Controversies
Debate on electricity generation capacity
With the purpose of defining the best alternative and the total capacity of the Coca Codo Sinclair exploitation, INECEL contracted the Feasibility Studies, with the Consortium of consulting firms: Electroconsult and Rodio from Italy, Tractionel from Belgium and the Ecuadorian companies Astec, Ingeconsult and Caminos y Canales, defining the development of the project in two continuous stages, with capacities of 432 and 427 MW, respectively, which totaled 859 MW, according to the study concluded in 1992.
The 2006-2015 Electrification Master Plan contemplated the completion of this project in 2 stages that added up to the 859 MW initially proposed.[30].
CONELEC considered that although the project, initially conceived with a capacity of 859 MW, allows the development of the electricity sector, the increase in demand and the high cost of current generation requires the development of a project of greater magnitude and generation capacity.
Electroconsult was hired to update the project designs. These studies concluded that 1,500 MW can be obtained in a single stage. Electroconsult proposed that with a daily plant factor of 80%, the plant could operate at 1,464 MW for 4 hours, 1,171 for 15 hours a day and 937 MW for the remaining 5 hours.[30].
The then Minister of Electricity, Alecksey Mosquera, defended the decision to design and build the work for 1,500 MW, claiming that the studies had not changed.[31].
In 2018, The New York Times cited experts stating that 1,500 MW of capacity could be generated for six months of the year, for a number of hours per day.[32].
During the first six months of 2020, the plant has generated 2,951 GWh, which implies 742 MW of daily generation on average. As of May 2024, it generated 1,200 MW of daily generation.[33] Technicians assure that the underperformance is due to the fact that the plant is still undergoing closures and repairs with a view to the final delivery of the work.[34].
As of September 2024, it generated 582 MW.[35].
Discrepancies over the cost of this work
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- On the one hand, journalistic investigations estimate its cost at 2.7 billion US dollars.[36] [35].
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- Other reports also usually increase $600 million in the works to raise the power of the transmission lines to 500 KV, for a grand total of $3.3 billion US dollars.[36] The transmission lines are a different work.
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- For financing purposes, the Chinese bank Eximbank"), contributed 1,680 million and required the country to have a counterpart of nearly 300 million dollars ready for the start of construction.[37].
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- In the investigation carried out by the Prosecutor's Office, called "Sinohydro Case", evidence has been collected where, supposedly, there is talk of $76 million in bribes, approximately 4% of the value of the work, however, this investigation is in a process of investigation and identification of responsibilities.[38].
Financing
On October 5, 2009, the EPC (engineering, procurement and construction) contract was signed for the Development of Engineering, Provision of Equipment and Materials, Construction of Civil Works, Assembly of Equipment and Commissioning of the 1,500 MW Coca Codo Sinclair Hydroelectric Project. The contract was for USD 1.9 billion. The largest financier was the Chinese Export-Import Bank of China, for USD 1,682.7 million.[36].
The work was built with external credit from China and public investment from Ecuador. During 2010, the negotiations for Chinese credit had disagreements over the credit requirements, which Rafael Correa considered more severe than those granted by the International Monetary Fund.[39].
In particular, Correa refused to submit the disputes over this credit, initially established at $1.7 billion, to international arbitration resolution. In December 2009, Correa publicly rejected the conditions demanded by China. In January 2010, the Minister of Finance traveled to China to sign a memorandum of understanding.[40].
His then vice president, Lenín Moreno, facilitated agreements with the Chinese ambassador to reach an agreement between the parties in March 2010, to the point that in December of the same year President Correa honored the ambassador at the presidential house.[39][41] One of the main controversies was the required payment guarantee: Ecuador wanted to leave the work as a guarantee, while China wanted enforceable monetary guarantees, given that the work cannot be seized or transferred.[42].
On August 4, 2016, the financial conditions of the credit contract were modified, increasing its amount from the initial $1,682 million to $1,979,700,000.00, extending the disbursement period to 73 months after the effective date of operation of the plant (previously it was 66 months), all-in-cost credit condition and a higher interest rate, which went from 7.29% annually to 7.35%. annually.[31].
The final cost of the work amounted to $2,245 million, so Chinese financing represents 80% of the work.[43].
The Government of Lenín Moreno estimated construction expenses at $2,850 million, so the difference could be due to the expenses incurred for its complete operation.[22].
