Promocin Cultural. 1996)
79-85.
57 Such process of quichuaizacin has also occurred with the Aucas, another Amazonian indigenous
group.
58 See Ivan Narvez. Huaorani vs Maxus (Quito: Corporacin de Estudios y Promocin Cultural, 1996)
81 and Judith Kimerling, El Derecho del Tambor (Quito: Ediciones Abya-Yala, 1996) 193-202.
59 Confederation of Indigenous Nationalities of Ecuador. "The Huaorani People will Stay in Quito Until
their Demands are Met. Press Release 28 October 1992.


11
Conference on Environment and Development or Rio Summit. The spirit and letter of
this declaration can be found in most documents pertaining to the environment. In the
Americas, the Inter-American Program of Action for Environmental Protection of 1991,
the 1994 Summit of the Americas, and the Declaration of Santa Cruz de la Sierra of 1996
reaffirm the commitment to the stipulations of the Rio Declaration by signatory
countriesincluding Ecuador.
The categories of actors relevant in this research are environmental NGOs, the
Ecuadorian state, indigenous movements, and energy corporations. Environmental NGOs
of relevance are both foreign and domestic organizations. The two Ecuadorian
environmental NGOs most involved in the issue of oil contamination are Fundacin
Natura and Accin Ecolgica. The main foreign NGOs are the Sierra Club, the Nature
Conservancy, the World Wildlife Fund, and the Rainforest Action Network. A variety of
multinational energy corporations operate in Ecuador: Royal Dutch Shell (Anglo-Dutch),
Arco (U.S.), City Investing (Canada), Petrobras (Brasil), Perez Companc (Argentina), and
YPF Ecuador (Argentine owned unit) are the major players.
Studying changes in the states policy required a two pronged approach.15 One
relied on key informant interviews with officials, environmental groups, and oil experts.
Interviews with present and especially former officials that have been policy makers were
critical in determining the factors leading to a change of course. Second, documents and
regulatory codes were reviewed. To determine if an effort at compliance with the
15 This research was conducted between the fall of 1996 and the spring of 1998. Thanks to the generous
support of the Tinker Foundation, field research in Ecuador was made possible. Field work was conducted
in Quito and Guayaquil between July and August 1997 and consisted mainly of interviews, gathering of
press coverage, institutional bulletins and documents, obtaining literature, and discovering and acquiring
copies of relevant regulations.


48
The article then proceeds with an outline of what is required of the EIAs, each outline
including specific regulations dealing with issues particular of the project to be
undertaken. Thirty days after the submission of the EIA, the contractor will receive the
revised EIA and will have 15 days to make any changes. Also, companies that at the time
of enactment of Decree 2982 already had facilities in operation are required to submit
(within 180 days after the approval of 2982 on August 24, 1995) the Environmental
Management Plan.26 Ultimately, all projects have to be designed with their potential
environmental impact in mind.27
The Ministry of the Environment is also responsible for the execution of an
environmental audit every two years. This audit applies to all stages of production and to
Petroecuador and all contractors. The extent and type of the audit is to be determined by
the Ministry. An additionaland extensiveenvironmental audit is to be conducted upon
the cessation of operations of a company in an area to determine what damages have
occurred and how to repair them.
Under special circumstances, an emergency environmental audit known as an
Examen Especial Ambiental (Special Environmental Exam) can be carried out by the
Ministry of the Environment on its own or by request of Petroecuador, its affiliates, or
authorized oil companies....28 Once an environmental audit or emergency audit is
conducted, a technical report must be elaborated. The Ministry of the Environment must
present the report to the audited entity within 15 days after its completion. The company
26 Executive Decree 2982 pg. 22.
2 Executive Decree 2982 pg. 22.
28 Executive Decree 2982 pg. 58.


71
provide some legal base for citizen protection, such as article 2241 of the civil code, local
regulations such as Ordenanzas 2910 of Quito and Ordenanza 222 of Cuenca, and health
and civil codes at different levels of government.21 The Civil Code allows for lawsuits in
cases where one party causes economic loss to another, for example, when oil spills lead
to a loss of crops. Moreover, international agreements carry with them the commitment of
the signatory country to fulfill its stipulations at the domestic level. This is the reason why
there is a general similarity between Ecuadorian environmental codes and the agreements
on the environment which Ecuador signs. Indeed the Rio Declaration appears to be
influential as it is referred to in petroleum industry forums. Dr. Rene Ortiz observed that
international environmental agreements are one of the main factors leading to change in
domestic policies.22
Actors
Another component of the regime are its actors. These include the state,
environmental NGOs and indigenous groups, private companies, and private citizens.
States that are pursuing national development have an interest in what type of
solutions are found for the problem of environmental degradation. This is particularly true
for states that rely on mining as a source of fiscal revenue. Mining in its different
variations has significant impact on the environment even when the environment is
considered during the planning stage. As one staff member of Fundacin Natura points
21 See Byron Real Lpez. '"Cmo Defendemos de la Barbarie Ambiental. in Debate Ecolgico sobre el
Problema Petrolero en el Ecuador, ed. Esperanza Martinez (Quito. Ecuador: Accin Ecolgica. 1993) 91-
93 and Giuseppina Da Ros, "Anlisis Econmico de la Contaminacin de Aguas en Amrica Latina: el
Caso de Ecuador. in Anlisis Econmico de la Contaminacin de Aguas en Amrica Latina, ed. Jorge A.
Quiroz (Santiago, Chile: Centro Internacional para el Desarrollo Econmico. 1995) 280-284.


ACKNOWLEDGEMENTS
I wish to express my deepest gratitude to Drs. Terry McCoy, Mark Thumer, and
Philip Williams for providing me with invaluable support, knowledge and understanding
throughout my academic career at the University of Florida. I would especially like to
thank Dr. McCoy for allowing me to work as his assistant, for helping me with the
completion of this thesis and for his guidance.
I would also like to thank my wife, Sylvia, who has made tremendous changes in
her life to be by my side. I hope that someday I can grant her the support and
understanding she needs for attaining any goals she sets for herself.
I cannot express the gratitude I have for my parents. They have made great
sacrifices to provide me with all I needed for success in life. It is because of their efforts
that I can look forward to a life full of opportunity for myself and my family.
n


ECUADORIAN OIL POLICY IN THE ERA OF
SUSTAINABLE DEVELOPMENT
By
MARCOS G. AVELLAN JR.
A THESIS PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF ARTS
UNIVERSITY OF FLORIDA
1998


CHAPTER 3
POLICY RESPONSE
Overview
The oil industry is economically critical for Ecuador. For a variety of reasons,
Ecuadors economy has grown at a sluggish pace, well below the Latin American average
for most of the 1990s. In 1997, while regional GDP grew by 5.5%, Ecuador grew by a
slow 3%, with a 1998 growth forecast of 2.5%.' Ecuadors poverty rate has been on the
rise and is now estimated to comprise 50% of the population, up from around 40% in the
early 1990s, and bucking the regional trend of stable or slightly declining poverty rates.2
Ecuador depends greatly on oil for the hard currency it needs to service the countrys
large foreign debt estimated at $13 billion, is a source of government funds since tax
collection is lax and regressive, it is the single largest export product, and for employment
purposesa staggering 66% of the countrys labor force is in the informal sector.3 The
industry generates approximately $1.8 billion a year for Ecuador in oil and oil product
1 See Economist Intelligence Unit. Ecuador Country Report 3rd Quarter 1997 (London: Economist
Intelligence Unit, 1997) 5 and Reuters. "Ecuador Cuts Growth Forecast. Proposes Higher Tax" Finance 4
March 1997.
: Regional poverty rates today vary between 20% in Chile and 73% in Honduras (1994). with Latin
American total poverty rates estimates now at about 35-40%. See Economic Commission for Latin
America and the Caribbean. Social Panorama of Latin America 1996 (Santiago, Chile: ECLAC, 1996)
193-194.
3 Even by Latin American standards, the size of Ecuador's informal sector is large. Most countries in the
region have between 30% to 50% of their labor force in the informal sector.
34


There is a substantial amount of literature available to detail the changes in oil
policy and the factors leading to these changes. This includes position papers by NGOs
and corporations, media coverage, Ecuadorian government documents, and court
documents. Given the enormous importance of oil for Ecuadors economy, the lack of
work on the topic by Ecuadorian scholars was surprising. As far as the University of
Florida Latin American collection is concerned, there were several volumes that were
useful, most of which published only recently. There were few works that directly dealt
with the relationship between the Ecuadorian state and oil development. Jose Zevallos
from the Universidad Catlica de Quito wrote a volume that mainly deals with the
relationship between the 1972-1979 Rodriguez Lara military administration and foreign oil
companies at a time when foreign, corporate development of natural resources was highly
controversial. Another volume by Douglas Southgate, a professor of Agricultural
Economics at Ohio State University describes the extent of pollution in the region, anti-oil
campaigns, and the economics of oil production. His main conclusions were: water
pollution as a result of oil exploration and production is severe; that anti-oil campaigns are
a consideration; and finally, because oil exploration requires a minimum amount of direct
infrastructure investment, imposing certain environmental regulations with their
concomitant increase in costs may act to discourage oil production in Ecuador.10
There is a wealth of primary data in periodical publications with economic
statistics, reports in petroleum trade journals, NGO documents, public documents from
government sources, and documents from international organizations on sustainable
developmentof which the OAS and UN positions stand out. Moreover, many of these
10 Douglas Southgate. Petroleum Development in Tropica! Rainforests (Quito: Idea. 1992) 20.


108
Da Ros, Giuseppina. Anlisis Econmico de la Contaminacin de Aguas en Amrica
Latina: el Caso de Ecuador. In Anlisis Econmico de la Contaminacin de
Aguas en Amrica Latina. Ed. Jorge A. Quiroz. Santiago, Chile: Centro
Internacional para el Desarrollo Econmico, 1995. 227-298.
Denuncian Derrame de Petrleo. El Universo 29 January 1998: 1.
Donoghue, Mark and Eduardo Brito. Texacos Strategy in Ecuador. International
Commercial Litigation November 1997: 42-44.
Economic Commission for Latin America and the Caribbean. Social Panorama of Latin
America 1996. Santiago, Chile: ECLAC, 1996.
Economist Intelligence Unit. Ecuador Country Report, 3rd Quarter 1996. London, 1996.
Economist Intelligence Unit. Ecuador Country Report, 3rd Quarter 1997. London, 1997.
Ecuadorian Indians sue Texaco for Damage to Rivers, Land in Amazon Basin. BNA
International Environment Daily 5 November 1993: 1.
Edwards, Sebastian. Crisis and Reform in Latin America. New York: Oxford University
Press, 1995.
Elf Pulls Out of Ecuador. The Oil Daily 29 January 1998: 1.
Fundacin Natura. Basic Proposal for North-South Negotiations on Environment and
Development. Quito, Ecuador: Fundacin Natura, 1992.
Garca-Guadilla, Mara Pilar, and Jutta Blauert, eds. Retos para el Desarrollo y la
Democracia: Movimientos Ambientales en Amrica Latina y Europa. Caracas,
Venezuela: Editorial Nueva Sociedad, 1994.
Garzn, Oscar, ex-Minister of Energy under the Boija Administration, Quito, Ecuador.
Personal interview. August 1997.
Gobierno Militar del Ecuador. Decreto Supremo No. 925. 4 August 1973.
Herrera, Doris. Petrleo, Deterioro Ambiental, y Salud. In La Cuenca Amaznica de
Cara al Nuevo Siglo. Ed. Doris Herrera. Quito, Ecuador: FLACSO Sede Ecuador,
1997. 313-356.
Hurell, Andrew, and Benedict Kingsbury, eds. The International Politics of the
Environment. New York: Oxford University Press, 1992.


35
exports and generated 14% of its output in 1996.4 Within this context of commodity
dependence as both a source of government revenue and hard currency, any changes in
policy that increases the cost of oil production can be detrimental to state coffers and
economic growth.
Table 3-1
Ecuador: Government Oil Revenue and Total Revenue 1991-1995
1991
1992
1993
1991
1995
Oil revenue
765.3
909.1
1079
1007
1189
Total revenue
1650
1970
2250
2570
3125
jOGl revene
Total ievrue
Recently enacted legislation concerning oil exploration consists of two main
pieces. The first was President Sixto Duran Ballens Executive Decree No. 1802 of 1994
which essentially constituted a policy statement concerning sustainable development and
4 Economist Intelligence Unit. Ecuador Country Report 3rd Quarter 1997 (London: Economist
Intelligence Unit 1997) 5.


23
particularly Texaco. Jarrins policy had the goal of reconciling the contracts with the
letter of the law and he accomplished this 25
Jarrin used several factors to squeeze the most he could out of the oil companies
through the contracts, and he obtained the most not only in terms of control but also in
terms of fees and royalties for the state. The contract explicitly notes that Texaco-Gulf had
1.4 million hectares and that the consortium had returned to the state the amount in
excess of the maximum of496,000 permitted by law.26 The royalties set at 12.5% of gross
revenue of petroleum exports were to be paid on a monthly basis.27 Texaco also had to
pay an initial fee of US$ 2,973,868 which was to be used by the state for the construction
of airports in Esmeraldas and Coca; the urbanization of Aguarico and Coca; and the
upgrading of a major highway in the Oriente, all important to the oil production process 28
The contract was to last for 20 years instead of the usual 40.29 These stipulations were in
addition to standard corporate taxes as required by Ecuadors tax code. '0 Moreover, a
whole variety of charges were assessed and detailed, contingency plans elaborated, and
investment commitments for infrastructure were secured from Texaco. This was all done
by Jarrin Ampudia under the aegis of the modernizing and nationalistic military
25 "Parte Primera: 1961-1973, La Gestacin de una Poltica Petrolera 19 October 1978: 357.
26 Introduction of Decreto Supremo No. 925 4 August 1973.
Texaco returned to the state a total of 940,104 hectares of the 1,431,459 it had accumulated. The final size
of the Texaco concession w as 491,355 hectares.
27 Chapter 8 (29) (1) of Decreto Supremo No. 925 4 August 1973.
28 Chapter 8 (27) (1) (a): (b): (c); (d); (e) of Decreto Supremo No. 925 4 August 1973.
29 The contract duly expired in 1992. with Texaco's operations and facilities becoming a part of state oil
company Petroecuador.
30 Chapter 8 (33) (1) of Decreto Supremo No. 925 4 August 1973.


August 2007
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19
approached the state soon made Ecuadorian policy makers aware that they had substantial
leverage in dealing with them. A determination appeared, particularly in the military, not
to allow the prior swindling of the state by foreign corporations (such as the granting of
paltry royalties), the use of subterfuge to obtain larger concessions, low concession rates
for adjudicated land, and limited taxation of corporate earnings to occur again.
This led to a significant change in regulatory codes to bring the operations of
foreign corporations under closer scrutiny. This process began in 1967 under president
Otto Arosemena, followed by president Jos Maria Velasco Ibarra, and continuing into the
military governments of the 1970s.13 Arosemena realized the importance of either
upgrading or replacing the 1937 Petroleum Law as the potential of oil for government
coffers became clear. However, there was little experience in dealing with the oil
multinationals and this hindered the drafting of a new regulatory body until 1972.
Nevertheless, Arosemena was also able to secure much better terms from the oil
companies seeking to obtain or retain their concession rights through the use of model
contracts. Model contracts were a device used by the Arosemena administration to
impose his new regulatory code for the petroleum industry which had languished in
congress.14 Arosemena included the principles of his proposed regulatory code in the
contracts. The option would have been to allow the oil companies win much more
favorable terms for themselves through the 1937 law: ...bills were sent to Congress...but
none...read or much less studied...Convinced that the legislation would never emerge as a
13 See Judith Kimerling, Crudo Amaznico (Quito: Abya Yala. 1993) 19, Parte Primera: 1961-1973. La
Gestacin de una Poltica Petrolera 19 October 1978: 353. and Admiral Gustavo Jarrin Ampudia.
Personal notes.
'4 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 352.


55
recycled by transferring it from countries where it was outlawed to those were
regulatory environments were not so strong. Massive oil spills and the draining of
chemical byproducts of oil production into the areas hydrographic system were the
results. Such behavior would not be tolerated in the companys country of originwhich is
why the PAE demands that they engage in corporate behavior akin to what would occur in
the home country, by stressing the point that they have to respect the health of
Ecuadorians the PAE hints at Decree 2982: companies may have to answer to local health
authorities for their actions.
The other international link established in this section of the plan is that between
trade and the environment. It argues that the monies to be made from trade should not
constitute an excuse for disregarding the environment in product manufacturing. The
concern is that widespread desire for economic well-being may lead to an assault on
Ecuadors natural resources; indeed, there has been some debate as to the merits of
Westem/U.S. style consumerism and especially its impact on the environment. This
concern is widespread although the relationship between trade and sustainable
development is not at all clear. Whereas many NGOs operating in Latin America are
opposed to extensive free trade pacts on grounds that they constitute an acquiescence to
Western models of economic developmentand the concomitant environmental
degradationthe opposite may also be true. One of the most pressing concerns for Latin
American governments seeking to enter free trade pacts is that of linkage between trade
issues and environmental ones. Linkage usually involves that a country with higher
environmental standards demands that another adopt those standards in order to level the
playing field between the companies operating in potential trade partners, since it is


103
study to a firm. Fifth, domestic press coverage has grown more critical and less tolerant of
environmental degradation, although contamination by the state oil company,
Petroecuador, continues to be an apparently taboo topic. Nevertheless, contamination
continues to be reported, hopefully creating an environment in which the risks of negative
domestic media exposure create an effective deterrent to contamination. Finally within oil
companies themselves, public and private, it appears that environmental factions are
struggling to change any destructive mentality concerning the environment. Indeed, one
recent editorial in LatinTrade magazine calls for businesses in Latin America to not fear
increased environmental regulation, which the article deems necessary.4 One powerful
source of pressure for clean operations seems to arise from environmental protection units
within oil companies. Ultimately, such an array of forces lined up against contamination
can enforce environmental protection, especially in alliances. Recent press coverage has
focused on the hostility between eco-tourism companies and oil producers, with eco-
tourist associations upset at contamination that damages their business.
There are some problems, however. The main problem is the issue of indigenous
groups that live in the oil regions. Their lives continue to be affected by the loss of their
own ethnic identity as a result of contact with settlers and oil workers. Such interactions
have led to loss of identity, a sense of inferiority on account of a perceived lack of wealth
and worth in a modem world, exposure to illnesses they have previously not
4 Joachim Bamrud. "Environment and Business." Latin Trade April 1998: 8.


ECUADORIAN OIL POLICY IN THE ERA OF
SUSTAINABLE DEVELOPMENT
By
MARCOS G. AVELLAN JR.
A THESIS PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF ARTS
UNIVERSITY OF FLORIDA
1998

ACKNOWLEDGEMENTS
I wish to express my deepest gratitude to Drs. Terry McCoy, Mark Thumer, and
Philip Williams for providing me with invaluable support, knowledge and understanding
throughout my academic career at the University of Florida. I would especially like to
thank Dr. McCoy for allowing me to work as his assistant, for helping me with the
completion of this thesis and for his guidance.
I would also like to thank my wife, Sylvia, who has made tremendous changes in
her life to be by my side. I hope that someday I can grant her the support and
understanding she needs for attaining any goals she sets for herself.
I cannot express the gratitude I have for my parents. They have made great
sacrifices to provide me with all I needed for success in life. It is because of their efforts
that I can look forward to a life full of opportunity for myself and my family.
n

TABLE OF CONTENTS
page
ACKNOWLEDGEMENTS ii
LIST OF TABLES v
ABSTRACT vi
CHAPTERS
1 INTRODUCTION 1
Background 2
Central Problem 6
Significance and Literature Review 6
Objectives and Research Approach 9
2 HISTORY OF OIL PRODUCTION IN ECUADOR AND ITS
ENVIRONMENTAL CONSEQUENCES 14
History of Ecuadorian Oil 14
The Texaco-Gulf Era 17
Steps in Producing Oil 25
The Controversy over Contamination 27
3 POLICY RESPONSE 34
Overview 34
Executive Decree No. 1802 37
Executive Decree No. 2982 41
The Committee of Environmental Advisement 50
in

4 FACTORS LEADING TO POLICY CHANGES AND
EFFORTS AGAINST OIL CONTAMINATION 59
Analytical Framework 59
The Hemispheric Sustainable Development Regime 61
Multilateral Lending Institutions 65
Transnational Organizations 67
Legal Action and International Agreements 70
Actors 71
Mobilizations Against Polluters 75
The Texaco Lawsuit 75
The Maxus Controversy 84
Conclusions 94
5 SUMMARY AND CONCLUSIONS 96
Summary 96
The Future of the Environment and Oil in Ecuador 102
Conclusions 104
Recommendations for Future Research 105
BIBLIOGRAPHY 107
BIOGRAPHICAL SKETCH 113
IV

LIST OF TABLES
Table page
2-1 Ecuador: Major Oil Concessions 1878-1972 16
3-1 Ecuador: Government Oil Revenue and Total Revenue 1991-1995 35
4-1 Major Oil Companies in Ecuador 1997-1999 75
v

Abstract of Thesis Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Master of Arts
ECUADORIAN OIL POLICY IN THE ERA OF SUSTAINABLE DEVELOPMENT
By
Marcos G. Avellan Jr.
May 1998
Chairman: Dr. Terry L. McCoy
Major Department: Latin American Studies
Oil contamination of Ecuadors Amazon Basin by corporations public and private
has been pervasive. Companies such as Texaco and Maxus have been accused of
contaminating water, deforestation, pollution and hurting indigenous groups.
Contamination reached such level of severity that in 1993, Ecuadorian citizens presented a
lawsuit in White Plains, New York, against Texaco. They accused Texaco of harming
their health as a result of the companys contamination. In the aftermath of the Texaco suit
and due to international and domestic pressure, the Ecuadorian state has enacted
legislation to protect the environment from oil production. This legislation appeared in
1994 and has been fortified by subsequent and improved regulatory codes. These
regulatory codes mark a clear departure from the past, especially since there were no
regulations concerning the environment specifically dealing with the oil industry.
vi

Moreover, compliance with such regulations is being monitored not only by the state, but
by private nongovernmental organizations.
The purpose of this thesis is to provide an overview of recent changes in
Ecuadorian oil policy concerning the environment and to explain the factors that have led
to change. This thesis argues that an international regime for environmental protection in
the Americas is forming and that this has led to domestic policy changes in Ecuador.
Hence, this thesis further argues that a combination of large international nongovernmental
organizations joined with smaller Ecuadorian NGOs, international agreements,
international institutions, and grassroots groups has been instrumental in creating an
international normative context unfavorable to contamination. The result of this research,
relying mainly on government documents, interviews, and press accounts, is that there
have been changes in Ecuadorian policy and corporate behavior due primarily to the
impact of international pressure.
Vll

CHAPTER 1
INTRODUCTION
Oil exploration and production in Ecuador has led to widespread environmental
damage in its Amazon Basin. In recent years, a response to this contamination has
surfaced from a variety of international and domestic groupsincluding environmentalists
and advocates of indigenous rightsseeking to stop it. Although the Ecuadorian state has
resisted calls to develop a stronger regulatory framework, and policy makers have been
apprehensive about scaring away foreign investment, Ecuador has adopted environmental
legislation and established a Ministerio de Medio Ambiente.
Pro-environment groups rely on the changing normative international context,
which has become far more favorable to environmental protection, to gain support and
focus international and an individual countrys public opinion on specific issue areas. The
discourse on environmental protection has shifted to the confines of the sustainable
development framework and has granted greater legitimacy to those seeking enhanced
regulation. This shift is evident in a series of international agreementsprimarily the Rio
Declaration on Environment and Development or Agenda 21. In the Americas, an Inter-
American system on sustainable development is forming and seeks to establish some kind
of enforcement mechanism. What is emerging is what is known in international relations
1

2
theory as a regime. This thesis will explain what the regime consists of, and how the
environmental behavior it promotes has led to changes in Ecuadorian oil policy.
Background
Ecuadorian oil production began in 1972 under the military administration of Gen.
Rodriguez Lara. Oil exploration and production were located partly in the Golfo de
Guayaquil but mostly in the Amazon basin. Production ended nearly 150 years of reliance
on commodities such as cocoa, bananas, and marine products for economic growth.
Because of the oil boom, Ecuadorian GDP growth averaged 9% a year during the 1970s
and resulted in expansion of the public sector. The funds generated by oil paid for
infrastructure programs, financed an expansion of social programs, established state
owned corporations, and promoted ISI manufacturing. However, the declining
profitability of oil production as a result of price reductions after the 1st and 2nd oil shocks
had a disastrous effect on Ecuador. The result was an absolute decline of oil production
from 208,000 barrels per day in 1973 to 201,000 in 1978 and new debt obligations
contracted by the military based on the expectation of higher oil prices.1 By the early 80s,
Ecuador was US$ 8 billion in debt and oil prices would fall to below $20 a barrel during
the mid 1980s. Oil production went from being an engine for economic growth to
becoming the critical source for debt repayment. Today Ecuador is US$ 13 billion (1998)
in debt with a high debt/GDP ratio of 66%.2 Roughly a third of government revenue
1 Jose Vicente Zevallos. El Estado Ecuatoriano y las Transnacionales Petroleras. (Quito: Pontificia
Universidad Catlica del Ecuador. 1981) 16.
2 The debt to GDP ratio is the standard measure used by economists to monitor the overall foreign
indebtedness of a country. This ratio has declined dramatically throughout the region, with Chile seeing a

comes from oil sales, is the source of most of its hard currency, and 40% of Ecuadors
central budget goes to service debt both foreign and domestic/' By all of these measures,
the Ecuadorian state is highly dependent on oil production and oil exports.
The result of large-scale oil production has been extensive contamination, primarily
in the Amazon Basinsor Orientehydrological system, and deforestation of the
rainforest due to oil infrastructure projects (such as roads). Pollution and deforestation
have been the result of oil spills from both production and transport as well as residue
chemicals contaminating waterways and aquifers. Three companies have been accused of
being primarily responsible for the contamination: Texaco of White Plains, N.Y., Dallas
based Maxus, and Petroecuador, the state oil company.4 Maxus has been accused of
deforesting 29,000 hectares of primary rainforest while Texaco is estimated to have
released 16.8 million gallons of crude oil in the Oriente up to 1992, when its 20 year
presence in Ecuador ended.5 By comparison, the Exxon Valdez disaster dumped 11
million gallons off the coast of Alaska. As a result of contamination, fish and drinking
water have apparently been seriously affected. Moreover, many allege that water
reduction from approximately 120% in the early 1980s to 25%by 1997. Brazils ratio is approximately
35% (1998). Faster economic growth has allowed Latin American countries to increase their absolute
level of indebtedness while simultaneously reducing its debt burden. The debt to GDP ratio does not
include domestic government borrowing.
3 Economist Intelligence Unit, Country Report 3rd Quarter 1996 (London: EIU, 1996).
4 Maxus is now known as YPF Ecuador S.A. due to its recent acquisition by Argentinas Yacimientos
Petrolferos Fiscales. Only in Ecuador was Maxus name changed to YPF. Maxus continues to be known
as such in its other operations worldwide.
According to Accin Ecolgica and Amazonia por la Vida. Also see Judith Kimerling. "Oil.
Lawlessness, and Indigenous Struggles in Ecuadors Oriente, in Green Guerrillas, ed. Helen Collinson
(London: Latin America Bureau. 1994) 65.

4
contamination has resulted in a series of serious health problems for settlers and,
especially, indigenous peoples in the production and exploration region.
The contamination reflects a weak regulatory environment, but recent legislation
has sought to strengthen environmental protection Most oil companies, in fact, have
developed drilling and exploration practices that today surpass the standards set by the
state. These companies have gone to great lengths to distance themselves from the
controversy and some have now chosen to use the most environmentally sound technology
available. The initial reluctance on the part of the state to implement and enforce a
stronger regulatory environment stems from fear that added costs to oil exploration will
deter potential foreign investment in the oil sector.6 Although Petroecuador (which
assumed control of Texacos operations in 1992) produces more than 66% of Ecuadors
oil, foreign investment fills a critical investment and technological gap. Moreover, Ecuador
reimburses those costs to the companies, this provides the state an incentive to keep a
regulatory environment as friendly as possible for exploration as far as costs are
concerned.
Contamination reached such a severe level that a lawsuit was filed in District Court
in 1994 in White Plains, N.Y., by Ecuadorian citizens with the support of environmental
and indigenous rights groups both Ecuadorian and foreign, with assistance from the Sierra
Legal Defense Fund. The suit, Maria Aguinda.. et al. v. Texaco, accused Texaco of
negligence in its oil activities in Ecuador which created serious health problems for the
areas residents. The suit was filed in New York because it was alleged that the events that
6 See amicus brief presented by the Duran-Ballen administration in Maria Aguinda et al. and other
plaintiffs v. Texaco Inc., defendant. U S. District Court for the Southern District of New York. 93 Civ
7527 850 F. Supp. 282. X.

occurred in Ecuador originated in Texacos headquarters and that Ecuadorian courts
could not handle the matter appropriately due to Texacos influence in the country.
However, the court dismissed the suit for two main reasons: first, because the events
transpired in Ecuador, Ecuadorian courts had jurisdiction over the matter and second,
foreigners (residing abroad) could only sue (tort) a United States based defendant in the
U.S. if the action involved a breach of international law or a treaty to which the U.S. is
signatory which the plaintiffs failed to show. Despite this outcome, the case is important in
that it:
Involved a mobilization of a wide range of national and transnational actors
converging for and against Texaco.
Explicitly revealed the position of an Ecuadorian administration on environmental
regulations, an opinion which ran counter to a variety of principles, norms, and rules
on the environment agreed to by Ecuador.
Constituted a vital juncture for grassroots movements because it was the first time that
environmental and indigenous groups in Ecuador were able to place their grievances
so high on the national agenda.
Presented as evidence international agreements on the environmentsuch as the 1992
Rio Declaration on Environment and Developmentto which Ecuador had agreed to.

6
Central Problem
The main purpose of this thesis is to study how Ecuadorian environmental oil
policy towards the Oriente has evolved in this decade, especially in light of the
hemispheric push for sustainable development and the 1994 Texaco lawsuit. The suit
constitutes a critical instance of anti-pollution mobilization primarily because after the suit,
the state took the issue of oil contamination far more seriously than it had previously.
Indeed, since the suit Ecuador has adopted a flurry of environmental legislation, a
Ministerio de Medio Ambiente has been created, and adopted oil contracts with clauses
that specifically address the issue of contamination. This does not necessarily mean that
the letter or even the spirit of this regulatory framework has been adhered to but it is clear
that prior to the Rio Declaration and the Texaco suit far less attention was paid to the
issue in terms of legislation and media attention. Moreover, the changes in policy and their
text admit that contamination has in fact occurred. In the past, the problem of
contamination has been denied. Environmental groups have received new legitimacy now
that the state acknowledges the existence of contamination, and by recognizing the
problem a solution might be found. In other words, the terms of the debate have been
recast in such a way that it has made it difficult for the state to ignore the problem and
maintain the prior regulatory framework.
Significance and Literature Review
Although there is little material in terms of academic analyses of Ecuadorian oil
policy in the Amazon Basin specifically, a significant body of scholarly work addresses
state acquiescence to the establishment of stronger international or domestic

7
environmental regulationwith a sizable number relying heavily on regime theory. Andrew
Hurrell, in his analysis of Brazilian policy towards Amazonia from the 1980s onward,
points out to the emergence of critical international public opinion, the success of
international pro-environment groups in complicating the procedure for financing of
Brazilian development projects, and the emergence of deforestation as an issue in many
areas of Brazils dealings in the international arena as the main factors propelling a change
away from environmental nationalism.7 Indeed, in Hurrells analysis it is the changing
international normative contextnot domestic pressurewhich was pivotal in the
reevaluation by President Collor de Mello of the countrys Amazonia policy. For his
analysis, Hurrell constructs an environmental deforestation regime without giving much
detail.8 Martin List goes into much more detail in describing an environmental regime,
specifically a regime for the protection of the marine environment of the Baltic Sea. In this
case, the major statement of principles is the 1974 Helsinki Convention.9 List argues that
the convergence around the principles and norms of the issue area (Baltic Sea pollution)
was strong enough to transcend the enormous differences among them, specifically, the
nature of their political systems (communist states as opposed to liberal or social
democratic democracies). This thesis follows this line of academic work using regime
theory to explain the evolution of Ecuadorian oil policy in recent years.
7 Andrew Hurell. Brazil and the International Politics of Amazonian Deforestation." in The International
Politics of the Environment, eds. Hurrell and Kingsbury (New York: Oxford University Press. 1992) 427-
429.
8 See Andrew Hurell. The International Politics of the Environment, eds. Hurrell and Kingsbury (New
York: Oxford University Press. 1992).
9 Martin List. The Baltic Sea: a Case of International Environmental Management." in International
Regimes in East-West Politics, ed. Volker Rittberger (London: Pinter Publishers. 1990) 94.

There is a substantial amount of literature available to detail the changes in oil
policy and the factors leading to these changes. This includes position papers by NGOs
and corporations, media coverage, Ecuadorian government documents, and court
documents. Given the enormous importance of oil for Ecuadors economy, the lack of
work on the topic by Ecuadorian scholars was surprising. As far as the University of
Florida Latin American collection is concerned, there were several volumes that were
useful, most of which published only recently. There were few works that directly dealt
with the relationship between the Ecuadorian state and oil development. Jose Zevallos
from the Universidad Catlica de Quito wrote a volume that mainly deals with the
relationship between the 1972-1979 Rodriguez Lara military administration and foreign oil
companies at a time when foreign, corporate development of natural resources was highly
controversial. Another volume by Douglas Southgate, a professor of Agricultural
Economics at Ohio State University describes the extent of pollution in the region, anti-oil
campaigns, and the economics of oil production. His main conclusions were: water
pollution as a result of oil exploration and production is severe; that anti-oil campaigns are
a consideration; and finally, because oil exploration requires a minimum amount of direct
infrastructure investment, imposing certain environmental regulations with their
concomitant increase in costs may act to discourage oil production in Ecuador.10
There is a wealth of primary data in periodical publications with economic
statistics, reports in petroleum trade journals, NGO documents, public documents from
government sources, and documents from international organizations on sustainable
developmentof which the OAS and UN positions stand out. Moreover, many of these
10 Douglas Southgate. Petroleum Development in Tropica! Rainforests (Quito: Idea. 1992) 20.

