Saturday, 13 June 2009

Two-step solution sought to lift Areva capital

By Peggy Hollinger in Paris
Published: June 12 2009 22:31

The French government is leaning towards a two-step solution to resolve the urgent need to raise capital for Areva, its state-owned nuclear power champion.
The nuclear group is likely to be asked to sell its profitable power transport and distribution equipment (T&D) business in a first step this summer that could raise €3bn-€5bn ($4bn-$7bn).

However, the long-awaited capital increase to bring in new strategic investors is likely to come later this year, according to several sources close to the subject. “The aim is for this to happen in a second stage,” said one. However, they said the final decision had not yet been taken by President Nicolas Sarkozy, who sees the group as a launchpad for France’s nuclear ambitions abroad.
The government has been waiting for the strategic review, completed this week, by Areva’s newly appointed chairman Jean-Cyril Spinetta. Areva insiders said the group was resigned to losing the T&D business, without which it would have fallen into losses last year. The unit supplies equipment and services for electricity distribution and transmission.
The sale process could be launched quickly, possibly even by the end of the month. Though France’s Alstom has declared an interest, there could be greater synergies for bidders such as Schneider, the French electrical components group, GE of the US or Germany’s Siemens. There is also the possibility that some contenders could join forces for a bid.
However, Anne Lauvergeon, Areva’s chief executive, will be disappointed by indications that the government favours another delay in launching a capital increase.
Areva has argued that it faces investment demands of some €12bn to 2012, and it must find a further €2bn to buy out Germany’s Siemens from their long-standing engineering joint venture, Areva NP.
Ms Lauvergeon favours a capital increase to fund Areva’s commitments, but Paris is not willing to inject more state funds. Instead Areva has been forced to sell non-core assets.
The government is ready to open up Areva’s share capital to strategic partners, such as Japan’s Mitsubishi Heavy Industries or Middle Eastern sovereign wealth funds. It could also ask Total to increase its existing 1 per cent stake.
The oil group has ambitions to expand in the nuclear sector and could be persuaded to boost its investment to as much as 3 per cent.
Copyright The Financial Times Limited 2009

Electric cars drive investor interest

By Alice Ross
Published: June 12 2009 17:56

Interest in electric vehicles has been soaring this year – to the extent that fund managers are warning there could be a bubble in some stocks.
As governments seek to incentivise consumers to buy electric cars, and carmakers to reduce the emissions on their vehicles, a host of smaller companies has sprung up to supply the burgeoning industry.

