Race to the Bottom, Take II
An Assessment of Sustainable Development Achievements of ECA-
Supported Projects Two Years After
OECD Common Approaches Rev 6
September 2003 A Publication of ECA-Watch
About the Publication
This publication has been a Editor: collaborative research effort Gabrielle Watson supported by: BothENDs (The Netherlands), Introduction authors: Doug Norlen, Fraser Reilly-King, Jon Sohn, Emilie Thenard, and Campagna per la riforma della Banca Gabrielle Watson mondiale (Italy), the Cornerhouse (UK), FERN (Brussels), Finnish ECA Case study authors, research and campaign contributors: Campaign (Finland), the NGO Azerbaijan, Georgia & Turkey – BTC Pipeline: Working Group on EDC, a Working Nick Hildyard (Cornerhouse), Anders Lustgarten (Kurdish Human Rights Project), Greg Muttitt (PLATFORM), Yury Urbansky (CEE Group of the Halifax Initiative Bankwatch) and the Baku Ceyhan Campaign. Coalition (Canada), Pacific Environment (US) and Urgewald Brazil – Aracruz Cellulose: (Germany). FASE – Espíritu Santo, Brazil and Tove Selin (Finnish ECA Reform Campaign) ECA Watch is an organizing and outreach feature of the larger China – Three Gorges Dam: Patricia Adams (Probe International); Fraser Reilly-King (NGO international campaign to reform Working Group on EDC, a Working Group of the Halifax Initiative Export Credit, Finance and Insurance Coalition); Grainne Ryder (Probe International); Doris Shen-Hoover Agencies (ECAs). Participants in the (International Rivers Network) and the Three Gorges Probe. campaign include environment, India – Tehri Dam: development, human rights, Patrick McCully (International Rivers Network) and Heffa Schücking community, labor, anti-corruption and (Urgewald). other non-governmental organizations and bodies. The goals of the campaign Lao PDR – Sepon Mine: Rod Harbinson (Friends of the Earth, International) and Kate Walsh are described in the Jakarta (AID/Watch). Declaration on ECA reform (see Appendix). The actions of the ECA Peru – Camisea Oil and Gas: campaign include advocacy, Aaron Goldzimer (Environmental Defense); Nadia Martínez (SEEN); grassroots organizing, lawsuits, Jon Sohn (Friends of the Earth, US) and Atossa Soltani (Amazon Watch). research, education and media engagement. Targets of the ECA Romania – Cernavoda Nuclear Power Plant: campaign include specific ECA- Lavinia Andrei (Terra Milleniul III); Aurel Duta (For Mother Earth); backed projects and ECA policy Dave Martin (Sierra Club Nuclear Campaign); Codruta Nedelcu (Romanian Association of Nature Lovers); Olexi Paysuk (CEE reforms taking place at national and Bankwatch); Fraser Reilly-King (NGO Working Group on EDC, a multilateral levels. For more Working Group of the Halifax Initiative Coalition) and Antonio Tricarico information, see www.eca-watch.org (Campagna per la riforma della Banca mondiale).
Russia – Sakhalin II Oil and Gas: Cover Photos: Natalia Barranikova (Sakhalin Environment Watch); Petr Hlobil (CEE Bujagali Woman/Ventana Pictures Bankwatch Network); Dimitry Lisitsyn (Sakhalin Environment Watch); BTC “Pipeline” protest/FoE Ikuko Matusmoto (Friends of the Earth Japan) and Doug Norlen (Pacific Environment).
Uganda – Bujagali Dam: Bjørn Ivar Fyksen (FIVAS); Frank Muramuzi (NAPE); Lori Pottinger (International Rivers Network) and Nikki Reisch (Bank Information Center).
Race to the Bottom, Take II
Table of Contents
Introduction 2
Points of Concern in Rev 6 and Recommendations for “Rev 7” 4
Introduction to the Case Studies and Summary of Findings 9
Azerbaijan, Georgia & Turkey – BTC Pipeline 10
Brazil – Aracruz Cellulose Factory C and Plantations 16
China – Three Gorges Dam 23
India – Tehri Dam 29
Lao PDR – Sepon Gold and Copper Mine 34
Peru – Camisea Gas and Gas Liquids Project 40
Romania – Cernavoda 2 Nuclear Reactor 46
Russia – Sakhalin II On and Off-Shore Oil and Gas 53
Uganda – Bujagali Dam 58
Appendix – Jakarta Declaration for the Reform of Official Export Credit and Investment Insurance Agencies 63
Race to the Bottom, Take II
Introduction
Current OECD guidelines for environmental and meet existing international standards on finance; sustainable development review of export credit the adoption of explicit human rights criteria; the agency-backed projects fail to achieve their cessation of finance to non-productive purpose. Significantly destructive projects that investments, such as military purchases or violate host country law, international nuclear power plants; and the cancellation of environmental standards and international human ECA debt for poor countries. (See Appendix) rights and labor laws continue to be considered Following this declaration, increasing and supported by ECAs. This report presents a international press attention, and ministerial civil society proposal for reforming the OECD mandates from the Organization for Economic Common Approaches on Environment and Cooperation and Development (OECD) and the supports the proposal with nine case studies of Group of Eight largest economies (G-8), policy ECA-backed projects from all over the world. negotiations on environmental issues began at the OECD Working Party on Export Credits and Background to OECD Common Credit Guarantees (otherwise known as the Export Credit Group, or ECG). In December Approaches Rev 6 2001, the members of the ECG finalized a Export Credit Agencies (ECAs) are publicly- proposed common set of environmental mandated institutions that provide government- guidelines for ECAs: “Draft Recommendation backed loans, guarantees and insurance to for Common Approaches on Environment and companies from their home country in an effort Officially Supported Export Credits: Revision 6” to promote trade and investment, often in (“Common Approaches” or “Rev 6”). developing and emerging markets. ECAs rank Rev 6 was intended in part to meet the OECD among the largest source of public international ministers’ mandate that export credit policy finance, committing over $500 billion in trade “contribute positively to sustainable finance in 2001 and supporting approximately development and should be coherent with its 10% of world trade. But this investment has not objective,” but also to level the playing field for necessarily brought positive benefits to, and has ECAs and avoid a ‘race to the bottom’ in which in some cases harmed, the affected communities ECAs compete against each other to lower and recipient countries. environmental and other standards in search of Over the past fifty years, ECAs have supported more competitive advantages for their countless projects in the mining, nuclear, pulp companies. Yet Rev 6 has fallen far short of and paper, oil, coal and gas sectors, which have these objectives. had devastating environmental, social and human Despite broad agreement among most ECAs on rights impacts. Consequently, since 1997, an Rev 6, the United States (US) rightly refused to international coalition of Non-Governmental endorse the document. The US judged Rev 6 to Organizations (NGOs) has been drawing public be insufficient on two counts: its weak scrutiny on the adverse consequences of these information disclosure requirements, and its ECA-backed activities. “benchmarking” approach of choosing relevant In May 2000, 347 NGOs from 45 countries standards and procedures on a case-by-case basis called for ECA reform in a statement called the instead of using one common baseline Jakarta Declaration. The declaration demands requirement. Nevertheless, the rest of the ECG greater transparency, public access to members decided to adopt the text on a voluntary information and consultation with civil society basis, and all agreed to review the and affected people; binding common implementation of Rev 6 within two years, in environmental and social guidelines and that 2003. In April 2003, the chair of the ECG
2 Introduction announced that the group was going to reopen the negotiations in an attempt to come to a consensus agreement with all the members, including the US. Since its adoption, NGOs have been very critical of Rev 6 due to its inability to reduce the negative impacts of ECA-backed projects on the ground and to protect the environment and project-affected people’s human and labor rights.
Race to the Bottom, Take II 3
Points of Concern in Rev 6 and Recommendations for “Rev 7”
Below is a detailed analysis of the key factors leading to the failure of Rev 6 to comply with the OECD and G-8 mandates and government commitments to promoting sustainable development. Specific proposals on how this can be corrected are presented. See the full text of NGO-recommended changes to the OECD Common Approaches Rev 6, dubbed the NGO Rev 7 Proposal, at www.eca-watch.org.
1. Lack of Commitment to Sustainable Development
Critique: Proposal: When the OECD Common Approaches were Rev 6 should be revised to include in its first developed during months of closed-door objectives, standards and procedures a discussions, the government negotiators sought commitment to sustainable development consensus by identifying minimum guidelines all encompassing economic, social, cultural and could agree to. For this reason, Rev 6 focuses environmental factors as stated in numerous primarily on environmental issues. At the same multilateral meetings and agreements since the time, controversy over ECA support for the Ilisu Rio Earth Summit in 1992. dam in Turkey existed, focusing attention on the The NGO Rev 7 Proposal replaces the current fate of 75,000 Kurdish and other minorities who focus on environmental review with the broader were to be displaced. This project led the and more complete principle of sustainable negotiators to specifically mention resettlement development review, including social and and cultural property issues, and make reference economic impacts. To reflect this change, human to ethnic or other vulnerable groups. So while rights assessments, stakeholder consultations and Ilisu made it clear that the negotiators needed to mechanisms to ensure project compliance with consider some social impacts, measures to fully given standards have been added throughout. address sustainable development as a whole, Project-affected people should not simply be the including civil, political, economic, social, bearers of negative impacts, rather they should cultural and labor rights, are to date non-existent. receive positive development benefits from This practice is consistent with ECAs’ insistence projects. Companies can insure themselves on defining their business as purely trade against risk; people and the environment cannot. promotion. After the Doha Round for Sustainable Development of the World Trade The criteria and standards for human rights Organization, this narrow definition of the role compliance should be based on international 1 of ECAs is unacceptable. treaties and conventions. Special attention to human rights should be given to vulnerable For example, Rev 6 makes only a passing groups, and in countries with restricted human reference to “areas of importance to ethnic rights and freedoms. This would require a special groups,” and the possible need for a analysis in countries such as China (See the “resettlement or social development plan,” but it Three Gorges Dam case study), and Azerbaijan, fails to set specific international standards that Georgia and Turkey (See the BTC Pipeline case must be adhered to. And while Rev 6 is not study), and where vulnerable groups are present, explicit on what environmental standards should such as indigenous peoples, other minorities or be applied, it is completely silent on the social vulnerable groups (See the Camisea gas project and economic aspects of ECA-backed projects. It and the Lao PDR Sepon mine case studies). is unclear what specific actions ECAs and the projects they back must take to address these 1 issues and promote sustainable development. Especially the International Bill of Human Rights and the five core ILO Conventions plus ILO Convention 169 on Indigenous Peoples among others, and including the conventions, declarations, case law, statements and clarifications.
4 Points of Concern
2. Unreasonably Limited Scope
Critique: Proposal: Currently, Rev 6 applies only to ECA-supported In order to fulfill the mandate given by the credits, but not to guarantees or investment OECD and the G-8, the guidelines must be insurance, for projects seeking credits above extended to all ECA-backed projects regardless Special Drawing Rates (SDR) of 10 million of the type of support, the amount, the duration (approximately US$14 million or 12.8 million of repayment, or the size and location of the €), whose repayment term is two years or more, project. Simple pre-screening could determine 2 and that are classified as “Category A.” Such which projects might have significant adverse major projects constitute approximately ten impacts, and which not, but all projects should percent, a mere fraction, of the total operations be screened and Sustainable Development supported by ECAs. The limited scope means, Impact Assessments should be required for all for example, that the German ECA, Hermes Category A projects. Kreditversicherung, A.G. (Hermes) could provide US$ 35 million in support to the Tehri The definition of “Category A” must be dam in India, a project that will forcibly displace expanded to reflect the broad range of nearly 100,000 people and not require an EIA, sustainable development impacts, including since it was only providing a guarantee, not potential economic, social, and cultural impacts credit. (See the Tehri Dam case study) as well as an assessment of the political and civil rights context of project-affected people. This Even then, parties to the voluntary Rev 6 are does not only mean considering human rights only “expected to” require an Environmental abuses as a factor in assessing the political risk Impact Assessment (EIA) for large projects in or insurance to be levied on a project, rather it near sensitive areas and for large greenfield requires analyzing the potential human rights projects in sensitive sectors. This critically components and impacts of each project. For deficient definition leaves out a whole range of example, people who cannot exercise their civil projects that have the potential for significant and political rights cannot meaningfully adverse environmental impacts even though they participate in required stakeholder consultations. are not large scale projects nor in the designated sensitive areas or sectors.
2 Category A projects are defined as those having potential for “significant adverse environmental impacts. [and]… should, in principle, include projects in sensitive sectors or located in or near sensitive areas.” [emphasis added] Revision 6 provides an “illustrative list” of sensitive sectors and areas based on the EBRD Environmental Policy and Procedures.
Race to the Bottom, Take II 5 3. The Lack of Consultation, Transparency, and Public Access to Information
Critique: Proposal: Fully recognizing the need to keep commercially The public disclosure of satisfactory sustainable sensitive information confidential, there is no development impact assessments, minus any justifiable reason to withhold environmental and truly commercially-sensitive information, should social impact assessment information from be a pre-condition of ECA support. project-affected people and the general public. Public access to environmental impact The fundamental purpose of sustainable assessments for project-affected communities development impact assessments is to improve and interested parties, prior to project approval, project quality through public disclosure and is fundamental to inform citizens of the potential discussion of potential impacts and needed risks they face. ECAs should make project mitigation or avoidance measures. Following the assessment information readily available to example of the International Finance affected communities, NGOs and other Corporation (IFC) and the World Bank, the interested parties at least 120 days in advance of European Bank for Reconstruction and an application being approved. This information Development and other public institutions, ECAs should include the sustainable development should adopt a presumption in favor of impact assessment for all projects, and the names disclosure. of the companies involved. Rev 6 requires no ex-ante disclosure, only ex- Transparency is in everyone’s interest – from the post aggregated information. There is usually no public, to shareholders, to the companies, to the way for project-affected people to know if an ECAs and their governments: ECA is considering support for a project or whether conditions have been required, even 1. It improves quality and outcome of projects after support has been provided. Meanwhile, by carrying out more comprehensive due many ECAs are also not subject to national diligence, and therefore reduces risks. access to information acts. It is thus impossible 2. It is essential to meeting obligations under to verify appropriate classification of projects, human rights treaty obligations. For identify environmental and social impacts example, the European Convention of missed by the project sponsor’s assessment, or Human Rights (ECHR) requires that those highlight mitigation measures that could whose property rights are affected be substantially improve the project and reduce properly informed of risks. project risk. 3. It is good for shareholders, as they have a The current lack of access to environmental and right to know more about the projects in social impact assessments makes it impossible which companies are involved in order to for citizens to participate in a meaningful way in assess the reputational risks of companies. project decisions that directly affect them. This violates a number of the civil and political rights protected under the International Covenant on Civil and Political Rights. The current Rev 6 approach is also in potential conflict with European Convention on Human Rights, and, in the European Union (EU), adhering to Rev 6 provisions puts member states in violation of the law under the new European Directive on Public Access to Environmental Information and Article 1 of the Nice Treaty.
6 Points of Concern
4. The Lack of Common Standards and Operational Policies
Critique: Proposal: Rev 6 states that ECAs should use as a All ECA-supported projects should be required “benchmark” the practices of International to adhere to specific and binding sustainable Financial Institutions (IFIs) such as the World development standards and procedures, which Bank Group, regional development banks, “and should be reviewed periodically on the basis of other internationally recognized environmental the highest international standards and practices 3 standards.” as identified by an independent body of experts. All ECAs should adopt an exclusion list of types It encourages an ad-hoc, discretionary approach of project that are too harmful to the where ECAs apply different sets of standards, or environment and to sustainable development to do not apply them, depending on the whim of an be eligible for public support. ECA and the public pressure they may face vis- à-vis a particular project and its sponsors. This ECAs must comply with host country standards, contributes to trade distortions by failing to laws and procedures, particularly when these are ensure a level playing field in environmental more stringent than the international standards standards across ECAs – a stated objective of the and procedures adopted by ECAs. The OECD negotiations. increasing use of private project agreements between transnational companies and host Though intended to simplify matters, the countries that override and weaken national law benchmarking approach is in fact overly in project-affected areas, should not receive ECA bureaucratic, time- and staff-intensive and fails support. The BTC Pipeline’s “Host Government to provide exporters with the clarity and Agreements” are an example of a project whose predictability around the standards they are contracts deprive project-affected communities expected to meet. For example, in reviewing the of legal redress when complaints arise, and by Romanian Cernavoda 2 nuclear power plant, the their nature, violate host country law. (See the ECAs involved had no clear guidelines on BTC pipeline Case Study) nuclear safety to follow, and had to go through a lengthy, process of devising one specifically for that project. The result was a lowest-common- denominator solution. (See the Cernavoda 2 Case Study) By allowing discretion vis-à-vis internationally recognized standards, Rev 6 contradicts the letter and spirit of the OECD’s own Guidelines on Multinational Enterprises. This practice carries heavy reputational risks for ECAs as there is no assurance that international environmental standards are considered in the ECA approval process.
3 In this regard, 14 international finance banks are one step ahead of ECAs. Although weak on disclosure and accountability, and adopted on a voluntary basis, the Equator Principles represent a single set of international standards through which banks take the environment into account in their project financing.
Race to the Bottom, Take II 7 5. Lack of Monitoring and Compliance Mechanisms for ECA-Imposed Conditionalities and other National and International Obligations.
Critique: Proposal: Currently, few ECAs monitor project compliance ECAs should conduct monitoring visits and with ECA-imposed conditionalities and other require monitoring reports on the contract national and international obligations. Of those conditions and other national and international that do conduct post-approval monitoring, obligations associated with implementation of monitoring data is rarely released to the public. the projects they support. Environmental and Implementation of conditionalities is left to the other sustainable development conditions placed discretion of the project sponsors, with little or on projects should be published in the ECA no public assurance that it is actually carried out. country and in the host country to facilitate Furthermore, Rev 6 does not mandate specific public verification and institutional procedures to review violations or address non- accountability. The disclosure of conditions will compliance by project proponents. allow people on the ground to report on whether None of the provisions set out in Rev 6 are the conditions are being met or whether the enforceable – there are no public reporting project presents some unforeseen shortcoming requirements, no enforcement mechanisms, and that could jeopardize project completion. NGOs no procedures for redress for project-affected have a positive role to play in project peoples in the event of violations of their rights monitoring. or default on specific conditionalities required by A compliance mechanism should be established the ECAs. to help solve emerging problems and to evaluate policy compliance. Its objectives should include: 1. Constituting an independent fact-finding organ to which local communities and other stakeholders can appeal in case of problems with an ECA-supported project; 2. Ensuring that activities backed by ECAs abide by all human rights, social and environmental policies and host government law; 3. Providing the affected communities with effective redress; and 4. Applying a range of sanctions on client companies, including the suspension of current and future support, if norms are not respected.