9
items were available on the Internet where they were easily retrievable. Also of interest
was Native Web. This web site featured statements, press releases, position papers and
media reports from a multitude of indigenous groups and NGOs on various topics
including the controversy over Ecuadorian oil development.
Objectives and Research Approach
Regime theory provides a conceptual framework for understanding why the
Ecuadorian state has chosen to address the issue of oil contamination. Regime theory
seeks to explain restrained state behavior in the absence of international law or hegemonic
dominance by an external actor. This approach is valid in the Ecuadorian case since many
of the actors are foreign-oil companies, for examplepossess transnational links and
allies, and it involves a controversy which Ecuadors state has deemed an important
concern for its foreign relations apparatus. Moreover, epistemic communities address
deforestation and oil contamination as problems that transcend borders. All this has led to
an increased formalization of the concept of sustainable development in the hemispheres
diplomatic discourse and heightened acceptance of the concept and what it entails. Hence,
this thesis argues that a hemispheric sustainable development regime is emerging and that
it has led Ecuadors state to change its policy concerning oil exploration and production in
the Amazon basin.
The main hypothesis guiding this research is that the Ecuadorian state has
addressed the issue of oil contamination since the Texaco lawsuit although the state was
most reluctant to change. The main questions to be answered are the following:
In what ways has oil policy in Ecuador changed since 1994?

10
What factors have shaped these changes?
To answer these questions, regime theory is a useful tool in explaining the changes in
Ecuadors oil policy.
Building on the definition of Stephen Krasner, List and Rittberger define regimes
as a form of collective action by states, based on shared principles, norms, rules, and
decision-making procedures which constrain the behavior of states in specific issues areas
and that possess a minimum of effectiveness.11 The issue area is sustainable development
in Ecuadors Oriente. Principles are defined as beliefs of fact, causation or rectitude;
norms are standards of behavior in terms of rights and obligations; rules are prescriptions
or proscriptions for action; and procedures are practices for making and implementing
collective decisions.12 As McCoy points out, these elements are all present in the
hemispheres regime.1''
The objective of the hemispheres regime is to encourage sustainable development,
or economic growth that presences natural resources for both future use and the planets
bio-diversity. The founding document outlining the characteristics of the regime--or the
normative nucleus as List would sayis the Rio Declaration on Environment and
Development or Agenda 21.14 This was adopted in August, 1992, after the United Nations
11 Martin List and Volker Rittberger. "Regime Theory and International Environmental Management." in
The International Politics of the Environment, eds. Hurrell and Kingsbury (New York: Oxford University
Press. 1992) 86-89.
12 Terry L. McCoy, "Sustaining Sustainable Development." Hemisphere V.8 No.l 1997: 16-18.
13 Terry L. McCoy, "Sustaining Sustainable Development." Hemisphere V.8 No.l 1997: 16-18.
14 Martin List and Volker Rittberger. "Regime Theory and International Environmental Management. in
The International Politics of the Environment, eds. Hurrell and Kingsbury (New York: Oxford University
Press. 1992).

11
Conference on Environment and Development or Rio Summit. The spirit and letter of
this declaration can be found in most documents pertaining to the environment. In the
Americas, the Inter-American Program of Action for Environmental Protection of 1991,
the 1994 Summit of the Americas, and the Declaration of Santa Cruz de la Sierra of 1996
reaffirm the commitment to the stipulations of the Rio Declaration by signatory
countriesincluding Ecuador.
The categories of actors relevant in this research are environmental NGOs, the
Ecuadorian state, indigenous movements, and energy corporations. Environmental NGOs
of relevance are both foreign and domestic organizations. The two Ecuadorian
environmental NGOs most involved in the issue of oil contamination are Fundacin
Natura and Accin Ecolgica. The main foreign NGOs are the Sierra Club, the Nature
Conservancy, the World Wildlife Fund, and the Rainforest Action Network. A variety of
multinational energy corporations operate in Ecuador: Royal Dutch Shell (Anglo-Dutch),
Arco (U.S.), City Investing (Canada), Petrobras (Brasil), Perez Companc (Argentina), and
YPF Ecuador (Argentine owned unit) are the major players.
Studying changes in the states policy required a two pronged approach.15 One
relied on key informant interviews with officials, environmental groups, and oil experts.
Interviews with present and especially former officials that have been policy makers were
critical in determining the factors leading to a change of course. Second, documents and
regulatory codes were reviewed. To determine if an effort at compliance with the
15 This research was conducted between the fall of 1996 and the spring of 1998. Thanks to the generous
support of the Tinker Foundation, field research in Ecuador was made possible. Field work was conducted
in Quito and Guayaquil between July and August 1997 and consisted mainly of interviews, gathering of
press coverage, institutional bulletins and documents, obtaining literature, and discovering and acquiring
copies of relevant regulations.

12
principles of the regime has been undertaken, it was necessary to look at current
conditions for bidding on oil development and whether or not environmental
considerations are significant in current contractual obligations with oil companies. Also, a
look at legislation and executive decrees were consulted in order to see if the principles of
the sustainable development regime have been adopted into law as the regime asks
member states to do. An analysis to determine whether or not new policies address the
issues that NGOs have prioritized was required. It was necessary to examine the new
regulatory framework and see if the enforcement mechanisms are adequate.
Discussions with NGO staff were necessary to avoid bias in favor of the states
position. A review of their literature was performed. These groups interests are similar in
some areas but not in others. Some NGOs are opposed to any kind of oil development in
the Amazon Basin while others grudgingly approve oil development if
exploration/extraction technologies are ecologically sound. It must be noted, though, that
all the NGOs have two things in common: they oppose contamination and they oppose the
destruction of indigenous cultures that oil production processes undoubtedly bring. And,
within the framework of regime theory, it is the NGOs that provide the enforcement
mechanisms for the regime and they are critical elements in attracting attention to Oriente
deforestation and contamination.
This thesis has three objectives. First, it intends to determine if NGOs and popular
groups can alter hostile state policy by using the international normative context as a
means of exerting pressure on government-even if the issue area is one of extreme
sensitivity for the state. Second, it documents the extent of a significant environmental
disaster in Ecuadors Amazon Basin as well as according serious effects on the health of

13
people in the region. This is important because there are many in the industry today whom
refuse to acknowledge the existence of a problem. Third, it shows that state policy
towards oil contamination has changed substantially in recent years as a result of a
changing normative context internationally that has been adopted domestically.
Ultimately, this thesis explains how and why Ecuadorian oil policy has changed in
recent years. It is organized into five chapters. Chapter 2 will provide background on the
oil industry in Ecuador and contamination in Oriente, emphasizing the lawlessness in the
industry. Chapter 3 will enumerate and detail the new regulatory codes in Ecuador and
their significance. Chapter 4 will discuss the factors forcing changes in petroleum
environmental policy and detail incidents in which companies have changed their modes of
operation to an environmentally sound approach. Chapter 5 will develop a set of
conclusions and recommendations for future research.
This thesis is important in that it will help understand policy-making in a poor
country and how international, national, and transnational actors shape that policy.
Because the main source of revenue for the state is affected by these actorsin effect, the
money needed for social spending, among other thingsan understanding of the system in
which they operate is crucial.

CHAPTER 2
HISTORY OF OIL PRODUCTION IN ECUADOR AND ITS
ENVIRONMENTAL CONSEQUENCES
History of Ecuadorian Oil
Ecuadors oil industry has a long history marred by controversy from the outset.
We can divide the history of oil production in Ecuador into three stages: the period of
British domination from 1880-1970, the Texaco-Gulf era from 1964-1992, and the
contemporary period from 1992 onward. This long history of oil in Ecuador is often
forgotten since the petroleum boom of the 1970s has received the most attention and
overshadowed the previous 100 years of the industrys past.
The earliest references to oil in Ecuadorian literature are attributed to Manuel
Villavicencio in his geography of the country. Ecuadors Congress awarded the first oil
concession to M.G. Mier & Ca. in 1878, granting it the right to produce oil in the Santa
Elena region of Ecuadors coast.1
In 1886, Congress, declared state ownership of mines (underground wealth) much
like other countries in Latin America. The Mining Code of Ecuador, as it was known,
was reformed in order to allow the renting of mines to individuals or entities. The first
concession under this framework was to Mr. Carlton Dunne of England in 1909. Under
1 Admiral Gustavo Jarrin Ampudia. Personal notes.
The Peninsula de Santa Elena is the land mass between the city of Guayaquil and the resort city of
Salinas. A variety of fossil fuels are believed to exist in the nearby Golfo de Guayaquil.
14

15
this arrangement Ecuador was to receive 10% of net earnings, the building of a railroad,
and 70,000 pounds sterling in stock. In addition, an oil company was to be formed in
England in which Ecuador was to have two directors on the board. The first successful
well was developed in 1911 at Santa Elena.2 The Mining code was once more reformed in
1914 by President Leonidas Plaza, this time to explicitly declare the states ownership of
all fossil fuels. Two British companies at this point began to dominate the landscape, the
largest and most powerful being Anglo Ecuadorian Oil Fields Ltd. formed in 1918. Anglo
began oil production in Santa Elena in 1923. Its dominance was so powerful that
(Anglo)...conducted its operations on a truly colonial scale, paying no taxes at all until it
was forced to adhere to certain fiscal requirements in 1938 at the behest of the
government of General Alberto Enriquez.4 A massive concession was given to another
British producer, The Leonard Exploration Company, for 50 years. This concession
consisted of 25,000 square kilometers in the Orienteor roughly 10% of Ecuadors
current territory. In 1933 the Direccin General de Minas y Petrleos, the forerunner to
the Ministry of Energy, was created. The Direccin de Minas was responsible for
concessions and the elaboration of a regulatory framework for the industry. In 1937, the
Direccin de Minas enacted the Petroleum Law which was written by its director, Enrique
Coloma, who was also CEO of Anglo Ecuadorian. A few other large concessions were
given afterwards, notably to Standard Royal (1948) and Minas y Petrleos (1961).
2 Judith Kimerling, Crudo Amaznico (Quito: Abva Yala. 1993) 19.
3 Admiral Gustavo Jarrin Ampudia. Personal notes.
4 Osvaldo Hurtado. Political Power in Ecuador (Boulder. CO.: Westview Press. 1985) 83.

16
Table 2-1
Ecuador: Major Oil Concessions 1878-1972
Year
Company
Size
Location
1878
M.G. Mier y Cia.
na
Santa Elena
1910
Mr. Carlton Dunne
na
Santa Elena
1921
The Leonard Exploration
25000 Sq. km.
Oriente
1923
Anglo Ecuadorian Oil Fields
na
Santa Elena
1948
Standard Royal (Esso-Shell)
4000000 hectares
Oriente
1961
Minas y Petrleos
4350000 hectares
Oriente
1964
Texaco Gulf
1431450 hectares
Oriente
1972
CEPE
na
Nationwide
In order to circumvent legal restrictions that limited the amount of land that the
state could award in concession to a corporation, some companies proceeded to
practically sell their concession to other interested parties. The goal of the Petroleum Law
of 1937 was to limit one company from being overly dominant and it sought to do this by
having the state limit the size of the concession awarded to any individual company.
However, some companies realized that they were not precluded from ceding their
rights to another party in exchange for moneyin effect rendering useless the size
limitations of concessions. For example Minas y Petrleos ceded to the Texaco-Gulf
consortium the rights on part of its concession for millions of dollars while simultaneously
paying the state 4 cents of Sucre per hectare annually. Another, more dramatic incident
involved the granting of 4 million hectares to seven foreign oil companies. This was done
by the granting of concessions to six Ecuadorian nationals who then ceded their rights
to the foreign firms. Of the six, one was dead by the date the concession was awarded.5
5 Admiral Gustavo Jarrin Ampudia. Personal notes.

17
The early phase of the oil industry in Ecuador possessed three central
characteristics. First, there were constant regulatory changes resulting from the
inexperience of policy makers with the peculiarities of the oil industry. This led to frequent
changes in contracts, many of which had to be entirely re-written. Second, a pattern
emerged in which Ecuadorian and international oil companies sought to circumvent laws
by surreptitious manipulation of regulatory codes. Third, at this early stage in the
industrys development, it was foreign oil companies who dominated the scene and they
were able to twist regulation in their favor. It seems that initially, the interests of
multinational companies were able to dominate in negotiations in which the state
increasingly sought to increase its royalties.
The Texaco-Gulf Era
The consortium Texaco-Gulf in 1964 was awarded a 1.413 million hectare
concession in the Oriente6 The adjudicated territory consisted predominantly tropical
rainforest in an area with a complex hydrological system. The emergence of Texaco-Gulf
is noteworthy for various reasons: these were two of the most advanced oil companies at
the time; they brought with them great technical and financial resources which essentially
guaranteed enormous infrastructure development if indeed oil was found; it was
Texaco-Gulf that first began large scale and widespread oil production in the Oriente; and
finally, they were willing to work with a state that was increasingly hostile and
nationalistic, to the point where the state became a majority partner with Texaco through
the Corporacin Estatal Petrolera Ecuatoriana (or CEPE).

18
After intense efforts, Texaco located the Oriente's first large scale oil deposits in
the Lago Agrio vicinity in 1967.7 This coincided with the announcement by Anglo that the
deposits at Santa Elena had been depleted.8 Given the decline of the Santa Elena oil fields,
the emergence of the Oriente as a source of oil was of singular importance. Texaco
immediately installed refinement facilities in the region capable of handling 1000 barrels
per day.9 However, the first Lago Agrio well was soon producing 2640 barrels per day
and it became evident that a massive discovery had taken place.10 Large deposits began to
appear in the Oriente (such as Shushufindi) and other companies began knocking on
Ecuadors door.
The appearance of large oil deposits was a dramatic turn of events that caught
many Ecuadoriansmore so those in governmentby surprise. Shell had abandoned the
country in 1948 after unsuccessfully prospecting for 11 years in the Oriente, leading then
president Galo Plaza to his famous comment that the Oriente was a myth.11 However,
the reality that Ecuador was at the dawn of a new economic era began to sink in thanks to
the 1967 discoveries and the urgent need for foreign exchange faced by successive
governments.12 The large discoveries and the eagerness with which large multinationals
6 Admiral Gustavo Jarrin Ampudia. Personal notes.
' Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 19.
8 Admiral Gustavo Jarrin Ampudia. Personal notes.
9 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 19.
10 Admiral Gustavo Jarrin Ampudia. Personal notes.
11 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 352.
12 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 352.

19
approached the state soon made Ecuadorian policy makers aware that they had substantial
leverage in dealing with them. A determination appeared, particularly in the military, not
to allow the prior swindling of the state by foreign corporations (such as the granting of
paltry royalties), the use of subterfuge to obtain larger concessions, low concession rates
for adjudicated land, and limited taxation of corporate earnings to occur again.
This led to a significant change in regulatory codes to bring the operations of
foreign corporations under closer scrutiny. This process began in 1967 under president
Otto Arosemena, followed by president Jos Maria Velasco Ibarra, and continuing into the
military governments of the 1970s.13 Arosemena realized the importance of either
upgrading or replacing the 1937 Petroleum Law as the potential of oil for government
coffers became clear. However, there was little experience in dealing with the oil
multinationals and this hindered the drafting of a new regulatory body until 1972.
Nevertheless, Arosemena was also able to secure much better terms from the oil
companies seeking to obtain or retain their concession rights through the use of model
contracts. Model contracts were a device used by the Arosemena administration to
impose his new regulatory code for the petroleum industry which had languished in
congress.14 Arosemena included the principles of his proposed regulatory code in the
contracts. The option would have been to allow the oil companies win much more
favorable terms for themselves through the 1937 law: ...bills were sent to Congress...but
none...read or much less studied...Convinced that the legislation would never emerge as a
13 See Judith Kimerling, Crudo Amaznico (Quito: Abya Yala. 1993) 19, Parte Primera: 1961-1973. La
Gestacin de una Poltica Petrolera 19 October 1978: 353. and Admiral Gustavo Jarrin Ampudia.
Personal notes.
'4 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 352.

20
result of eternal discussions in National Congresses...my administration prepared a
contract project known as Model Contract, through which the conditions would be
imposed on the companies. Among the changes that began to take place in 1967 were:
The state reclaimed two-thirds of the land granted in concession to Texaco-Gulf.
The state increased its share of royalties.
Took a more active role in production processes.
Instituted a territorial tax on the lands conceded.
Increased infrastructure development by companies.
Petroleum was nationalized.
A national oil company, CEPE, was created.
Ecuador sought to ally itself with other oil producers.
Older contracts and concessions were subject to a process of renegotiation.15
In 1972, the new military government finally passed a reformed Law of Hydrocarbons to
replace the 1937 Petroleum Law. It essentially invalidated all prior contracts and led to the
signing of new ones.16 These sought to secure better terms for the state as outlined above.
New contracts, with more favorable terms for the state, were signed with Texaco-Gulf,
Sun Oil, Anglo, Cautivo, Cayman, and OKC. Other contracts were nullified, declared
expired, or were refused by oil firms. By 1972, Texaco-Gulf completed Ecuadors main oil
pipeline, the 500 kilometer long Sistema de Oleoducto Trans-Ecuatoriano or SOTE,
15 See Admiral Gustavo Jarrin Ampudia. Personal notes and Judith Kimerling. Crudo Amaznico (Quito:
AbyaYala. 1993) 19-21.
16 Admiral Gustavo Jarrin Ampudia. Personal notes.

21
connecting the fields in Oriente with the port and refinery of Esmeraldas. Ecuador became
a major oil exporter and joined OPEC in 1972.
A major controversy emerged with the passage of the 1972 law. When the original
law was published in the Registro Oficial in 1971, there were several typographical errors
which warranted the temporary removal of the law from the books in order to correct the
mistakes.17 When the law was placed back into the Registro, it was missing article 86.
Article 86 stipulated that all the proceeds (in U.S. dollars) from petroleum sales had to be
placed in a Central Bank (Banco Central) account. With this article omitted, such
requirement was terminated. This omission was later reversed, with one adviser resigning
his position.18
During the rest of the 1970s, the state increased its power vis--vis foreign
multinationals by strengthening CEPE. This period has been characterized as one of
independence and sovereignty for Ecuadors oil industry by one ex-Minister of Energy,
Admiral Gustavo Jarrin Ampudia, key figure between 1972 and 1974 when he negotiated
the contracts with the oil companies and established a clear petroleum policy for
Ecuador.19 The strengthening of the states role as a player in Ecuadors oil industry was
done by forcing Gulf Oil to withdraw from the Texaco-Gulf consortium and by the
repositioning of the Ecuadorian state as a majority stakeholder in Texacos operations in
17 The Registro Oficial is Ecuador's national registry of laws approved by the executive. A bill approved
by the president could not become law unless said bill w as published in the Registro and remained there.
18 Parte Primera:1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 355.
19 Admiral Gustavo Jarrn Ampudia. Personal notes.

22
the country.20 CEPE acquired in 1974 25% of the Texaco-Gulf consortium while Texaco
and Gulf Oil each retained 37.5%; in 1977 Gulf was eliminated from the consortium and
CEPE became the dominant partner with 62.5%, the rest remaining in Texacos hands.21
Part of the states success was due to the impact on Ecuadorian public opinion of a 1972
book by Jaime Galarza, Festn del Petrleo. It was a study of oil policy in Ecuador and
the world that accused the large oil companies as well as the state of corruption and lack
of scruples.22 Galarza was invited to participate in a televised discussion on the issue that
same year with the Texaco spokesperson, Rene Bucaram. The TV audience learned during
the discussion about the Minas y Petrleos dubious transfer of land to Texacoin
exchange for 2% royalty and heard Bucaram himself say that the state could still intervene
on the matter.2' Although technically legal, the transfer of land to Texaco was done
through a loophole in the law and clearly violated the spirit of the 1937 Petroleum Law.
Following Bucarams recommendation, the state did intervene in the matter which was
unfortunate for Texaco. Public outrage led to the retroactive application of the 1972 law
limiting the size of concessions. This forced Texaco to return part of the lands ceded to it
by Minas y Petrleos, the company was required to pay higher land use fees, and had to
re-negotiate contracts under the stipulations set forth in the new petroleum law.24 This
reinforced the resolve of the military to exert more control over the oil companies,
20 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 21.
21 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambienntal (Quito: Petroecuador UPA. 1997) 1.
22 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 355.
23 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 357.
24 Parte Primera:1961-1973. La Gestacin de tina Poltica Petrolera 19 October 1978: 357.

23
particularly Texaco. Jarrins policy had the goal of reconciling the contracts with the
letter of the law and he accomplished this 25
Jarrin used several factors to squeeze the most he could out of the oil companies
through the contracts, and he obtained the most not only in terms of control but also in
terms of fees and royalties for the state. The contract explicitly notes that Texaco-Gulf had
1.4 million hectares and that the consortium had returned to the state the amount in
excess of the maximum of496,000 permitted by law.26 The royalties set at 12.5% of gross
revenue of petroleum exports were to be paid on a monthly basis.27 Texaco also had to
pay an initial fee of US$ 2,973,868 which was to be used by the state for the construction
of airports in Esmeraldas and Coca; the urbanization of Aguarico and Coca; and the
upgrading of a major highway in the Oriente, all important to the oil production process 28
The contract was to last for 20 years instead of the usual 40.29 These stipulations were in
addition to standard corporate taxes as required by Ecuadors tax code. '0 Moreover, a
whole variety of charges were assessed and detailed, contingency plans elaborated, and
investment commitments for infrastructure were secured from Texaco. This was all done
by Jarrin Ampudia under the aegis of the modernizing and nationalistic military
25 "Parte Primera: 1961-1973, La Gestacin de una Poltica Petrolera 19 October 1978: 357.
26 Introduction of Decreto Supremo No. 925 4 August 1973.
Texaco returned to the state a total of 940,104 hectares of the 1,431,459 it had accumulated. The final size
of the Texaco concession w as 491,355 hectares.
27 Chapter 8 (29) (1) of Decreto Supremo No. 925 4 August 1973.
28 Chapter 8 (27) (1) (a): (b): (c); (d); (e) of Decreto Supremo No. 925 4 August 1973.
29 The contract duly expired in 1992. with Texaco's operations and facilities becoming a part of state oil
company Petroecuador.
30 Chapter 8 (33) (1) of Decreto Supremo No. 925 4 August 1973.

24
government of Gen. Rodriguez Lara, which sought to break with a past. As Jarrin
Ampudia notes:
In this confrontation with different interests that would not admit that
times change, that Ecuador is a sovereign country, owner of its petroleum
and that in the world the remnant forms of imperialist exploitation are
coming to an end, solid steps were taken for the elaboration of the new
contracts.'1
The governments hand was strengthened by a favorable international climate including
high oil prices and Ecuadors entry into OPEC in 1973. With the culmination and signing
of the new contracts, the state strengthened its own position vis-a-vis the oil companies,
exert some degree of control over the companies in the country, and boost its revenue.
However, no one realized the ecological disaster that would result from Ecuadors
newfound source of hard currency and the extent to which the one clause in the contract
that deals with the environment would be disregardednot only by Texaco but by other
corporations in other contracts as well.32
Texaco was able to generate a vast sum of revenue from its large Ecuadorian
operations. According to an audit by HBT-AGRA, Texaco extracted over 1.377 billion
barrels of oil from the Oriente. This amounts to more than $30 billion in an operation that
lasted 18 years from 1972 to 1990, when full operational control was relinquished to the
Ecuadorian state until Texacos ultimate departure upon the expiration of the contract in
1992. Texaco ultimately had 15 oil fields, 22 production stations, and 325 oil fields (each
31 Declarations of Rear Admiral Gustavo Jarrin Ampudia on the new contracts 6 August 1973.
32 See Chapter 9 (46) (1) of Decreto Supremo No. 925 4 August 1973 which states:
The contractor (Texaco) will adopt measures convenient for the protection of the flora, fauna and other
natural resources, as well as avoid the contamination of waters, air. and lands, under the control of the
pertinent government organizations/

25
accompanied by one or two pools for toxic waste disposal). Approximately 632 toxic
waste pools were constructed/3
Steps in Producing Oil
In order to understand the way in which oil contamination is produced and its
characteristics, a basic understanding of how oil is sought and extracted is necessary.
There are several steps in the oil production process. The first step is exploration in which
oil deposits are discovered. An oil company may either search for oil itself or employ the
services of a contractor for this phase. There are several methods for searching for oil
deposits, but for our purposes the most pertinent method is the seismic exploration
method through the use of explosives.34 This is done by laying wires through the rainforest
connected to explosive charges that are placed in small holes. When the charges are
detonated, this sends shock waves through the ground which travel at different speeds
according to the terrain they encounter. Hence, they move faster through liquid than
through rock and this is presented in visual format through the use of seismic instruments.
The presence of waves moving at high rates of speed and the visual image they form are a
clear indication of possible deposits. During this stage, a variety of environmental
problems may arise: the clearing of paths of rainforests to lay the wire; use of powerful
explosives which kill or scare wildlife; clearing large tracts of rainforests in order to
establish camps and heliports; the clearance of huge tracts of lands to build roads to reach
33 Ivn Narv ez. El Ecuador de Texaco." ECO Polmica Revista de la Unidad de Proteccin Ambiental
de Petroecnador August 1997: 14-16.
34 Oil exploration methods van- according to the terrain. Underwater terrains involve the use of acoustic
techniques, whereas in the desert one finds ground level explosions the method of choice.

26
the camp site, with the subsequent invasion of colonists from other parts of the country; a
social and health issues arising if any contact is made with local indigenous groups; and
the killing of animals in the area if hunters are brought in order to secure the areas wiring
for the protection of workers.
If a deposit is believed to hold enough promise, it may warrant the initiation of
actual test drillingsecond phaseto ascertain if indeed the suspected deposit is
petroleum. This step involves moving heavy drills into the area to penetrate the earth and
unleash the deposits contents in order for the testing of samples in order to determine if
its commercial grade crude.35 During this process, the main environmental threat is water
contamination since the materials in and around the deposits are toxic for plant and animal
life and may be spilled into the areas hydrological system. Also, this process requires the
use of large amounts of water, which may then be discharged untreated contaminating the
water supply for the forest and animal life.
If a commercial grade well is found, then the next step is the production process in
which wells are built to extract the oil. Besides some of the environmental problems noted
above, air contamination is a possibility due to the presence of gases (methane,
occasionally natural gas) which rise through the well and are burned off at the top of the
oil well.
3' On average, wells penetrate 10.000 feet into the ground.

27
The Controversy Over Contamination
The emergence of oil exploration and production in the Oriente has led to
dramatic, widespread, and costly contamination and deforestation of the region. Because
Texaco was the single largest producer during the 1972-1992 period when the bulk of
contamination occurred, it appears as the single largest polluter in the history of oil in
Ecuador. However, contamination linked to other companies has stirred their share of
controversy. Nevertheless, Texaco has been accused not only causing the worst damage in
the Oriente, but also of failing to live up to the commitments it made to clean up its areas
of operations. There is considerable debate as to the extent of contamination, and Texaco
continues to deny any wrongdoing alleging it followed all that was required of the
regulatory codes of the time and that it was a minority partner in a state led and approved
oil production process.36 However, there is a large body of knowledge and a growing
group of industry experts that provides ample evidence and knowledge of pervasive
contamination in the Oriente.*1 It is only very recently that a consensus has begun to
emerge around some numbers researched by former New York State Department of
Environmental Protection official Judith Kimerling, environmental audits by HBT-AGRA
and Petroecuador, NGOs, government agencies, and analyses by foreign and domestic
36 See Ricardo R. Veiga. Vice President Texaco Petroleum Company, 'To the Editor. The New York
Times 6 February 1998: A22.
37 Miss Lucia Burgos of Fundacin Natura, one of the NGOs experts on the oil issue, agreed to speak
independently of Fundacin Natura. Her views are hers only and do not necessarily represent those of
Fundacin Natura.
Personal interview with Lucia Burgos, Fundacin Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province, Quito. Ecuador, 11 July 1997; personal interview with
Dr. Rene Ortiz, ex Secretary General of the Organization of Petroleum Exporting Countries (1978-1982),
Quito. Ecuador. 15 July 1997; and personal interview with Oscar Garzn. Minister of Energy under the
Boija administration. Quito. Ecuador. August 1997.

28
academics becoming much more accepted/8 Initially, some of the figures presented were
received by hostility from all sectors of the industry.
There are four areas in which oil production and pollution has had a major impact:
water, land, air, and deforestation. A good part of this is due to the fact that, especially in
the past, all chemical byproducts and waters used in the production process were released
into the environment completely untreated.39 In addition, there has been a strongly
negative impact among indigenous communities that live in the Oriente not only in terms
of their health but also in the threat to their culture as contact with the dominant
American-Iberian culture expands due to individuals working in the Oriente.
Water contamination has been the most severe result of oil production in Oriente
and the best documented. According to an environmental audit of Texacos operations
(until 1990) by HBT-AGRA, a well known petroleum consulting firm, over 376 million
barrels of water was released contaminated with heavy metals, oils, chemicals, and other
contaminants, without prior treatment, which caused environmental deterioration of the
ecosystems of the Ecuadorian Amazon, in many cases of an irreversible nature.40
Underground water arising from the drilling process, formation water, is highly toxic,
contaminated with chemicals used in the production or exploration process, and is
38 The independent environmental audit of Texaco's operations by Canadian company HBT-AGRA was
agreed to by both Texaco and Petroecuador. The audit, conducted in the aftermath of Texaco's departure
in 1992, has not been released in its final form pending approval from the government. All references to
information in the audit are from the Unidad de Proteccin Ambiental de Petroecuador (Environmental
Protection Unit of Petroecuador), which presumably has access to the document. The audit w as to be the
basic document on which remediation agreements between Texaco and the state were to revolve.
39 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambiental (Quito: Petroecuador UPA 1997) 2.
4lJ Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambiental (Quito: Petroecuador UPA 1997) 4.

29
disbursed into waterways at very high temperatures, usually between 90 and 168 degrees
Farenheit. The toxicity of the water from geologic formation is mainly due to its high level
of salinity, between 70,000 and 110,000 parts per million (p.p.m.) although in can be as
high as 200,000 p.p.m.41 Saltwater normally contains 35,000 p.p.m. and non-contaminated
freshwater rivers in the Oriente does not surpass 6 or 7 p.p.m.42 Subterranean aquifers
have been affected through the leakage of fluids used and resulting from perforation
because of improper handling techniques and the lack of lined pools for waste material.43
Water used in the production process has been found to contain sulfates, bicarbonates,
hydrogen sulfides, carbon dioxide, cyanide, and heavy metals such as arsenic, cadmium,
chrome, lead, mercury, vanadium, and zinc.44 The result has been the contamination of
fish and death resulting from oxygen deprivation in petroleum laced waters.45
Petroleum itself is another contaminant found in large concentrations in Oriente
waterways. Although it is believed to inflict harm in aquatic organisms in concentrations
as low as 100 parts per billion (ppb), it has been found in concentrations as high as 5,000
parts per million (ppm) with an average of roughly 1,000 ppm according to Fernando
Reyes of the Direccin Nacional del Medio Ambiente (National Directorate of the
Environment), the predecessor of the Ministerio de Medio Ambiente (Ministry of the
41 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993)44.
42 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 74.
43 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambienntal (Quito: Petroecuador UPA. 1997) 5.
44 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambienntal (Quito: Petroecuador UPA 1997) 2.
45 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 54.

30
Environment).46 Such concentrations should come as no surprise considering that over
16.8 million gallons of crude oil have been accidentally spilled mainly in the Amazon Basin
in 30 large mishaps, most of them the result of ruptures during the transportation phase.47
Land--or soilcontamination is mainly a result of contaminated waters being
employed in agricultural processes or oil spills reaching agricultural lands. This has
destroyed crops or reduced their quantity and quality causing significant deprivation and
malnutrition in affected areas. A large oil spill in 1989 of over 294,000 gallons in the Napo
River reportedly caused serious effects on soils in the Comuna de San Carlos, including
the death of crops two weeks after the event. The result was the destruction of crops
belonging to 560 families in 31 communities.48
Air pollution is largely a result of the burning of natural gas at the top of wells.
Gas, found in or around oil deposits, is unleashed when the well enters production.
According to HBT-AGRA, 248.8 million cubic feet of gases were burned although this
resource could have been exploited. The impact of this on the environment has been great,
causing alterations of local climactic patterns, air contamination, affecting flying insects,
46 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 29. 44, 74.
47 For a comparison, the Exxon Valdez disaster spilled 10.8 million gallons of crude oil into Prince
William Sound. It should be noted that there is some controversy surrounding these figures. Douglas
Southgate believes that the figures (16.8 million gallons of oil or 400.000 barrels) may be a little high
since no more than 50.000 barrels were spilled when 25 KM of the pipeline were destroyed in the 1987
earthquake. Nevertheless, the 400.000 figure is widely used today not only by environmentalists but by
the state oil company, government officials, and private individuals in the business.
See Douglas Southgate. Petroleum Development in Tropical Rainforests: the Economics of Pollution
Control in Eastern Ecuador (Quito: Instituto de Estrategias Agropecuarias. 1992) 4-5 and Judith
Kimerling, Crudo Amaznico (Quito: Abya Yala. 1993) 1. 50.
48 For a detailed account of the health effects of the Napo River spill on local communities see Doris
Herrera. Petrleo. Deterioro Ambiental y Salud." in La Cuenca Amaznica de Cara al Nuevo Siglo, ed.
Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 313-356. Kimerling discusses the impact on the are
in lesser detail. Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 52.

31
soil erosion, affecting the forest and other impacts.49 Burning emits nitrogen oxide,
sulfur, and carbon as well as heavy metals, hydrocarbons, and carbon particles into the
atmosphere. Acid rain and black rains have contaminated the Oriente with powerful
effects on crops and people in addition to wildlife.
Deforestation is the result of three factors. First, the practice of clearing lands in
order to conduct exploration operations such as the installation of drilling equipment,
heliports seismic lines, and base camps. The use of seismic lines, for example, could
involve the clearing of swaths of land as much as 2-3 meters wide, creating boundaries in
sensitive environments. Second, the building of roads can cause massive amounts of
deforestation when paths are cleared in the rainforest and through the colonization process
which until recently normally accompanied the development of new oil fields. More than
500 kilometers of roads have been built in Oriente by oil companies, and they can vary in
width from 10 to 15 meters; more deforestation is caused when wood from forests
adjacent to the new roads are cut down to be used in their construction.50 This road
building process, the presence of well paid oil workers that in effect constitute a new
market in the area, and the presence of land and government policies that permits their
colonization, leads to large migration to the Oriente. Most colonists tend to come from
the impoverished south-central Andes and are in dire straits.51 Some end up in the informal
49 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambienntal (Quito: Petroecuador UPA. 1997) 4-5.
50 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 56.
51 This same region is the source of much of the undocumented aliens fleeing oppressive economic
conditions towards the United States. Venezuela, and other Latin American countries.
Amazonia por la Vida. Debate Ecolgico Sobre el Problema Petrolero en el Ecuador (Quito: Accin
Ecolgica. 1993) Appendix.

