A giant dam was supposed to help lift
Ecuador out of poverty. Instead, it’s part of a national scandal, and a future
tethered to China.
By Nicholas Casey and Clifford Krauss
Dec. 24, 2018
REVENTADOR, Ecuador — The dam sits under
the glare of an active volcano, with columns of ash spewing toward the sky.
Officials had warned against the dam
for decades. Geologists said an earthquake could wipe it away.
The Reventador volcano spewing ash
near the dam.CreditFederico Rios Escobar for The New York Times
The Reventador volcano spewing ash near
the dam.
Credit: Federico Rios Escobar for The New York Times
Now, only two years after opening,
thousands of cracks are splintering the dam’s machinery. Its reservoir is
clogged with silt, sand and trees. And the only time engineers tried to
throttle up the facility completely, it shook violently and shorted out the
national electricity grid.
This giant dam in the jungle,
financed and built by China, was supposed to christen Ecuador’s vast ambitions,
solve its energy needs and help lift the small South American country out of
poverty.
Instead, it has become part of a
national scandal engulfing the country in corruption, perilous amounts of debt
— and a future tethered to China.
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Nearly every top Ecuadorean official
involved in the dam’s construction is either imprisoned or sentenced on bribery
charges. That includes a former vice president, a former electricity minister
and even the former anti-corruption official monitoring the project, who was
caught on tape talking about Chinese bribes.
Then there is the price tag: around
$19 billion in Chinese loans, not only for this dam, known as Coca Codo Sinclair, but also for bridges, highways, irrigation,
schools, health clinics and a half dozen other dams the government is
scrambling to pay for.
To settle the bill, China gets to
keep 80 percent of Ecuador’s most valuable export — oil — because many of the
contracts are repaid in petroleum, not dollars. In fact, China gets the oil at
a discount, then sells it for an additional profit.
Pumping enough oil to repay China has
become such an imperative for Ecuador that it is drilling deeper in the Amazon,
threatening more deforestation.
But that is not enough. Hobbled by
the debts, President Lenín Moreno has slashed social spending, gasoline
subsidies, several government agencies and more than 1,000 public jobs. Most
economists expect the country to slide into recession, stirring outrage.
“China took advantage of Ecuador,” said
Ecuador’s energy minister, Carlos Pérez. “The strategy of China is clear. They
take economic control of countries.”
A family peeling beans on the porch
of their house in the town of Cuyuja. They pay about $60 a month for
electricity.
Credit: Federico Rios Escobar for The New York Times
Power lines built for the Coca Codo
Sinclair project in the middle of the jungle.
Credit: Federico Rios Escobar for
The New York Times
The story of how the dam got built
brings together two natural allies, both eager to change the course of the
hemisphere and displace the United States as the unrivaled power in the region.
China made its plans clear a decade ago, when it swept into Latin
America during the global financial crisis, tossing governments an economic
lifeline and promising to “treat each other as equals,” a clear swipe at
American dominance.
It worked. China, now South America’s
top trading partner, has seeded the region with infrastructure and a staggering
trail of loans. It has reaped political benefits, too, getting Latin American
nations to sever diplomatic relations with Taiwan.
Still, as the giant dam in Ecuador
shows, the two sides were hardly equal partners.
Both nations were willing to overlook
deep design flaws, questionable economics and independent warnings that the
technical studies for the dam were decades out of date.
But using an approach it has applied
to billions of dollars in loans across the developing world, China
never faced much of a financial risk.
The gamble was all Ecuador’s, and now
the country is looking for new loans to plug its many gaps, including more
money from China.
Just this month, Mr. Moreno flew to
China to renegotiate some of his country’s debt — and borrow another $900
million.
“The Chinese put the hook in,” said
Steve Hanke, a Johns Hopkins economist. “At the end of the day, what do these
countries have? A pig in a poke.”
‘We knew this relationship wouldn’t
be an easy one’
When Fernando Santos, an energy
minister in the 1980s, found out that the Coca Codo Sinclair dam was actually
being built, he could hardly believe it.
