The China Signal - December 17
Environmental and financial woes for Ecuador’s Coca Codo Sinclair hydroelectric project, Brazilian Beef is back on track, Guatemala stays the course with Taiwan - for now
G’day, and welcome to The China Signal. This week, growing environmental damage from Ecuador’s Coca Codo Sinclair hydroelectric project provokes the government to declare force majeure on oil contracts; China resumes imports of Brazilian beef; Guatemala remains loyal to Taiwan - for now; plus more. Read on.
Saving any major developments, this will be the last China Signal for the year. I’ll be seeing my family for the first time in two years now that Australia’s Covid restrictions have eased (I’m crossing my fingers that nothing changes in the next few days).
So I’d like to thank every one of you for your loyal readership, and for reaching out to connect with me. If you’d like to engage in a deeper, more specific discussion on China-Latin America or broader political risk themes for your own business operations or investing, please don’t hesitate to get in touch. If you have feedback, ideas, or suggestions, please share them with me. In a little over a year this newsletter has grown substantially, and I want it to be as useful as possible for you.
Thanks once again, Merry Christmas, and Happy Holidays!
Infrastructure
Ecuador 🇪🇨
Una represa china está causando una grave erosión en un río de Ecuador - Infobae - December 7, 2021
~Paraphrased translation~
The Coca Codo Sinclair hydroelectric project was created under Rafael Correa administration, and was presented as the "largest in the history of Ecuador." The Hydroelectric Plant was built by Chinese company Sinohydro, and is located between the Amazonian provinces of Napo and Sucumbíos. In addition to having at least 7,000 cracks in the turbine distributors of the Power Plant that have led to Ecuador being in a legal battle with Sinohydro, Coca Codo Sinclair is one of the factors causing the erosion of the Coca river, which now threatens the Trans-Ecuadorian Pipeline System (SOTE).
El proyecto hidroeléctrico Coca Codo Sinclair, se creó en el gobierno de Rafael Correa y se lo presentó como el “más grande de la historia del Ecuador”. La Central Hidroeléctrica fue construida por la empresa china Sinohydro y está ubicada entre las provincias amazónicas de Napo y Sucumbíos. Además de tener al menos 7.000 fisuras en los distribuidores de turbina de la casa de máquinas de la Central que han llevado a que Ecuador esté en una batalla judicial con Sinohydro, la Coca Codo Sinclair es una de las causas que ha provocado la erosión regresiva del río Coca y que ahora amenaza al Sistema de Oleoducto Transecuatoriano (SOTE).
… coordinator of the water program in South America at the International Union for Conservation of Nature (IUCN), Emilio Cobo, in April 2020. In his publication, Cobo explains that Coca Codo Sinclair produces alterations to the river, including “the loss of the flow, the interruption of the natural load of sediments and the loss of kinetic energy of the flow”. This, says Cobo, not only affects the balance of the river but also generates issues when capturing water, because there is “an accelerated process of sedimentation and accumulation of sandbanks, which in time affects system performance ”.
…coordinador del programa de agua en América del Sur en la Unión Internacional para la Conservación de la Naturaleza (UICN), Emilio Cobo, en abril de 2020. En su publicación, Cobo explica que la Coca Codo Sinclair produce alteraciones sobre el río, sobre todo, “la pérdida del caudal, la interrupción de la carga natural de sedimentos y la pérdida de energía cinética (movimiento) del flujo”. Lo anterior, dice Cobo, no solo afecta al equilibrio del río sino que genera inconvenientes para la obra cuando se trata de la captación del agua porque se da “un proceso acelerado de sedimentación y acumulación de bancos de arena que tras el paso de los años afectan el rendimiento del sistema”.
Coca Codo Sinclair was inaugurated by then-president Rafael Correa - convicted and a fugitive from justice in the Odebrecht bribery case -, former vice president Jorge Glas - convicted of illicit association in the same Correa case - and the president of the People's Republic of China, XI Jinping. The Hydroelectric Plant cost more than USD 2.2 billion and was financed with a credit granted by China. In February 2019, the State Comptroller General's Office established in a report that the work generated economic damage to the country due to the existing cracks. The loss, for which Ecuador submitted a request for arbitration against the Chinese company Sinohydro before the International Court of Arbitration of the International Chamber of Commerce, exceeds USD 1 billion.
Once the hydroelectric plant was completed, according to the National Polytechnic School, the morphology of the river showed "important changes" and an erosion rate of 42%. Cobo, who cites this data in his publication, points out that "this clearly shows the impact of the project on the dynamics of the river, changes that are evident in the river's appearance in recent years."
La Coca Codo Sinclair fue inaugurada por el entonces presidente Rafael Correa –condenado y prófugo de la justicia por el caso de sobornos de Odebrecht–, el ex vicepresidente Jorge Glas –condenado por asociación ilícita en el mismo caso de Correa– y el presidente de la República Popular China, XI Jinping. La Central Hidroeléctrica costó más de USD 2.200 millones y se financió con un crédito otorgado por China. En febrero de 2019, la Contraloría General del Estado estableció en un informe que la obra generó perjuicio económico al país por las fisuras existentes. El perjuicio, por el que Ecuador presentó una solicitud de arbitraje en contra de la empresa china Sinohydro ante la Corte Internacional de Arbitraje de la Cámara de Comercio Internacional, supera los USD 1.000 millones.