32
sector and set up small shops or peddle goods in areas where the oil workers live. Others
attempt to establish farms or cattle ranching on lands that they assumed control of and
which the state is incapable of controlling.52 Sewage and garbage disposal alone has
become a significant problem. The result has been over one million hectares of rainforest
lost to colonization.53 A third cause has been the clearing of land for oil pipelines. The
primary pipeline is the Trans-Ecuadorian pipeline which extends 500 kilometers through
Ecuador with a width between 20 and 26 inches. It begins in Lago Agrio (Oriente) and
ends in Balao (Esmeraldas Province), although most of it extends beyond Oriente 54 Such
pipelines involved the clearing of swaths of land approximately 30 meters in length.
Fourth, the spilling of oil has caused the death of vegetation in the Oriente. As mentioned,
this is due to the ill effects of oil and production chemical byproducts.
This entire process of deforestation, contamination, and colonization has led to
health problems, the destruction of indigenous cultures, and overall reduction in the
quality of life of residents of the Oriente. Doris Herrera from FLACSO Quito has studied
the issue of contamination, its health and nutritional effects on the inhabitants of the
Comuna San Carlos, located 25 kilometers from Coca on the Napo River.35 This area has
been periodically affected by oil spills, mostly flowing from the Napo River. Her
interviews of older indigenous group members reveal awareness that something has
See Douglas Southgate and Morris Whitaker. Economic Progress and the Environment (New York:
Oxford University Press. 1994) 33-47.
53 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 56.
54 Petroecuador.
,5 Coca is the main hub of the petroleum industry in Oriente.
Doris Herrera. Petrleo. Deterioro Ambiental y Salud. in La Cuenca Amaznica de Cara al Nuevo
Siglo, ed. Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 313.

changed. A frequent complaint has been illness from drinking river water, which in the
past had not occurred.56 Other illnesses or symptoms that have been on the rise are
frequent nausea, diarrhea, stomach aches, skin infections, and malnutrition.57
The goal of this chapter was to highlight a sense of lawlessness in the history of the
industrys operations in Ecuador and conduct a general overview of the environmental
impact that the Oriente has suffered. This is a result of the impunity with which oil
companies operated, aided by the lack of effective oversight. Chapter 3 will seek to
demonstrate that, at least as far as the environment is concerned, there have been very
substantial policy changes in favor of environmental protection in the oil industry and that
these moves directly address many of the problems highlighted in this chapter and others
that have been noted by environmentalists and indigenous groups.
56 Doris Herrera. Petrleo. Deterioro Ambiental y Salud. in La Cuenca Amaznica de Cara al Nuevo
Siglo, ed. Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 324.
57 Doris Herrera. Petrleo. Deterioro Ambiental y Salud. in La Cuenca Amaznica de Cara al Nuevo
Siglo, ed. Doris Herrera (Quito: FLACSO Sede Ecuador, 1997) 325.

CHAPTER 3
POLICY RESPONSE
Overview
The oil industry is economically critical for Ecuador. For a variety of reasons,
Ecuadors economy has grown at a sluggish pace, well below the Latin American average
for most of the 1990s. In 1997, while regional GDP grew by 5.5%, Ecuador grew by a
slow 3%, with a 1998 growth forecast of 2.5%.' Ecuadors poverty rate has been on the
rise and is now estimated to comprise 50% of the population, up from around 40% in the
early 1990s, and bucking the regional trend of stable or slightly declining poverty rates.2
Ecuador depends greatly on oil for the hard currency it needs to service the countrys
large foreign debt estimated at $13 billion, is a source of government funds since tax
collection is lax and regressive, it is the single largest export product, and for employment
purposesa staggering 66% of the countrys labor force is in the informal sector.3 The
industry generates approximately $1.8 billion a year for Ecuador in oil and oil product
1 See Economist Intelligence Unit. Ecuador Country Report 3rd Quarter 1997 (London: Economist
Intelligence Unit, 1997) 5 and Reuters. "Ecuador Cuts Growth Forecast. Proposes Higher Tax" Finance 4
March 1997.
: Regional poverty rates today vary between 20% in Chile and 73% in Honduras (1994). with Latin
American total poverty rates estimates now at about 35-40%. See Economic Commission for Latin
America and the Caribbean. Social Panorama of Latin America 1996 (Santiago, Chile: ECLAC, 1996)
193-194.
3 Even by Latin American standards, the size of Ecuador's informal sector is large. Most countries in the
region have between 30% to 50% of their labor force in the informal sector.
34

35
exports and generated 14% of its output in 1996.4 Within this context of commodity
dependence as both a source of government revenue and hard currency, any changes in
policy that increases the cost of oil production can be detrimental to state coffers and
economic growth.
Table 3-1
Ecuador: Government Oil Revenue and Total Revenue 1991-1995
1991
1992
1993
1991
1995
Oil revenue
765.3
909.1
1079
1007
1189
Total revenue
1650
1970
2250
2570
3125
jOGl revene
Total ievrue
Recently enacted legislation concerning oil exploration consists of two main
pieces. The first was President Sixto Duran Ballens Executive Decree No. 1802 of 1994
which essentially constituted a policy statement concerning sustainable development and
4 Economist Intelligence Unit. Ecuador Country Report 3rd Quarter 1997 (London: Economist
Intelligence Unit 1997) 5.

36
the states role.5 The second was Duran Ballens Executive Decree 2982 of 1995. Decree
2982 is the current and first environmental code specifically aimed at the oil industry.
These decrees are tantamount to the Ecuadorian states acceptance of the changing
normative international context concerning the environment and they are reflective of
current thinking about how sustainable oil exploration and extraction should be
conducted. Decree 2982 is regarded as very advanced, addressing many of the problematic
issues oil exploration has raised and marking a clear departure from past practice in the
Oriente,6 As Southgate notes, writing in 1992, neither the state company nor the national
government has developed a detailed set of environmental guidelines for petroleum
exploration and extraction. ...Under these circumstances, foreign companies find it difficult
to convince skeptics that their Ecuadorian operations will indeed be conducted in an
environmentally sound manner.7 The new legislation marks dramatic changes in the
books. Although changes in legal codes without adequate enforcement may fall into
formalism, they are nonetheless valuable in that they grant legitimacy to those who in the
past have voiced their opposition to environmentally unsound oil exploration and
extraction and give juridical instruments through which violators may be conceivably
punished. Furthermore, there is evidence to suggest that corporate behavior is indeed
changing, an issue which will be pursued in Chapter 4.
5 All references to Executive Decrees (Decreto Ejecutivo) are listed in the bibliography with Presidencia
de la Repblica del Ecuador as the author.
6 Personal interview with Dr. Rene Ortiz, ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982), Quito, Ecuador. 15 July 1997 and personal interview with Lucia
Burgos, Fundacin Natura Coordinator for the Provincial Commission for the Monitoring of Oil Activities
in Napo Province. Quito. Ecuador. 11 July 1997.
Douglas Southgate. Petroleum Development in Tropical Rainforests: the Economics of Pollution
Control in Eastern Ecuador (Quito: Instituto de Estrategias Agropecuarias. 1992) 9.

37
Executive Decree 1802
Executive Decree No. 1802, authored by the Presidencia de la Repblica del
Ecuador (the presidency) under President Sixto Duran-Ballen, is an extraordinary
document for several reasons. Most important, however, is the statement which admits
serious damage to Ecuadors Amazon Basin as a result of oil extraction.
Decree 1802 outlines basic policy principles which Ecuador is to follow and which
are to become the basis of other Ecuadorian environmental initiatives such as Decree
2982. These are: Ecuadorian society is to minimize environmental damage and risk
while maintaining socially and economically sustainable development; it is the
responsibility of every citizen and institution to act in a way that is socially just,
economically profitable, and environmentally sustainable; the private and public sector are
called upon to provide policy guidelines and ideas to insure sustained development; all
economic activities are to consider the environment; environmental initiatives are to based
on solidarity, mutual responsibility, cooperation, and coordinationand this also applies to
Ecuadors foreign relations; it is the states responsibility to elaborate incentives and
regulations to promote sustainable development; the state is to promote environmental
awareness and education; Ecuadors government is to maintain an open attitude with other
states and secure cooperation and develop treaties; special attention is to be placed on
prevention and control of environmental damage resulting from contamination and
degradation; a priority will be the maintenance of equipment and services and efficiency
needs more attention; environmental impact studies and environmental mitigation
programs are required; multinationals are to maintain the highest environmental

38
technology required in their country of origin; certain problems, industries, and geographic
areas are to receive special attention.8
Executive Decree No. 1802 constitutes a straightforward admission of the states
failure in protecting the Oriente from oil contamination and the enormous havoc wreaked
on the areas environment. The decrees tone is set at the very beginning of the document
by the title and subtitles: Sustainable Petroleum Development in Ecuador; Rectifying the
Mistakes of the Past.9 The first paragraph begins with the statement:
The grave environmental impacts produced in the Ecuadorian
Amazon Region since 1970 as a consequence of petroleum
operations are due to, in large part, to the system of oil exploitation
which failed to consider the most elemental norms of environmental
protection prevalent at the time and to the carelessness of the state
in their control.10
This statement is a dramatic departure from prior statements in which the state kept a low
profile while private companies were roundly criticized for their alleged disregard of the
environments well-being. It admits four key events long noted by environmental groups
but initially denied by corporations and policy makers. The first is the severity of oil
contamination in the region and its environmental impact. Second, it describes Ecuadors
oil industry as a system instead of a decentralized structure in which the private sector
operates in its own sphere independent of the state. It acknowledges that both the state
and the private sector have played major roles in the industrys development and that the
links between the different parts are strong. Third, it admits that even the weak
8 Comisin Asesora Ambiental de la Presidencia de la Repblica. Plan Ambiental Ecuatoriano. (1996. Pp.
20-21.
9 Executive Decree No. 1802 pg. 1.
10 Executive Decree No. 1802 pg. 1.

39
environmental codes of the past were completely disregarded.11 Finally, it admits that the
state shares part of the responsibility for the problem because it failed in the supervision
and enforcement of environmental codes in place at the time.
The decree then goes into more detail and mentions ways how the Oriente
suffered large-scale damage. These broadly fall into two categories, technology and
infrastructure. Technological problems due to obsolete equipment used by oil companies
are pointed to as a major source of environmental damage. Antiquated machinery used
for drilling by Texaco has indeed been noted as a suspect by opponents of the oil industry.
Older helicopters with shorter ranges have been a problem as well since these require the
creation of heliports (land clearing) scattered throughout the Oriente. The infrastructure
problems noted in the document includes roads. The building of roads, according to the
decree, causes problems because the road itself requires the clearing of large tracts of land.
Also, roads facilitate the flow of colonists into the Orientewhich are widely regarded as
the prime cause of deforestationwho end up clearing land for crops. These factors had
been long noticed by environmental activists, but they finally have received recognition
from the state.12
The decree also attempts to offer some solutions of its own to the problem. It
notes efforts to maintain spills under control through the purchase of new equipment and
advanced maintenance of pipelines and other machinery. It provides:
11 The only industry environmental code was the paragraph in the Texaco contracts which stated that the
environment w ould be respected.
12 Executive Decree No. 1802 pg. 4.

40
For the expansion of surveillance of the Oriente.
Reduction in the number of access points to oil fields.
Reduction in the size of petroleum installations.
Boundaries for indigenous peoples territories and ecologically sensitive zones.
Reforestation by Petroecuador.
An effort to remove obsolete equipment from all facets of the oil
production process.
It also notes the process of incorporation of environmental protection in Petroecuador,
focusing attention on the states own role as a source of environmental degradation in
Oriente. It highlights the creation of the Environmental Protection Unit (UPAUnidad de
Proteccin Ambiental) within Petroecuador and the UPAs elaboration of the Plan
Integral de Manejo Ambiental de las Actividades Hidrocarburferas (Integrated Plan for
Environmental Management of Hydrocarbon Activities). It establishes guidelines for the
management socio-economic activities (i.e. impact on indigenous groups and colonists),
stability control, recovery of contaminated areas, waste management, monitoring, and
contingency planning.13 These guidelines are to regulate the conduct in environmental
matters not only of Petroecuador but its sub-contractors as well, for which Petroecuador
would share some responsibility for their action when Executive Decree 2982.
Executive Decree 1802 is clearly a public relations response to the highly
publicized Texaco lawsuit and the perception of government incompetence in enforcing
environmental regulations in Ecuador. Its publication in English as well as Spanish
13 Executive Decree No. 1802 pg. 12.

41
indicates the importance Ecuadors government placed on responding to foreign critiques
of oil exploration in Oriente.14 Moreover, Ecuadorian executive decrees are pieces of law
and regulation. Decree 1802 is clearly different: it is actually a direct responsein the form
of a policy statementto criticism of oil exploration and makes those interested aware of
the steps that the government is taking to address the issues stirring the controversy. It
admits past shortcomings in terms of environmental protection of oil production processes
in Oriente, the lackluster role of the state in enforcing environmental regulations, and
hence leaves a feeling that the regulatory codes prevailing at the time were inadequate at
the very least.
Executive Decree No, 2982
Executive Decree No. 2982 is the legal embodiment of the principles outlined in
1802. Decree 2982 clearly spells out all the minimum requirements for sustainable oil
production and even addresses some of its socio-economic aspects. Most important,
however, is the high degree of expertise in environmental matters shown by its drafters. It
explicitly deals with the causes of contamination and deforestation.
Decree 2982 clearly stipulates the right of Ecuadorians to live in an environment
free of contamination and the constitutional role of the state as the main protector of that
right.15 Its goal is to regulate all oil production activities in Ecuador which have an
environmental impact regardless of the source of the activity, i.e. it regulates the public
14 The material published in the Registro Oficial is rarely translated into English.
15 Executive Decree 2982 pg. 1.

42
sector as well as the private sector.16 The provisions are: first, all new activity in the
industry is to be preceded by an environmental impact study approved by the Ministry of
the Environment (formerly the Subsecretariat for the Environment of the Ministry of
Energy and Mines); second, Petroecuador is responsible for any environmental damages
caused by the activities of its subcontractors or affiliateswithout exonerating any
individual subcontractor from violations of the law. This is applicable to all facets of the of
the production process regardless of whether it is seismic exploration or actual drilling.
Decree 2982 specifically addresses controversial issues, including helicopter use,
roads, and water contamination. Road construction and water contamination in particular
pose significant problems.
Helicopter use has been controversial because the construction of heliports has led
to significant deforestation, and the use of short range aircraft has created a need for a
large number of heliports big enough to provide them with fuel and support. They are also
a source of noise pollution. Decree 2982 barred the construction of heliports in many
areasareas where wildlife feeds and reproduces, areas with sensitive flora, archaeological
sites, areas with human inhabitants, rivers, lakes, mangroves, and estuaries.
Heliports in protected areas are to be built in accordance with guidelines set forth in the
attached appendix.17 During their construction, advanced crews are to cut the minimum
amount possible of vegetation for paths and camps. For the heliports, they are prohibited
from eliminating ground vegetation and only environmentally safe helicopters are to be
flown. Oil wells are, in fact, limited to 5000 square meters in sizeinclusive of the
16 Executive Decree 2982 pg. 2-3.
1' Executive Decree 2982 pg. 5.

43
heliportby the decree. Helicopters are to transport most cargo through long-sling
techniques which allow them to withhold landing for deliveries. To avoid the need for
roads, helicopters are to be used for the transportation of most items. For example, during
the oil exploration stage they are to be used for moving most equipment. This prevents
roads, which can be used by colonists or squatters to move in and destroy forests. This
encourages the use of longer range helicopters as sites are limited for the construction of
heliports. This is of particular importance today since many new oil fields are being
developed.
Another issue that is addressed by Decree 2982 is deforestation by road and
pipeline construction, especially in biologically diverse and sensitive areas. Roads and
pipelines are a tremendous source of deforestation for several reasons. Most relevant are
those pertaining to the size of the' road and their ability to attract people. If one builds a
straight 50 km. long road with a width of 8 ms. and clearing a swath of 15 ms., the result
is 750,000 sq. ms. of deforestation. Pipelines usually require clearing swaths of forest 30
ms. wide, becoming a huge source of deforestation. Another reason is colonization.
Ecuador is poor and construction attracts migrants to any part of the country where
opportunities for economic improvement are perceived as better. Accin Ecolgica
considers the south-central Andes region of Ecuador as the primary source of Oriente
coloniststhe same region is also the source of millions of illegal/undocumented aliens in
the United States. The construction of roads opens access to relatively wealthy petroleum
workers for vendors to tap as a market. Also, roadside real-estate is considered premium
in rural Ecuador since it provides access to markets and easy transportation. Colonists are
widely considered to be the primary source of Oriente deforestations, although they do not

44
seem to be considered substantial polluters. Hence, NGOs consider a slowdown in road
construction positive because of the resulting reduction in new colonists.
Article 17 explicitly prohibits road construction in the area during the exploratory
phaseunless absolutely necessary. If an exception is sought, it must be approved by the
Ministry of the Environment and INEFAN after considering technical and economic
justifications for approval.18 In any case, access roads must not exceed 5 ms. in width and
exploratory drilling camps may not exceed 1.5 hectares. Anything larger has to be
approved by the Ministry of the Environment and previously stipulated in the companys
environmental impact study. If exploratory drilling is unsuccessful and the well is dry, then
the site has to be restored and access roads have to be lifted. Organic waste has to be
processed in environmentally sound ways according to an environmental management
plan. Inorganic waste has to recycled or buried. If buried, it has to be done in impermeable
19
pits.
Decree 2982 sets clear guidelines for the manner in which production waste has to
be dealt with. Exploratory wells are required to have sewage systems to capture any water
or leaks from the site. All wastewater has to be treated prior to discharge. Guidelines are
set in the legislation as to what maximum level of contaminants will be allowed before
discharge into the environment. Wastewater is then injected into impermeable bedrock so
as to reduce the threat of surface contamination. Government approval of an injection site
depends on the location into which waste is pumped. This is because groundwater may be
contaminated if wastewater is injected into the wrong kind of bedrock. To be avoided :
18 Executive Decree 2982 pg. 9.
19 Executive Decree 2982 pg. 11.

45
freshwater formations which are used for human consumption or irrigation. The goal is to
prevent the kind of water contamination which has caused much health damage through
the years.
Many wells in the Oriente have been abandoned with complete disregard for the
damage their presence has caused or will cause because of continued leakage from old
fields. Now companies must go through a process before operation of a well can go off
line. Their waste must be classified. All sites must have their drainage pipes restored or
bought new. Also, the party responsible for the deforestation has to re-forest the land as
well as remove the contaminants. Once cleaned up and the waste is removed the well must
be capped with a concrete plug. Responsibility for the supervision of this process falls with
Petroecuadors Unidad de Proteccin Ambiental and with the Ministry of the
Environment.20
For the management and storage of fuel, a series of regulations were established.
Their intention is to reduce the amount of oil and chemical byproducts that are released
into the environment at all stages of the production processnot only of oil but also of its
derivatives, such as gasoline.
Decree 2982 stresses the need to train workers in the proper handling of petroleum
and petroleum byproducts. They are to handle their output according to industrial safety
norms. Proper labeling and signs are also required.21 Storage tanks are to be built at
ground level; they are to be surrounded by a liquid-proof barrier in which 110% of the
largest tanks capacity can be withheld. Storage tanks for fuels or chemicals must be fitted
20 Executive Decree 2982 pg. 13.
21 Executive Decree 2982 pg. 14.

46
with oil traps. Article 22 explicitly prohibits the use of obsolete equipment and urges the
use of modem equipment which are internationally accepted in the oil industry... and
compatible with environmental protection. Special attention is placed on the prohibition
of old, used equipment. The equipment to be used must be listed in the Plan de Manejo
Ambiental. Also prohibited is hunting, fishing, and the collection of different species of
plant and wildlife. Wildlife cannot be held captive and the introduction of species not
native to the area of operations is forbiddeneven pets. Drilling and the injection of
contaminants into the ground is guided by the principle that the process or equipment used
cannot contaminate fresh water. Natural drainage patterns are to be protected whenever
installations are built. The drainage system of the sites must flow into special channels that
separate water from oil or in collection pools. All production facilities must have a spill-
control team as part of its contingency plan. Such facilities or their equivalent must also
possess a treatment system for the fluids resulting from the process. Wells that are
abandoned or no longer productive are to be rehabilitated so that they may be used for the
injection of waste. Again, the discharge of contaminated waters is not alloweduntil they
are treated. Gas (not gasoline) resulting from the process is to be a priority since it has
several uses once re-injected and recovery improved. During production testing, the fluids
that appear as a result must be shipped or pumped to a production station where they will
be treated and any oil obtained is to enter the production process.22
Article 30 deals with the rehabilitation of abandoned and badly plugged pools. The
goal is to recover as much oil as possible from them in the hope they can used later on for
either refining or any other process. Anything that is left over can used on roads as a sort
~ Executive Decree 2982 pp. 18-20.

47
of asphalt. Oil that cannot be removed must be treated in the pool or at another site. Once
the recovery process is completed, the pool has to be covered and plugged with dirt and
later on, re-planted.23
Special provisions for wildlife are contained in article 34. A facility has to be
covered by a fence to prevent animals from wandering into the site. The fence is to be
covered with vegetation as well. Any diesel fuel used in vehicles has to conform to
international norms; diesel produces less contamination than gasoline. Acid rain is a
possibility, another reason for burning diesel. Noise pollution is also considered a threat
and that issue is gaining prominence.
An environmental impact study is required of any new application for oil
exploration and production. It must be presented to the Ministry of the Environment 45
days before any oil related construction begins.24 Chapter 10 of Decree 2982 provides the
methodology to be used in the elaboration of the Environmental Impact Study (estudio de
impacto ambientalEIA). Article 52 notes that they are to be elaborated in all stages of
the oil production process and the importance the decree attaches to them:
The Environmental Impact Studies will be required prior to the development
of each phase of oil activity, pursuant to the criteria in this decree. In the case
of contracts for the exploration and production of oil, the juridical regulatory
code of each contract will be kept in consideration. For the preparation of the
Environmental Impact Studies, internationally accepted state of the art technology
will be used, compatible with environmental protection.25
33 Executive Decree 2982 pg. 20.
34 Executive Decree 2982 pg. 37.
35 Executive Decree 2982 pg. 43.

48
The article then proceeds with an outline of what is required of the EIAs, each outline
including specific regulations dealing with issues particular of the project to be
undertaken. Thirty days after the submission of the EIA, the contractor will receive the
revised EIA and will have 15 days to make any changes. Also, companies that at the time
of enactment of Decree 2982 already had facilities in operation are required to submit
(within 180 days after the approval of 2982 on August 24, 1995) the Environmental
Management Plan.26 Ultimately, all projects have to be designed with their potential
environmental impact in mind.27
The Ministry of the Environment is also responsible for the execution of an
environmental audit every two years. This audit applies to all stages of production and to
Petroecuador and all contractors. The extent and type of the audit is to be determined by
the Ministry. An additionaland extensiveenvironmental audit is to be conducted upon
the cessation of operations of a company in an area to determine what damages have
occurred and how to repair them.
Under special circumstances, an emergency environmental audit known as an
Examen Especial Ambiental (Special Environmental Exam) can be carried out by the
Ministry of the Environment on its own or by request of Petroecuador, its affiliates, or
authorized oil companies....28 Once an environmental audit or emergency audit is
conducted, a technical report must be elaborated. The Ministry of the Environment must
present the report to the audited entity within 15 days after its completion. The company
26 Executive Decree 2982 pg. 22.
2 Executive Decree 2982 pg. 22.
28 Executive Decree 2982 pg. 58.

49
audited must provide the auditors with an appropriate work environment, food, shelter,
and transportation.29
Articles 62 to 63 establish guidelines for the punishment of those found guilty of
violations to Decree 2982. Punishment may consist of:
Fines ranging from 20 to 500 minimum monthly salaries according to the severity of
the infraction.0
The perpetrators are responsible for compensatory damages.
The perpetrators are responsible for reparation and/or restoration of affected areas
(polluter pays principle).
Guilty subcontractors may also be eliminated from the central registry of qualified
firms for future contracts.
Local health authorities, at the request of the Ministry of the Environment, can also
sanction infractions that violate health codes.
Punishment imposed for violations of Decree 2982 can be appealed to the Ministry of
Energy and Mines.
Punishment imposed for violations of public health codes can be appealed to the
Ministry of Public Health. '1
29 Executive Decree 2982 pg. 59.
30 The minimum monthly base salary as of 11 January. 1998. was 100.000 Sucres or $22.5 (4.450 Sucres
per U.S. dollar). This is not monthly take home pay, which is approximately 800.000 Sucres or $180. For
purposes of fines, references are to the minimum monthly base salary of S/. 100.000 ($22.5). so they range
from $450 to $11,230.
31 Executive Decree 2982 pg. 60.

50
Article 64 is interesting in that allows for popular action for denouncing before the
Subsecretariat of the Environment (now the Ministry of the Environment) any event that
produces contamination in oil activities, which will study and analyze the allegations...32
It is clearly aimed towards NGOs and grassroots organizations. Such organized groups
have the resources and willingness to present claims and the law grants them what is
tantamount to the power of citizen arrest. Since the areas of exploration are not private
property but public lands, this concession allows NGOs and grassroots groups the ability
to monitor and denounce events which may go ignored or otherwise unnoticed by
government regulators or officials. The recent formation and proliferation of citizen
watchdog groups incorporating different elements of civil society for the purpose of
monitoring what Petroecuador and private companies do is testimony of the possibilities
that Article 64 allows. Such groups have been particularly active in the areas of heavy
prior contamination in the northeastern Oriente, where they have been monitoring oil
fields with the assistance of NGOs. It also firmly establishes the polluter pays principle.
Polluter pays principles is viewed by environmentalists as an important deterrent for
contamination since clean up costs can be extraordinarily costly in both economic and
public relations considerations. Although firmly enshrined in American law, the notion of
polluter pays is new to Ecuador and the industry and is a critical accomplishment.
The Committee of Environmental Advisement
Another entity recently created to deal with the issue of sustainable development is
the Comisin Asesora Ambiental de la Presidencia de la Repblica (CAAM or the
32 Executive Decree 2982 pg. 60.

51
Committee of Environmental Advisement). The CAAM works through a series of
conferences, workshops and congresses with ample participation from different
segments of society. The CAAM itself is composed of a representative from the
presidency (who is the chair), one from the public sector, one from business, and one
from civil societythe environmental NGOs.33 The CAAM was directly involved in the
process of elaborating Decree 1802 and was one of the first public institutions to
recognize the variety of problems afflicting Ecuadors environment (1993).
The result of the CAAMs efforts is the Plan Ambiental Ecuatoriano (PAE or
Ecuadorian Environmental Management Plan), the elaboration of which received support
from Fundacin Natura, AID, the Inter-American Development Bank, and the World
Resources Institute. The objective of the PAE is to
implement a process of permanent planning for environmental management
that contributes to the sustainable development of Ecuador, fomenting the
participation of society as a fundamental element, fomenting change of attitudes
at all levels, orienting the behavior of governmental agencies, private sector,
organizations of civil society and NGOs, and promoting environmental
management at the national, regional, and local levels.34
The PAE is based on the general policy principles present in Decree 1802.35 It relies on
local as well as central government to adopt its principles, with the Municipality of Quito
being at the forefront of environmental protection in Ecuador.36 Moreover, the PAE
33 CAAM. 1996. Pg. 16.
34 CAAM. 1996. Pg. 5.
35 CAAM. 1996. Pg. 9.
36 Among the measures taken by the Municipality of Quito was the acquisition of electrically powered
"'trole-buses'' instead of internal combustion powered buses and the ban of lead in gasoline which will
begin in 1998.

52
reflects the hemispheric move towards sustainable development and recognizes as much
when it states the following:
the concerns, ever growing, of the international community over environmental
problems that are affecting the planet and that requires effective participation of all
countries in the world. Ecuador has subscribed to various agreements that benefit
and commit it, which would be best to execute in integrated and planned context.37
In Chapter 1, a sketch is presented of the major environmental problems of
Ecuador and the areas affected by them. It points out environmental problems that are a
well-known result of oil exploitation such as: deforestation, loss of biodiversity,
contamination in different environments, and badly managed toxic waste, among others.38
The CAAM singles out all oil-related activities as actual or potential sources of
contamination. It points out the Oriente as an area with major environmental problems.39
The PAE stresses the need to create a process conducive to environmental
management. To foster this process, four elements are mentioned as important and these
are the National Strategy for Development, the Basic Environmental Principles, Basic
Environmental Policies, and the Ecuadorian Environmental Management Plan. Of interest
here are the Basic Environmental Principles.
The Basic Environmental Principles seek to promote interaction among different
actors in a conciliatory, participatory way, leading primarily to the conclusion that
consensus building is deemed necessary. They were enacted in 1993. The basic principles
are:
37 CAAM. 1996. Pg. 17.
38 CAAM. 1996. Pg. 11.
39 CAAM. 1996. Pg. 12.

53
Environmental initiative is everyones duty in eveiy instance.
The responsibility of one party cannot be passed along to anotheralthough the state
is to play the role of final arbiter.
Environmental action has to be socially just, economically profitable and
environmentally sustainable.
Conflicts are to be resolved by the reconciliation of the interests of different actors,
and decisions are to arrived at in a participatory fashion.
The basic strategy of environmental initiative is based on solidarity and an equilibrium
between society, the economy, and the environment.40
In the chapter on specific environmental policies in the PAE, special attention is
paid to international aspects affecting or influencing Ecuador. It states that: Ecuadors
external debt is not an excuse for violations of Ecuadors sovereignty nor the reckless
exploitation of the countrys natural resources; foreign investment and transnational
corporations should use environmentally friendly (and modem) technology; they also need
to respect Ecuadors sovereignty, the rights of its citizens to live in a healthy environment,
and that they observe the regulations prevalent in their home country; international
commerce has to form a part of the concept of sustainable development and must not
foster an economic environment that is predatory towards natural resources; the use of
environmental loans should be optimized; obtain real support from developed nations for
the preservation of Ecuadorian environments considered unique in the world.41
40 CAAM. 1996. Pg. 19.
41
CAAM. 1996. Pg. 36.

54
These statements deal with several of the international issues raised by exploitation
of oil in the Oriente. Critics frequently state one of the causes of such widespread
contamination is the capitalist world system in which Ecuador participates as a producer
of commodity or primary products for the developed worldand as a debtor country.42
In order to satisfy the requirements of debt servicing, Ecuador must exploit
primary products such as oil to pay its international financial obligations.4'' As paying debt
becomes more burdensome, the result could be increased recklessness in oil production.
Based on the high level of debt Ecuador has acquired and that oil is one of the few reliable
sources of revenue for the state, it seems likely that debt servicing is part of the problem.
However, it would be a simplification to say that debt servicing is a major source of the
problem. It is difficult to conceive that todays environmental problems would not exist or
be less severe if the debt did not exist.
When the PAE declares that companies need to use modem technology and follow
the environmental regulations of their country of origin, it is implied that the contrary has
been occurring. Indeed, in the Texaco controversy, the companys use of obsolete
equipment and lack of adherence to any environmental code is pointed out as the primary
cause of the massive contamination that has hit Oriente. This was given the force of law in
Decree 2982 which made the use of obsolete equipment illegal. Most of the equipment
used up to recent years in Ecuador relied on technology developed well before
environmental concerns in oil development became a major issue. Such equipment was
42 Anamara Varea. "Amazonia. in Marea Negra en la Amazonia, ed. Anamara Varea (Quito: Ediciones
AbvaYala. 1995) 25-37.
43 Debt sen icing usually consumes between 40 and 60% of Ecuador's fiscal budget.

55
recycled by transferring it from countries where it was outlawed to those were
regulatory environments were not so strong. Massive oil spills and the draining of
chemical byproducts of oil production into the areas hydrographic system were the
results. Such behavior would not be tolerated in the companys country of originwhich is
why the PAE demands that they engage in corporate behavior akin to what would occur in
the home country, by stressing the point that they have to respect the health of
Ecuadorians the PAE hints at Decree 2982: companies may have to answer to local health
authorities for their actions.
The other international link established in this section of the plan is that between
trade and the environment. It argues that the monies to be made from trade should not
constitute an excuse for disregarding the environment in product manufacturing. The
concern is that widespread desire for economic well-being may lead to an assault on
Ecuadors natural resources; indeed, there has been some debate as to the merits of
Westem/U.S. style consumerism and especially its impact on the environment. This
concern is widespread although the relationship between trade and sustainable
development is not at all clear. Whereas many NGOs operating in Latin America are
opposed to extensive free trade pacts on grounds that they constitute an acquiescence to
Western models of economic developmentand the concomitant environmental
degradationthe opposite may also be true. One of the most pressing concerns for Latin
American governments seeking to enter free trade pacts is that of linkage between trade
issues and environmental ones. Linkage usually involves that a country with higher
environmental standards demands that another adopt those standards in order to level the
playing field between the companies operating in potential trade partners, since it is

56
unlikely that a lowering of environmental standards would be politically feasible. Countries
that have lower environmental standards in would find it difficult to implement to new
standards in a short period of time. The result is that NGOs fear trade pacts because of the
push it may give to environmental degradation, but governments and companies also fear
them because an upgrading of environmental standards may place them at a competitive
disadvantage.
The issue of obtaining support from developed countries for environmental
protection is based on three factors: first, the belief that the industrialized world is chiefly
responsible and accountable for the current state of the environment; second, possession
of what is considered by many to be a valuable resource such as the rain-forest can be an
asset in international negotiations; and third, there are many groups willing to help finance
environmental projects. There is much truth in the fact that the environment has suffered
because of industrial development. This has been a premise used in a variety of forums by
developing countries versus developed ones, such as Rio and the Kyoto Treaty.
Ecuadorian policy makers are acutely aware of this and firmly believe that there is a sense
of regret and a need to make amends by industrialized countries.44 There seems to be a
sense among Ecuadorian policy makers that groups or governments in the developed
world are willing to assist poorer countries in developing there own environmental
programs with funds and expertise as a way to make reparations for the damage their
development has caused. There also is a notion that the issue of Amazonian contamination
can be an instrument in international relations for a developing country. This idea was
44 Personal interview with Oscar Garzn, Minister of Energy under the Boija administration. Quito,
Ecuador. August 1997.