8 Points of Concern
Introduction to the Case Studies and Summary of Findings
The nine case studies presented in this report complete and accurate case histories as possible, include projects that were either A) approved despite this handicap. after Rev 6 went into effect, B) reviewed under The selected cases highlight a number of national ECA environmental impact review concerns. These vary in scope from significant procedures that are largely similar to Rev 6 and long-term adverse and unavoidable were enacted in anticipation of the Rev 6 environmental impacts, like the destruction of agreement, or C) are currently or will be under pristine rainforests, marine and riverine active consideration by one or more ECA. They ecosystems, to the pervasive denial of project- were selected to illustrate how projects with affected people’s political, economic, civil, significant, adverse and unavoidable sustainable social and cultural rights such as threatening development impacts have continued to receive indigenous peoples’ livelihoods and cultural (or are likely to receive) publicly-backed integrity. They include violations of labor rights, financing, guarantees or insurance, despite the such as the core ILO labor conventions on intent of Rev 6 to screen out projects with the discrimination and equal pay for equal work. worst impacts. Violations of host country law and treaty The cases selected present a range of projects obligations are a common occurrence, from Asia, Africa, Latin America and Eastern particularly ignoring environmental review and Europe. They include examples from the key protection laws and failing to protect citizen’s sectors supported by ECAs: oil, gas and mining, right to livelihood. Significant instances of dams, power plants, and the pulp and paper forced displacement without adequate – or in industry. In each case study, the authors have some cases any – compensation also run through analyzed environmental impacts, human rights the cases, such as the 1.2 million people being impacts, financial impacts (including financial forcibly displaced by the Three Gorges Dam in viability, debt-creation, tax holidays and China. negative revenue impacts), disclosure and public Together, the cases demonstrate that the limited consultation practices, and violations of host scope of Rev 6 means projects fail to receive country laws and treaty obligations. The case adequate review and their most significant studies also analyze the projects against Rev 6 impacts are not avoided. The cases illustrate how requirements. the absence of a common set of clear review The case studies were prepared by organizations procedures and a single set of unified actively involved in monitoring and attempting international standards has allowed ECAs to to minimize the potential impacts of these apply highly uneven, ad-hoc review projects. Local organizations of project-affected requirements to project proposals. Finally, the people, teamed with international NGOs, have cases show how the lack of post-approval provided the information contained in each of monitoring and compliance mechanisms results the case studies. In all of the case studies, the in unaddressed harm to project-affected lack of publicly-available information has posed communities. a significant challenge to presenting complete information on ECA involvement. Details about reviews conducted, stakeholder consultation conducted, amounts and types of support provided, and dates of review and approval are largely kept secret by ECAs and project sponsors. We have attempted to provide as
Race to the Bottom, Take II 9
Azerbaijan, Georgia & Turkey - BTC Pipeline
Project Summary Human Rights and Environmental Issues: • Economic displacement without adequate or Major international funders are currently any compensation deciding whether to provide up to $2.5 billion of • Use of notorious paramilitary forces for public money to finance a major new oil project pipeline security – the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. • Inadequate environmental and social impact review The 1,760km pipeline, which would be buried • Destruction of national parks, sites of along its entire route except for surface facilities, scientific and archaeological importance, would transfer one million barrels of crude oil tourist attractions and revenue earners per day from Baku on the Caspian Sea coast, via • Host Government Agreements trump national Azerbaijan and Georgia, to the Turkish port of laws and international treaty obligations, Ceyhan on the Mediterranean. The oil would be violate state sovereignty and deny citizens supplied to international markets, predominantly the right to redress in the US, via tankers loaded at a new marine Population and Sensitive Areas Affected: terminal. Approximately 36,000 people along the 36,000 people living along the pipeline’s route, pipeline face displacement, military repression including ethnic Kurds in Turkey and surveillance, economic disruption, ethnic discrimination and environmental damage ECA’s Involved: caused by construction. Spills from the pipeline • ECGD (England) could affect an unknown number of others living • SACE (Italy) in the regions affected. Host Government • COFACE (France) • Hermes (Germany) Agreements (HGAs) signed with each country • JBIC (Japan) along the pipeline’s route exempt the BTC • OPIC (US) Consortium, led by British Petroleum, from any • Ex-Im (US) obligations under host country laws, violating fundamental norms of national sovereignty and Status: citizen’s rights to redress for harm that may be Currently under consideration by 7 ECAs. The done during the course of the project. pipeline is already under construction
options for Caspian oil exports; construction and Project Description financing costs together are estimated to total 2 British Petroleum is the lead company in the $3.7 billion. Although the legal contracts for the 1 project explicitly state that BTC “is not intended BTC Consortium (BTC Company), which has or required to operate in the service of the public already started to build the pipeline in violation 3 of EC law and the project agreements benefit or interest,” BP has said that the pipeline themselves. BP is also cannot be built without 70% of the funds, around the operator and lead $2.5 billion, either shareholder in the coming from or offshore oil fields in guaranteed by what Azerbaijan which BP CEO Lord John would supply BTC. Browne has called The route chosen is “free public money,” more expensive than to be provided by BTC Pipeline Route Export Credit many other possible Graphic: Baku Ceyhan Campaign Agencies and other
10 BTC Pipeline International Financial Institutions.4 (Germany), JBIC (Japan) and OPIC and the Ex- Im Bank from the US. Formal applications for The pipeline consortium is therefore seeking funding have been made to OPIC, SACE6 and public funds via the International Finance Ex-Im7, and it is anticipated that the latter may Corporation (IFC), the European Bank for provide as much as US$600 million. As yet, no Reconstruction and Development (EBRD) and at application has been made to the ECGD, but it is least seven export credit agencies. anticipated that the BP will ask for around £60 It is fairly evident why a colossal company like million. BP, which could easily fund the BTC project IFC and EBRD have also been approached for from the record $31 million per day profit it US$300 million apiece, US$150 million in direct made during the first quarter of 2003, would put ‘A’ loans and another US$150 million in ‘B’ itself through the added scrutiny of the public loans underwriting or co-financing with funding process – Baku-Tbilisi-Ceyhan is an 8 unashamedly political project, with attendant commercial banks. The BTC project was political risks from which only the presence of accepted into the IFI funding pipelines on June the major IFIs can insulate the company. Indeed, 12, 2003, giving until early October for the the impetus for the project has come almost public to raise concerns. exclusively from two sources: the Azeri President, Heidar Aliyev (now allegedly Impacts deceased), who has been keen to parlay the country’s oil reserves into greater independence from Russia, and above all, from the United Environmental Impacts States. The BTC Consortium’s rush to push through the project has led to huge gaps in the EIA baseline The desire of the US to obtain a ready supply of mapping, meaning that many species of flora and non-OPEC, non-Arab oil from sources over fauna are not recorded, impacts such as which it holds considerable political sway has fragmentation of habitats are not accounted for always been the driving force behind the creation and procedures like Oil of major export Spill Response Plans for pipelines from the 5 Turkey’s Yumurtalik Caspian; weakening Lagoon, a noted habitat Russia’s influence in of the green turtle, are one of the world’s most absent. The EIA strategically important consultants have areas merely sweetens explained these lacunae the deal.. For the by saying that mapping governments of will be completed during Azerbaijan, Georgia and the process of Turkey, the prospect of construction, not exactly political gains and the 9 best practice. Also in benefits of being Turkey, there are reports affiliates of the US and Onshore oilfields from the Soviet era, south of Baku. that the pipeline is being part of the ‘Eurasian The coastline here is littered with rusting derricks built through a major Transport Corridor’, and pools of oil. The growth area, that would feed unexplored more than the financial the Baku-Tbilisi-Ceyhan pipeline, is offshore. archaeological site north rewards, seems to have Photo: Yury Urbansky/CEE Bankwatch of Ardahan. persuaded them to sign up to a project with The BTC pipeline will potentially disastrous financial and pass through the buffer environmental penalties, not to mention zone of Georgia’s Borjomi-Kharagali National consequences for many of their citizens. Park, imperiling the Borjomi mineral water plant which generates a full 10% of the country’s total export capital. It will also increase the likelihood ECA Support of debilitating landslides and other environmental damage, which in turn will speed The BTC Consortium has approached at least 10 seven export credit agencies, including the UK’s up pipeline corrosion and possible leaks. Local Export Credit Guarantee Department (ECGD), villages vulnerable to landslides complain that SACE (Italy), COFACE (France), Hermes they are not even marked on BP’s regional maps.
Race to the Bottom, Take II 11 In Azerbaijan, the route passes through the company building the Turkish section of BTC, to Gobustan Archaeological Preserve. Containing file court cases against customary users of land legacies from the eighth century BC, the to get back the paltry sums of compensation it preserve has been described as the country’s has paid them. Customary users have no formal Stonehenge. A spokesman for the Azerbaijan land title. In the Kurdish regions of the north- State Oil Company summed up the BTC east like Ardahan, that amounts to nearly 90% of Consortium’s impressive attitude to cultural people. Kurdish interviewees expressed the heritage by noting that, “I’m sure [critics of the opinion that BTC was simply part of an ongoing project] have never even been to Gobustan, but effort by the Turkish state to displace them from they make a big fuss about it.”11 their villages and further their assimilation into the Turkish mainstream.12 Human Rights Impacts Paramilitary Security Forces with a Record Forced Resettlement & Lack of of Human Rights Atrocities Compensation The legal project contracts for the pipeline, the There have been repeated complaints by people Host Government Agreements, detailed below, displaced along the pipeline right-of-way that the give the security forces controlling the project BTC Consortium is not carrying out the process permission to take action in cases of “civil war, of compensation in the manner claimed. These sabotage, vandalism, blockade, revolution, riot, include allegations of insurrection, civil disturbance, terrorism, systematically paying kidnapping, commercial well below market extortion, organized crime or other destructive rates for land; 13 imposing rather than events.” The negotiating prices, in extraordinary vagueness of violation of Turkish a rubric like “civil law and the project disturbance” would be agreements; failing to worrying enough in a compensate certain region with a decent human groups of landowners rights record; in Turkey, and users; not where the responsibility for providing affected security has been handed to people with proper the gendarmerie, a information about their The village of Hacibayram, just 2 miles from the paramilitary force rights; and failing to pipeline route - evicted during the brutal war implicated in the very worst inform them of the between the Turkish state and the Kurdish PKK atrocities of the civil war Photo: Greg Muttitt / PLATFORM against the region’s Kurds, many potential 14 negative impacts of the it is hugely disturbing. project. A recent Fact-Finding Mission to Georgia and Disclosure and public consultation Azerbaijan found that in order for BP to maintain Repeated Fact-Finding Missions to the region its boast that the BTC pipeline will not have revealed the BTC Consortium’s much- physically displace anyone, the pipeline is being vaunted “unprecedented” consultation process to built directly under people’s houses, without be fundamentally inadequate. Legitimate compensation. consultation is premised on the existence of freedom of expression, yet all along the pipeline, Harassment of Ethnic Minorities, Exclusion state repression of dissent is institutionalized. In of Women from Consultation Azerbaijan, President Aliyev’s son, recently and The project takes almost no account of the anti-democratically appointed prime minister, differential impacts of the pipeline on vulnerable has publicly threatened critics of the pipeline on groups, including ethnic minorities, women and national television. the poor. It also fails to mitigate those problems In Turkey, the pipeline passes through appropriately. Many women and Kurds were predominantly Kurdish regions which have been effectively excluded from the consultation and subject to decades of state violence; the fact that decision-making processes. the most recent Mission to Turkey was itself The attitude of the project sponsors is epitomized detained twice indicates that the situation on the by the decision of BOTAS, the state pipeline ground has not improved.15 Yet the 11,000 pages
12 BTC Pipeline of the consortium’s Turkey accedes to the EU Environmental and within the next half- Social Impact century, and EU standards Assessment and other go into effect, thus raising project documents environmental makes no mention of the requirements and human rights situation of adversely affecting the the Kurds, and the IFC project’s “economic repeatedly refuses to equilibrium” (better apply its safeguard known as profit margins). policy on ethnic Only the BTC Consortium minorities despite its partners have the power to obvious applicability.16 terminate the HGA, not Consent cannot be given the host governments, when the right to say no except in extraordinary is denied; by portraying circumstances. a top-down state “In essence, a strip of imposition as a process Turkey a thousand of “stakeholder Fishermen in the village of Yamurtalik Photo: Greg Muttitt / PLATFORM kilometers long is engagement,” the BTC transferred to the Consortium is actively jurisdiction of BP and retarding democratization, not furthering it. other oil companies,” concludes an attorney who has participated in fact-finding missions (FFMs) Violations of Host Country Law and to the region.19 The host governments are only Treaty Obligations permitted to intervene in the BTC project in the 20 Host Government Agreements Undermine event of an “imminent, material threat” which is nowhere defined. In the Turkish HGA, for National Sovereignty example, the BTC Consortium is indemnified Undoubtedly the greatest long-term concerns against both construction cost overruns in revolve around the legal contracts for the Turkey and potential legal liability arising from pipeline, particularly the Host Government human rights violations committed in the course Agreements (HGAs) signed between each of the of pipeline construction or operation, both of three states and the BTC Consortium. In many which are to be borne by the Turkish state. respects, the HGAs closely resemble the rejected Multilateral Agreement on Investment now The HGA also denies affected people effective being resuscitated by the WTO.17 The HGAs redress in the event of disputes or claims for exempt the Consortium from any obligations damages: complaints “shall not be subject to the 21 under national law: they have the same legal condition of exhaustion of local remedies” but standing as international treaties ratified into will be taken to commercial arbitration in domestic law (i.e. they take precedence over Geneva under UK law. This HGA Article, purely domestic law, and indeed in this case, present in all the HGAs, violates state treaty other international treaties) and prevail “over all obligations under Article 2 of the International Turkish law (other than the Constitution).”18 Covenant on Civil and Political Rights (ICCPR), Thus the host governments have effectively which requires States to ensure all citizens have abrogated their executive and legislative powers an effective remedy under the legal system of the to protect their citizens from potential State, without distinction of any kind environmental damage and associated health and (presumably whether they happen to live within safety hazards. the project area or not). The ICCPR has been ratified by Azerbaijan (1992), Georgia (1994), The HGAs also grant the BTC Consortium the and Great Britain (1976). Turkey has not ratified power to refuse to implement any new the ICCPR, but has ratified the International environmental, social or any other laws affecting Convention on the Elimination of All Forms of the pipeline that the affected countries may Racial Discrimination – CERD (2002), which introduce in the next 40-60 years, the lifetime of states that “States Parties shall assure to the Agreements. In addition, the host everyone within their jurisdiction effective governments have promised to compensate the protection and remedies, through the competent BTC Consortium if new taxes or laws are national tribunals and other State institutions,” enacted. This would happen, for example, if (Article 6).
