{"id":253064,"date":"2024-01-29T12:00:43","date_gmt":"2024-01-29T12:00:43","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=253064"},"modified":"2025-01-10T15:05:56","modified_gmt":"2025-01-10T15:05:56","slug":"how-wealthy-corporations-use-investment-agreements-to-extract-millions-from-developing-countries","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2024\/01\/how-wealthy-corporations-use-investment-agreements-to-extract-millions-from-developing-countries\/","title":{"rendered":"How Wealthy Corporations Use Investment Agreements to Extract Millions from Developing Countries"},"content":{"rendered":"
\"\"<\/a>

Anival Tanguila, a Quichua leader from the Coraz\u00f3n del Oriente Community, stands next to decommissioned Perenco oil infrastructure in the Ecuadorian Amazon on 22 Mar 2023. Credit: Katie Surma\/Inside Climate News<\/p><\/div>\n

A case in point: When Ecuador placed a windfall tax on foreign oil operations, French and U.S. companies filed claims\u2014and were awarded more than $800 million.<\/em><\/p><\/blockquote>\n

14 Jan 2024<\/em> – When Rafael Correa entered Ecuador\u2019s presidency in 2007, the nation faced an opportunity and a challenge. Ecuador\u2019s economy depended on oil, and global crude prices were near a record high. Much of the oil was extracted by foreign companies, however, so as prices surged more wealth began flowing overseas.<\/p>\n

More than a third of Ecuadorians were living in poverty<\/a>, and Correa had come to power as a leftist promising<\/a> \u201cradical, profound and quick changes to the current model of so much exploitation, of so much injustice.\u201d<\/p>\n

Soon after taking office, Correa increased a recently enacted windfall tax on oil companies. The idea was to use the tax as leverage to extract better terms from the companies, and this fight against foreign firms quickly became a high-profile pillar of Correa\u2019s broader campaign to assert the nation\u2019s sovereignty.<\/p>\n

The oil companies fought back, however, and they turned to an obscure corner of international law that extended beyond Correa\u2019s reach. Within months, two oil companies working as partners\u2014the independent Anglo-French firm Perenco and Burlington Resources, a subsidiary of ConocoPhillips\u2014ceased paying the tax and sued the government through a system of international tribunals known as investor state dispute settlements, or ISDS. The system allows foreign investors to sue governments before tribunals outside the jurisdiction of national courts, if they can make a case that their contracts or existing trade or investment treaties have been breached.<\/p>\n

The companies argued that the tax, which had been enacted by Ecuador\u2019s Congress and upheld by the nation\u2019s courts, violated their contracts and investment treaties that Ecuador had signed with France and the United States. The companies demanded compensation for lost profits to the tune of $3.1 billion.<\/p>\n

\u201cWe felt under attack,\u201d said Guillaume Long, an academic who was an adviser in Ecuador\u2019s Ministry of Planning and Development early in the Correa administration and eventually rose to become foreign minister.<\/p>\n

\"Then
Then President of Ecuador Rafael Correa during a tour of Madrid, Spain in January 2017. Credit: Patricio Realpe\/ACGEcuador<\/figcaption><\/figure>\n

The eye-watering sum was roughly equal to 15 percent of Ecuador\u2019s entire public spending<\/a> in 2008. And while Perenco and Burlington were unable to garner such an outsized award, they did, after more than a decade of litigation, convince arbitrators in two separate tribunals to award the companies more than $800 million.<\/p>\n

At the time, Ecuador was spending a sizable portion of its revenue servicing foreign debt, according to data compiled by Debt Justice<\/a>, a U.K. advocacy group. The question loomed: Where would the funds come from?<\/p>\n

Critics say the ISDS system gives corporations an exclusive, parallel justice system that elevates foreign interests above human rights and environmental concerns. Governments have been forced to pay billions of dollars to multinational corporations after revoking oil contracts or mining licenses, or enacting new regulations, for example. In other cases, developing nations have backed down from implementing more stringent environmental protections when faced with the threat of ISDS claims.<\/p>\n

Because the system is shrouded in secrecy, it is impossible to know how many claims have been filed or, in some cases, the total amount awarded by tribunals. But there have been more than 1,720 claims filed publicly since the 1970s, according to an analysis<\/a> by the International Institute for Environment and Development and the Columbia Center on Sustainable Investment. Fossil fuel companies and investors filed one in five of those claims, and have been awarded at least $82.8 billion in compensation from governments.<\/p>\n

The ISDS system is now gaining increased attention from human rights and environmental advocates and growing calls for reform, in part because the number of cases has risen sharply over the last decade. The vast majority of cases have been brought by companies based in North America or Europe against governments in Latin America, Africa and Asia, prompting many critics to liken the ISDS system to a form of market-based colonialism that continues to extract wealth from the Global South.<\/p>\n

