Ecuador in China’s orbit

Rafael Correa and Chinas president Xi Jingping. Credit: Ecuadorian government

Rafael Correa and Chinas president Xi Jingping. Credit: Ecuadorian government

Ecuador shines brightly in China’s orbit.

The world’s largest banker has provided credit lines to Ecuador for nearly USD 12 billion, including the amount that President Rafael Correa brought back from his official visit to the superpower in early January.

Between 2007 and 2012 China invested nearly USD 240 billion in Latin America, and it has now announced a new package of USD 250,000 for the next few years for several countries in the región.

The largest beneficiaries of this “generosity”: Chinese companies, Chinese technology, Chinese capital and populist governments, which can show expensive infrastructure that is beset by environmental and labor related questions, but can still be usefully displayed.

20 Chinese companies operate in Ecuador, thanks to projects funded by two Chinese banks: Exim Bank and the China Development Bank. Approximately 15 of these corporations have the largest contracts in 10 sectors of the economy, especially the so-called strategic sectors, which involve sensitive issues such as telecommunications, electricity, oil and mining.

There are additional contracts in public safety, roadways, public health, road safety and water. The type of contract is per package, i.e. EPC, also referred to as turnkey. Thanks to this modality of financing and contracting, where there is no open bidding or tender, the country cannot know whether the cost of the projects is expensive or consistent with the market prices than any other non-Chinese company would offer.

The largest beneficiaries of these contracts in Ecuador have been the Chinese companies and some subcontractors; it is not known who they are or how they got the contracts. The other major beneficiary has been the national government and its strategy of political support in exchange for infrastructure.

The political factor

China has used Ecuador as a bridgehead to enter Latin America, but it has also experienced failures, such as the scandalous case of the Chinese radars for the Armed Forces, a failed contract for USD 60 million that has so far neither been investigated nor sanctioned at a governmental level.

One of the first successful contracts was in the area of public safety. When the initial agreement for the first Integrated Security System, or 911, was reached, the Ecuadorian government had already signed (November 2009) the largest contract of the decade: almost USD 2 billion with Sinohydro, a Chinese dam construction company, the largest in the world, for the Coca Codo Sinclair.

By then, Jorge Glas held positions in the cabinet that were related to telecommunications and later to the strategic sectors. His privileged access to credit, especially with Exim Bank, one of the Chinese banks that generate credits for developing countries, had led him to achieve a reputation for effectiveness within the cabinet that was reflected in political power. From then on Glas and his team negotiated most of the Chinese credits, with Exim Bank, for hydroelectric power stations and the mining, oil and telecommunications sectors. Which fell within his area.

The icing on the cake, however, which would earn him once and for all the political hegemony among the quarreling factions that Alianza PAIS had become, was the oil facility agreement or advance oil sale with Petrochina, as this meant an immediate injection of cash for the expenses of the Executive, in a rentier economic model that required and still requires hard cash to keep the political machinery going at full speed.

Thus, large infrastructure works were added to the political assets of the Glas group, but more importantly, a new imaginary started to be built for the fraying good-living citizens’ Revolution: for the new campaign, Glas obtains the license, on his own right and that of the Chinese capital obtained, to occupy the candidacy for the vice presidency, a pragmatic candidacy that makes sense politically and has resources, at the expense of the burned-out proposals of the increasingly isolated and domesticated “Correísta” left, which after the Montecristi Constitution has nothing new to offer.

Along with Glas, Correa wins a new election and its propaganda apparatus, assimilated enthusiastically to the new proposal, reiterates the “Correísta” promise: changing the energy matrix and then changing the productive matrix.  This proposal, furthermore, is economically logical, as it will enable the government to undertake the elimination of subsidies and integrate the energy change into the imaginary of a new country: productive, innovative, ready to vault towards the First World mounted on the pole of knowledge.

