In late 2024, Ecuador underwent an unprecedented energy crisis, with electricity rationing of up to 14 hours a day. Although the main causes have been attributed to drought and low river flows due to global warming, another factor is aggravating the situation: the low-yield, China-built hydroelectric plants.
Martin Brown, a researcher at the Jack D. Gordon Institute of Public Policy at Florida International University (FIU) and author of Rivers of Influence: How Drought and Chinese Investments Shape Ecuador’s Energy Crisis, published by The Diplomat, stressed just that. “The hydroelectric plants built by Chinese state-owned companies have shown technical failures, structural problems, and broken promises that now weigh on Ecuador,” Brown told Diálogo.
Of the eight hydroelectric plants China built in the Andean country, Coca Codo Sinclair is the most emblematic example of failure. Built by the Chinese state-owned Sinohydro Corporation, a subsidiary of PowerChina, with an investment of $2.6 billion, this hydroelectric plant, the largest in Ecuador’s history, operates today at less than 59 percent capacity.
According to official data from the Ecuadorian Electricity Corporation (CELEC), thousands of cracks have been documented in its infrastructure. Sinohydro for its part, faces nearly 14 civil and 80 labor lawsuits. “One of the most serious problems with the project has been corruption,” said Brown. “Almost all the senior officials involved have been accused or convicted of bribery.”
The problems with China-built hydroelectric plants are only part of the impact of China’s presence in the Andean country. Its influence is also reflected in the enormous debt that Ecuador has accumulated.
According to the investigation, The Secrets of the Chinese Debt, by journalistic organization Fundación Mil Hojas, between 2010 and 2019 China granted Ecuador more than $24 billion in bilateral loans through its state and commercial banks. But that’s not all. To collect the debt, Beijing secured the export of Ecuadorian oil as a form of payment, imposing high interest rates and sovereignty clauses that include frozen crude prices. “If there is one thing China has proven to have mastered, it’s its ability to make sure countries pay,” Evan Ellis, research professor of Latin American Studies at the U.S. Army War College Institute of Strategic Studies, told Diálogo.
Up until February 2022, Ecuador had delivered more than 1 billion barrels of oil to China at significantly below-market prices, representing a loss of some $4 billion. “The debt with China has been the most opaque and onerous for Ecuador,” Christian Zurita, Ecuadorian investigative journalist and coordinator of the research, The Secrets of the Chinese Debt, told Diálogo.
A debt that has also put biodiversity at risk and accelerated deforestation in Ecuador. “The urgency of generating enough oil to pay off the debt with China has made extraction an unavoidable priority, leading the country to drill deeper and deeper into the Amazon rainforest, in areas as critical as the Yasuní Park,” Santiago Nájera, economist and former ministerial advisor to the Ecuadorian ministries of Hydrocarbons and Energy and Mines, told Diálogo.
Beijing has repeatedly insisted that its relations with Latin America are based on “equality, mutual benefit, and joint development.” However, after two decades of strong bilateral relations with Ecuador, which reached the status of Comprehensive Strategic Partnership in 2016, experts say that the reality is far from that rhetoric. “The two parties are far from being equal partners,” Ellis said, noting that Ecuador has been trapped in a risky debt model, with faulty infrastructure and a growing economic dependence on Beijing. Meanwhile, China gains privileged access and control over strategic sectors such as mining, energy, and telecommunications.
“China took advantage of Ecuador,” said Carlos Pérez, Ecuador’s former minister of Energy and Non-renewable Natural Resources, according to The New York Times. “China’s strategy is clear: to assume economic control of countries,” he said.
Coca Codo Sinclair: broken promise
The Coca Codo Sinclair Hydroelectric Dam marked the beginning of Ecuador’s indebtedness to China. Presented as President Rafael Correa’s great project to transform the country’s energy matrix, it promised development, poverty reduction, and a more prosperous future with social and environmental awareness. However, instead of fulfilling these expectations, the project has become a symbol of corruption, structural failures, environmental impacts, and a growing dependence on Beijing.
The idea of building this dam, near the active Reventador Volcano, emerged in the 1970s. However, environmental risk studies offered no guarantees of viability, leading to the suspension of the project for decades.
Work finally began in 2010, when the Export-Import Bank of China (Eximbank) financed 85 percent of the project under conditions that prioritized benefits for China. “Eximbank made sure that everything stayed at home, from the insurer to the construction company, thus complying with the Chinese government’s strategy of promoting the export of technology and equipment, expanding the international presence of its companies and guaranteeing employment for its own workforce,” Zurita said.
And so it was. Without a tender process, Sinohydro assumed full control of the project. With it came hundreds of workers, machinery, and materials imported from China. According to Ecuadorian daily El Comercio, in 2011 Sinohydro applied for work permits for 300 Chinese technicians and professionals, who represented 35 percent of the project’s payroll. “The contracts prioritized the hiring of Chinese personnel, reducing job opportunities for Ecuadorians on a project paradoxically financed with public debt,” Nájera said.