Many academics and climate advocates have also begun warning that the ISDS system now poses a threat to action on climate change, as governments try to limit fossil fuel development\u2014a recent report by the United Nations special rapporteur on human rights and the environment called it a \u201cdaunting obstacle.\u201d<\/a><\/p>\n

No nation has faced more claims from fossil fuel companies than Ecuador, according to the International Institute for Sustainable Investment, at least 18 since 2002. These cases have strained the finances of a nation that has struggled under the weight of foreign debt and economic crises. They also prompted the Correa government, back in 2007, to launch a full-on assault on the system, which helped spark the broader international movement against ISDS that now has many prominent critics calling<\/a> for its abolition.<\/p>\n

The Perenco case came to a close only within the last year, after the company succeeded in freezing some of Ecuador\u2019s overseas assets to extract its payment. Its resolution highlighted what many human rights advocates say are the glaring injustices of the ISDS system. Like some other oil companies operating in Ecuador, Perenco was accused of leaving behind an \u201cenvironmental catastrophe\u201d in the Amazon region where it operated, but it still walked away with a judgment worth hundreds of millions of dollars.<\/p>\n

Unlike foreign companies, the affected farmers, Indigenous communities and other locals who claimed their land was destroyed and their water poisoned by oil drilling have yet to receive any compensation for what they\u2019ve lost.<\/p>\n

A Good Neighbor?\u00a0<\/strong><\/h2>\n

Celso Mora migrated to the Ecuadorian Amazon region with his wife, Nancy, in 1987, driven by their dream of owning their own land and growing a family. Over nearly two decades, Mora, who has thick calloused hands and close-cropped black hair, built a life along the Napo River, spending long days tending his crops and livestock and raising four children. Mora grew cocoa, coffee and plantain trees, drawing on knowledge passed down from his father.<\/p>\n

But he awoke one morning in 2005 to the smell of diesel fuel emanating from the river, the shade of which had changed from blue-green to dark brown. He wandered upstream and discovered a team of workers excavating the land, which was sloughing off into the river that Mora\u2019s family used for drinking and bathing. Three days later, he recalled, an official in a blue jumpsuit stamped with the name \u201cPerenco\u201d arrived at Mora\u2019s house and announced that the company had begun operations in the area. Perenco, the official promised, would be a good neighbor.<\/p>\n

\"Celso
Celso Mora stands on his property adjacent to the Napo River on March 21, 2023. Mora, who is now in his early 60s, and his wife, Nancy, migrated to the Ecuadorian Amazon region with hopes of operating their own farm and raising a family. Credit: Katie Surma\/Inside Climate News<\/figcaption><\/figure>\n

As Perenco drilled its first well and erected gas flares adjacent to his land, Mora\u2019s cocoa and coffee crops began failing\u2014they would flower but not fruit. Eventually, their leaves withered and turned brown, and the plants died. Soon, his children were getting nosebleeds, headaches and having trouble breathing. In the mornings, when the stench of rotten eggs hung in the thick humid air, Mora took to covering his childrens\u2019 mouths and noses with wet dishcloths.<\/p>\n

Eventually, Mora said, his wife was bringing them to the local health clinic daily. On their doctor\u2019s advice, the Moras moved their family to town and the farm soon became overgrown. While he still visits weekly, Mora\u2019s land is now desolate, a painful reminder of what he lost.<\/p>\n

\"Pipelines,
Pipelines, gas flares and noise-producing generators are some of the infrastructure the oil company Perenco built adjacent to Celso Mora\u2019s farm. In 2009, Ecuador\u2019s state-owned oil company took over operations of the platform. Credit: Katie Surma\/Inside Climate News<\/figcaption><\/figure>\n

Throughout Perenco\u2019s tenure in Ecuador, Mora and other locals said they repeatedly told government and company officials about overflowing waste pits, leaking pipelines, drilling noise and noxious gas flares, among other problems. \u201cNo one supports us,\u201d one farmer had written<\/a> to Ecuador\u2019s National Environmental Protection Directorate following multiple, unaddressed complaints reporting Perenco\u2019s dumping of wastewater affecting the A\u00f1angu River<\/a>, the sole source of drinking, bathing and irrigation for multiple families.<\/p>\n

Lacking the protection of their own government, Mora and others turned to the French justice system. In 2008, a group of about a dozen Ecuadorians, with assistance from a French legal aid group, asked prosecutors in Paris to investigate Perenco and its officers for \u201cserious environmental pollution\u201d and harm to local communities. By 2010, France declined to take up the case on grounds that the allegations weren\u2019t severe enough to justify an investigation.<\/p>\n