The names of the Chinese companies and projects that hastily gave financial muscle to the new imaginary succeeded one another on the way: Sopladora, Toachi Pilatón, Mazar Dudas, Quijos, Villonaco, the transmission line… then the emblematic mining projects, Ecuacorriente, or water projects such as Chone, Bulubulu, Canar, Naranjal; optical fiber with Huawei taking the lead, or the oil companies Andes and Sinopec contributing to oil drilling.

However, at the same time but independently, another relationship started to be developed with a different Chinese bank: the Development Bank. Its capital began to fund one of the most successful projects in terms of political communication and the government’s situational requirements: safety. The Integrated Public Safety System began to take shape from within the Ministry for the Coordination of Safety, ran by retired admiral Homero Arellano. The Chinese technology company Ceiec offered an ideal solution to the problem of public safety: surveillance, installing hundreds of cameras in the main cities and highways, images that would be linked to software to which every safety related institution would be integrated: Police, firefighters, emergency services in hospitals, National Traffic Agency, Risk-Management Secretariat… That was the origin of the giant screens that amazed the president himself and enabled Arellano to grow a reputation for effectiveness from one of the government’s most delicate and failing aspects: the fight against crime.

The one obstacle for the operation of these integrated centers was the human factor. It cost a lot to get the different entities to give up some of their corporate interests to converge on the system. Finally, only the Armed orces were left out through their own choice.

It was not only the Chinese technology that impacted the cabinet. The infrastructure did too, built by the CAMCE company, also Chinese. The speed, especially when building the infrastructure, enabled this company to get other contracts such as the four largest hospitals on the Ecuadorian coast, two in Guayaquil, one in Portoviejo and one in Esmeraldas. There was a coordination problem here, however.

Some of these additional works, for which the Chinese companies were hired without engaging in a bidding process, were managed by the then Institute for the Procurement of Works, which following the surprise dismissal of its director was renamed the Works Management Secretariat, a kind of executive unit that established the works contracts under the direct control of the Executive. The problem arose because the Ministry of Health had little or nothing to do with the initial design of the hospitals, which affected the hospital infrastructure protocols for which the public health leading agency was responsible.

The same company that built the hospitals and the 911 systems provided at least 200 ambulances for the public health emergency system. And simultaneously, Ceiec, the same company that built the technology for the Integrated Public Safety Center installed GPS and surveillance cameras in 55,000 units of urban transport and buses within Ecuador, in a contract with the National Traffic Agency.

On the road to China

The relationship with Chinese companies has not been without problems. After the initial trouble between Sinohydro and Coca Codo Sinclair, there were some further difficulties because of the employment status of their workers and delays in the work. After the death of 14 workers, a tragedy that generated a “prudent” reaction from the authorities and only a declaration that there would be a criminal investigation, other accusations were made regarding several works controlled by Chinese companies, involving especially environmental issues or problems with the communities. The murder of José Tendetza, a Shuar leader who opposed the Chinese mining company ECSA, is still recent history but the Ecuadorian authorities have done very little about it.

The Chinese companies apparently have more power than we have been led to believe. During the last five years China has increased its presence in the country. The billions of dollars invested make it Ecuador’s number one partner in public investment. And its presence will double, thanks to the funding promises signed by President Correa this January during his official visit to China.

There Correa was treated as a great friend of the new world superpower and the country was “privileged” with resources approaching USD 7.5 billion, according to official sources.

These investments – loans from China will be used for social concerns. The construction of 200 millennium schools and the works in the public health sectors have already been mentioned. The political impact would be based on the fact that the new loans would leave the control of the orbit of the Vice President’s Office and the Ministry for the Coordination of Strategic Sectors controlled by people who are close to the vice-president. But it remains to be seen.

For the time being, Rafael Poveda himself, the coordinating minister, has taken the lead and signed two important agreements with Asian companies: with Chinalco, a giant involved in mining and heavy industry, to install a basic aluminum factory, and with a port company to upgrade Ecuadorian ports. In the event this goes through, plus the funding of emblematic works such as the Pacific Refinery and Quito’s Metro, Ecuador would eventually become the Hong Kong of South America.