Six years later, on November 18, 2016, Xi Jinping arrived in Quito to attend the inauguration of the hydroelectric plant. “The completion of this project will effectively improve disaster prevention and relief in Ecuador and strengthen its public infrastructure,” said the Chinese leader, according to a Sinohydro statement. However, almost a decade after its inauguration, the Ecuadorian government has not yet officially taken over the project due to multiple structural failures.
By 2018, the Comptroller General’s Office had recorded 7,648 cracks in the structure, a figure that by September 2022 had increased to 17,499, according to an investigation by then president of the Control Commission of the Ecuadorian Assembly, Fernando Villavicencio.
Various reports, including one from The Wall Street Journal and another from the Ecuadorian investigative website La Fuente, point out that the main cause of this damage was the use of low-quality materials, such as defective steel imported from China. Investigations reveal that Sinohydro used unapproved materials, omitted quality controls, and used poor welding techniques in the construction of the turbine distributors.
The lack of a suitable reservoir also prevents the hydroelectric plant from operating at full capacity, even in optimal hydrological conditions, Ecuadorian daily Primicias reported. A clear example occurred on October 28, 2024, when the Coca River reached its maximum level, but the plant had to be stopped to prevent the sediments, which increase with the rains, from damaging the turbines. In late 2024, according to CELEC data, the hydroelectric plant was operating at barely 20 percent capacity.
Coca River erosion: the threat that could turn Coca Codo Sinclair off
Added to the structural problems of Coca Codo Sinclair is an even more serious and difficult threat to reverse: the accelerated erosion of the Coca River, the water source that keeps the hydroelectric plant running.
On February 2, 2020, Ecuador unexpectedly lost one of its natural icons. The San Rafael Waterfall, an emblematic tourist destination, disappeared from one moment to the next. Rather than an isolated event, the disappearance of the waterfall served as a warning of a deeper problem.
Research revealed that the construction of the hydroelectric plant altered the flow of sediments and the river, exacerbating a phenomenon known as “hungry waters,” as the water, deprived of its natural sediment load, effectively becomes hungry for sediment, leading to increased erosion of the riverbed and banks, Dialogue Earth reported. Although this is a natural phenomenon, studies, such as the one carried out by Ecuador’s National Polytechnic School (EPN) between 2015 and 2017, claim that the Coca River’s rate of erosion increased by 42 percent as a result of the project.
The environmental impact also threatens the hydroelectric infrastructure. A report from the U.S. Army Corps of Engineers, published in February 2024, warned that erosion could destroy the Coca Codo Sinclair catchment works in less than three years. If this happens, Ecuador’s largest hydroelectric plant, one of the country’s most expensive projects, would be out of operation, deepening the already critical energy crisis facing the Andean country.
Coca Codo Sinclair: an avoidable disaster?
To guarantee the viability of a project like Coca Codo Sinclair, it was essential to carry out rigorous studies on environmental, geological, and seismic risks, given its location in one of the most complex areas of the Ecuadorian Amazon. However, these analyses were never carried out with the level of rigor that the vulnerability of the area required. “Frankly […], China doesn’t care if there is a business case for the project […], if there is an environmental case. If you agree to pay China and you structure the deal in which China is getting paid, China will build you a bridge in the middle of the jungle […] as long as you pay them,” Ellis said.
The last serious and independent environmental study prior to the construction of the hydroelectric dam dates back to 1992. Carried out by the Ecuadorian Institute of Electrification (INECEL), this report established that the project should be developed in two phases, with a maximum capacity of 859 MW and an estimated cost of $747.5 million. However, China carried out the work in a single phase, with a capacity of 1500 MW and a cost more than double what was established. The National Electricity Council (Conelec) justified this decision by arguing that, although the studies were old, the report allowed for an increase in capacity, The Wall Street Journal reported.
Various reports have shown how the Ecuadorian government and China ignored recommendations that could have prevented the failures. The New York Times said to have had access to an independent review of the project in 2010, produced by a Mexican government agency, which warned that the amount of water in the region to operate the dam had not been studied in almost 30 years. The project went ahead anyways.
“It was a decision made lightly, during a government run amok by corruption. Now, not only is Ecuador bearing the consequences, but China will also be wondering whether allowing a government to impose decisions beyond technical and legal conditions is a good method for its investments. Without a doubt, this case has damaged its reputation and has become an example of what not to do in the world,” Zurita said.
Corruption: Coca Codo Sinclair’s hidden cost
While Ecuador’s largest hydroelectric plant faces serious technical problems and environmental challenges, another shadow hangs over the megaproject: corruption.
According to investigations by the Attorney General’s Office, nearly $76 million in bribes were paid between 2009 and 2018. These payments, allegedly made by the Chinese company Sinohydro through intermediaries, were said to have been channeled through fictitious consultancy and representation services. As such, a project of this magnitude was carried out without adequate feasibility studies, environmental impact studies, nor financial risk assessments, the Attorney General’s Office said.
The corruption scandal surrounding Ecuador’s most ambitious infrastructure project highlights, according to experts, the risks of doing business with China. “The responsibility lies with both parties, but Chinese companies are particularly predatory, especially because they have the backing of the Chinese government. This makes them a significant risk for any business partner,” Ellis said.