\u201cThe [Ecuadorian] state did nothing and France did nothing,\u201d Mora, 61, said in a recent interview, recalling the outcome of the case. \u201cI felt that I was condemned to live with pollution without anyone protecting me and my family.\u201d<\/p>\n

A Perenco spokesperson said the company \u201coperated with full transparency with the local authorities and any contamination, which was only ever on a very minor scale, was reported and remediated as per the regulatory requirements.\u201d<\/p>\n

As the Ecuadorian and French justice systems thwarted Mora\u2019s pleas for accountability, Perenco, with the aid of international law firms, litigated its grievances against Ecuador before the ISDS tribunal, the proceedings of which alone would ultimately cost $9.5 million<\/a>.<\/p>\n

\u201cLitigation Terrorism\u201d<\/strong><\/h2>\n

There are now more than 350 ISDS cases pending<\/a> against governments worldwide, at least 26 of which are seeking $1 billion or more, including a $15 billion claim against the United States over the cancellation of the Keystone XL Pipeline. Last month, three United States-based entities sued Honduras after the government repealed a law that allowed for special economic zones, within which foreign firms could effectively establish their own local governments. The entities said they were seeking up to $10.8 billion<\/a>, or about one-third of Honduras\u2019s gross domestic product<\/a>.<\/p>\n

The arbitration system, which the Nobel prize-winning economist Joseph Stiglitz once called<\/a> \u201clitigation terrorism,\u201d is inherently imbalanced. Governments cannot launch suits against corporations, only the reverse.<\/p>\n

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\u201cThis system is like playing soccer on just half of the pitch, in which one team attacks and the other one can only defend itself, and that\u2019s the game,\u201d said Manuel Perez-Rocha, an associate fellow at the Institute for Policy Studies, a progressive think tank in Washington, D.C. \u201cThe team that is defending itself cannot really win anything, can just not lose.\u201d<\/p>\n

The system emerged after World War II, when governments were building new international institutions like the United Nations to promote cooperation on trade and security and more peaceful means of resolving disputes. As the colonial empires broke apart and newly independent nations looked to develop, leading economists advised that a sure route toward growth ran through natural resource extraction, a capital-intensive industry that required foreign investment. Yet foreign firms were reluctant to set up in developing countries, which were viewed as unstable and prone to corruption, without some form of protection in case their host governments decided to seize their assets.<\/p>\n

Countries began entering into treaties that gave special legal rights to foreign investors and opened a path for them to sue governments in supranational forums. Today there are an estimated 3,000 bilateral and multilateral trade and investment agreements with foreign investor protections that form the ISDS system.<\/p>\n

Many experts in international business and law argue that, as imperfect as it may be, the ISDS system is better than leaving disputes to national courts or government negotiations.<\/p>\n

\u201cJustice in Ecuador is controlled by politicians, is controlled by the mafia, is controlled by people with money,\u201d said Alberto Acosta-Burneo, an Ecuadorian journalist and analyst who is critical of the Correa government\u2019s handling of the Perenco case. Taking away international arbitration is like \u201casking international investors to believe in a justice system that we Ecuadorians don\u2019t believe in.\u201d<\/p>\n

Some research<\/a> has questioned the degree to which the ISDS system has actually encouraged foreign investment, a key assumption<\/a> used to justify the system. What is undeniable, though, is the soaring number of claims that have been brought against governments and their spiraling costs.<\/p>\n

At least 17 cases have resulted in awards or settlements of $1 billion or more, according to data compiled by the United Nations<\/a>. The largest was a $40 billion award against the Russian Federation brought by foreign investors in Yukos, a now-defunct Russian oil company. According to the recent report<\/a> by the U.N. special rapporteur, the 12 largest awards alone likely exceed \u201cthe total amount of damages awarded by all courts to victims of human rights violations in all States worldwide, ever.\u201d<\/p>\n

For many developing countries the threat is acute.<\/p>\n

When Correa came to power in 2007, Ecuador was already facing at least eight ISDS claims, including one from U.S.-based Occidental Petroleum<\/a> seeking $1 billion. Most of the claims predated the windfall profits tax.<\/p>\n

After Correa increased the tax, Perenco blamed the government for acting capriciously. The new tax rate was set at 99 percent, and it covered all revenue derived above a certain benchmark oil price, which was different for each contract but was generally far below where prices had risen in 2007. Perenco and the government had nearly reached a deal on a new contract, according to a filing in the ISDS case<\/a>, when Correa announced in 2008 that he had suspended talks with all foreign firms, saying \u201ceven though we\u2019ve secured major benefits, I think that we can do better.\u201d<\/p>\n