During his time in government,
officials had rejected a much smaller version of the project. The whole idea
was doomed, he said, because of the volcano nearby. A major earthquake had
decimated oil infrastructure in the area in 1987.
“The volcano has been erupting since
the time the Spanish came to Ecuador in the 16th century,” Mr. Santos said,
adding that investing so much money “in such a risky location was nonsense.”
There were other alarm bells.
An independent review of the project
in 2010, prepared by a Mexican government agency and obtained by The New York
Times, warned that the amount of water in the region to power the dam had not
been studied for nearly 30 years.
Since that time, Ecuador had suffered
punishing droughts, and there were concerns that its glaciers were melting
because of climate change.
Despite the advice, Luciano Cepeda,
the dam’s former general manager, said top Ecuadorean officials pressed ahead
anyway because “a new study would have taken several years” and they didn’t
want to slow down.
Even a Chinese diplomat in Ecuador,
who was not authorized to speak publicly, said he had his doubts about the
project.
“We didn’t give sufficient attention
to the environmental reporting,” the diplomat said.
Ecuadorean officials had rejected a
much smaller version of the dam project.
Credit: Federico Rios Escobar for The New
York Times
An emergency phone’s markings make
clear who built the dam.
Credit: Federico Rios Escobar for The New York Times
China’s record offered both
encouragement and cause for concern. Its massive Three Gorges Dam, which cuts
the Yangtze River and rises 600 feet high, was the largest hydroelectric
project in the world, designed to produce 20 times the power of the Hoover Dam.
But inadequate safety measures led to
the deaths of 100 workers, the dam displaced more than one million people, and
the environmental damage was considerable, including the destruction of
forests.
Warnings aside, there were bigger
geopolitical forces at play. Ecuador’s president at the time, Rafael Correa, was a left-wing populist who
had vowed to modernize his country and free it from the orbit of the United
States.
Elected in 2006 under a surge that
brought leftists to power across Latin America, Mr. Correa took aim at the
United States with fiery, anti-imperialist speeches. In 2008, he refused to
renew a lease that allowed American anti-narcotics surveillance flights to
operate from an Ecuadorean air force base.
Soon, Western financial institutions
fell in Mr. Correa’s cross hairs. He denounced the International Monetary Fund,
saying it put restrictions on his spending. Then in 2008, he defaulted on $3.2
billion of his country’s foreign debt and invited China to fill in the breach.
“Correa wanted to get away from Western banks
and institutions,” said Diego Borja, Mr. Correa’s former minister of economic
coordination. “We knew this relationship wouldn’t be an easy one with China.”
Mr. Borja and other officials were
staggered by the terms on Chinese loans. Most came from a large state-owned
lender, the Chinese Export-Import Bank, which had high interest rates and
required Ecuador to use Chinese companies in construction, effectively
eliminating competition.
China seemed particularly interested
in oil from Ecuador, one of OPEC’s smallest members. In one deal in 2009, China
lent Ecuador $1 billion, to be repaid in oil shipments to the state oil company
PetroChina.
“But we didn’t have other options,”
Mr. Borja recalled. “The doors were closed to the West.”
Mr. Correa suddenly had access to
money, but a new crisis emerged: The country was running out of power. A
drought was depleting the nation’s reservoirs, paralyzing its dams. Rather than
look for another source, Mr. Correa doubled down on hydro power.
Officials say it was Mr. Correa’s
electricity minister, Aleksey Mosquera, who first mentioned Coca Codo Sinclair:
a megaproject that was supposed to provide a third of the country’s electricity
and represent the single largest investment in Ecuador’s history.
It ended up being built right under
the Reventador volcano — and nearly twice the size of the proposed dam that had
been rejected decades before.
When it finally opened in late 2016,
China’s president, Xi Jinping, flew to Ecuador to celebrate.
Yet only two days before the visit,
the dam was in chaos.
Engineers had tried to generate the
project’s full 1500 megawatts, but neither the facility nor Ecuador’s
electrical grid could handle it. The equipment shuddered dangerously, and
blackouts spread across the country, officials said.
Ecuadoreans were never told about the
failure, and a full power test has not been attempted since.
