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How Wealthy Corporations Use Investment Agreements to Extract Millions from Developing Countries

economyHow Wealthy Corporations Use Investment Agreements to Extract Millions from Developing Countries

Anival Tanguila, a Quichua leader from the Corazón del Oriente Community, stands next to decommissioned Perenco oil infrastructure in the Ecuadorian Amazon on 22 Mar 2023. Credit: Katie Surma/Inside Climate News

A case in point: When Ecuador placed a windfall tax on foreign oil operations, French and U.S. companies filed claims—and were awarded more than $800 million.

14 Jan 2024 – When Rafael Correa entered Ecuador’s presidency in 2007, the nation faced an opportunity and a challenge. Ecuador’s 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.

More than a third of Ecuadorians were living in poverty, and Correa had come to power as a leftist promising “radical, profound and quick changes to the current model of so much exploitation, of so much injustice.”

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’s broader campaign to assert the nation’s sovereignty.

The oil companies fought back, however, and they turned to an obscure corner of international law that extended beyond Correa’s reach. Within months, two oil companies working as partners—the independent Anglo-French firm Perenco and Burlington Resources, a subsidiary of ConocoPhillips—ceased 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.

The companies argued that the tax, which had been enacted by Ecuador’s Congress and upheld by the nation’s 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.

“We felt under attack,” said Guillaume Long, an academic who was an adviser in Ecuador’s Ministry of Planning and Development early in the Correa administration and eventually rose to become foreign minister.

Then President of Ecuador Rafael Correa during a tour of Madrid, Spain in January 2017. Credit: Patricio Realpe/ACGEcuador
Then President of Ecuador Rafael Correa during a tour of Madrid, Spain in January 2017. Credit: Patricio Realpe/ACGEcuador

The eye-watering sum was roughly equal to 15 percent of Ecuador’s entire public spending 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.

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

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.

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 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.

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.

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—a recent report by the United Nations special rapporteur on human rights and the environment called it a “daunting obstacle.”

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 for its abolition.

The Perenco case came to a close only within the last year, after the company succeeded in freezing some of Ecuador’s 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 “environmental catastrophe” in the Amazon region where it operated, but it still walked away with a judgment worth hundreds of millions of dollars.

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’ve lost.

A Good Neighbor? 

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.

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’s family used for drinking and bathing. Three days later, he recalled, an official in a blue jumpsuit stamped with the name “Perenco” arrived at Mora’s house and announced that the company had begun operations in the area. Perenco, the official promised, would be a good neighbor.

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
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

As Perenco drilled its first well and erected gas flares adjacent to his land, Mora’s cocoa and coffee crops began failing—they 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’ mouths and noses with wet dishcloths.

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

Pipelines, gas flares and noise-producing generators are some of the infrastructure the oil company Perenco built adjacent to Celso Mora's farm. In 2009, Ecuador's state-owned oil company took over operations of the platform. Credit: Katie Surma/Inside Climate News
Pipelines, gas flares and noise-producing generators are some of the infrastructure the oil company Perenco built adjacent to Celso Mora’s farm. In 2009, Ecuador’s state-owned oil company took over operations of the platform. Credit: Katie Surma/Inside Climate News

Throughout Perenco’s 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. “No one supports us,” one farmer had written to Ecuador’s National Environmental Protection Directorate following multiple, unaddressed complaints reporting Perenco’s dumping of wastewater affecting the Añangu River, the sole source of drinking, bathing and irrigation for multiple families.

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 “serious environmental pollution” and harm to local communities. By 2010, France declined to take up the case on grounds that the allegations weren’t severe enough to justify an investigation.

“The [Ecuadorian] state did nothing and France did nothing,” Mora, 61, said in a recent interview, recalling the outcome of the case. “I felt that I was condemned to live with pollution without anyone protecting me and my family.”

A Perenco spokesperson said the company “operated 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.”

As the Ecuadorian and French justice systems thwarted Mora’s 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.

“Litigation Terrorism”

There are now more than 350 ISDS cases pending 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, or about one-third of Honduras’s gross domestic product.

The arbitration system, which the Nobel prize-winning economist Joseph Stiglitz once called“litigation terrorism,” is inherently imbalanced. Governments cannot launch suits against corporations, only the reverse.

“This 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’s the game,” said Manuel Perez-Rocha, an associate fellow at the Institute for Policy Studies, a progressive think tank in Washington, D.C. “The team that is defending itself cannot really win anything, can just not lose.”

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.

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.

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.

“Justice in Ecuador is controlled by politicians, is controlled by the mafia, is controlled by people with money,” said Alberto Acosta-Burneo, an Ecuadorian journalist and analyst who is critical of the Correa government’s handling of the Perenco case. Taking away international arbitration is like “asking international investors to believe in a justice system that we Ecuadorians don’t believe in.”

Some research has questioned the degree to which the ISDS system has actually encouraged foreign investment, a key assumption 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.