In 2020, the Ecuadorian government renegotiated four loans with Eximbank of China that financed four projects: Coca-Codo Sinclair, Paute-Sopladora, Minas-San Francisco and 500 kW transmission line. Although the total amount of the Coca-Codo Sinclair project credit is not specified, the deferral of payments planned between 2020 and 2021 for the four credits totals $417 million. The original conditions were not altered and the weighted average rate of these four operations is 6.44%.[44][45] The four loans represent 84.2% of all bilateral debt with China,[46] which is calculated as of July 2020 at $5,431 million.[47].
Construction delay
On October 5, 2009, the EPC (engineering, procurement and construction) contract[36] for the project was signed for 66 months (5 and a half years).
The work began on July 28, 2010.[10].
After several approved extensions, the initial operation was to be completed on September 22, 2015. An examination by the State Comptroller General's Office, for the period from September 2012 to December 15, 2015, calculated fines of $81,175,000 between fines for non-compliance with deadlines[41] plus other non-compliance such as contract price adjustments, unjustified personnel increases and additional unjustified consulting costs. justified and unjustified complementary contracts, which totaled $112 million.[48].
On Tuesday, September 9, 2014, then-president Rafael Correa visited the work, announced that it should be completed in February 2016 and ordered that fines be imposed if the work was delayed longer. He calculated the daily lost profits at $1.2 million, ordered to collect all fines for delays and prohibited officials from granting new extensions. The delay was attributable to the sandy quality of the mountain, which delayed the progress of the tunnel boring machine.[49].
A second examination by the Comptroller's Office, for the period from December 16, 2015 to April 30, 2018, calculated losses of $78.2 million due to unimposed fines.[50] The same examination estimates losses due to lack of energy commercialization due to delays in construction at $27,779,406.57.[50].
Work accidents
On December 13, 2014 there was an accident with 13 deaths, of which ten were Ecuadorians and three Chinese.[51] Thus, the disaster was caused by the collapse of a tunnel in the engine room.[52].
Workers killed in this accident:[53].
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- Ortega Rendon Carlos Ariel (Nueva Loja, Barrio Arazá).
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- Hidalgo Morales Darwin Pedro.
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- Soto Soto Segundo Guillermo (Reventador, San Francisco campus).
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- Alvarado Andi Walter (Cascales, Los Angeles venue).
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- Shiguango Narváez Byron Benjamín (Tena).
Victim 14, Mauricio Ríos Anchundia (Milagro, Guayas), died in January 2015.[54] In addition, there were 12 injured.[55].
In December 2014, the State Attorney General's Office opened an investigation into this accident[56] but six months later, the investigation was archived.[57].
On January 12, 2015, assembly members visited the work and received complaints from workers.[57].
Settlement after entry into operation
During the first months of operation, cracks were detected in its infrastructure. To formally receive the work, CELEC EP ordered an inspection that found other nonconformities.
On November 14, 2018, the State Comptroller General's Office presented the draft audit report where it points out technical flaws that said control entity values at $3,200 million,[31] because it estimated that a new powerhouse should be built, whose construction cost amounted to 1,010.8 million.[58].
The construction company hired the German company TÜV SÜD Atisae SAU at its own expense to verify the status of the work and estimate its solutions.[59] This subsequent review was budgeted at $1 million and a duration of one year.[60] TÜV SÜD began its analysis in December 2018.[59].
Since May 20, 2019, the Chinese company Harbin Electric International, manufacturer of the structures, has been carrying out the repairs recommended by the German company TÜV SÜD. After these arrangements, CELEC EP will be able to definitively receive the work and it is expected that a useful life of 50 years of the project will be guaranteed.[61].
The repair of distributors and other arrangements by the construction company are expected to be completed in December 2021, when CELEC will formally receive the work.[34].
Operation outputs
On three occasions, the most powerful plant in the country went out of operation unexpectedly, leaving the country without electricity.
On Thursday, October 20, 2016 there were blackouts. The public newspaper El Telégrafo presented experts who denied the relationship between such blackouts and the entry into operation of two of the turbines of the Coca Codo Sinclair plant.[62].
Between October 8 and 9, 2018, it was out of operation and multiple blackouts occurred.[63].
Between July 15 and 16, 2019, it was out of operation.[64].
Delay in electrical transmission works
The supply of thousands of additional kilowatts forced the country to install a new 500 KV power line. On July 26, 2013, CELEC contracted with the Chinese company Harbin Electronic Internationcal Co. Ltda. contract 035-2013 for the design, supply and construction of the works of the project "500 KV Transmission System and Associated Works" for an amount of $599,097,509.oo, contracted with a line of credit No. 14103020520142|1795 granted by the People's Republic of China.[31].
