Reference no: EM131799686

ETHICS CASE: Texaco: The Ecuador Issue1

In 1964, at the invitation of the Ecuadorian government, Texaco Inc. began operations through a subsidiary, TexPet, in the Amazon region of Ecuador. The purpose of the project was to "develop Ecuador's natural resources and encourage the colonization of the area." TexPet was a minority owner of the project and its partner was Petroecuador, the government-owned oil company. Over the years from 1968 to 1992, the consortium extracted 1.4 billion barrels of oil from the Ecuadorian operations. Ecuador benefited greatly during this period. Ecuador received approximately 98 percent of all moneys generated by the consortium in the form of royalties, taxes, and revenues. Altogether, this amount represented more than 50 percent of Ecuador's gross national product during that period. TexPet's operations over the years provided jobs for 840 employees and approximately 2,000 contract workers, thereby benefiting almost 3,000 Ecuadorian families directly, in addition to the thousands of Ecuadorian nationals who supplied the company's needs for goods and services. Also, TexPet made substantial contributions to the Quito, Guayaquil, and Loja Polytechnics and other institutions of higher education. Oil is Ecuador's life-blood-a $1 billion per year industry that accounts for 50 percent of the export earnings and 62 percent of its fiscal budget. Unfortunately, problems also arose. Although Petroecuador acquired 100 percent of the ownership of the Transecuadorian pipeline in 1986, TexPet still accounted for 88 percent of all oil production and operated the pipeline in 1987 when it ruptured and was buried by a landslide. A spill of 16.8 million gallons (4.4 million barrels) occurred, which Texaco attributed to a major earthquake that devastated Ecuador. Other spills apparently occurred as well. Although Texaco pulled out of the consortium in 1992 entirely (having retreated to be a silent minority partner in 1990), three lawsuits were filed against it in the United States-the Aquinda (November 1993), the Sequihua (August 1993), and the Jota (1994). The indigenous people who launched the lawsuits charged that, during two decades of oil drilling in the Amazon, Texaco dumped more than 3,000 gallons of crude oil a day-millions of gallons in total-into the environment. The indigenous people say their rivers, streams, and lakes are now contaminated, and the fish and wild game that once made up their food supply are now decimated. They asked in the lawsuit that Texaco compensate them and clean up their land and waters. Maria Aquinda, for whom the suit is named, says that contaminated water from nearby oil wells drilled by the Texaco subsidiary caused her to suffer chronic stomach ailments and rashes and that she lost scores of pigs and chickens. Aquinda and 76 other Amazonian residents filed a $1.5 billion lawsuit in New York against Texaco. The class-action suit, representing 30,000 people, further alleges that Texaco acted "with callous disregard for the health, wellbeing, and safety of the plaintiffs" and that "large-scale disposal of inadequately treated hazardous wastes and destruction of tropical rain forest habitats, caused harm to indigenous peoples and their property." According to the Ecuadorian environmental group Ecological Action, Texaco destroyed more than 1 million hectares of tropical forest, spilled 74 million liters of oil, and used obsolete technology that led to the dumping of 18 million liters of toxic waste. Rainforest Action Network, a San Francisco-based organization, says effects include poor crop production in the affected areas, invasion of tribal lands, sexual assaults committed by oil workers, and loss of game animals (which would be food supply for the indigenous peoples). Audits were conducted to address the impact of operations on the soil, water, and air and to assess compliance with environmental laws, regulations, and generally accepted operating practices. Two internationally recognized and independent consulting firms, AGRA Earth & Environmental Ltd. and FugroMcClelland, conducted audits in Ecuador. Each independently concluded that TexPet acted responsibly and that no lasting or significant environmental impact exists from its former operations. Nonetheless, TexPet agreed to remedy the limited and localized impacts attributable to its operations. On May 4, 1995, Ecuador's minister of energy and mines, the president of Petroecuador, and TexPet signed the Contract for Implementing of Environmental Remedial Work and Release from Obligations, Liability, and Claims following negotiations with Ecuadorian government officials representing the interests of indigenous groups in the Amazon. In this remediation effort, producing wells and pits formerly utilized