At least 17 cases have resulted in awards or settlements of $1 billion or more, according to data compiled by the United Nations. 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 by the U.N. special rapporteur, the 12 largest awards alone likely exceed “the total amount of damages awarded by all courts to victims of human rights violations in all States worldwide, ever.”

For many developing countries the threat is acute.

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

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, when Correa announced in 2008 that he had suspended talks with all foreign firms, saying “even though we’ve secured major benefits, I think that we can do better.”

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’ assets and canceled their contracts.

A Perenco spokesperson said the company filed the claim only after it had “exhausted other avenues,” and rejected criticism that the ISDS system was biased in favor of corporations. “Any suggestion that it is somehow unbalanced is risible,” the spokesperson said.

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. 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.

“The only way it can pay is oil revenues or acquiring new debt,” 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.

“Oil Remains an Adventure”

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 “a conqueror and a pioneer,” according to a now-removed page on Perenco’s 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.

The company was soon operating in some of the world’s 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 in Paris Civil Court over alleged pollution from its operations in the Democratic Republic of Congo.

“Oil remains an adventure,” the firm’s homepage declared until a recent redesign, which came after one of its pipelines sprang a leak, spilling into a natural harbor on England’s southern coast.

A Perenco spokesperson declined to comment on the lawsuit over its Congolese operations, but acknowledged having “very localised, minor and limited pollution incidents.” The spokesperson added, “In the event of any accidental soil contamination, the soil is systematically stripped by our environmental department and evacuated to a recovery area.”

Perenco is also in the process of exiting its Peruvian operations, the spokesperson said.

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’s largest independent oil companies and its revenues have made the Perrodos one of France’s wealthiest families. After Perrodo died in a mountaineering accident in 2006, he was succeeded as chairman by his son François, an amateur race-car driver with an extensive collection of high-end cars.

Last year, Perrodo posted on Instagram 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.

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 “as a way to encourage their ongoing investment.”

In June of 2006, Wilman Jiménez, a soft-spoken farmer whose land was affected by Perenco’s operations, joined a protest at the company’s Payamino production station, located near the Amazonian town of Francisco de Orellana, commonly known as Coca, Jiménez recalled in a recent interview.

Jiménez 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’s gates, Jiménez said, when he heard an officer give the order to shoot. The officer then grabbed a soldier’s gun and opened fire.

Wilman Jiménez sits at his desk on March 22, 2023 in Orellana Province, Ecuador. Jiménez was detained in solitary confinement at a military site for more than two weeks for attending a march protesting Perenco's operations. Credit: Katie Surma/Inside Climate News
Wilman Jiménez sits at his desk on March 22, 2023 in Orellana Province, Ecuador. Jiménez was detained in solitary confinement at a military site for more than two weeks for attending a march protesting Perenco’s operations. Credit: Katie Surma/Inside Climate News

The protesters began running toward the forest, bullets whizzing by their ears, when Jiménez heard a soldier yell, “Catch the camera man, he has evidence against us!”

Jiménez said he froze and was shot in the back and on his left side—only then did he realize the gun was firing rubber bullets, which nonetheless encrusted themselves in his body. Hours later, just before evening set in, Jiménez 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 Jiménez was given access to an attorney who secured his release.

A company spokesperson said Perenco was “in no way connected to this event.”

Two years later, Ecuador’s legislature granted Jiménez and other environmental defenders amnesty, but Jiménez said that the harrowing experience led him to decide never to engage in social activism again.

“It’s hard to compete against the power of oil companies and the government,” he said. “Nothing will change because the government doesn’t think of farmers’ or other peoples’ welfare. It’s not worth trying to fight that.”

An Escape Hatch

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.

“A big tension in the government was always the supremacy of capital over human beings,” 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, “and ISDS played, I think, a big role in that.”

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 “sovereign jurisdiction to international arbitration entities” in business disputes.

Over the following year, Correa announced his intention to withdraw from Ecuador’s bilateral ISDS investment treaties and from the World Bank convention 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 “colonialism, slavery with respect to transnationals, with respect to the World Bank and with respect to Washington.”

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.

The findings, released in 2017, Correa’s final year in office, painted a stark picture. 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.

Christian Pino, the commission’s executive secretary, said in a recent interview that the ISDS system effectively gave the companies an escape hatch.

“They can contaminate, they can disrespect the rights of workers, they can fail to pay taxes to the countries where they make their investments,” Pino said. “Because 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.”

A Perenco spokesperson said this was “a wildly inaccurate view,” and that, “Perenco, like all international oil & gas companies, is beholden to all of the regulations wherever it operates.” The spokesperson added, “The reason Perenco filed an ISDS claim was in order to ensure that Ecuador honoured its commercial commitments to Perenco, and for no other reason.”

Before leaving office, Correa completed Ecuador’s withdrawal from the ISDS treaties, including those with France and the United States, which were used by Perenco, Burlington, Occidental and other oil companies.

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
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

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’s 2017 budget, according to the government’s ISDS commission report. Withdrawal also gave companies at least another decade during which they could submit new claims due to the treaties’ “sunset clauses,” which vary by treaty but generally last 10 to 15 years.

