Ecuador President Rafael Correa scored an easy victory in a September 28 referendum on a new constitution, clearing the way for him to extend the state’s grip over the economy, install leftist reforms, and seek re-election.
Correa hailed the vote as a “historic victory,” but the new rules are expected to unnerve investors because they increase state control over monetary and oil policy in the OPEC nation in a similar drive to his socialist allies in Venezuela and Bolivia.
The president now is expected to push broad-ranging reforms with more control over the central bank and the armed forces, and tougher scrutiny of key industries.
Correa, a U.S.-trained economist, also has ambitious plans to create jobs rebuilding crumbling infrastructure. He needs financing to do that, which makes it unlikely he will follow through with threats to stop some debt payments.
Ecuador threatens to halt Brazil hydro loan payments
On September 24, Correa threatened not to repay a US$200 million Brazil government loan supporting Brazilian construction company Odebrecht’s construction of Ecuador’s 230-MW San Francisco hydroelectric project. (HNN 9/24/08)
The day before, Correa ordered troops to seize projects worth about US$800 million from Odebrecht and expelled the construction firm from the country. (HNN 9/24/08) Correa, who often uses nationalist measures to drum up domestic support, is battling with the privately held Odebrecht over San Francisco, which the government says was badly built.
Correa’s decree accused Odebrecht of “putting public services at risk.” He ordered the government to take over building work on the seized projects, which include a small regional airport, two hydroelectric plants, and a rural irrigation project. The decree banned Odebrecht officials working in Ecuador from leaving the Andean country.
“We are seriously thinking of not paying that credit from BNDES, which is the Brazilian Development Bank, that was given through Odebrecht to build San Francisco,” Correa said during a television interview.
He said the US$200 million loan has “huge irregularities … the money was given to the company, but it appears as a loan from Brazil to Ecuador.”
Brazilian Foreign Minister Celso Amorim said his government is worried that the whole Odebrecht issue might affect the investment environment for Brazilian companies in Ecuador, but he declined to comment on Correa’s threat to halt payment.
Analysts said Correa’s threat was part of tough talk before the referendum to expand his presidential powers. In the past, Correa has sometimes taken hard-line positions against foreign companies only to roll back later to a negotiated solution.
In a statement, Odebrecht said it had made the government an adequate proposal to fix the problems at San Francisco, the second largest hydroelectric project in Ecuador.
San Francisco was taken off line in June for inspections of the effects of sediments contaminated by eruptions of the Tungurahua volcano. (HNN 7/16/08) At that time, electricity regulator Consejo Nacional de Electricidad (Conelec) said project operator Hidropastaza called Odebrecht to examine the plant due to loose material in the water tunnel and wear of turbine blades due to sediment carrying discharges from the volcano.
Conelec said Odebrecht had an obligation to repair any damage under terms of its construction contract. San Francisco was inaugurated in June 2007 on the Pastaza River in Ecuador’s central Andean highlands.
Odebrecht involved in 45-MW Baba, 228-MW Toachi-Pilaton
Odebrecht built the US$302 million project, while Brazilian units of Alstom and VA Tech Hydro supplied turbine-generators. San Francisco uses flow releases from the 156-MW Agoyan hydro plant through a series of tunnels and caverns.
In 2007, a government-owned utility terminated a development contract for 45-MW Baba Dam held by an Odebrecht-led consortium and informed Ecuador’s Congress it planned to develop the project itself. (HNN 6/10/08) Odebrecht was allowed to continue as construction contractor, but not as developer.
In March, Odebrecht received a contract from Hidrotoapi S.A. to build the 228-MW Toachi-Pilaton hydroelectric project in Ecuador. (HNN 3/7/08) Toachi-Pilaton involves construction of two hydropower plants, 50-MW Sarapullo on the Pilaton River and 178-MW Alluriquin on the Pilaton and Toachi rivers. As often is the case in such projects, Toachi-Pilaton had a line of credit from Brazilian development bank Banco Nacional de Desenvolvimento Economico e Social (BNDES).