Many investors have taken their cue from Warren Buffett. The veteran investor’s decision last year to buy shares in BYD, the Chinese battery and vehicle manufacturer, has sent the stock soaring, up 156 per cent since January.
Shares in Denso and GS Yuasa, two Japanese battery and electronics companies that supply hybrid-electric pioneers Toyota and Honda, have also risen – both are up by more than 60 per cent this year.
Carmakers are locked in fierce competition to build or improve existing electric vehicles, with most major manufacturers throwing development money at new projects.
Yet electric vehicles, or “hybrids”, which are part- electric, part-conventional fuel, still account for only a tiny part of the car market.
Last year, about half a million hybrid vehicles were sold worldwide, compared with total car sales of 50m units – market penetration of less than 1 per cent.
Consequently, fund managers fear that the valuations of lithium ion battery producers, and other suppliers to hybrid vehicles, may be too optimistic.
“It does surprise us that it’s run so much this year,” says Bruce Jenkyn-Jones, investment director at environmental specialist Impax Asset Management. “It’s not consistent with the number of vehicles that have been sold – it’s definitely forward-looking.”
“There is a scarcity of stocks for playing the electric vehicle story which is why there’s a risk of a bubble that we would suggest is starting to take place.”
Charlie Thomas, fund manager at Jupiter, says this bubble is also driven by spending in the US, where car companies are under pressure to cut emissions.
However, the long-term prospects for electric vehicles look strong.
The Society of Motor Manufacturers and Traders says the £250m that the government this year earmarked for encouraging the use of electric cars will “incentivise the uptake of electric vehicles” – though sales of hybrids are down about a third this year.
In the not too distant future, though, the whole country could be driving electric cars. Gordon Brown said last year that every car in the UK should be hybrid or electric by 2020.
Development risks remain. A decade ago, there was great excitement about the development of fuel cell technology – but this has turned out to be more expensive and tricky to develop for smaller vehicles than anticipated.
Thomas says that both Toyota and Honda have told him they are conservative about how fast electric vehicle technology will develop. “A lot of people have been focusing on battery technology, but it’s still very unproven stuff,” he warns.
“There’s not a lot of liquidity and lots of investors chasing the idea,” says Jenkyn-Jones. “It’s not a well-developed investment area – which explains why there’s potential for valuations to go up a lot.”
Plug into a wide choice
Investors who want to gain exposure to electric vehicles are not spoilt for choice.
Bruce Jenkyn-Jones at Impax Asset Management, the environmental specialist, estimates that only about 10 stocks offer direct exposure to electric hybrid vehicles.
Investors can buy shares in carmakers – though this does not necessarily mean they are investing in the new technology. Such stocks include Honda, Nissan and Hyundai. Even battery producers such as Panasonic, which makes batteries for the Prius, derive most of their earnings from other products. Other producers and suppliers include Johnson Controls, Saft, Ener1, Maxwell, Sanyo and BYD, which is the pick of Warren Buffett, the US investor.
Investors also need to do some homework on these stocks. For example, Ener1, a US battery technology, is applying for a large government grant. Edward Guinness, manager of the Guinness Atkinson Alternative Energy fund, points out that if Ener1 gets the grant, the stock is likely to soar; if not, it may not move much.
“Keep an eye on car sales and see whose hybrid vehicle is selling the most and see who its suppliers are and buy them,” suggests Jenkyn-Jones.
Investors need not even wait to see which carmakers will be more successful at marketing the new wave of electric cars. Charlie Thomas at Jupiter likes Ricardo of the UK, which is developing different forms of hybrid cars. “It’s interesting to buy Ricardo as it’s involved in the design of the cars so you can get early exposure rather than having to wait for the cars to be successful,” he notes.
Investors could also consider an unlisted stock. Reva is the Indian company behind the G-Wiz, General Motors’ new electric car – though whether sales will soar is another question.
One alternative is to buy producers of the membrane to a particular lithium ion battery. Denso supplies batteries to Toyota, but a big supplier of membranes to batteries is Polypore, which also supplies BYD.
Copyright The Financial Times Limited 2009

Agas and Bentleys: slow-tech solutions for an 'overwound world'

Aga cookers and Bentley cars, derided by environmentalists, could be perfect "slow-tech" solutions for a world obsessed by efficiency, a leading academic has claimed.

By Harry Wallop, Consumer Affairs Editor Published: 5:00PM BST 12 Jun 2009

Aga: they burn lots of oil, but they can last a lifetime, Prof Price argues
Both are gas guzzlers, but their reputation should be reconsidered, along with other "slow-tech" ideas because they are "robust" and able to last for decades, according to Andrew Price, a professor of biosciences at Warwick University.
He argues in his book, Slow-Tech, just published, that engineers and politicians prize efficiency over robustness and in doing so discard many successful ideas.

He admits both Agas and Bentleys are luxuries that only a few can afford, but they should not be seen as "dinosaurs".
"A Formula One car now lasts just two race weekends if they are lucky. Their engines are effectively disposable. Our family has managed to keep the same Bentley on the road for 80 years.
"Their ecological footprint is far from green. But if prolonged existence – reducing the need to scrap or recycle – and absence of electronic chips (which carry environmental costs) are considered, claims that these relics are little more than polluting monsters may be slightly wide of the mark."
Aga cookers, invented in 1922 and little changed since then, also have a very poor environmental record for the amount of oil they burn, but Prof Price says campaigners fail to take into account the fact an Aga needs little maintenance, can heat radiators, dry clothes and last for decades.
Over-engineering, adding time and slack to the system is ultimately is a better way of doing things than cutting corners, and trimming spend, he argues – suggesting the NHS would ultimately save lives and money if invested in more hospital beds, a move that would help stop the spread of disease.
The Energy Saving Trust said it disagreed with Prof Price’s argument about robustness, saying nearly all energy-consuming products such as cars and ovens used more energy during their lifetime than during their manufacture and disposal.
“In the case of passenger cars, around 15 per cent of life cycle emissions come from manufacture and disposal, the rest comes from the fuel burnt over the car’s lifetime,” a spokesman said.

