Ecuador: Negative Outlook

Ecuador’s President Rafael Correa expelled Brazilian construction firm Odebrecht last month, blaming it for faulty construction of the San Francisco hydroelectric dam. [And last week, the government rejected an offer from Odebercht to solve the dispute]. Will the Odebrecht expulsion stifle private sector interest in upcoming energy projects in Ecuador? What were the factors driving Correa’s decision against Odebrecht? Does the move put a chill in Brazil-Ecuador relations, and how should Brazil react?

Leonardo E. Stanley, Visiting Researcher at the Center for the Study of State and Society (CEDES) in Argentina: The conflict between the Ecuadorean government and Odebrecht centers on the San Francisco hydroelectric project, inaugurated mid-2007. By the beginning of this year a series of structural faults were detected, which necessitated various repair works. As a result, the Ecuadorean government fined Odebrecht, at the same time revoking the company’s contract. The conflict has continued to grow over the past few days, appearing on the agenda of the meeting between Correa and Lula in Manaus [on September 30]. … This is not the first problem that Correa has faced with foreign investors, and it won’t be the last. But neither is it the first conflict involving Brazilian investors in the region. Up to the present, the disputes have ended up being settled in the political-diplomatic sphere. This is the method that Brazil has preferred to maintain; it declined to participate in a dispute resolution system where private companies can sue sovereign states directly. This won’t be the last conflict [of this type] for Brazil, since foreign direct investment of Brazilian origin is becoming every day more prominent. As such, we will see the Brazilian government intervening frequently between investors and ‘friendly governments,’ something that could end up hurting its geopolitical interests in the region. This type of situation could lead Brazil to rethink its strategy regarding the currently prevailing bilateral system.Full_Story

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