Image Source: New York Times, Moises Saman - May 14, 2009
It’s all over the news: Chevron is being sued by two environmental groups over environmental destruction and pollution in Ecuador for a world-record breaking $27 billion. Chevron says that it was released of any further liability in 1992, when Texaco (which has since merged with Chevron) signed an agreement with the government after spending $40 million on cleanup efforts in the country. Meanwhile, the affected indigenous populations living in villages still ravaged by the oil production say that they did not release Texaco of liability.
In my opinion, both sides have valid arguments to make, but assuming an all-or-nothing negotiating position is foolish–of both parties. Texaco clearly should not be responsible for 100 percent of the cleanup, since it was operating in Ecuador under a partnership with Petroecuador, the country’s government-owned oil company, which stated that Texaco held a 37.5% share and, Petroecuador, a 62.5% share. Texaco also cannot be held liable for any pollution caused after it ceased operations in the country in 1992. However, if cleaning up its share (37.5%) of the mess is actually costing more than anticipated, then perhaps there is still some lingering responsibility for Chevron to address. Furthermore, Petroecuador isn’t completely innocent in this mess either–the company is responsible for at least 800 oil spills since 1990 and has a poor environmental record. And to complicate things, the kick-off of their operations in Ecuador in the early 1970s was followed by nearly a decade of military rule, and now the country faces a dismal economic situation at home and just last year defaulted on its foreign debt. So, for the indigenous people looking for someone to finally clean up this lingering mess, it seems that they think they have a better chance in getting a big, rich oil company to pay up than their own government, regardless of who ought to be responsible.
Taking all of this into consideration, if I were advising Chevron, I would propose the following:
- Have an independent party such as WRI, WWF or the World Bank evaluate the total cost of cleanup required and divide it according to the 37.5/62.5 shares;
- Subtract form Chevron’s share the $40 million (adjusted for inflation) it has already spent in cleanup efforts;
- Chevron pays whatever the difference is, and Ecuador contributes its share; and
- If Ecuador needs help to meet its share of responsibility, then it will seek help from international organizations.
