It Doesn’t Matter if Ecuador Can Afford This Dam. China Still Gets Paid.
By Nicholas Casey and Clifford Krauss, NY Times, 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.
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.
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.”
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.”
China has 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.