Race to the Bottom, Take II 13 Essentially, the BTC Consortium is assuming rights abuses by security forces hired by the BTC many of the rights of a sovereign state, yet at the Consortium are not even addressed; indeed the same time it is both refusing to accept the entire human rights situation of the region, responsibilities that come with those rights and notably for Kurds, women and other vulnerable preventing existing states from fulfilling their groups, is crassly omitted from overall project own responsibilities. Moreover, it is establishing calculations Economic displacement without a legal framework that places both the company adequate compensation has been documented in and the project outside the regulatory powers of all three countries. Worse, the Host Government both national state law and international law and Agreements are a blatant violation of conventions, creating a corporate “mezzanine international treaty obligations, effectively state” that nestles comfortably under the shelter overriding host country law so that project of existing institutions yet is not bound by any of proponents can carry out any and all of their their duties or obligations. activities unencumbered by environmental, social or financial regulations. To do this under the rubric of sustainable development and democratization that BP touts This is precisely the kind of project that should so effusively, and not merely in relation to the not receive government-backed funding, and that BTC project, is both loathsome and spectacularly under the OECD guidelines should not be cynical; BP engages with the imperatives of approved. This is particularly the case given that sustainability and corporate reform just far a formal complaint against the BTC project was enough to create sufficient political space to made under the OECD Guidelines on Multi- subvert those imperatives yet further. National Enterprises on April 29, 2003, to which the response thus far has been obfuscation and Moreover, according to a legal opinion from evasion. Yet it appears likely that many of the eminent barrister Philip Moser, it is also IFIs and ECAs will indeed, for political reasons, potentially illegal. Moser concludes that the get behind BTC. What better evidence that the HGAs “amount to a clear potential breach of current Common Approach guidelines are what would be Turkey's EU law obligations, inadequate and must be made mandatory, apply namely accepting the supremacy of Community to all OECD member states, include fundamental Law,”22 and thus violate EU environmental and human rights screening, and public disclosure human rights law, as well as Turkey’s EU requirements? Projects such as the BTC pipeline Accession Partnership. On the basis of this should not be permitted to go forward simply opinion, the Baku-Ceyhan Campaign and because it is in the interest of the project affected people in Turkey submitted a detailed proponents and their political allies. legal petition to the European Commission requesting that the EC take action to prevent this flagrant move away from Turkey’s obligations Conclusion under the acquis communitaires, with the prospect of legal action to follow if necessary. If the BTC project were not socially and environmentally egregious enough of its own accord, the project sponsors and their advocates OECD Common Approaches explicitly note that its Host Government Revision 6 Agreements are intended to serve as “a model for extractive industries in developing economies.”24 This project is currently being considered by up It would seem that the next generation of MAI to seven ECAs, despite clear evidence that the offspring share the hubris of the original. project has failed and will likely continue to fail to meet environmental review standards set out The massive political impetus behind the project under the OECD’s Draft Recommendation on makes it hard to stop outright, particularly since Common Approaches on Environment and BP has claimed the project will be constructed Officially Supported Export Credits: Revision 6 even if the IFIs decline to fund it and have of December 2001 (“Common Approaches, Rev illegally pushed ahead with construction, 6”). The project EIA is woefully inadequate, it begging the question of why the IFIs should ignores obvious environmental concerns and continue involvement. But significant fails to provide adequate mitigation for known improvements could still be realized for the issues such as archeological sites and potential human rights and environmental violations, if the oil spills in protected areas. A full critique details ECAs and other IFIs involved in financing the the inadequate time spent in preparation and project apply the social and environmental lacunae in materials.23 Well-documented human screens required. Additionally, the ‘model’ for future projects that the HGAs represents must be
14 BTC Pipeline both brought out into the open and discredited with utmost urgency. Already, international Live: The Impact of the Munzur Dams, June 2003, NGO pressure has resulted in a six-month delay Section II, available from www.khrp.org 13 to the project and opened it up to much wider HGA Turkey, Article 12.1 14 scrutiny. In Georgia, underlining BTC’s political significance, the US has donated $75 million to fund 400 “anti- terrorism” personnel to protect the project. For more information, contact: 15 Baku-Ceyhan Campaign, Second FFM to Baku- Tbilisi-Ceyhan Pipeline, Turkey Section, May 2003, The Cornerhouse, Nick Hildyard, +44 (0)1258 available at www.baku.org.uk 817518/473795, [email protected] 16 See Ibid., Chapter 4.1 for the reasons why the Kurds Kurdish Human Rights Project, Anders need this basic level of protection. Lustgarten, +44 208 348 4339, 17 See Box, “MAI by the Backdoor?”, First Fact-Finding [email protected] Mission Report, Baku-Tbilisi-Ceyhan Pipeline, Turkey PLATFORM, Greg Muttitt, +44 208 880 1767, Section, August 2002, p.25. This FFM and subsequent [email protected] visits to the region were undertaken as part of the Baku- Ceyhan Campaign; it and many other materials are available at www.baku.org.uk. Endnotes: 18 HGA for Turkey, Preamble. After pressure from NGOs, BTC Co. has made many of the project documents publicly available—they can be accessed at 1 www.caspiandevelopmentandexport.com The BTC Company is led by BP, which, with a 30.1 per 19 cent share, would be also the operator of the project as a Miriam Carrion, “HGA Analysis”, First Fact-Finding whole. Other shareholders in the BTC Company are the Mission Report, Baku-Tbilisi-Ceyhan Pipeline, Turkey Section, August 2002. State Oil Company of the Azerbaijan Republic 20 (SOCAR), Unocal, Statoil, Turkish Petroleum (TPAO), HGA Turkey, Article 5.2 (iii) 21 ENI, TotalFinaElf, Itochu, Inpex, ConocoPhillips and HGA Turkey, Article 18.1 Delta Hess. 22 Counsel’s Opinion of Philip Moser, submitted to the 2 IFC, AZERBAIJAN, GEORGIA AND TURKEY: BTC European Commission July 4 2003 Pipeline Project Brief, undated 23 See www.baku.org.uk. 3 BTC Inter-Governmental Agreement, Article II (8). 24 Caspian Development Advisory Group, meeting with After pressure from NGOs, BTC Co. has made many of Baku-Ceyhan Campaign, June 13 2003 the project documents publicly available—they can be accessed at www.caspiandevelopmentandexport.com 4 Corzine, R., “Wisdom of Baku pipeline queried”, Financial Times, 4 November 1998, p.4. 5 For a detailed hisotry of the politics behind the creation of BTC, see Some Common Concerns: Imagining BP’s Azerbaijan-Georgia-Turkey Pipelines System, PLATFORM, London 2002. It is noteworthy that for many years the major oil companies were unwilling to take on the BTC project due to its massive technical and financial as well as political complexity, and it was only following BP’s increased vulnerability to US political pressure after its takeover of Amoco in 1998 that the company took a real interest in BTC. 6 SACE, Environmental News, 26 March 2003, www.isce.it 7 See: List of Major Pending Transactions requiring an Environmental Assessment, Project No AP078161XX, posted 13 June 2002, www.exim.gov 8 EBRD, “Ten Questions on the BTC Pipeline”, July 17 2003, p.1 9 Baku-Ceyhan Campaign FFM Interview with ENVY Consultancy, Ankara, Turkey, March 18 2003 10 See www.baku.org.uk for forthcoming FFM report 11 Natalya Anteleva. "NPR : Azerbaijan Pipeline Project Prompts Opposition", National Public Radio, USA, July 29, 2003, http://discover.npr.org/features/feature.jhtml?wfId=1360 453 12 For more on the history of the Turkish state’s displacement policy as a solution to its ‘Kurdish problem’, see KHRP, This is the Only Valley Where We
Race to the Bottom, Take II 15
Brazil – Aracruz Cellulose Factory C & Plantations
Project Summary Human Rights and Environmental Issues: • Increase in landlessness and rural poverty Inaugurated on August 2, 2002, Aracruz caused by plantation expansion Cellulose’s new wood pulp Factory C in Espírito • Injured and mamed workers’ claims Santo, Brazil adds to the impacts already suppressed generated by its eucalyptus plantations and first • Displaced indigenous peoples’ claims ignored two factories, which opened in 1978 and 1991. • Dioxin exposure at pulp plant
The massive mono-culture eucalyptus plantations Population and Sensitive Areas Affected: needed to feed the largest short-fiber pulp factory • Tupinikim and Guarani indigenous peoples; in the world are leaving a legacy of rural Afro-Brazilian ´quilombo´ communities landlessness, contaminated rivers, destruction of • Rural agricultural workers with and without the native Mata Atlântica forest and indigenous land rights violations. The conversion of vast tracks of prime agricultural land significantly erodes rural ECA’s Involved: employment and incomes, depletes state and local • Finnvera (Finland) • BNDES (Brazil) revenues, undermines Brazil’s land reform and zero-hunger campaigns, and generates a tinderbox Status: of rural conflicts waiting to explode. Failure to Complete – Inaugurated August, 2002 include the plantations in the environmental review is a violation of Brazilian law, to which the It is estimated that Factory C consumes nearly ECAs involved are complicit. 2,660,000 m3 of wood per year and increases the company’s water consumption from 1.54 to 2.224 3 Project Description m per second, enough to supply a city of approximately 2.5 million.2 The voracious demand Located in the for wood and water of the municipality of Aracruz world’s largest cellulose in the southeastern factory requires between 72 Brazilian state of and 130 thousand hectares Espírito Santo, Aracruz of prime agricultural land Cellulose’s Factory C to be converted to increases the company’s monoculture eucalyptus yearly bleached plantations, and the cellulose production diversion of water from the from 1.24 to 1.94 Doce River. Meeting these million tons, thus needs has come at the strengthening its expense of the Factory’s position as the world’s immediate neighbors and largest producer of this 1 rural agricultural workers, type of wood pulp. In who are being pushed off order for the company to their lands and into poverty meet its new production to make way for the new goals, it needs enormous plantations. amounts short-fiber Areas of Aracruz Operations & Plantations eucalyptus and water. Graphic: Aracruz Cellulose
16 Aracruz Cellulose ECA Support independent sources place it closer to 130 thousand.6 The Finnish Export Credit Agency Finnvera supported the delivery of the Finnish pulp These monoculture eucalyptus plantations have equipment to Aracruz Celulose with US$ 11 historically replaced native Mata Atlântica forest million.3 Due to the lack of public disclosure and are now displacing fertile agricultural land. requirements for ECA support, citizens of Brazil While the Mata Atlântica forest is now protected, and Finland are unable to access even the most the plantations created through Aracruz’s current basic information about the publicly-backed expansion project generate direct environmental finance for this project, and it is not known what impacts at the local and regional level. The other ECAs may have been involved in this affected farmers point to clear-cutting (which project. includes not only removing all existing vegetation, but also houses and any other structures); the Investments total approximately US$ 825 million: application of herbicides and pesticides, which US$ 575 million for the industrial complex, US$ have contaminated of the rivers and streams; 220 million for the increase in plantations, and taking fertile flat lands out of food production and US$ 30 million to be used for infra-structure, the contamination of adjacent organic farming logistics, and other uses. Most financing has come enterprises.7 from BNDES and commercial banks, likely in Brazil. The package appears to have been The Coordinating Committee of the state Small completed around June of 2001.4 Farmers’ Movement (MPA) registered a complaint with the authorities on February 20, 2003 over the Finnish groups seeking to gain information about contamination of the rivers and streams in environmental review for this eucalyptus plantation areas with publicly-based support for the roundup (glyphosate), tordon Aracruz project were refused (picloran) and 2,4 D, in addition to access. They were forced to appeal a product referred to as ‘amarelão’ to the Helsinki Administrative (big yellow), which is probably a Court. On June 25, 2003, the Court fungicide. A formicide (mirex-S) ruled that Finnvera must reply to and an insecticide (scout) are also the groups’ requests and explain in used. In April of 2002, agricultural detail why they will not disclose worker Aurino dos Santos Filho, the information and what part of aged 34, died in the field while the environmental reports are applying pesticides. After the secret. The groups are still waiting complaint was lodged by the for their answer. MPA, the Federal Public Ministry in Espírito Santo opened an Eucalyptus Mono-Culture inquiry on the excessive use of Impacts pesticides by Aracruz Celulose.8 9 Environmental Impacts Through the Second Forest Incentives Program, the company has even supplied pesticides and Increase in monoculture plantations: “a dead herbicides to farmers, along with eucalyptus forest that kills everything” seedlings, thus encouraging the growers to The company’s monoculture plantations are continue using and exposing themselves to toxic concentrated along the central-northern part of the chemicals. Espírito Santo coast and in the extreme south of Concerns over dioxin contamination the neighboring state of Bahia, and are now While the company began to invest in cleaning up encroaching westward into the interior of Espírito emissions from its plant in the 1990’s as a result of Santo state, northward into southernmost part of widespread criticism domestically and Bahia, and southward into the state of Rio de internationally, cellulose production is still Janeiro. extremely polluting. In addition to the generation Although Aracruz alleged the project did not of organic compounds as measured by the generate any new eucalyptus plantations in the Biologic Oxygen Demand (BOD5) and the environmental impact report used in the licensing Chemical Oxygen Demand (COD), and of process, it has since confirmed the need for 72 atmospheric and solid emissions, one of the most thousand new hectares of plantations,5 and serious problems is the use of chlorine in the Standard – STD – production process. The use of
Race to the Bottom, Take II 17 this substance generates more than 200 A public interest law suit is currently pending on organochlorates, including dioxin. this issue. The hazards associated with organochlorate compounds that form during the older Kraft Human Rights Impacts process, used at all three of Aracruz’s plants, led to Indigenous lands occupied the development of two alternative technologies: ECF (elemental chlorine free), and TCF (total Ancestral home to the Tupinikim and Guaraní chlorine free). TCF cellulose is preferred by peoples, the Mata Atlântica has more than 240 European markets, while the American paper different species of trees, and possesses many industry supports the use other attributes that have of ECF, even though it been integral to the cultural still results in the identity of local indigenous formation of and Afro-Brazilian organochlorates, while populations. These peoples’ TCF completely way of life, which revolved eliminates it. Even the around using the forest, World Bank, in its was destroyed by Pollution Prevention and deforestation initiated by Abatement Handbook, Aracruz Celulose during calls for the use of the 1960s and 1970s in 10 making way for its TCF. Aracruz opted eucalyptus plantations. for ECF as its Perhaps the problem is production technology most eloquently expressed for Factory C, 11 so it is Native Mata Atlântica forest destroyed by in the words of a Tupinikim still using chlorine, and Eucalyptus mono-culture plantation expansion in leader, who defined a will continue to generate the 60s and 70s eucalyptus plantation as “a organichlorates such as dead forest that kills dioxin. everything.” The Tupinikim and Guaraní have Massive water consumption – for free and with been able to reclaim 7,500 hectares from Aracruz state subsidies after a long and difficult struggle. An additional With Factory C, this consumption has risen from 11,500 hectares of their ancestral land remains 154,000 to 248,000 cubic meters per day.12 This occupied by Aracruz, primarily due to the level of consumption is equivalent to that of a city company’s successful lobbying efforts with the with a population of 2.5 million with a per capita state. consumption of 100 liters per day. Since 1978, The relationship between Aracruz and the Aracruz has never paid for the water it consumes. indigenous and Afro-Brazilian communities is With its plans to construct Factory C, by 1999 marked by conflict and fear, decades after they Aracruz already anticipated that the currently were expelled from their lands. Afro-Brazilian available water resources would be insufficient communities in the north of Espíritu Santo state once its new unit began functioning. This led the have set fire to plantations in frustration over land company to develop a new plan for diverting water and resource claims and the Tupinikim and from the Doce River basin via a canal. However, Guaraní indigenous people have cut down parts of while Aracruz Cellulose is the primary beneficiary plantations in their efforts to demarcate their of this project, it was the Municipality of Aracruz ancestral lands. For its part, Aracruz has hired a that proposed, licensed, and constructed the Canal. security force to “protect” the plantations. This is Meanwhile, the nearby community of Barra de not the “good neighbor” image presented by Riacho currently faces serious water shortages and Aracruz publicity. their local waterways are contaminated. Fishing, Destroying rural livelihoods and endangering the main source of income for the community’s worker health residents, has been seriously affected by the 13 Aracruz’s purchase of agricultural lands and its diversion of waters by Aracruz. According to Forest Incentives Program have dramatically attorney Sebastião Ribeiro Filho, the canal project increased rural landlessness. When landowners is in blatant violation of legal principles including who had sharecroppers on their lands sell their insufficient environmental review, inadequate 14 lands to Aracruz or convert it to eucalyptus public consultation, and licensing irregularities. plantations, this begins a tragic drama of families being forced to leave their lands and homes. In 18 Aracruz Cellulose 2001, for example, when Aracruz purchased of Plantation Expansion Generates Rural nearly 5,000 hectares in the municipality of Vila Conflict, Derails National Land Reform Valério, more than 100 families have been Program 15 expelled and many others lost temporary jobs. According to data from the Landless Workers’ In Jaguaré, also in the north of Espírito Santo, 14 Movement (MST, by its Portuguese acronym), sharecropper families were expelled from Fazenda there are nearly 65,000 families in Espírito Santo Barba Negra, where they had been coffee farmers. who are waiting for plots of land. Aracruz’s Approximately 700 workers employed by a preference for purchasing flat, fertile land in papaya plantation lost their jobs when the land was parcels of more than 100 hectares has pitted the 16 bought by Aracruz. There are still no exact company against the federal land reform agency in figures on the number of people who were a competition for lands that could have been used expelled and day laborers who lost their jobs as a for land reform. The company has often paid two result of Aracruz’s land purchases, though or three times the market value. The National unofficial tallies are that at least 10 thousand Institute for Settlement and Land Reform people have been displaced in Espírito Santo (INCRA), the federal agency responsible for land where 200 thousand hectares have been converted reform, has a much smaller budget for land to plantations. In Bahia state, 300 thousand purchases and cannot compete with Aracruz’s hectares have been converted, and in Minas deep pockets. For obvious reasons, potential Geráis, an astounding two sellers prefer to sell their lands million hectares have been to Aracruz. converted. In frustration, the MST of The benefits to Brazil in terms of Espírito Santo occupied the the employment generated by the Fazenda Barba Negra in Aracruz project are extremely Jaguaré in September of 2001, limited. Factory C generated a protesting against the purchase total of 113 direct jobs and 60 of lands by Aracruz and against 17 indirect jobs. More the negative impact of this on significantly, eucalyptus land reform. The occupying plantations compare poorly with families were expelled some the agricultural activities they weeks later, under a state court displace. According to a 2002 repossession order, decided in study by INCAPER, the Espírito Aracruz’s favor. Clearly, Santo state rural research and Aerial view of Aracruz Factory C landless rural agricultural extension organization, one workers are no match for hectare of land utilized for Aracruz’s legal department. raising fruits, vegetables, and grains generates an The failure of the courts and government agencies income of US$4,200 per year. By contrast, one to resolve the problem of rural landlessness, hectare of eucalyptus plantation generates only exacerbated by Aracruz’s massive plantation US$138 per year. The study examined the costs expansion, is leading to heightened rural tensions and prices of 24 agricultural products, compared to and a volatile environment. eucalyptus.18 Labor Rights Violations and Lawsuits In a 1999 study commissioned by the Lutheran Rural labor rights are also eroded by Aracruz’s Seeds Foundation, eucalyptus plantations were agro-industrial production model. The company’s shown to provide an income of US$225per hectare current policies are leading to the dualization per year, as opposed to guava, which can generate between the “categories” of workers. Direct US$10,500 per hectare. According to this study, employees of Aracruz, totaling 1,542 in 2001, planting coffee, coconuts, bananas, limes, and have higher salaries than the regional average, mangoes all generate 9 to 20 times more income 19 their jobs are secure, and they enjoy a variety of than eucalyptus for rural producers. In addition, employment-related services and benefits. But fruit growing generates ten direct jobs per hectare, those who are employed through outsourcing and while the Aracruz Celulose model, taking into subcontracting, totaling 3,037 in 2001, including account the land area utilized by the company and former plantation workers who have been re-sub- the number of direct and indirect jobs, generates contracted, receive lower salaries, have worse just one job for every 44 hectares. This is without working conditions, and enjoy few employment- taking into consideration the hundreds of families related services and benefits. Outsourcing is thus displaced from their lands after the land was synonymous with erosion of worker rights. acquired by the company.20 Race to the Bottom, Take II 19 Aracruz Celulose has been named in more than a Disclosure and public consultation thousand labor-related lawsuits, approximately It has been extremely difficult for citizens affected 180 of which are on behalf of former plantation by Factory C and the new plantations expansion to workers whose health has been damaged by the gain access to information about the credit use of pesticides or who have lost arms, legs, contracts for the imports, valued in the millions. 21 hands and fingers in chainsaw accidents. Many Similarly, the decision-making processes that of these accidents were never registered by accompanied the licensing and approval process Aracruz and ailing workers have been dismissed has been flawed, excluding the vast majority of when the company caught wind of their condition. project-affected peoples. By Brazilian environmental law, the population Financial Viability Issues directly affected by any project is entitled to have Tax holidays deplete state resources access to the EIA/EIR required under state law for The increase in eucalyptus plantations has had licensing. This participation was illegally indirect costs for the entire population of the state restricted in the case of the proposal for Aracruz of Espírito Santo and the other states where it has Celulose’s Factory C due to Aracruz’s plantations. As a business involved in exporting misrepresentation of the scope of the project. The its products, Aracruz Cellulose is exempt from Espírito Santo State Department of Environmental sales taxes. What’s more, the company is even Affairs (SEAMA), responsible for the licensing granted tax credits for the sales taxes it pays on process, was negligent throughout the entire supplies and process, ignoring clear evidence of impacts raw materials directly related to used in the the third factory and production the new plantations. process. The project’s Because of EIA/EIR incorrectly such corporate limits the area of subsidies, by influence and scope the end of the of the study to the year 2000, actions and Aracruz had emissions of the accumulated factory itself, US$28 million alleging that “the in tax credits.22 Demonstrators with banner reading “Aracruz Celulose: environmental project being Today, the permit in 28 days – environmental fairy tale” Photo: Red Contra o Deserto Verde 2002 proposed will not state of bring about any sort Espírito Santo of increase in the actually owes more than US$35 million to area of Aracruz Celulose’s eucalyptus forests in Aracruz, and is in no position to pay off this the state of Espírito Santo...”.24 This is clearly not “debt.” the case, as confirmed by Aracruz’s own 2001 Annual Report, the BNDES press releases related The conversion of agricultural land to eucalyptus 25 plantations dramatically reduces local and state to project funding and other independent sources. revenues and likewise the resources available for This violates Brazil’s environmental assessment investing in health care, education, and other basic laws. social services. This is especially problematic for As a direct consequence of this omission, only one the local tax revenues of the municipalities where public hearing on the EIA/RIMA was held, in the the plantations are located. The 25,000 hectares municipality of Aracruz, on February 14, 2000. utilized for family agriculture in the municipality Questions on broader issues, specifically whether of São Mateus for example, generate an annual Aracruz Cellulose planned to increase its income of US$35 million and employ between plantations in Espírito Santo were rebuffed by 15,000 and 20,000 people. But the 50,000 representatives of the company, the State hectares that are dedicated to eucalyptus department of Environmental Affairs (SEAMA) monoculture generate an annual income of only and Aracruz’s consultant, CEPEMAR. All of these US$7 million, and the total number of direct and alleged, as did the EIA/EIR itself, that there would indirect jobs generated is only 3,000.23 be no increase in the area of eucalyptus plantations in Espírito Santo.