The Chinese model and the Beijing Consensus

“With its lights and shadows, it is undoubtedly true that due to its enticing and effective formula, the Asian giant pushes forward unstoppably through the developing world, a prelude – maybe – to a future conquest of Western markets and, eventually, to a new world order dictated from Beijing. As is natural, its current deployment of tentacles is a consequence of its confidence in its own strength, to which the western financial crisis contributed decisively. In a way, this has jeopardized the entire model. In China, in fact, the (western) crisis is perceived as a sign of the decay of a system – that of liberal democracies – whose prestige is, according to many, quite questionable. “China is the alternative now. Our model shows that there is another option. And who knows, it may be better that the western option, said with rare clarity Li Guofu, a diplomat with experience in the United States and Africa, and an expert on the Middle East. “The West wants to impose its system to the world, from China to the Middle East. They want to set an agenda based on human rights, democracy… But we ask ourselves, why should we follow that model if maybe it has already expired”, he insisted.

“That feeling, that the West’s time has passed, is totally or partially shared by other developing countries that now see in China a new and unquestionable paradigm of efficiency”. As if this were not enough, the new leadership is in the hands of an emerging country – one of their own – which is also willing to lend money, make investments or strengthen political ties without imposing any conditions and avoiding uncomfortable questions. Thus, the one system among all those conceived by men that – although imperfect – has provided more prosperity, welfare, justice, freedom and equality to people – democracy – must now compete with the “Beijing Consensus”, as the Chinese model has been labeled.

“The Chinese magic formula is known: on the one hand, the interventionism of an omnipresent State in the economy and society; on the other, strict political control, including the submission of the powers of the State – as well as the media or fourth power – to the only party, which holds a monopoly on power and is not accountable to anyone. This authoritarianism, which propaganda crudely describes as harmonic, offers based on its efficiency a seductive shortcut to development, but at a high price paid by the dispossessed. This Chinese pragmatism, as the system is repeatedly referred to, is triumphing in the developing world. On the one hand, in those emerging nations in which freedoms and the separation of powers prevail, the local political elites are willing to yield before the excitement caused by China’s arrival. On the other, this formula is much more attractive to despotic regimes in Africa, Asia or Latin America, whose opaque alliances with the world’s largest dictatorship provides them with the oxygen they need to stay alive. Wherever China sees opportunities it chooses to act as an accomplice of the excesses.

“It is not just that China has become the great protector and partner of choice of the most repressive regimes in the world (Burma, North Korea, Iran, Sudan, Cuba), or that its State companies often enjoy carte blanche when facing competitors because of the vertigo caused by the authority of the almighty Chinese State. It is also about the penetration and acceptance of Chines standards and values – which are much more ambiguous regarding labor, social or environmental requirements – in Beijing’s sphere of influence, from the countries in which it invests to international institutions like the World Bank or the Asian Development Bank. The theory of British historian and journalist Martin Jacques appears to be coming true: the world thought that with China’s opening the country would be westernized. What is happening is just the opposite: the world is being Sinicized”. (The text in quotation marks was taken from the book The Silent Chinese Conquest, by journalists Juan Pablo Cardenal and Heriberto Araujo. Editorial Crítica, Barcelona, Spain, 2011.

Ecuador: two examples

In October 2009, the State awarded an EPC or turnkey contract to the Chinese company Sinohydro for the construction and commissioning of the hydroelectric plant Coca Codo Sinclair. The amount: USD 1.979 billion for a capacity of 1,500 megawatts. The term: 60 months. This mega-project, a symbol of the so-called “energy matrix change”, should have been operational in October 2014, but for various reasons, among them the jamming of the drill rig, the work has been delayed until at least March 2016, according to a projection made by the Minister of Electricity. Furthermore, the cost has now exceeded USD 2.3 billion and the repair work could put it closer to a figure nearing USD 2.8 billion.