However, this work took a while, so for more than three years, the energy from the Coca Codo Sinclair complex did not supply Guayaquil. The 500 KV and 900 kilometer long transmission system was finally inaugurated on June 13, 2019.[65] The work was paralyzed since 2016 due to negotiation problems with indigenous communities in Tisaleo, Tungurahua.[66] When an agreement was finally reached with the indigenous people where the line should pass, the Chinese credit had lost validity.[67].
State Comptroller General Audits
The State Comptroller General's Office has approved two audits with responsibilities: reports DNA8-0001-2019 and DAPyA-0032-2016 found: non-compliance with contractual clauses; structural failures reflected in 7,648 cracks in the distributors of the hydroelectric plant units; defects in generation units; and in the contractual phase, deadlines were extended and fines of 80 million dollars were not collected from the Sinohydro company. Administrative fines have been imposed on 27 companies and officials, including the construction company Sinohydro, the supervisory consortium CFE-PYPSA-CVA-ICA, the former manager of Coca Codo Sinclair and responsible officials. The total fines amount to $170,880,285.[68].
Sinohydro Case: Bribes through consultancies without economic substance
The Internal Revenue Service rejected several items as deductible expenses of the construction company Sinohydro, including consultancies and services for nearly $18.36 million provided by a company located in a tax haven, Recorsa SA, and another company located in Ecuador, Comercial Recorsa C.A. (Ecuador),[69][70] both owned by Conto Patiño, whose daughter, María Auxiliadora Patiño, is listed as owner in a Panamanian company INA, who bought classic furniture in Geneva at Moinat SA Antiques, which was located and used in the apartment located at Quai Wilson 45 1201, Geneva, residence of the then Special Envoy of the Secretary General of the United Nations Organization on Disabilities, Lenín Moreno,[69] valued at $19,000.[7].
On July 14, 2013, Miguel Macías and Ma. Auxiliadora Patiño wrote an email to Song Dong Sheng, representative of Sinohydro in Ecuador, to describe details of the distribution of resources to those involved in corruption schemes of the 500 kV transmission line and Quito metro line.[71].
An invoice for professional services for $1.68 million in favor of Conto Patiño Martínez was also not recognized as deductible.[69].
The non-deductibility of these expenses is challenged before the Judicial Branch by the taxpayer Sinohydro.[69] The taxpayer Recorsa SA has also challenged the non-admission of deductible expenses by the SRI. His case is in the National Court of Justice, after the challenge has been filed for not having recorded 1% of the amount in dispute.[72].
In total, the SRI issued statements totaling $198 million against the taxpayer, after several tax audits for the fiscal years 2010 to 2013. Some of the disputed amounts include: an insurance payment for $172.5 million, since the Ecuadorian government's credit included insurance and payments to Conto Patiño and his companies.[73].
Between March and May 2019, the State Attorney General's Office requested information from the Ecuadorian branch of Sinohydro, who responded that it is prohibited from providing the requested information invoking the Law on the Protection of State Secrets of the People's Republic of China and that if the Prosecutor's Office wanted those documents it should request them under the protection of the Chinese Judicial Assistance Law.[74].
On June 25, 2019, the National Assembly approved an inspection report on the subject, which stated the following:[75].
• - That the State Attorney General's Office investigate links between the presidential family and the creation of companies in tax havens.
• - That the State Comptroller General audit the origin and justification of the transfers made by Sinohydro to Conto Patiño and its companies.
• - That the Internal Revenue Service carry out investigations and tax determinations, both to Sinohydro and Comercial Recorsa C.A. (Ecuador) and other companies related to Conto Patiño Martínez: Construkempo SA, Industursa SA, Inmoklase SA, Lorsudeg SA and Multidiseño SA.
Collapse of the San Rafael Waterfall and regressive erosion in the Coca River
On February 2, 2020, the San Rafael Waterfall, a tourist attraction in the province of Napo, collapsed backwards, being greatly reduced.[91] There is no consensus on the causes of the collapse of this waterfall, because there is a nearby volcano in continuous eruption, the Reventador. It should be considered that the general manager of CELEC, Gonzalo Uquillas, was emphatic in pointing out that the disappearance of the San Rafael waterfall there is no direct relationship between the construction and operation of the Coca Codos Sinclair hydroelectric plant and that it is a strictly natural phenomenon. In fact, CELEC has implemented several measures to protect the infrastructure, minimize its impact on the environment and slow this process.[92].