Today, the dam typically runs at half
capacity. Experts say that given its design — and the cycle of wet and dry
seasons in Ecuador — it would be able to generate the full amount of electricity
for only a few hours a day, six months out of the year.
That is, if everything worked
perfectly.
Ecuador still has to pay back the
debt, though. The $1.7 billion loan from China’s Export-Import Bank is
lucrative for China: 7 percent interest over 15 years. In interest alone,
Ecuador owes $125 million a year.
Now, many Ecuadoreans say the burden
falls on them.
Under the constant hum of the dam’s
transmission towers, residents in the town of Cuyuja worry that the towers will
topple in the constant mudslides. Geologists say the tower foundations weren’t
built into bedrock by the Chinese.
Another complaint is the bill. Maria
Esther Tello paid $60 last month to keep the lights on in her home, a shock
given the government’s promises electricity prices would go down.
“Where have my old mother’s taxes
gone?” asked her daughter, Isbela Nole, as she helped harvest and peel fava
beans to pay the government.
Evidence of possible bribery
At an entrance to the dam is an
inscription, in marble.
“Jorge Glas Espinel, vice president
of the republic,” it says. “For having forged and envisioned this monumental
project.”
Mr. Glas now sits in a cell in
Ecuador, sentenced to six years in prison.
He was convicted of taking bribes from China’s main competitor for
infrastructure projects in much of Latin America: Odebrecht, a Brazilian
construction giant. American prosecutors say Odebrecht paid $33.5 million in
bribes in Ecuador as part of a worldwide scheme to win business.
Now Ecuadorean officials are
investigating whether the Chinese also made payments to Mr. Glas and others
around him.
Carlos Usamá and his family grinding
sugar cane by hand.
The family lost a relative last year in flood waters from a
nearby dam.
Credit: Federico Rios Escobar for The New York Times
Jair Robles, a local kayaker, on the
Quijos River near the dam.
Credit: Federico Rios Escobar for The New York Times
“I don’t think it’s a coincidence
that all the same people managed all these projects,” said Mr. Pérez, the
energy minister.
The officials include Mr. Mosquera,
the former electricity minister, who is serving a five-year sentence for taking
$1 million from Odebrecht; and Carlos Pólit, the former anti-corruption
official, who was charged with receiving millions in bribes from the company.
Ricardo Rivera, another close associate of Mr. Glas, was also convicted of
receiving payments from the Brazilians.
But evidence has emerged suggesting
that officials took bribes from China as well.
Ecuadorean law enforcement officials
say they have confirmed a secret tape recorded by an Odebrecht executive, given
to Brazilian prosecutors and leaked to the Brazilian news media. In the
recording, made at the house of Mr. Pólit, the anti-corruption official, the
two men discuss a bribe.
The executive can be heard saying
that Mr. Glas, Ecuador’s vice president, was “asking for a lot of money.”
The executive then explained that he
was told “it was an obligation because the Chinese had already paid.”
The recording has set off an
investigation, particularly around Mr. Rivera, who presented himself as the
vice president’s representative during multiple visits to China, according to
Ecuadorean law enforcement officials.
They say they are examining 13 bank
transfers worth $17.4 million authorized by Mr. Rivera to an HSBC account in
Hong Kong. Law enforcement officials say they consider the bank transfers
authentic — and want to know how Mr. Rivera deposited so much money in China.
Until recently, Attorney General Paúl
Pérez was leading an investigation into corruption by the Chinese, and traveled
to China in November to ask for help.
But Mr. Pérez abruptly resigned on
Nov. 13, shortly after returning. He did not respond to interview requests.
A lawyer for Mr. Glas denied that his
client had been involved in corruption with Coca Coda Sinclair, calling Mr.
Glas “an honorable, honest man” and describing the dam’s problems as “small
imperfections.”
Mr. Correa, the former president, is
in exile in Belgium, wanted for organizing the kidnapping of a rival. Many of
his lieutenants have been sentenced for corruption or are on the run as well.
Mr. Pólit and a lawyer for Mr. Rivera
did not respond to requests for comment; nor did Sinohydro, the Chinese
state-owned construction giant that built the dam.