20 Aracruz Cellulose The indigenous communities and fishermen, who on Common Approaches on Environment and are the industrial complex’s nearest neighbors, had Officially Supported Export Credit: Revision 6 of not even been invited to the hearing, which December 2001, or Finnvera’s own environmental constituted their only opportunity to voice an guidelines, which with into effect in early 2001, it opinion over the company’s plans to construct an would have been rejected on a number of grounds: additional cellulose factory in their backyard. The • It fails to take full cumulative project impacts project in question was not a small one with into account, especially impact of eucalyptus minimal impacts, but the largest complex of its plantations, on rural livelihoods, municipal type in the world. and state revenues, the environment, and worker health, in violation of host country Violations of Host Country Law environmental review laws. The highly suspect environmental review and licensing processes for Aracruz Cellulose’s • The consultation process was deeply flawed, Factory C and associated plantations have placed it excluding neighboring communities, rural under suspicion by the Espírito Santo state workers and indigenous people directly Legislative Assembly. Questioning the legality of affected by the project, the Factory C operating license, the Assembly • Eucalyptus plantation expansion, driven by initiated a Parliamentary Investigative the project, has led to the violation of host Commission (CPI) in March, 2002. The CPI was country laws and has undermined regional charged with investigating irregularities in the development plans. licensing of Aracruz Celulose’s Factory C.26 Until Aracruz succeeded in blocking further • Water required by Factory C has been proceedings, the CPI served as a forum for delivered free of charge, paid for in full by the bringing to public attention the innumerous local municipality, and in violation of host impacts caused by Aracruz’s activities throughout country environmental review laws. its 35-year history in the state of Espírito Santo. Environmental attorney Sebastião Ribeiro brought Conclusion a Public Action in Espírito Santo state court The Aracruz Cellolose project is characterized by against Aracruz Celulose and the Institute for the large-scale rural economic dislocations and Agrarian and Forest Defense (IDAF), the agency increased landlessness, contamination of drinking that granted the 30,000 hectare Forest Incentives II water, workers’ rights violation, and the complete Program license to Aracruz. On August 9, 2002, disregard for claims by indigenous people and the Office of Public Registry ruled that the Forest Afro-Brazilians displaced by its eucalyptus Incentives II Program was illegal, since the IDAF plantations. At the same time, the economic had not requested an EIA/EIR, as required by law. benefits to Brazil are questionable at best. The IDAF’s own attorney testified on June 18, 2002 project’s impacts have been ignored by the project during the Parliamentary Investigative proponents, banks and international financial Commission (CPI) on Aracruz Celulose license institutions supporting the project. The risks to irregularities that there had been no legal project sponsors of wide-spread protests, assessment of Aracruz’s forest licensing or any continuous legal challenges and reputational harm other activities, and as such, all licenses that had caused by failing to fully assess and mitigate been given to the company should be considered 27 environmental and social impacts are clear. The illegal. Aracruz has since managed to Aracruz story makes a strong case for the need for temporarily overrule the judicial order, and the more rigorous environmental and social screening, case is currently on appeal. full ex-ante public disclosure, and post-approval monitoring and accountability compliance OECD Common Approaches mechanisms. Rev 6 The Aracruz Cellulose Factory C and its For more information, contact: associated eucalyptus plantations have brought FASE – Espíritu Santo, Brazil, significant, long-term adverse impacts to Brazil, [email protected] and no effort has been made to mitigate them. This Finnish ECA Campaign (Finnish Association for project should not have received official support Nature Conservation), Tove Selin, from Finnvera. Had it been properly reviewed [email protected] properly under the OECD Draft Recommendation
Race to the Bottom, Take II 21 Endnotes: ES is investigating this situation in preparation for registering an international complaint. 22 1 Aracruz Celulose S. A. Relatorio Annual 2001. Aracruz, Aracruz Celulose S.A. “Resultado Consolidado de 2002. 2001.” (“Final Results of 2001”) In: Diário Oficial do 2 CEPEMAR. Relatório de Impacto Ambiental Estado do Espírito Santo, 15/jan./2002. p. 35. 23 (Environmental Impact Assessment) – RIMA Fiberrline Proceedings of the public hearing on agro-ecological “C”. Relatório Técnico (Tecnical Report) CPM RT 079/99. zoning, São Mateo, Espírito Santo. March 5, 2002 24 Dezembro 1999. CEPEMAR, 1999. p. 63. 25 3 Leonia Bank web site, March 13, 2000. Leonia Bank is BNDES, 2002; CEPEDES, 2003; SEAMA, 2000; Jornal now Sampo Bank. do Brazil, January 6, 2002. 26 4 Aracruz Celulose S. A., 2002; and BNDES. “BNDES Gomes, Helder. “Relatório sobre Aracruz em função da apóia expansão de Aracruz com R$666 milhões.” CPI da Aracruz Celulose na Assembléia Legislativa.” (“BNDES supports expansion of Aracruz with R$ 666 (“Report on Aracruz because of the CPI of Aracruz million.”) www.bndes.gove.br 2002. Celulose in the Espirito Santo Parliament”). Vitória, 2002. 27 5 CEPEMAR, 1999. Gomes, 2002. 6 BNDES, 2002; CEPEDES, personal communication on research the NGO has carried out on the socio- environmental impacts of Eucalyptus plantations in region of Southern Bahia, 2003; SEAMA, “Licença de instalação.” (“Instalation licence.”) No. 009/2000, Processo No. 966/99, Empresa Aracruz Celulose. March 16, 2000; Jornal do Brazil, Jornal on line, “Polêmica do eucalipto rumo ao Rio.” (“Eucalyptus controversy heading towards Rio”), January 6, 2002. 7 Coordinating Committee of the state Small Farmers’ Movement (MPA), 2002. 8 Século diário. Internet newspaper. Jornal diário on-line. March 11, 2003. 9 This program involves eucalyptus-planting contracts with farmers that stipulate they plant, on their own lands, a certain quantity of hectares of eucalyptus, using seedlings, pesticides and herbicides provided by the company. At harvest, the farmers sell the wood to Aracruz at a set price. 10 World Bank Group. Pulp and Paper Mills: Pollution Prevention and Abatement Handbook. Washington, July, 1998. pp. 395-400. 11 CEPEMAR, 1999. 12 CEPEMAR, 1999. 13 Assembléia Legislativa do Espírito Santo. Documents and testimony from the Parliamentary Investigative Commission (CPI) on Aracruz Cellulose. Vitória, 2002. (CPI documents on Aracruz Celulose, 2002) 14 Ribeiro, Sebastião. “Ação Popular que questiona a legalidade da licença para a implementação do Fomento Florestal II da Aracruz Celulose.” (“Popular Lawsuit that questions the legality of the licence of implementation of the Forest Incentives Programme II of Aracruz Celulose.”) Vitória, 2001. 15 MPA, 2003. 16 Deputy Mayor of Sooretama, during a public hearing on agro-ecological zoning in São Mateus on March 5, 2002. 17 CEPEMAR, 1999. 18 Formentini, Edgar Antonio, “Resultado comparativo de rentabilidade das atividades agrícolas.” INCAPER (Santa Maria de Jetibá), January 2002. 19 Lutheran Seeds Foundation, “Eucalipto x atividade agrícola.” (“Eucalyptus compared with agricultural activity.”) O Semeador. Vitória, dezembro 1999. 20 “Os danos sócio-ambientais da monocultura do eucalipto no Espírito Santo e na Bahia.” (“The socio-environmental impacts of eucalyptus monoculture in Espirito Santo and Bahia”). Seminário. Vitória, 19/06/2000. 21 As of yet there is no precise data on the number of workers laid off, disabled from on-the-job accidents, and court cases filed against the company. Currently, FASE-
22 Aracruz Cellulose
China - Three Gorges Dam
Project Summary Human Rights and Environmental Issues: In December 1994, work began on the world’s • Forced displacement of more than 1.2 largest and most controversial hydroelectric million people with inadequate facility, the Three Gorges Dam (3GD) in China, compensation that will provide up to 18,200 megawatts of • Loss of farm land, factory employment, and livelihoods electricity. To be completed in 2009, the reservoir • Police brutality against peaceful protests will stretch 600 kilometers upstream, submerge and petitions to highlight corruption and over 20,000 hectares of farmland, 19 cities, 140 inadequate compensation towns, and 1,300 archeological sites, and displace • State censorship of project criticism between 1.2 and 1.9 million people.1 For those • Increased health risks due to water borne directly affected by submergence, forced diseases and submerged mines and resettlement, sorely inadequate compensation, factories widespread human rights abuses and flagrant • Increased greenhouse gas emissions corruption have been persistent problems. Population and sensitive areas affected: Together with the Chinese government, a 26-bank • More than 640,000 people already consortium and eight export credit agencies displaced; between 1.2 and 1.9 to be (ECAs) helped finance the dam. With the displaced overall announcement in June 2003 of a second round of • 20 million people upstream, and 300 million bidding for turbines and generator sets, many of downstream to lose livelihoods due to the the former financiers and ECAs may be called on dam again to provide capital and trade finance. • 25,000 hectares of productive farmland and 1,300 cultural and archaeological sites to be submerged
Project Description ECA’s involved and amount: 3GD is being constructed on the Yangtze River at Over US$1.5 billion from ECAs (figures in US the town of Sandouping, Hubei province in south millions, where available) central China. Once completed, the 186 meters • BNDES (Brazil - $202 loans) • EDC (Canada - CDN$189 loans) • COFACE (France) • GIEK (Norway) • KfW (Germany - $271 loan, $53 guarantee) • Hermes (Germany - $40 guarantee, $80 loan) • JEXIM (Japan - $120 loan, $40 guarantee) • ERG (Switzerland - $253 guarantee) • SEK (Sweden - $351 loan)
Status: Repayments on the initial 1995-1999 financing are ongoing. Project sponsor CTGPC announced a second round of bidding for generators and turbines on June 10, 2003. The Three Gorges Dam Project project is scheduled to be completed in 2009. Map: International Rivers Network
Race to the Bottom, Take II 23 high, 2,300 meters-wide dam will submerge over ECA Support 1,000 square kilometers of land and river basin settlements upstream. Operating at full capacity, Between 1995 and 1999, eight ECAs financed the the dam’s twenty-six turbines will provide a sale of turbine generators, cement plants, and combined capacity of up to 18,200 megawatts. electrical transformer and converter equipment for However, financiers warn that there is little market the project.7 To produce all the necessary for the expensive hydropower and that the state equipment, Brazilian, French, Swiss and will have to subsidize much of the costs. In Norwegian companies formed an international addition to generating electricity, the dam’s stated consortium, as did Canadian, German and benefits are to prevent flooding and increase Brazilian companies. Their respective ECAs navigation of ocean going ships further upstream approved more than US$1.5 billion in trade to Chongqing harbor.2 finance for the deals.8 The project is conservatively estimated to cost Canada’s Export Development Corporation (EDC) US$25 billion (180 billion yuan)3, although was the first ECA to support the project, providing estimates range as high as US$77 billion.4 The a total of CDN$189 million in loans and export project proponent is the China Three Gorges credits for a cement plant in 1994, and a project- Project Corporation (CTGPC). It has raised money management system in 1995. In 1997, it provided for the project by issuing bonds (10-12%), through financing for the sale of turbine-generator units. state power tariffs German ECAs Kreditanstalt collected from the für Wiederaufbau (KfW) and downstream Hermes Kreditversicherungs Gezhouba Dam and AG (Hermes), together with the Three Gorges German banks, Construction Fund complemented this package (60%), and from with a US$271-million loan various Chinese and US$40 million credit construction, guarantee respectively. This development and German partnership was commercial banks repeated in 1999, when KfW (20%). The provided an $80 million loan remainder has been for the purchase of covered through transformer equipment, and Smoke and dust rise after demolition efforts begin in Hermes provided an export loans from a large the town of Guizhou in Central China's Hubei consortium of Province to make way for the Three Gorges Dam credit guarantee of US$52.9 corporate investment Project. million. Photo: China NewsPhoto 2002 banks and trade In 1997, Brazil’s Banco financing from eight Nacional de 5 export credit agencies (ECAs) (8-10%). In March Desenvolvimento Economico e Social (BNDES) 2002, the China Yangtze Power Corporation was provided a US$202 million loan for eight turbine- formed to raise further money on the stock market generator sets. Norway’s ECA, Garanti-Instituttet through a public offering of shares. for Eksportkreditt (GIEK), provided the largest The feasibility study for the dam began in 1985. guarantee to date for the deal, while the Swiss The Chinese National Congress Assembly ECA, Exportrisikogarantie (ERG), provided approved the project in April 1992, and US$143.1 million in guarantees. In 1999, ERG construction began in 1994. The first stage of provided an export credit guarantee for US$112 reservoir filling began in April 2003 and reached million in high voltage switchgear equipment. the current height of 135 meters by mid-June. The Although no Japanese firms were initially final reservoir level will be 185 meters. successful in winning contracts, in 1999, the Shortly after the completion of the first stage of former Japan Export Import Bank (JEXIM), now filling, the CTGPC opened a second round of called Japan Bank for International Cooperation international bidding for four more turbine and (JBIC), provided Japanese companies with a generator sets.6 US$160 million loan for a transformer and Geographic Information System analysis of the construction site. The Swedish ECA, Svensk Export Kredit (SEK), provided a US$351 loan in 1999 for two converter stations.
24 Three Gorges Dam The World Bank Group and the US ECA, the increase in the reservoir zone. 214 landslide areas Export-Import Bank, were noticeably absent from have been identified, posing a risk to ships and providing any support, citing environmental and vessels. Earthquakes of up to 6.5 on the Richter economic reasons.9 scale are expected as a result of dam construction and submergence when the dam is completed in 2009.15 Impacts Human Rights Impacts Environmental Impacts The loss of fertile agricultural land upstream and Unprecedented changes in river hydrology will significant soil erosion downstream will impede fish and river mammal migration, undermine food security in a region where threatening the existence of the endangered Baiji agriculture is the primary activity and arable land Yangtze River dolphin. Sediment and nutrients is already scarce. There is insufficient suitable trapped by the dam will fail to reach floodplains land for local relocation, and the available land is downstream, thereby starving wetland areas and on sloping mountain sides and of poor quality.16 possibly changing migratory bird habitats. Farmers will not be the only sector of the Over 17,000 hectares of arable land and 7,000 population to lose out. 624 factories, including six hectares of orchards will be submerged by the major factories in Chongqing, will also be dam’s reservoir, eliminating the livelihoods of tens submerged,17 adding to the country’s of thousands of farmers. 10 unemployment rate. The dam will submerge The submergence of vast areas of farmland will aquaculture facilities, irrigation ponds and rice generate methane gases, a leading contributor to fields used for raising fish, affecting 3,888 tones of 18 global warming. Submerged coal and phosphorus fish production per year. Chinese authorities mines are expected to expect fish production in the reservoir to increase, leach poisonous chemicals however there is no into the reservoir,11 and guarantee that the fish mercury in the sediment, will adapt well to the new soil and vegetation will conditions. leach into the reservoir With the world’s fourth waters after highest silt-load, the dam submergence.12 The further will impede the Yangtze release of heavy metals, from providing important chemical pesticides, and nutrients to the floodplain fertilizers in reservoir downstream, a process bottom is also expected.13 that ensures the future Project proponents claim fertility of farmland. the project is a necessary Downstream fishing and Ganjing: Resident workers salvage bricks aquaculture, wetlands and flood control structure. Photo: International Rivers Network Theory and practice estuaries, will also be 19 suggest the opposite. By disrupted. confining the river, the dam may increase both the Irreplaceable cultural heritage sites will be lost. volume and speed of the river’s waters, enhancing Over 1,300 archaeological and cultural sites, the potential for damage downstream when including temples and ruins dating from the unavoidable floods occur. In fact, former Premier ancient Daxi culture, and tombs from the Warring Zhu Rongji excluded 3GD as a flood management States period, the Eastern Han , Ming and Qing tool for the region, calling instead for the dynasties, will be submerged.20 relocation of downstream residents and the protection of upstream watersheds. Furthermore, Forced displacement and inadequate compensation in 2002, Project President Lu Youmei publicly raise the gravest concerns. A recent resettlement admitted that 3GD was not the answer to flood investigation documented the inadequacy of woes on the Yangtze. He urged that other flood Chinese authorities’ measures. Compensation falls management measures, such as reforestation and far short of replacement cost; land and jobs that floodplain management, needed immediate had been promised to affected residents are either implementation.14 no longer available or of inferior quality; no independent grievance mechanism exists; and Landslides and seismic activity is likely to protests about resettlement problems have been
Race to the Bottom, Take II 25 quelled with police violence.21 Technical studies the principles enshrined in the International and media reports have confirmed these claims, Covenant on Civil and Political Rights, which indicating that compensation has for the most part China has signed. been sorely inadequate, and that income after The project’s resettlement, compensation, and displacement declined sharply.22 rehabilitation measures fail to meet World Bank Pervasive corruption standards and deny citizens plagues the their livelihoods, in violation compensation and of the International Covenant resettlement program. on Economic, Social and Millions of dollars Cultural Rights, ratified by earmarked to China in 2001. compensate displaced The governments of all ECAs families were participating in 3GD contracts siphoned off by local have ratified the International bureaucrats. In Covenant on Civil and September 2002, Political Rights, which officials enshrines the freedom of acknowledged 234 expression, peaceful assembly cases of corruption and association. These rights have been violated involving US$5 million.23 Funds reportedly went by 3GD officials with regards to the resettlement to local officials who allegedly used the funds in program. The project implementation also lacks real estate schemes, leisure hotels, and stock informed consent by affected people. market speculation.24
Peaceful protests against the 3GD are now OECD Common Approaches Rev 6 interpreted as a crime of The Three “interfering with Three Gorges Gorges Dam in resettlement.” Several individuals China is one of who have attempted to organize today’s most villagers and voice their concerns environmentally to central government officials and socially have been charged with this crime devastating, and and sentenced to prison. most widely opposed Financial Viability Issues projects. At the Until the dam is completed in time that many 2009, actual electricity benefits of these loans cannot be assessed. The cost per and guarantees kilowatt-hour, however, is He Kechang and Wen Dingchun with petitions were approved, detailing resettlement grievances. In March 2001, expected to be as high as $2,000 the men were captured, charged, and sentenced to only the US Ex- due to the enormous capital four years in prison for "interfering with Three Im bank had investment and operating costs.25 Gorges resettlement." environmental Sediment build-up in the reservoir Photo: International Rivers Network policies in place. is expected to substantially reduce To its credit, Ex- the operational efficiency of the dam.26 Im rejected the 3GD project on environmental grounds.28 Most of the other ECAs did not begin Resources allocated to dam construction by the to take the environment into account until a Chinese government are so extensive that other common set of environmental guidelines had been development projects, including flood adopted at the OECD, that is the ‘Common management have been neglected.27 Approaches on Environment and Officially Supported Export Credits,’ or Rev 6. Since Rev 6 Violations of Host Country Law and was not finalized when financing for 3GD was Treaty Obligations approved, the ECAs involved have argued that The lack of independent grievance mechanisms they applied the policies prevailing at the time.29 and the punishment meted out against peaceful Nevertheless, it is highly probable that had Rev 6 protestors violate China’s own laws. This unfair been in place at the time, many of the same ECAs treatment breaches the country’s commitment to
26 Three Gorges Dam would have still been able to support the project case of 3GD, there was no informed consent and under its provisions. countless alternative positions to the official position have been put forward. However, under For example, while Rev 6 provides an illustrative Rev 6, project sponsors do not have to take this list of sensitive sectors that are likely to fall under into account. Category A, it fails to include any exclusion criteria. Such a list might include projects where people are forcibly displaced without adequate Conclusion compensation, that have involved companies guilty of corruption or bribery, that will likely The newly-opened round of contract bidding for infringe on people’s civil and political rights, or new turbines and generator sets by the project that permanently destroy cultural heritage sites. If sponsor offers a unique opportunity for many the OECD countries are serious about ECAs to demonstrate the integrity of their benchmarking, then they should set a minimum environmental policies and decline support on the standard below which they are not prepared to go. ample evidence provided here that this project has significant adverse impacts that either cannot be or Rev 6 does not require consideration of broader are not being adequately mitigated. A number of socio-economic, the ECAs human rights, or involved have cultural impacts. been asked to do In the 3GD case, just this. An this would initial response include the 1.2 from Canada’s million people EDC, however, resettled in the paints a gloomy area, the further picture. Despite 320 million many of the people affected social, up and down environmental, stream, the loss cultural, of agricultural economic, land, China’s technical and record for human procedural rights abuses, issues raised and the loss of above, EDC has over 1,300 said that cultural sites. Wushan: View of affected waters Photo: International Rivers Network declining Using involvement in benchmarks of the Three good practice does not guarantee that the highest Gorges Dam project in the future is something it international standards are applied. For example, cannot do.30 They did say, however, that they the Three Gorges Dam breaches the International would conduct a review of the relevant issues – Covenant on Civil and Political Rights, the environmental, social and human rights – should International Covenant on Economic, Social and the circumstance arise. Cultural Rights, the Aarhus Convention on Public But with an environmental policy as flexible and Participation in Environmental Matters, the WCD vague as Rev 6, there is little confidence that EDC, recommendations, World Bank standards on or any other ECA, will not become involved in resettlement and even the OECD’s own Guidelines 3GD again. In the absence of any such on Multinational Enterprises. Yet under Rev 6, commitment, adoption of the NGO proposal for this may not have mattered since it allows Common Approaches, Revision 7, by all members members to apply standards that are below would ensure that all OECD export credit agencies international standards. Equally, with the current would refrain from supporting this project in the political climate in China, relying on host country future, and it would establish a level playing field standards would fall short of meeting basic so ECAs are not lowering their environmental internationally recognized human rights. standards to help their country’s companies win Finally, there is no obligation to consider valuable contracts. information from public consultations as part of the evaluation and decision-making process. In the
Race to the Bottom, Take II 27 18 D. Wegner, ‘Three Gorges Reservoir: Environmental For more information, contact: Impacts’ Yangtze! Yangtze!, Earthscan, 1994. Halifax Initiative, Fraser Reilly-King, 19 J. Larson, ‘Downstream environmental impacts’Yangtze! [email protected] Yangtze!, Earthscan, 1994. 20 International Rivers Network, Doris Shen-Hoover, Zhu Jianhong, ‘The Three Gorges Project: An Enormous [email protected] Environmental Disaster’, Yangtze! Yangtze!, Earthscan, 1994. Probe International, Grainne Ryder and Patricia 21 “Human Rights Dammed Off at Three Gorges – An Adams, [email protected] and investigation of resettlement and human rights problems in [email protected] the Three Gorges Dam project”, International Rivers Network, January 2003. 22 See, for example, ‘Three Gorges rural resettlement and Endnotes: its impact on the host population and the environment’, 1 Estimates vary widely between reports of the amount of Chinese Academy of Science researchers, March 2002; and arable land affected and of people to be resettled. These are Geoffrey York, ‘Chinese Corruption’, Globe and Mail, June 4, 2003. conservative estimates. 23 2 Adams, P. and G. Ryder, ‘China’s great leap backward’, Geoffrey York, ‘Chinese Corruption’ Globe and Mail, June 4, 2003. International Journal, Autumn, 1998. 24 3 Liao Jun and Zhou Meng Rong ‘Multi-channel Fund- Rights Dammed Off at Three Gorges – An investigation raising ensures sufficient construction funding for the of resettlement and human rights problems in the Three Three Gorges project’, Economic Information Daily, June Gorges Dam project, International Rivers Network, January 2003. 17, 2003. 25 4 Adams, P. and G. Ryder, ‘China’s great leap backward’, P. Adams and G. Ryder, ‘The Three Gorges Dam: a International Journal, Autumn, 1998. great leap backward for China’s electricity consumers and 5 Liao Jun and Zhou Meng Rong ‘Multi-channel Fund- economy’, Probe International, December 1999. 26 Adams and Ryder, 1999. raising ensures sufficient construction funding for the 27 Three Gorges project’, Economic Information Daily, June L. Qinkan, ‘Ten Controversial Issues on the Three Gorges Project’, Yangtze! Yangtze!, Earthscan, 1994. 17, 2003. 28 6 Bidding No.: TGT-TGP/EM200301I available on P. McCully, “A Crack in China’s Dam Plan,” Multinational Monitor, July/August 1996. www.chinabidding.com.cn 29 7 Unless otherwise indicated, the following information See for example the January 17, 2003 letter to and comes from ‘Who’s behind China’s Three Gorges Dam’ February 5, 2003 response from Export Development Probe International (www.probeinternational.org, visited Canada regarding its involvement in Three Gorges (www.halifaxinitiative.org). 15/7/03) 30 8 Rights Dammed Off at Three Gorges – An investigation of Letter from EDC, July 2, 2003, in response to a letter resettlement and human rights problems in the Three from the Halifax Initiative and the International Rivers Gorges Dam project, International Rivers Network, 01/03. Network (www.halifaxinitiative.org). 9 In 1988, the World Bank stated that the current design of the project was not economically viable. Ex-Im refused to issue a letter of interest due insufficient information to assess the project’s consistency with its environmental guidelines. P. McCully, “A Crack in China’s Dam Plan,” Multinational Monitor, July/August 1996. 10 Statistics vary among authors. The 1988 Feasibility Study published by China’s Water Conservancy Press estimated 23,800 hectares of farmland and 4,100 hectares of orchards would be affected. (Dayu Yang, Three Gorge: Resettlement and marginalization, University of Leeds Press, January, 2000). 11 Zhu Jianhong, ‘The Three Gorges Project: An Enormous Environmental Disaster’, in Yangtze! Yangtze! Earthscan, 1994. 12 A. Penn, ‘Potential Methyl Mercury Contamination in the Three Gorges Reservoir’ in Yangtze! Yangtze!, Earthscan, 1994. 13 J. Larson, ‘Downstream environmental impacts’ in in Yangtze! Yangtze!, Earthscan, 1994. 14 L. Qinkan, ‘Ten Controversial Issues on the Three Gorges Project’, in Yangtze! Yangtze!, Earthscan, 1994 15 ‘Minor tremors rattle Three Gorges during reservoir filling,’ 21st Century Economic Report, June 26, 2003. 16 Wei Yi, ‘Major problems and hidden troubles in relocation of Three Gorges project’, Strategy and Management Journal, May 28, 1999. 17 Zhu Jianhong, ‘The Three Gorges Project: An Enormous Environmental Disaster’, Yangtze! Yangtze!, Earthscan, 1994.
