THE BLOG

Pity the Poor Oil Company

San Francisco -- Chevron now claims it is the "victim" of a "shakedown" by "con-men" posing as environmental advocates. Immediately after the Goldman Environmental Prize ceremony here last week,  Chevron launched a public relations campaign against this year's Latin American prize winners, Pablo Fajardo and Luis Yanza.  These two lawyers received the award for their work trying to get Chevron to pay for the cost of cleaning up enormous pollution left behind in the Ecuadorian Amazon when Texaco, now a part of Chevron, ended its partnership with Ecuador's national oil company, Petroecuador.

In addition to winning the Goldman Prize, Fajardo and Yanza just obtained an opinion by a court-appointed expert in the case recommending that Chevron pay $8-16 billion in damages.

So Chevron went on the attack. They held a competing press conference in the same hotel where the Goldman press event occurred, took out a full page ad in the San Francisco Chronicle, and ran an op-ed by Chevron's top lawyer, Charles James. 

Fajardo and Yanza don't need me to defend themselves from these charges. But what is revealing is Chevron's line of defense. The oil company claims that it doesn't owe anything because Texaco paid $40 million as "its share" of the cleanup, and that Ecuador's oil company was satisfied with this arrangement.

Since Chevron owned one-third of the venture, that means that it estimates the total cost of the damages as $120 million -- as opposed to the billions in costs found by the Ecuadorian courts. And that $120 million estimate was developed by Texaco/Chevron and Petroecuador. Well how much faith should we place in this calculation? Given the scale of the oil spills, this was a truly trivial estimate of the costs of clean up and the damages. And it's based on -- well, the fact that Petroecuador agreed to it. So how much credence should be placed in this estimate?

How reliable a partner is Petroecuador? Here's what Chevron itself says about Petroecuador: "disastrous environmental record ... laggard ... woeful track record." So it's far from clear that we should place any reliance on the cost estimates made by Petroecuador. Consider also that by lowballing the damages, Petroecuador also reduced its own liability for the remaining two-thirds of the pollution. By saying that Chevron owed only $40 million, for one-third of the damages, Petroecuador was capping its own liability at $80 million. This is rather like asking two bank robbers to come up with an estimate of how much money they actually got out of the till and need to pay back in restitution, and then having one of the robbers cite the other as corroboration.

And Chevron also says we ought to believe it is innocent because the government of Ecuador at the time also agreed to let it off the hook for only $40 million. And what does Chevron say about the overall effectiveness and integrity of this government? "Seriously compromised," asserts Chevron. The moment an agency of the government of Ecuador came out against Chevron, the company suddenly discovered that Ecuador's government was corrupt.

Chevron can't even decide if there really is an oil pollution problem in the Amazon. It claims that Petroecuador is a scandal, but also argues that the real source of the health problems in the region is lack of clean drinking water.

Chevron wouldn't try to get away with this stuff in the U.S. That's one major problem with the current rules of global trade in commodities like oil -- big companies like Texaco/Chevron make big mistakes and leave poor and weak countries stuck with the problem -- and then feel self-righteously offended if asked to clean up their mess. And mostly they get away with it -- because we let them.