A 14 month delay

The two most serious crisis at the giant hydroelectric plant occurred towards the end of 2014.  The first was a conflict with the construction company, announced by the president himself, caused by the suspension of the excavation of the pressure tunnel. The cause: the drills got jammed. This was when the president forcefully denied that the deadline would be extended and that in the case of a delay a fine would be charged for every additional day. He even calculated the effect: the country would lose USD 2.5 million every day and this cost should be borne by the Chinese company. That was on Saturday November 15, during the weekly presidential message “Enlace Ciudadano”.

Almost immediately, the regime’s propaganda machine began to announce Correa’s visit to the project on Tuesday November 19. And the president said he would not accept delays, announcing that the exploration would be done using “traditional methods”. Dynamite? Pick and shovel? Mission impossible. When the large official delegation arrived at the area of the project, took the tour and the relevant technical presentations were given, the president made a new announcement: the problem would not be solved with fines but with more investment.

According to technical sources, the deadline could be met, but the emerging engineering works would cost at least USD 300 million more. Who would pay the bill? The president did not say, but the “conflict” had been solved. There was only good news: the project would be ready on time, it was almost 75% complete, and when the work that was being done with the tunneling machine was shown, the pro-government newspaper El Telégrafo announced that “it was possible to observe how our tunneling machines work, lining the structure with concrete. The technology that is being implemented is one of the best in Latin America”.

Nearly a month later, on Saturday December 13, tragedy struck: 13 workers – this is the official number – died dragged by flooding inside the pressure tunnel and 12 were wounded.  The terrifying testimonies spoke of a broken floodgate and how the victims were hit by rocks, pierced by iron bars acting as spears and drowned.  The Coca Sinclair company’s official statement said the cause was a landslide in pressure well number 1 of the Powerhouse.

The pressure well’s conditions were precisely one of the reasons why the consortium that supervised the project, CFE-PYPSA-CVA-ICA (called “the Association”) issued some questions about the work’s progress through audit reports presented on March 28, 2012. The Association ordered the work to be suspended six times.  The relevant order for the work in the lower branch of the pressure pipes stated that: “This audit orders Sinohydro to suspend all excavation work as from today in the lower branch of the pressure pipes in the area of the Powerhouse for the following reasons:

  1. The Association has not approved the design criteria presented by Sinohydro.
  2. Sinohydro has failed to present the structural calculations and excavation, support, protection measures and ventilation layout for that work front.
  3. The safety conditions at the work front, especially those related to poor ventilation, are unacceptable despite the Association’s insistence that measures should be taken to get rid of toxic gas concentrations that exceed the norm and endanger the workers, communicated through reports.
  4. The conceptual engineering design has not been reviewed as stipulated in the contract, and the detailed engineering has not been developed. The Association confirmed that Sinohydro did not have duly approved detailed engineering documents at the time.

Another order to suspend the work stated that “Sinohydro cannot begin working on the excavation and supports of the upper branch of the pressure pipes while there are no topographical control points that can be verified and approved”.

According to the auditors the emblem project was deeply flawed in other areas too. For example: there were no approved detailed engineering studies, the final designs for the construction of the project were lacking, there was no schedule for the execution of the activities, there was no qualified staff, there was a lack of knowledge about industrial safety and hygiene standards, among others.

When the Association ordered suspending the excavations in the Powerhouse, it argued that “Sinohydro has not heeded the Association’s observations stating there is no sprayed concrete design and that the blueprints should present the same anchoring lengths as the structural calculations report”.

The content of the documents, published by the now-defunct magazine Vanguardia, edition 348 of July 2, 2012, signed by Fernando Villavicencio, was also sent in a letter to the president with copies to his private secretary, Gustavo Jalkh, and the Minister of Electricity Esteban Albornoz.

They were sent by engineer Patricio Enríquez in April and May 2012. At that time he was a technical specialist, manager of the Coca Codo contract. Enríquez requested an appointment with President Correa to explain in detail the serious structural problems that had been identified. Jalkh replied in a letter that Vice President Jorge Glas would see the engineer, but Enríquez was never contacted. On the contrary, he lost his job.