57
advanced by Hurell in his analysis of the deforestation issue in Brazil. The way this has
been used has varied from economic contraction can accelerate deforestation in order to
secure better terms in trade negotiations to debt for nature swaps in which certain
environmental commitments are made by Ecuador in exchange for better international loan
terms. Finally, it is clear to the CAAM that many groups are willing to help financially
with the cost of environmental protection and that this is a potential source of much
needed funding. Many of Fundacin Naturas programs are at least partially funded by the
World Wildlife Fund, among others.
The PAE makes some policy recommendations for implementation of its goals,
among the most relevant ones are the following:
The states environmental policies should focus on conservation and regulation of
natural resources instead of their exploitation.
Environmental accounting.
The state should develop and advanced regulatory framework and adopt polluter
pays strategies.
It calls for an environmental fund to finance various projects.
Government budgets should promote sustainable development.
Tight credit and monetary policies may increase poverty, leading to migration other
behavior that is environmentally destructive.
Trade policies geared towards the promotion of non-traditional exports may be
harmful as these new exports bring more land under cultivation.
These recommendations are finding their way into the books, as can be observed from the

variety of regulations being established at different levels of government concerning the
environment. Moreover, public awareness of these issues is being promoted through
private and public sector initiatives.
The overall goal of this chapter was to detail and highlight the major policy
initiatives concerning the oil industry of the last four years, setting them against a
background of prior regulatory absence. It is worthwhile to note that although in period
from 1972 to 1992 the industry was lacking of appropriate regulationas was the whole
countrythe last few years have seen a flurry of initiatives concerning the environment.
Moreover, entities in other fields are now being affected by policy changes that seek to
reduce environmental degradation. The oil industry was the first to come under intense
scrutiny, but the initiatives to change its practices have had a spill-over effect leading to
regulatory improvements in certain industries. The following chapter will detail the factors
that have led to the changes in the oil industrys environmental regulation.

CHAPTER 4
FACTORS LEADING TO POLICY CHANGES AND EFFORTS AGAINST OIL
CONTAMINATION
Analytical Framework
The goal of this chapter is to explain the factors that have propelled the changes in
the Ecuadorian states policies as outlined in Chapter 3 and to provide cases which show
how groups opposed to environmental degradation achieved their goals. In these cases,
changes in actor behavior or loss of wealth or prestige were the results. This chapter
argues that recent changes in policy stem from a changing normative international context,
favorable to concepts of environmental protection and sustainable development. This
environment means that oil companies do not operate in a vacuum where corporate
prerogatives are the sole determinant of the management of their operations. Moreover, it
is now also difficult for governments to exploit natural resources and to condone
environmental damage by the state and/or private corporations. Pursuing such behavior
leads to loss of prestige for offending actors, or increasingly, to costly legal battles and
public-relations nightmares.
The main force driving policy changes in Ecuador is the emerging sustainable
development regime. As noted in Chapter 1, List and Rittberger define regimes as a form
of collective action by states, based on shared principles, norms, rules, and decision-
59

60
making procedures which constrain the behavior of states in specific issues areas and that
possess a minimum of effectiveness.1 The regime forces change by: condemning reckless
disregard for the environment; providing a framework via agreements through which
countries can incorporate sustainable development into their own regulatory codes; urging
member states to incorporate the concept of sustainable development into policy; fostering
the development of mechanisms which allow for affected or concerned citizens to engage
offenders; by using multilateral institutions to further its principles; and granting legitimacy
and a strong participatory role to private groups that seek to protect the environment.
The Ecuadorian case is particularly well suited to a regime theory framework for
several reasons. First, the complexity of actors and forces involved requires a framework
that can incorporate many different elements and place them within a system in which one
can see the relationships. Second, Ecuador presents a situation in which there are linkages
between domestic and international actors in issues that are both international and
domestic in nature. Because of the peculiar nature of both the petroleum industry and the
Oriente, the issues involved are ones that have international ramifications and
repercussions. These lead to the presence of international forces that become influences on
Ecuador. These influences can take the formfor exampleof multinational energy
corporations or international environmental groups. Regime theory is useful since it seeks
to explain precisely such kinds of linkages among both non-state and state actors and how
they impact state behavior. Regime theory also helps explains how relatively small groups
through their links, such as environmentalists in Ecuador and other social movements, are
1 Martin List and Volker Rittberger. Regime Theory and International Environmental Management, in
The International Politics of the Environment, eds. Hurrell and Kingsburv (New York: Oxford University
Press. 1992) 86-89.

61
able to influence domestic policy to an extent that has not been obtained by much larger
groups.2 Fourth, because of the work of epistemic (or knowledge based, scientific)
communities, a consensus has emerged that the environment needs to be protected.
Finally, the environment is an issue area in which a regime approach is promising because
there is no generally agreed upon body of comprehensive international law for
environmental protection, yet we find a multitude of agreements appearing in recent years
that run counter to the professed interests to the state.3 In other words, states have been
forced to change their conduct and policies even if the result is an economic or political
loss.
The Hemispheric Sustainable Development Regime
Five principles form the heart of the emerging sustainable development regime of
the Americas and can be found permeating most discussions on the environment at the
hemispheric level:
Human beings and their achieving a harmonious relation with nature are its main
concern.
States are sovereign in their domestic policies but must respect their neighbors
environments.
Current development must keep in mind future needs.
Environmental protection is an integral part of the development process.
2 For example. Oriente indigenous groups such as the Huaorani have managed to place their concerns at
the highest levels of the national agenda, whereas infinitely larger groups such as the Quichua dominated
Conaie have gone through great troubles to have their concerns noticed by the state.
3 Such agreements include the Climate Change Treaty of Kyoto, the Rio Declaration of 1992. inter-
American agreements, and environmental agreements in free trade pacts such as NAFTA.

62
The needs of developing countries shall receive special priority.
The norms of most relevance are the following:
International environmental cooperation shall be carried out by states with
differentiated responsibilities.
The regime is to be inclusive and participatory.
States should promote a free trade environment favorable to sustainable development
and should not use environmental legislation to the effect of a non-tariff barrier.
States should cooperate to limit the amount of hazardous material being transferred
from country to country.
The state is to promote the internalization of environmental costs.
Effective environmental legislation is to be passed by each state.
The central rules consist of:
States are to notify other states of situations in which environmental problems may
have consequences on their own environment.
Environmental impact assessments are to be conducted whenever large scale projects
that are likely to have adverse effects on the environment are planned.4
These elements are important in that they are factors that constrain the behavior of the
Ecuadorian state in certain areas of domestic policy.
The sustainable development regime has been bolstered by hemispheric efforts at
trade integration. The efforts to integrate trade among the nations of the Americas have
4 United Nations. Report of the United Nations Conference on Environment and
Development 12 August 1992: gopher://gopher.un.org/00/coni7unced/English/riodecl.Lxt.

63
opened windows of opportunity in which environmental conditions are debated and
policies are scrutinized. This is because of several factors, primarily efforts at eliminating
non-tariff barriers to trade among partners. Countries with higher environmental
standardsand higher production coststry to secure improved standards from their
partners in order to eliminate any cost advantages to be gained from environmental
degradation. This pulls in actors that represent the interests of private corporations (that
may see increased competition) into efforts to secure environmental agreements in trade
pacts.5 On the other hand, environmental and labor organizations see two distinct threats
in trading with countries with lower standards. The former see a threat to domestic
environmental regulations since countries that see themselves disadvantaged may lower
standards to enhance competitiveness; they also recognize that shifting towards a more
competitive trading environment may lead developing nations to further erode their own
regulations to gain competitiveness. Labor sees a threat in the developing world stemming
from lower costs due to both cheap labor and lower environmental. This was evident in
the NAFTA negotiations. The result has been the incorporation of diverse groups of
actors into hemispheric environmental negotiations.
The main agreements of the hemispheres emerging regime to which Ecuador
subscribes, are the following:
The Report of the United Nations Conference on Environment and Development (Rio
Declaration of 1992).
The Declaration of Belm do Par (1994).
5 This was evident, for example, in the Kyoto agreements on global warming in which U.S. corporations
advertised strongly against allowing developing nations to incorporate emissions targets on a relaxed time
frame. Industrialized countries were to be subject to a tighter schedule.

64
Plan of Action of the Summit of the Americas (1994).
The Declaration of Santa Cruz de la Sierra (1996).
The Inter-American Program of Action for Environmental Protection (1990).
These agreements strive to incorporate sustainable development into regional and
hemispheric integration efforts. They provide mechanisms to achieve greater
environmental protection and institution building concerning the environment. They also
have value in that their principles are a recognition of the validity of the claims by
environmentalists that environmental protection in the Americas has long been neglected.
What they do not provideto dateare enforcement mechanisms that can effectively
punish or deter would be transgressors of the regime. This is what limits the possibility of
concluding that a sustainable development regime is effectively in place. However, an
argument underlying this thesis-especially this chapter-is that there are mechanisms that,
although they may not be institutionalized, have the effect of being enforcement elements
for the regime. Moreover, the principles, norms, and rules of the regime have been
translated into national policy in many countries. In Ecuador, this is manifested through
Executive Decrees 1802 and 2982, Ecuadors Environmental Management Plan, and
increasingly through local governments environmental policies.
In Ecuador, regime enforcement has been primarily through three channels:
multilateral lending institutions, nongovernmental organizations, and through legal actions
and international agreements.

65
Multilateral Lending Institutions
Because of charges of environmental damage inflicted in the past, international
multilateral development organizations such as United States Agency for International
Development, the Inter-American Development Bank and the World Bank now require
environmental assessments of projects that seek funds. The World Bank, for example,
while observing that environmental protection and management are relatively new issues in
Latin American mining, notes that environmental awareness is sweeping the world and
the mining industry is under particular pressure to adopt sound policies.6 Moreover, The
World Banks definition of an environmentally sound mining industry is broad, consisting
of one which exploits mineral resources with maximum economic efficiency without
harming human health, damaging local communities or biological diversity while
maintaining ecological stability.7 The World Bank also recommends key steps and
policies for environmentally sound mining which are addressed by Ecuadors Executive
Decrees 1802 and 2982, as well in Ecuadors Environmental Management Planthe latter
having received support from both the Agency for International Development and the
Inter-American Development Bank for its development.8
The World Banks lending portfolio for Latin American environmental projects has
increased from $2.91 billion or 3.1% of bank lending for the 1980-1986 period, to $8.84
6 Industry and Energy Department of The World Bank. A Mining Strategy for Latin America and the
Caribbean (Washington. D.C.: The World Bank. 1996) 63.
' Industry and Energy Department of The World Bank. A Mining Strategy for Latin America and the
Caribbean (Washington. D.C.: The World Bank. 1996) 65.
8 See the different documents published by the CAAM.

66
billion or 5.2% for 1987-1994, excluding controversial loans for forestry.9 Most of the
multilateral bank lending is targeted towards urban environmental management rather than
resource conservation by a margin of 4 or 2 to 1, varying by year.10 Nevertheless, World
Bank lending for green projects increased to $2.78 billion during 1987-1994, from
$132.2 million from 1980-1986. In Ecuador, environmental loans represented
approximately 2% of total multilateral development bank borrowing during the 1980-1986
period.11 However, this increased to approximately 9% during 1987-1994 with green
projects comprising a significant portion of this borrowing.12 The increases in lending for
environmental projects is attributed to environmentalists efforts during the 1980s leading
to pressure from United States government officials, some of whom were alarmed at
9 The authors excluded foresto from their analysis due to its controversial nature. There is an ongoing
dispute as to whether lending for forestry' promotes sustainable development or merely facilitates logging.
They also limited their analysis to the 10 largest Latin American countries, so presumably the amount of
environmental lending should be greater.
See David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO.: Wcstview
Press. 1997) 132.
10 David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO. : Westview
Press. 1997) 131.
11 David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO.: Wcstview
Press. 1997) 131.
12 David L. Nielson and Marc A. Stem. Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO.: Westview
Press. 1997) 131.

67
environmental disasters resulting from multilateral development bank lending and
threatened to cut United States funds for the IDB and The World Bank.13
This has given such multilateral development banks increasing say on the
environmental policies of countries receiving lending in Latin America, including Ecuador.
In Peru, changes in environmental policy concerning oil exploration and production similar
to those in Ecuador have been attributed to multilateral development banks.14 However,
their role was explicitly observed by Dr. Rene Ortiz: if a country opts for financing from
the Inter-American Development Bank, The World Bank, or the Corporacin Andina de
Fomento, it must accept environmental regulations, they are the ones exercising
pressure.15 While multilateral banks have been urging and promoting sustainable
development, they have done so after being targeted by environmental transnational
organizations, a group which is widely accepted as being the primary motor of changing
attitudes towards the environment.
Transnational NGOs
A critical role is played by nongovernmental organizations in enforcing the
principles of the regime, often through international networks. Environmental NGOs have
become powerful in Ecuador where they constantly publish materials on environmental
conditions in the country, monitor private and public behavior, mobilize grassroots
13 David L. Nielson and Marc A. Stem. "Endowing the Environment: Multilateral Development Banks
and Environmental Lending in Latin America. in Latin American Environmental Policy in International
Perspective, ed. Gordon J. MacDonald. Daniel L. Nielson, and Marc A. Stem (Boulder. CO.: Westview
Press. 1997) 132.
14 Personal consultation with Carlos Mora. Chevron Social Program for Peru, Executive for Community
Relations. Gainesville. Florida. 10 February 1998.
15 Personal interview w ith Dr. Rene Ortiz, ex Secretan' General of the Organization of Petroleum
Exporting Countries (1978-1982). Quito. Ecuador. 15 July 1997.

68
movements, and influence public opinion through use of the media and advertisement.
Links with foreign NGOs grants an international audience which can be incorporated as an
additional supporter. Alliances with groups in other issue areas such as human rights and,
especially, indigenous rights groups, have strengthened their ability to influence public
opinion and raise awareness. The powerful combination of environmental protection and
the defense of indigenous rights has boosted the effectiveness of both substantially.
The success of environmental NGOs in Ecuador is a result of two developments:
the decline of the state and the traditional conceptualization of sovereignty; and the
international arena is now more sympathetic to the causes of sustainable development and
indigenous rights.
Whereas there is some debate as to the future of the state, the opinions expressed
today agree on several points: first, that the state in any case will remain much weaker
than the strong state that has characterized most of this century; second, the resulting
vacuum will be increasingly filled by networks, be they of businesses, environmentalists,
indigenous groups, or crime syndicates; third, a decline of sovereignty for the state; finally,
the strengthening of local governments in individual countries.16 According to Mathews,
the reduction of state power has diminished its ability to control its borders, facilitating a
reduction in its monopoly of information. This has occurred simultaneously withsome
16 See Anne-Marie Slaughter. "The Real New World Order." Foreign Affairs September/October 1997:
183-186: Alison Brysk. "Acting Globally: Indian Rights and International Politics in Latin America." in
Indigenous Peoples and Democracy in Latin America, ed. Donna Lee Van Cott (New York: St. Martin's
Press. 1994) 29-31: Kathryn Sikkink. "Reconceptualizing Sovereignty in the Americas: Historical
Precursors and Current Practices." Houston Journal of International Law Spring 1997: 705-729; and
Jessica Mathews. "Are Networks Better than Nations?. New Perspectives Quarterly Spring 1997: 10-14.

69
argue a result ofthe communications revolution sweeping the world.17 The resulting
reduction in the cost of communication has led to an explosion in the ability of
transnational organizations such as NGOs to disseminate information virtually
instantaneously with little possibility for government interference of this flow. Where
governments once set the agenda, NGOs are now dominant in some issue areas. Mathews
presents as an example of changes in sovereignty the global climate treaty in which NGOs
conceptualized the treaty, devised its content, and set the agenda. Governments were
presented this treaty and signed it after much wrangling, in spite of the significant
implications for domestic policies.18 As Sikkink notes, internal sovereignty has never been
absolute, and the current push for regional integrationfor examplefurther exposes the
state to outside interference on how it treats its citizens, or in this case, the environment.19
This presents a scenario in which transnational groups such as NGOs will continue
to influence policy. In Ecuador, faith in the states management capacity has decreased
while a recovery of local government within major urban areas (Guayaquil, Quito,
Milagro, Cuenca, Machala) is underway. This increases the scope of operation for NGOs
to continue to influence policy. The formation of provincial committees to monitor oil
production activities in the Oriente, a result of efforts by local government, NGOs
(particularly Fundacin Natura), and grass roots organizations, is a reflection of the
increasing strength of local versus central government in Ecuador. It also justifies the
17 Jessica Mathews. "Are Networks Better than Nations?." Xew Perspectives Quarterly Spring 1997: 11.
18 Jessica Mathews. "Are Networks Better than Nations?. .Yew Perspectives Quarterly Spring 1997: 10-
14.
19 Kathryn Sikkink. "Reconceptualizing Sovereignty in the Americas: Historical Precursors and Current
Practices. Houston Journal of International Law Spring 1997: 705-707.

70
current strategy by Ecuadorian NGOs and regional groups at local empowerment and
using existing legal mechanisms at the local government level to attain their goals.
Leaal Action and International Agreements
The strongest channel leading to enforcement of the regime are legal actions and
international agreements. Lawsuits or contamination charges carry many risks for
companies in the oil industry. They combine the possibility of civil or criminal penalties,
tremendous loss of public prestige, and costly and protracted legal battles. Furthermore,
legal action has now become more sophisticated, with environmental and grassroots
groups using all legal resources at their disposal, including instruments designed for the
protection of human rights, local and national health codes, and strategically locating the
venue where legal action is to occur. This has resulted in several efforts which, at least,
have succeeded in achieving public sympathy to the detriment of oil operators and at best
halted oil exploration and production in sensitive areas altogether.
Groups concerned about the environment in Ecuador now have a variety of legal
instruments at their disposal as well as international accords. The Ecuadorian Constitution
guarantees the right of Ecuadorian citizens to live in a pollution free environment.
Executive Decrees 1802 and 2982 provide groups or communities with the legal backing
for denouncing and suing for environmental damages.20 Numerous other codes also
20 For example, a small spill of 100 barrels of crude oil by Petroecuador oil 18 January 1998 was
denounced near Coca. In this incident, the individuals affected (loss of crops) noted that a much larger
spill had occurred a few years before. They received minimal compensation for their losses but seek a
peaceful resolution of the problem with the local manager of Petroecuador. This case is unique in that
press coverage of Petroecuador contamination is rare.
El Universo. Denuncian Derrame de Petrleo. El Universo 29 January 1998.

71
provide some legal base for citizen protection, such as article 2241 of the civil code, local
regulations such as Ordenanzas 2910 of Quito and Ordenanza 222 of Cuenca, and health
and civil codes at different levels of government.21 The Civil Code allows for lawsuits in
cases where one party causes economic loss to another, for example, when oil spills lead
to a loss of crops. Moreover, international agreements carry with them the commitment of
the signatory country to fulfill its stipulations at the domestic level. This is the reason why
there is a general similarity between Ecuadorian environmental codes and the agreements
on the environment which Ecuador signs. Indeed the Rio Declaration appears to be
influential as it is referred to in petroleum industry forums. Dr. Rene Ortiz observed that
international environmental agreements are one of the main factors leading to change in
domestic policies.22
Actors
Another component of the regime are its actors. These include the state,
environmental NGOs and indigenous groups, private companies, and private citizens.
States that are pursuing national development have an interest in what type of
solutions are found for the problem of environmental degradation. This is particularly true
for states that rely on mining as a source of fiscal revenue. Mining in its different
variations has significant impact on the environment even when the environment is
considered during the planning stage. As one staff member of Fundacin Natura points
21 See Byron Real Lpez. '"Cmo Defendemos de la Barbarie Ambiental. in Debate Ecolgico sobre el
Problema Petrolero en el Ecuador, ed. Esperanza Martinez (Quito. Ecuador: Accin Ecolgica. 1993) 91-
93 and Giuseppina Da Ros, "Anlisis Econmico de la Contaminacin de Aguas en Amrica Latina: el
Caso de Ecuador. in Anlisis Econmico de la Contaminacin de Aguas en Amrica Latina, ed. Jorge A.
Quiroz (Santiago, Chile: Centro Internacional para el Desarrollo Econmico. 1995) 280-284.

72
out, regardless of any environmental protection plans that companies undertake, negative
environmental impacts are unavoidable.2 This was also noted by one ex-minister of
energy.24 The result is a difficult choice for the state, one of self-imposed regulation for its
revenue generating petroleum industry.25 Oscar Garzn noted that Maxus (now YPF
Ecuador Inc.) has significantly seen its production costs increase as it has moved towards
stronger environmental protection. This means less revenue for the state. Petroecuador
itself is moving towards higher environmental standards with support from its
Environmental Protection Unit (Unidad de Proteccin Ambiental), although it remains a
significant polluter according to ex-OPEC Secretary General Rene Ortiz.26 Of interest is
the future course that Petroecuador will take concerning environmental protection. Its
Environmental Protection Unit has certainly taken a strong stand on the Texaco issue.27
Personal interview with Dr. Rene Ortiz, ex Secretan' General of the Organization of Petroleum
Exporting Countries (1978-1982). Quito. Ecuador. 15 July 1997.
23 Miss Lucia Burgos of Fundacin Natura, one of the NGO's experts on the oil issue, agreed to speak
independently of Fundacin Natura. Her views are hers only and do not necessarily represent those of
Fundacin Natura.
Personal inteniew with Lucia Burgos, Fundacin Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province. Quito. Ecuador. 11 July 1997.
24 Personal inten iew with Oscar Garzn, ex Minister of Energy under the Borja administration. Quito.
Ecuador. August 1997.
25 Environmentally sound industry practices does increase significantly the cost of production. This is
according to Douglas Southgates research and Oscar Garzn. ex-Minister of Energy during the Boija
administration. See personal interview with Oscar Garzn ETC. and Douglas Southgate. Petroleum
Development in Tropical Rainforests: the Economics of Pollution Control in Eastern Ecuador (Quito:
Instituto de Estrategias Agropecuarias. 1992) 14-17.
26 See ECO Polmica Revista de la Unidad de Proteccin Ambiental de Petroecuador August 1997 and
personal interview with Dr. Rene Ortiz, ex Secretan- General of the Organization of Petroleum Exporting
Countries (1978-1982). Quito. Ecuador. 15 July 1997.
27 See ECO Polmica Revista de la Unidad de Proteccin Ambiental de Petroecuador August 1997 and
Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambiental (Quito: Petroecuador UPA. 1997).

73
The state, nevertheless, has changed policies only in the 1990s as a result of the emerging
consensus around sustainable development and has done so only reluctantly.
The main domestic environmental groups are Fundacin Natura and Accin
Ecolgica. Fundacin Natura, affiliated with the World Wildlife Fund, is the largest with
1200 members and most influential with enough financial resources to carry on national
advertising campaigns aimed at promoting environmental awareness. Fundacin Naturas
position concerning oil exploration and production is that it has to be done with as little
environmental damage as possible. If oil exploration and production in ecologically
sensitive areas is necessary, Fundacin Natura determines what are the potential
economic gains compared with the losses. If the losses are excessive, then it will not
support a project.28 It also promotes local monitoring of oil activities and because of its
moderate position, participates with government in environmental policy making.
Accin Ecolgica, a more radical and smaller group, is affiliated with Greenpeace
International and the Rainforest Action Network. It seeks to protect the Oriente through
activism such as picketing, public protest rallies, organizing letter-writing campaigns, and
through publishing research on the Oriente region and the impact of oil production. A
movement affiliated with Accin Ecolgica is Amazonia por la Vida which attempts to
educate the public on the events of the Oriente and oil. Both groups are based in Quito,
with Fundacin Natura having an apparently well financed operation in the city and
Accin Ecolgica running a far more modest operation in the Quito offices of the
Facultad Latinoamericana de Comunicacin Social (FLACSO). Some indigenous groups
28 Personal interview with Lucia Burgos, Fundacin Natura Coordinator for the Provincial Commission
for the Monitoring of Oil Activities in Napo Province. Quito. Ecuador. 11 July 1997.

74
have supported the efforts of environmentalists in what Brysk considers a bright maneuver
on their part to defend their interests by harnessing the power of the international
environmental regime which she considers to be stronger than otherssuch as the regime
for the protection of indigenous rights.29 The influence of environmental groups on
Ecuador is strong, and they are perceived to be the voices of the international
environmental community. '0 As such, they speak more loudly than their numbers would
suggest.
There are several companies operating in Ecuadors oil industry. The single largest
producer is PetroProduccin (a unit of Petroecuador) with 60% of output. The other large
producers in order of importance are: YPF of Argentina (the single largest private
operator in Ecuador), Oryx, Occidental Petroleum (Oxy), City Investing (Canada),
PetroBras (Brazil), and Arco, which is scheduled to begin production in 1999. Because of
delays in the processing of required documentation, an unstable investment climate,
pressure from environmentalists, and preferential treatment for government favorites such
as Petroecuador and its subsidiaries, several companies have abandoned Ecuador in recent
years including Conoco and Elf Aquitaine.31
29 Alison Brysk, Acting Globally: Indian Rights and International Politics in Latin America. in
Indigenous Peoples and Democracy in Latin America, ed. Donna Lee Van Cott (New York: St. Martin's
Press. 1994)30-31.
30 Personal interview with Oscar Garzn, ex Minister of Energy under the Boija administration. Quito,
Ecuador. August 1997 and personal interview with Dr. Rene Ortiz, ex Secretary General of the
Organization of Petroleum Exporting Countries (1978-1982), Quito. Ecuador. 15 July 1997.
31 Elf recently announced it will leave its Ecuador operations. This was ostensibly due to a reduction in the
company's production ceilings by the government from 2.225 barrels per day to 1.100. All other
companies were hit by ceiling changes which they have contested in court: PetroProduccin and City
Investing have seen their production ceilings increased. The problem arose because Ecuador has limited
pipeline capacity (currently 400.000 barrels per day at over-capacity) and the government is apparently-
trying to secure more transportation capacity for itself. The expansion of the pipeline has been planned for

75
Table 4-1
Major Oil Companies in Ecuador: 1997-1999
PRODUCTION PROJECTIONS 1997-1999
(barrels per day)
PetroProduccion
YPF
Oryx
Qxy
City
Elf
PetroBras
TOTAL
1997
302,500
52,699
25,370
24,690
12,073
9,278
1,852
428,462
1998
319,968
49,976
20,936
29,140
12,990
11,789
4,652
449,451
1999
340,836
89,221
17,398
22,480
14,093
12,487
11,247
535,622
Source: PetroEcuador 1997.
Note: Data includes Elf Aquitane which will no longer operate in Ecuador. Qxy is short for
Occidental Petroleum
YPF (Yacimientos Petroliferos Fiscales) entered the Ecuadorian oil industry in an
expanded role in 1995 through the acquisition of Maxus.
Mobilizations Against Polluters
Several cases have developed in the 1990s in which companies were targeted for
their laxor nonexistentenvironmental policies. These cases reflect the use of legal
mechanisms, NGO and grassroots mobilizations, and use of sympathetic international
audience in order to secure environmentally sound policies. These cases are primarily the
lawsuit against Texaco and the Maxus controversy (now YPF Ecuador Inc.).
The Texaco Lawsuit
The lawsuit filed against Texaco Corporation in Federal District Court in White
Plains, New York, by Ecuadorian indigenous peoples in November of 1993 provides a
several years but constant bickering among interested parties has delayed its construction. See '"Elf pulls
out of Ecuador, The Oil Daily 29 January 1998: 6 and PetroEcuador 1997.

76
concrete example of how the regimes de facto enforcement mechanism operates. It is
illustrative of how the different forces that have shaped Ecuadorian oil policy in recent
years converge, interact, and influence different actors in different arenas. It has become a
public relations nightmare for Texaco and its persistence plagues the company to this day.
Key events in the Texaco Lawsuit are the following:
The original suit was filed in November, 1993.
Was decided on December 17, 1994, in favor of Texaco, but evidence gathering was
allowed until final dismissal in 1996; reinstatement was an option if Ecuadors
government chose to support it.
It was a class-action lawsuit seeking $1.5 billion in damages.
Ecuadors government initially (1994) opposed the suit.
Former U S. Attorney General Griffin B. Bell defended Texaco.
Rulings have been unfavorable to the plaintiffs, with the courts stating that the case
should be tried in Ecuador.
The Ecuadorian government decided to support the suit in 1997.
The lawsuit was filed in White Plains because the plaintiffs alleged that the events
that transpired in Ecuador were contrived from Texacos corporate headquarters there.
Thirty Oriente Indians presented themselves in court to present the suit which was
registered as Maria Aguinda et al v. Texaco. Texaco was sued for pollution of land and
rivers in the Amazon Basin and charged that its primitive waste disposal systems had
created conditions that could lead to a public health crisis.'2 It sought over $1.5 billion in
32 "Ecuadorean Indians sue Texaco for Damage to Rivers. Land in Amazon Basin" BXA International
Environment Daily 5 November 1993: 2.

77
compensatory and remedial damages. A lawsuit by foreigners in the United States for acts
committed abroad is permitted by the Alien Tort Victims Act, which allows aliens to sue
U.S. entities for any personal injury they may have caused. Texaco respondeded that it did
nothing wrong and complied with industry practices of the time and with Ecuadorian
regulatory codes.33
The organizations participating in this effort were a combination of indigenous and
environmental groups. The indigenous groups included the Coordinadora de
Organizaciones Indgenas de la Cuenca Amaznica (Coica), the Confederacin de
Nacionalidades Indgenas del Ecuador (Conaie), the Confederacin de Nacionalidades
Indgenas de la Amazonia Ecuatoriana (Confeniae), and the Federacin de Comunas
Unin de Nativos de la Amazonia Ecuatoriana (Fcunae). Among the environmental
groups participating were the component members of the Campana Amazonia por la Vida
including Accin Ecolgica. They organized the first boycott of Texaco in Ecuador,
known as Texaco week from July 5 to 9,1993. The goals of the boycott were: to raise
public awareness, to make Texaco responsible for a clean-up of the areas affected, to
make public the HBT Agra audit (which was believed at that time to relieve Texaco of
responsibility), and to hurt Texaco financially through boycotts not only in Ecuador but in
Norway. There were additional anti-Texaco efforts in England, Denmark, and Holland.34
33 See Ricardo R. Veiga, Vice President Texaco Petroleum Company. "To the Editor. The New York
Times 6 February 1998: A22 and "Ecuadorean Indians Sue Texaco for Damage to Rivers, Land in
Amazon Basin. BN A International Environment Daily 5 November 1993: 2.
34 The independent HBT Agra was initially believed to have been another Texaco and government public
relations maneuver aimed at diffusing growing public outcry over Oriente contamination. Part of the
problem was that the parameters had been set by the government and these did not include local input into
the audit. However, the audit was apparently done professionally within the parameters placed. See
Rainforest Action Network. "Ecuadorian Indigenous People. Environmental Acitivists call for
International Boycott of Texaco. Urgent Appeal 5 August 1993 posted to Native Web

78
Texaco customers were urged to return their credit cards with a letter stating that (1)
refuse to purchase your products until Texaco cleans up their mess in the Ecuadorian
Amazon...Where clean up is not possible, the company should provide full
indemnification to the individuals and communities affected...and to install injection wells
and pollution controls to avoid further environmental disasters in the future.35
The boycott attracted initial public attention to the events that had occurred in
Ecuador. The lawsuit added a much more potent element because it pitted the poor
Oriente Indians against one of the largest and most powerful corporations in the world.
The plaintiffs chose to sue in the United States for several stated reasons. First was
because they felt they would not receive a fair hearing in Ecuador because of Texacos
influence there, the slowness of Ecuadors legal system, and endemic corruption.
Moreover, Ecuadors judiciary has little experience with this kind of issue which could
work in Texacos favor. However, it should be noted that the difficulties with Ecuadors
judicial system could work both ways. The presence of corruptible judges does not
necessarily mean that they would actually be corruptedespecially in light of the Foreign
Powers Corruption Act. Later litigation in Ecuador on a variety of issues shows that the
judiciary, for all its failures, cannot avoid sanctioning patent violations of the law and is
capable of going against powerful interests. Moreover, Texaco opponents are not
necessarily all NGOs and activists. As shown by the position taken by the Petroecuadors
www.nativeweb.org and Glenn Switkes, "The People vs. Texaco North American Congress on Latin
America (1994).
35 Rainforest Action Network. "Ecuadorian Indigenous People. Environmental Activists call for
International Boycott of Texaco." Urgent Appeal 5 August 1993 posted to Native Web
www.nativeweb.org.

79
Environmental Protection Unit and the current governments hostile stance towards the
company, it is also possible to develop enemies within players in the industry.
Nevertheless, corruption in Ecuadors judicial system raises poses uncertainties that some
organizations are not willing or capable of affording. As Dr. Rene Ortiz observes,
demanding Texaco in the United States for damages is a recognition of a corrupt and
unreliable judicial administration in Ecuador.36
Another reason for the venue was the attention that the lawsuit would receive in
the press and in the industry. The lawsuit was a public relations bonanza for
environmentalists. Texacos dumping of millions of gallons of crude oil and toxic waters in
such ecologically sensitive areas was the perfect example of a corporation operating
without regulation and causing vast damages. Coverage of the suit and Texacos
contamination of the Oriente was significant in The New York Times, The New Yorker, The
Oil Daily, North American Congress on Latin America, El Comercio, El Universo,
Diario Hoy, in addition to the publications of a large number of environmental groups.
Press coverage continues to this day, with articles reporting on the environmental damage
provoking a response from Texaco in its to the editor pages.
Texaco now finds itself consistently on the defensive, as illustrated by the presence
on its web site of an area dedicated to the environment, including updates on the situation
in Ecuador. Texacos position on the issue has always been the following:
36 Personal interview with Dr. Rene Ortiz, ex Secretan General of the Organization of Petroleum
Exporting Countries (1978-1982), Quito. Ecuador. 15 July 1997.