On April 7, 2020, the Coca River suffered an undermining related to the collapse of the San Rafael waterfall[93] causing a rupture of the Trans Ecuadorian Oil Pipeline System and the Heavy Crude Oil Pipeline, which caused a spill of an estimated 16,000 barrels of crude oil that affected 41,000 inhabitants of 108 towns,[94] including the cities of Orellana,[95] Aguarico and Orellana, which were left without drinking water for several days.[96] As of September 2020, the companies that operate both pipelines had allocated $20 million to repair works.[97].
The causes and effects of this phenomenon are still being studied, however, Luis Ventanilla, the Vice Minister of Electricity in 2020, assured that the hydroelectric plant is not at imminent risk, "neither in the medium or long term with this problem that occurs in the Coca River basin."[98].
According to research that has been carried out in recent years, regressive erosion in the Coca River was the main cause of the collapse of the San Rafael waterfall.[4].
In this same year, CELEC hired Lombardi Andina, Terra Hidro and Kawsus to study the phenomenon and propose mitigation works.[34] However, despite these investigations, the head of CELEC in 2023 confirmed that the hydroelectric plant has no relationship with this natural phenomenon.
Luis Gualle, a resident of the sector, says that before the 1987 earthquake in the sector, the geography of the river was not like this, alluding that it is despicable land that has accumulated in the last thirty years due to the constant eruption of the Reventador volcano.[99].
As of June 2020, scour has receded the banks of the Coca River by 2,600 m, but since May 15, the advance of this scour has slowed, to 100 m in total. Currently, the bed of the Montana River, a tributary of the Coca, is being undermined.
Since June 26, 2020, undermining has accelerated.[100] In 5 months (February-June 2020), river erosion has advanced 3.5 kilometers.[101].
Operation concession
The government of former President Lenín Moreno announced the intention to delegate the operation of the work, as well as the Central Blower. At this time, a formal concession process has not been initiated.[118].
The government of former president, Guillermo Lasso, through the Minister of Energy Fernando Santos Alvite, has stated that it aims to delegate the operations of Coca Coco Sinclair to the contractor company, Sinohydro Corporation. Making this delegation effective would bring benefits for Ecuador, since China is willing to pay 2,000 million dollars that could be invested in several strategic sectors.[119].
Construction quality
A report CCS-SGT-2021-IT-0095 on the repair to the distributors of units 5 and 8 of the plant lists the defects in these distributors, attributing their quality to non-compliance with the ASME standard.[8] However, after these first versions it was determined that the standard quality cannot be applied to China that works with materials of different parameters, in addition, the report carried out by the German company, TÜV SÜD maintains that "the material used was finally grade Q500D… is more or less 100% copy of the European specification EN 1025-6…”. On the other hand, this same report states that “… the test results of the base material are within the values required by the specification…”[4].
Likewise, this company recommended repairing the cracks using the Temper Bead method.[8] The alternative solutions would be to cover the current distributors with carbon fiber or build new distributors.[120].
In 2014, 7,648 cracks were identified, before the plant comes into operation in 2016.[120][121] From 2015 to 2021[122] repairs and maintenance have been carried out on the cracks.
Coca Codo Sinclair supervision and the ASME certified inspector claim that the post-weld term treatment documents would not be authentic.[8].
Currently, the work has not been received in compliance and international arbitration has been proposed to determine responsibilities for the construction.[120] International arbitrations are reserved.
On May 13, 2022, the Chinese ambassador to Ecuador visited the hydroelectric plant to observe its current operation.[123].
In August 2022, CELEC EP reported that the US Army Corps of Engineers would carry out an inspection of the plant to observe its technical operation. This is a different mission from the one that evaluated the regressive erosion of the Coca River, in July 2021.[124].
CELEC EP has requested the US Army Corps of Engineers to re-inspect the plant in 2023.[110].
According to the reports presented by the Combined Disputes Board (JCD) and by the German company, TÜV SÜD, it is determined that the defects in the distributors do not create a risk of catastrophic collapse, nor does there exist the possibility of ruin at the plant, nor is there a risk to the safety and health of personnel.[4].
Dispute about delivery receipt
On May 17, 2022, CELECP EP filed an arbitration against Sinohydro, due to construction defects in the distributors. As background, and according to the contractual clause, CELEC EP activated a Combined Dispute Resolution Board, which in August 2020 ruled in favor of Sinohydro, in the welding of the distributors, a solution that does not satisfy CELEC EP.[36].
The parties have begun negotiations for the construction firm to take charge of the work, operate and fix it, and charge for the electricity it generates, as a supplier to the wholesale electricity market. The negotiation session scheduled for March 15, 2022 was postponed due to Sinohydro's involvement in a Prosecutor's Office investigation.[125].