Within two weeks, Perenco and Burlington had filed their ISDS claims and stopped paying the windfall tax. Ecuador now faced at least $4.5 billion in claims from American and European oil companies, but rather than lowering the pressure, Correa seemed to relish the fight. As the parties continued to battle, with the taxes still unpaid, Ecuador seized both companies\u2019 assets and canceled their contracts.<\/p>\n

A Perenco spokesperson said the company filed the claim only after it had \u201cexhausted other avenues,\u201d and rejected criticism that the ISDS system was biased in favor of corporations. \u201cAny suggestion that it is somehow unbalanced is risible,\u201d the spokesperson said.<\/p>\n

Regardless of who was responsible for the impasse, however, the claims exerted a perverse new pressure on the country. Ecuador had been spending 15 percent or more of its annual revenue on servicing foreign debt in previous years, according to data compiled by Debt Justice<\/a>. Now it faced potentially billions more in payments to oil firms. If the country lost any of the cases, Ecuador would have few options for generating the cash.<\/p>\n

\u201cThe only way it can pay is oil revenues or acquiring new debt,\u201d Acosta-Burneo said. In other words, he said, Ecuador would have to deepen its reliance on foreign lenders or on the same foreign oil firms that were suing it.<\/p>\n

\u201cOil Remains an Adventure\u201d<\/strong><\/h2>\n

Perenco was founded in the early 1990s by Hubert Perrodo, the son of a French fisherman who sought fortune in oil. Perrodo fashioned himself as \u201ca conqueror and a pioneer,\u201d according to a now-removed page<\/a> on Perenco\u2019s website, and built his business as an oilfield scavenger, snapping up aging scraps that the brand-name oil companies deemed no longer worthy of investment.<\/p>\n

The company was soon operating in some of the world\u2019s most politically and ecologically fragile regions. Perenco has operated wells within a national park in Guatemala and in a section of the Peruvian Amazon that the government says is inhabited by Indigenous people living in voluntary isolation. Perenco is also facing a lawsuit filed by French environmental groups<\/a> in Paris Civil Court over alleged pollution from its operations in the Democratic Republic of Congo.<\/p>\n

\u201cOil remains an adventure,\u201d the firm\u2019s homepage declared<\/a> until a recent redesign, which came after one of its pipelines sprang a leak, spilling into a natural harbor on England\u2019s southern coast.<\/p>\n

A Perenco spokesperson declined to comment on the lawsuit over its Congolese operations, but acknowledged having \u201cvery localised, minor and limited pollution incidents.\u201d The spokesperson added, \u201cIn the event of any accidental soil contamination, the soil is systematically stripped by our environmental department and evacuated to a recovery area.\u201d<\/p>\n

Perenco is also in the process of exiting its Peruvian operations, the spokesperson said.<\/p>\n

As a private company, Perenco is free of some of the restraints placed on publicly-traded firms, which must answer to shareholders and financial regulators. Today, it is one of Europe\u2019s largest independent oil companies and its revenues have made the Perrodos one of France\u2019s wealthiest families. After Perrodo died in a mountaineering accident in 2006, he was succeeded as chairman by his son Fran\u00e7ois, an amateur race-car driver with an extensive collection of high-end cars.<\/p>\n

Last year, Perrodo posted on Instagram<\/a> about an incident in which he nearly ruined his McLaren F1 GTR, versions of which have sold for $20 million, by accidentally filling it with diesel instead of gasoline.<\/p>\n

In Ecuador, Perenco and other oil companies regularly faced protests from locals, upset about pollution or unfulfilled promises to fund development programs. According to the company, the government provided security for oil and gas companies in the country \u201cas a way to encourage their ongoing investment.\u201d<\/p>\n

In June of 2006, Wilman Jim\u00e9nez, a soft-spoken farmer whose land was affected by Perenco\u2019s operations, joined a protest at the company\u2019s Payamino production station, located near the Amazonian town of Francisco de Orellana, commonly known as Coca, Jim\u00e9nez recalled in a recent interview.<\/p>\n

Jim\u00e9nez said he had come with a video camera, ready to film. The protest began peacefully, he said, until two busloads of troops arrived at the site, accompanied by a pair of military helicopters. The troops began herding the protesters in through the site\u2019s gates, Jim\u00e9nez said, when he heard an officer give the order to shoot. The officer then grabbed a soldier\u2019s gun and opened fire.<\/p>\n

\"Wilman
Wilman Jim\u00e9nez sits at his desk on March 22, 2023 in Orellana Province, Ecuador. Jim\u00e9nez was detained in solitary confinement at a military site for more than two weeks for attending a march protesting Perenco\u2019s operations. Credit: Katie Surma\/Inside Climate News<\/figcaption><\/figure>\n

