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The new Chavez? Oil trumps rain forest in Ecuador

Monday, 26 Aug 2013 | 1:12 PM ET
Protesters against the exploration for oil in Ecuador's Yasuni National Park in front of the presidential palace in Quito.
Juan Cevallos | AFP | Getty Images
Protesters against the exploration for oil in Ecuador's Yasuni National Park in front of the presidential palace in Quito.

Six years after trotting out a highly acclaimed commitment to protect its rain forest, Ecuador's leftist president wants to yank the plan in favor of oil exploration, saying the world "failed" to pay Ecuador to spare the forests.

In 2007, Rafael Correa asked the international community to donate $3.6 billion that he said would allow Ecuador to forgo exploring and drilling for oil in Yasuni National Park, an area designated as a World Biosphere Reserve by the United Nations. But now he wants to start drilling in the area—which is populated by isolated indigenous peoples—and is blaming the global community for not sparing the forests.

"Unfortunately we have to say that the world has failed us," Correa said in a televised announcement this month. "But no one should be fooled that the main factor of the failure is that the world is a great hypocrisy."

Ecuador managed to collect less than half of one percent of the total it wanted.

Ecuador President Rafael Correa
Juan Cevallos | AFP | Getty Images
Ecuador President Rafael Correa

Correa, 50, an economist with a doctorate from the University of Illinois at Urbana-Champaign, entered his third presidential term this year and is widely popular, with a 65 percent approval rating as of June, according to Ecuadorian pollster Cedatos. He has maintained that popularity with a blueprint used by leaders such as former Venezuelan leader Hugo Chavez: using oil revenue to support large-scale social spending.

"Basically, economical and budgeting needs surpassed the most important thing here—the preservation of the environment," said Sebastián Mantilla, a political analyst with the Latin American Center for Political Studies in Quito.

Multiple inquiries from CNBC to the Ecuadorean president's office went unanswered.

Ecuador's Congress is expected to make a decision on the exploration plans in the next couple weeks and is likely to approve it, Mantilla said. Opponents of the oil extraction effort, including native people, environmentalists and students, likely do not have enough time to collect enough signatures to call for a referendum on the plan, as would be required, Mantilla said.

Threat to native settlements

The area in dispute is called Ishpingo-Tambococha-Tiputini. It comprises 200 hectares (490 acres) of the 1 million hectare (2.5 million acre) park and sits on more than 920 million barrels of oil—20 percent of Ecuador's total reserves—according to an official statement from the president. In a recent Twitter post, he said oil exploration will affect less than 0.1 percent of Yasuni.

Other areas of the park have oil production already, said Carlos Larrea, a professor at the Universidad Andina Simon Bolivar. Larrea was technical director of the effort to protect the zone, which he said failed because of a lack of clarity on how donated funds would be spent. However, the area now being proposed for exploration hosts the isolated tribes.

"The presence of people from the outside will destroy those settlements," said Monica Chuji, an activist for indigenous rights who supports the idea of a referendum.

Larrea expressed doubts about the president's estimates of how much of the park that would be affected, noting that oil companies often underestimate the environmental impact of their operations.

Tension with foreign oil giants

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Correa's government has alienated much of the energy industry, pushing higher taxes on oil companies and forcing others to renegotiate their contracts. Several large players have exited the country, including France's Perenco in 2009 and Brazil's Petrobras in 2010.

Earlier this summer, Canadian mining company Kinross Gold announced that it is leaving Ecuador as it failed to reach an agreement with the government over the terms of a deposit development.

"Ecuador got low credibility with investors because of [Correa's] policies toward the private sector, oil, gas and mining, and the financial service industry is skeptical of him because of the selective default in 2008," said Jefferson Finch, an analyst on Latin America at Eurasia Group, making reference to the country's decision to withhold payment on interest to some foreign bondholders

(Read more: Mexican energy reform: Here are the winners)

Ecuador, a smaller OPEC member, has struggled just to maintain its oil production level. Its output slid to 500,000 barrels a day last year from the recent high of 540,000 barrels a day in 2006, according to the International Energy Agency. In comparison, Brazil and Colombia saw substantial increases over the same period.

For more than a decade Ecuador has seen presidents leave office in one or two years for various reasons, but Correa has proved unique in his ability to consolidate political support, Finch said.

"Despite some of the inconsistencies in his [Correa's] policies, he brought some degree of stability to the local realm that was not there before," Finch added.

By CNBC's Anna Andrianova. Follow her on Twitter @AndrianovaAnna.

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