28 Three Gorges Dam
India – Tehri Dam
Project Summary Human Rights, Environmental and In the Indian Himalayas, at the confluence of the Corruption Issues: Bhagirathi and the Bhilangana Rivers, the world's • Forced displacement of 67-97,000 people fifth highest dam is nearing completion. without adequate compensation or Ironically, the project is named after the city of resettlement plan Tehri - a once-vibrant regional trading town - • Six corruption cases pending against project which will be submerged along with 107 proponents neighboring villages when the dam's reservoir is • Diverting water from poor communities in filled, displacing up to 100,000 people. Designed the Himalayas to New Delhi • Interrupting the main tributary to the sacred in the 1960’s, the Tehri dam is located in a highly Ganges River active earthquake zone. If completed, it will • Catastrophic flood danger due to endanger millions living downstream and inadequate design and faulty construction involves “totally unjustified risks,” according to threatens up to 10 million people an Environmental Review Committee established downstream by the Indian authorities. • No consultation with project-affected populations • Multiple environmental reviews recommending cancellation overruled for Project Description political reasons With a height of 260 meters and a 45 square kilometer reservoir, the Tehri Dam will displace Population and Sensitive Areas Affected: up to 100,000 people in one of North India's 100,000 displaced and between half a million to 10 million people threatened by dam failure from poorest regions. Because of inadequate studies, seismic actively there are no firm estimates on the number of people living downstream at risk in the event of a ECA’s Involved: dam break, but estimates range from half a • Hermes (Germany, $35 million guarantee) million to ten million. The dam and an associated • KfW (Germany, $35 million loan) pumped-storage project will have a full generation capacity of 2000 MW, but critics Status: maintain that the hydrological planning data was Approved by Hermes in October 2001. Under faulty and estimate that actual power production construction since 1979; currently approximately 60% complete
will be far less than claimed. The project proponent, Tehri Hydro Development Corporation (THDC), is a joint venture of the Government of India and the state government of Uttaranchal. Located on India’s Bhagirathi River - the main tributary of the Ganges, Tehri is a dinosaur among large dams. The project was first conceived in 1949 and was approved by India's Planning Commission in 1972. Due to local protests, construction could not start until 1978 and has been halted multiple times. Indian Tehri Dam – Area quarried for dam materials environmentalists believe that the Tehri protests Photo: Patrick McCully / IRN were in fact the first spark of what today has
Race to the Bottom, Take II 29 grown to be a nation-wide movement against provide export guarantees for this controversial large dams in India. project. Siemens, one of Germany’s largest companies, put the application forward in order to In 1978, the Committee to Oppose the Tehri Dam export switchgear for the dam's powerhouse. or the Tehri Bandh Virodhi Sangharsh Samiti Although support for Tehri was hotly debated in (TBVSS) was formed. TVBSS succeeded in Germany, the Chancellor overruled the many pressuring authorities to review the project on critics of the project both within the German several occasions. The project was abandoned in Government and the German Parliament. On the the mid 1980s after being sharply criticized on basis of the Hermes guarantee, Germany's state- environmental grounds by a government owned bank, the KfW provided an export loan of appointed review committee. US$35 million for Siemens' contribution to Tehri. In 1987, the project was again referred to a committee of the Ministry of Environment to assess Impacts its safety and environmental and social Environmental impacts. This committee Impacts unanimously ruled against the project in 1990, but Obsolete Dam Design the Indian government and Seismic Risks overruled it findings and Threaten Millions restarted the project. The Tehri dam site lies in Then, after a 74-day one of the world's most hunger strike in 1996, earthquake-prone regions Sunderlal Bahuguna, a with several fault lines Ghandian activist and traversing the project long-time opponent of the area.1 The design of the dam, forced the dam was finalized in the government to set up a 1960s when scientific review of the seismic, understanding of seismic environmental and hazards and seismic resettlement aspects of the engineering solutions were project. The Hunamantha far less advanced than Rao Committee submitted today. The Tehri Dam is its report and sited in the ‘Central recommendations in Himalayan Seismic Gap,’ 1997. The government an area where an extreme failed to implement most earthquake event is of the committee’s Sunderlal Bahuguna's morning meditation in overdue. The dam is not recommendations, front of the Bhagirathi Ganga River. He says adequately equipped to especially those regarding that he keeps an eye on the river as one would withstand earthquakes of resettlement, and has a sick relative. the magnitude expected continued forward with Photo: © R S Grove (2003) during its life span. Dr. the project. Vinod Gaur, former The first phase of reservoir filling began in director of the National Geophysical Research December 2001, when two of four tunnels Institute of India and member of the diverting water around the dam were closed and Environmental Appraisal Committee that parts of Tehri Town were submerged. The last investigated the project on behalf of the two tunnels, at a higher elevation, are due to be government, has strong reservations as to the closed in December 2003 in spite of the complete safety of the dam. Tehri was designed to failure of resettlement, and project-affected withstand earthquakes of 7.2 on the Richter scale, peoples’ continuing protests. while Dr. Gaur and other international experts expect earthquakes of 8.5 and more in this region. One of the leading seismologists in the world, ECA Support Professor James Brune, has described Tehri as “one of the most dangerous dams world-wide.” In October 2001 Germany's Chancellor, Gerhard Even ICOLD, the international lobby organisation Schroeder, personally took the decision to
30 Tehri Dam of the dam industry, categorises the location of Forced Resettlement Tehri as “extremely hazardous.” Because no official resettlement plan has ever The Environmental Review Committee of the been prepared, it is difficult to know how many Indian Government came to the following people are directly and indirectly affected by the conclusion in its 1990 appraisal of Tehri: reservoir. Officially, the project sponsor THDC puts the number at 67,500 project-affected Considering the almost total certainty that a people. The 1990 Environmental Impact strong earthquake of magnitude greater than 8.0 Assessment for the project, however, puts the on the Richter Scale will occur in the region official number at 97,000.4 What is clear, is that during the life of the dam, and considering that the majority of those affected have not yet been the dam design does not provide for such an resettled and the present resettlement sites face earthquake, the Committee has no option but to conclude that construction of Tehri dam as enormous problems. proposed, involves totally unjustified risks. The After almost 30 years of construction, there is still magnitude of disaster that would follow, if the no resettlement plan for the project-affected dam collapsed, strengthens the Committee's people. Some cash compensation has been paid to opinion that approval to the construction of this some project-affected dam, as proposed, and at people, others have been the present site would be 2 given new houses, and the irresponsible. rest have been given If the dam fails or a major nothing. Among those landslide causes a huge wave officially recognized, only to overtop the reservoir, a half of the fully-affected, 260-meter high flood wave and very few of the would crash down into the partially-affected families densely populated valleys have been resettled. In below the dam, burying the most cases, the land towns of Rishikesh, Hardwar, allotted is of poor quality Bijnor, Meerut, Hapur and or with multiple ownership Bulandshahar within hours claims. Data issued by the and devastating large areas of resettlement agency in the Gangetic Plains. While March 2001 shows only estimates range to as low as 28% of the project- half a million, a Newsweek affected people had been article reporting on new resettled overall and scientific studies on approximately 50% of the Himalayan seismology put people of Tehri Town had the estimates as high as 10 been resettled. Reports of million people.3 Boy in ruins of Tehri town. Residents local NGOs state that demolished their houses to get around 12,000 people in compensation. Those that remain live in the Tehri town are still waiting Human Rights Impacts rubble. for resettlement. Photo: Patrick McCully / IRN The Poor Subsidizing the The 1990 EIA which Rich supported the Ministry of Villages upstream of the dam have been denied Environment’s recommendation to halt the dam permission to draw drinking water from the river, states: since India's Central Water Commission maintains that river water must be reserved for [T]he Committee notes with anguish that the the dam. Sunderlal Bahuguna, one of India's condition of the rural population so far leading environmentalists and winner of the Right rehabilitated is appalling, even though a sum of Livelihood Award, argues that the project will Rs 1117.15 lakhs is reported to have been spent. [...] The families we met had been resettled over amount to a massive transfer of water from the ten years back, but still do not have a legal title Himalayan region to New Delhi, where the to their land. [...] The plots given to the displaced average per capita consumption of water is 250 persons are mainly rocky and sandy, and not liters per day as compared to 10 liters per day for conducive to productive agriculture. [...] The the villagers of the Tehri region. “The Tehri Commissioner, Garwhal Division, informed us project is stealing from the poor to subsidize the that at present land was not available to rich,” says Bahuguna. rehabilitate the remaining families.5 Race to the Bottom, Take II 31 By November 2001, two-thirds of the enormous Violations of Host Country Law, Treaty rock-fill dam had been completed when project Obligations and International Standards authorities published a notice in the local paper, The Tehri Dam violates multiple international informing the inhabitants of Tehri that they standards for involuntary resettlement, should pack up and leave before the waters rise. environmental review as well as basic The remaining residents are, however, refusing to engineering good practice. It flies in the face of abandon the town, since no land has been the recommendations made by the World provided and corrupt officials have siphoned off Commission on Dams. No alternatives were large portions of the monetary resettlement examined, affected people were excluded from benefits. the decision-making process, there is no resettlement plan for the up to 100,000 people Financial Viability Issues affected, and the engineering design has been A cost-benefit analysis by the Indian National widely criticized by experts. Among other basic Trust for Art and Culture Heritage (INTACH) studies and plans not conducted for the Tehri came to the conclusion that the costs of the US$2 Dam are downstream impacts, reservoir rim billion project will be at stability, water quality, least twice as high as the health impacts, and expected benefits. In disaster risk assessment 8 INTACH's words, Tehri and management plans. is “an enormous The Tehri dam also squandering of public violates key norms laid 6 money.” down in Indian national The estimated cost of law and is thus being Tehri Dam went up from contested in a court case US$612 million in 1994 before the Indian Supreme to US$1.2 billion in Court. In 1992, 1999. The 1990 environmentalists filed a environmental appraisal case in the Supreme Court by the Ministry of arguing that project Environment predicted authorities had not the useful life of the dam acquired the mandatory will be reduced to 30-40 environmental clearance years, from the projected for the dam. The petition 100 years, due to the addresses environment, huge volume of sediment seismicity and that will be trapped in its resettlement issues. The reservoir.7 A recent study case is currently pending. shows that the projected Corruption has been an cost of electricity per unit ongoing concern, and from Tehri is almost trice Agricultural lands to be filled by the Tehri many suspect it is the the average cost of power reservoir driving force keeping the supply in the neighboring Photo: Patrick McCully / IRN dam alive all these years. states of Punjab, In 1996, the Hanumantha Himachal Pradesh, Rao Committee was appointed to investigate the Jammu and Kashmir. social and ecological impacts of the project. Though corruption was not part of its mandate, its Disclosure and Public Consultation final report stated that: The Tehri Hydro Development Corporation Throughout its visit to the project area, the (THCD) carried out no consultation with project- villages in the submergence area and the affected people, either in the planned reservoir resettlement colonies, complaints and corruption area or downstream. No resettlement plan, at various stages in the process of displacement disaster response plan or decommissioning plan and rehabilitation formed a recurring theme. […] has been prepared, much less disclosed to the The Government should appoint a Committee to public. examine the incidence of corruption, and then take prompt remedial action.9
32 Tehri Dam The Indian Conclusion Central Bureau of The Tehri Project is perhaps the world's most Investigation dangerous dam. It will displace up to 100,000 (CBI) is people and risk the lives of millions of currently downstream residents. Construction of this dam investigating should be halted and the tunnels re-opened to six cases of allow the Bhagirathi River to flow again until corruption project impacts, economic viability, safety and against high- resettlement plans can be properly reviewed. ranking Alternative power generation sources should be officials of the fully explored. THDC for embezzlement of public For more information, contact: money.10 The Urgewald, Heffa Schücking, First [email protected] Information IRN, Patrick McCully, [email protected] MATU, Vimalbhai, [email protected] Report of the View of dam preparations CBI charges Photo: © RS Grove (2003) THDC officials with Endnotes: misusing their position of influence for personal enrichment of over 100 million rupees in alliance 1 James Brune, “The Seismic Hazard at Tehri Dam,” with dam contractor Jai Prakash Industries and Bhagirathi Kipukar, April 1991. alleges that a Jai Prakash manager colluded with 2 Environmental Appraisal Committee, “Environmental THDC to enter construction work that never Appraisal of the Multi-Purpose Tehri Dam Project,” actually took place on the balance sheets. Ministry of Environment and Forests, Government of India, February 1990. Observers of the project, including the respected 3 “Rumble in the Himalayas,” Newsweek International, Indian economist H.M. Desarda, estimate that September 3, 2002. about two thirds of the funds for the project have 4 Environmental Appraisal Committee, “Environmental disappeared in the channels of corruption.11 Appraisal of the Multi-Purpose Tehri Dam Project,” Ministry of Environment and Forests, Government of India, February 1990. OECD Common Approaches 5 Environmental Appraisal Committee, “Environmental Appraisal of the Multi-Purpose Tehri Dam Project,” Rev 6 Ministry of Environment and Forests, Government of India, February 1990. While the Tehri dam was approved by Hermes 6 Vijay Paranjpye, “Evaluating the Tehri Dam: An one month before Rev 6 officially went into effect Extended Cost Benefit Appraisal.” New Delhi: India in November 2001, Hermes had already instituted National Trust for Art and Cultural Heritage (INTACH), its own environmental review guidelines in April 1988. 7 2001, six months before the guarantee for Tehri Environmental Appraisal Committee, “Environmental was approved. The Hermes guidelines are largely Appraisal of the Multi-Purpose Tehri Dam Project,” in line with the main components of the OECD Ministry of Environment and Forests, Government of India, February 1990. “Draft Recommendation on Common Approaches 8 Recommendations of the Hanumantha Rao on Environment and Officially Supported Export Committee, 1997. Credits: Revision 6.” Amazingly, the German 9 “Report of Expert Committee on Rehabilitation & Government categorized Tehri as a “C” project, a Environmental Aspects of Tehri Hydro-Electric project with “no environmental impacts,” in its Project,” Volume I, New Delhi, Oct. 1997. screening process. 10 “Case against ten Officials of the Tehri Dam,” Approval of this project is evidence that both sets Dainik Hindustan, July 22, 2001. 11 See p.148 in‚ “Citizens Fifth Report on State of of guidelines fail to screen out patently bad India’s Environment,” Centre for Science and projects. It is clear that environmental and human Environment, 1999. rights concerns, not to mention fundamental project safety and economic feasibility, continue to take a distant second place to unfettered export promotion.