80
Texaco was a minority owner with Petroecuador, the state oil company,
in an exploration and production consortium...Texaco was in full compliance
with environmental laws and regulation, and the state oil company and the
Government approved all investments and operations. After concluding
operations in 1990, Texaco undertook a remediation program with the
approval of Petroecuador and the Government.37
And the company views its presence in Ecuador as environmentally sound in an official
statement on the issue: ...Contrary to the impression conveyed, Texaco Petroleum
Company (Texpet) conducted its business with the utmost care and concern for the
Ecuadorian rainforest and the people who live there...38 In the same statement, Texaco
Petroleum Company president Janet Stoner adds that As a company, we can look at our
record in Ecuador with great pride...We conducted a successful business operation, while
also protecting a fragile environment and providing major benefits to the people.39
However, there is widespread acceptance in Ecuador that Texaco has polluted its
areas of operations in the Oriente extensively. In addition to the previously discussed HBT
Agra audit, the analysis by Petroecuadors Environmental Protection Unit, and
Kimerlings study, there was extensive media coverage in Ecuador showing damage on
television, newspaper stories, and individuals familiar with the industry. Although qualified
as an allegation, coverage notes that contamination exists and was caused by private
multinational energy companies, referring to time periods when Texaco was the only
company operating on a large scale. Environmentalists speak freely in the media. For
example, Fundacin Natura \s former executive director, Dr. Roberto Troya in discussing
37 Ricardo R. Veiga. Vice President Texaco Petroleum Company. "To the Editor." The New York Times 6
February 1998: A22
38 Texaco Petroleum Company. "An Update on Ecuador." vwwv.texaco.com.
39 Texaco Petroleum Company. "An Update on Ecuador." wvwv.texaco.com.

81
future oil concessions notes that we believe that we cannot fall into the mistakes of the
past, we think that the lessons lived with Petroecuador, as well as Texaco, and other
companies both domestic and foreign, should open our eyes and the government will need
to make serious decisions to avoid that the damages... will be repeated in other parts of the
country.40 Others are even more direct, with Dr. Rene Ortiz calling Texacos
contamination malpractice and Oscar Garzn noting that there was either bad practice,
intention, or faith (mala fe) in the way Texaco conducted itself environmentally.41
Overall, there is widespread acceptance that Texacos environmental controls were faulty,
but that the state is partly to blame as well because of its majority stake in Texacos
Ecuadorian operations.
The suit was also important in that it shed some light on how United States courts
view international environmental agreements. Under the Alien Torts Victims Act, a breach
of international treaty needed to be shown in order to proceed against Texaco. However,
the treaties on sustainable development are agreements and at best constitute anon
treatyinternational consensus. Nevertheless, such agreements are now treated by United
States courts as the sober second thought of the (international) community that all law
ultimately rests on.42 Greater strength is added to such agreements in United States courts
when they concur with domestic law and its objectives.43
4IJ Quoted in El Universo, "Contaminacin en el Oriente. El Universo 2 March 1994: El Pas 1.
41 Personal interview with Dr. Rene Ortiz, ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982). Quito. Ecuador. 15 July 1997 and personal interview with Oscar
Garzn, Minister of Energy under the Boija administration. Quito. Ecuador. August 1997.
42 Aguindav. Texaco 17.
43
Aguinda v. Texaco 17.

82
The Rio Declaration of 1992 was presented by the plaintiffs as an agreement which
Texaco did not comply with, and it was deemed the most pertinent of such documents by
the court because it constitutes a broad guideline on what sustainable development is and
the role of the state in its promotion. On this issue, the judge noted that agreements such
as the Rio Declaration eventually become international law through accretion. By this
process, as more countries incorporate the principles, rules, and norms of the agreement
into their own legal systems and regulatory codes, they become international law since the
behavior that the declaration seeks to correct becomes increasingly unacceptable. There is
increasing acceptance that this is indeed happening among legal scholars and some
political scientists, who note the rapid proliferation of environmental legislation worldwide
regardless of whether the state favors them or not. Latin America has been one of the
regions that has seen rapid development of environmental protection codes, in spite of the
professed opposition of some governments to such regulatory additions or changes.
Treaties such as that on Climate Change signed in Kyoto in 1997 will only strengthen
previous agreements. However, the judge observed that for the purposes of the suit, the
Rio Declaration was not relevant because it was not a treaty to which the United States
was a signatory country, a prerequisite for conducting a tort trial in the country under the
Alien Torts Act.
A controversial position was that assumed by the Ecuadorian state in support of
Texaco during the first suit in 1994. The Duran-Ballen administration presented an amicus
brief (friend of the court) asking for the suits dismissal. The brief argued that if such a
trial were to proceed it would be a disincentive for foreign investment in Ecuador because
firms expect such problems to be resolved through the Ecuadorian judicial system and not

83
United States courts. The judge noted the difficulties confronting countries such as
Ecuador which require capital to develop:
Developing nations such as Ecuador benefit from foreign investment but
are injured by environmental pollution. As indicated by the amicus brief, in
order to attract investment such countries often seek to create the most
favorable climate possible....44
But the judge also noted that the government could create a favorable investment climate
through investor protection, adding that any disincentive caused by exercise of
jurisdiction here (in the United States) would not be to investment in Ecuador...but to
conduct likely to violate applicable legal norms regardless of the site of the property
affected. The judge recognized the power of the suit, which environmentalists realized as
well. A lawsuit or even a threat of lawsuit in the United States could have a deterrent
effect against contamination.
The Texaco suit was ultimately dismissed in November 1996 on the grounds that
Ecuador, not the United States, was the proper forum for the trial, because the
participation of Petroecuador and the state was deemed necessary, and because the
plaintiffs had failed to show that Ecuadorian courts could not handle the case.45
Petroecuador and the states participation was considered necessary because of their role
as majority stakeholders in Texacos Ecuadorian operations. Immediately thereafter, the
Ecuadorian government entertained the idea of joining the suit against Texaco. It
resurrected the case once more in 1997 when it finally joined. This in spite of warnings
from Texaco that noted it would sue Ecuadors government if it went ahead, and would
44 Aguindav. Texaco 19.
45 MarkO. Donoghue and Eduardo Brito, "Texaco's Strategy in Ecuador, International Commercial
Litigation November 1997: 42-44.

84
be responsible for 62.5% of any damages awarded (Ecuadors share in Texacos
operations there).46
Texaco, however, has already agreed to clean up part of its area of operations and
to settle with regional municipalities as part of a little publicized May 1995 deal with the
government. Municipalities such as Lago Agrio received $1 million from Texaco without
an admission of guilt. Texaco has not escaped the stigma from its Ecuadorian operations,
however. At its annual shareholders meeting on 13 May 1997, in Rye Brook, New York,
protesters-some from the Rainforest Action Networkfocused attention on the
Ecuadorian allegations as well as problems with contamination and deforestation in
Myanmar. They were joined by members of the Rainbow Coalition upset at racial
discrimination at the company.47
The Maxus Controversy
In 1991, Maxus was awarded a 200,000 hectare concession in Block 16, one of
the most environmentally sensitive areas of the entire Oriente. It is also the home of the
Huaorani indigenous group who were adjudicated that same land in 1990 by the
government of President Rodrigo Borja. Block 16 is simultaneously the location of Yasuni
National Park, which was declared a reserve because of its extraordinary bio-diversity.
Maxus was granted the concession by the Boija administration in 1991. Maxus is a
Dallas based oil exploration and production company which has operations in the United
States, Asia, and Latin America. The root of the conflict lies in the fact that, since Block
46 Texaco Eyes Suing Ecuador. The Oil Daily 30 April 1997: 5.
47 Texaco Meeting Is Hit by Protests. The New York Times 14 May 1997: D2.

85
16 is legally Huoarcmi territory, the Huoarani are supposed to have the right to determine
how the land under their control is used. At least at the beginning, they were hostile to oil
exploration in their lands and refused to negotiate a deal after prior experiences with
Conoco attempts to operate in their area. Maxus, however, decided to proceed regardless,,
and seismic exploration began in 1991 and was completed in 1992. On 28 January 1992
Maxus and the government of president Boija signed a letter of understanding which
contained some provisions for protection of the Huaoraniapparently without consulting
the HuaoraniHowever, the building of roads and the realization of its consequences led
to a bitter dispute between environmentalists and indigenous groups against Maxus.
The dispute reached Quito in October 1992, when Conaie issued a press release in
which they accused Maxus of invading private property. In it, they reveal their greatest
fears, oil companies and settlers. They explicitly accused settlers who bring their
civilization, destroy everything in their path: our culture, our territory, our lives.49
Indigenous leaders from the Oriente and those in Quito as part of Conaie sought to meet
with the president of Petroecuador, the president of Congress, Maxus executives at their
Quito offices, and the Minister of Energy. They were able to meet with the Ecuadorian
government representatives. The president of Petroecuador offered to search for a
reasonable solution after having met with Conaie, Confeniae, and Onhae representatives
on 27 October 1992. The indigenous representatives also met for two hours with Carlos
Vallejo, then president of Congress, who also offered his support but without noting any
48 Ivan Narvez. Huaorani vs Maxus (Quito: Corporacin de Estudios y Promocin Cultural. 19%)
Annex 7.
49 Confederacin de Nacionalidades Indgenas del Ecuador. The Huaorani People Will Stay in Quito
until their Demands are Met. Press Release 28 October 1992: 1.

86
specific action that he would pursue. However, they were less fortunate in meeting with
Maxus executives. After appearing at their offices, they not only refused to receive the
indigenous representatives but also called the police and had them removed. In order to
establish negotiations, Maxus demanded that the indigenous representatives had to dialog
through its public relations specialist, Rosana Fayeta, who was accused of continuously
attempting to undermine the unity of the indigenous groups. The dispute began to receive
worldwide attention, with journalist Joe Kane, formerly of the Rainforest Action Network,
publishing two extensive and damning articles in the New Yorker magazine. In them, he
depicted a two-faced Ecuadorian administration (that of president Duran-Ballen) that,
while professing support for the indigenous cause, conspired against them.30
Negotiations between the company and the Huaorani dragged on as they accused
Maxus of using gifts to divide the loyalties of the Huaorani. Accin Ecolgica released a
statement in which they alleged that Maxus engaged in the destruction of Huaorani
culture, bio-prospecting (granting educational, hence pharmaceutical institutions access to
local biological organisms), deforestation of 29,355 hectares of primary rainforest, leaving
toxic debris on roads, and releasing toxic fluidsamong other allegations.51 On 19 April
1995, the Huaorani peacefully occupied Maxus installations, accusing the company of
failing to meet the terms of the agreement signed with the government and lied about
certain environmental impacts. Besides the allegations made public by Accin Ecolgica,
they were also upset at the fact that the agreement did mention, cultural, and economic
50 See Joe Kane. With Spears from All Sides. The New Yorker 27 September 1993: 54-79 and Joe Kane.
Moi Goes to Washington. The New Yorker 2 May 1994: 74-81.
51 Amazonia por la Vida, Maxus and the Ecuadorian Amazon. Accin Ecolgica Bulletin 21 April
1995:1.

87
impacts and the contracting of Brazilian transnational Andrade Gutierrez for road and
infrastructure development.52 Andrade Gutierrez had been sanctioned in Brazil for bribing
government officials.53 The Huaorani wanted the following:
Protection of their organizational, cultural, and territorial rights.
Their participation for decisions affecting the areas which they influenced.
Guarantees of their economic, social, and organizational rights.
Consolidation of the integration process with the rest of Ecuadorian society on
a basis of mutual respect.
Economic participation on just terms for their integral and autonomous development
Overall, called for respect of their human rights and dialog with the actors involved.54
The Huoarani had the most to lose. Among the indigenous groups living in the
Oriente, the Huaorani were among the last to establish contact with Ecuador (in the
middle of the 20 century), a country they were technically citizens of. Their main initial
contact was with American missionaries, some of which were killed in encounters with the
Huoarani whom they sought to convert.55 For the last 40 years, though, they had been
able to live relatively isolated from other inhabitants of the Oriente and from the state.
The presence of oil in their territory led to new threats, particularly the presence of
workers, settlers, and other, much larger indigenous groups. Two processes were
:>2 Onhae. Pueblo Huaorani se Levanta en Defensa de sus Derechos," Boletn de Prensa 19 April 1995: 1.
53 Onhae. Pueblo Huaorani se Levanta en Defensa de sus Derechos.' Boletn de Prensa 19 April 1995: 1.
54 Onhae. Pueblo Huaorani se Levanta en Defensa de sus Derechos. Boletn de Prensa 19 April 1995: 1-
2.
55 See Ivan Narvez. Huaorani vsMaxus (Quito: Corporacin de Estudios y Promocin Cultural. 1996)
32-34 and Joe Kane. With Spears from All Sides. The New Yorker 27 September 1993: 57-58.

88
particularly threatening concerning Maxusthe impact that the oil exploration and
production would have on their environment and settlers that would come in whenever the
company built roads. These settlers would potentially be mestizos or Quichua Indians,
with cultural traits and organizations that have dominated smaller indigenous groups.56 A
process of quichuaizacin of the Huoarani has already had an impact, with their outlook
on material goods, their relationship with the state, and their political system being
significantly altered as a result.37 The threat of contact with settlers can be potentially
devastating, since such contact with the Ecuadorian nation will also mean incorporation
into the world capitalist system, one into which they will probably enter in a position of
dependency and poverty.38
To further their own interests, the Huoarani organized the Organization of the
Huoarani Nation of the Ecuadorian Amazon, or Onhae. Originally led by Huaorani men
Moi, Amo, and Enqueri, the organization forged an alliance with the Confeniae and
Conaie. Together, they demanded: a moratorium to Maxus oil exploration in Block 16,
suspension of work on oil roads, and the right to manage their own territory.39
The road in question consisted of a 150 kilometer freeway connecting main oil distribution
facilities with Maxus sites in Block 16. The construction of this freeway came under fierce
56 Ivan Narvez. Huaorani vs Maxus (Quito: Corporacin de Estudios y Promocin Cultural. 1996)
79-85.
57 Such process of quichuaizacin has also occurred with the Aucas, another Amazonian indigenous
group.
58 See Ivan Narvez. Huaorani vs Maxus (Quito: Corporacin de Estudios y Promocin Cultural, 1996)
81 and Judith Kimerling, El Derecho del Tambor (Quito: Ediciones Abya-Yala, 1996) 193-202.
59 Confederation of Indigenous Nationalities of Ecuador. "The Huaorani People will Stay in Quito Until
their Demands are Met. Press Release 28 October 1992.

89
attack because it would destroy large swaths of rainforest as workers received the right to
cut and sell forest woods a total of 60 meters deep on either side of the road. The fauna of
the area would also suffer as habitats and hunting grounds were physically altered.
Deforestation, pollution, erosion, and sedimentation would also alter the ecosystem in the
areas affected. At the time, all freeways built in Ecuador were free and accessible to the
public. Even if access to the freeway were controlled, and military personnel were to
guard it, that would still not avoid the problem of settlers during the construction phase.
Moreover, the military itself has traditionally been a significant source of settlers.
The freeway was approved by the Ecuadorian government. Activists in the area
immediately mobilized to peacefully block construction crews and their machinery.
Congress, however, was contemplating a moratorium on all exploration in the area and
this led to appeals pressure Congress, the president of Ecuador, and Maxus offices in
Quito and Dallas.
The response from activists was sharp. YPF (Maxus parent company) CEO
Roberto Monti received a bouquet of oil drenched roses symbolizing the contamination
that Maxus had allegedly caused in Block 16. It was presented to him by activists from
Accin Ecolgica, pictures of the event show an upset Monti receiving the flowers.
The response of Maxus to criticism was one of accommodation. Maxus
implemented several policies aimed at reducing pollution and colonization. It should be
noted that the greatest efforts at satisfying criticism began in 1995, when Decree 2982
became law and Maxus was acquired by YPF of Argentina. By renaming Maxus Ecuador
Inc. to YPF Ecuador Inc. in 1997, an act which did not occur with the rest of Maxus
operations around the world, YPF was apparently trying to break with the negative image

90
associated in Ecuador with the Maxus name. This however, was denied by YPF Ecuadors
public relations coordinator, Lucia Rivas, noting that YPF Ecuador has addressed public
concerns about its operations.60
Several innovations were adopted by Maxus (YPF Ecuador Inc.). One was the
construction of roads using Geotextil. Geotextil is a highly resistant material designed to
contain asphalt. This minimizes the amount of spreading of asphalt and permits the
clearing of a minimum amount of land when compared to non-Geotextil roads, requiring
only 8 meters of road (2 meters to the sides). Moreover, the use of Geotextil eliminates
the need for hardwoods as a base for the roads. The use of these woods, obtained by
cutting down trees in the rainforest, leads to enormous loss of vegetation, as much as 30
meters to either side of a road. The longer the road, the greater the amount of
deforestation. Geotextil essentially replaces the wood in road construction. This is an
expensive process; however, environmental groups applaud the use of Geotextil. Another
innovation is the underground installation of oilducts. They are inserted into channels that
are filled with compact granular filling. This translates into less exposure for the ducts to
the elements, earthquakes and minimizes the impact of leakage, reducing the risk of
contamination for the rivers of the area. The underground placement of oilducts reduces
the deforested area from an average 60 meter tract of forest to approximately 10 meters,
representing an enormous saving of vegetation. Furthermore, Maxus placed the ducts
underground immediately to the side of the road, reducing costs for the company and the
60 Personal interview with Lucia Rivas. Public Relations Coordinator. YPF Ecuador Inc.. Quito. Ecuador,
21 July 1997.

91
total amount of forest cleared. Maxus also adopted a policy of re-vegetating with native
plants the areas that are cleared and are not used for roads.
A final innovation adopted by Maxus is the practice of perforation in clusters.
Cluster perforation involves the construction of one platform that drills twelve wells into
the ground. Conventional methods would require the construction of twelve individual
platforms, each with its own support facilities and roads, with the corresponding threat of
colonization and deforestation. In cluster perforation, wells are reached by the use of
special machinery capable of directional (lateral) perforation. This way, the amount of
deforested lands is reduced by approximately 70%. The toxic underground formation
waters are dealt with by Maxus. When these waters are extracted from their underground
reservoir, they are re-injected into the same reservoir they came from through machinery
located at a different location.
The Maxus innovation that has received the most applause, however, is its strict
control of colonization in the areas under its concession. Maxus simply does not allow
settlers from outside the area to enter its concession. Its guidelines are clear:
Use of ferries to cross the Napo River in lieu of bridges.
Establishment of control points at strategic locations for settler control.
Indigenous cooperation as park keepers and supervisors, both Quichua Huaorani.
Identification cards for employees and contractors sensitivity training concerning
policies for the respect of the indigenous population and their territory.

92
Approval for the entry into the Maxus concession to be granted by INEFAN and
the armed forces.61
The president of Maxus Ecuador in 1994, William Hutton, noted:
This operation is placed within the framework of sustainable development,
combining the most advanced technologies in perforation, production, and
transport of heavy crude with the most sophisticated programs of environmental
protection and of absolute respect for the indigenous communities that inhabit
the areas of influence.62
Testimony to the change of behavior by Maxus came from former Energy Minister
Garzn who noted that because of its environmental policies, its costs had increased
substantially and were being offset by cuts in other areas of its operationssomething
which he did not approve of.6' Lucia Burgos of Fundacin Natura also approved of the
companys efforts, particularly the use of Geotextil and its strict policy of denying access
to the areas under its concession without proper clearance since these efforts reduce the
possibility of colonization of Block 16.64 Perhaps the strongest indication that there has
been some change by YPF, particularly concerning pollution and deforestation, has been
the fading away of criticism from activists. Public appeals and literature on the issue of
YPF Ecuadors operations practically disappeared by 1996, and the companys
headquarters in Quito is no longer surrounded by groups of protesters.
61 Petroecuador and Maxus Ecuador Inc.. "Nueva Era Petrolera en el Ecuador. Un Nuevo Modelo de
Desarollo 21 April 1994: 14.
62 Petroecuador and Maxus Ecuador Inc.. "Nueva Era Petrolera en el Ecuador. Un Nuevo Modelo de
Desarollo 21 April 1994: 3.
63 Personal interview with Oscar Garzn, ex Minister of Energy under the Boija administration. Quito,
Ecuador. August 1997.
64 Miss Burgos adds, however, that any oil operation will produce at least a minimum of contamination.
Personal interview with Lucia Burgos. Fundacin Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province. Quito. Ecuador. 11 July 1997.

93
Nevertheless, YPF Ecuador continues to receive some critiques in the handling of
its relations with the Huoarani. One charge is that it seeks to create a culture of
dependence among the Huaorani for material goods, thereby securing their acquiescence
to oil exploration; another is that it seeks to divide the Huaorani into two groups and
isolate them, which explains YPF Ecuadors policy of denying entry to individuals
without clearance. These arguments are posed by the head of Petroecuadors
Environmental Protection Unit, Ivan Narvaez, and similar ones within other social-
environmental conflicts are posed by Anamaria Varea of the Facultad Latinoamericana de
Ciencias Sociales Sede Quito65
The issue of creating dependency among the Huaorani is complex. The Huaorani
and Onhae are split between its leaders Moi and Enqueri, the current leader of Onhae. Moi
advocates a split from YPF Ecuador to secure the traditional way of life of the Huaorani,
whereas Enqueri believed that the Huaorani could benefit economically from a
relationship with the company. Enqueri, once he replaced Moi as the president of Onhae in
1994, agreed to Huaorani support for YPF Ecuador in exchange for a wide variety of
services, primarily medical care, education, and community facilities. As Narvaez himself
notes, the Huaorani had been deprived of basic social services by the state and YPF
Ecuador came to fill that role. However, that role also gives the company powers similar
to that of the state, in which it exchanges services and goods for obedience to its
authority, an argument echoed by Varea. It does seem clear, however, that the Huaorani
entered the agreement on their own free will and they demanded the services in exchange
65 See Ivan Narvaez. Huaorani vs Alaxus (Quito: Corporacin de Estudios y Promocin Cultural. 1996)
62-67 and Anamara Varea. "El Manejo Alternativo de Conflictos." in Marea Negra en la Amazonia, ed.
Anamaria Varea (Quito: Ediciones Abva Yala. 1995) 150-162.

94
for use of their land. As far as YPF Ecuador is concerned, it is a fair deal that addresses a
problem that has arisen in the past: criticism of oil companiesand the state as wellfor
not delivering resources and services to the areas from which they profit.
The issue of isolating and dividing the Huaorani community is also complex. The
division, as noted above, stems from differing views among the Huaorani as to how to
address an uncertain future. They can opt to cling to the past, or they can enter
modernity in a disadvantaged position. Because the Huaorani had already maintained
outside contacts with Ecuadorians, Quichuas, and missionaries, it is reasonable to assume
that a significant segment of the community had already embraced some of the services
and wants present in the dominating Ecuadorian mestizo culture. If they had not been
isolated, the result would likely have been a further integration into the Quichua group,
also in a disadvantaged position. Both propositions are difficult and in any case, in an
increasingly smaller world in the Oriente, some decline of ethnic identity seems
unavoidable. The question is whether or not YPF Ecuadors operation accelerate or brake
such a decline, which is almost impossible to answer.
Conclusions
The primary goal of this chapter was to show what factors have led to changes in
policy outlined in Chapter 3 and to link those factors to the international context. Through
the Texaco and Maxus examples, this chapter shows what resources groups have to
produce change, links to international groups, and highlights the dangers that may strike
companies that do not engage in environmentally sound oil exploration and production
practices. While Texaco continues to deny any wrongdoing, it continues to receive bad

95
press and is plagued by relations problems. Maxus (now YPF Ecuador Inc.) is Ecuadors
largest private producer and well regarded by most for its environmental and social
policies. Some of the strongest criticism of YPF Ecuador comes, in fact, from those that
believe that the company caved in to environmentalist demands and now faces higher than
average production costs.66 Nevertheless, those policies are rapidly becoming the industry
norm in environmentally sensitive areas as the possibility of being targeted as a polluter is
now believed to be a much more costly mode of production.
66 Personal interview with Oscar Garzn, ex Minister of Energy under the Borja administration. Quito.
Ecuador. August 1997.

CHAPTER 5
SUMMARY AND CONCLUSIONS
Summary
This thesis sought to explain the changes that have occurred in Ecuadorian oil
policy concerning the environment and what factors have shaped those changes. Clearly,
the new policies are favorable towards the concept of sustainable development. It is the
argument of this thesis that these changes would not have occurred were it not for the
changing normative international context thanks to the emergence of trans-national
organizations such as environmental nongovernmental organizations. Policy makers have
enacted change only reluctantly, as the priority is to raise revenue.1 Energy corporations
are increasingly sensitive to any criticism of their operations which could lead to a
negative image in the minds of those who consume their products. Boycotts, bad press, or
protests aimed at a corporation could have a potentially negative effect on sales.
Awareness raising campaigns of environmental transgressions by environmentalists or their
efforts to contact corporate shareholders can embarrass top management. The ultimate
negative scenario for a large corporation is the possibility of multi-million dollar lawsuits
that can affect profitability and lead to lasting damage to a companys reputation. Not
even state owned companies are spared from this process. In the Ecuadorian case, there is
1 Ecuador's friend of the court brief in favor of Texaco demonstrates that the overriding priority has been
revenue raising, not environmental protection.
96

97
an increasing willingness from a variety of actors to question the environmental soundness
of Petroecuadors operations. Worldwide, it is increasingly difficult for corporations,
public or private, to find places where they can conduct unsound operations with
impunity. In Latin America, controversy has surrounded many development projects that
are now readily scrutinized for their environmental impact.
This thesis builds its arguments by looking briefly at the past and then detailing the
present. Chapter 1 sought to give an overview of how this thesis is organized and a
general outline of what has happened in Ecuador. It stresses that a problem concerning oil
and the environment in Oriente exists and that their has been a reluctant response from the
state which addressed the issue of oil contamination. Chapter 2 provided the historical
background to oil development in Ecuador and described the nature and extent of
contamination in the Oriente. The goal was to portray the history of oil in Ecuador as
lawless, with corporations seeking to reduce regulation and maximize profitability. They
were largely successful thanks to the acquiescence of the state and its corruption. In such
a unregulated environment, it should not be a surprise that the environmental disaster that
still afflicts the Oriente occurred. The chapter continues detailing how contamination has
occurred, its dangers, and its extent. Chapter 3 details the policies developed in recent
years. It shows that an environmental regulatory code aimed directly at oil production
Executive Decree 2982has not only been adopted, but addresses the issues that have
been most contentious for environmentalists. The chapter also shows that the government
now publicly admits, through Executive Decree 1802, that a problem exists in Oriente and
that it needs to be addressed. The Ecuadorian Environmental Management Plan shows
that government is now being forced to address the issue of sustainable development and

98
environmental protection on a national scale and in a variety of indistries, and that this
process incorporates the views of a variety of actors including environmental NGOs,
multilateral development agencies such as the Inter-american Development Bank, and
indigenous groups. Programs such as the PAE ultimately see their principles reach the
local level, as municipalities implement their own codes to protect the environment.
Chapter 4 explains the factors that have led to changes in Ecuadorian environmental plicy
concerning oil, and places these factors within an international context. A regime favorable
to the concept of sustainable development is emerging in the Hemisphere, and the added
power that this gives to environmental groups is leading to changes that benefit the
environment. Throughout Latin America, the push for sustainable development is leading
to scrutiny of development and corporate projects, including multi-million dollar natural
gas pipelines in Argentina being built by a Chilean-Belgian corporate alliance, Chilean
energy powerhouse Endesas plans to build a dam on the Bio-bio river, the laying of
communication cables in the Caribbean by AT&T, the debate in Peru over the Chilean
Luchetti pasta plant in Lima, renewed scrutiny of Brazilian deforestation, water
contamination in Mexico, and expensive environmental and social monitoring programs in
oil projects such as those conducted by Conoco in Peru and YPF in Ecuador. The key
element is that such concerns are no longer seen as ranting by eco-terrorists but as
legitimate concerns as to the impact of these projects on people and nature. Chapter 4 also
discusses what the regime consists of, and provides cases of pressure or change being
imposed on transgressors to illustrate how regime enforcement operates. Particular
importance was placed on the Texaco lawsuit in the United States and the campaign
against Maxusnow YPF Ecuador Inc.and how these have affected the actors involved.

99
The Maxus case is critical since it is one company, Ecuadors largest private oil producer,
that changed policies to accommodate environmental concerns after a long and bitter
campaign against it.
However, it would be a mistake to misinterpret regulatory changes as evidence of
state support of environmental protection. The regulatory changes are the result of a bitter
process in which indigenous groups and environmentalists placed tremendous effort.
Indigenous groups since the late 1980s have complained that the state and oil
companies violated their human rights. Violence against indigenous groups by the state
and oil companies has been alleged, although not substantiated. Destruction of indigenous
peoples environments have been documented. The health effects of pollution in the areas
under exploitation have been detailed. Decision-making processes in the Oriente that
exclude inhabitants of the area have been observed. This led some to press claims against
the state for its failure to protect the human rights of the Oriente's population.
The first to do so were the Huaorani in 1990. This was done through the Sierra
Club Legal Defense Fund by presenting a petition to the Organization of American States
Inter-American Commission on Human Rights (IACHR). The Sierra Clubs goal was to
attract attention to the issue of human rights abuses in the Oriente and to use the
mechanisms of the OAS to correct the situation (violence against the Huaorani often
came from settlers, with whom there have been violent encounters). The petition was
bolstered by the 1993 visit of Huaorani leader Moi to Washington where he rendered
testimony before the OAS IACHR. The visit had occurred in spite of opposition from
United States embassy personnel who frequently supported the oil companies. Moi was

100
denied a visa, but this decision was reversed. Denying a visa to an Ecuadorian citizen
involved in a human rights investigation was a potential public relations disaster.2
The Ecuadorian government reacted with hostility to the petition, particularly by
the Huaorani assertion that they were not citizens of Ecuador. The Ecuadorian
ambassador to the United States at the time, Edgar Tern, met with Moi. Moi reiterated
the Huaorani request for an oil moratorium in the Oriente if the IACHR found any
anomalies, which was to last until such anomalies were solved. Tern admonished Moi
that such a moratorium would not occur. However, Tern was aware of the damage that
the case could cause to Ecuadors international image. He knew that the IACHR could
not proceed without the Ecuadorian governments blessing and a formal invitation to the
country. So he made Moi aware that he would consider Mois request and the possibility
of a IACHR visit to Ecuador. Moi met with the OAS IACHR late in 1993 and the
Ecuadorian government agreed to a visit to Ecuadorverbally. A few weeks after Moi
returned to Ecuador, the government changed its mind and sent a letter to the IACHR
informing it of a misunderstanding and that the IACHR was not invited after all.
Meanwhile, Moi received death threats and was fearful for his lifealthough he remains
unharmed to date. The IACHR was ultimately allowed to visit Ecuador and found strong
evidence suggesting that there were human rights violations in Ecuador, especially to the
right to live in a pollution-free environment. It found lack of participation of citizens in
afflicted areas in decisions that had great impact on their lives, and that their health was
2 For a detailed account of the IACHR investigation see Joe Kane. "With Spears from All Sides. The New
Yorker 27 September 1993: 54-79: Joe Kane. Moi Goes to Washington, The New Yorker 2 May 1994:
74-81; and Inter-American Commission on Human Rights. Report on the Situation of Human Rights in
Ecuador (Washington. DC: General Secretariat Organization of American States. 1997).

101
compromised by oil development. In its 1997 report, the IACHR strongly urged the
Ecuadorian government to allow citizen participation in the decision-making processes
and to adopt a regulatory framework that would protect the human rights of the
population of the areas affected.'1
The Ecuadorian state also failed to support those struggling against Maxus. It
chose the role of intermediary between the company and the indigenous groups. The
Ministry of Energy, through its minister, facilitated the negotiation process. However,
publicly the government of Ecuador did nothing to support the cause of the citizens it
claims to represent.
The ultimate result is typical. For example, the Huaorani received a deal with YPF
Ecuador Inc. (formerly Maxus) which can be described as the least of all evils. There
does appear to be some Huaorani discontent in their relationship with YPF Ecuador Inc.,
although the company has complied with the requirements of their agreement. Maxus has
complied with the environmental stipulations of its contracts and Ecuadorian regulatory
codes. However, it appears that Ecuadors search for modernity will continue to
disregard the needs of indigenous groups. Once environmental concerns are addressed, the
issue of indigenous rights in the Oriente fades away. The only way to stop this process is
by strengthening their political clout, which is apparently occurring.
3 Inter-American Commission on Human Rights. Report on the Situation of Human Rights in Ecuador
(Washington. DC: General Secretariat Organization of American States. 1997) 94-95.

102
The Future of the Environment and Oil in Ecuador
There are several reasons to be guardedly optimistic concerning oil production and
the environment in Ecuador. First, the power and legitimacy that trans-national and
national NGOs have acquired is substantial. Their representatives, local and international,
have access to the highest levels of government and find sympathetic ears among local
elites. Indeed, membership in environmental groups in Ecuador continues to be confined
among upper and upper middle class citizens who have influence and contacts throughout
society. Moreover, public awareness continues to increase, with environmental awareness
fairs now present in Quito shopping malls. Committees have been formed in oil production
and exploration regions incorporating representatives from NGOs, civil society, the
military, and local government, with the task of monitoring oil sites and any potential
contamination. Second, technological advances continue to cheapen the cost of oil
exploration and production machinery, creating less of a financial burden for corporations
that seek to produce oil in an environmentally friendly manner. Third, the increasing
power of indigenous groups in Ecuador, which now have congressional representation,
makes them foes that companies are not willing to take on. The growing influence of
parties such as Pachakutic-Movimiento Nuevo Pais can well translate into positions of
power where they can have an impact on oil operations; they seem unlikely to support oil
companies against other indigenous groups. Fourth, the renaissance of local government in
several Ecuadorian regions has made them capable of enactingand enforcinglocal
environmental codes, such as those now present in Quito and Cuenca. In Guayaquil, the
building of a canal by the Port Authority had ignored the elaboration of an environmental
impact study, something which the press noted and led to the recent contracting of the

103
study to a firm. Fifth, domestic press coverage has grown more critical and less tolerant of
environmental degradation, although contamination by the state oil company,
Petroecuador, continues to be an apparently taboo topic. Nevertheless, contamination
continues to be reported, hopefully creating an environment in which the risks of negative
domestic media exposure create an effective deterrent to contamination. Finally within oil
companies themselves, public and private, it appears that environmental factions are
struggling to change any destructive mentality concerning the environment. Indeed, one
recent editorial in LatinTrade magazine calls for businesses in Latin America to not fear
increased environmental regulation, which the article deems necessary.4 One powerful
source of pressure for clean operations seems to arise from environmental protection units
within oil companies. Ultimately, such an array of forces lined up against contamination
can enforce environmental protection, especially in alliances. Recent press coverage has
focused on the hostility between eco-tourism companies and oil producers, with eco-
tourist associations upset at contamination that damages their business.
There are some problems, however. The main problem is the issue of indigenous
groups that live in the oil regions. Their lives continue to be affected by the loss of their
own ethnic identity as a result of contact with settlers and oil workers. Such interactions
have led to loss of identity, a sense of inferiority on account of a perceived lack of wealth
and worth in a modem world, exposure to illnesses they have previously not
4 Joachim Bamrud. "Environment and Business." Latin Trade April 1998: 8.

