Ecuador & Panama Papers: Oily Payments

The Panama Papers raises questions about the Petrochina $1 billion, 7.25 percent two-year loan to Ecuador from July 2009. (Photo: Petroecuador).

Panama Papers reveal corruption at Ecuador’s state oil company




QUITO -- The journalistic treasure trove of the Panama Papers continues to provide more evidence of suspicious transactions involving Ecuadorian officials.

Last week, El Universo broke stories, based on documents of legal firm Mossack Fonseca, involving Petrochina, Petroecuador, its former chief executive, as well as Ecuador’s ambassador to Panama. While officials sought to deny and/or downplay the information reported by the Guayaquil-based daily, working in partnership with the International Consortium of Investigative Journalists that coordinated the distribution of the leaked documents, the reports add to the body of corruption suspicions troubling the Correa administration.

The most significant case involves the Petrochina $1 billion, 7.25 percent two-year loan to Ecuador from July 2009, the first of several such deals locking a major part of Ecuador’s oil exports into the hands of the Chinese company. The comptroller general’s office investigated the deal and, in 2013, found an unjustifiable loss of $34.5 million, which it blamed on a series of former and current officials at Petroecuador, the state oil firm that handles the sales side of the government-controlled industry. El Universo’s report, meanwhile, revealed that Ecuadorian companies were paid a commission of $1 per barrel. Petroecuador had agreed to deliver 69 million barrels to cover the loan, which is kept off Ecuador’s debt books by the government’s decision to consider these types of transactions “pre-sales” rather than credit operations.

Petrochina passed the oil to Castor Petroleum, a unit of Russian-owned oil trader Gunvor. According to the documents reported by El Universo, Castor, via a subsidiary of its own, Waterway, paid the commission to Ecuadorian-owned firms Eston, based in Nevada, and Oil Services and Solutions (OSS), a Petroecuador supplier that has received more than $30 million in government contracts.

El Universo linked Eston to several individuals including Enrique Cadena, previously singled out by investigative journalist Fernando Villavicencio as a leading intermediary in Petroecuador’s foreign oil sales. It also reported that Panamanian bank Banvivienda had subsequently closed Eston’s account due to suspiciously high transaction amounts. The cascade of transactions had raised suspicions of wrongdoing, particularly since some of these companies also signed contracts with offshore companies linked to Alex Bravo, the former head of Petroecuador arrested under suspicion of corruption last month.

In response, the companies named in the deals have sought to dispel the allegations but failed to address the whole information. Petroecuador chief executive Pedro Merizalde said the report was plagued by “non-confirmed , non-contextualized information” published only a few months before the upcoming electoral campaign and that the dealings “corresponded to daily export operations” (El Universo noted that it requested interviews with Merizalde on several occasions). On its part, Gunvor denied direct dealings with Eston. Meanwhile, the comptroller general’s office has switched position, now agreeing with Petroecuador that the company indeed sold the oil at market prices, while the oil continued to flow to the US, not to China. The Spanish legal term for the expiration of its investigation – desvanecer – can also be translated into English as “fade away.” But the allegations won’t, given the contradictions and severity of the suspicions.

For one thing, president Correa said that he fired Bravo as soon as he found out about the executive’s offshore holdings, but Merizalde continues to run Petroecuador even though the leaked Mossad Fonseca papers show that he, too, owns a Panamanian company bought in 2012, but which he, according to El Universo, omitted from his obligatory asset filing (as did prosecutor general Galo Chiriboga with a house controversially obtained in a suit over a decade ago and owned by a Panamanian shell company). In testimony before congress, former oil minister Carlos Pareja denied any wrongdoing but was surprisingly grilled by pro-Correa legislators for making contradictory statements on corporate filings also regarding a large house in Samborondón near Guayaquil.

On his part, Correa has sought to focus attention on opposition politicians who, also, have offshore ownership, but have not appeared in the Panama Papers. In the case of former banker Guillermo Lasso, the multi-millionaire runner-up in the 2013 presidential election said that his current investment there was approved by Ecuador’s banking regulator. Correa however said that he is considering asking voters to bar people with accounts in tax havens from holding office. That referendum would accompany the presidential elections next February. This would not only manipulate the upcoming vote but flagrantly violate other candidates’ democratic rights to stand for public office. But “decency must be inaugurated,” Correa said. He has had almost a decade to do this, yet evidence is growing that he has led the country in the other direction. Oil in particular is a slippery business; politics in Ecuador is tightly bound to the industry’s fortunes. And there is clearly a lot of rottenness in Ecuador’s state oil sector.

This commentary originally appeared in Ecuador Weekly Report published by Analytica. Republished with permission. 

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