Race to the Bottom, Take II 33
Lao PDR – Sepon Gold and Copper Mine
Project Summary Human Rights and Environmental Issues: • Destruction of sacred indigenous forest The Sepon Gold and Copper mine, covering a sites 5,000 km2 area near the town of Sepon in • Loss of ancestral territories used for Southeastern Lao PDR, is the largest foreign swidden agriculture direct investment in Lao PDR to date, and first • Threatens three endangered species • River water quality impacts likely to reduce major mine in the country. Australia’s EFIC fisheries, impact indigenous and villager provided political risk insurance for the project in access to key protein source February 2003, based on incomplete • Violates IFC safeguard policies on environmental impact assessments. The project Involuntary Resettlement and Indigenous poses significant and potentially unavoidable Peoples human rights and environmental threats such as • Minimal accountability and weak national acid run-off, cyanide tailings leaks and spills, fish legislation likely to result in inadequate cyanide spills monitoring kills and the loss of traditional cultivation and spiritual sites by the local indigenous Lao Theung Population Affected: people. The mine had its first gold pour in Ethnic Phou Thai villages and indigenous Lao December 2002 and expects the copper portion of Theung villages. the mine to be in production by October 2003. ECAs and Others Involved: • EFIC (Australia) • IFC (World Bank Group)
Status: Approved by EFIC in February 2003. The gold mine is currently operational and the copper mine planned for October 2003
Project Description Located in the Laos province of Savannakhet near the Vietnam boarder, the Sepon Gold and Copper Mine is the first large mine in the country. It sets the scene for more foreign direct investment, particularly in the mining sector, with many other mining leases ready and waiting to be developed.1 The project was initially co-financed by the World Bank via their private lending arm, the International Finance Corporation (IFC), and the Australian ECA Export Finance and Insurance Corporation (EFIC). The IFC recently withdrew its support, though the reasons are not known. The mine is 80% owned by the Australian company Oxiana and 20% owned by mining giant Rio Tinto.
Sepon Mine Project Site
34 Sepon Gold & Copper Mine
The mine is set in hills that local people have long Revision 6 (“Common Approaches, Rev 6”) went known as Muang Ang Kham, or the district of the into effect, requiring project screening to gold valleys. The complex of five open-pit gold benchmark against environmental review mines and one open-pit copper mine will be using standards used by the World Bank Group, among a process called cyanide heap leaching technology others. to extract the gold. This process involves crushing The EFIC and IFC both classified the project as the rock and then spraying it with a cyanide category A, the most potentially damaging type of solution to remove the gold, a process that is project. According to the IFC, the mine will highly likely to result in contamination of adjacent potentially have “significant, adverse waterways and groundwater. There are two environmental impact which are sensitive, diverse deposits – gold and copper. The gold deposit is or unprecedented.” currently being mined and the copper deposit is in the final stages of engineering design with construction expected in early October 2003. The Impacts phase one gold mine is expected to produce to produce up to 150,000 oz/a of gold.2 The current financing is only for the phase one gold mine. Environmental Impacts The Environmental and Social Impact Assessment The project will include an associated processing (ESIA) discusses the phase one gold mine only, plant, facilities and infrastructure in the province. and ignores the much larger phase two copper The mine life is expected to be approximately 6 mine, although there will be cumulative and years for the phase one gold mines and at least 15 qualitatively different impacts once this second years for the phase two copper mines. When the phase is underway.3 The copper mine will have mine is operational, it is expected to provide up to different geochemical properties of the waste rock 1% of the National tax revenue, and 20% of the with a potential for acid generation, different local government’s budget. tailings toxicity characteristics, and use different Independent analysis of the company’s own processing methods. Thus, the full impact of the Environmental and Social Impact Assessment Sepon mining complex is impossible to predict (ESIA) revealed that many of the technical based on the current environmental assessment. documents and management plans associated with Nevertheless, based on what is known, there are the project were either in a preliminary form or some significant and potentially unavoidable nonexistent. Yet Australia’s Export Finance and issues. Insurance Corporation (EFIC) used the ESIA to Cyanide spills and leakage assess and approve the project. The Non-Governmental mining watchdog organization, Project Underground, has noted that ECA Support “No mine has ever avoided leaking cyanide-laced water and waste into the ecosystem.” This risk is Australia’s Export Finance and Insurance very real for the Sepon Project. Such a leak could Corporation (EFIC) approved political risk affect the larger Mekong region, since the Sepon insurance for the project in February 2003. EFIC Mine straddles a tributary to the Mekong River – had introduced new environmental guidelines in the Nam Kok River. A catastrophic failure of the December of 2000 after a long community tailings dam embankment would result in decant campaign. With this, EFIC went from a reputation pond water entering the Nam Kok River. for approving environmentally and socially Combined with significant rainfall, cyanide disastrous projects, to one of the first ECAs with carrying tailings could also be washed into the guidelines for environmental protection. river, causing a fish kill. Yet the approval of the Sepon Mine illustrates the No risk assessment or risk management plans failure of the new EFIC environmental guidelines were developed prior to approval. The ESIA and their “business as usual” approach. This simply proposed that “procedures for managing project has triggered a review of EFIC’s environmental incidents involving hazardous environmental guidelines, currently scheduled for substances will be prepared in detail during the completion in December 2003. detailed design phase.”4 The project was approved after the Draft Recommendations for Common Approaches on Environment and Officially Supported Credits:
Race to the Bottom, Take II 35 Acid generation through oxidization of waste rock Community development is most likely to be an issue at two of the gold Oxiana proposes to effectively sub-contract their pits. Effective encapsulation of all acid-generating community development responsibilities in an material and prevention of acidic run-off entering attempt to “place overall community development local river systems will be an ongoing challenge issues at a reasonable distance away from its day- at these pits, and the likelihood of at least some to-day community affairs operations”6 The leakage is quite high. An examination of local company has provided a Community Trust Fund topography and the that has been widely conceptual waste criticized by NGOs. rock design There are serious suggests that the questions surrounding Nam Khiang River its viability, upstream of Ban accountability and Vieng village will effectiveness. The be susceptible to operations of the fund acid leakage. have not been clearly There are no defined, leaving it contingency plans vulnerable to corruption to contain acidic and the failure of leakage in the community ESIA. development programs. Increased on-site A lack of both soil erosion during Lao army pontoon barges waiting to supply the organizational and the construction Oxiana goldmine, stranded by the monsoon rains monetary commitment and operational Photo: Rod Harbinson / www.diversityphotos.com to community phases of the open- development is pit mines will have apparent in the company’s statement that the a direct impact on water quality and fisheries due to silt loading and sedimentation. project should not act as a “quasi-development agency,” despite its role as the largest foreign The Aquatic Fauna Study, on which impacts are investor in the country. assessed, is deeply flawed. It was carried out in the dry season, and likely underestimates the total Forest-Dwelling Indigenous Lao Theung fish catch and consumption levels. Of the 5 most People Significantly Affected. common species of fish caught for food in the The Sepon project includes lands occupied by the project affected area, three species (Hampala Lao Theung indigenous people and Phou Thai macrolepidota, Mystus nemurus, Pristolepis ethnic villagers. However, the fasciata) are ‘deep pool’ habitat species which Community/Indigenous Peoples Development local villagers rely on.5 Increased sediment loads Plan (C/IPDP) does not differentiate between the and river-bed deposition during construction will Lao Theung and the Phou Thai. As a result, the flatten out river-bed topography and fill in these specific relationship between the Lao Theung deep water pools, effectively eliminating their peoples and their ancestral lands is effectively habitat. ignored. Increased turbidity and suspended sediment loads The destruction of spiritual sites important to the are likely to have a direct impact on the seven Lao Theung people and their loss of access to migratory species identified in the project-affected forest lands, used to practice their traditional area. The Aquatic Fauna Study identifies three swidden agriculture over the millennium, could endangered and one critically endangered species mean the permanent loss of their cultural identity. in the project-affected area, yet makes no Impacts on spiritual values were frequently raised recommendations for avoiding or mitigating at community meetings. “What will be the effects impacts. Although the ESIA claims there will be on sacred and spiritual sites, land use and local no up-stream impact, sediment-ladened stretches people?” “There is a concern that the project will may act as a barrier to migration and deplete fish affect the spiritual and historic places in this stocks upstream, reducing a key food source to 7 area.” Yet nowhere in the ESIA or associated three villages on the Nam Khiang tributary. documents is the Lao Theung’s spiritual, social, economic, or cultural relationship with their Human Rights Impacts ancestral territories and natural resources
36 Sepon Gold & Copper Mine adequately addressed. This contravenes the World from hunger.” Removing the primary source of Bank’s Operational Directive on Indigenous sustenance constitutes a violation of project- Peoples, OD 4.20, which calls for specific affected people’s Economic, Social and Cultural development initiatives targeted at indigenous Rights. groups, irrespective of the prevailing national 8 legal framework. Financial Viability Issues Loss of livelihoods and food security One percent of Lao’s national revenues and 20% The Lao Theung indigenous communities depend of the local government’s revenues will come on swidden agriculture, with its cycles of forest from Sepon Mine. The development impact clearing and regeneration in secondary forests. cannot be underestimated. Considering the non- The expectation that the Lao Theung will be able renewable nature of mineral exploitation, the to effortlessly adjust to sedentary agriculture is ability of a mining project to contribute to unrealistic. Even the ESIA recognizes what it meaningful, sustainable regional development is calls the “culturally based resistance of the Lao dependent on strategic reinvestment of earnings. Theung to paddy Yet, the relationship cultivation.”9 The between the mine and project fails to wider regional acknowledge the development plans food security and was not addressed cultural identity and very little impacts of the assessment was made Lao Theung concerning the ability people losing of the regional their ancestral economy to adjust lands, and after the mines close. provides no land- This puts in question for-land the ‘sustainable compensation. development’ mandate of Rev 6. The Projects Compensation The Community / Rice paddies in Vilabouly district, area to be Indigenous Peoples Policy states that developed for mining “the project will Photo: Rod Harbinson / www.diversityphotos.com Development Plan not replace (C/IPDP) asserts that swidden land lost avoiding economic to the project nor will it make any continuing dependence on the mine will help reduce post- payments for any such land lost. A one-off closure social disruptions. While such an payment for loss of production will be made.”10 approach is debatable for a short-term project, it is Meanwhile, paddy land lost to the project will be indefensible for a longer-life mining project such compensated with replacement lands. This clearly as the Sepon mine. The two phases of the mine discriminates against the Lao Theung people and could have a combined life of 40 years, depending conflicts with World Bank Operational Directives on deposits encountered. on Involuntary Resettlement. The minimalist approach to community Local Phou Thai ethnic villagers and the Lao development during operations in an attempt to Theung are both highly dependent on fisheries in reduce dependency will only succeed in ensuring the Nam Kok River and its tributaries. These that very little infrastructure development will catches constitute their main source of protein. actually remain in the area after closure. Average fish consumption is 141.2 grams per day per capita, or 51.5kg annually.11 The very high Disclosure and public consultation dependence on fish as a primary food source Lao PDR’s current environmental legislation and means that likely water quality and fish habitat enforcement in is extremely weak, raising degradation could have a devastating impact on fundamental concerns about accountability and access to adequate food for project-affected effective project monitoring. There is very little people, in violation of Article 11 of the assurance that even rudimentary environmental International Covenant on Economic, Social and management actions will be performed, despite Cultural Rights (ICESCR). ICESCR recognizes the introduction of environmental legislation in the “fundamental right of everyone to be free 2001 and 2002. The relative inexperience of the
Race to the Bottom, Take II 37 Lao PDR government in dealing with the mining can be approved, in clear violation of the stated industry only exacerbates this situation. The intent of the Common Approaches. Environmental Management Plan (EMP) and associated conceptual management plans for various environmental impacts are vague and Conclusion incomplete. The Sepon Gold and Copper Mine is an example A full Rehabilitation and Mine Closer Plan of the kind of development typically supported by (RMCP) should be a precondition of project ECAs: it is good for the exporters and project authorization, and was in fact a condition of EFIC sponsors, but of questionable development value support. However, since this was not prepared to Lao PDR, and it will have significant and prior to project approval, project-affected people irreversible impacts on project-affected peoples. were not adequately consulted and there is no The loss of land used ancestrally for swidden guarantee sufficient resources will be made agriculture threatens to destroy the Lao Theung available. There are no monitoring or compliance indigenous people’s way of life. Local livelihoods mechanisms to ensure an adequate plan is based on fishing and paddy agriculture are at risk developed and implemented, nor is there any from silt loading, sedimentation and potential binding requirement that effective mine closure cyanide spills. Yet inadequate environmental will occur. review and the lack of mitigation measures mean that these impacts have not been addressed. Current restrictions on local NGO activity within Lao PDR emphasize the need for involvement of Because of the lack of public disclosure and international NGOs and research organizations woefully inadequate public consultation, none of with an interest in the region. IFC guidelines for these concerns were brought to light during the preparing a Public Consultation and Disclosure project approval process. However, since no Plan requires not only identification of ‘project information was made public, EFIC was able to affected groups,’ but also ‘other relevant classify it as Category A and still sail through the stakeholders,’ referring specifically to ‘local and approval process, making a mockery of the national environmental and developmental non- guidelines. governmental organizations’, ‘international 12 The Sepon Mine should provide a cautionary activist groups’ and ‘research institutes.’ Yet, example to ECAs and the OECD Secretariat that despite the fact that they have worked in the the current Common Approaches for Sepon area since 1992, Oxfam Laos was only environmental review are inadequate and in need contacted in February 2002. of strengthening.
OECD Common Approaches For more information, contact: Rev 6 Aid/Watch, Kate Walsh, [email protected] This project was approved by the EFIC under Friends of the Earth International, Rod Harbinson, Common Approaches Rev 6, despite clear www.foei.org evidence that project proponents failed to make minimal adjustments to prevent or mitigate the Endnotes: documented adverse environmental and social impacts. The project proponent ignores the existence of the Lao Theung indigenous people in 1 Owen Hegarty, Mining Director of Oxiana Resources, the project area, and consequently provides Intervew by Karon Snowdon of Radio National Asia Pacific Program, April 9, 2002 shockingly inadequate compensation for the loss 2 of ancestral lands upon which their sustenance Oxiana Limited web site, visited August 14, 2003. 3 Analysis of the project proponent’s ESIA is based on and way of life is based. Severe potential Jeffrey Neilson, “Technical Analysis of Environmental environmental hazards are inadequately addressed and Social Impact Assessment for Oxiana Resources and only limited, vague references are made to N.L./Sepon Project Laos,” Report prepared for Aid/Watch, developing future mitigation and mine closure March 2002. 4 plans. “Sepon Project – Environmental and Social Impact Assessment (ESIA) – Volume 2: Main Report,” The fact that this project could be approved under September 2001, Section 8.8.7, as cited in Neilson, 2002. Rev 6 is evidence that the provisions in these non- 5 Sepon ESIA, September 2001 – Volume 5 Appendix 3: binding guidelines are inadequate. Without the Aquatic Fauna Study, September 2003, pg. 11-19, as cited in Neilson, 2002. possibility to monitor key points of the decision- making process, projects such as the Sepon mine 38 Sepon Gold & Copper Mine
6 Sepon ESIA, September 2001 – Community/Indigenous Peoples Development Plan, p26, as cited in Neilson, 2002. 7 Sepon ESIA, September 2001 – Attachment 4: Public Consultation and Disclosure Plan, p. 3 and 9, as cited in Neilson, 2002. 8 World Bank, World Bank Operational Manual, “OP 4.12: Involuntary Resettlement.” December 2001. (Replaces OD 4.30 Involuntary Resettlement) OP 4.12 states that “resettlement of indigenous peoples with traditional land-based modes of production is particularly complex and may have significant adverse impacts on their identity and cultural survival. […] When it is not feasible to avoid such displacement, preference is given to land-based resettlement strategies for these groups […] that are compatible with their cultural preferences and are prepared in consultation with them.” 9 Sepon ESIA, September 2001 – Volume 5 Appendix 14: Baseline Studies, p25, as cited in Neilson, 2002. 10 Sepon ESIA, September 2001 – Volume 3: Resettlement Action Plan, p.14, as cited in Neilson, 2002. 11 Sepon ESIA, September 2001 – Section 6.34, as cited in Neilson, 2002. 12 International Financial Corporation, “Doing Better Business through Effective Public Consultation and Disclosure – A Good Practice Manual,” 1999.