7,648 cracks in the dam’s machinery
When you approach Coca Codo Sinclair
along the Quijos River, it’s hard to tell you’re nearing a dam at all.
Much of the reservoir containing the
project’s water supply has filled up with small trees and bushes. Boats
sometimes get grounded because the sediment is so thick.
Workers at the dam say the silting, a
consequence of design flaws, is only the latest problem.
As early as 2014, technicians noticed
cracks in the Chinese-made stainless steel equipment. That December, 13 workers
were killed when a tunnel flooded and collapsed.
A senior engineer sent records to Mr.
Correa, the president, asking to brief him on the problems, according to
documents viewed by The Times. The engineer was fired days later, according to
former officials.
To settle the bill for the dam, China
gets to keep 80 percent of Ecuador’s most valuable export — oil — because many
of the contracts are repaid in petroleum, not dollars.
Credit: Federico Rios
Escobar for The New York Times
Because of design flaws, the
reservoir is clogged with silt, sand and trees.CreditFederico Rios Escobar for
The New York Times
Mr. Pólit, the anti-corruption
official, performed audits. But they resulted in only mild criticism like work
delays, with minor fines against the Chinese.
Ecuadorean law enforcement officials
say they are investigating whether Mr. Pólit and other officials were paid by
the Chinese to overlook the problems. It was part of Mr. Pérez’s inquiry before
his resignation, they say.
Now, 7,648 cracks have developed in
the dam’s machinery, according to the government, because of substandard steel
and inadequate welding by Sinohydro. Sand and silt are also big concerns
because they can damage vital equipment.
On a recent visit, an engineer looked
on nervously as readouts showed sand flowing into the dam. But workers say they’re
sometimes confused because of shoddy translations.
One sign in Chinese reads correctly:
“Direct-Current (DC) Pumping Group.”
The Spanish does not: “Pressure Group
from Washington, D.C.”
A sign in Chinese, English and
Spanish instructs employees on the dam’s equipment. The Chinese reads
correctly: “Direct-Current (DC) Pumping Group.” The Spanish does not: “Pressure
Group from Washington, D.C.”
Credit: Federico Rios Escobar for The New York Times
The communication problems extend
downriver.
The heavy sedimentation means
engineers sporadically release large amounts of water to clear out the system,
causing flash floods where Carlos Usamá, a sugar cane farmer, lives. No one
warns him, he says.
In December, he said, his brother and
a friend were fishing near another Chinese-built dam when a similar flood
washed them away.
The bodies were found two days later,
he said.
‘Addicted to loans’
The piles of debt have led the
country’s new leaders to rail against China much as they did against the United
States.
“We are not going to pay,” Mr. Pérez,
the energy minister, said of the possible billion-dollar price tag to fix Coca
Codo Sinclair.
But escaping China’s orbit will be
difficult, said Risa Grais-Targow, an analyst at Eurasia Group, a consulting
company.
“They know they don’t have too many
financing sources, so they are going back to knocking on China’s door,” she
said.
China has already made some
concessions to Ecuador, like paying 92 cents more per barrel of oil. The share
of Ecuador’s oil going to the Chinese has also dropped — to 80 percent, from 90
percent.
But the government still needs $11.7
billion to finance its debt, and it is billions short, analysts say.
Beyond China, the new government is
going back to the institutions Mr. Correa demonized: the World Bank and the
I.M.F. Some worry that Ecuador is simply seeking another set of financial
masters.
“We are addicted to loans,” said Mr.
Santos, the former energy minister.
Leopoldo Gómez, who works at a water
treatment facility built under Mr. Correa, agrees.
“Now we realize,” he said, “there’s
things we didn’t need — like the dam.”
A full power test has not been
attempted since a failed one when the dam opened in 2016.CreditFederico Rios
Escobar for The New York Times
Nicholas Casey reported from
Reventador, and Clifford Krauss from Quito, Ecuador. Jose María León Cabrera
contributed reporting from Quito.
A version of this
article appears in print on Dec. 24, 2018, on Page A1 of the New York edition
with the headline: The Costly Dam That Tethers Ecuador to China.
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