Political Risk Latin America Blog @PolRiskLatam

Ecuador oil: At war with Chevron

Posted in News and Articles, Political Risk by politicalrisklatam on February 22, 2011

by The Economist Intelligence Unit, February 17th, 2011.

A protracted court case in Ecuador has resulted in a multi-billion-dollar judgment against Chevron (US), which has been found responsible for oil-drilling contamination in a wide swathe of Ecuador’s northern jungle. However, the company intends to fight the ruling and says it will not pay the penalty. At the same time—and regardless of its merits—the Chevron case could further damage Ecuador’s ability to attract investment from global oil companies.

The case was initially filed 17 years ago against Texaco (US), before Chevron bought that company’s Ecuadorean assets in 2001. In the 1970s and 1980s, Texaco operated in partnership with the state oil company, Petroecuador, and, the lawsuit states, left substantial environmental damage in the area in and around Lago Agrio, a town founded as an oil camp in the 1960s.

The judge on February 15th ordered Chevron to pay US$8.6bn to compensate for the contamination, with payments to go to a group representing rainforest tribes and villagers in the area. This is one of the largest environmental awards ever ordered by a court. The penalty could be doubled with the addition of punitive damages if the company fails to pay up promptly. Meanwhile, both sides plan to appeal: the plaintiffs to increase the award (reportedly to as much as US$113bn) and Chevron to overturn it.

Chevron, the US’s second-largest oil company and one of the biggest in the world, has stated that it considers the lawsuit political and that it did not get a fair trial in Ecuador. It denies any responsibility for cleaning up Lago Agrio, saying that Texaco carried out a clean-up operation in agreement with the government. Chevron is expected to appeal the decision both domestically and abroad, based in part of what it says is evidence of fraud and collusion between the plaintiffs and the court. (continue reading… )

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