One of the essential disagreements between the auditing company and the Chinese company was caused by the procurement and installation of pressure pipes to connect the compensating reservoir to the Powerhouse. The dispute focused on the quality of the steel used, which could generate a loss of USD 14 million and reduce the project’s lifespan.

One of the reports signed by the Chinese company itself revealed the extent of the problems:

“Coca Sinclair EP and the Supervising Association state that the total lack of proper scheduling of the work, the lack of organization at the work fronts, the non-use of approved final designs and the lack of qualified staff, coupled with a lack of supervision of the work being executed, are producing delays in every work front and cause the execution of defective work, which should be rebuilt or rejected for lack of quality or for not meeting the requirements stated in the EPC contract. Sinohydro has been notified that despite the continuous demands to solve these problems, Sinohydro has never fulfilled its continuous promises and offers to improve the quality of the work”.

The document was signed by the contract manager, Engineer Patricio Enríquez, the representative of the supervising company, Engineer Marco Aurelio Ramírez and by Sinohydro. It was also signed by the former Chinese ambassador to Ecuador, Cai Rungou and Yang Yuanhong.

That same year, legal and labor related problems involving the project started to surface. One of the main problems involved the company Sakoto Construcciones, represented by lawyer Fernando Larrea, which filed a complaint alleging embezzlement stating that when the company was responsible for the civil work in the complex’s camps it received from Sinohydro USD 179 as payment per square meter for the construction of three camps for the project. But at the same time the Chinese company allegedly charged USD 800 per square meter for the same construction to the State company Coca Sinclair EP. Sakoto was Sinohydro’s subcontractor and the Chinese company defended itself claiming that the plaintiff had abandoned the work and, on the contrary, owed USD 1 million. The complaint was filed in April 2012, and the Prosecutor General had two years to reach a decisión.

In November 2012, approximately 30 workers of the Coca Codo project went to the National Assembly to denounce labor abuses. The workers also reported physical mistreatment and alleged sexual abuse cases.

Six lawsuits against the Chinese company also appeared on the Judiciary’s page. They had been filed before labor courts alleging salaries and compensations had not been paid to the workers, reported El Comercio in Quito.

The Chinese company replied in a statement that a “small” group of 200 workers, of the 4,700 that have been hired for the project, had filed those claims, but that the Ecuadorian State, through the Ministry of Labor Relations and the Coca Codo Sinclair EP Company, was following up on the case.

After the December catastrophe, which left 13 dead and 12 wounded, the workers again reported the lack of safe working conditions and hygiene, and the poor labor relations, as they had done nearly three years earlier. The authorities’ response was the same: we will investigate. Thus, the Public Prosecutor’s Office initiated an investigation.

The government’s propaganda chains presented a picture that differed from Sinohydro’s own official reports. On the occasion of President Correa’s first visit to the building site, the contractor company’s manager sent a notice to the subcontractors requesting that “a good image should be presented to the press, so that it was mandatory to remove all the clothes hanging to dry, lift the mattresses from the floor, hide all the trash and debris…”.

In a letter written to rectify a report about this issue, signed by the deputy project manager, Luis Ruales, and published by the newspaper El Comercio, the executive asserts that the catastrophe of December 13 was caused by “a hydrostatic and hydrodynamic phenomenon that affected a provisional platform used to facilitate the concreting work in the lower elbow of Pressure Pipe No. 1”.

 Ruales stated in the same document that the order to suspend the work issued by the Supervising Association in regard to the Pressure Pipe, “refers in fact to the supervision  of activities ordered on March 28 2012 because Sinohydro Corporation had not provided all the necessary information on this work front and because of ventilation problems. Once these situations were rectified (a few days later) work resumed normally”.

Sinohydro also builds roads in Ecuador

Sinohydro not only builds Coca Codo Sinclair in Ecuador. The Chinese company, which has invested more than USD 6 billion in the Democratic Republic of Congo, and has a 1,250 megawatt dam in Sudan, has contracts to build roads in Ecuador granted by the Ministry of Transport and Public Works.