Race to the Bottom, Take II 39
Peru – Camisea Gas and Gas Liquids Project
Project Summary Human Rights and Environmental Issues: • Uncontacted and contacted indigenous The US$1.5 billion Camisea Gas Project will communities in Peru’s Amazon face benefit some of US President Bush's closest increased disease and the loss of fish, corporate campaign contributors while risking game, and clean water the destruction of important parts of the Amazon • Destruction of pristine Amazonian rainforest, threatening indigenous peoples, and rainforests, including protected reserve endangering one of the most important marine areas • Massive erosion along the pipeline route ecosystems in the hemisphere. Dual pipelines has contributed to decimated fish will carry natural gas from the Amazon over the populations in rivers and streams and has Andes to Lima for domestic use and natural gas threatened pipeline integrity, risking spills liquids to a port 200 km south of Lima where it • Fractionation plant to be built next to will be processed and exported. Five ECAs are protected marine reserve, in violation on either supporting or considering support for this Peru’s treaty obligations under the Ramsar Convention controversial project. At press time, it is unclear if the US Export-Import Bank (Ex-Im) will Populations and Sensitive Areas indeed finance the project as Board votes have Affected: been delayed due to public pressure. Nahua, Kirineri, Nanti, Machiguenga and Yine indigenous groups; Kugapakori Nahua Reserve, Vilcabamba Communal Reserve, Project Description Paracas National Reserve (and other National Parks, such as Manu and Otishi, that are The project links two gas fields located in the threatened by indirect project impacts) remote Urubamba Valley in Peru’s southeastern Amazon rainforest, to the coast with 714 and 540 ECAs Involved or Considering kilometer-long pipelines. The infrastructure and Involvement: pipelines are in some of the most biologically • Ex-Im Bank (US, $213 million guarantee) • SACE (Italy, $20 million guarantee) • BNDES-Exim (Brazil, $110 million) • BICE (Argentina, guarantees) • Ducroire-Delcredere (Belgium, $170 million investment insurance)
Status: Approximately 60% complete; LNG expansion project in planning stage.
diverse areas of tropical Amazon rainforest as well as rugged Andean terrain. One pipeline goes to Lima and the other to a NGL fractionation plant in the buffer zone of a coastal wetlands and marine reserve protected under the Ramsar Convention. The gas fields in the rainforest will include 4 drilling platforms, a processing plant, heliports, worker camps, sludge pits, and water and waste disposal facilities. Camisea Project
40 Camisea Gas Project Already, the project, which is 60 percent and the project will result in “irreversible complete, has run into difficulties, including impacts” and the “spread of non-indigenous demands by Peruvian groups for fundamental diseases.” It has already caused “massive project changes, international protests, US$1 landslides” in fragile rainforest areas traversed million in fines for environmental damage, by the gas line.2 According to indigenous worker strikes, the kidnapping of 60 pipeline communities and field studies, fish and game workers by Shining Path guerillas, and repeated have declined dramatically, and the health financing delays at Inter-American Development situation is deteriorating in the Urubamba Bank (IBD) and Ex-Im. Two Texas-based Valley. Populations living in isolation are companies involved with the project, Hunt Oil especially vulnerable to disease. and Halliburton’s Kellogg Brown and Root Both Citigroup and the Overseas Private (KBR) unit, have close ties to the White House, Investment Corporation (OPIC) have pulled out raising questions of political pressure on Ex-Im of the project due to environmental and social and the IDB to approve the project, despite 3 serious environmental and human rights concerns. concerns. Nearly 75 percent of gas extraction operations ECA Support are located inside a Reserve for the protection of Ex-Im, which has been considering support for nomadic indigenous peoples, many of them the project, would be backing the largest previously un-contacted but now facing forced component of the financing – with guarantees for contact with construction crews. Many of these up to $213 million – and the development banks peoples lack immunity to common illnesses and IDB and CAF are also considering lending to the are vulnerable to introduced disease from project project. Export credit agencies SACE (Italy), workers or from illegal loggers and others who Ducroire-Delcredere (Belgium), BNDES (Brazil) follow in their wake. and BICE (Argentina) are also supporting – or The gas fields, with 11 trillion cubit feet (TCF) considering support for – the project. of proven and provable gas, were first prospected Ex-Im’s potential support for the project has in the 1980s by Shell Oil and are currently being been highly controversial in developed by an the US. Close ties between international consortium directors at Hunt Oil and led by Texas-based Hunt Halliburton’s Kellogg Brown Oil and Argentina’s and Root and members of the Pluspetrol. A separate Bush Administration and the consortium including Hunt, project’s clear violations of Peru’s Tecgas, Pluspetrol the Ex-Im’s own and four other companies environmental guidelines was awarded the pipeline have made lawmakers and contract. The distribution government agencies contract was awarded to uncomfortable. Directors, Tractebel Electric and Gas employees and staff of Hunt International of Belgium (a oil have contributed over subsidiary of Suez, of Location of significant protected areas in US$1 million to the France). Estimated project relation to Camisea project Republican Party since 1995, costs for the project are according to the Center for US$1.54 billion. A second Responsive Politics. Officials at both companies phase involving gas liquefaction and export of have been major donors to Bush election LNG would add between US$1.8 and 2.52 1 campaigns and were involved in Vice President billion, for a potential total of US$4.06 billion. Cheney’s controversial energy plan. Halliburton’s Kellogg Brown and Root (KBR) unit is a lead contender for the US$1.1 billion Officials from Italy’s SACE revealed in March LNG liquefaction plant contract if Hunt Oil 2003 that their support for the Camisea Project proceeds with plans to export LNG to the US by was in limbo due to the severe financial 2006. problems of consortium members and market weakness. SACE commented that the project’s According to an Ex-Im Bank due diligence environmental and social impacts were very assessment carried out, impact mitigation worrying and admitted that “their gut feeling on measures for Camisea are “woefully inadequate,”
Race to the Bottom, Take II 41 the project was not good.” SACE’s decision on Long-term impacts of the Camisea project Camisea financing has yet to be taken.4 include opening access to a previously isolated region of high biodiversity. “Access will lead to continued loss of forest cover, wildlife habitat Impacts loss, fragmentation, reduced forest biodiversity and reductions in populations of important plant Environmental Impacts and animal species over large areas,” according Both Ex-Im’s internal assessment and NGO to the Ex-Im report. “Such effects are negative, reports point to the project’s failure to follow significant, long term and largely irreversible industry and international standards for without effective mitigation through project environmental mitigation, relations with operation and after closure,” the report indigenous peoples, and good project design. concludes. There have already been massive landslides and At the pipeline’s coastal terminus, the project soil erosion along the pipeline’s extremely steep also threatens one of Latin America’s most route. Erosion during rainstorms has washed important marine reserves, the Paracas National thousands of tons of soil and vegetation into Reserve, Peru’s only marine sanctuary and home local rivers, leaving the pipeline unstable and to such rare species as Humboldt penguins and vulnerable to failure. River siltation has green sea turtles. Paracas is on the Ramsar List decimated local fish stocks.5 “Erosion of soil into of Wetlands of International Importance stream channels and the Camisea River has (Convention on Wetlands, Ramsar, 1971). Peru caused and will continue to cause significant adopted the Ramsar Convention in 1992. In June indirect impacts on these aquatic ecosystems. 2003, the Ramsar Executive Secretariat wrote to These effects can be Peru’s President Alejandro considered irreversible over Toledo, Ex-Im Bank the span of the next several President Merrill, and IDB decades.” (URS, 6-3) President Enrique Iglesias, suggesting that the Effluent test results from the Camisea project is in project’s wastewater violation of Ramsar treatment plant show it Convention provisions. currently violates Ex-Im guidelines for discharge water According to the Ex-Im quality: maximum water report, the NGL plant was effluent temperatures was five sited in the buffer area of times higher, total suspended the Paracas Reserve, solids levels were 25 times despite the fact that the higher, total residual chlorine project is “ill-prepared for levels were three times Camisea Pipeline cutting through Amazon a spill of any magnitude;” higher, and total fecal rainforest gas leaked from the coliform levels were 12 times Photo: Amazon Watch underwater pipeline could higher. (URS Table 5-2) kill fish, mammals, and birds - many of them Even basic site management to protect project endangered; and alternatives were not assets has not been conducted along the right-of- 6 way (ROW). “In spite of engineered erosion considered. The EIA for the NGL fractionation control efforts, massive areas of soil erosion have plant suffered from the “downplay of potential developed. In places the erosion […] is so impacts to the marine and social environment extensive that portions of the ROW have eroded during construction and operation. Sufficient away, exposing flowlines and the diesel line. baseline analysis was not conducted.... Fisheries Such ineffective mitigation measures greatly direct and indirect impacts were rarely and not increase the likelihood of a rupture during the quantitatively defined. Resulting economic operation phase of the project.” (URS, 4-3) “In impacts from fisheries impacts, the livelihood of the event of heavy rains, which are common in this community, were not mentioned in the EIA.” the region, failure of buried flowlines and diesel … “The EIA shows a lack of understanding of line along these ROWs is a distinct possibility noise on the marine environment....” (URS, 4-29) that would cause substantial secondary impacts.” (URS, 4-4)
42 Camisea Gas Project Human Rights Impacts These impacts describe direct violations of ILO Although the Nahua-Kugapakori Indigenous Convention 169 on Indigenous and Tribal Reserve was established for the protection of the Peoples and the International Covenant on indigenous people living there, approximately Economic, Social and Cultural Rights, 1966 75% of the project concession is located inside (ICESCR). the Reserve. Over its 40-year life, the Camisea project will have irreparable impacts on the lives Financial Viability Issues of those who live in and around the Reserve. The The project is built on an unproven market for its Reserve is home to the Nahua, Kirineri, Nanti, product. Although Camisea’s gas is destined for Machiguenga and Yine indigenous groups. Past the Peruvian domestic market, Peru currently contact between indigenous peoples and lacks a natural gas market. To reduce the outsiders has already proven disastrous – at least investment risk, the consortium has signed some 42 per cent of the Nahua died from diseases take-or-pay contracts, which oblige customers to contracted when Shell did initial prospecting in pay for the gas, whether or not they are able to the 1980s. use it. State-owned electricity company Routes cleared for the pipelines will open up Elecroperu has guaranteed a minimum off-take access to previously isolated indigenous lands to of 730 million cubic meters of natural gas per illegal loggers, year, or 25% of the initial 7 poachers, colonists, and projected production. farmers, threatening to While the project is currently destroy large sections of 60% complete, there has rainforest. been no transparent system There are reports that put in place for the many indigenous people management of project have been forcibly revenues. There is a fear that, contacted by project as a result, the revenues workers. These accruing from this gas – inexperienced Peru’s patrimony – will not companies with poor be well spent or will be environmental records Nahua villager with respiratory disease squandered on waste and are showing neither the due to contact with the outside world. corruption. In addition to will nor the ability to Photo: Shinai Serjali this concern, the project will avoid the serious also incur a large amount of environmental and social impacts, and external costs, such as analyzing social and government oversight is weak. environmental impacts and supervising compliance, not covered by the project sponsors. Ex-Im’s report states: “In much of the The IDB has provided a 25-year US$5 million Kugapakori reserve in the eastern portion of [the loan to cover these costs to the Peruvian concession area], Nanti and Nahua people exist government, thus increasing the country’s debt in semi-isolation. The flowline ROW, access load. road and the temporary Camisea River bridge construction has created the potential for According to a Platts Power report, the Camisea increased access.” (URS, 4-11) project “missed the boat” when Shell passed on developing the reserves in the 1980s. Hunt Oil The report identifies significant direct and hopes to export LNG from the 13 trillion cubic indirect cultural, social and economic impacts feet Camisea reserve to California, but that from the Camisea Project including loss of would only come in a second phase in 2006, after hunting and fishing resources fundamental to gas is first supplied to Lima. The delay could survival, and exposure to non-indigenous leave the project vulnerable to other suppliers diseases. from Asia and Australia getting to California A fact-finding mission to the project-affected first, and locking up the market. Any additional region interviewed a government health worker supply would lower prices below economical in Shivankoreni, who said, “Above all, we are rates. “The US market is risky for everyone worried about those under 4 years old. … They investing billions of dollars in LNG production, no longer catch a single fish a day. What do they because you have to take US prices. … There is eat? Nothing.” a limit to how much LNG you could put into
Race to the Bottom, Take II 43 California without affecting price,” says LNG Violations of Host Country Law, Treaty consultant Andy Flower, quoted by Platts.8 Obligations and International Standards Disclosure and public consultation Project sponsors claim they plan and intend to 23 major Peruvian NGOs released a statement in comply with international guidelines and July 2003 outlining serious flaws in the project agreements such as Ex-Im and IFC Oil and Gas and recommending significant changes in Standards including the World Bank Pollution location and construction methods to avoid Prevention & Abatement Handbook.9 Yet even human rights violations and comply with the pipeline consortium’s own environmental international environmental standards before compliance consultant, Knight Piesold, has public financing is approved. criticized the pipeline contractors for failing to The URS study highlights the inadequacy of control erosion and violating a 50-foot width public consultation, land purchase procedures, limit along the route, and called for construction and alternatives analysis for the NGL plant to be to stop until erosion problems were fixed. sited on Peru’s coast, including an “absence of In November, 2002, Peru’s Ministry of Energy appropriate social and environmental analysis and Mines fined the Camisea pipeline and potential impact evaluation (risk analysis) consortium US$1 million for clearing excessive during site selection. Absence of community amounts of land and building unauthorized involvement or input in site access roads in parts of selection, and the protected Nahua- communication during Kugapakori Indigenous gathering stages.” (URS, 6- Reserve.10 4) “The proposed site was purchased shortly after the The Ex-Im Bank 5 alternative sites were evaluation of Camisea’s identified, in advance of impacts confirms the full alternatives violations of evaluation. The timing of internationally accepted this purchase, and the standards such as method by which a change World Bank and IFC in land use designation was safeguard policies and obtained, and lack of Home in Serjali, Nahua territory, within the the recently announced complete stakeholder Kugapakori-Nahua Reserve Equator Principles participation are of Photo: Shinai Serjali promoted by ten concern.” (URS, 4-29) leading private banks, representing 30% of the Release of the URS report came only after it was project loan syndication market globally. specifically requested through the Freedom of Information Act – and even then it was released In addition to violating a range of Peru’s only after senior staff deliberations on taking the environmental laws and encroaching on project to Ex-Im’s Board of Directors in July protected reserves, the project violates Peru’s 2003, thereby precluding valuable public input at treaty obligations under ILO Convention 169 on that time on important environmental and social Indigenous and Tribal Peoples, which Peru issues of concern to US citizens and taxpayers. ratified in October 1994. ILO 169 Article 7 Failure to release all relevant environmental states, “The peoples concerned shall have the information used by Ex-Im in its consideration of right to decide their own priorities for the process the Camisea project means that project-affected of development as it affects their lives, beliefs, people and US taxpayers are denied meaningful institutions and spiritual well-being and the lands participation in the conduct of public affairs, in they occupy or otherwise use....” violation of Article 25 of the International The Camisea project also violates World Bank Covenant on Civil and Political Rights (ICCPR). Operational Directives OP/BP 4.10 and OD 4.20 which require that “the Borrower takes into account their individual and collective rights to use and develop lands that they occupy to continue to have access to natural resources vital to their subsistence, to the sustainability of their
44 Camisea Gas Project For more information, contact: Proyecto Gato, Belgium, Jan Capelle, [email protected] Environmental Defense, Aaron Goldzimer, [email protected] Friends of the Earth Jonathan Sohn, [email protected] Amazon Watch, Atossa Soltani, [email protected]
Endnotes: Nahua woman Photo: Shinai Serjali 1 Jan Willem van Gelder, “Financing of the cultures....with particular attention to their Camisea project” RETRAC Research & Advice, individual and communal or collective rights to the Netherlands, February 18, 2003. 2 URS Consulting Firm, “Environmental and Social be protected against encroachment....” Assessment: Camisea Project, Peru,” Export-Import OECD Common Approaches Rev 6 Bank of the United States Report, May 2003. 3 Ex-Im’s approval of the Camisea project would OPIC Director of Environmental Affairs Harvey be in full violation of its own environmental Himberg provided a document to Friends of the review guidelines and could undercut the US Earth entitled “Projects Rejected on Environmental government’s leading role within OECD Grounds During the Watson Administration.” The countries to promote higher standards for export first bullet in the list states: “A large integrated gas production and process project in Latin America credit agencies. Because Ex-Im did not sign on having significant adverse impacts on critical to the Common Approaches on Environment and tropical forest and biodiversity resources as well as Officially Supported Export Credits: Revision 6 indigenous peoples who rely on those resources for of December 2001, it is not bound by that their livelihoods.” voluntary OECD framework. Nevertheless, an 4 Meeting between SACE officials and approval of the Camisea project could derail the representatives of international NGOs Amazon negotiations currently taking place within the Watch, Bank Information Center, Friends of the OECD for a revision and potential strengthening Earth, Institute for Policy Studies (SEEN) and of the Common Approach guidelines. Italian NGO Campagna per la Riforma della Banca Mondiale, March 25, 2003. Until now, the US Government has pressed for 5 URS, May 2003, and Patricia B. Caffrey, “An World Bank standards and safeguards as well as Independent Environmental and Social Assessment transparency of Environmental Impact of the Camisea Gas Project,” Commissioned by Assessments as requirements for any common Peruvian indigenous organizations COMARU and agreement amongst ECAs, exerting a leadership 11 AIDESEP, April 2002. role in this respect. However, approval of 6 URS, May 2003. Camisea just as those OECD negotiations enter a 7 As cited in Jan Willem van Gelder, “Financing of critical phase will send a signal that the US may the Camisea Project,” RETRAC Research and be taking a weaker stance in terms of Advice, The Netherlands, February 18, 2003. implementation, under the guidance of new 8 “Energy – Bolivia and Peru set to ‘squander’ President Merrill.12 LNG assets,” Loyd’s List International, July 8, 2003 9 URS, 2-17, Personal communication by report Conclusion authors with PlusPetrol. 10 James V. Grimaldi, “Texas Firms Line up U.S. The implementation of the Camisea project to Aid in Peru,” Washington Post, November 20, 2002 date is causing significant and irreversible harm 11 Tuesday Group Minutes, April 2003 by Leslie to indigenous peoples and critical natural Greene, Bank Information Center habitats. Further construction and subsequent 12 See e.g. April 2003 letter from European Non- operation present even greater risks. Given this Governmental Organizations to Philip Merrill on situation, there is widespread consensus among this matter. civil society – both in Peru and internationally – that major corrective changes are needed before approval of financing can take place.
Race to the Bottom, Take II 45
Romania - Cernavoda 2 Nuclear Reactor
Project Summary Human Rights and Environmental Issues: • Inadequate public consultation and disclosure The proposed CANDU nuclear power plant of risks Cernavoda 2, first conceived in Romania’s • Failure to adequately consult neighboring Ceaucescu era, is failing to meet international countries on nuclear risks, as demanded by nuclear norms and safety standards, and has the Espoo and Aarhus Conventions • Inadequate safety plans for nuclear facilities attracted concern from the European located in active seismic zones Commission’s Environment Directorate-General • Design flaws repeatedly associated with and civil society groups in Romania, Europe and CANDU reactors, threatens environment and North America. None of the three EIAs for the health of residents project have been made fully available to the public, yet issues of long-term storage of spent Population Affected: fuel and nuclear waste remain unresolved, while Citizens of Romania, Bulgaria, Ukraine and risks from earthquakes and accidents have been Moldova, in event of nuclear accident underestimated. ECA’s Involved: • EDC (Canada, CDN$328 million) • SACE (Italy, €118 million) Project Description • COFACE (France, €23 million) A partially-built 700 megawatt nuclear reactor • Ex-Im (US, US$24 million) located on the Danube River near the Black Sea, Other financiers: Cernavoda 2 will cost an estimated US$700 1 • Euratom (EU, €223 million) million to complete. CANDU technology was chosen in the 1970s by Romanian dictator Nicolae Status: Ceaucescu because it can use natural uranium Approved by ECAs in January 2003; currently under review by Euratom. Plans are already under way for a feasibility study for Cernavoda-3, involving Atomic Energy of Canada Ltd, Italy’s Ansaldo, Korea Hydro & Nuclear Power Co. and General Electric.
from Romanian mines.2 The first of five units, Cernavoda 1, was completed in 1996, more than 20 years after construction first began and was notorious for accidents and safety issues as well as for gross labor and human rights abuses during its construction.3 It also left the government saddled with an unsustainable debt that has prompted the government to proceed with this second, equally ill-conceived, project in the hopes of generating revenues from the sale of energy to Italy and other Western European countries. Cernavoda 2 is scheduled to go on-line in 2006.4 The plant is located adjacent to the town of Cernavoda Project Site Cernavoda, population 20,000, and within 100 Graphic: CANDU Owners Group kilometers of Constanta, population 310,000. It is
46 Cernavoda 2 35 km from the border with Bulgaria. Inadequate As a final note, the Romanian government has safety measures or security breaches at this plant itself also provided US$80 million from its state could contaminate hundreds of thousands of budget for the project and is committed to people in Romania, Bulgaria, the Ukraine and providing up to US$200 million.9 Euratom has Moldova. Plant effluent discharges to the Danube also been approached by the Romanian and potential groundwater contamination have not government for a €223 million loan.10 A final been adequately assessed for their impact on decision on approval is expected from the human and fish life. European Commission in September 2003.