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

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. The order would force the cash-strapped government to scrounge for funds, with few places to turn to.

Astonishing Counterclaims

As Perenco and Burlington’s ISDS lawsuits unfolded, the companies took the unusual step of agreeing to allow Ecuador to lodge environmental counterclaims in both cases, with Ecuador alleging that they had left behind an “environmental catastrophe” 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—a cleanup and some form of accountability—might still be attainable even if they had no means of participating in the ISDS proceedings directly.

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

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

There were at least seven pits in the vicinity of Mora’s 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: “Well, in some cases there is no six-month test. These are some mistakes we made.”

The company also regularly interfered with required environmental audits, steering auditors to clean areas and taking soil samples at shallow 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 increased governmental scrutiny, Perenco often paid offaffected locals. In one instance, the company flatly denied responsibility for a spill affecting locals’ drinking water, even though its community relations liaison witnessed the spill, according to the ISDS documents.

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

“The entire system relies upon compliance with licensing obligations, full and timely reporting, and the retention of independent auditors in order to conduct thorough audits,” the arbitrators overseeing the Perenco ISDS case wrote, finding that the company undermined Ecuador’s ability to regulate.

“We would urge caution when listening to the views of disgruntled former employees,” a Perenco spokesperson told Inside Climate News, and added that any contamination was minimal in scale and remediated according to regulatory requirements.

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.

Back in the Ecuadorian Amazon, Mora and others affected by Perenco had one question: When would the cleanup begin?

No Remedy

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

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’s bank accounts in Luxembourg. A lawyer involved in that effort later wrote that the strategy to secure payment from Ecuador relied on “attacking” the country’s economy and creditworthiness by targeting these accounts only days before the funds they held were to be used for paying off foreign debts, “thereby raising the possibility of Ecuador defaulting on its obligations to bondholders.”

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’s 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.

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.

“Not respecting the result of arbitration is much more problematic than even defaulting on debt,” Long said. National governments rely on foreign creditors to pay their bills, and nothing scares creditors away, he said, like failing to service arbitration. “Everything closes down.”

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.

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 that were filed either before it exited the treaties or before those treaties’ 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 to issue a multi-billion dollar judgment in favor of Chevron over a long running dispute related to the company’s mass pollution of the rainforest. Still, one day, the country could be free from the system.

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’s 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’s battles with Perenco and other oil companies and its exit from the ISDS system have done more harm than good, by alienating foreign investors.

“We’re renowned for not respecting contracts and not allowing investors to have impartial arbitration centers,” said Acosta-Burneo, the Ecuadorian journalist and analyst who had criticized Correa’s ISDS exit, adding that Ecuador has seen a decline in both foreign investment and oil production in recent years. “So the country is depending more on oil imports and losing its ability to create income from oil.”

Acosta-Burneo also questioned Correa and other leaders’ invocation of sovereignty as justification for pulling out of investment treaties.

“They say they’re 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,” he said. “Correa really wanted unlimited power on his terms.”

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, his administration oversaw attacks on human rights, the press and other civil liberties throughout his 10 years in office.

Correa did not respond to requests for comment but has continued to deny wrongdoing.

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

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—this 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’s environment ministry nor its attorney general’s office responded to detailed questions for this article about what happened to the funds from the counterclaim award, or whether any remediation has begun.

Celso and Nancy Mora's bakery in the town of La Belleza, Ecuador. The Mora's relocated to the town to escape air, water and other pollution from nearby oil operations. Credit: Katie Surma/Inside Climate News
Celso and Nancy Mora stand on the veranda of their bakery in the town of La Belleza, Ecuador. The Mora's relocated to the town to escape air, water and other pollution from nearby oil operations. Credit: Katie Surma/Inside Climate News
Celso and Nancy Mora stand on the veranda of their bakery in the town of La Belleza, Ecuador. The Mora’s relocated to the town to escape air, water and other pollution from nearby oil operations. Credit: Katie Surma/Inside Climate News

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.

The episode feels to him like a dystopian tale where everyone—the 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.

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. “The government, it’s a system that we can’t beat,” Mora said, shaking his head. “Farmers don’t mean anything. We don’t count to them.”

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’s pollution affected 41,000 Ecuadorians between 2002 and 2009, according to the Correa administration’s report on the effects of ISDS cases. No one, Mora said, should have to hear from a doctor that “If you don’t want to get cancer and die, get out of that site.”

Miles away, Mora’s 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.

As for the ISDS system, Mora is relieved that there is an official record of Perenco’s ecological injuries. But his personal losses—expensive medical bills, loss of income, displacement and the loss of his farm—remain unaddressed.

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—like Mora.


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

Katie Surma is a reporter at 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 Washington Post, USA Today, Chicago Tribune, Seattle Times and The Associated Press, among others. Katie has a master’s degree in investigative journalism from Arizona State University’s Walter Cronkite School of Journalism, an LLM in international rule of law and security from ASU’s Sandra Day O’Connor 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.katie.surma@insideclimatenews.org

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