Climate change talks move at glacial pace

By Fiona Harvey, Environment Correspondent
Published: June 12 2009 18:06

Time is running out for climate change talks, with another meeting of world governments ending on Friday, this time in Bonn, with little progress towards a new agreement on greenhouse gases.
Officials are now pinning their hopes on the summit of the Group of Eight industrialised nations next month, where the subject will be discussed by world leaders. They may feel more freedom to make compromises than their environment and finance ministers, who failed to do so at the United Nations conference in Bonn and at other recent side meetings.

US president Barack Obama has also called a follow-up meeting to take place in Italy immediately after the G8 summit, where the world’s 15 biggest emitting countries – including emerging economies such as China, India and Brazil – will attempt to find common ground.
There are at least two more important UN meetings planned before a crunch conference in Copenhagen in December. There, officials will attempt to hammer out an accord to replace the Kyoto protocol, whose main provisions expire in 2012.
Much of the two-week meeting in Bonn that ended on Friday was, of necessity, taken up with bureaucratic technicalities, which must be painstakingly sorted through before an agreement can be forged.
China has reinforced the sense of discord by calling on developed countries to cut their emissions by 40 per cent by 2020 – far more than any plan to do – and to give 0.5 per cent to 1 per cent of their gross domestic product in assistance to the developing world.
The lack of progress so far on the big issues – the extent to which rich countries will cut emissions, the commitments poor countries will make and how these will be funded – was underlined this week when Japan unveiled a plan to cut its emissions by 8 per cent from 1990 levels by 2020 – a level only 2 per cent below Tokyo’s commitment under the 1997 Kyoto protocol.
Kim Carstensen, leader of the climate initiative at the green campaigning group WWF, called Japan “dangerously lacking any level of ambition”.
“This is a great shame, and sets the wrong tone for the negotiations,” he said. “[It] makes reaching a good deal even harder.”
However, the positions adopted by Japan and China are privately viewed by officials from other leading countries as posturing. “There are six months to go. We are still at the stage of people setting out their initial positions,” said one.
By this analysis, the announcements suggest many of the key players plan to keep their best bargaining chips for the later stages of the UN talks.
For rich countries, those chips are – in order of importance – money, technology and the extent to which they will cut their emissions.
None of the big developed countries has yet set out how much money they will provide to help poor countries cut emissions and adapt to the effects of climate change.
Most, including the US and the European Union, have laid out their plans for emissions cuts. The US will, broadly speaking, return to 1990 emissions levels by 2020, while the EU will cut its emissions by 20 per cent compared with 1990 levels by 2020, or by 30 per cent if other countries participate.
Emerging economies, led by China and India, are holding out for funds and “technology transfer”.
In return for funding, and the possibility of a global carbon trading mechanism that would benefit emerging economies, rich countries want legally binding commitments from developing countries that they will “deviate from business as usual”. That is, curb their emissions so they do not reach the levels expected if economic growth continues along a high-carbon path.
Such commitments could take the form of “national action plans” whereby developing nations undertake to increase renewable energy generation and improve energy efficiency.
China, India and others have already started drawing up such plans.
“China does not need to take the same actions that developed countries are taking, but it does need to take significant action. When it comes to climate change, China must be part of the solution,” David Sandalow, US assistant secretary of energy, told the Beijing Energy Club this week.
For now, and for the months to come, all eyes are on China.
Copyright The Financial Times Limited 2009

US eases pressure on China over climate change targets

• No compulsory cuts in greenhouse gas emissions• Move brings prospect of deal at Copenhagen closer

