Ecuador votes to leave some of its hydrocarbons in the ground

On 20 August 2023, Ecuadorians were asked in a referendum whether they agreed with the government keeping the oil in the project known as Block 43, indefinitely underground. The majority voted in favour. In this post, we explore the background to the referendum and its implications.

The long road to the referendum

Block 43 is located in Ishpingo, Tambococha and Tiputini, areas inside the Yasuní National Park, in Orellana Province. In 2013, the environmental collective Yasunidos raised the possibility of leaving oil in the Yasuní National Park underground and received strong national support.

Yasunidos collected signatures of citizens to promote the referendum – one of the first examples of a referendum being proposed without the support of any governmental entity.

The collective had to present at least 583,000 signatures (i.e. 5% of the national electorate at the time). They presented 756,000 signatures. However, the National Electoral Council dismissed at least 400,000 signatures within 14 days of analysis, which was seen by Yasunidos as an arbitrary decision.

By these means, the government of former President Rafael Correa blocked the referendum and gave way to intervention in the area, which led to establishing production facilities. Since then, Petroecuador, the State Oil Company, has been in charge of the operation: no private entity has ever been granted any right to exploit the oil in the area.

Between 2014 and 2019, there were a series of additional judgments and acknowledgments that did not allow the process to go forward. A first appeal ruling in the Contentious Electoral Court was issued against Yasunidos. In 2018, an internal audit at the National Electoral Council recognised irregularities in the process and requested that the process return to the National Electoral Council. However, both the National Electoral Council and the Contentious Electoral Court again denied the process, arguing that Yasunidos did not have the appropriate recognition as a collective.

In 2019, once Yasunidos had been recognised as a collective and had active legitimacy, the consultation was again denied by arguing that the process was closed in 2014.

Having presented more than a dozen judicial processes and continued promoting the referendum without success for so many years, Yasunidos filed a constitutional claim (“acción extraordinaria de protección”) that was resolved on November 2021. The Constitutional Court held that there had been a violation of the right to due process and ordered that a new composition of the Contentious Electoral Tribunal be designated, to resolve the appeal filed by the plaintiffs.

On 6 September 2022, the Contentious Electoral Tribunal required the National Electoral Council to:

• attend to the request presented by the citizen Pedro Bermeo Guarderas on behalf of the Yasunidos Collective within 15 days from the execution of the judgment;
• grant the certificate of democratic legitimacy to Yasunidos; and
• submit to the Constitutional Court of Ecuador and hold a referendum on the question proposed by the group..

The result

The official results displayed by the National Electoral Council reveal that, nationally, 58.95% voted in favour of keeping the Block 43 oil indefinitely underground, with 41.05% voting against it.

However, in provinces like Orellana and Sucumbíos, where the operation of Block 43 takes place, the outcome of the referendum was in favour of continuing the exploitation of the oil field.

What are the legal consequences of the referendum?

The referendum becomes a direct instruction to the government to cease operations in the area. No legislative steps are required to give effect to it. Petroecuador must start actions to present the plan to close operations in Block 43 immediately.

All construction, equipment, surface assets etc will have to be removed and Petroecuador must present a decommissioning plan immediately. The process for this remains to be determined. Petroecuador must update the plan to close operations and present it before the Ministry of Environment to coordinate actions.

Petroecuador must coordinate the removal of the infrastructure, the dismantling of pipes and the termination of contracts with workers and sub-contractors. Assets located in Block 43 will return to the state earlier than expected. The government estimates that this would cost the state around US$600 million.

There will be a high cost for Petroecuador and it is not certain how this will be financed, but no private company will be affected other than sub-contractors whose contracts will be terminated (without compensation, since the termination of sub-contracts will fall under a force majeure clause).

Could further legal or political action get in the way?

For now, we do not think the outcome of the ongoing presidential election will impact the implementation of the referendum. Interfering with the outcome of the referendum would likely cause great social unrest and we do not believe either of the candidates is willing to go against the referendum result.

Implementation of the referendum result is more a matter of technical decisions as well as financial budgeting, since pumps and piping need to be removed, which is a very costly process.

Equally, we do not foresee that any other actors or parties will challenge the results of the referendum in the immediate future.

Wider implications of the referendum: is it a one-off, or part of a trend?

In Ecuador, the Constitution grants specific substantive rights to nature, as well as to persons. These include the rights to be protected and to be restored, and are enforceable. This constitutional provision underpinned the referendum and the legal actions in support of it. This is not the only occasion in recent years that the Constitutional Court of Ecuador has played an important role in the protection of the environment, as well as in the protection of the rights of communities that are affected by the exploitation of natural resources. However, not all jurisdictions give the same kind of legal rights, or level of protection, to nature as such.

Also central to the case for the referendum and its conclusion is the status of Yasuní as a National Park and a protected area that is home to exceptionally rich biodiversity and isolated indigenous communities. It is certainly possible that in Ecuador itself, if not elsewhere, further legal action may be taken to curtail economic activity in other National Park areas.

More generally, it is clear that popular concern about the related issues of biodiversity and climate change were important factors in the referendum result. Ecuadorians are increasingly taking a more environmental approach and promoting the preservation of the environment over what might traditionally have been considered “economic” interests.

Other factors influencing the result include that the present government did not provide strong reasons to keep the exploitation of Block 43. Indeed, it is debated whether its very high-cost output of 53,000 barrels per day is really profitable for the country, and some experts claim that only Petroecuador and the service providers benefit from this exploitation.

It may be that the real negative impact to the economy from discontinuing extraction in Block 43 will not be significant. This in turn leads one to question why the previous government insisted on conducting prohibited activities in a National Park, especially one with the characteristics of Yasuní which is so sensitive, including the people (uncontacted by civilisation) that live in the area.

Like many other countries, Ecuador is taking a more environmentally-focused approach when it comes to the exploration and exploitation of natural resources. Most likely the country will continue to take actions and steps towards renewable energy, but the referendum result may not make a great deal of difference to the country’s wider energy policy. As in many other countries, Ecuador faces a long process to complete the energy transition, as well as other problems from an economic perspective.

A number of particular factors are in play in the Block 43 context that mean that it is not necessarily part of a wider trend. At the same time, the impact (and potential legal repercussions) of the referendum result is perhaps less than it might have been if international oil and gas companies had interests in Block 43.

On the other hand, within days of the Block 43 referendum, another Latin American oil-producing country, Colombia, joined the Beyond Oil and Gas Alliance initiated by Costa Rica and Denmark and, further North, the US Secretary of the Interior cancelled seven oil and gas leases in Alaska as part of a package of measures to protect the Arctic National Wildlife Refuge. The chances are that Block 43 will not be the last area to be the subject of political and legal battles in the conflict between oil and gas (and local employment) and nature conservation interests in Latin America or elsewhere.

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