The protesters began running toward the forest, bullets whizzing by their ears, when Jim\u00e9nez heard a soldier yell, \u201cCatch the camera man, he has evidence against us!\u201d<\/p>\n

Jim\u00e9nez said he froze and was shot in the back and on his left side\u2014only then did he realize the gun was firing rubber bullets, which nonetheless encrusted themselves in his body. Hours later, just before evening set in, Jim\u00e9nez was separated from the group and eventually flown by helicopter to an army base (located in the town of Shell, named for the oil company) where he was told he was being detained on charges of terrorism and placed into solitary confinement. More than two weeks passed before Jim\u00e9nez was given access to an attorney who secured his release.<\/p>\n

A company spokesperson said Perenco was \u201cin no way connected to this event.\u201d<\/p>\n

Two years later, Ecuador\u2019s legislature granted Jim\u00e9nez and other environmental defenders amnesty, but Jim\u00e9nez said that the harrowing experience led him to decide never to engage in social activism again.<\/p>\n

\u201cIt\u2019s hard to compete against the power of oil companies and the government,\u201d he said. \u201cNothing will change because the government doesn\u2019t think of farmers\u2019 or other peoples\u2019 welfare. It\u2019s not worth trying to fight that.\u201d<\/p>\n

An Escape Hatch<\/strong><\/h2>\n

When Correa came to power in 2007, foreign oil companies were the perfect foil, and the ISDS system became a symbol of their outsized wealth and power.<\/p>\n

\u201cA big tension in the government was always the supremacy of capital over human beings,\u201d said Long, the Correa administration official. Correa had campaigned on a platform to rebalance a capitalist system that had fallen out of whack, Long said, \u201cand ISDS played, I think, a big role in that.\u201d<\/p>\n

In 2008, Correa called a constitutional assembly that, among other changes, gave legal protections to ecosystems by recognizing the rights of nature and barred the government from entering into treaties that would cede \u201csovereign jurisdiction to international arbitration entities\u201d in business disputes.<\/p>\n

Over the following year, Correa announced his intention to withdraw from Ecuador\u2019s bilateral ISDS investment treaties and from the World Bank convention<\/a> that governed many ISDS disputes. During one of his weekly national addresses, Correa said the move was necessary to liberate Ecuador and that the convention represented \u201ccolonialism, slavery with respect to transnationals, with respect to the World Bank and with respect to Washington.\u201d<\/p>\n

His government threw its support behind a proposal for the creation of an alternative, regional investment arbitration system based in South America. He also appointed a commission, stacked with political allies and critics of international arbitration, to review the impacts of the ISDS system on the country.<\/p>\n

The findings, released in 2017, Correa\u2019s final year in office, painted a stark picture<\/a>. From 2003-2013, Ecuador paid $156 million in legal fees and costs to tribunals and its own lawyers as part of defending cases against the government. On top of those costs, Ecuador had paid $1.3 billion in awards to corporations, $1 billion of which went to Occidental.<\/p>\n

Christian Pino, the commission\u2019s executive secretary, said in a recent interview that the ISDS system effectively gave the companies an escape hatch.<\/p>\n

\u201cThey can contaminate, they can disrespect the rights of workers, they can fail to pay taxes to the countries where they make their investments,\u201d Pino said. \u201cBecause if at any given moment that country decides to take legal action to avoid this type of inappropriate behavior, the multinational company can use the system to protect itself.\u201d<\/p>\n

A Perenco spokesperson said this was \u201ca wildly inaccurate view,\u201d and that, \u201cPerenco, like all international oil & gas companies, is beholden to all of the regulations wherever it operates.\u201d The spokesperson added, \u201cThe reason Perenco filed an ISDS claim was in order to ensure that Ecuador honoured its commercial commitments to Perenco, and for no other reason.\u201d<\/p>\n

Before leaving office, Correa completed Ecuador\u2019s withdrawal from the ISDS treaties, including those with France and the United States, which were used by Perenco, Burlington, Occidental and other oil companies.<\/p>\n

\"Former
Former President of Ecuador Rafael Correa says goodbye to his followers at Mariscal Sucre International Airport on July 10, 2017 in Quito, Ecuador. Credit: Patricio Realpe\/LatinContent via Getty Images<\/figcaption><\/figure>\n

But the withdrawal did nothing to protect the country from pending claims, which at the time sought a cumulative $13.4 billion, about half Ecuador\u2019s 2017 budget, according to the government\u2019s ISDS commission report. Withdrawal also gave companies at least another decade during which they could submit new claims due to the treaties\u2019 \u201csunset clauses,\u201d which vary by treaty but generally last 10 to 15 years.<\/p>\n

