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China’s Ecuador hydroelectric plant and others Global Mega-Projects Are Falling Apart – WSJ

Many of China’s Belt and Road infrastructure projects are plagued with construction flaws, including a giant hydropower plant in Ecuador, adding more costs to a program criticized for leading countries deeper into debt

The water intake section of the Coca Codo Sinclair hydroelectric plant near San Luis, Ecuador.

Ryan Dube and Gabriele Steinhauser, WSJ
Photographs by Isadora Romero for The Wall Street Journal

SAN LUIS, Ecuador
EnergiesNet.com 01 23 2023

Built near a spewing volcano, it was the biggest infrastructure project ever in this country, a concrete colossus bankrolled by Chinese cash and so important to Beijing that China’s leader, Xi Jinping, spoke at the 2016 inauguration.

Today, thousands of cracks have emerged in the $2.7 billion Coca Codo Sinclair hydroelectric plant, government engineers said, raising concerns that Ecuador’s biggest source of power could break down. At the same time, the Coca River’s mountainous slopes are eroding, threatening to damage the dam.

“We could lose everything,” said Fabricio Yépez, an engineer at the University of San Francisco in Quito who has closely tracked the project’s problems. “And we don’t know if it could be tomorrow or in six months.”

It is one of many Chinese-financed projects around the world plagued with construction flaws.

During the past decade, China handed out a trillion dollars in international loans as part of Beijing’s Belt and Road initiative, intended to develop economic trade and expand China’s influence across Asia, Africa and Latin America. Those loans made Beijing the largest government lender to the developing world by far, with its loans totaling nearly as much as those of all other governments combined, according to the World Bank.

Yet China’s lending practices have been criticized by foreign leaders, economists and others, who say the program has contributed to debt crises in places like Sri Lanka and Zambia, and that many countries have limited ways to repay the loans. Some projects have also been called mismatches for a country’s infrastructure needs or damaging to the environment.

Now, low-quality construction on some of the projects risks crippling key infrastructure and saddling nations with even more costs for years to come as they try to remedy problems.

“We are suffering today because of the bad quality of equipment and parts” in Chinese-built projects, said René Ortiz, Ecuador’s former energy minister and ex-secretary general of the Organization of the Petroleum Exporting Countries.

Government engineers said there are thousands of cracks in the hydroelectric plant, built by Chinese company Sinohydro.
Government engineers said there are thousands of cracks in the hydroelectric plant, built by Chinese company Sinohydro.(Cristina Vega/AFP)

China’s Embassy in Ecuador didn’t respond to requests for comment on the hydroelectric project. In a recent letter published on the embassy’s Twitter account in response to a report by the Foundation for Citizenship and Development, the local chapter of anticorruption watchdog Transparency International, on China’s lending practices in Ecuador, the embassy said Chinese loans and projects provided “tangible benefits” to Ecuador at a time when the country was in urgent need of financing.

Chinese money has been used to build everything from a port in Pakistan to roads in Ethiopia and a transmission line in Brazil.

Chinese construction companies often bid for government projects or directly approach local officials with projects with a promise that they can easily arrange financing packages from Chinese banks and insurers.

That, developing-country officials say, has given Chinese companies a leg up, because it means governments eager to build a new dam or road don’t have to drum up their own funding. In Africa, more than 60% of the revenue major international contractors collected in 2019 went to Chinese companies, according to a 2021 paper by the China-Africa Research Initiative at Johns Hopkins University.

Critics say the relatively easy availability of Chinese loans for Chinese construction can lead to inflated project costs because there is less pressure on governments to minimize expenses.

Construction defects

Flaws in some of the Chinese-built projects have come to light.

In Pakistan, officials shut down the Neelum-Jhelum hydroelectric plant last year after detecting cracks in a tunnel that transports water through a mountain to drive a turbine.

The head of the country’s electricity regulator, Tauseef Farooqui, told Pakistan’s senate in November that he was concerned the tunnel could collapse just four years after the 969-megawatt plant became operational. That would be disastrous for a nation that has been battered by rising energy prices, said Mr. Farooqui. The closure of the plant has already cost Pakistan about $44 million a month in higher power costs since July, according to the regulator.