David Adam in Bonn and Suzanne Goldenberg in Washington, Friday 12 June 2009 19.27 BST

The US said today it would not demand that China commits to binding cuts in its greenhouse gas emissions, marking an important step towards agreement on a global treaty to fight climate change.
The move came at the end of the latest round of UN climate change talks ­involving 183 countries, which aim to produce a deal in Copenhagen in December.
Jonathan Pershing, head of the US ­delegation in Bonn, said developing countries – seeking to grow their economies and alleviate poverty – would instead be asked to commit to other actions. These include increasing energy efficiency standards and improving the take-up of renewable energy, but would not deliver specific reductions.
He said: "We're saying that the actions of developing countries should be binding, not the outcomes of those actions."
Only developed countries, including the US, would be expected to guarantee cuts. The pledge was included in a US blueprint for a climate change deal submitted to the Bonn meeting, which Pershing said was based on the need for rich countries to cut greenhouse gas emissions 80% by 2050. The American plan, if approved, could replace the existing Kyoto protocol. The lack of any carbon targets for ­developing countries in the protocol was the reason the US never ratified it.
While such cuts were believed to be unrealistic in the new treaty, the first clear acceptance of that at the UN talks by the US is being seen as significant. EU officials said they were studying the US proposal.China and the US are the two biggest polluters in the world, making their positions on the deal critical.
In a separate submission to the meeting, China was among a group of developing countries that called on rich countries to cut emissions by 40% by 2020 on 1990 levels. According to the environmental group WWF, commitments made by developing countries so far add up only to about a 10% cut. Japan this week proposed an effective 8% cut in its emissions.
Observers see the 40% demand as unrealistic, suggesting the US move amounts to blinking first in the negotiations. But back-channel negotiations, revealed by the Guardian last month, showed the two countries are searching for a deal.
John Ashe, who chaired discussions at Bonn on how Kyoto targets could be extended, said many of the targets put forward could be revised as the Copenhagen deadline looms. "There is always an initial move and then a final move. I don't believe we're in the final stage yet," he said.
He said China should agree to take actions to control emissions that were measured and reported to the international community.
In Washington, Todd Stern, the state department's climate change envoy, said the US still expected China to move towards a cleaner economy. "We are expecting China to reduce their emissions very considerably compared to where they would otherwise be [with] a business as usual trajectory," he said.
At the end of the talks, the UN's top climate official said progress had been made. Yvo de Boer, executive secretary of the UN framework convention on climate change, said: "A big achievement of this meeting is that governments have made it clearer what they want to see in the Copenhagen agreed outcome."
But green campaigners criticised the failure to resolve issues such as an overall target for 2020 emission reductions or concrete proposals on funding for poor countries to deal with global warming.Antonio Hill of Oxfam said: "The countries that created the nightmare are refusing to lift a finger to prevent it becoming a reality. Rich country delegates have spent two weeks talking but have done nothing on the issues that really matter. They may be kidding themselves they are working towards a deal but they are not kidding anyone else."

Flashpoints where indigenous peoples are fighting to defend their lands

The Guardian, Friday 12 June 2009

The Navajo nation is fighting uranium mining through the US courts. Radiation levels are 450 times the normal levels. Other uranium mines are opposed by indigenous groups in Australia, India, Canada, Niger and Botswana.
The Bushmen of the Kalahari desert have been progressively pushed out of their traditional lands by the state to make way for mining.
Brazil, Paraguay, Peru
Five "uncontacted" tribes living deep in the forests of Peru, Brazil and Paraguay are at risk of extinction as oil companies, colonists and loggers invade their territories, says Survival International.
The giant oil tar fields in Alberta are some of the most polluting in the world, and will stretch over thousands of square kilometres. They are the centre of a legal battle between oil companies and the Beaver Lake Cree nation and other indigenous groups.
Oil companies are moving into the western Amazon and prospecting indigenous land. Tribes are caught in the crossfire of a civil war between the state and guerillas.
Pygmy groups in the rainforest are threatened by logging and mining companies.
Thousands of indigenous people have been forced to move to make way for giant dams and other developments. Indigenous leaders are regularly faced with threats of assassination by the authorities. Death squads have re-emerged.
Palm oil companies in Sumatra have been expanding into the forests and grabbing land from indigenous communities. This, says Oxfam, is leading to conflict and more poverty.
The indigenous Ogiek people who have lived for centuries in the Mau forest are being forced out to make way for logging, paper and tea companies.
The oil producing Niger Delta which accounts for 4% of all the world's oil, is now heavily militarised as ethnic militia groups resort to kidnapping and violence in response to generations of abject poverty.
Tribal lands are being militarised and repression of indigenous groups is ­increasing as giant coal, gold and copper mines destroy traditional water sources and fields.
West Papua
Companies have dug around $100bn of copper and gold from West Papua in 40 years, but while the Indonesian government has richly benefited, local tribes have been dispossessed of land and livelihoods.