The Chinese company is working on several sections of the 139 kilometers of the Cuenca-Girón-Pasaje road.

The contract is for USD 31 million. The Ministry’s portal states that “this route is part of a package of projects contracted nationwide with foreign company Sinohydro”.

Another project that is part of this package is the reconstruction of the Sígsig-Matanga-Gualaquiza road. The work began in late August 2014 and should be completed in 31 months. The road is 94 kilometers long and the work includes expanding and improving it, as well as upgrading the surface with asphalt concrete, according to official information. The contract is for USD 65.4 million.

Is it the same with Hydrochina Corporation?

Assemblyman Milton Gualán Japa, of the Unidad Popular party (former MPD) representing Zamora Chinchipe, said he had verified in-situ what a notice issued by his office described as “irregularities being committed by Hydrochina Corporation in the construction of the Hydroelectric plant Delsitanisagua, contracted by the Electric Corporation of Ecuador, CELEC, in the province of Zamora Chinchipe, involving the workers’ transportation, diet, job stability, mistreatment, occupational health and occupational risks”.

Gualán met with the workers on Friday December 12 2014 to hear their complaints and verify their working conditions.

The list of irregularities and violations presented by Gualán’s office in a letter to the President of the Assembly, Gabriela Rivadeneira, is summed up in that there is no adequate transport for the hundreds of workers; the Internal Regulations, which they all receive when they start working for the company, are not complied with; there is no dispensary in case there is an accident; the workers put in nine or ten hours per day for a paltry salary considering how risky their tasks are; there are no translators to help understand the signs and shouts of the Chinese personnel; the workers are not provided with clothing to protect their health; they are not protected by national and international Occupational Health and Safety regulations; the work is suspended whenever the employers so decide with no compensation; workers and laborers are not treated adequately or with respect. There is no dining room for the workers who receive their food in an inadequate area without the minimum hygiene standards. To all this should be added that accidents have already happened that have not been notified to the relevant authorities, so that urgent measures should be taken to avoid something similar to the unfortunate accident at Coca Codo Sinclair.

Gualán also mentioned in his letter to Rivadeneira that the workers at the Delsitanisagua project stated that Hydrochina continues the practice of “suspending” employees and withholding their salaries for up to eight days if the Asian employers believe they are guilty of misconduct, with no right to appeal. In some cases the worker does not know he has been “suspended”, he arrives at the project’s facilities as any other day and is told to go away with rude gestures and expressions, for the Asians neither speak Spanish nor have translators.

This complaint involves cultural aspects: the absence of translators means that the workers cannot be understood by or understand their Chinese employers. They have not been allowed to get organized into associations or unions; if a worker shows any indication of doing this “he is dismissed immediately, plus the company does not keep any workers for longer than three months” to avoid labor commitments under Ecuadorian law.

The Regional Directorate of Labor and Public Service of Quito approved the Health and Safety Regulations of China Hydropower Engineering Consulting Group CO. Hydrochina Corporation, but it is clear that the Minister of Labor Relations, Gualán said, is not fulfilling his obligation to monitor what is going regarding this issue. In another area, regulations involving respect for the environment are also infringed; waste material is spread on the roads and toxic waste thrown into the rivers.

Questions to the Institute of Social Security (IESS) and the Ministry of Labor Relations

The office of Assemblyman Gualán issued several questions to the authorities on the situation of the workers of the Delsitanisagua hydroelectric project. Several of these involved the authorities reporting to the Assembly when and which agencies have inspected the project to verify the workers’ claims and their working conditions. If compliance with the Health and Safety Regulations has been verified and if it has, when.

The Institute of Social Security was asked if Hydrochina Corporation is up to date in its obligations to the IESS regarding employer contributions. If the Institute has made the relevant Technical Risk Prevention Visits during the course of the work; and if the company has notified the IESS of any work accidents so far. Will these questions ever be answered?


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