Hydropower plants can have operating lives of up to 100 years, according to the World Bank.

The Chinese-built Neelum-Jhelum Hydropower Project in Nosari, Pakistan, shown in 2017, has been shut down because officials said they detected cracks.
The Chinese-built Neelum-Jhelum Hydropower Project in Nosari, Pakistan, shown in 2017, has been shut down because officials said they detected cracks. (Sajjad Qayyum/AFP)

Uganda identified defects in the Chinese-built Isimba Hydro Power Plant, shown under construction in 2017.
Uganda identified defects in the Chinese-built Isimba Hydro Power Plant, shown under construction in 2017. (Zhang Gaiping/Xinhua)

Uganda’s power generation company said it has identified more than 500 construction defects in a Chinese-built 183-megawatt hydropower plant on the Nile river that has suffered frequent breakdowns since it went into operation in 2019. China International Water & Electric Corp., which led construction of the Isimba Hydro Power Plant, failed to build a floating boom to protect the dam from water weeds and other debris, which has led to clogged turbines and power outages, according to the Uganda Electricity Generation Co., or UEGC. There have also been leaks in the roof of the plant’s power house, where the generators and turbines are located, UEGC said. The plant cost $567.7 million to build and was financed mostly through a $480 million loan from the Export-Import Bank of China.

Completion of another Chinese-built hydropower plant further down the Nile, the 600-megawatt Karuma Hydro Power Project, is three years behind schedule, a delay that Ugandan officials have blamed on various construction defects, including cracked walls. UEGC also said the Chinese contractor, Sinohydro Corp., installed faulty cables, switches and a fire extinguishing system that need to be replaced. Earlier this year, the government had to start paying back the $1.44 billion it borrowed from the Export-Import Bank of China to finance the project, even as the plant remains inoperational.

Sinohydro and China International Water didn’t respond to requests for comment on the Ugandan projects.

In Angola, 10 years after the first tenants moved into Kilamba Kiaxi, a vast social housing project outside the capital of Luanda, many locals are complaining about cracked walls, moldy ceilings and poor construction.

The project, built by China’s CITIC Group, was initially funded through a $2.5 billion, oil-backed credit line from the Industrial and Commercial Bank of China that was later refinanced by the China Development Bank, according to William & Mary’s Aid Data Research Lab.

“Our building has a lot of cracks,” said Aida Francisco, who lives in a four-bedroom apartment in Kilamba with her husband and three sons. Like many other middle-class families in Kilamba, she is purchasing the apartment through a rent-to-buy program. Humidity collects in the apartment’s walls, causing mold, Ms. Francisco said, and a lot of the building materials, including doors and railings, are of poor quality.

When she first moved to Kilamba in 2016, Ms. Francisco said, Chinese contractors still came to fix problems. But in recent years many buildings, including hers, have fallen into disrepair, especially as many tenants, who are responsible for the upkeep, lost their jobs amid Angola’s economic crisis.

“If you see these buildings, they won’t last long,” said Ms. Francisco. “They’re falling apart bit by bit.”

A spokeswoman for CITIC said humidity issues in a small number of units in Kilamba were due to tenants making improper renovations and that the company had completed required maintenance.

The Chinese government didn’t respond to requests for comment on criticism of Chinese-built infrastructure in Africa and Asia. A spokesman for Angola’s ministry for Construction and Public Works didn’t respond to requests for comment.

Many Chinese projects fulfill real development needs, especially in countries that struggle to get other financing to build necessary infrastructure. In Argentina’s poor, northern province of Jujuy, PowerChina built the Cauchari solar park, South America’s biggest solar project. At more than 13,000 feet above sea level, it is able to power some 160,000 homes, according to Argentina’s government. In Brazil, China’s State Grid built one of the world’s longest transmission lines, connecting the Belo Monte dam in the northeast to southern cities some 1,550 miles away.