'We are fighting for our lives and our dignity'

Across the globe, as mining and oil firms race for dwindling resources, indigenous peoples are battling to defend their lands – often paying the ultimate price

John Vidal
The Guardian, Saturday 13 June 2009

It has been called the world's second "oil war", but the only similarity between Iraq and events in the jungles of northern Peru over the last few weeks has been the mismatch of force. On one side have been the police armed with automatic weapons, teargas, helicopter gunships and armoured cars. On the other are several thousand Awajun and Wambis Indians, many of them in war paint and armed with bows and arrows and spears.
In some of the worst violence seen in Peru in 20 years, the Indians this week warned Latin America what could happen if companies are given free access to the Amazonian forests to exploit an estimated 6bn barrels of oil and take as much timber they like. After months of peaceful protests, the police were ordered to use force to remove a road bock near Bagua Grande.
In the fights that followed, at least 50 Indians and nine police officers were killed, with hundreds more wounded or arrested. The indigenous rights group Survival International described it as "Peru's Tiananmen Square".
"For thousands of years, we've run the Amazon forests," said Servando Puerta, one of the protest leaders. "This is genocide. They're killing us for defending our lives, our sovereignty, human dignity."
Yesterday, as riot police broke up more demonstrations in Lima and a curfew was imposed on many Peruvian Amazonian towns, President Garcia backed down in the face of condemnation of the massacre. He suspended – but only for three months – the laws that would allow the forest to be exploited. No one doubts the clashes will continue.
Peru is just one of many countries now in open conflict with its indigenous people over natural resources. Barely reported in the international press, there have been major protests around mines, oil, logging and mineral exploitation in Africa, Latin America, Asia and North America. Hydro electric dams, biofuel plantations as well as coal, copper, gold and bauxite mines are all at the centre of major land rights disputes.
A massive military force continued this week to raid communities opposed to oil companies' presence on the Niger delta. The delta, which provides 90% of Nigeria's foreign earnings, has always been volatile, but guns have flooded in and security has deteriorated. In the last month a military taskforce has been sent in and helicopter gunships have shelled villages suspected of harbouring militia. Thousands of people have fled. Activists from the Movement for the Emancipation of the Niger Delta have responded by killing 12 soldiers and this week set fire to a Chevron oil facility. Yesterday seven more civilians were shot by the military.
The escalation of violence came in the week that Shell agreed to pay £9.7m to ethnic Ogoni families – whose homeland is in the delta – who had led a peaceful uprising against it and other oil companies in the 1990s, and who had taken the company to court in New York accusing it of complicity in writer Ken Saro-Wiwa's execution in 1995.
Meanwhile in West Papua, Indonesian forces protecting some of the world's largest mines have been accused of human rights violations. Hundreds of tribesmen have been killed in the last few years in clashes between the army and people with bows and arrows.
"An aggressive drive is taking place to extract the last remaining resources from indigenous territories," says Victoria Tauli-Corpus, an indigenous Filipino and chair of the UN permanent forum on indigenous issues. "There is a crisis of human rights. There are more and more arrests, killings and abuses.
"This is happening in Russia, Canada, the Philippines, Cambodia, Mongolia, Nigeria, the Amazon, all over Latin America, Papua New Guinea and Africa. It is global. We are seeing a human rights emergency. A battle is taking place for natural resources everywhere. Much of the world's natural capital – oil, gas, timber, minerals – lies on or beneath lands occupied by indigenous people," says Tauli-Corpus.
What until quite recently were isolated incidents of indigenous peoples in conflict with states and corporations are now becoming common as government-backed companies move deeper on to lands long ignored as unproductive or wild. As countries and the World Bank increase spending on major infrastructural projects to counter the economic crisis, the conflicts are expected to grow.
Indigenous groups say that large-scale mining is the most damaging. When new laws opened the Philippines up to international mining 10 years ago, companies flooded in and wreaked havoc in indigenous communities, says MP Clare Short, former UK international development secretary and now chair of the UK-based Working Group on Mining in the Philippines.
Short visited people affected by mining there in 2007: "I have never seen anything so systematically destructive. The environmental effects are catastrophic as are the effects on people's livelihoods. They take the tops off mountains, which are holy, they destroy the water sources and make it impossible to farm," she said.