104
encountered, and a change of the environment they live in due to development.5 Another
problem is the issue of contamination by Petroecuador, the state oil company. According
to Executive Decree 2982, Petroecuador is to follow all the regulations detailed in the
decree. However, it is clear that Petroecuador is a significant polluter which people and
organizations are not willing to confront for fear of reprisals. For example, only Dr. Rene
Ortiz was willing to go on record as stating that Petroecuador does indeed contaminate. It
should be noted, however, that contamination by Petroecuador does not seem to approach
the levels produced by Texaco.
Conclusions
There are three main conclusions that this thesis reaches. The primary conclusion is
that oil policy concerning the environment has changed in a manner consistent with a
sustainable development frameworkthis in spite of state reluctance. Changes in policy are
now occurring at the local level, and more industries are coming under scrutiny such as
shrimp farming which destroys and pollutes mangroves. Second, that this change is due to
and international normative context that is creating a sustainable development regime,
leading a variety of actors to behave in ways that result in the defense of the principles of
the regime. The power of transnational organizations and their domestic counterparts is
substantial and, in Ecuador, increasing. Third, that because of the continued and growing
influence of trans-national and domestic organizations, it seems likely that the situation
will improve rather than worsen in the Oriente. Management recommendations for
5 See Ivan Narvez. Huaorani vsMaxus (Quito: Corporacin de Estudios y Promocin Cultural, 1996)
37-45.

105
handling operations in environmentally sensitive areas urge maximum care, the hiring of
anthropologists and sociologists for social impact plans, and obedience of regulations in
order to avoid costly delays and public relations problems resulting from environmentalist
criticism.
This does not mean that the Ecuadorian state will support the environment or
indigenous groups against oil giants. It does demonstrate, however, that the state is
vulnerable to international pressure, pressure that can be used by domestic actors to
strengthen their positions and achieve results they may otherwise find impossible to attain.
Recommendations for Future Research
There are four issues only briefly covered here that warrant further exploration.
The most urgent is the question of health effects of Oriente contamination. It is rather
surprising that a comprehensive study of the health effects of oil contamination has not
been conducted. Most environmental and indigenous groups speak of massive health
effects on the areas inhabitants, yet it seems unusual that in the six years that Oriente
contamination has received worldwide attention no one has conducted a detailed study on
the subject. Another area of interest is local environmental protection. This is relevant
because of the weak position of the central government and the apparent effectiveness of
local government. Within this issue, the formation of local committees to monitor oil
activities seems particularly relevant. Another issue of interest is the effect of agreements
such as that between the Huaorani and YPF Ecuador Inc.on indigenous group survival.

106
Do they destroy or save local culture? Finally, a deeper exploration into the connections
between local and international NGOs would be of interest in order to further explain
domestic NGO effectiveness in spite of their tiny memberships. In the future, it would
interesting to see more widespread citizen participation in the efforts to s~ '-e Oriente
from its own precious resource and human ambition.

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no
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Ill
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112
Zevallos, Jose Vicente. El Estado Ecuatoriano y las Transnacionales Petroleras. Quito,
Ecuador: Pontificia Universidad Catlica del Ecuador, 1981.

BIOGRAPHICAL SKETCH
Marcos G. Avelln Jr. was bom in Harlem, New York, in 1971. Mr. Avelln lived
between 1983 and 1992 in Guayaquil, Ecuador. In Ecuador he taught at a variety of
institutions and was a non-profit organization worker and volunteer. He received a
Bachelor of Arts degree from the University of Florida in Gainesville, Florida, in 1995.
Marcos is married to the former Sylvia Hidalgo of Guayaquil, Ecuador. Following
receipt of his Master of Arts degree, he will be employed by Sears, Roebuck and Co.
where he has accepted a management position.
113

. I certify that I have read this study and that in my opinion it conforms to
acceptable standards of scholarly presentation and is fully adequate, in scope and quality,
as a thesis for the degree of Master of Arts.
Terry L. McCoy, Chair
Professor of Latin American
Studies
I certify that I have read this study and that in my opinion it conforms to
acceptable standards of scholarly presentation and is fully adequate, in scope and quality,
as a thesis for the degree of Master of Arts.
Philip J. WijDafns
Associate Professor of Political
Science
I certify that I have read this study and that in my opinion it conforms to
acceptable standards of scholarly presentation and is fully adequate, in scope and quality,
as a thesis for the degree of Master of Arts.
Mark W. Thumer
Assistant Professor of History
This thesis was submitted to the Graduate Faculty of the Center for Latin
American Studies, to the College of Liberal Arts and Sciences, and the Graduate School
and was accepted as partial fulfillment of the requirements £et^th^ degree of Master of
Arts.
May 1998
f
Director, Center for Latin
~7^HAmerican Studies
Dean, Graduate School

August 2007
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68
movements, and influence public opinion through use of the media and advertisement.
Links with foreign NGOs grants an international audience which can be incorporated as an
additional supporter. Alliances with groups in other issue areas such as human rights and,
especially, indigenous rights groups, have strengthened their ability to influence public
opinion and raise awareness. The powerful combination of environmental protection and
the defense of indigenous rights has boosted the effectiveness of both substantially.
The success of environmental NGOs in Ecuador is a result of two developments:
the decline of the state and the traditional conceptualization of sovereignty; and the
international arena is now more sympathetic to the causes of sustainable development and
indigenous rights.
Whereas there is some debate as to the future of the state, the opinions expressed
today agree on several points: first, that the state in any case will remain much weaker
than the strong state that has characterized most of this century; second, the resulting
vacuum will be increasingly filled by networks, be they of businesses, environmentalists,
indigenous groups, or crime syndicates; third, a decline of sovereignty for the state; finally,
the strengthening of local governments in individual countries.16 According to Mathews,
the reduction of state power has diminished its ability to control its borders, facilitating a
reduction in its monopoly of information. This has occurred simultaneously withsome
16 See Anne-Marie Slaughter. "The Real New World Order." Foreign Affairs September/October 1997:
183-186: Alison Brysk. "Acting Globally: Indian Rights and International Politics in Latin America." in
Indigenous Peoples and Democracy in Latin America, ed. Donna Lee Van Cott (New York: St. Martin's
Press. 1994) 29-31: Kathryn Sikkink. "Reconceptualizing Sovereignty in the Americas: Historical
Precursors and Current Practices." Houston Journal of International Law Spring 1997: 705-729; and
Jessica Mathews. "Are Networks Better than Nations?. New Perspectives Quarterly Spring 1997: 10-14.


27
The Controversy Over Contamination
The emergence of oil exploration and production in the Oriente has led to
dramatic, widespread, and costly contamination and deforestation of the region. Because
Texaco was the single largest producer during the 1972-1992 period when the bulk of
contamination occurred, it appears as the single largest polluter in the history of oil in
Ecuador. However, contamination linked to other companies has stirred their share of
controversy. Nevertheless, Texaco has been accused not only causing the worst damage in
the Oriente, but also of failing to live up to the commitments it made to clean up its areas
of operations. There is considerable debate as to the extent of contamination, and Texaco
continues to deny any wrongdoing alleging it followed all that was required of the
regulatory codes of the time and that it was a minority partner in a state led and approved
oil production process.36 However, there is a large body of knowledge and a growing
group of industry experts that provides ample evidence and knowledge of pervasive
contamination in the Oriente.*1 It is only very recently that a consensus has begun to
emerge around some numbers researched by former New York State Department of
Environmental Protection official Judith Kimerling, environmental audits by HBT-AGRA
and Petroecuador, NGOs, government agencies, and analyses by foreign and domestic
36 See Ricardo R. Veiga. Vice President Texaco Petroleum Company, 'To the Editor. The New York
Times 6 February 1998: A22.
37 Miss Lucia Burgos of Fundacin Natura, one of the NGOs experts on the oil issue, agreed to speak
independently of Fundacin Natura. Her views are hers only and do not necessarily represent those of
Fundacin Natura.
Personal interview with Lucia Burgos, Fundacin Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province, Quito. Ecuador, 11 July 1997; personal interview with
Dr. Rene Ortiz, ex Secretary General of the Organization of Petroleum Exporting Countries (1978-1982),
Quito. Ecuador. 15 July 1997; and personal interview with Oscar Garzn. Minister of Energy under the
Boija administration. Quito. Ecuador. August 1997.


45
freshwater formations which are used for human consumption or irrigation. The goal is to
prevent the kind of water contamination which has caused much health damage through
the years.
Many wells in the Oriente have been abandoned with complete disregard for the
damage their presence has caused or will cause because of continued leakage from old
fields. Now companies must go through a process before operation of a well can go off
line. Their waste must be classified. All sites must have their drainage pipes restored or
bought new. Also, the party responsible for the deforestation has to re-forest the land as
well as remove the contaminants. Once cleaned up and the waste is removed the well must
be capped with a concrete plug. Responsibility for the supervision of this process falls with
Petroecuadors Unidad de Proteccin Ambiental and with the Ministry of the
Environment.20
For the management and storage of fuel, a series of regulations were established.
Their intention is to reduce the amount of oil and chemical byproducts that are released
into the environment at all stages of the production processnot only of oil but also of its
derivatives, such as gasoline.
Decree 2982 stresses the need to train workers in the proper handling of petroleum
and petroleum byproducts. They are to handle their output according to industrial safety
norms. Proper labeling and signs are also required.21 Storage tanks are to be built at
ground level; they are to be surrounded by a liquid-proof barrier in which 110% of the
largest tanks capacity can be withheld. Storage tanks for fuels or chemicals must be fitted
20 Executive Decree 2982 pg. 13.
21 Executive Decree 2982 pg. 14.


6
Central Problem
The main purpose of this thesis is to study how Ecuadorian environmental oil
policy towards the Oriente has evolved in this decade, especially in light of the
hemispheric push for sustainable development and the 1994 Texaco lawsuit. The suit
constitutes a critical instance of anti-pollution mobilization primarily because after the suit,
the state took the issue of oil contamination far more seriously than it had previously.
Indeed, since the suit Ecuador has adopted a flurry of environmental legislation, a
Ministerio de Medio Ambiente has been created, and adopted oil contracts with clauses
that specifically address the issue of contamination. This does not necessarily mean that
the letter or even the spirit of this regulatory framework has been adhered to but it is clear
that prior to the Rio Declaration and the Texaco suit far less attention was paid to the
issue in terms of legislation and media attention. Moreover, the changes in policy and their
text admit that contamination has in fact occurred. In the past, the problem of
contamination has been denied. Environmental groups have received new legitimacy now
that the state acknowledges the existence of contamination, and by recognizing the
problem a solution might be found. In other words, the terms of the debate have been
recast in such a way that it has made it difficult for the state to ignore the problem and
maintain the prior regulatory framework.
Significance and Literature Review
Although there is little material in terms of academic analyses of Ecuadorian oil
policy in the Amazon Basin specifically, a significant body of scholarly work addresses
state acquiescence to the establishment of stronger international or domestic


51
Committee of Environmental Advisement). The CAAM works through a series of
conferences, workshops and congresses with ample participation from different
segments of society. The CAAM itself is composed of a representative from the
presidency (who is the chair), one from the public sector, one from business, and one
from civil societythe environmental NGOs.33 The CAAM was directly involved in the
process of elaborating Decree 1802 and was one of the first public institutions to
recognize the variety of problems afflicting Ecuadors environment (1993).
The result of the CAAMs efforts is the Plan Ambiental Ecuatoriano (PAE or
Ecuadorian Environmental Management Plan), the elaboration of which received support
from Fundacin Natura, AID, the Inter-American Development Bank, and the World
Resources Institute. The objective of the PAE is to
implement a process of permanent planning for environmental management
that contributes to the sustainable development of Ecuador, fomenting the
participation of society as a fundamental element, fomenting change of attitudes
at all levels, orienting the behavior of governmental agencies, private sector,
organizations of civil society and NGOs, and promoting environmental
management at the national, regional, and local levels.34
The PAE is based on the general policy principles present in Decree 1802.35 It relies on
local as well as central government to adopt its principles, with the Municipality of Quito
being at the forefront of environmental protection in Ecuador.36 Moreover, the PAE
33 CAAM. 1996. Pg. 16.
34 CAAM. 1996. Pg. 5.
35 CAAM. 1996. Pg. 9.
36 Among the measures taken by the Municipality of Quito was the acquisition of electrically powered
"'trole-buses'' instead of internal combustion powered buses and the ban of lead in gasoline which will
begin in 1998.


28
academics becoming much more accepted/8 Initially, some of the figures presented were
received by hostility from all sectors of the industry.
There are four areas in which oil production and pollution has had a major impact:
water, land, air, and deforestation. A good part of this is due to the fact that, especially in
the past, all chemical byproducts and waters used in the production process were released
into the environment completely untreated.39 In addition, there has been a strongly
negative impact among indigenous communities that live in the Oriente not only in terms
of their health but also in the threat to their culture as contact with the dominant
American-Iberian culture expands due to individuals working in the Oriente.
Water contamination has been the most severe result of oil production in Oriente
and the best documented. According to an environmental audit of Texacos operations
(until 1990) by HBT-AGRA, a well known petroleum consulting firm, over 376 million
barrels of water was released contaminated with heavy metals, oils, chemicals, and other
contaminants, without prior treatment, which caused environmental deterioration of the
ecosystems of the Ecuadorian Amazon, in many cases of an irreversible nature.40
Underground water arising from the drilling process, formation water, is highly toxic,
contaminated with chemicals used in the production or exploration process, and is
38 The independent environmental audit of Texaco's operations by Canadian company HBT-AGRA was
agreed to by both Texaco and Petroecuador. The audit, conducted in the aftermath of Texaco's departure
in 1992, has not been released in its final form pending approval from the government. All references to
information in the audit are from the Unidad de Proteccin Ambiental de Petroecuador (Environmental
Protection Unit of Petroecuador), which presumably has access to the document. The audit w as to be the
basic document on which remediation agreements between Texaco and the state were to revolve.
39 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambiental (Quito: Petroecuador UPA 1997) 2.
4lJ Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambiental (Quito: Petroecuador UPA 1997) 4.


63
opened windows of opportunity in which environmental conditions are debated and
policies are scrutinized. This is because of several factors, primarily efforts at eliminating
non-tariff barriers to trade among partners. Countries with higher environmental
standardsand higher production coststry to secure improved standards from their
partners in order to eliminate any cost advantages to be gained from environmental
degradation. This pulls in actors that represent the interests of private corporations (that
may see increased competition) into efforts to secure environmental agreements in trade
pacts.5 On the other hand, environmental and labor organizations see two distinct threats
in trading with countries with lower standards. The former see a threat to domestic
environmental regulations since countries that see themselves disadvantaged may lower
standards to enhance competitiveness; they also recognize that shifting towards a more
competitive trading environment may lead developing nations to further erode their own
regulations to gain competitiveness. Labor sees a threat in the developing world stemming
from lower costs due to both cheap labor and lower environmental. This was evident in
the NAFTA negotiations. The result has been the incorporation of diverse groups of
actors into hemispheric environmental negotiations.
The main agreements of the hemispheres emerging regime to which Ecuador
subscribes, are the following:
The Report of the United Nations Conference on Environment and Development (Rio
Declaration of 1992).
The Declaration of Belm do Par (1994).
5 This was evident, for example, in the Kyoto agreements on global warming in which U.S. corporations
advertised strongly against allowing developing nations to incorporate emissions targets on a relaxed time
frame. Industrialized countries were to be subject to a tighter schedule.


10
What factors have shaped these changes?
To answer these questions, regime theory is a useful tool in explaining the changes in
Ecuadors oil policy.
Building on the definition of Stephen Krasner, List and Rittberger define regimes
as a form of collective action by states, based on shared principles, norms, rules, and
decision-making procedures which constrain the behavior of states in specific issues areas
and that possess a minimum of effectiveness.11 The issue area is sustainable development
in Ecuadors Oriente. Principles are defined as beliefs of fact, causation or rectitude;
norms are standards of behavior in terms of rights and obligations; rules are prescriptions
or proscriptions for action; and procedures are practices for making and implementing
collective decisions.12 As McCoy points out, these elements are all present in the
hemispheres regime.1''
The objective of the hemispheres regime is to encourage sustainable development,
or economic growth that presences natural resources for both future use and the planets
bio-diversity. The founding document outlining the characteristics of the regime--or the
normative nucleus as List would sayis the Rio Declaration on Environment and
Development or Agenda 21.14 This was adopted in August, 1992, after the United Nations
11 Martin List and Volker Rittberger. "Regime Theory and International Environmental Management." in
The International Politics of the Environment, eds. Hurrell and Kingsbury (New York: Oxford University
Press. 1992) 86-89.
12 Terry L. McCoy, "Sustaining Sustainable Development." Hemisphere V.8 No.l 1997: 16-18.
13 Terry L. McCoy, "Sustaining Sustainable Development." Hemisphere V.8 No.l 1997: 16-18.
14 Martin List and Volker Rittberger. "Regime Theory and International Environmental Management. in
The International Politics of the Environment, eds. Hurrell and Kingsbury (New York: Oxford University
Press. 1992).


22
the country.20 CEPE acquired in 1974 25% of the Texaco-Gulf consortium while Texaco
and Gulf Oil each retained 37.5%; in 1977 Gulf was eliminated from the consortium and
CEPE became the dominant partner with 62.5%, the rest remaining in Texacos hands.21
Part of the states success was due to the impact on Ecuadorian public opinion of a 1972
book by Jaime Galarza, Festn del Petrleo. It was a study of oil policy in Ecuador and
the world that accused the large oil companies as well as the state of corruption and lack
of scruples.22 Galarza was invited to participate in a televised discussion on the issue that
same year with the Texaco spokesperson, Rene Bucaram. The TV audience learned during
the discussion about the Minas y Petrleos dubious transfer of land to Texacoin
exchange for 2% royalty and heard Bucaram himself say that the state could still intervene
on the matter.2' Although technically legal, the transfer of land to Texaco was done
through a loophole in the law and clearly violated the spirit of the 1937 Petroleum Law.
Following Bucarams recommendation, the state did intervene in the matter which was
unfortunate for Texaco. Public outrage led to the retroactive application of the 1972 law
limiting the size of concessions. This forced Texaco to return part of the lands ceded to it
by Minas y Petrleos, the company was required to pay higher land use fees, and had to
re-negotiate contracts under the stipulations set forth in the new petroleum law.24 This
reinforced the resolve of the military to exert more control over the oil companies,
20 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 21.
21 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambienntal (Quito: Petroecuador UPA. 1997) 1.
22 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 355.
23 Parte Primera: 1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 357.
24 Parte Primera:1961-1973. La Gestacin de tina Poltica Petrolera 19 October 1978: 357.


BIOGRAPHICAL SKETCH
Marcos G. Avelln Jr. was bom in Harlem, New York, in 1971. Mr. Avelln lived
between 1983 and 1992 in Guayaquil, Ecuador. In Ecuador he taught at a variety of
institutions and was a non-profit organization worker and volunteer. He received a
Bachelor of Arts degree from the University of Florida in Gainesville, Florida, in 1995.
Marcos is married to the former Sylvia Hidalgo of Guayaquil, Ecuador. Following
receipt of his Master of Arts degree, he will be employed by Sears, Roebuck and Co.
where he has accepted a management position.
113


95
press and is plagued by relations problems. Maxus (now YPF Ecuador Inc.) is Ecuadors
largest private producer and well regarded by most for its environmental and social
policies. Some of the strongest criticism of YPF Ecuador comes, in fact, from those that
believe that the company caved in to environmentalist demands and now faces higher than
average production costs.66 Nevertheless, those policies are rapidly becoming the industry
norm in environmentally sensitive areas as the possibility of being targeted as a polluter is
now believed to be a much more costly mode of production.
66 Personal interview with Oscar Garzn, ex Minister of Energy under the Borja administration. Quito.
Ecuador. August 1997.


TABLE OF CONTENTS
page
ACKNOWLEDGEMENTS ii
LIST OF TABLES v
ABSTRACT vi
CHAPTERS
1 INTRODUCTION 1
Background 2
Central Problem 6
Significance and Literature Review 6
Objectives and Research Approach 9
2 HISTORY OF OIL PRODUCTION IN ECUADOR AND ITS
ENVIRONMENTAL CONSEQUENCES 14
History of Ecuadorian Oil 14
The Texaco-Gulf Era 17
Steps in Producing Oil 25
The Controversy over Contamination 27
3 POLICY RESPONSE 34
Overview 34
Executive Decree No. 1802 37
Executive Decree No. 2982 41
The Committee of Environmental Advisement 50
in


61
able to influence domestic policy to an extent that has not been obtained by much larger
groups.2 Fourth, because of the work of epistemic (or knowledge based, scientific)
communities, a consensus has emerged that the environment needs to be protected.
Finally, the environment is an issue area in which a regime approach is promising because
there is no generally agreed upon body of comprehensive international law for
environmental protection, yet we find a multitude of agreements appearing in recent years
that run counter to the professed interests to the state.3 In other words, states have been
forced to change their conduct and policies even if the result is an economic or political
loss.
The Hemispheric Sustainable Development Regime
Five principles form the heart of the emerging sustainable development regime of
the Americas and can be found permeating most discussions on the environment at the
hemispheric level:
Human beings and their achieving a harmonious relation with nature are its main
concern.
States are sovereign in their domestic policies but must respect their neighbors
environments.
Current development must keep in mind future needs.
Environmental protection is an integral part of the development process.
2 For example. Oriente indigenous groups such as the Huaorani have managed to place their concerns at
the highest levels of the national agenda, whereas infinitely larger groups such as the Quichua dominated
Conaie have gone through great troubles to have their concerns noticed by the state.
3 Such agreements include the Climate Change Treaty of Kyoto, the Rio Declaration of 1992. inter-
American agreements, and environmental agreements in free trade pacts such as NAFTA.


83
United States courts. The judge noted the difficulties confronting countries such as
Ecuador which require capital to develop:
Developing nations such as Ecuador benefit from foreign investment but
are injured by environmental pollution. As indicated by the amicus brief, in
order to attract investment such countries often seek to create the most
favorable climate possible....44
But the judge also noted that the government could create a favorable investment climate
through investor protection, adding that any disincentive caused by exercise of
jurisdiction here (in the United States) would not be to investment in Ecuador...but to
conduct likely to violate applicable legal norms regardless of the site of the property
affected. The judge recognized the power of the suit, which environmentalists realized as
well. A lawsuit or even a threat of lawsuit in the United States could have a deterrent
effect against contamination.
The Texaco suit was ultimately dismissed in November 1996 on the grounds that
Ecuador, not the United States, was the proper forum for the trial, because the
participation of Petroecuador and the state was deemed necessary, and because the
plaintiffs had failed to show that Ecuadorian courts could not handle the case.45
Petroecuador and the states participation was considered necessary because of their role
as majority stakeholders in Texacos Ecuadorian operations. Immediately thereafter, the
Ecuadorian government entertained the idea of joining the suit against Texaco. It
resurrected the case once more in 1997 when it finally joined. This in spite of warnings
from Texaco that noted it would sue Ecuadors government if it went ahead, and would
44 Aguindav. Texaco 19.
45 MarkO. Donoghue and Eduardo Brito, "Texaco's Strategy in Ecuador, International Commercial
Litigation November 1997: 42-44.


12
principles of the regime has been undertaken, it was necessary to look at current
conditions for bidding on oil development and whether or not environmental
considerations are significant in current contractual obligations with oil companies. Also, a
look at legislation and executive decrees were consulted in order to see if the principles of
the sustainable development regime have been adopted into law as the regime asks
member states to do. An analysis to determine whether or not new policies address the
issues that NGOs have prioritized was required. It was necessary to examine the new
regulatory framework and see if the enforcement mechanisms are adequate.
Discussions with NGO staff were necessary to avoid bias in favor of the states
position. A review of their literature was performed. These groups interests are similar in
some areas but not in others. Some NGOs are opposed to any kind of oil development in
the Amazon Basin while others grudgingly approve oil development if
exploration/extraction technologies are ecologically sound. It must be noted, though, that
all the NGOs have two things in common: they oppose contamination and they oppose the
destruction of indigenous cultures that oil production processes undoubtedly bring. And,
within the framework of regime theory, it is the NGOs that provide the enforcement
mechanisms for the regime and they are critical elements in attracting attention to Oriente
deforestation and contamination.
This thesis has three objectives. First, it intends to determine if NGOs and popular
groups can alter hostile state policy by using the international normative context as a
means of exerting pressure on government-even if the issue area is one of extreme
sensitivity for the state. Second, it documents the extent of a significant environmental
disaster in Ecuadors Amazon Basin as well as according serious effects on the health of


82
The Rio Declaration of 1992 was presented by the plaintiffs as an agreement which
Texaco did not comply with, and it was deemed the most pertinent of such documents by
the court because it constitutes a broad guideline on what sustainable development is and
the role of the state in its promotion. On this issue, the judge noted that agreements such
as the Rio Declaration eventually become international law through accretion. By this
process, as more countries incorporate the principles, rules, and norms of the agreement
into their own legal systems and regulatory codes, they become international law since the
behavior that the declaration seeks to correct becomes increasingly unacceptable. There is
increasing acceptance that this is indeed happening among legal scholars and some
political scientists, who note the rapid proliferation of environmental legislation worldwide
regardless of whether the state favors them or not. Latin America has been one of the
regions that has seen rapid development of environmental protection codes, in spite of the
professed opposition of some governments to such regulatory additions or changes.
Treaties such as that on Climate Change signed in Kyoto in 1997 will only strengthen
previous agreements. However, the judge observed that for the purposes of the suit, the
Rio Declaration was not relevant because it was not a treaty to which the United States
was a signatory country, a prerequisite for conducting a tort trial in the country under the
Alien Torts Act.
A controversial position was that assumed by the Ecuadorian state in support of
Texaco during the first suit in 1994. The Duran-Ballen administration presented an amicus
brief (friend of the court) asking for the suits dismissal. The brief argued that if such a
trial were to proceed it would be a disincentive for foreign investment in Ecuador because
firms expect such problems to be resolved through the Ecuadorian judicial system and not


26
the camp site, with the subsequent invasion of colonists from other parts of the country; a
social and health issues arising if any contact is made with local indigenous groups; and
the killing of animals in the area if hunters are brought in order to secure the areas wiring
for the protection of workers.
If a deposit is believed to hold enough promise, it may warrant the initiation of
actual test drillingsecond phaseto ascertain if indeed the suspected deposit is
petroleum. This step involves moving heavy drills into the area to penetrate the earth and
unleash the deposits contents in order for the testing of samples in order to determine if
its commercial grade crude.35 During this process, the main environmental threat is water
contamination since the materials in and around the deposits are toxic for plant and animal
life and may be spilled into the areas hydrological system. Also, this process requires the
use of large amounts of water, which may then be discharged untreated contaminating the
water supply for the forest and animal life.
If a commercial grade well is found, then the next step is the production process in
which wells are built to extract the oil. Besides some of the environmental problems noted
above, air contamination is a possibility due to the presence of gases (methane,
occasionally natural gas) which rise through the well and are burned off at the top of the
oil well.
3' On average, wells penetrate 10.000 feet into the ground.


89
attack because it would destroy large swaths of rainforest as workers received the right to
cut and sell forest woods a total of 60 meters deep on either side of the road. The fauna of
the area would also suffer as habitats and hunting grounds were physically altered.
Deforestation, pollution, erosion, and sedimentation would also alter the ecosystem in the
areas affected. At the time, all freeways built in Ecuador were free and accessible to the
public. Even if access to the freeway were controlled, and military personnel were to
guard it, that would still not avoid the problem of settlers during the construction phase.
Moreover, the military itself has traditionally been a significant source of settlers.
The freeway was approved by the Ecuadorian government. Activists in the area
immediately mobilized to peacefully block construction crews and their machinery.
Congress, however, was contemplating a moratorium on all exploration in the area and
this led to appeals pressure Congress, the president of Ecuador, and Maxus offices in
Quito and Dallas.
The response from activists was sharp. YPF (Maxus parent company) CEO
Roberto Monti received a bouquet of oil drenched roses symbolizing the contamination
that Maxus had allegedly caused in Block 16. It was presented to him by activists from
Accin Ecolgica, pictures of the event show an upset Monti receiving the flowers.
The response of Maxus to criticism was one of accommodation. Maxus
implemented several policies aimed at reducing pollution and colonization. It should be
noted that the greatest efforts at satisfying criticism began in 1995, when Decree 2982
became law and Maxus was acquired by YPF of Argentina. By renaming Maxus Ecuador
Inc. to YPF Ecuador Inc. in 1997, an act which did not occur with the rest of Maxus
operations around the world, YPF was apparently trying to break with the negative image


4
contamination has resulted in a series of serious health problems for settlers and,
especially, indigenous peoples in the production and exploration region.
The contamination reflects a weak regulatory environment, but recent legislation
has sought to strengthen environmental protection Most oil companies, in fact, have
developed drilling and exploration practices that today surpass the standards set by the
state. These companies have gone to great lengths to distance themselves from the
controversy and some have now chosen to use the most environmentally sound technology
available. The initial reluctance on the part of the state to implement and enforce a
stronger regulatory environment stems from fear that added costs to oil exploration will
deter potential foreign investment in the oil sector.6 Although Petroecuador (which
assumed control of Texacos operations in 1992) produces more than 66% of Ecuadors
oil, foreign investment fills a critical investment and technological gap. Moreover, Ecuador
reimburses those costs to the companies, this provides the state an incentive to keep a
regulatory environment as friendly as possible for exploration as far as costs are
concerned.
Contamination reached such a severe level that a lawsuit was filed in District Court
in 1994 in White Plains, N.Y., by Ecuadorian citizens with the support of environmental
and indigenous rights groups both Ecuadorian and foreign, with assistance from the Sierra
Legal Defense Fund. The suit, Maria Aguinda.. et al. v. Texaco, accused Texaco of
negligence in its oil activities in Ecuador which created serious health problems for the
areas residents. The suit was filed in New York because it was alleged that the events that
6 See amicus brief presented by the Duran-Ballen administration in Maria Aguinda et al. and other
plaintiffs v. Texaco Inc., defendant. U S. District Court for the Southern District of New York. 93 Civ
7527 850 F. Supp. 282. X.


CHAPTER 4
FACTORS LEADING TO POLICY CHANGES AND EFFORTS AGAINST OIL
CONTAMINATION
Analytical Framework
The goal of this chapter is to explain the factors that have propelled the changes in
the Ecuadorian states policies as outlined in Chapter 3 and to provide cases which show
how groups opposed to environmental degradation achieved their goals. In these cases,
changes in actor behavior or loss of wealth or prestige were the results. This chapter
argues that recent changes in policy stem from a changing normative international context,
favorable to concepts of environmental protection and sustainable development. This
environment means that oil companies do not operate in a vacuum where corporate
prerogatives are the sole determinant of the management of their operations. Moreover, it
is now also difficult for governments to exploit natural resources and to condone
environmental damage by the state and/or private corporations. Pursuing such behavior
leads to loss of prestige for offending actors, or increasingly, to costly legal battles and
public-relations nightmares.
The main force driving policy changes in Ecuador is the emerging sustainable
development regime. As noted in Chapter 1, List and Rittberger define regimes as a form
of collective action by states, based on shared principles, norms, rules, and decision-
59


57
advanced by Hurell in his analysis of the deforestation issue in Brazil. The way this has
been used has varied from economic contraction can accelerate deforestation in order to
secure better terms in trade negotiations to debt for nature swaps in which certain
environmental commitments are made by Ecuador in exchange for better international loan
terms. Finally, it is clear to the CAAM that many groups are willing to help financially
with the cost of environmental protection and that this is a potential source of much
needed funding. Many of Fundacin Naturas programs are at least partially funded by the
World Wildlife Fund, among others.
The PAE makes some policy recommendations for implementation of its goals,
among the most relevant ones are the following:
The states environmental policies should focus on conservation and regulation of
natural resources instead of their exploitation.
Environmental accounting.
The state should develop and advanced regulatory framework and adopt polluter
pays strategies.
It calls for an environmental fund to finance various projects.
Government budgets should promote sustainable development.
Tight credit and monetary policies may increase poverty, leading to migration other
behavior that is environmentally destructive.
Trade policies geared towards the promotion of non-traditional exports may be
harmful as these new exports bring more land under cultivation.
These recommendations are finding their way into the books, as can be observed from the


43
heliportby the decree. Helicopters are to transport most cargo through long-sling
techniques which allow them to withhold landing for deliveries. To avoid the need for
roads, helicopters are to be used for the transportation of most items. For example, during
the oil exploration stage they are to be used for moving most equipment. This prevents
roads, which can be used by colonists or squatters to move in and destroy forests. This
encourages the use of longer range helicopters as sites are limited for the construction of
heliports. This is of particular importance today since many new oil fields are being
developed.
Another issue that is addressed by Decree 2982 is deforestation by road and
pipeline construction, especially in biologically diverse and sensitive areas. Roads and
pipelines are a tremendous source of deforestation for several reasons. Most relevant are
those pertaining to the size of the' road and their ability to attract people. If one builds a
straight 50 km. long road with a width of 8 ms. and clearing a swath of 15 ms., the result
is 750,000 sq. ms. of deforestation. Pipelines usually require clearing swaths of forest 30
ms. wide, becoming a huge source of deforestation. Another reason is colonization.
Ecuador is poor and construction attracts migrants to any part of the country where
opportunities for economic improvement are perceived as better. Accin Ecolgica
considers the south-central Andes region of Ecuador as the primary source of Oriente
coloniststhe same region is also the source of millions of illegal/undocumented aliens in
the United States. The construction of roads opens access to relatively wealthy petroleum
workers for vendors to tap as a market. Also, roadside real-estate is considered premium
in rural Ecuador since it provides access to markets and easy transportation. Colonists are
widely considered to be the primary source of Oriente deforestations, although they do not


56
unlikely that a lowering of environmental standards would be politically feasible. Countries
that have lower environmental standards in would find it difficult to implement to new
standards in a short period of time. The result is that NGOs fear trade pacts because of the
push it may give to environmental degradation, but governments and companies also fear
them because an upgrading of environmental standards may place them at a competitive
disadvantage.
The issue of obtaining support from developed countries for environmental
protection is based on three factors: first, the belief that the industrialized world is chiefly
responsible and accountable for the current state of the environment; second, possession
of what is considered by many to be a valuable resource such as the rain-forest can be an
asset in international negotiations; and third, there are many groups willing to help finance
environmental projects. There is much truth in the fact that the environment has suffered
because of industrial development. This has been a premise used in a variety of forums by
developing countries versus developed ones, such as Rio and the Kyoto Treaty.
Ecuadorian policy makers are acutely aware of this and firmly believe that there is a sense
of regret and a need to make amends by industrialized countries.44 There seems to be a
sense among Ecuadorian policy makers that groups or governments in the developed
world are willing to assist poorer countries in developing there own environmental
programs with funds and expertise as a way to make reparations for the damage their
development has caused. There also is a notion that the issue of Amazonian contamination
can be an instrument in international relations for a developing country. This idea was
44 Personal interview with Oscar Garzn, Minister of Energy under the Boija administration. Quito,
Ecuador. August 1997.