Erosion along Ecuador’s Coca River, which some geologists blame on the Coca Codo Sinclair plant, has destroyed stretches of a highway, an oil pipeline and part of a nearby town.
Surge in Ecuador spending

In Latin America, Ecuador was at the forefront of Beijing’s push into the region, with Quito accessing more in loans than any country except two much bigger nations, Venezuela and Brazil, according to the Inter-American Dialogue, a think tank.

After a 2008 sovereign-debt default, then-president Rafael Correa, a leftist who during his tenure from 2007 to 2017 often clashed with the U.S. and railed against multilateral lenders, turned to China to finance a surge in public spending. In total, Chinese banks lent Ecuador $18 billion during Mr. Correa’s term.

Ecuadorean lawmakers, former government ministers and anticorruption activists say the loans lacked transparency, with contracts given to companies without public bids, resulting in shoddy construction, high costs and graft.

In the recent letter published on the Chinese Embassy in Ecuador’s Twitter account, it said the financing was agreed on during friendly negotiations with Ecuador and fully complies with laws and regulations in both countries.

Current government officials and Ecuadorean economists said some projects made little sense, including the expropriation of thousands of acres of farmland in an Andean valley to build a new metropolis called Yachay City that was supposed to turn Ecuador into a regional tech power. The Export-Import Bank of China provided a $200 million loan for early infrastructure works. Today, the project has been abandoned, with a $6.3 million supercomputer that was supposed to be used by researchers sitting out of doors and unused.

In 2019, the comptroller general’s office reviewed the construction of 200 Chinese-built schools, reporting that some of the buildings had problems with their foundations and others had classrooms with sloping floors and exposed cables. Fifty-seven of the schools were finished behind schedule, the comptroller general’s office said.

“Correa spent on many projects that were not adequate,” said Vicente Albornoz, an economist at the University of Las Americas in Quito. “And China was funding Correa’s spending [on the projects].”

Mr. Correa said in an interview the money boosted Ecuador’s development with new highways, hospitals and schools. Four Chinese-built hydroelectric projects provided clean power and reduced reliance on imported fossil fuels. The Chinese projects also improved a once unreliable power grid that led to regular blackouts in Quito. Today, 90% of Ecuador’s electricity comes from hydro, compared with 55% in 2007, according to the state utility.

“China’s relationship with Ecuador was an example in Latin America,” said Mr. Correa. “We did things that changed the history of the country.”

Sinohydro did the construction and flew in hundreds of Chinese workers to build the Coca Codo Sinclair plant. Detail of a book in Chinese and Spanish with information and photographs about the project.
Sinohydro did the construction and flew in hundreds of Chinese workers to build the Coca Codo Sinclair plant. Detail of a book in Chinese and Spanish with information and photographs about the project.

The former president, who was convicted in 2020 of corruption charges in a case involving payments to his party in exchange for public contracts, is in exile in Belgium. He denies wrongdoing.

China’s most ambitious project in Ecuador was Coca Codo Sinclair, which Ecuadorean engineers first studied for the Coca River in the 1970s. Back then, they considered it a risky venture due to its steep cost and location near an active volcano.

But Ecuador wanted the dam to improve an electrical grid that regularly suffered blackouts and relied on costly energy imports. Today, it supplies about a third of Ecuador’s electricity.

During Mr. Correa’s term, the China Development Bank agreed to finance 85% of Coca Codo Sinclair’s initial cost, with a 6.9% interest rate. Sinohydro did the construction and flew in hundreds of Chinese workers to build the power plant between 2010 and 2016.

The China Development Bank and Sinohydro didn’t respond to requests for comment.

In September, prosecutors searched the office of Sinohydro over allegations it paid bribes to people close to Mr. Correa’s vice president, Lenin Moreno, when the contract was awarded to the Chinese firm. No one has been charged in that ongoing investigation. Mr. Moreno, who later served as president from 2017 to 2021, has publicly denied wrongdoing.