In a report published earlier this year, the group said: "Mining generates or exacerbates corruption, fuels armed conflicts, increases militarisation and human rights abuses, including extrajudicial killings."
The arrival of dams, mining or oil spells cultural death for communities. The Dongria Kondh in Orissa, eastern India, are certain that their way of life will be destroyed when British FTSE 100 company Vedanta shortly starts to legally exploit their sacred Nyamgiri mountain for bauxite, the raw material for aluminium. The huge open cast mine will destroy a vast swath of untouched forest, and will reduce the mountain to an industrial wasteland. More than 60 villages will be affected.
"If Vedanta mines our mountain, the water will dry up. In the forest there are tigers, bears, monkeys. Where will they go? We have been living here for generations. Why should we leave?" asks Kumbradi, a tribesman. "We live here for Nyamgiri, for its trees and leaves and all that is here."
Davi Yanomami, a shaman of the Yanomami, one of the largest but most isolated Brazilian indigenous groups, came to London this week to warn MPs that the Amazonian forests were being destroyed, and to appeal for help to prevent his tribe being wiped out.
"History is repeating itself", he told the MPs. "Twenty years ago many thousand gold miners flooded into Yanomami land and one in five of us died from the diseases and violence they brought. We were in danger of being exterminated then, but people in Europe persuaded the Brazilian government to act and they were removed.
"But now 3,000 more miners and ranchers have come back. More are coming. They are bringing in guns, rafts, machines, and destroying and polluting rivers. People are being killed. They are opening up and expanding old airstrips. They are flooding into Yanomami land. We need your help.
"Governments must treat us with respect. This creates great suffering. We kill nothing, we live on the land, we never rob nature. Yet governments always want more. We are warning the world that our people will die."
According to Victor Menotti, director of the California-based International Forum on Globalisation, "This is a paradigm war taking place from the arctic to tropical forests. Wherever you find indigenous peoples you will find resource conflicts. It is a battle between the industrial and indigenous world views."
There is some hope, says Tauli-Corpus. "Indigenous peoples are now much more aware of their rights. They are challenging the companies and governments at every point."
In Ecuador, Chevron may be fined billions of dollars in the next few months if an epic court case goes against them. The company is accused of dumping, in the 1970s and 1980s, more than 19bn gallons of toxic waste and millions of gallons of crude oil into waste pits in the forests, leading to more than 1,400 cancer deaths and devastation of indigenous communities. The pits are said to be still there, mixing chemicals with groundwater and killing fish and wildlife.
The Ecuadorian courts have set damages at $27bn (£16.5bn). Chevron, which inherited the case when it bought Texaco, does not deny the original spills, but says the damage was cleaned up.
Back in the Niger delta, Shell was ordered to pay $1.5bn to the Ijaw people in 2006 – though the company has so far escaped paying the fines. After settling with Ogoni families in New York this week, it now faces a second class action suit in New York over alleged human rights abuses, and a further case in Holland brought by Niger Delta villagers working with Dutch groups.
Meanwhile, Exxon Mobil is being sued by Indonesian indigenous villagers who claim their guards committed human rights violations, and there are dozens of outstanding cases against other companies operating in the Niger Delta.
"Indigenous groups are using the courts more but there is still collusion at the highest levels in court systems to ignore land rights when they conflict with economic opportunities," says Larry Birns, director of the Council on Hemispheric Affairs in Washington. "Everything is for sale, including the Indians' rights. Governments often do not recognise land titles of Indians and the big landowners just take the land."
Indigenous leaders want an immediate cessation to mining on their lands. Last month, a conference on mining and indigenous peoples in Manila called on governments to appoint an ombudsman or an international court system to handle indigenous peoples' complaints.
"Most indigenous peoples barely have resources to ensure their basic survival, much less to bring their cases to court. Members of the judiciary in many countries are bribed by corporations and are threatened or killed if they rule in favour of indigenous peoples.
"States have an obligation to provide them with better access to justice and maintain an independent judiciary," said the declaration.
But as the complaints grow, so does the chance that peaceful protests will grow into intractable conflicts as they have in Nigeria, West Papua and now Peru. "There is a massive resistance movement growing," says Clare Short. "But the danger is that as it grows, so does the violence."

