By Entorno | 2023-09-12

QUITO -- Minas de Huascachaca, Ecuador's largest wind farm, began commercial operations in April, promising to reduce carbon dioxide emissions and generate about 130 gigawatt hours (GWh) of electricity per year.

But the project has been mired in scandal since its inception three years ago, when the government awarded the contract to Chinese company Dongfang Electric International (DEC).

Since then, allegations of corruption and influence peddling have been leveled against both the Ecuadoran government and DEC.

Minas de Huascachaca is a 50-megawatt (MW) wind farm located in the area of San Sebastián de Yuluc, in the southern province of Loja. Its 14 turbine rotors can generate enough electricity to power about 90,000 Ecuadoran families.

However, since 2020, DEC, the Chinese company that manufactured the wind turbines, and its subsidiary Dongfang Ecuador, which was responsible for starting up and operating the energy generating system, have been accused of embezzlement, influence peddling and other crimes.

The Ecuadoran comptroller general confirmed in a July report that there were several irregularities in the contracting procedures and regulations in the pre-contractual, contractual and execution stages of the project awarded by ElecAustro, the state-owned electric company, to DEC.

The comptroller's report details an audit carried out from January 1, 2019, to October 24, 2022, in relation to the wind farm project.

Although the freely accessible document is published on the website of the Comptroller's Office, the judicial authorities have yet to take a position or take any measures regarding the revelations contained therein.

Corrupt practices

Francisco Peralvo, the legal advisor to Ecuador's National Chamber of Heavy Transport and Environment (Canatrape), said the report marks the beginning of what may evolve into a protracted legal journey.

"The irregularities pointed out by the ... comptroller general and those appearing in this report are just the tip of the iceberg," he said during an interview with Radio City on August 24. "A disastrous precedent has been set in public contracting by allowing a contract to be awarded that does not comply with all legal precepts."

Peralvo, an attorney with experience in public procurement, highlighted that the irregularities in the procurement process for the Minas de Huascachaca project could result in possible damage to the state of $1.2 million, plus additional fines.

The independent news site Código Vidrio has played a fundamental role in disclosing the irregularities in the procurement process.

In an interview with FM Mundo Live in July, the website's editor, Arturo Torres, pointed out that this is not the first time Chinese state-owned companies have operated in Ecuador in violation of the rules and in an unfair manner.

Chinese companies in Ecuador have been accused of overcharging, using substandard materials and engaging in corrupt practices, he said. Despite these allegations, "the authorities have failed to take action."

This situation has led to a sense of impunity among Chinese companies, emboldening them to continue their wrongdoings, according to Torres.

The journalist also emphasized that these irregularities have been known since the beginning of the process, as domestic companies have been systematically excluded in favor of international companies.

Torres concluded by asserting that operating with impunity has consistently been "the modus operandi of Chinese companies within the country."

He pointed to the "countless irregularities that have been committed in this project, all for the benefit of foreign companies."

In the long run, this favoritism toward foreign firms discourages healthy competition Torres argued.

A long list of irregularities

From the beginning of the project, complaints about the apparent lack of transparency and efficiency in the hiring process were widespread.

Since wind turbines are not manufactured in Ecuador, a tender was launched in 2019 to procure them from international suppliers.

However, as reported by Código Vidrio, the then-manager of ElecAustro, Antonio Borrero, ignored the idea of publishing the bid announcement in international media, significantly restricting the participation of potential bidders.

As a result of these concerns, legal complaints were filed with the Prosecutor's Office in Guayaquil and Quito in 2021.

Ecuador awarded DEC the contract for manufacturing, supply, maritime transport and delivery to Ecuador of wind turbines, towers, and equipment associated with the wind farm.

The contract was signed on April 29, 2020, for a total of $45.6 million, according to a report by the Periodismo de Investigación (Investigative Journalism) website.

The initial budget to build the Minas de Huascachaca Wind Farm was $112 million, financed with funds from ElecAustro and a loan from the Development Bank of Ecuador for $54.9 million.

The wind turbines manufactured by DEC left China aboard the Tai Xing ship on December 21, 2021.

However, upon the ship's arrival in Ecuador on January 24, 2022, officials found that only 14 of the promised 16 wind turbines had arrived.

This discrepancy was confirmed by Borrero to the Inspection Commission. Borrero trumpeted the reduced number of turbines as an achievement of his management, saying he had reduced the project's cost.

Excluding locals

At the same time, in a strange twist, the "related services" contract included a provision in the bidding documents that allowed the winning company, in this case DEC, to self-select the company in charge of executing said services.

This proviso implied that, after delivery of the equipment, DEC could, through ElecAustro and under a "special regime," select and hire the local company of its choice to carry out these services.

However, instead of choosing a local company, the Chinese firm created a shell company in Ecuador, called Compañía Anónima Dongfang Electric Ecuador -- again excluding local companies.

The irregularities in contracting of the Minas de Huascachaca Wind Farm, coupled with the lack of response from the competent authorities, have cast a shadow over the integrity and transparency of public contracting processes in Ecuador, especially when the beneficiaries have been Chinese state-owned companies.