The problem, according to Ellis, lies not only in the contracts, but in the political dynamics that make them possible. “The more populist the governments in the region are, the more they distance themselves from their traditional allies, and the more vulnerable they become to dependence on China, a relationship that is often even more detrimental to their own interests.”
“Made in China” malpractice
The engineering failures and environmental impact of Coca Codo Sinclair are not isolated cases. Other hydroelectric plants built by Chinese companies in Ecuador face serious questions about their effectiveness and the risks they pose to the country’s energy stability.
A clear example is the Sopladora Hydroelectric Plant, located on the Mazar River and built by state-owned China Gezhouba Group. With a $500 million investment, also financed by Eximbank, the plant began operating in 2016. However, today it operates at barely 15 percent capacity. “While the drought has affected its performance, reports suggest that Gezhouba did not adequately train Ecuadorian workers in the maintenance of the plant,” Brown said.
Deficiencies in the execution of these projects have also been documented by The New York Times. In an article, the newspaper indicates that the problems at Coca Codo Sinclair include flaws in the technical translations, which has led to confusion among Ecuadorian operators. In one illustrative example, a sign in Chinese and English read: “DC Pump Group Pressure,” but the Spanish translation said something completely different: “Washington, D.C. pressure group.”
Another project under scrutiny is the Mazar-Dudas Hydroelectric Plant, located on the Pindling and Mazar rivers. Built by the China National Electric Engineering Company (CNEEC) in 2011 and financed by the China Development Bank with $41.6 million, it began operating in 2015 with a capacity of 21 MW. Although its smaller size reduced the environmental impact on the protected Dudas-Mazar Forest, droughts have put the water flow at risk, threatening hundreds of species of flora and fauna that depend on this ecosystem. For Brown, “the lack of an adequate mitigation plan could aggravate the long-term environmental effects.”
Most worrisome is that these flaws are not isolated incidents, but a direct export of China’s experience in mega-projects. The hydroelectric plants situation in Ecuador is reminiscent of the controversy surrounding the Three Gorges Dam, the largest in China. Its construction caused irreversible ecological damage to the Yangtze River, including the extinction of species, accelerated erosion of the riverbanks, and the displacement of millions of people. In addition, failures in safety measures caused the death of hundreds of workers, The New York Times reported.
The parallels with Ecuador are undeniable. In 2014, Sinohydro reported the death of 13 workers at Coca Codo Sinclair after the collapse and flooding of a tunnel on site.
This background highlights a worrying reality, said economist Nájera, who pointed out that “China has not only imposed a contract model that is detrimental to the Ecuadorian economy, but has also introduced bad practices in infrastructure, environmental management, and working conditions, putting the country’s energy and ecological future at risk.”
A dead end
On May 17, 2017, CELEC filed an arbitration request against Sinohydro before the International Court of Arbitration of the International Chamber of Commerce, demanding that the Chinese company cover at least $20 million in repair costs for cracks in the infrastructure, Reuters reported.
However, arbitration is not the only avenue under discussion. As the process advances, the Ecuadorian government and Sinohydro are exploring a controversial alternative: that the Chinese company take over the operation of the hydroelectric plant in exchange for liquidity. This proposal has raised concerns among experts, who warn of the risks to the country’s energy sovereignty.
“Getting rid of an infrastructure with serious flaws may seem like a pragmatic solution, but Ecuador would be compromising its economic security and exposing itself to possible coercion by China. Beijing has already demonstrated its ability to use its economic influence as a tool to pressure sovereign decisions,” Brown said.
The risk is not only geopolitical, but also strategic. “We are talking about privatizing a key asset, leaving Ecuador in the position of having to negotiate the price of its own energy with China,” said Nájera.
This scenario is reminiscent of what some critics call the debt trap, a strategy in which China finances large infrastructure projects and then secures control of these projects in exchange for forgiving loans. Although Ecuador has already paid off its debt for this project, not being able to officially receive the work due to its structural flaws and the possibility of handing over its operation to avoid assuming the repair costs reflect a worrisome pattern.
According to Zurita, China proposed to take charge of Coca Codo Sinclair’s problems in exchange for receiving another hydroelectric plant that they themselves built, Sopladora. “China wanted control of this new plant as part of a broader scheme, administering a group of hydroelectric plants located in the southwestern basin of the country. Ecuador rejected the proposal and opted for arbitration,” Zurita said.
Ellis warns that the problem with China goes beyond the cost of projects and debt; the real risk lies in its ability to tie countries to contracts that plunge them into economic dependency from which they can hardly escape. Coca Codo Sinclair, he points out, is the best example of this dynamic.
“As Ecuador tries to challenge China over infrastructure failures, it finds itself caught in a web of economic dependence that is difficult to break. Even as it seeks to hold Beijing accountable for its poor performance, it continues to maneuver in its favor and consolidate its influence. It’s a mechanism akin to credit card debt: The more you try to free yourself, the deeper you sink,” Ellis said.
Debt impact
In the second part of this investigation, we will analyze the impact of Ecuador’s debt with China and other strategic contracts in sectors such as mining and technology, including the country’s most important surveillance system: ECU 911.