Chevron fights Ecuador pollution lawsuit

By Naomi Mapstone in Nueva Loja
Published: June 12 2009 18:01

After almost 40 years of drilling, this stretch of Amazon jungle on Ecuador’s border with Colombia is pockmarked with long, deep pits of viscous black crude or blended oil and earth that the locals call “swimming pools”.
About 916 pits were used by Texaco Petroleum, the US oil major, and PetroEcuador, the state company, for the 23 years before Texaco’s exit from the country in 1992.
Now they are at the centre of what is shaping up to be the biggest environmental lawsuit in history, with $27bn (€19bn, £16bn) in potential damages sought against Chevron, which bought Texaco in 2001. That is almost seven times the damages awarded against ExxonMobil for its 1989 Alaska spill.
“The only other oil problem that might be comparable is the first Gulf war, in which Iraq trashed Kuwait’s oil fields,” says Douglas Beltman, an environmental scientist for the plaintiffs, rubbing crude-tainted mud from a riverbank between his fingers. “That’s the scale of contamination we are looking at.”
The fact that this rough, impoverished frontierland is heavily polluted is not at issue. The region is home to marginalised indigenous tribes, “colonisers” from other parts of Ecuador, Colombian refugees and the occasional leftwing guerrilla from across the border looking for rest and recreation.
But after 15 years of litigation, almost every other aspect of the case is contested. Lawyers who brought the class-action suit against Chevron say Texaco operated below environmental standards of the day to maximise profits.
They allege the company released 18.5bn gallons of produced water – the hot salty byproduct of drilling – into waterways instead of reinjecting it deep into the earth; that it used unlined earthen pits for permanent rather than temporary storage of waste; and that it chose not to report many spills. They allege widespread contamination of waterways and high levels of associated sickness, including cancer.
Chevron, the world’s third biggest oil company, denies the charges, accusing the plaintiffs of a blatant “shakedown” and the court of bias.

