CHINA – ECUADOR China to finance 60 per cent of public works projects in Ecuador’s energy sector

world | Jun 29, 2010 | By Asia News

Beijing – Construction of the Coca Codo Sinclair hydroelectric dam by China's state-run Sinohydro Corp is set to start next month. China will also finance the project to the tune of 85 per cent of the cost. Once in operation, the dam should meet 35 per cent of Ecuador’s power needs by 2016. However, the project has drawn fire over its technical, environmental and economic aspects.

Patricio Rivera and Jorge Glas, respectively Ecuador’s ministers of Finance and Strategic Sectors, have signed the deal with China’s Eximbank on 2 June in Beijing. The agreement calls for the Chinese to provide Ecuador with a US$ 1.68 billion loan to cover 85 per cent of the almost US$ 2 billion price tag at a 6.9 per cent interest rate. The South American nation will raise the remaining 15 per cent.

The dam will be built at the foothills of the Andes, in the Amazon rainforest, some 75 kilometres east of the capital Quito, on the Coca River, which flows into the Napo, a tributary of the Amazon River, at a big bend (or "codo") where the water level plunges 600 metres.

The labour force used in this enterprise will be hired locally but many of the engineers and specialised technicians will be Chinese. The turbines and other equipment will also come from China.

The dam will help reduce gasoil and bunker subsidies, which currently amount to $1 billion, and will eliminate the need to import electricity from Colombia and Peru.

The project, which the Ecuadorian government says will have an installed capacity of 1,500 megawatts (MW), has drawn criticism on both technical and financial merits.

Jesus Jativa, a professor at the National Polytechnic School, told Inter Press Service (IPS) that a previous study released in 1992 concluded that the capacity would be 859 MW. The projected potential of 1,500 MW "is not based on hydrological studies," Jativa said.

A further study by Mexican state electricity company CFE found that the optimum potential of the new dam would be 1,200 MW. However, on June 14, the government published a new "supplementary" document in which the CFE amended its earlier projection upwards to 1,500 MW.

Observers note that the higher MW capacity is based on peak flow during the rainy season. Most of the year, flow volumes are much lower.

According to Jativa, the country has a history of long periods of drought, followed by periods of intense rainfall, so that the dam is bound to be underutilised for most of the year.

At the same time, the project would reduce the regular flow of water and this could have adverse effects on the environment.

The loan for the dam has also been slammed; for some observers, it is too generous for the Chinese side.

Economists like María de la Paz Vela have said the loan is far above what most multilateral lenders can offer. She noted that 20-year loans are available at interest rates of between 4 and 5 per cent for similar infrastructure projects.

Former Ecuadorian Vice President Leon Roldos (1981-1984) said that although it is a fixed price contract, the financing deal is based on price indexing—adjusting amounts by the change over time in prices—for materials and labour power. equally, the US$ 1.98 billion price tag is US$ 400 million higher than the cost projected in 2008.

The government has countered the criticism by insisting that dam would cover 35 per cent of the country’s energy demand, whilst reducing CO2 emissions by four million tonnes of a year.

Meanwhile, Eximbank has also expressed interest in financing the Sopladora hydroelectric plant downriver from the Paute complex in southeast Ecuador, with a new US$ 600 million credit. Like the Coca Codo Sinclair dam, this plant would also be built by a Chinese company.

If the deal for the Sopladora plant goes through as expected, China will be financing nearly 60 per cent of all public works projects in the energy sector currently underway in Ecuador.

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