Oil, Ecuador and its people (Part 1)

Editorial
Los Angeles Times
August 28, 2009

AGUINDA VS. TEXACO INC.

Today, a swath of the Ecuadorean Amazon remains contaminated beyond imagining. Neither side disputes the devastation, only who should pay for it. Chevron says it is the state oil company's responsibility.

In a small, spare courtroom in the Amazon region of Ecuador, Chevron Corp., California's largest company and one of the world's largest oil producers, will soon face a day of reckoning. After 16 years of litigation, a case the company inherited in a merger, Aguinda vs. Texaco Inc., is nearing an end. The legal battle that began in the United States in 1993 and resumed in Ecuador in 2003 has pitted the multinational against an unlikely adversary, a coalition of indigenous tribes and communities. A verdict is expected early next year. The plaintiffs are poised to prevail, and Chevron acknowledges that it is likely to lose.

The case is historic by several measures. Never before have indigenous peoples brought a multinational oil corporation to trial in their own country. Moreover, a victory would mark a turning point in the relations between native populations around the world and the foreign corporations that do business in their homelands. And the potential damages are staggering: A court-appointed expert has determined that they could run to $27 billion, almost 10 times that initially awarded to plaintiffs after the Exxon Valdez oil spill.

Today, a swath of the Ecuadorean Amazon the size of Rhode Island remains contaminated beyond imagining. At one site after another, oil hangs in the air, slides on the water's surface and saturates the land. Pipelines and waste pits left behind years ago still drip and ooze. Advocates for the plaintiffs have called the former Texaco concession area the "Amazon Chernobyl." Were it in the United States, it would easily qualify as a Superfund site. Neither side in the case disputes the devastation, only who should pay for it. Chevron says it is the state-owned oil company's responsibility; the plaintiffs say it is Chevron's.

The plaintiffs are seeking unspecified damages for environmental cleanup, reforestation and healthcare. (Under Ecuador's legal system, they cannot receive individual compensation.) In addition to reams of documents and hundreds of soil and water samples, the case has generated abundant ill will. Chevron maintains that it's the victim of a scheme to plunder its deep pockets and make it pay for pollution caused by Petroecuador, the state oil company, which took over after Texaco's operations ended. The plaintiffs contend that the pollution was caused by the faulty infrastructure Petroecuador inherited from Texaco; as with a faulty car, to use their analogy, it is the manufacturer, not the driver, who is to blame. Entire communities, they say, have been plagued with devastating illnesses as a result of oil waste in their drinking and bathing water, and their suffering has fallen on deaf corporate ears. Their resentment runs as deep as the oil Texaco once drilled.

Assessing the damage

Texaco Petroleum and Ecuadorean Gulf Oil Co. began exploring for oil in the Ecuadorean Amazon in 1964, found it three years later and, from 1972 to 1992, produced 1.7 billion barrels of crude. Texaco held a 37.5% interest in the consortium, but it designed and constructed the wells, pipelines and waste pits, and it was the sole operator of the 1,700-square-mile concession area.

In 1992, after the government did not renew its contract, Texaco turned over its infrastructure to Petroecuador and left the country. One year later, five indigenous tribes and 80 communities filed a class-action lawsuit in federal court in New York, then Texaco's headquarters. The suit alleged that Texaco discharged more than 18 billion gallons of waste water into rivers and streams, burned millions of cubic meters of natural gas without proper emissions controls and spilled millions of gallons of crude oil directly into the earth, polluting the region's only sources of water, sickening inhabitants and even contributing to the extinction of one small tribe, the Tetete.

In a report submitted last year, the court- appointed expert, geologist Richard Cabrera, estimated that 1,400 people in the region had died of cancer caused by toxic chemicals involved in oil extraction. That calculation accounts for $2.9 billion of the damages assessment. Chevron contends that Cabrera is not qualified to make such a determination and that neither science nor medicine supports his assertion; he has not presented the medical records of any victims. As for remediation, the company says Texaco already did that.

Chevron disputes the scientific methods used to determine its culpability, but the heart of its defense is its assertion that the case never should have been permitted to go forward. The company maintains that it is the victim of the retroactive application of environmental laws that did not apply when Texaco was operating the concession area, and that Texaco fulfilled its clean-up obligations.

After the suit was filed in New York, Texaco entered into a remediation agreement with the Ecuadorean government. As part of that agreement, the company spent about $40 million cleaning up oil field waste pits and funding socioeconomic projects in local communities. In 1998, after years of government oversight and periodic approvals, the Ministry of Energy and Mines and Petroecuador certified that Texaco's remediation met the country's standards, and the government issued a waiver releasing the company from further liability. Chevron, which merged with Texaco in 2001, maintains that the waiver not only immunized it against any action by the government but obviated all other claims. Yet the waiver says nothing about third parties. It releases Texaco "forever, from any liability and claims by the Government of the Republic of Ecuador, Petroecuador and its Affiliates."

More than legal interpretation is at issue. Cabrera concluded that soil samples even from areas Texaco said it remediated are contaminated, which prompted the government to take action against the company as well. Declaring the original remediation a fraud, it indicted two Chevron officials and seven former government officials. And just recently, the court agreed to turn over Cabrera's damages assessment to the office of the federal prosecutor. As a result, Chevron is battling not just the plaintiffs but Ecuador itself. It has tried to pressure the government to assume responsibility for remediations by urging the United States to revoke the country's preferential trade status. So far, that effort has failed.

In Lago Agrio

Such tactics represent a remarkable break in a long relationship between American oil companies and the Ecuadorean government. Indeed, so comfortable was Texaco with the country's government and judicial system that soon after the lawsuit was filed in New York, it argued to move the case to Ecuador. In support of that motion, it filed affidavits attesting to the transparency and fairness of the Ecuadorean court system, pleadings it would come to regret.

At the time, moving the trial was the last thing the plaintiffs wanted. Historical collusion between government officials and oil executives, coupled with the racism and discrimination faced by indigenous peoples in their homeland, made a fair trial inconceivable, they argued. Plaintiffs' advocates likened it to African Americans in the pre-civil rights South obtaining justice from a court in, say, Mississippi -- not impossible, but unlikely. The New York judge sided with Chevron and agreed to dismiss the case as long as the company promised to abide by the Ecuadorean judge's verdict. Chevron promised it would, and in 2003 the fight started over again in a jungle-adjacent courtroom in Lago Agrio.

There, in the grimy oil town named after Texaco's birthplace in Sour Lake, Texas, the two sides await a verdict in a case with echoes and implications around the world. From Nigeria to Peru, native peoples are challenging with new force the destructive legacies of multinationals. In that, Aguinda vs. Texaco is a legal landmark -- one we hope, whatever its outcome, will enable multinational corporations to better navigate the changing world in which they do business and thus encourage a new era of corporate responsibility.

For its part, Chevron has ample reason to be anxious. The company succeeded in having the trial moved to Ecuador, where American oil companies once held great sway. But the country's politics, environmental ethos and regard for its native peoples were about to evolve in dramatic, unforeseen ways. The new Ecuador has turned out to be a far less hospitable place for Chevron than the old Ecuador had been for Texaco.

Tomorrow: A changing Ecuador, and the "shadow case" against Chevron.

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