It says its responsibility ended when it cleaned up 37.5 per cent of the well sites as part of a $40m remediation agreement with the Ecuadorean government in 1995. PetroEcuador, Texaco’s consortium partner, which continues to operate in Lago Agrio, has responsibility for the remaining sites, it argues. PetroEcuador declined to comment.
In the 15 years that Chevron has been fighting the charges in both US and Ecuadorean courts, it has seen the damages claim shoot up to exceed its estimates of the $490m profit it says Texaco made over 26 years as operator of the consortium.
The company has lobbied US Congress to withdraw trade preferences over the suit and, even before the Ecuadorian trial judge, Juan Nuñez, hands down his decision this year, it is planning to exhaust all avenues of appeal.
“We feel the court process in Ecuador is so badly tainted it is virtually irredeemable at this point,” says James Craig, a Chevron spokesman, standing on a site he says Texaco successfully remediated. “We are being pursued under a law that did not exist until nine years after Texaco ceased to operate in the country . . . They [the plaintiffs] illegally abandoned the evidential phase of the trial, which required both sides to present scientific evidence to a panel of five experts for assessment.
“It was only after intense pressure and two appeals by the plaintiffs’ lawyers that the court relented and appointed [its own expert].”
Mr Craig says the plaintiffs have not submitted medical records to the court to support the claims of cancer deaths.
“Chevron has absolutely no intention of paying this extortion or writing a cheque to these trial lawyers to settle this case,” he said.
In an interview with the Financial Times, Mr Nuñez, denied bias, saying the only pressure he felt was that of his own conscience.
“People say this is the case of the century, that what happens here is important not just for Ecuador but for all humanity . . .  I see with my eyes. I see the damage; I see the contamination in the rivers.”
Away from the courtroom, locals have seen little of the vast wealth that has flowed from the ground.
“All of our water in contaminated,” said Leonor Velasquez, a diminutive woman waiting in a health clinic. “We all have rashes, I am so itchy all the time.”
Donald Moncayo, an activist who conducts “toxic tours”, illustrated her point at a creek behind a nearby abandoned house, digging into the bank to reveal blackened soil reeking of oil. “Before it was worse,” he said. “This river was black, and the animals passed by and drank the water . . . the chickens and pigs were black.”
Roberto Poncé believes his son Jose Luis’s death from leukaemia seven years ago was linked to contamination by the oil industry. Jose Luis died the day after his 17th birthday.
Hacking his way through a tangle of vines to an old pit beside his house, Mr Poncé says the family has stopped using the well on their property.
“Just because there are plants here doesn’t mean it is safe,” he said.
Copyright The Financial Times Limited 2009

Ofgem regulator resigns over 'anti-competitive' pricing proposals

The Times
June 13, 2009
Robin Pagnamenta, Energy and Environment Editor

One of Britain's leading energy market regulators has resigned abruptly from Ofgem, the industry watchdog, after a pricing dispute.
George Yarrow stepped down after a disagreement over the regulator's decision to force energy companies to scrap regional pricing in the UK.
Ofgem initiated an investigation into competition in Britain's gas and electricity markets last year after a string of steep retail price increases left consumers facing soaring gas and electricity bills.
One of the changes Ofgem has proposed is to abolish “unfair pricing” — different charging structures levied on consumers depending on where they live — unless these can be justified on the ground of cost.

However, Professor Yarrow, chairman of the Regulatory Policy Institute, who has served as a non-executive member of the Gas and Energy Markets Association (Gema), Ofgem's supervisory board, since 2006, said he believed that the recommendations represented “bad policy” that would harm more consumers than they would help.
He asserted that by forcing all energy companies to adopt similar pricing structures, there would be less competition among suppliers and prices would be forced up.
Critics of the policy say that energy companies seeking new customers in regions outside their local area will be unable to offer lower prices, diminishing the incentive for consumers to switch suppliers.
The formal minutes from Gema's meetings show that the dispute between Professor Yarrow and other members of the authority, including Alistair Buchanan, the chief executive of Ofgem, came to a head at a stormy special meeting on March 5 to discuss the controversial pricing arrangements.
At the next meeting, two weeks later, Professor Yarrow did not attend, and at the subsequent meeting, six weeks ago, board members were informed that he had submitted his resignation.
The minutes also reveal that Professor Yarrow had been pressing for the issue to be referred to the Competition Commission for a second opinion.
Ofgem defended the policy changes yesterday but said that it regretted Professor Yarrow's resignation. The group said: “Professor Yarrow was a valued member of Ofgem's authority. His contribution will be missed.”
In comments to Utility Week, the industry journal, Professor Yarrow said that the changes reflected a “deep incoherence/inconsistency” in Ofgem policy with profound implications for the health of the energy market.
He was not alone in his views. Sir John Vickers, the former chairman of the Office of Fair Trading, and Stephen Littlechild, the former electricity regulator, have written to Ofgem to express their concern that the policy will have “harmful anti-competitive” effects.