Brazil envoy returns to Ecuador; disputed hydro payments never stopped

Brazil’s foreign ministry announced its ambassador is returning to Ecuador in the wake of a diplomatic dispute sparked by Ecuador’s threat to suspend payments on a US$243 million Brazilian loan that financed Ecuador’s 230-MW San Francisco hydroelectric project.

Brazil’s Ministerio das Relacios Exteriores issued a memorandum stating Ecuador has continued to make its loan payments, without interruption, to Brazilian national development bank Banco Nacional de Desenvolvimento Economico e Social (BNDES). Payments continued despite Ecuador’s November filing of an international lawsuit seeking to suspend payments on the loan, alleging the terms were unlawful. (HNN 11/26/08)

Brazilian national news agency Agencia Brasil reported the ministry said Ambassador Antonino Marques Porto was returning to Quito after being recalled in November “for consultation” with Brazilian Foreign Minister Celso Amorim. Brazil said it would continue to monitor its economic and financial relations with Ecuador.

“We are truly calm and taking all actions possible to defend BNDES’ and Brazilian interests,” BNDES Vice President Armando Mariante told a Brazilian Senate committee in December.

Mariante told senators there were no Ecuadoran debt defaults on the Brazil loan. He said Ecuador has indicated it is willing to continue to pay its debts until the International Chamber of Commerce Court of Arbitration in Paris issues a final decision on the dispute.

In September, Ecuador President Rafael Correa raised tensions with Brazil after he expelled top Brazilian constructor Odebrecht in a dispute over the San Francisco project. In October, he rejected an offer by Odebrecht to end the dispute.

Correa expelled the firm from Ecuador and sent troops to seize US$800 million worth of projects being carried out by Odebrecht, including an airport, two hydroelectric plants, and a rural irrigation project.

Correa accused the company of having built the dam poorly. San Francisco was completed in 2007, but was not functioning because of damaged machinery.

Odebrecht said it agreed to pay for repairs to San Francisco and to extend a guarantee on the project by one year and on the repairs by five years. The contractor said it also would make a deposit of US$43.8 million until an independent international audit decided whether it owed further penalties.

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