Meanwhile, oil prices had crashed bringing the government\u2019s finances with them, just as the bills were coming due. In Correa\u2019s final months in office, Ecuador lost the case brought by Burlington on grounds that Ecuador\u2019s seizure of the Perenco-Burlington consortium\u2019s operating facilities amounted to expropriation. Ecuador was then forced to pay<\/a> Burlington $337 million.<\/p>\n

Then in 2019, 11 years after it was filed, the tribunal in the Perenco case issued its decision, finding that the windfall tax and cancellation of contracts violated the French-Ecuador bilateral investment treaty. The Perenco tribunal ordered the government to pay the oil company nearly $450 million. Ecuador was already spending almost 18 percent of its revenue servicing foreign debt, according to data compiled by Debt Justice<\/a>. The order would force the cash-strapped government to scrounge for funds, with few places to turn to.<\/p>\n

Astonishing Counterclaims<\/strong><\/h2>\n

As Perenco and Burlington\u2019s ISDS lawsuits unfolded, the companies took the unusual step of agreeing to allow Ecuador to lodge environmental counterclaims<\/a> in both cases, with Ecuador alleging that they had left behind an \u201cenvironmental catastrophe\u201d in the Amazon. It was an astonishing move by a government that had, for a half dozen years, neglected similar claims from its own citizens, but a move that nonetheless gave those same locals hope that justice\u2014a cleanup and some form of accountability\u2014might still be attainable even if they had no means of participating in the ISDS proceedings directly.<\/p>\n

Subsequent sampling<\/a> carried out as part of the ISDS cases demonstrated that the vast majority<\/a> of tested<\/a>\u00a0 waste<\/a> pits<\/a>, filled with known human carcinogens among other toxic materials, did not meet performance criteria to prevent leaching<\/a> into groundwater<\/a> and<\/a> soil, according to tribunal documents<\/a>.<\/p>\n

Sampling also found high levels of petroleum hydrocarbons in groundwater<\/a> at every site tested<\/a>, nearly six times<\/a> the standard in one site. Former Perenco employees testified<\/a> that the company never conducted geological or hydrological studies and that its waste pits never received maintenance<\/a> despite officials receiving complaints about leaks, the tribunal documents said.<\/p>\n

There were at least seven pits<\/a> in the vicinity of Mora\u2019s property alone, and when asked why Perenco had not performed the required sampling of its waste pits once every six months, a former employee testified<\/a>: \u201cWell, in some cases there is no six-month test. These are some mistakes we made.\u201d<\/p>\n

The company also regularly interfered with required<\/a> environmental audits, steering<\/a> auditors to clean areas and taking soil samples at shallow<\/a> depths that would be insufficient to test for hydrocarbons, according to court documents. In lieu of remediating spills and other waste, which the company feared would trigger<\/a> increased governmental scrutiny, Perenco often paid off<\/a> affected locals. In one instance, the company flatly denied responsibility for a spill affecting locals\u2019 drinking water, even though its community relations liaison witnessed<\/a> the spill, according to the ISDS documents<\/a>.<\/p>\n

Despite proclaiming<\/a> to be an environmentally responsible industry leader, Perenco failed<\/a> to comply with basic regulatory requirements, like having a health, safety and environmental management plan<\/a> in place. When regulators asked Perenco officials for a copy of its Environmental Impact Study, the company produced an outdated<\/a> document prepared by a former operator 14 years earlier, according to the ISDS documents.<\/p>\n

\"\"<\/figure>\n

\u201cThe entire system relies upon compliance with licensing obligations, full and timely reporting, and the retention of independent auditors in order to conduct thorough audits,\u201d the arbitrators overseeing the Perenco ISDS case wrote<\/a>, finding that the company undermined Ecuador\u2019s ability to regulate.<\/p>\n

\u201cWe would urge caution when listening to the views of disgruntled former employees,\u201d a Perenco spokesperson told Inside Climate News, and added that any contamination was minimal in scale and remediated according to regulatory requirements.<\/p>\n

By September 2019, the Burlington and Perenco ISDS tribunals reached similar conclusions, finding the companies liable for a combined total of $93 million for infrastructure and environmental damage. It was a remarkable victory for Ecuador and the first time a government had successfully launched an environmental counterclaim against a foreign investor in any publicly known ISDS case.<\/p>\n

Back in the Ecuadorian Amazon, Mora and others affected by Perenco had one question: When would the cleanup begin?<\/p>\n