38
technology required in their country of origin; certain problems, industries, and geographic
areas are to receive special attention.8
Executive Decree No. 1802 constitutes a straightforward admission of the states
failure in protecting the Oriente from oil contamination and the enormous havoc wreaked
on the areas environment. The decrees tone is set at the very beginning of the document
by the title and subtitles: Sustainable Petroleum Development in Ecuador; Rectifying the
Mistakes of the Past.9 The first paragraph begins with the statement:
The grave environmental impacts produced in the Ecuadorian
Amazon Region since 1970 as a consequence of petroleum
operations are due to, in large part, to the system of oil exploitation
which failed to consider the most elemental norms of environmental
protection prevalent at the time and to the carelessness of the state
in their control.10
This statement is a dramatic departure from prior statements in which the state kept a low
profile while private companies were roundly criticized for their alleged disregard of the
environments well-being. It admits four key events long noted by environmental groups
but initially denied by corporations and policy makers. The first is the severity of oil
contamination in the region and its environmental impact. Second, it describes Ecuadors
oil industry as a system instead of a decentralized structure in which the private sector
operates in its own sphere independent of the state. It acknowledges that both the state
and the private sector have played major roles in the industrys development and that the
links between the different parts are strong. Third, it admits that even the weak
8 Comisin Asesora Ambiental de la Presidencia de la Repblica. Plan Ambiental Ecuatoriano. (1996. Pp.
20-21.
9 Executive Decree No. 1802 pg. 1.
10 Executive Decree No. 1802 pg. 1.


46
with oil traps. Article 22 explicitly prohibits the use of obsolete equipment and urges the
use of modem equipment which are internationally accepted in the oil industry... and
compatible with environmental protection. Special attention is placed on the prohibition
of old, used equipment. The equipment to be used must be listed in the Plan de Manejo
Ambiental. Also prohibited is hunting, fishing, and the collection of different species of
plant and wildlife. Wildlife cannot be held captive and the introduction of species not
native to the area of operations is forbiddeneven pets. Drilling and the injection of
contaminants into the ground is guided by the principle that the process or equipment used
cannot contaminate fresh water. Natural drainage patterns are to be protected whenever
installations are built. The drainage system of the sites must flow into special channels that
separate water from oil or in collection pools. All production facilities must have a spill-
control team as part of its contingency plan. Such facilities or their equivalent must also
possess a treatment system for the fluids resulting from the process. Wells that are
abandoned or no longer productive are to be rehabilitated so that they may be used for the
injection of waste. Again, the discharge of contaminated waters is not alloweduntil they
are treated. Gas (not gasoline) resulting from the process is to be a priority since it has
several uses once re-injected and recovery improved. During production testing, the fluids
that appear as a result must be shipped or pumped to a production station where they will
be treated and any oil obtained is to enter the production process.22
Article 30 deals with the rehabilitation of abandoned and badly plugged pools. The
goal is to recover as much oil as possible from them in the hope they can used later on for
either refining or any other process. Anything that is left over can used on roads as a sort
~ Executive Decree 2982 pp. 18-20.


31
soil erosion, affecting the forest and other impacts.49 Burning emits nitrogen oxide,
sulfur, and carbon as well as heavy metals, hydrocarbons, and carbon particles into the
atmosphere. Acid rain and black rains have contaminated the Oriente with powerful
effects on crops and people in addition to wildlife.
Deforestation is the result of three factors. First, the practice of clearing lands in
order to conduct exploration operations such as the installation of drilling equipment,
heliports seismic lines, and base camps. The use of seismic lines, for example, could
involve the clearing of swaths of land as much as 2-3 meters wide, creating boundaries in
sensitive environments. Second, the building of roads can cause massive amounts of
deforestation when paths are cleared in the rainforest and through the colonization process
which until recently normally accompanied the development of new oil fields. More than
500 kilometers of roads have been built in Oriente by oil companies, and they can vary in
width from 10 to 15 meters; more deforestation is caused when wood from forests
adjacent to the new roads are cut down to be used in their construction.50 This road
building process, the presence of well paid oil workers that in effect constitute a new
market in the area, and the presence of land and government policies that permits their
colonization, leads to large migration to the Oriente. Most colonists tend to come from
the impoverished south-central Andes and are in dire straits.51 Some end up in the informal
49 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambienntal (Quito: Petroecuador UPA. 1997) 4-5.
50 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 56.
51 This same region is the source of much of the undocumented aliens fleeing oppressive economic
conditions towards the United States. Venezuela, and other Latin American countries.
Amazonia por la Vida. Debate Ecolgico Sobre el Problema Petrolero en el Ecuador (Quito: Accin
Ecolgica. 1993) Appendix.


74
have supported the efforts of environmentalists in what Brysk considers a bright maneuver
on their part to defend their interests by harnessing the power of the international
environmental regime which she considers to be stronger than otherssuch as the regime
for the protection of indigenous rights.29 The influence of environmental groups on
Ecuador is strong, and they are perceived to be the voices of the international
environmental community. '0 As such, they speak more loudly than their numbers would
suggest.
There are several companies operating in Ecuadors oil industry. The single largest
producer is PetroProduccin (a unit of Petroecuador) with 60% of output. The other large
producers in order of importance are: YPF of Argentina (the single largest private
operator in Ecuador), Oryx, Occidental Petroleum (Oxy), City Investing (Canada),
PetroBras (Brazil), and Arco, which is scheduled to begin production in 1999. Because of
delays in the processing of required documentation, an unstable investment climate,
pressure from environmentalists, and preferential treatment for government favorites such
as Petroecuador and its subsidiaries, several companies have abandoned Ecuador in recent
years including Conoco and Elf Aquitaine.31
29 Alison Brysk, Acting Globally: Indian Rights and International Politics in Latin America. in
Indigenous Peoples and Democracy in Latin America, ed. Donna Lee Van Cott (New York: St. Martin's
Press. 1994)30-31.
30 Personal interview with Oscar Garzn, ex Minister of Energy under the Boija administration. Quito,
Ecuador. August 1997 and personal interview with Dr. Rene Ortiz, ex Secretary General of the
Organization of Petroleum Exporting Countries (1978-1982), Quito. Ecuador. 15 July 1997.
31 Elf recently announced it will leave its Ecuador operations. This was ostensibly due to a reduction in the
company's production ceilings by the government from 2.225 barrels per day to 1.100. All other
companies were hit by ceiling changes which they have contested in court: PetroProduccin and City
Investing have seen their production ceilings increased. The problem arose because Ecuador has limited
pipeline capacity (currently 400.000 barrels per day at over-capacity) and the government is apparently-
trying to secure more transportation capacity for itself. The expansion of the pipeline has been planned for


15
this arrangement Ecuador was to receive 10% of net earnings, the building of a railroad,
and 70,000 pounds sterling in stock. In addition, an oil company was to be formed in
England in which Ecuador was to have two directors on the board. The first successful
well was developed in 1911 at Santa Elena.2 The Mining code was once more reformed in
1914 by President Leonidas Plaza, this time to explicitly declare the states ownership of
all fossil fuels. Two British companies at this point began to dominate the landscape, the
largest and most powerful being Anglo Ecuadorian Oil Fields Ltd. formed in 1918. Anglo
began oil production in Santa Elena in 1923. Its dominance was so powerful that
(Anglo)...conducted its operations on a truly colonial scale, paying no taxes at all until it
was forced to adhere to certain fiscal requirements in 1938 at the behest of the
government of General Alberto Enriquez.4 A massive concession was given to another
British producer, The Leonard Exploration Company, for 50 years. This concession
consisted of 25,000 square kilometers in the Orienteor roughly 10% of Ecuadors
current territory. In 1933 the Direccin General de Minas y Petrleos, the forerunner to
the Ministry of Energy, was created. The Direccin de Minas was responsible for
concessions and the elaboration of a regulatory framework for the industry. In 1937, the
Direccin de Minas enacted the Petroleum Law which was written by its director, Enrique
Coloma, who was also CEO of Anglo Ecuadorian. A few other large concessions were
given afterwards, notably to Standard Royal (1948) and Minas y Petrleos (1961).
2 Judith Kimerling, Crudo Amaznico (Quito: Abva Yala. 1993) 19.
3 Admiral Gustavo Jarrin Ampudia. Personal notes.
4 Osvaldo Hurtado. Political Power in Ecuador (Boulder. CO.: Westview Press. 1985) 83.


50
Article 64 is interesting in that allows for popular action for denouncing before the
Subsecretariat of the Environment (now the Ministry of the Environment) any event that
produces contamination in oil activities, which will study and analyze the allegations...32
It is clearly aimed towards NGOs and grassroots organizations. Such organized groups
have the resources and willingness to present claims and the law grants them what is
tantamount to the power of citizen arrest. Since the areas of exploration are not private
property but public lands, this concession allows NGOs and grassroots groups the ability
to monitor and denounce events which may go ignored or otherwise unnoticed by
government regulators or officials. The recent formation and proliferation of citizen
watchdog groups incorporating different elements of civil society for the purpose of
monitoring what Petroecuador and private companies do is testimony of the possibilities
that Article 64 allows. Such groups have been particularly active in the areas of heavy
prior contamination in the northeastern Oriente, where they have been monitoring oil
fields with the assistance of NGOs. It also firmly establishes the polluter pays principle.
Polluter pays principles is viewed by environmentalists as an important deterrent for
contamination since clean up costs can be extraordinarily costly in both economic and
public relations considerations. Although firmly enshrined in American law, the notion of
polluter pays is new to Ecuador and the industry and is a critical accomplishment.
The Committee of Environmental Advisement
Another entity recently created to deal with the issue of sustainable development is
the Comisin Asesora Ambiental de la Presidencia de la Repblica (CAAM or the
32 Executive Decree 2982 pg. 60.


Ill
Sikkink, Kathryn. Reconceptualizing Sovereignty in the Americas: Historical Precursors
and Current Practices. Houston Journal of International Law Spring 1997: 705-
729.
Slaughter, Anne-Marie. The Real New World Order. Foreign Affairs
September/October 1997: 183-197.
Southgate, Douglas. Petroleum Development in Tropical Rainforests: the Economics of
Pollution Control in Eastern Ecuador. Quito, Ecuador: Idea, 1992.
Southgate, Douglas, and Morris Whitaker. Economic Progress and the Environment.
New York: Oxford University Press, 1994.
Switkes, Glenn. The People vs. Texaco. North American Congress on Latin America
1994.
Texaco Eyes Suing Ecuador. The Oil Daily 30 April 1997: 5.
Texaco Meeting Is Hit by Protests. The New York Times 14 May 1997: D2.
Texaco Petroleum Company. An Update on Ecuador. www.texaco.com.
Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y
del Plan de Remediacin Ambiental. Quito, Ecuador: Petroecuador UPA, 1997.
Unidad de Proteccin Ambiental de Petroecuador. Medio Ambiente y Desarrollo. Quito,
Ecuador: Petroecuador, 1996.
Unidad de Proteccin Ambiental de Petroecuador. Trminos Econmicos Ambientales.
Quito, Ecuador: Petroecuador, 1997.
United Nations. Report of the United Nations Conference on Environment and
Development, gopher: //gopher.un. org/OO/conf/unced/English/riodecl. txt.
U.S. District Court for the Southern District of New York. Maria Aguinda et al. and
other Plaintiffs v. Texaco Inc. New York, 1994.
Varea, Anamara, ed. Marea Negra en la Amazonia. Quito, Ecuador: Ediciones Abya
Yala, 1995.
Veiga, Ricardo R., Vice President Texaco Petroleum Company. To the Editor. The New
York Times 6 February 1998: A22.


40
For the expansion of surveillance of the Oriente.
Reduction in the number of access points to oil fields.
Reduction in the size of petroleum installations.
Boundaries for indigenous peoples territories and ecologically sensitive zones.
Reforestation by Petroecuador.
An effort to remove obsolete equipment from all facets of the oil
production process.
It also notes the process of incorporation of environmental protection in Petroecuador,
focusing attention on the states own role as a source of environmental degradation in
Oriente. It highlights the creation of the Environmental Protection Unit (UPAUnidad de
Proteccin Ambiental) within Petroecuador and the UPAs elaboration of the Plan
Integral de Manejo Ambiental de las Actividades Hidrocarburferas (Integrated Plan for
Environmental Management of Hydrocarbon Activities). It establishes guidelines for the
management socio-economic activities (i.e. impact on indigenous groups and colonists),
stability control, recovery of contaminated areas, waste management, monitoring, and
contingency planning.13 These guidelines are to regulate the conduct in environmental
matters not only of Petroecuador but its sub-contractors as well, for which Petroecuador
would share some responsibility for their action when Executive Decree 2982.
Executive Decree 1802 is clearly a public relations response to the highly
publicized Texaco lawsuit and the perception of government incompetence in enforcing
environmental regulations in Ecuador. Its publication in English as well as Spanish
13 Executive Decree No. 1802 pg. 12.


105
handling operations in environmentally sensitive areas urge maximum care, the hiring of
anthropologists and sociologists for social impact plans, and obedience of regulations in
order to avoid costly delays and public relations problems resulting from environmentalist
criticism.
This does not mean that the Ecuadorian state will support the environment or
indigenous groups against oil giants. It does demonstrate, however, that the state is
vulnerable to international pressure, pressure that can be used by domestic actors to
strengthen their positions and achieve results they may otherwise find impossible to attain.
Recommendations for Future Research
There are four issues only briefly covered here that warrant further exploration.
The most urgent is the question of health effects of Oriente contamination. It is rather
surprising that a comprehensive study of the health effects of oil contamination has not
been conducted. Most environmental and indigenous groups speak of massive health
effects on the areas inhabitants, yet it seems unusual that in the six years that Oriente
contamination has received worldwide attention no one has conducted a detailed study on
the subject. Another area of interest is local environmental protection. This is relevant
because of the weak position of the central government and the apparent effectiveness of
local government. Within this issue, the formation of local committees to monitor oil
activities seems particularly relevant. Another issue of interest is the effect of agreements
such as that between the Huaorani and YPF Ecuador Inc.on indigenous group survival.


75
Table 4-1
Major Oil Companies in Ecuador: 1997-1999
PRODUCTION PROJECTIONS 1997-1999
(barrels per day)
PetroProduccion
YPF
Oryx
Qxy
City
Elf
PetroBras
TOTAL
1997
302,500
52,699
25,370
24,690
12,073
9,278
1,852
428,462
1998
319,968
49,976
20,936
29,140
12,990
11,789
4,652
449,451
1999
340,836
89,221
17,398
22,480
14,093
12,487
11,247
535,622
Source: PetroEcuador 1997.
Note: Data includes Elf Aquitane which will no longer operate in Ecuador. Qxy is short for
Occidental Petroleum
YPF (Yacimientos Petroliferos Fiscales) entered the Ecuadorian oil industry in an
expanded role in 1995 through the acquisition of Maxus.
Mobilizations Against Polluters
Several cases have developed in the 1990s in which companies were targeted for
their laxor nonexistentenvironmental policies. These cases reflect the use of legal
mechanisms, NGO and grassroots mobilizations, and use of sympathetic international
audience in order to secure environmentally sound policies. These cases are primarily the
lawsuit against Texaco and the Maxus controversy (now YPF Ecuador Inc.).
The Texaco Lawsuit
The lawsuit filed against Texaco Corporation in Federal District Court in White
Plains, New York, by Ecuadorian indigenous peoples in November of 1993 provides a
several years but constant bickering among interested parties has delayed its construction. See '"Elf pulls
out of Ecuador, The Oil Daily 29 January 1998: 6 and PetroEcuador 1997.


37
Executive Decree 1802
Executive Decree No. 1802, authored by the Presidencia de la Repblica del
Ecuador (the presidency) under President Sixto Duran-Ballen, is an extraordinary
document for several reasons. Most important, however, is the statement which admits
serious damage to Ecuadors Amazon Basin as a result of oil extraction.
Decree 1802 outlines basic policy principles which Ecuador is to follow and which
are to become the basis of other Ecuadorian environmental initiatives such as Decree
2982. These are: Ecuadorian society is to minimize environmental damage and risk
while maintaining socially and economically sustainable development; it is the
responsibility of every citizen and institution to act in a way that is socially just,
economically profitable, and environmentally sustainable; the private and public sector are
called upon to provide policy guidelines and ideas to insure sustained development; all
economic activities are to consider the environment; environmental initiatives are to based
on solidarity, mutual responsibility, cooperation, and coordinationand this also applies to
Ecuadors foreign relations; it is the states responsibility to elaborate incentives and
regulations to promote sustainable development; the state is to promote environmental
awareness and education; Ecuadors government is to maintain an open attitude with other
states and secure cooperation and develop treaties; special attention is to be placed on
prevention and control of environmental damage resulting from contamination and
degradation; a priority will be the maintenance of equipment and services and efficiency
needs more attention; environmental impact studies and environmental mitigation
programs are required; multinationals are to maintain the highest environmental


CHAPTER 5
SUMMARY AND CONCLUSIONS
Summary
This thesis sought to explain the changes that have occurred in Ecuadorian oil
policy concerning the environment and what factors have shaped those changes. Clearly,
the new policies are favorable towards the concept of sustainable development. It is the
argument of this thesis that these changes would not have occurred were it not for the
changing normative international context thanks to the emergence of trans-national
organizations such as environmental nongovernmental organizations. Policy makers have
enacted change only reluctantly, as the priority is to raise revenue.1 Energy corporations
are increasingly sensitive to any criticism of their operations which could lead to a
negative image in the minds of those who consume their products. Boycotts, bad press, or
protests aimed at a corporation could have a potentially negative effect on sales.
Awareness raising campaigns of environmental transgressions by environmentalists or their
efforts to contact corporate shareholders can embarrass top management. The ultimate
negative scenario for a large corporation is the possibility of multi-million dollar lawsuits
that can affect profitability and lead to lasting damage to a companys reputation. Not
even state owned companies are spared from this process. In the Ecuadorian case, there is
1 Ecuador's friend of the court brief in favor of Texaco demonstrates that the overriding priority has been
revenue raising, not environmental protection.
96


73
The state, nevertheless, has changed policies only in the 1990s as a result of the emerging
consensus around sustainable development and has done so only reluctantly.
The main domestic environmental groups are Fundacin Natura and Accin
Ecolgica. Fundacin Natura, affiliated with the World Wildlife Fund, is the largest with
1200 members and most influential with enough financial resources to carry on national
advertising campaigns aimed at promoting environmental awareness. Fundacin Naturas
position concerning oil exploration and production is that it has to be done with as little
environmental damage as possible. If oil exploration and production in ecologically
sensitive areas is necessary, Fundacin Natura determines what are the potential
economic gains compared with the losses. If the losses are excessive, then it will not
support a project.28 It also promotes local monitoring of oil activities and because of its
moderate position, participates with government in environmental policy making.
Accin Ecolgica, a more radical and smaller group, is affiliated with Greenpeace
International and the Rainforest Action Network. It seeks to protect the Oriente through
activism such as picketing, public protest rallies, organizing letter-writing campaigns, and
through publishing research on the Oriente region and the impact of oil production. A
movement affiliated with Accin Ecolgica is Amazonia por la Vida which attempts to
educate the public on the events of the Oriente and oil. Both groups are based in Quito,
with Fundacin Natura having an apparently well financed operation in the city and
Accin Ecolgica running a far more modest operation in the Quito offices of the
Facultad Latinoamericana de Comunicacin Social (FLACSO). Some indigenous groups
28 Personal interview with Lucia Burgos, Fundacin Natura Coordinator for the Provincial Commission
for the Monitoring of Oil Activities in Napo Province. Quito. Ecuador. 11 July 1997.


60
making procedures which constrain the behavior of states in specific issues areas and that
possess a minimum of effectiveness.1 The regime forces change by: condemning reckless
disregard for the environment; providing a framework via agreements through which
countries can incorporate sustainable development into their own regulatory codes; urging
member states to incorporate the concept of sustainable development into policy; fostering
the development of mechanisms which allow for affected or concerned citizens to engage
offenders; by using multilateral institutions to further its principles; and granting legitimacy
and a strong participatory role to private groups that seek to protect the environment.
The Ecuadorian case is particularly well suited to a regime theory framework for
several reasons. First, the complexity of actors and forces involved requires a framework
that can incorporate many different elements and place them within a system in which one
can see the relationships. Second, Ecuador presents a situation in which there are linkages
between domestic and international actors in issues that are both international and
domestic in nature. Because of the peculiar nature of both the petroleum industry and the
Oriente, the issues involved are ones that have international ramifications and
repercussions. These lead to the presence of international forces that become influences on
Ecuador. These influences can take the formfor exampleof multinational energy
corporations or international environmental groups. Regime theory is useful since it seeks
to explain precisely such kinds of linkages among both non-state and state actors and how
they impact state behavior. Regime theory also helps explains how relatively small groups
through their links, such as environmentalists in Ecuador and other social movements, are
1 Martin List and Volker Rittberger. Regime Theory and International Environmental Management, in
The International Politics of the Environment, eds. Hurrell and Kingsburv (New York: Oxford University
Press. 1992) 86-89.


4 FACTORS LEADING TO POLICY CHANGES AND
EFFORTS AGAINST OIL CONTAMINATION 59
Analytical Framework 59
The Hemispheric Sustainable Development Regime 61
Multilateral Lending Institutions 65
Transnational Organizations 67
Legal Action and International Agreements 70
Actors 71
Mobilizations Against Polluters 75
The Texaco Lawsuit 75
The Maxus Controversy 84
Conclusions 94
5 SUMMARY AND CONCLUSIONS 96
Summary 96
The Future of the Environment and Oil in Ecuador 102
Conclusions 104
Recommendations for Future Research 105
BIBLIOGRAPHY 107
BIOGRAPHICAL SKETCH 113
IV


99
The Maxus case is critical since it is one company, Ecuadors largest private oil producer,
that changed policies to accommodate environmental concerns after a long and bitter
campaign against it.
However, it would be a mistake to misinterpret regulatory changes as evidence of
state support of environmental protection. The regulatory changes are the result of a bitter
process in which indigenous groups and environmentalists placed tremendous effort.
Indigenous groups since the late 1980s have complained that the state and oil
companies violated their human rights. Violence against indigenous groups by the state
and oil companies has been alleged, although not substantiated. Destruction of indigenous
peoples environments have been documented. The health effects of pollution in the areas
under exploitation have been detailed. Decision-making processes in the Oriente that
exclude inhabitants of the area have been observed. This led some to press claims against
the state for its failure to protect the human rights of the Oriente's population.
The first to do so were the Huaorani in 1990. This was done through the Sierra
Club Legal Defense Fund by presenting a petition to the Organization of American States
Inter-American Commission on Human Rights (IACHR). The Sierra Clubs goal was to
attract attention to the issue of human rights abuses in the Oriente and to use the
mechanisms of the OAS to correct the situation (violence against the Huaorani often
came from settlers, with whom there have been violent encounters). The petition was
bolstered by the 1993 visit of Huaorani leader Moi to Washington where he rendered
testimony before the OAS IACHR. The visit had occurred in spite of opposition from
United States embassy personnel who frequently supported the oil companies. Moi was


69
argue a result ofthe communications revolution sweeping the world.17 The resulting
reduction in the cost of communication has led to an explosion in the ability of
transnational organizations such as NGOs to disseminate information virtually
instantaneously with little possibility for government interference of this flow. Where
governments once set the agenda, NGOs are now dominant in some issue areas. Mathews
presents as an example of changes in sovereignty the global climate treaty in which NGOs
conceptualized the treaty, devised its content, and set the agenda. Governments were
presented this treaty and signed it after much wrangling, in spite of the significant
implications for domestic policies.18 As Sikkink notes, internal sovereignty has never been
absolute, and the current push for regional integrationfor examplefurther exposes the
state to outside interference on how it treats its citizens, or in this case, the environment.19
This presents a scenario in which transnational groups such as NGOs will continue
to influence policy. In Ecuador, faith in the states management capacity has decreased
while a recovery of local government within major urban areas (Guayaquil, Quito,
Milagro, Cuenca, Machala) is underway. This increases the scope of operation for NGOs
to continue to influence policy. The formation of provincial committees to monitor oil
production activities in the Oriente, a result of efforts by local government, NGOs
(particularly Fundacin Natura), and grass roots organizations, is a reflection of the
increasing strength of local versus central government in Ecuador. It also justifies the
17 Jessica Mathews. "Are Networks Better than Nations?." Xew Perspectives Quarterly Spring 1997: 11.
18 Jessica Mathews. "Are Networks Better than Nations?. .Yew Perspectives Quarterly Spring 1997: 10-
14.
19 Kathryn Sikkink. "Reconceptualizing Sovereignty in the Americas: Historical Precursors and Current
Practices. Houston Journal of International Law Spring 1997: 705-707.


36
the states role.5 The second was Duran Ballens Executive Decree 2982 of 1995. Decree
2982 is the current and first environmental code specifically aimed at the oil industry.
These decrees are tantamount to the Ecuadorian states acceptance of the changing
normative international context concerning the environment and they are reflective of
current thinking about how sustainable oil exploration and extraction should be
conducted. Decree 2982 is regarded as very advanced, addressing many of the problematic
issues oil exploration has raised and marking a clear departure from past practice in the
Oriente,6 As Southgate notes, writing in 1992, neither the state company nor the national
government has developed a detailed set of environmental guidelines for petroleum
exploration and extraction. ...Under these circumstances, foreign companies find it difficult
to convince skeptics that their Ecuadorian operations will indeed be conducted in an
environmentally sound manner.7 The new legislation marks dramatic changes in the
books. Although changes in legal codes without adequate enforcement may fall into
formalism, they are nonetheless valuable in that they grant legitimacy to those who in the
past have voiced their opposition to environmentally unsound oil exploration and
extraction and give juridical instruments through which violators may be conceivably
punished. Furthermore, there is evidence to suggest that corporate behavior is indeed
changing, an issue which will be pursued in Chapter 4.
5 All references to Executive Decrees (Decreto Ejecutivo) are listed in the bibliography with Presidencia
de la Repblica del Ecuador as the author.
6 Personal interview with Dr. Rene Ortiz, ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982), Quito, Ecuador. 15 July 1997 and personal interview with Lucia
Burgos, Fundacin Natura Coordinator for the Provincial Commission for the Monitoring of Oil Activities
in Napo Province. Quito. Ecuador. 11 July 1997.
Douglas Southgate. Petroleum Development in Tropical Rainforests: the Economics of Pollution
Control in Eastern Ecuador (Quito: Instituto de Estrategias Agropecuarias. 1992) 9.


39
environmental codes of the past were completely disregarded.11 Finally, it admits that the
state shares part of the responsibility for the problem because it failed in the supervision
and enforcement of environmental codes in place at the time.
The decree then goes into more detail and mentions ways how the Oriente
suffered large-scale damage. These broadly fall into two categories, technology and
infrastructure. Technological problems due to obsolete equipment used by oil companies
are pointed to as a major source of environmental damage. Antiquated machinery used
for drilling by Texaco has indeed been noted as a suspect by opponents of the oil industry.
Older helicopters with shorter ranges have been a problem as well since these require the
creation of heliports (land clearing) scattered throughout the Oriente. The infrastructure
problems noted in the document includes roads. The building of roads, according to the
decree, causes problems because the road itself requires the clearing of large tracts of land.
Also, roads facilitate the flow of colonists into the Orientewhich are widely regarded as
the prime cause of deforestationwho end up clearing land for crops. These factors had
been long noticed by environmental activists, but they finally have received recognition
from the state.12
The decree also attempts to offer some solutions of its own to the problem. It
notes efforts to maintain spills under control through the purchase of new equipment and
advanced maintenance of pipelines and other machinery. It provides:
11 The only industry environmental code was the paragraph in the Texaco contracts which stated that the
environment w ould be respected.
12 Executive Decree No. 1802 pg. 4.


16
Table 2-1
Ecuador: Major Oil Concessions 1878-1972
Year
Company
Size
Location
1878
M.G. Mier y Cia.
na
Santa Elena
1910
Mr. Carlton Dunne
na
Santa Elena
1921
The Leonard Exploration
25000 Sq. km.
Oriente
1923
Anglo Ecuadorian Oil Fields
na
Santa Elena
1948
Standard Royal (Esso-Shell)
4000000 hectares
Oriente
1961
Minas y Petrleos
4350000 hectares
Oriente
1964
Texaco Gulf
1431450 hectares
Oriente
1972
CEPE
na
Nationwide
In order to circumvent legal restrictions that limited the amount of land that the
state could award in concession to a corporation, some companies proceeded to
practically sell their concession to other interested parties. The goal of the Petroleum Law
of 1937 was to limit one company from being overly dominant and it sought to do this by
having the state limit the size of the concession awarded to any individual company.
However, some companies realized that they were not precluded from ceding their
rights to another party in exchange for moneyin effect rendering useless the size
limitations of concessions. For example Minas y Petrleos ceded to the Texaco-Gulf
consortium the rights on part of its concession for millions of dollars while simultaneously
paying the state 4 cents of Sucre per hectare annually. Another, more dramatic incident
involved the granting of 4 million hectares to seven foreign oil companies. This was done
by the granting of concessions to six Ecuadorian nationals who then ceded their rights
to the foreign firms. Of the six, one was dead by the date the concession was awarded.5
5 Admiral Gustavo Jarrin Ampudia. Personal notes.


76
concrete example of how the regimes de facto enforcement mechanism operates. It is
illustrative of how the different forces that have shaped Ecuadorian oil policy in recent
years converge, interact, and influence different actors in different arenas. It has become a
public relations nightmare for Texaco and its persistence plagues the company to this day.
Key events in the Texaco Lawsuit are the following:
The original suit was filed in November, 1993.
Was decided on December 17, 1994, in favor of Texaco, but evidence gathering was
allowed until final dismissal in 1996; reinstatement was an option if Ecuadors
government chose to support it.
It was a class-action lawsuit seeking $1.5 billion in damages.
Ecuadors government initially (1994) opposed the suit.
Former U S. Attorney General Griffin B. Bell defended Texaco.
Rulings have been unfavorable to the plaintiffs, with the courts stating that the case
should be tried in Ecuador.
The Ecuadorian government decided to support the suit in 1997.
The lawsuit was filed in White Plains because the plaintiffs alleged that the events
that transpired in Ecuador were contrived from Texacos corporate headquarters there.
Thirty Oriente Indians presented themselves in court to present the suit which was
registered as Maria Aguinda et al v. Texaco. Texaco was sued for pollution of land and
rivers in the Amazon Basin and charged that its primitive waste disposal systems had
created conditions that could lead to a public health crisis.'2 It sought over $1.5 billion in
32 "Ecuadorean Indians sue Texaco for Damage to Rivers. Land in Amazon Basin" BXA International
Environment Daily 5 November 1993: 2.


90
associated in Ecuador with the Maxus name. This however, was denied by YPF Ecuadors
public relations coordinator, Lucia Rivas, noting that YPF Ecuador has addressed public
concerns about its operations.60
Several innovations were adopted by Maxus (YPF Ecuador Inc.). One was the
construction of roads using Geotextil. Geotextil is a highly resistant material designed to
contain asphalt. This minimizes the amount of spreading of asphalt and permits the
clearing of a minimum amount of land when compared to non-Geotextil roads, requiring
only 8 meters of road (2 meters to the sides). Moreover, the use of Geotextil eliminates
the need for hardwoods as a base for the roads. The use of these woods, obtained by
cutting down trees in the rainforest, leads to enormous loss of vegetation, as much as 30
meters to either side of a road. The longer the road, the greater the amount of
deforestation. Geotextil essentially replaces the wood in road construction. This is an
expensive process; however, environmental groups applaud the use of Geotextil. Another
innovation is the underground installation of oilducts. They are inserted into channels that
are filled with compact granular filling. This translates into less exposure for the ducts to
the elements, earthquakes and minimizes the impact of leakage, reducing the risk of
contamination for the rivers of the area. The underground placement of oilducts reduces
the deforested area from an average 60 meter tract of forest to approximately 10 meters,
representing an enormous saving of vegetation. Furthermore, Maxus placed the ducts
underground immediately to the side of the road, reducing costs for the company and the
60 Personal interview with Lucia Rivas. Public Relations Coordinator. YPF Ecuador Inc.. Quito. Ecuador,
21 July 1997.


21
connecting the fields in Oriente with the port and refinery of Esmeraldas. Ecuador became
a major oil exporter and joined OPEC in 1972.
A major controversy emerged with the passage of the 1972 law. When the original
law was published in the Registro Oficial in 1971, there were several typographical errors
which warranted the temporary removal of the law from the books in order to correct the
mistakes.17 When the law was placed back into the Registro, it was missing article 86.
Article 86 stipulated that all the proceeds (in U.S. dollars) from petroleum sales had to be
placed in a Central Bank (Banco Central) account. With this article omitted, such
requirement was terminated. This omission was later reversed, with one adviser resigning
his position.18
During the rest of the 1970s, the state increased its power vis--vis foreign
multinationals by strengthening CEPE. This period has been characterized as one of
independence and sovereignty for Ecuadors oil industry by one ex-Minister of Energy,
Admiral Gustavo Jarrin Ampudia, key figure between 1972 and 1974 when he negotiated
the contracts with the oil companies and established a clear petroleum policy for
Ecuador.19 The strengthening of the states role as a player in Ecuadors oil industry was
done by forcing Gulf Oil to withdraw from the Texaco-Gulf consortium and by the
repositioning of the Ecuadorian state as a majority stakeholder in Texacos operations in
17 The Registro Oficial is Ecuador's national registry of laws approved by the executive. A bill approved
by the president could not become law unless said bill w as published in the Registro and remained there.
18 Parte Primera:1961-1973. La Gestacin de una Poltica Petrolera 19 October 1978: 355.
19 Admiral Gustavo Jarrn Ampudia. Personal notes.