Larger capacity

Some engineers questioned the project early on, saying that the environmental studies were out of date. The plant’s 1,500-megawatt capacity was much larger than the originally envisioned capacity of about 1,000 megawatts, adding to costs and creating more capacity than the river could power, according to former energy officials and congressional investigators. In 2014, 13 Chinese and Ecuadorean employees were crushed to death in a construction accident.

Since the 2016 opening, officials from the state electricity utility have found more than 17,000 cracks in the power plant’s eight turbines, according to the state utility. It blames the fissures on faulty steel imported from China. In 2021, the utility took Sinohydro to international arbitration in Chile, which is ongoing, over demands to repair the damage.

“No crack is acceptable,” the utility said in response to questions from The Wall Street Journal. “They could result in the equipment losing its structural integrity, causing it to collapse.”

President Guillermo Lasso’s government has refused to officially take over management of the plant from Sinohydro, as was planned at the completion of construction, until the cracks are repaired. Numerous attempts to fix the cracks have failed, utility officials said.

“Over my dead body will I accept this poorly built plant,” Energy Minister Fernando Santos told local media in November.

In San Luis, locals like Adriana Carranza got jobs with Sinohydro, which hired her to cook for Chinese workers. The 14-hour days were long, and her Chinese boss didn’t speak Spanish. But the job allowed her to save enough to build a house for her family, she said. At home, she still cooks sweet-and-sour chicken and other Chinese dishes.

But in 2020, the Coca River’s slopes began collapsing, creating thunderous crashes and rattling the ground like an earthquake. The erosion destroyed Ecuador’s biggest waterfall. It took out a stretch of a key road and oil pipeline. The Pink House, a brothel in San Luis that locals say was popular with both Chinese and Ecuadorean workers, tumbled into the river. Ms. Carranza said a neighbor’s home went over the cliff.

Adriana Carranza, shown with her daughter, Darina Zambrano, and their dog, had to flee San Luis last year because of dangerous erosion along the Coca River.
Adriana Carranza, shown with her daughter, Darina Zambrano, and their dog, had to flee San Luis last year because of dangerous erosion along the Coca River.

Fearing for her family’s safety in her own home, Ms. Carranza fled San Luis in March, salvaging anything she could from her house, taking windows, doors and even the roof. “I became deeply depressed, I couldn’t get out of bed,” Ms. Carranza said. “We’ve lost everything.”

Ecuador’s state utility said the erosion is a natural phenomenon in an area prone to natural disasters. Some geologists agree, but others blamed Coca Codo Sinclair, saying that its concrete structures so disrupted the river’s natural flow and accumulation of sediments that the fast-moving water began to cut into the river banks as it descends from the Andes on its way to the Amazon rainforest.

“The erosion is a process that would normally occur over thousands or millions of years, but the dam has accelerated it in a matter of just five years,” said Carolina Bernal, a geologist at the National Polytechnic School, a public university in Quito.

Ecuador has unsuccessfully tried to stop the erosion as the river nears Coca Codo Sinclair, including by placing shipping containers in the water to slow the current. They were quickly washed away.

Ms. Bernal said the government will likely need to relocate a key part of the plant—the project’s water intake—which would cost millions of dollars, before that structure is destroyed by the erosion.

Nancy Chicaiza, a San Luis resident, has little hope for the survival of her town, which once bustled with Chinese workers who bought drinks and snacks at her bodega. She now expects the erosion will eventually wipe out all of San Luis.

“Coca Codo was initially seen as really good,” said Ms. Chicaiza. “Nobody thought we’d be facing these consequences.”

Nancy Chicaiza and others stood on the edge of an eroded area that they blame on faulty construction of the Coca Codo Sinclair plant.
Nancy Chicaiza and others stood on the edge of an eroded area that they blame on faulty construction of the Coca Codo Sinclair plant.

Nicholas Bariyo contributed to this article.

Write to Ryan Dube at ryan.dube@dowjones.com and Gabriele Steinhauser at gabriele.steinhauser@wsj.com

wsj.com 01 20 2023

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