Chinese-built Coca Codo Sinclair mega-dam in Ecuador continues to generate millions in losses

RIO DE JANEIRO, BRAZIL – Coca Codo Sinclair, the huge Chinese-built dam and hydroelectric power plant in Ecuador, is still generating economic losses and threatening the Andean country’s electricity supply.

According to former president Rafael Correa’s (2007-2017) government’s plans, which promoted the project built by Chinese Sinohydro, the plant was supposed to produce over 1,500 megawatts of “clean and renewable” energy and “cover a third of Ecuador’s electricity demand with a useful life of 50 years.”

However, almost 5 years after its inauguration and at a cost of US$2.7 billion, the hydroelectric plant is still not operating at full capacity and has become a burden for the battered finances of Ecuador, a country that for years has been experiencing a severe economic and debt crisis.

The main issue is the thousands of cracks that appeared in the mega-dam’s water distributors, key mechanical parts in power generation, which must withstand the tremendous pressure of water falling from 620 meters above sea level.

The faults in these devices were detected in 2014 and were confirmed by an independent report before the hydroelectric power plant came into operation.

The dam has undergone constant repairs since then. The works made it impossible to generate electricity for consumption and export, causing US$8 million in losses between 2016 and August 2021 for Corporación Eléctrica del Ecuador (CELEC), the public company that manages the power plant.

The estimate was made by the Coca Codo Sinclair Business Unit’s deputy manager Byron Orozco. The losses include the inability to generate electricity for consumption and energy exports.

Located on the course of the Coca River in the Napo province and with 8 turbines to generate electricity, the plant has so far undergone 7 repairs. The last one began on May 1 and will run until November 11.

During the current maintenance work, over 3,500 new cracks were detected in the 4 distributors, surpassing 11,000 faults in total. According to CELEC data, this meant that the plant has been operating at 50% capacity for over half of this year.

However, the repairs carried out have not solved the problem and cracks continue to emerge.

NOT ONLY CRACKS

Construction defects are not the only problem. The hydroelectric plant, which according to multiple investigations and experts was built in contravention of all studies and warnings about the area’s geological conditions, is also threatened by heavy erosion of the Coca River since the collapse of the 130-meter San Rafael waterfall in the Amazon region in February 2020.

This prompted CELEC to announce last month that it will activate idle thermal power plants to guarantee power supply, and osts will be significant. CELEC announced spending of approximately US$80 million to recover some 426.4 megawatts (MW) of thermal power by May 2022 and another US$100 million on structures to prevent erosion from reaching the dam’s reservoir.

DISPUTE WITH CHINA

Given the extent of the problems, it remains to be seen whether China will take responsibility for the repairs. The project was directly awarded to Sinohydro without any international bidding process, at a time when Correa had pledged to modernize his country and free it from the influence of the United States.

According to the contract signed at the time, once a defect is identified, the contractor must determine “its root cause.”

The results of an independent audit conducted by a German company are currently awaited and Beijing stated that they will assume the appropriate responsibilities should they exist.

According to Carlos Baldeón, president of the Pichincha Association of Mechanical Engineers, the dam needs all distributors replaced, at a cost of around US$200 million. The experts’ main concern is that with so many repairs, the material may have already lost its original properties.

Given the magnitude of the damage, CELEC has sued Sinohydro in an international court to demand a permanent solution. The lawsuit also includes US$8 million for losses resulting from the failure to generate electricity.

CELEC resorted to this court after a mechanism prior to international arbitration as established in the contract ruled against its claims and ordered it to proceed with the repairs.

The truth is that the imbalance between the forces at play seems clear.

As in other emerging or developing countries in the world, Beijing gradually entered Ecuador’s economy as a lender, as an investor and as a builder of public works, a strategy in which corruption plays a significant role (all the officials involved in the dam project ended up in prison for bribery).

The consequence of this strategy is that a large part of Ecuador’s foreign debt was contracted with Chinese banks to build mega-projects such as Codo Sinclair, thus limiting the Andean country’s leeway in the face of the ravenous Asian giant.