by TexPet were closed, producing water systems were modified, cleared lands were replanted, and contaminated soil was remediated. All actions taken were inspected and certified by the Ecuadorian government. Additionally, TexPet funded social and health programs throughout the region of operations, such as medical dispensaries and sewage and potable water systems. That contract settled all claims by Petroecuador and the Republic of Ecuador against TexPet, Texaco, and their affiliates for all matters arising out of the consortium's operations. In the summer of 1998, the $40 million remediation project was completed. On September 30, 1998, Ecuador's minister of energy and mines, the president of Petroecuador, and the general manager of Petropro-duccion signed the Final Release of Claims and Delivery of Equipment. This document finalized the government of Ecuador's approval of TexPet's environmental remediation work and further stated that TexPet fully complied with all obligations established in the remediation agreement signed in 1995. Meanwhile, in the United States, Texaco made the following arguments against the three lawsuits: Activities were in compliance with Ecuadorian laws, and international oil industry standards. Activities were undertaken by a largely Ecuadorian workforce-which Texaco believed would always act in the interest of its community/country. All investments/operations were approved and monitored by the Ecuadorian government and Petroecuador. All activities were conducted with the oversight and approval of the Ecuadorian government. Environmentally friendly measures were used, such as helicopters instead of roads. The health of Ecuadorians increased during the years Texaco was in Ecuador. Ninety-eight percent of the money generated stayed in Ecuador-50 percent of GDP during that period. Jobs were provided for 2,800. Money was provided for schools. Independent engineering firms found no lasting damage. A $40 million remediation program was started per an agreement with the Ecuadorian government. U.S. courts should not govern activities in a foreign country. The three lawsuits were dismissed for similar reasons-the Sequihua in 1994, the Aquinda in 1996, and the Jota in 1997. The Aquinda lawsuit, for example, was launched in New York (where Texaco has its corporate headquarters) because Texaco no longer had business in Ecuador and could not be sued there. The case was dismissed by a New York court in November 1996 on the basis that it should be heard in Ecuador. Failing that, the Ecuadorian government should have been involved in the case as well, or that the case should have been filed against the government and the state-owned Petroecuador as well as Texaco. At that point, the Ecuadorian government did get involved and filed an appeal of the decision. This was the first time a foreign government had sued a U.S. oil company in the United States for environmental damage. In addition, in 1997, the plaintiffs in the Aquinda and Jota cases also appealed the district court's decisions. On October 5, 1998, a U.S. court of appeals remanded both cases to the district court for further consideration as to whether they should proceed in Ecuador or the United States. Written submissions were filed on February 1, 1999. Texaco has long argued that the appropriate venue for these cases is Ecuador because the oil-producing operations took place in Ecuador under the control and supervision of Ecuador's government, and the Ecuadorian courts have heard similar cases against other companies. It is Texaco's position that U.S. courts should not govern the activities of a sovereign foreign nation, just as foreign courts should not govern the activities of the United States. In fact, Texaco claimed the ambassador of Ecuador, the official representative of the government of Ecuador, noted in a letter to the district court that Ecuador would not waive its sovereign immunity. Notwithstanding Texaco's arguments, the case was sent back to the court that threw it out, on the basis that the government of Ecuador does have the right to intervene. The question of whether the case can and will finally be tried in the United States or Ecuador under these circumstances will now take many years to be decided. Texaco claims that it has done enough to repair any damage and disputes the scientific validity of the claims-the Amazonians (or their supporters) seem to have the resources to continue fighting this suit in the U.S. courts. Ultimately the company may prefer the fairness of U.S. courts.

Questions

1. Should Ecuadorians be able to sue Texaco in U.S. courts?

2. If an oil spill was caused by an act of God, an earthquake, should Texaco be held responsible?

3. Do you find Texaco's arguments against the lawsuits convincing? Why and why not?