Una vez concluida la hidroeléctrica, según la Escuela Politécnica Nacional, la morfología del río mostró “cambios importantes” y una tasa de erosión del 42 %. Cobo, que cita estos datos en su publicación, señala que “esto muestra claramente la incidencia del proyecto sobre la dinámica del río, cambios que son evidentes en el aspecto del río estos últimos años”.
In April 2020, a sinkhole caused by erosion caused the rupture of the Trans-Ecuadorian Pipeline System and the Heavy Crude Oil Pipeline (OCP). As a result, more than 15,000 gallons of oil were spilled, polluting the river and affecting the native communities in the area.
En abril de 2020, un socavón provocado por la erosión, causó la ruptura del Sistema de Oleoducto Transecuatoriano y del Oleoducto de Crudos Pesados (OCP). Como consecuencia se derramaron más de 15.000 galones de petróleo que contaminaron el río y afectaron a las comunidades nativas de la zona.
The U.S. Army Corps of Engineers recently signed an MOU to help arrest the Coca river’s corrosion.
The governments of Ecuador and the U.S. signed a memorandum of understanding to articulate technical cooperation to mitigate the effects of regressive erosion on the Coca River and protect the water catchment works of the 1,500-MW Coca Codo Sinclair hydroelectric plant.
According to the article, the Coca Codo Sinclair hydroelectric supplies 30% of Ecuador’s energy demand.
According to the document, the international cooperation will come in the form of technical assistance to develop studies, designs and execution of works, under the technical support of experts in the field, as well as to implement joint actions to face the process of regressive erosion. The MOU aims to “cooperate in the development of joint activities in the fields of engineering services; environmental sustainability; operation, construction and maintenance of river infrastructure; damage reduction; risk analysis; protection and restoration of the environment along rivers.”
In addition, activities will be developed that promote the collaborative and mutual exchange of experience and scientific knowledge on the following topics: river engineering technologies, sedimentation and dredging, river erosion and slope stability, and physical modeling and experimentation.
This week in response to ongoing erosion, the Ecuadorian government declared force majeure on their oil contracts.
Ecuador declared force majeure on all oil contracts, including exports and imports, as the threat of soil erosion forced the shutdown of the country’s two pipelines that transport crude across the Andes.
The clause, which is invoked to remove liability from failing to honor contracts in the event of disasters, went into effect on Sunday, according to a statement on the website of state-owned oil producer Petroecuador.
Ecuador’s third force majeure on oil contracts since the two Andean pipelines snapped last year deals a blow to President Guillermo Lasso, who aims to overcome years of stagnant production in the former OPEC member and more than double output to near 1 million barrels a day.
River erosion near pipeline infrastructure has accelerated since the nearby Coca-Codo Sinclair hydro-electric power plant was inaugurated in late 2016. A landslide in April 2020 severed both crude pipelines, triggering spills and a temporary output cut of almost 60%.
International agencies, including the U.S. Army Corps of Engineers, are working to help find a solution to slow the damage from the aggressive erosion.
Beijing has made some effort to counter this stream of negative news by publishing a puff piece on another hydroelectric project completed by Harbin Electric International in April.
Chinese hydroelectric project helps Ecuador generate clean energy - CGTN - December 9, 2021
Thousands of miles away from home, a Chinese hydroelectric project is helping South America's Ecuador generate clean energy.
Located on the banks of the Jubones River near the Ecuadorean capital Quito, the Minas San Francisco Hydroelectric Station is the third-largest power generating facility in the country.
The project, built by China's Harbin Electric International (HEI), is a major water conservancy project in the region and can be seen as a mirror of Ecuador's clean energy transformation efforts.
Ecuadorian journalists Richard Jiménez and Allen Panchana provide an excellent chronology of the shoddy decision making, construction, and maintenance of Coca Codo Sinclair that led to the current environmental destruction.
Development Finance
Suriname 🇸🇷
China’s real ‘debt trap’ threat - Atlantic Council - December 13, 2021
Facing an economic downturn and unpayable debts earlier this year, the Republic of Suriname turned to the International Monetary Fund (IMF) for a bailout. In exchange for a $690 million loan, the South American country agreed to economic reforms and debt restructuring. But since the loan was announced, according to officials I’ve spoken with, no money has been disbursed—because the Export-Import Bank of China (Exim Bank) has not restructured roughly one billion dollars of debt owed it by Suriname.
Agriculture
Brazil 🇧🇷
China's customs administration said it will allow imports of some beef products from Brazil to resume on Wednesday, ending an embargo in force since Sept. 4.
Beijing said it had resumed imports of Brazilian boneless beef products from cattle less than 30 months old, according to a document published on the website of the General Administration of Customs.
Shares in Brazilian meatpackers jumped on the news, with JBS (JBSS3.SA) up 3% and Minerva (BEEF3.SA) 6% higher.
For further background, refer to TCS December 11, November 24, November 12, and October 28.
Diplomacy
Guatemala 🇬🇹
Taiwan ally Guatemala fends off Beijing overtures - Financial Times - December 13, 2021
Beijing has put pressure on Guatemala to switch diplomatic recognition from Taipei to Beijing and has offered it coronavirus vaccines as an inducement, according to the central American nation’s president Alejandro Giammattei.
“We are the last country in which China has not succeeded in inserting itself,” Giammattei said by video link during a visit to Washington. “The Chinese are pressuring us a lot, they are offering us a lot . . . they did offer [vaccines but] we didn’t accept.”