No Remedy<\/strong><\/h2>\n

The year after the tribunal issued its 2019 decision in the Perenco case, Ecuador\u2019s finances crumbled in the fallout from the Covid-19 pandemic. Facing a potential default, the nation was able to restructure<\/a> more than $17 billion in external debts.<\/p>\n

As the country struggled to service its debts, Perenco turned to courts in the United States and Europe to try to force the government to pay its award. At one point last year, Perenco said it had succeeded in freezing Ecuador\u2019s bank accounts<\/a> in Luxembourg. A lawyer involved in that effort later wrote<\/a> that the strategy to secure payment from Ecuador relied on \u201cattacking\u201d the country\u2019s economy and creditworthiness by targeting these accounts only days before the funds they held were to be used for paying off foreign debts, \u201cthereby raising the possibility of Ecuador defaulting on its obligations to bondholders.\u201d<\/p>\n

The parties eventually agreed on a plan that would allow the cash-strapped government to pay the private oil company with installments lasting through 2023. As the year came to a close, Ecuador\u2019s finances nearly reached a breaking point, with its cash balance dwindling to $95 million and its deficit soaring to $5.8 billion, according to the Ministry of Economy and Finance<\/a>.<\/p>\n

The fact is that when an ISDS tribunal orders a government to pay, officials have no choice but to comply, said Long, the former foreign minister under Correa.<\/p>\n

\u201cNot respecting the result of arbitration is much more problematic than even defaulting on debt,\u201d Long said. National governments rely on foreign creditors to pay their bills, and nothing scares creditors away, he said, like failing to service arbitration. \u201cEverything closes down.\u201d<\/p>\n

Ultimately, Long argued, Ecuador gained more from its renegotiation of oil contracts under Correa than the more than $700 million it paid to Perenco and Burlington as a result. An even bigger success, he and many others have argued, was extracting the country from the ISDS system.<\/p>\n

Today, Ecuador is part of a short list of nations that are not parties to any major treaties or agreements that include this form of international arbitration. Ecuador could still be forced to pay billions of dollars more in at least six pending claims<\/a> that were filed either before it exited the treaties or before those treaties\u2019 sunset clauses expire. That includes what could be the largest award Ecuador will owe to a foreign oil company. In the near future, an ISDS tribunal is expected<\/a> to issue a multi-billion dollar judgment in favor of Chevron over a long running dispute related to the company\u2019s mass pollution of the rainforest<\/a>. Still, one day, the country could be free from the system.<\/p>\n

Unless, that is, it joins again. Former President Guillermo Lasso, whose term ended early last year as he faced an impeachment inquiry over corruption allegations, had tried to re-enter Ecuador in a treaty that administers ISDS tribunals, though his attempts were held up in the nation\u2019s courts. Lasso was replaced in November by Daniel Noboa, the son of a banana magnate who ran unsuccessfully for president against Correa in 2006. Some Ecuadorans have argued that Correa\u2019s battles with Perenco and other oil companies and its exit from the ISDS system have done more harm than good, by alienating foreign investors.<\/p>\n

\u201cWe\u2019re renowned for not respecting contracts and not allowing investors to have impartial arbitration centers,\u201d said Acosta-Burneo, the Ecuadorian journalist and analyst who had criticized Correa\u2019s ISDS exit, adding that Ecuador has seen a decline in both foreign investment and oil production in recent years. \u201cSo the country is depending more on oil imports and losing its ability to create income from oil.\u201d<\/p>\n

Acosta-Burneo also questioned Correa and other leaders\u2019 invocation of sovereignty as justification for pulling out of investment treaties.<\/p>\n

\u201cThey say they\u2019re stopping evil foreign investors from doing what they want, but in the end, these authoritarian leaders are looking to destroy all norms that constrain their activities,\u201d he said. \u201cCorrea really wanted unlimited power on his terms.\u201d<\/p>\n

In 2020, Correa, who lives in Belgium, was convicted in absentia on corruption and bribery charges, along with other top officials. According to democracy watchdog Freedom House<\/a>, his administration oversaw attacks on human rights, the press and other civil liberties throughout his 10 years in office.<\/p>\n

Correa did not respond to requests for comment but has continued to deny wrongdoing.<\/p>\n

The ISDS system has clearly cost Ecuador, whether through payouts to multinationals, lost investment or both. But if it has offered the country\u2019s government little, it has provided Mora and other residents of the nation\u2019s oil producing regions even less.<\/p>\n

Mora and others say that despite the $93 million counterclaims that Ecuador won from Perenco and Burlington, the government has yet to clean up any of the pollution\u2014this money was never actually transferred to Ecuador, it was merely deducted from the amount owed to the oil firms, according to the companies. Neither Ecuador\u2019s environment ministry nor its attorney general\u2019s office responded to detailed questions for this article about what happened to the funds from the counterclaim award, or whether any remediation has begun.<\/p>\n

