Ecuador oil brings hope, concern

A $1.1 billion oil pipeline will double the country's production, but critics say costs outweigh benefits.

Hugo Troya was a farmer with seven acres in the foothills of the Andes. A year ago, a consortium of transnational oil companies demanded the use of his land to build a way station for the new trans-Ecuadorean Heavy Crude Pipeline (OCP) and offered him $2,000 for his farm.

Independent experts estimate that his property should have been worth at least 10 times that much. Mr. Troya refused to sell, so the consortium, backed by a government decree, simply expropriated his land, claiming the oil pipeline is in the public interest.

"They brought the military in to throw me out," he says, sitting in a tiny room he now rents for his family in the nearby town of El Chaco. "In the end, I never received a cent for my farm. They say the new pipeline will benefit the economy, but can the oil bring enough good to balance out the harm it has done?"

Troya's situation is an example of the difficulties faced by many in Latin America when oil is discovered. The promise of economic gains for the government and jobs for the people often does not come to fruition, say experts, and in many ways, the region is left worse than before the oil started flowing. Protesters have fought the new pipeline project; this week eight activists, including well-known US environmentalist Julia Butterfly Hill, were arrested at a demonstration in front of the Quito offices of Occidental Petroleum.

With 11,000 miles of pipeline in the works, the continent appears to be at the beginning of an oil boom, sparked in part by US desire to reduce its dependence on oil from the politically volatile Middle East. Officials hope it will lift the economy out of crisis, while critics fear a short-lived oil bonanza may exacerbate existing problems and create new ones.

Touted as "the backbone of the Ecuadorean economy" by Energy Minister Pablo Teran, the OCP will more than double the country's pumping capacity of 400,000 barrels per day and dramatically swell government revenues. The pipeline, which is being built by a consortium, including Occidental Petroleum, Repsol-YPF, Perez Companc, Kerr-McGee, AGIP, and Techint of Argentina, will carry lower-quality oil 312 miles from production fields in the Amazon near Lago Agrio to the port of Esmeraldas on the Pacific Coast.

The pipeline will cost $1.1 billion, making it the biggest oil industry project in South America.

But even OCP officials admit the project will have some negative impacts. The nearby river, which was once clean enough to drink, is now clogged with debris and pools of greasy sludge gather where the new pipeline is being buried. The past record of the oil industry here is splotched with environmental damage and uneven distribution of revenues. Ecuador's only existing pipeline has spilled more oil than the Exxon Valdez disaster in 1989, and the new pipe runs across the same earthquake-prone mountain pass and over the reservoir that provides water to Quito.

Moreover, economists warn that heavy reliance on oil is a dangerous economic game in Latin America. More than 50 percent of Ecuador's economy depends on oil, but according to a government estimate, the country's reserves will last just 14 years. Economists say this is a recipe for disaster unless Ecuador can diversify its economy rapidly.

"When the oil is gone, we will face absolute poverty," predicts Bayardo Vobar, a consultant with the Institute of Economic Investigation in Quito. "In the long run, oil is not a great basis for an economy. It is a very unstable market, and any drop in oil prices will be an economic catastrophe."

But the Ecuadorean government says it must take the chance. It has the worst debt in the Western Hemisphere – $16 billion. Loan service payments eat 25 percent of the annual budget, slowing further development. The OCP, which could bring in as much as $500 million in tax revenues per year, could provide an answer.

"We all know the new pipeline will be bad for the natural environment, but we have to have the hard currency to survive as a state," says Bernardo Abad, economist and producer of the national TV station Teleamazonas. "It [sounds] cold, but the more oil they take out, the more money we get."

Debt, poverty, and corruption are all common among countries which rely heavily on oil, according to Professor Michael Ross of the University of California, who conducted an Oxfam-sponsored study of economic conditions in oil-rich nations. His research showed that oil-dependent countries tend to have more malnutrition, lower living standards, and less education than comparable countries with diversified economies.

Ecuadorean public opinion is highly critical of the oil industry. It took 12 years to gain approval for the OCP, due to constant objections from politically powerful environmental and indigenous organizations.

The strikers consistently demand that more revenues return to the oil-producing provinces in the northeast jungle, which remain the poorest in the country. In response, the OCP consortium has tagged $16 million for charity and infrastructure programs – about 1.4 percent of the project's budget.

"We are doing our best to work with these people but no one is perfect," says Maria de los Anegeles Mentilla, public relations director of the OCP. "The communities in the oil-producing regions claim they have not received what they deserve. That is true, but it is not our duty to remedy it. It is up to the government."

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