Rafael Correa, the extremely popular president of Ecuador, announced the decision to open additional blocks (Ishpingo, Tambococha, Tiputini) of the Yasuni National Park on 16 August 2013.
These blocks—Ishpingo, Tambococha and Tiputini—are extraordinarily rich in biodiversity and home to several indigenous tribes, but until now they have been protected from development by Correa’s own Yasuni ITT initiative.
The Yasuni ITT initiative pledged to protect that environment if Ecuador received donations sufficient to forgo the money they would otherwise receive from oil royalties and exports—a figure Ecuador put at $3.6 billion.
After nearly a decade of trying to drum up support for the innovative initiative from rich donors, Correa determined that Ecuador could not afford to keep up the program, called the Yasuni-ITT Initiative Trust.
They allegedly got $330 million in pledges and received just $13 million in donations, a tiny fraction of the $18 billion they might be able to earn by extracting the roughly 850 million barrels of crude below the rainforest floor.
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Petroamazonas, the state oil company, will be the main beneficiary of the reversal, but Correa appears open to working with outside companies, so long as they operate in the most environmentally-conscious way possible.
Any company who drills in Yasuni must have a solid plan to adhere to environmental audits by the government of Ecuador, which despite permitting the development of Yasuni, remains vocal about its commitment to protecting its natural resources.
Although activists and NGOs are working furiously to block the new Yasuni concessions, Correa has sufficient support in Congress to pass the bill quickly. It is a sign that Correa is willing to play ball with the oil industry--a group of investors with whom he has complicated relationships.
Ecuador is involved in a long-standing legal dispute with Chevron, which acquired Texaco in 2001. Chevron became the new defendant in a lawsuit dating back to 1993, alleging that Texaco caused massive environmental damage in its operations going back to the 1970s. A court in Ecuador found in favor of the plaintiffs, awarding them $19 billion--a judgment Chevron continues to fight.
For its part, Ecuador withdrew from the ICSID tribunal in 2009 after a series of rulings that his government’s policies violated contracts the government had with foreign oil companies including Perenco and Occidental.
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A number of other suits are now pending in other forums, including claims by Encana and Andes Petroleum.
Several days after giving up on the Yasuni-ITT initiative, Correa tweeted another unusual idea on how Ecuador could be more carbon conscious: he suggested the elimination of news in print, saying that an all-digital news corp would help prevent deforestation and global warming.
In addition, Correa says the oil revenues will be used, in part, to build a renewable energy grid in Ecuador.
Small to mid-sized companies should be looking at Ecuador for exploration and development opportunities in both the oil and renewable energy sectors.
By Southern Pulse for Oilprice.com