\"Celso<\/figure>\n
\"Celso
Celso and Nancy Mora stand on the veranda of their bakery in the town of La Belleza, Ecuador. The Mora\u2019s relocated to the town to escape air, water and other pollution from nearby oil operations. Credit: Katie Surma\/Inside Climate News<\/figcaption><\/figure>\n

Last year, as Mora sat on the veranda of the small bakery he and his wife opened after the demise of their farm, he reflected on all that has transpired since his arrival in the Amazon region in 1987.<\/p>\n

The episode feels to him like a dystopian tale where everyone\u2014the state, the companies, and government officials all got rich at the expense of locals. Mora had once thought that if there was wrongdoing, authorities would address it.<\/p>\n

But while oil prices were soaring, and government coffers plump, officials left residents unprotected. Only when the state was staring down yet another expensive ISDS case did it leap to invoke its environmental laws. \u201cThe government, it\u2019s a system that we can\u2019t beat,\u201d Mora said, shaking his head. \u201cFarmers don\u2019t mean anything. We don\u2019t count to them.\u201d<\/p>\n

But it is Perenco that he holds most responsible for the harm caused to his family and the loss of his farm. Stories like his abound. Perenco\u2019s pollution affected 41,000 Ecuadorians<\/a> between 2002 and 2009, according to the Correa administration\u2019s report on the effects of ISDS cases. No one, Mora said, should have to hear from a doctor that \u201cIf you don\u2019t want to get cancer and die, get out of that site.\u201d<\/p>\n

Miles away, Mora\u2019s farm sat unused and overgrown. The well Perenco drilled continued to pump oil out of the ground, now under the control of the state-owned oil company. The soils surrounding it still hold the toxic waste the company had spilled.<\/p>\n

As for the ISDS system, Mora is relieved that there is an official record of Perenco\u2019s ecological injuries. But his personal losses\u2014expensive medical bills, loss of income, displacement and the loss of his farm\u2014remain unaddressed.<\/p>\n

And then there is the fact that the billions of dollars in ISDS judgments Ecuador owes or has paid to Perenco, Burlington, and other foreign oil companies will ultimately be funded by Ecuadorian taxpayers\u2014like Mora.<\/p>\n

_______________________________________________<\/p>\n

\"\"<\/a>Nicholas Kusnetz is a reporter for<\/em> Inside Climate News. Before joining<\/em> ICN, he worked at the<\/em> Center for Public Integrity and<\/em> ProPublica. His work has won numerous awards, including from the<\/em> Society of Environmental Journalists, the American Association for the Advancement of Science and the Society of American Business Editors and Writers,<\/em> and has appeared in more than a dozen publications, including<\/em> The Washington Post, Businessweek, The Nation, Fast Company and<\/em> The New York Times. nicholas.kusnetz@insideclimatenews.org<\/a><\/p>\n

\"\"<\/a>Katie Surma is a reporter at<\/em> Inside Climate News focusing on international environmental law and justice. Before joining ICN, she practiced law, specializing in commercial litigation. She also wrote for a number of publications and her stories have appeared in the<\/em> Washington Post, USA Today, Chicago Tribune, Seattle Times and<\/em> The Associated Press, among others. Katie has a master\u2019s degree in investigative journalism from Arizona State University\u2019s Walter Cronkite School of Journalism, an LLM in international rule of law and security from ASU\u2019s Sandra Day O\u2019Connor College of Law, a J.D. from Duquesne University, and was a History of Art and Architecture major at the University of Pittsburgh. Katie lives in Pittsburgh, Pennsylvania, with her husband, Jim Crowell.<\/em> katie.surma@insideclimatenews.org<\/span><\/a><\/p>\n

Go to Original – insideclimatenews.org<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

14 Jan 2024 – A case in point: When Ecuador placed a windfall tax on foreign oil operations, French and U.S. companies filed claims\u2014and were awarded more than $800 million.<\/p>\n","protected":false},"author":4,"featured_media":253071,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[55],"tags":[1023,232,550,289,555,562,626,610,651,1442,2059,2060,779,1160],"class_list":["post-253064","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-capitalism","tag-banksters","tag-capitalism","tag-corruption","tag-economy","tag-elites","tag-finance","tag-greed","tag-inequality","tag-justice","tag-multinational-corporations","tag-organized-crime","tag-profits","tag-sovereignty","tag-world-order"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/253064","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=253064"}],"version-history":[{"count":4,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/253064\/revisions"}],"predecessor-version":[{"id":253074,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/253064\/revisions\/253074"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/253071"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=253064"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=253064"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=253064"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}