Abstract of Thesis Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Master of Arts
ECUADORIAN OIL POLICY IN THE ERA OF SUSTAINABLE DEVELOPMENT
By
Marcos G. Avellan Jr.
May 1998
Chairman: Dr. Terry L. McCoy
Major Department: Latin American Studies
Oil contamination of Ecuadors Amazon Basin by corporations public and private
has been pervasive. Companies such as Texaco and Maxus have been accused of
contaminating water, deforestation, pollution and hurting indigenous groups.
Contamination reached such level of severity that in 1993, Ecuadorian citizens presented a
lawsuit in White Plains, New York, against Texaco. They accused Texaco of harming
their health as a result of the companys contamination. In the aftermath of the Texaco suit
and due to international and domestic pressure, the Ecuadorian state has enacted
legislation to protect the environment from oil production. This legislation appeared in
1994 and has been fortified by subsequent and improved regulatory codes. These
regulatory codes mark a clear departure from the past, especially since there were no
regulations concerning the environment specifically dealing with the oil industry.
vi


86
specific action that he would pursue. However, they were less fortunate in meeting with
Maxus executives. After appearing at their offices, they not only refused to receive the
indigenous representatives but also called the police and had them removed. In order to
establish negotiations, Maxus demanded that the indigenous representatives had to dialog
through its public relations specialist, Rosana Fayeta, who was accused of continuously
attempting to undermine the unity of the indigenous groups. The dispute began to receive
worldwide attention, with journalist Joe Kane, formerly of the Rainforest Action Network,
publishing two extensive and damning articles in the New Yorker magazine. In them, he
depicted a two-faced Ecuadorian administration (that of president Duran-Ballen) that,
while professing support for the indigenous cause, conspired against them.30
Negotiations between the company and the Huaorani dragged on as they accused
Maxus of using gifts to divide the loyalties of the Huaorani. Accin Ecolgica released a
statement in which they alleged that Maxus engaged in the destruction of Huaorani
culture, bio-prospecting (granting educational, hence pharmaceutical institutions access to
local biological organisms), deforestation of 29,355 hectares of primary rainforest, leaving
toxic debris on roads, and releasing toxic fluidsamong other allegations.51 On 19 April
1995, the Huaorani peacefully occupied Maxus installations, accusing the company of
failing to meet the terms of the agreement signed with the government and lied about
certain environmental impacts. Besides the allegations made public by Accin Ecolgica,
they were also upset at the fact that the agreement did mention, cultural, and economic
50 See Joe Kane. With Spears from All Sides. The New Yorker 27 September 1993: 54-79 and Joe Kane.
Moi Goes to Washington. The New Yorker 2 May 1994: 74-81.
51 Amazonia por la Vida, Maxus and the Ecuadorian Amazon. Accin Ecolgica Bulletin 21 April
1995:1.


72
out, regardless of any environmental protection plans that companies undertake, negative
environmental impacts are unavoidable.2 This was also noted by one ex-minister of
energy.24 The result is a difficult choice for the state, one of self-imposed regulation for its
revenue generating petroleum industry.25 Oscar Garzn noted that Maxus (now YPF
Ecuador Inc.) has significantly seen its production costs increase as it has moved towards
stronger environmental protection. This means less revenue for the state. Petroecuador
itself is moving towards higher environmental standards with support from its
Environmental Protection Unit (Unidad de Proteccin Ambiental), although it remains a
significant polluter according to ex-OPEC Secretary General Rene Ortiz.26 Of interest is
the future course that Petroecuador will take concerning environmental protection. Its
Environmental Protection Unit has certainly taken a strong stand on the Texaco issue.27
Personal interview with Dr. Rene Ortiz, ex Secretan' General of the Organization of Petroleum
Exporting Countries (1978-1982). Quito. Ecuador. 15 July 1997.
23 Miss Lucia Burgos of Fundacin Natura, one of the NGO's experts on the oil issue, agreed to speak
independently of Fundacin Natura. Her views are hers only and do not necessarily represent those of
Fundacin Natura.
Personal inteniew with Lucia Burgos, Fundacin Natura Coordinator for the Provincial Commission for
the Monitoring of Oil Activities in Napo Province. Quito. Ecuador. 11 July 1997.
24 Personal inten iew with Oscar Garzn, ex Minister of Energy under the Borja administration. Quito.
Ecuador. August 1997.
25 Environmentally sound industry practices does increase significantly the cost of production. This is
according to Douglas Southgates research and Oscar Garzn. ex-Minister of Energy during the Boija
administration. See personal interview with Oscar Garzn ETC. and Douglas Southgate. Petroleum
Development in Tropical Rainforests: the Economics of Pollution Control in Eastern Ecuador (Quito:
Instituto de Estrategias Agropecuarias. 1992) 14-17.
26 See ECO Polmica Revista de la Unidad de Proteccin Ambiental de Petroecuador August 1997 and
personal interview with Dr. Rene Ortiz, ex Secretan- General of the Organization of Petroleum Exporting
Countries (1978-1982). Quito. Ecuador. 15 July 1997.
27 See ECO Polmica Revista de la Unidad de Proteccin Ambiental de Petroecuador August 1997 and
Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambiental (Quito: Petroecuador UPA. 1997).


29
disbursed into waterways at very high temperatures, usually between 90 and 168 degrees
Farenheit. The toxicity of the water from geologic formation is mainly due to its high level
of salinity, between 70,000 and 110,000 parts per million (p.p.m.) although in can be as
high as 200,000 p.p.m.41 Saltwater normally contains 35,000 p.p.m. and non-contaminated
freshwater rivers in the Oriente does not surpass 6 or 7 p.p.m.42 Subterranean aquifers
have been affected through the leakage of fluids used and resulting from perforation
because of improper handling techniques and the lack of lined pools for waste material.43
Water used in the production process has been found to contain sulfates, bicarbonates,
hydrogen sulfides, carbon dioxide, cyanide, and heavy metals such as arsenic, cadmium,
chrome, lead, mercury, vanadium, and zinc.44 The result has been the contamination of
fish and death resulting from oxygen deprivation in petroleum laced waters.45
Petroleum itself is another contaminant found in large concentrations in Oriente
waterways. Although it is believed to inflict harm in aquatic organisms in concentrations
as low as 100 parts per billion (ppb), it has been found in concentrations as high as 5,000
parts per million (ppm) with an average of roughly 1,000 ppm according to Fernando
Reyes of the Direccin Nacional del Medio Ambiente (National Directorate of the
Environment), the predecessor of the Ministerio de Medio Ambiente (Ministry of the
41 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993)44.
42 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 74.
43 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambienntal (Quito: Petroecuador UPA. 1997) 5.
44 Unidad de Proteccin Ambiental de Petroecuador. Anlisis de la Operacin de Texaco y del Plan de
Remediacin Ambienntal (Quito: Petroecuador UPA 1997) 2.
45 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 54.


101
compromised by oil development. In its 1997 report, the IACHR strongly urged the
Ecuadorian government to allow citizen participation in the decision-making processes
and to adopt a regulatory framework that would protect the human rights of the
population of the areas affected.'1
The Ecuadorian state also failed to support those struggling against Maxus. It
chose the role of intermediary between the company and the indigenous groups. The
Ministry of Energy, through its minister, facilitated the negotiation process. However,
publicly the government of Ecuador did nothing to support the cause of the citizens it
claims to represent.
The ultimate result is typical. For example, the Huaorani received a deal with YPF
Ecuador Inc. (formerly Maxus) which can be described as the least of all evils. There
does appear to be some Huaorani discontent in their relationship with YPF Ecuador Inc.,
although the company has complied with the requirements of their agreement. Maxus has
complied with the environmental stipulations of its contracts and Ecuadorian regulatory
codes. However, it appears that Ecuadors search for modernity will continue to
disregard the needs of indigenous groups. Once environmental concerns are addressed, the
issue of indigenous rights in the Oriente fades away. The only way to stop this process is
by strengthening their political clout, which is apparently occurring.
3 Inter-American Commission on Human Rights. Report on the Situation of Human Rights in Ecuador
(Washington. DC: General Secretariat Organization of American States. 1997) 94-95.


65
Multilateral Lending Institutions
Because of charges of environmental damage inflicted in the past, international
multilateral development organizations such as United States Agency for International
Development, the Inter-American Development Bank and the World Bank now require
environmental assessments of projects that seek funds. The World Bank, for example,
while observing that environmental protection and management are relatively new issues in
Latin American mining, notes that environmental awareness is sweeping the world and
the mining industry is under particular pressure to adopt sound policies.6 Moreover, The
World Banks definition of an environmentally sound mining industry is broad, consisting
of one which exploits mineral resources with maximum economic efficiency without
harming human health, damaging local communities or biological diversity while
maintaining ecological stability.7 The World Bank also recommends key steps and
policies for environmentally sound mining which are addressed by Ecuadors Executive
Decrees 1802 and 2982, as well in Ecuadors Environmental Management Planthe latter
having received support from both the Agency for International Development and the
Inter-American Development Bank for its development.8
The World Banks lending portfolio for Latin American environmental projects has
increased from $2.91 billion or 3.1% of bank lending for the 1980-1986 period, to $8.84
6 Industry and Energy Department of The World Bank. A Mining Strategy for Latin America and the
Caribbean (Washington. D.C.: The World Bank. 1996) 63.
' Industry and Energy Department of The World Bank. A Mining Strategy for Latin America and the
Caribbean (Washington. D.C.: The World Bank. 1996) 65.
8 See the different documents published by the CAAM.


81
future oil concessions notes that we believe that we cannot fall into the mistakes of the
past, we think that the lessons lived with Petroecuador, as well as Texaco, and other
companies both domestic and foreign, should open our eyes and the government will need
to make serious decisions to avoid that the damages... will be repeated in other parts of the
country.40 Others are even more direct, with Dr. Rene Ortiz calling Texacos
contamination malpractice and Oscar Garzn noting that there was either bad practice,
intention, or faith (mala fe) in the way Texaco conducted itself environmentally.41
Overall, there is widespread acceptance that Texacos environmental controls were faulty,
but that the state is partly to blame as well because of its majority stake in Texacos
Ecuadorian operations.
The suit was also important in that it shed some light on how United States courts
view international environmental agreements. Under the Alien Torts Victims Act, a breach
of international treaty needed to be shown in order to proceed against Texaco. However,
the treaties on sustainable development are agreements and at best constitute anon
treatyinternational consensus. Nevertheless, such agreements are now treated by United
States courts as the sober second thought of the (international) community that all law
ultimately rests on.42 Greater strength is added to such agreements in United States courts
when they concur with domestic law and its objectives.43
4IJ Quoted in El Universo, "Contaminacin en el Oriente. El Universo 2 March 1994: El Pas 1.
41 Personal interview with Dr. Rene Ortiz, ex Secretary General of the Organization of Petroleum
Exporting Countries (1978-1982). Quito. Ecuador. 15 July 1997 and personal interview with Oscar
Garzn, Minister of Energy under the Boija administration. Quito. Ecuador. August 1997.
42 Aguindav. Texaco 17.
43
Aguinda v. Texaco 17.


30
Environment).46 Such concentrations should come as no surprise considering that over
16.8 million gallons of crude oil have been accidentally spilled mainly in the Amazon Basin
in 30 large mishaps, most of them the result of ruptures during the transportation phase.47
Land--or soilcontamination is mainly a result of contaminated waters being
employed in agricultural processes or oil spills reaching agricultural lands. This has
destroyed crops or reduced their quantity and quality causing significant deprivation and
malnutrition in affected areas. A large oil spill in 1989 of over 294,000 gallons in the Napo
River reportedly caused serious effects on soils in the Comuna de San Carlos, including
the death of crops two weeks after the event. The result was the destruction of crops
belonging to 560 families in 31 communities.48
Air pollution is largely a result of the burning of natural gas at the top of wells.
Gas, found in or around oil deposits, is unleashed when the well enters production.
According to HBT-AGRA, 248.8 million cubic feet of gases were burned although this
resource could have been exploited. The impact of this on the environment has been great,
causing alterations of local climactic patterns, air contamination, affecting flying insects,
46 Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 29. 44, 74.
47 For a comparison, the Exxon Valdez disaster spilled 10.8 million gallons of crude oil into Prince
William Sound. It should be noted that there is some controversy surrounding these figures. Douglas
Southgate believes that the figures (16.8 million gallons of oil or 400.000 barrels) may be a little high
since no more than 50.000 barrels were spilled when 25 KM of the pipeline were destroyed in the 1987
earthquake. Nevertheless, the 400.000 figure is widely used today not only by environmentalists but by
the state oil company, government officials, and private individuals in the business.
See Douglas Southgate. Petroleum Development in Tropical Rainforests: the Economics of Pollution
Control in Eastern Ecuador (Quito: Instituto de Estrategias Agropecuarias. 1992) 4-5 and Judith
Kimerling, Crudo Amaznico (Quito: Abya Yala. 1993) 1. 50.
48 For a detailed account of the health effects of the Napo River spill on local communities see Doris
Herrera. Petrleo. Deterioro Ambiental y Salud." in La Cuenca Amaznica de Cara al Nuevo Siglo, ed.
Doris Herrera (Quito: FLACSO Sede Ecuador. 1997) 313-356. Kimerling discusses the impact on the are
in lesser detail. Judith Kimerling. Crudo Amaznico (Quito: Abya Yala. 1993) 52.


78
Texaco customers were urged to return their credit cards with a letter stating that (1)
refuse to purchase your products until Texaco cleans up their mess in the Ecuadorian
Amazon...Where clean up is not possible, the company should provide full
indemnification to the individuals and communities affected...and to install injection wells
and pollution controls to avoid further environmental disasters in the future.35
The boycott attracted initial public attention to the events that had occurred in
Ecuador. The lawsuit added a much more potent element because it pitted the poor
Oriente Indians against one of the largest and most powerful corporations in the world.
The plaintiffs chose to sue in the United States for several stated reasons. First was
because they felt they would not receive a fair hearing in Ecuador because of Texacos
influence there, the slowness of Ecuadors legal system, and endemic corruption.
Moreover, Ecuadors judiciary has little experience with this kind of issue which could
work in Texacos favor. However, it should be noted that the difficulties with Ecuadors
judicial system could work both ways. The presence of corruptible judges does not
necessarily mean that they would actually be corruptedespecially in light of the Foreign
Powers Corruption Act. Later litigation in Ecuador on a variety of issues shows that the
judiciary, for all its failures, cannot avoid sanctioning patent violations of the law and is
capable of going against powerful interests. Moreover, Texaco opponents are not
necessarily all NGOs and activists. As shown by the position taken by the Petroecuadors
www.nativeweb.org and Glenn Switkes, "The People vs. Texaco North American Congress on Latin
America (1994).
35 Rainforest Action Network. "Ecuadorian Indigenous People. Environmental Activists call for
International Boycott of Texaco." Urgent Appeal 5 August 1993 posted to Native Web
www.nativeweb.org.


25
accompanied by one or two pools for toxic waste disposal). Approximately 632 toxic
waste pools were constructed/3
Steps in Producing Oil
In order to understand the way in which oil contamination is produced and its
characteristics, a basic understanding of how oil is sought and extracted is necessary.
There are several steps in the oil production process. The first step is exploration in which
oil deposits are discovered. An oil company may either search for oil itself or employ the
services of a contractor for this phase. There are several methods for searching for oil
deposits, but for our purposes the most pertinent method is the seismic exploration
method through the use of explosives.34 This is done by laying wires through the rainforest
connected to explosive charges that are placed in small holes. When the charges are
detonated, this sends shock waves through the ground which travel at different speeds
according to the terrain they encounter. Hence, they move faster through liquid than
through rock and this is presented in visual format through the use of seismic instruments.
The presence of waves moving at high rates of speed and the visual image they form are a
clear indication of possible deposits. During this stage, a variety of environmental
problems may arise: the clearing of paths of rainforests to lay the wire; use of powerful
explosives which kill or scare wildlife; clearing large tracts of rainforests in order to
establish camps and heliports; the clearance of huge tracts of lands to build roads to reach
33 Ivn Narv ez. El Ecuador de Texaco." ECO Polmica Revista de la Unidad de Proteccin Ambiental
de Petroecnador August 1997: 14-16.
34 Oil exploration methods van- according to the terrain. Underwater terrains involve the use of acoustic
techniques, whereas in the desert one finds ground level explosions the method of choice.


44
seem to be considered substantial polluters. Hence, NGOs consider a slowdown in road
construction positive because of the resulting reduction in new colonists.
Article 17 explicitly prohibits road construction in the area during the exploratory
phaseunless absolutely necessary. If an exception is sought, it must be approved by the
Ministry of the Environment and INEFAN after considering technical and economic
justifications for approval.18 In any case, access roads must not exceed 5 ms. in width and
exploratory drilling camps may not exceed 1.5 hectares. Anything larger has to be
approved by the Ministry of the Environment and previously stipulated in the companys
environmental impact study. If exploratory drilling is unsuccessful and the well is dry, then
the site has to be restored and access roads have to be lifted. Organic waste has to be
processed in environmentally sound ways according to an environmental management
plan. Inorganic waste has to recycled or buried. If buried, it has to be done in impermeable
19
pits.
Decree 2982 sets clear guidelines for the manner in which production waste has to
be dealt with. Exploratory wells are required to have sewage systems to capture any water
or leaks from the site. All wastewater has to be treated prior to discharge. Guidelines are
set in the legislation as to what maximum level of contaminants will be allowed before
discharge into the environment. Wastewater is then injected into impermeable bedrock so
as to reduce the threat of surface contamination. Government approval of an injection site
depends on the location into which waste is pumped. This is because groundwater may be
contaminated if wastewater is injected into the wrong kind of bedrock. To be avoided :
18 Executive Decree 2982 pg. 9.
19 Executive Decree 2982 pg. 11.


100
denied a visa, but this decision was reversed. Denying a visa to an Ecuadorian citizen
involved in a human rights investigation was a potential public relations disaster.2
The Ecuadorian government reacted with hostility to the petition, particularly by
the Huaorani assertion that they were not citizens of Ecuador. The Ecuadorian
ambassador to the United States at the time, Edgar Tern, met with Moi. Moi reiterated
the Huaorani request for an oil moratorium in the Oriente if the IACHR found any
anomalies, which was to last until such anomalies were solved. Tern admonished Moi
that such a moratorium would not occur. However, Tern was aware of the damage that
the case could cause to Ecuadors international image. He knew that the IACHR could
not proceed without the Ecuadorian governments blessing and a formal invitation to the
country. So he made Moi aware that he would consider Mois request and the possibility
of a IACHR visit to Ecuador. Moi met with the OAS IACHR late in 1993 and the
Ecuadorian government agreed to a visit to Ecuadorverbally. A few weeks after Moi
returned to Ecuador, the government changed its mind and sent a letter to the IACHR
informing it of a misunderstanding and that the IACHR was not invited after all.
Meanwhile, Moi received death threats and was fearful for his lifealthough he remains
unharmed to date. The IACHR was ultimately allowed to visit Ecuador and found strong
evidence suggesting that there were human rights violations in Ecuador, especially to the
right to live in a pollution-free environment. It found lack of participation of citizens in
afflicted areas in decisions that had great impact on their lives, and that their health was
2 For a detailed account of the IACHR investigation see Joe Kane. "With Spears from All Sides. The New
Yorker 27 September 1993: 54-79: Joe Kane. Moi Goes to Washington, The New Yorker 2 May 1994:
74-81; and Inter-American Commission on Human Rights. Report on the Situation of Human Rights in
Ecuador (Washington. DC: General Secretariat Organization of American States. 1997).


80
Texaco was a minority owner with Petroecuador, the state oil company,
in an exploration and production consortium...Texaco was in full compliance
with environmental laws and regulation, and the state oil company and the
Government approved all investments and operations. After concluding
operations in 1990, Texaco undertook a remediation program with the
approval of Petroecuador and the Government.37
And the company views its presence in Ecuador as environmentally sound in an official
statement on the issue: ...Contrary to the impression conveyed, Texaco Petroleum
Company (Texpet) conducted its business with the utmost care and concern for the
Ecuadorian rainforest and the people who live there...38 In the same statement, Texaco
Petroleum Company president Janet Stoner adds that As a company, we can look at our
record in Ecuador with great pride...We conducted a successful business operation, while
also protecting a fragile environment and providing major benefits to the people.39
However, there is widespread acceptance in Ecuador that Texaco has polluted its
areas of operations in the Oriente extensively. In addition to the previously discussed HBT
Agra audit, the analysis by Petroecuadors Environmental Protection Unit, and
Kimerlings study, there was extensive media coverage in Ecuador showing damage on
television, newspaper stories, and individuals familiar with the industry. Although qualified
as an allegation, coverage notes that contamination exists and was caused by private
multinational energy companies, referring to time periods when Texaco was the only
company operating on a large scale. Environmentalists speak freely in the media. For
example, Fundacin Natura \s former executive director, Dr. Roberto Troya in discussing
37 Ricardo R. Veiga. Vice President Texaco Petroleum Company. "To the Editor." The New York Times 6
February 1998: A22
38 Texaco Petroleum Company. "An Update on Ecuador." vwwv.texaco.com.
39 Texaco Petroleum Company. "An Update on Ecuador." wvwv.texaco.com.


variety of regulations being established at different levels of government concerning the
environment. Moreover, public awareness of these issues is being promoted through
private and public sector initiatives.
The overall goal of this chapter was to detail and highlight the major policy
initiatives concerning the oil industry of the last four years, setting them against a
background of prior regulatory absence. It is worthwhile to note that although in period
from 1972 to 1992 the industry was lacking of appropriate regulationas was the whole
countrythe last few years have seen a flurry of initiatives concerning the environment.
Moreover, entities in other fields are now being affected by policy changes that seek to
reduce environmental degradation. The oil industry was the first to come under intense
scrutiny, but the initiatives to change its practices have had a spill-over effect leading to
regulatory improvements in certain industries. The following chapter will detail the factors
that have led to the changes in the oil industrys environmental regulation.


112
Zevallos, Jose Vicente. El Estado Ecuatoriano y las Transnacionales Petroleras. Quito,
Ecuador: Pontificia Universidad Catlica del Ecuador, 1981.


53
Environmental initiative is everyones duty in eveiy instance.
The responsibility of one party cannot be passed along to anotheralthough the state
is to play the role of final arbiter.
Environmental action has to be socially just, economically profitable and
environmentally sustainable.
Conflicts are to be resolved by the reconciliation of the interests of different actors,
and decisions are to arrived at in a participatory fashion.
The basic strategy of environmental initiative is based on solidarity and an equilibrium
between society, the economy, and the environment.40
In the chapter on specific environmental policies in the PAE, special attention is
paid to international aspects affecting or influencing Ecuador. It states that: Ecuadors
external debt is not an excuse for violations of Ecuadors sovereignty nor the reckless
exploitation of the countrys natural resources; foreign investment and transnational
corporations should use environmentally friendly (and modem) technology; they also need
to respect Ecuadors sovereignty, the rights of its citizens to live in a healthy environment,
and that they observe the regulations prevalent in their home country; international
commerce has to form a part of the concept of sustainable development and must not
foster an economic environment that is predatory towards natural resources; the use of
environmental loans should be optimized; obtain real support from developed nations for
the preservation of Ecuadorian environments considered unique in the world.41
40 CAAM. 1996. Pg. 19.
41
CAAM. 1996. Pg. 36.


91
total amount of forest cleared. Maxus also adopted a policy of re-vegetating with native
plants the areas that are cleared and are not used for roads.
A final innovation adopted by Maxus is the practice of perforation in clusters.
Cluster perforation involves the construction of one platform that drills twelve wells into
the ground. Conventional methods would require the construction of twelve individual
platforms, each with its own support facilities and roads, with the corresponding threat of
colonization and deforestation. In cluster perforation, wells are reached by the use of
special machinery capable of directional (lateral) perforation. This way, the amount of
deforested lands is reduced by approximately 70%. The toxic underground formation
waters are dealt with by Maxus. When these waters are extracted from their underground
reservoir, they are re-injected into the same reservoir they came from through machinery
located at a different location.
The Maxus innovation that has received the most applause, however, is its strict
control of colonization in the areas under its concession. Maxus simply does not allow
settlers from outside the area to enter its concession. Its guidelines are clear:
Use of ferries to cross the Napo River in lieu of bridges.
Establishment of control points at strategic locations for settler control.
Indigenous cooperation as park keepers and supervisors, both Quichua Huaorani.
Identification cards for employees and contractors sensitivity training concerning
policies for the respect of the indigenous population and their territory.


87
impacts and the contracting of Brazilian transnational Andrade Gutierrez for road and
infrastructure development.52 Andrade Gutierrez had been sanctioned in Brazil for bribing
government officials.53 The Huaorani wanted the following:
Protection of their organizational, cultural, and territorial rights.
Their participation for decisions affecting the areas which they influenced.
Guarantees of their economic, social, and organizational rights.
Consolidation of the integration process with the rest of Ecuadorian society on
a basis of mutual respect.
Economic participation on just terms for their integral and autonomous development
Overall, called for respect of their human rights and dialog with the actors involved.54
The Huoarani had the most to lose. Among the indigenous groups living in the
Oriente, the Huaorani were among the last to establish contact with Ecuador (in the
middle of the 20 century), a country they were technically citizens of. Their main initial
contact was with American missionaries, some of which were killed in encounters with the
Huoarani whom they sought to convert.55 For the last 40 years, though, they had been
able to live relatively isolated from other inhabitants of the Oriente and from the state.
The presence of oil in their territory led to new threats, particularly the presence of
workers, settlers, and other, much larger indigenous groups. Two processes were
:>2 Onhae. Pueblo Huaorani se Levanta en Defensa de sus Derechos," Boletn de Prensa 19 April 1995: 1.
53 Onhae. Pueblo Huaorani se Levanta en Defensa de sus Derechos.' Boletn de Prensa 19 April 1995: 1.
54 Onhae. Pueblo Huaorani se Levanta en Defensa de sus Derechos. Boletn de Prensa 19 April 1995: 1-
2.
55 See Ivan Narvez. Huaorani vsMaxus (Quito: Corporacin de Estudios y Promocin Cultural. 1996)
32-34 and Joe Kane. With Spears from All Sides. The New Yorker 27 September 1993: 57-58.


7
environmental regulationwith a sizable number relying heavily on regime theory. Andrew
Hurrell, in his analysis of Brazilian policy towards Amazonia from the 1980s onward,
points out to the emergence of critical international public opinion, the success of
international pro-environment groups in complicating the procedure for financing of
Brazilian development projects, and the emergence of deforestation as an issue in many
areas of Brazils dealings in the international arena as the main factors propelling a change
away from environmental nationalism.7 Indeed, in Hurrells analysis it is the changing
international normative contextnot domestic pressurewhich was pivotal in the
reevaluation by President Collor de Mello of the countrys Amazonia policy. For his
analysis, Hurrell constructs an environmental deforestation regime without giving much
detail.8 Martin List goes into much more detail in describing an environmental regime,
specifically a regime for the protection of the marine environment of the Baltic Sea. In this
case, the major statement of principles is the 1974 Helsinki Convention.9 List argues that
the convergence around the principles and norms of the issue area (Baltic Sea pollution)
was strong enough to transcend the enormous differences among them, specifically, the
nature of their political systems (communist states as opposed to liberal or social
democratic democracies). This thesis follows this line of academic work using regime
theory to explain the evolution of Ecuadorian oil policy in recent years.
7 Andrew Hurell. Brazil and the International Politics of Amazonian Deforestation." in The International
Politics of the Environment, eds. Hurrell and Kingsbury (New York: Oxford University Press. 1992) 427-
429.
8 See Andrew Hurell. The International Politics of the Environment, eds. Hurrell and Kingsbury (New
York: Oxford University Press. 1992).
9 Martin List. The Baltic Sea: a Case of International Environmental Management." in International
Regimes in East-West Politics, ed. Volker Rittberger (London: Pinter Publishers. 1990) 94.


. I certify that I have read this study and that in my opinion it conforms to
acceptable standards of scholarly presentation and is fully adequate, in scope and quality,
as a thesis for the degree of Master of Arts.
Terry L. McCoy, Chair
Professor of Latin American
Studies
I certify that I have read this study and that in my opinion it conforms to
acceptable standards of scholarly presentation and is fully adequate, in scope and quality,
as a thesis for the degree of Master of Arts.
Philip J. WijDafns
Associate Professor of Political
Science
I certify that I have read this study and that in my opinion it conforms to
acceptable standards of scholarly presentation and is fully adequate, in scope and quality,
as a thesis for the degree of Master of Arts.
Mark W. Thumer
Assistant Professor of History
This thesis was submitted to the Graduate Faculty of the Center for Latin
American Studies, to the College of Liberal Arts and Sciences, and the Graduate School
and was accepted as partial fulfillment of the requirements £et^th^ degree of Master of
Arts.
May 1998
f
Director, Center for Latin
~7^HAmerican Studies
Dean, Graduate School


42
sector as well as the private sector.16 The provisions are: first, all new activity in the
industry is to be preceded by an environmental impact study approved by the Ministry of
the Environment (formerly the Subsecretariat for the Environment of the Ministry of
Energy and Mines); second, Petroecuador is responsible for any environmental damages
caused by the activities of its subcontractors or affiliateswithout exonerating any
individual subcontractor from violations of the law. This is applicable to all facets of the of
the production process regardless of whether it is seismic exploration or actual drilling.
Decree 2982 specifically addresses controversial issues, including helicopter use,
roads, and water contamination. Road construction and water contamination in particular
pose significant problems.
Helicopter use has been controversial because the construction of heliports has led
to significant deforestation, and the use of short range aircraft has created a need for a
large number of heliports big enough to provide them with fuel and support. They are also
a source of noise pollution. Decree 2982 barred the construction of heliports in many
areasareas where wildlife feeds and reproduces, areas with sensitive flora, archaeological
sites, areas with human inhabitants, rivers, lakes, mangroves, and estuaries.
Heliports in protected areas are to be built in accordance with guidelines set forth in the
attached appendix.17 During their construction, advanced crews are to cut the minimum
amount possible of vegetation for paths and camps. For the heliports, they are prohibited
from eliminating ground vegetation and only environmentally safe helicopters are to be
flown. Oil wells are, in fact, limited to 5000 square meters in sizeinclusive of the
16 Executive Decree 2982 pg. 2-3.
1' Executive Decree 2982 pg. 5.


77
compensatory and remedial damages. A lawsuit by foreigners in the United States for acts
committed abroad is permitted by the Alien Tort Victims Act, which allows aliens to sue
U.S. entities for any personal injury they may have caused. Texaco respondeded that it did
nothing wrong and complied with industry practices of the time and with Ecuadorian
regulatory codes.33
The organizations participating in this effort were a combination of indigenous and
environmental groups. The indigenous groups included the Coordinadora de
Organizaciones Indgenas de la Cuenca Amaznica (Coica), the Confederacin de
Nacionalidades Indgenas del Ecuador (Conaie), the Confederacin de Nacionalidades
Indgenas de la Amazonia Ecuatoriana (Confeniae), and the Federacin de Comunas
Unin de Nativos de la Amazonia Ecuatoriana (Fcunae). Among the environmental
groups participating were the component members of the Campana Amazonia por la Vida
including Accin Ecolgica. They organized the first boycott of Texaco in Ecuador,
known as Texaco week from July 5 to 9,1993. The goals of the boycott were: to raise
public awareness, to make Texaco responsible for a clean-up of the areas affected, to
make public the HBT Agra audit (which was believed at that time to relieve Texaco of
responsibility), and to hurt Texaco financially through boycotts not only in Ecuador but in
Norway. There were additional anti-Texaco efforts in England, Denmark, and Holland.34
33 See Ricardo R. Veiga, Vice President Texaco Petroleum Company. "To the Editor. The New York
Times 6 February 1998: A22 and "Ecuadorean Indians Sue Texaco for Damage to Rivers, Land in
Amazon Basin. BN A International Environment Daily 5 November 1993: 2.
34 The independent HBT Agra was initially believed to have been another Texaco and government public
relations maneuver aimed at diffusing growing public outcry over Oriente contamination. Part of the
problem was that the parameters had been set by the government and these did not include local input into
the audit. However, the audit was apparently done professionally within the parameters placed. See
Rainforest Action Network. "Ecuadorian Indigenous People. Environmental Acitivists call for
International Boycott of Texaco. Urgent Appeal 5 August 1993 posted to Native Web


98
environmental protection on a national scale and in a variety of indistries, and that this
process incorporates the views of a variety of actors including environmental NGOs,
multilateral development agencies such as the Inter-american Development Bank, and
indigenous groups. Programs such as the PAE ultimately see their principles reach the
local level, as municipalities implement their own codes to protect the environment.
Chapter 4 explains the factors that have led to changes in Ecuadorian environmental plicy
concerning oil, and places these factors within an international context. A regime favorable
to the concept of sustainable development is emerging in the Hemisphere, and the added
power that this gives to environmental groups is leading to changes that benefit the
environment. Throughout Latin America, the push for sustainable development is leading
to scrutiny of development and corporate projects, including multi-million dollar natural
gas pipelines in Argentina being built by a Chilean-Belgian corporate alliance, Chilean
energy powerhouse Endesas plans to build a dam on the Bio-bio river, the laying of
communication cables in the Caribbean by AT&T, the debate in Peru over the Chilean
Luchetti pasta plant in Lima, renewed scrutiny of Brazilian deforestation, water
contamination in Mexico, and expensive environmental and social monitoring programs in
oil projects such as those conducted by Conoco in Peru and YPF in Ecuador. The key
element is that such concerns are no longer seen as ranting by eco-terrorists but as
legitimate concerns as to the impact of these projects on people and nature. Chapter 4 also
discusses what the regime consists of, and provides cases of pressure or change being
imposed on transgressors to illustrate how regime enforcement operates. Particular
importance was placed on the Texaco lawsuit in the United States and the campaign
against Maxusnow YPF Ecuador Inc.and how these have affected the actors involved.