ECA Support Impacts The financial package for the deal is complex. The lead project proponent is the Romanian nuclear Environmental Impacts state-owned company SNN, which awarded a The environmental risks already associated with a US$300 million contract to the consortium of project of this type have been further aggravated Atomic Energy of Canada Limited (AECL), a by three major issues: lack of disclosure of the full Canadian crown corporation that designs and environmental impact assessment (EIA), markets CANDU reactors, and Italy’s state-owned significant safety concerns in the region, and the nuclear company Ansaldo Energia. unreliable nature of CANDU reactors. Société Générale of France arranged a private None of the three EIAs carried out for Cernavoda commercial loan package with SNN in the amount 2 were ever made publicly available in their of €384 million, of which €350 million emanated entirety, but only as summaries. Based on the from Société Générale itself, €25 million from the environmental impact information that has been Romanian Development released, groups have Bank (Societé Générale identified a number of in Romania) and €9 serious environmental million from Crédit impacts that have not been Lyonnais of France.5 addressed and that pose This package helped serious environmental risks finance the purchase of to the region. equipment and operations from Western The Sierra Club of Canada companies necessary to Nuclear Campaign 6 submitted a detailed complete Cernavoda 2. analysis of the AECL AECL and Ansaldo then summary, supported by secured guarantees on over 70 organizations in 12 the loan through Export Children walk by heat supply sub-station in the countries. Among other Development Canada town of Cernavoda things, it critiqued the lack (EDC) and Sezione Photo: Olexi Pasyuk/ CEE Bankwatch of adequate public Speciale Per consultation, failure to l'Assicurazione Del consider alternatives for meeting projected energy Credito All'Esportazione (SACE) in the amount of needs, failure to disclose consequences of a CDN$328 million (or €202 million), and €118 nuclear accident or to disclose details of an million respectively.7 Two other ECAs, France’s emergency plan, and failure to present a plan to COFACE and the US Export-Import Bank manage nuclear wastes in perpetuity.11 provided the final portion of the guarantees on According to an independent review by the buyer credits for €23 million and US$24 million Austrian Institute for Applied Ecology, the official respectively. This covered Alstom, General Romanian EIA summary made public by the Electric and other subcontractors in the project.8 Romanian government in August 2002 is The provision of these guarantees followed a incomplete, unsystematic, and incoherent due to a formal evaluation of the project that began in early lack of relevant maps and data. It concluded that it 2002. This means that the project was approved is impossible to evaluate from the summary under the OECD Common Approaches Rev 6 whether all necessary data had been collected and guidelines for environmental review and has whether all project impacts were seriously supposedly been screened according to its assessed by the EIA authors.12 provisions.
Race to the Bottom, Take II 47 The Institute also carried out an independent any efforts to reduce energy inefficiencies. Total review of the PHARE study13 carried out by the installed capacity in 1999 was 19,676 MW,20 but European Commission and found that it fails to peak demand in 1998 was only 6,000 MW.21 EU cover all the issues required in a full EIA, as energy experts confirmed that increasing required by the European Union Council Directive Romania’s power generation is unnecessary and 97/11/EC.14 Furthermore, the study does not constitutes poor prioritizing by the government.22 establish whether a new power station is in fact Since Romania does not need the energy, top- necessary, what the impact of hot and potentially ranking Romanian nuclear officials report that contaminated water effluent will be on the Danube energy produced at Cernavoda 2 will be exported, River, or what impact radioactive effluent will preferably to the West.23 Although export have on the drinking water of villages and towns agreements with neighbouring countries have yet in the surrounding area. The PHARE report also to be signed, Italy has already indicated that it failed to assess (or grossly underestimated) the would be interested in importing energy from seismic risks. Cernavoda 2.24 This, however, violates the spirit of This last point raises significant environmental a 1987 national referendum in Italy that forbids safety concerns, since the Cernavoda nuclear nuclear energy production on Italian soil and the power plant is located in an area of seismic participation of the former Italian nuclear state- activity. Since 1979, three major earthquakes have owned company in nuclear projects abroad.25 occurred.15 The adjacent town of Cernavoda has 20,000 inhabitants and nearby Constanta has The export of such energy, nevertheless, will be 310,000 inhabitants. essential for Cernavoda 2 to remain financially viable. Cernavoda 1 ended up costing US$2.2 But the reactor is also subject to another safety billion, created a huge debt burden for Romania,26 concern. CANDU reactors produce plutonium that and by March 1982, Romania was unable to meet can be used in nuclear bombs at any time in the its payments.27 Consequently, special 16 next 20,000 years. A January 2002 NGO Fact- concessionary terms were arranged early on for Finding Mission to the region discovered that no Cernavoda 2, allowing for a longer payback period additional security measures have been and a four year delay before repayment of loans implemented at the Cernavoda power plant since commence.28 September 11th.17 There is no evidence from the environmental assessment information made public to date that indicates that Cernavoda-2 will Disclosure and public consultation be any different. Of the three EIAs conducted for the Cernavoda 2 reactor, none have ever been released in their CANDU reactors are also unreliable. They have complete form. AECL released a summary in repeatedly been associated with spills, design December 2001, as did the National Institute of flaws with pressure tubes and feeder pipes leading Research and Development for Environmental to premature ageing, routine emissions of tritium Protection (ICIM) in August 2002. PHARE (a radioactive form of hydrogen and a known conducted environmental, safety, economic, and carcinogen), heavy water leaks, and radiation 18 financial aspects, although it only ever made its exposure of workers. Cernavoda 1 has born inadequate environmental study public. witness to this, having experienced five technical and plant accidents since 1999.19 Informal consultations conducted in Romania by AECL in August-September 2001 were limited to the Constanta region and Bucharest and were Human Rights Impact based on a Romanian translation of an initial draft Potential contamination of air and water by summary of the AECL EIA, rather than the Cernavoda 2 would violate Romanian citizens’ complete EIA.29 The meetings were reportedly rights to a healthy environment as guaranteed only attended by “pro-nuclear” NGOs, many of under Article 12 of the International Covenant on them created by officials currently working for Economic, Social and Cultural Rights (ICESCR). state nuclear agencies.30 Furthermore, these public Romania ratified the ICESCR in 1976. consultations did not meet the national environmental requirements, as detailed below. Financial Liability The AECL summary was also not made available Whereas the Romanian government has said that to the public in Canada until December 2001, after Cernavoda 2 is a national priority for meeting this consultation period. At that time, the Sierra domestic electricity needs, Romania currently has Club of Canada submitted a critique of the more than sufficient energy capacity even without summary, but has never received a substantive
48 Cernavoda 2 response to its observations either from EDC or 1995 Romanian Environmental Protection Law AECL. allows the government to withhold commercially sensitive information contained in EIA studies. Romanian authorities claim that they held a public However, under the UN/ECE Aarhus Convention consultation on the final Romanian EIA study in on Access to Information, Public Consultation and September 2002, but no independent civil society Access to Justice on Environmental Matters groups were informed of the meeting, which was (ratified by Romania in 2000), the government is only advertised in one national newspaper.31 A required to give citizens full access to all relevant NGO fact-finding missions to Romania in January information of a project’s environmental impact 2003 further established that full EIA assessment.37 Once ratified, international treaties documentation was available only in the Constanta take precedence over conflicting domestic law. local environmental agency and was not easily accessible to all project- This means that if affected communities and EDC or SACE based NGOs.32 its project review on the AECL or ICIM Of greater concern, Romania’s Study, it was relying pro-nuclear government has on documents that targeted NGOs that have had breached publicly opposed the Romanian and Cernavoda 2 project, labeling international law. them Russian supporters who are working against national Furthermore, interests. The fear of Romania and its becoming the target of such a neighbors have campaign has had a chilling signed and ratified the effect on Romanian citizens Espoo Convention on from taking a public stand Romania signs Kiev Protocols to the Espoo Environmental against Cernavoda 2.33 Convention on Environmental Impact Assessment Impact Assessment in in a Transboundary Context, May 2003 a Transboundary Photo: UN Economic Commission for Europe Context, which came Violations of Host into force in 1997. Country Treaty (Romania ratified it on March 29, 2001.) Obligations Cernavoda 2 is located about 35 km from the The AECL consultations were based on Romanian border with Bulgaria. As reported to inadequate information and consultation with only Bulgarian NGOs last June, the Bulgarian a small number of affected parties. However, government was never notified by the Romanian making such information publicly available is an government about its intention to go ahead with explicit requirement of the ‘Permitting Procedure the project, in breach of Article 3 of the for economic and social activities having an Convention.38 In November 2002, the Bulgarian environmental impact’ of Romanian Ministry of Environment and Waters officially Environmental Protection Law No. 137/1995 34 requested information relating to the Cernavoda 2 (Article 4.3.2). According to this law, EIAs Nuclear Power Plant from the Romanian Ministry require public consultations with locally-affected of Water and Environmental Protection. It was communities and Romanian NGOs before the only after this specific request that the Romanian Environment Ministry can grant an environmental government finally sent Bulgaria the English 35 license. summary of the EIA study, for comments only.39 The Romanian Ministry of Waters and The Espoo Convention requires notification of Environmental Protection, arguing that AECL was potential trans-boundary impacts at the earliest 40 not certified to carry out an EIA and had failed to possible moment. The Environment Directorate- meet the national requirements in this matter,36 General of the European Commission, recognizing conducted a second EIA through ICIM. This Romania’s delay in informing neighbor countries report was completed in January 2002, but a of its plans for Cernavoda 2, requested in June summary of it was made public only in August 2003 that Romanian authorities submit complete 41 2002. documentation to Bulgaria. The Romanian government argues that commercial confidentiality bars further release of information pertaining to the ICIM study. The
Race to the Bottom, Take II 49 OECD Common Approaches have taken all the necessary steps to ensure that Rev 6 adequate monitoring procedures are in place. Before approving loan guarantees for the project, This project has been backed by four ECAs, the four ECAs signed an unprecedented inter- despite evidence that it should not have been creditor agreement with project sponsors and approved under Rev 6 until the project impacts Société Générale containing various had been fully evaluated, and until the project was environmental conditionalities. To do so, a shown to have complied with domestic law and consultant was hired to determine which nuclear the Espoo and Aarhus treaty obligations. standards and environmental conditionalities The Romanian government failed to consult with should be followed. The ECAs and bank neighboring states regarding potential negotiated these conditionalities among environmental impacts of the project. This violates themselves and with the host country authorities, its obligations under the Espoo Convention. Since inserting them into the final inter-creditor this obligation has been part of national law in agreement. Despite repeated requests by civil Romania since 2001, by approving loan society, the agreement has not been made public. guarantees, ECAs have failed to respect host But this “ad-hoc” initiative was likely costly and country law, as called for in Article 15.1 of Rev 6, inefficient, producing less than ideal results for the and to meet international standards. ECAs. Costs included hiring the nuclear consultants and several coordination meetings Project-affected people and civil society groups in among the four ECAs and project sponsors to Romania have not been adequately consulted, as define the common standards to be followed for required under Romanian environmental law. As this case. such, the project violates host Despite this lengthy country standards benchmarking approach, for environmental the EIA still failed to review. Again, this produce a complete is in violation of evaluation of all project Article 15.1 of Rev impacts, increasing the 6. level of environmental risk for this project. It is Because Rev 6 has unclear why ECAs rushed inadequate to finalize the deal, and requirements for accepted a higher degree environmental and of environmental risk, social information rather than adequately disclosure and assessing project’s public consultation, impacts. It is all the more project-affected surprising given that the populations are European Commission is denied meaningful Italian protesters voice their opinion in front of SACE Photo: Antonio Tricarico / CRBM still carrying out its own participation in the environmental, safety and conduct of public economic due diligence affairs, in violation of Article 25 of the assessment of the project, has requested additional International Covenant on Civil and Political information from Romanian authorities, and has Rights. Yet the ICCPR has been ratified by placed additional conditions on them. The Romania (March 23, 1976), Canada (August 19, adoption of single, clear and high international 1976), Italy (December 15, 1978), France standards and procedures, instead of applying a (February 4, 1981), and the United States vague benchmarking approach on a case-by-case (September 8, 1992). basis, would have made the whole process easier, Furthermore, Article 17 of Rev 6 states that cheaper and less risky for ECAs. “Members should ensure that procedures are in place to monitor, as appropriate, the implementation of projects, to ensure compliance Conclusion with all conditions of their official support.” Since Although there have been no new reactors built the inter-creditor agreement has not been made anywhere in North America since 1978, and none public, it is impossible to assess whether ECAs in Europe since 2001, four Export Credit Agencies
50 Cernavoda 2 have approved financial support for Cernavoda 2 in Romania. The CANDU technology is known to countries and more generally in Eastern Europe on behalf be prone to spills, premature ageing, routine of the European Commission. 11 emissions of tritium, heavy water leaks, and “Cernavoda 2 NPP Project in Romania: Illegal Public radiation exposure of workers. Not only is there no Money for an Illegal, Useless and Risky Project” Campagna per la riforma della Banca Mondiale, November need for new power generation in Romania, but 2002. this ill-conceived project poses potentially grave 12 No Nukes Infosource, Okologie Institut, May 15 2003. risks to the populations living downwind of the « Cernavoda in Romania ». site. 13 PHARE, Task 4 Report from the Modernization Project for Cernavoda NPP2 Environmental Impact Assessment. DeAngelis-009-RO/Phare-SCR/A6-C May 2001. For more information, contact: 14 Antonia Wenish and Erika Ganglberger, Austrian Institute for Applied Ecology and Heinz Hogelsberger of Campagna per la riforma della Banca Global 2000. “NPP Cernavoda 2 Comments to the mondiale, Antonio Tricarico, documents provided for the EIA,” November 2002. [email protected] 15 Antonio Tricarico, “The Cernavoda case: exporting CEE Bankwatch Network, Olexi Pasyuk, risks, importing energy” in “Financing Disaster: How the [email protected] G8 Fund the Global Proliferation of Nuclear Technology,” June 2001. For Mother Earth, Aurel Duta, 16 Sierra Club of Canada, “Comments by Non- [email protected] Governmental Organizations on Atomic Energy of Canada Halifax Initiative, Fraser Reilly-King, Limited’s (AECL) Cernavoda Reactor 2 Environmental [email protected] Assessment Summary,” December 2001. Romanian Association of Nature Lovers, Codruta 17 “Exporting Nuclear Risks: Canada, Italy and EU’s Nedelcu, [email protected] responsibilities in subsidizing nuclear export to Romania,” Sierra Club Nuclear Campaign, Dave Martin, CEE Bankwatch Network and Campagna per la riforma [email protected] della Banca Mondiale, February 2002. 18 Terra Milleniul III, Lavinia Andrei, [email protected] Gordon Edwards, “CANDUS and Catastrophic Accidents”, in Cernavoda 2 NPP in Romania: A Test Case for the Coherence of EU Policies in Accession Countries, Endnotes: Campagna per la riforma della Banca mondiale, May 2003; and “Reckless Lending: How Canada’s Export Corporation Puts People and the Environment at Risk,” 1 Halifax Initiative, March 2000. Mark Hibbs, “RENEL aims to finish Cernavoda-2 by 19 2000, but later date likely,” Nucleonics Week, July 4, 1996. Halifax Initiative, “Cernavoda Nuclear Reactor” in Seven 2 CEE Bankwatch Network and Campagna per la riforma Deadly Secrets: What EDC does not want you to know, January 2003. della Banca Mondiale, “Exporting Nuclear Risks: Canada, 20 Italy and EU’s responsibilities in subsidizing nuclear National Commission for Nuclear Activities Control export to Romania,” February 2002. (CNCAN), Romania Country Report, Tenth Plenary 3 Halifax Initiative Coalition, “Reckless Lending: How Meeting of the G-24 NUSAC Group, Bruxelles, March 25- 26, 1999. Canada’s Export Corporation Puts People and the 21 Environment at Risk,” March 2000; and “Romania: Dan Floru, “Reorganization of RENEL,” International l’emergenza caldo mette in ginoccio il paese, Bucharest,” Market Insight, Central and Eastern Europe Business Information Center, October 7, 1999. Il Giorno, 25 July 2000. 22 4 CANDU Owner’s Group web site, visited 7/13/03. “Exporting Nuclear Risk,” February 2002. 23 “Exporting Nuclear Risk,” February 2002. http://www.candu.org/cernavoda.html. 24 5 “Cernavoda-2 finance deal ignores outstanding issues,” Randall Palmer, “Italy offers to take Romanian nuclear power,” Reuters, May 25, 1998. WISE/NIRS Nuclear Monitor, December 20 2002; and 25 “Illegal Public Money for an Illegal, Useless, and Risky Sierra Club of Canada News Release “International Opposition to Romanian Reactor,” December 12, 2001. Project,” Bankwatch, November 2002. 26 6 “Romania Announces Credit Consortium for Cernavoda- Jennifer Wells, “Going Critical: Canada’s Nuclear 2,” The World’s Nuclear News Agency, 12 December 2002, Misadventure in Romania”, The Globe and Mail’s Report on Business, June 1995. News 386/02/A. 27 7 As quoted in the Sierra Club of Canada and Halifax Dr. Rosalie Bertell, “Victims of the Nuclear Age”, The Ecologist, November 1999, pp. 408-411. Initiative joint News Release, “Romanian Candu Reactor: 28 High Financial and Nuclear Risk,” 21 November, 2002; Geoffrey York, “Romania seeks reactor loan”, Globe and personal communication, Campagna per la riforma and Mail, August 1998, and Randall Palmer, “Italy offers to take Romanian nuclear power”, Reuters, May 25, 1998. della Banca mondiale, 20 December 2002. 29 8 «Un consortium bancaire français finance la centrale “Exporting Nuclear Risk,” February 2002. 30 “Exporting Nuclear Risk,” February 2002. roumaine de Cernavoda BUCAREST», Agence France 31 Presse, December 10, 2002. Letter from Lavinia Andrei, Terra Milleniul III, 9 Agence France Presse, December 10, 2002. Romania, and Antonio Tricarico, Campagna per la riforma 10 Euratom is a loan facility that overseas the installation of della Banca mondiale, to Commissioner Margot nuclear facilities in the European Union, accession Wallström, 1st July 2003. 32 Joint Fact-Finding Mission to Romania by Campagna per la riforma della Banca mondiale, CEE Bankwatch,
Race to the Bottom, Take II 51
Canadian Colalition for Nuclear Responsibility, Halifax Iniziative, Greenpeace US, January 2003. 33 “Exporting Nuclear Risks,” February 2002. 34 Campagna per la riforma della Banca mondiale, “Cernavoda 2 NPP in Romania: A Test Case for the Coherence of EU Policies in Accession Countries,” May 2003. 35 “Exporting Nuclear Risks,” February 2002. 36 E-mail sent from Daniela Eugenia Pineda, Romanian Ministry for Waters and Environmental Protection to Helene Izidi, consultant for Campagna per la riforma della Banca mondiale, 14th February 2003. 37 “Exporting Nuclear Risks,” February 2002. 38 Letter to Petko Kovachev, Executive Director of the Centre for Environmental Information and Education from Krassimir Doukov, Bulgarian Deputy Environmental Minister, June 27th, 2002. 39 Letter from Manoela Gueorgieva, November 5th, 2002. 40 Article 3.1 on Notification reads: “For a proposed activity listed in Appendix I that is likely to cause a significant adverse transboundary impact, the Party of origin shall, for the purposes of ensuring adequate and effective consultations under Article 5, notify any Party which it considers may be an affected Party as early as possible and no later than when informing its own public about that proposed activity.” 41 E-mail correspondence of Mrs. Anne BURRILL, DG Environment, to Lavinia Andrei, Terra Milleniul III, Romania, 2nd July 2003.
52 Cernavoda 2
Russia – Sakhalin II On and Off-Shore Oil and Gas
Project Summary Human Rights and Environmental Issues: • Threatened extinction of endangered A consortium led by Shell Ltd. is operating the Western Pacific Grey Whale Sakhalin II oil and gas project offshore Sakhalin • Degradation of fisheries and threatened Island in the Russian Far East. Sakhalin II damage to wild salmon runs threatens one of the most plentiful marine • Threatened livelihood and cultural identity of Nivkh indigenous peoples environments on the Pacific Rim, providing rich • Failure to adequately consult project-affected fisheries that support the local economy and the populations indigenous Nivkh people, and vital habitat for • Manipulation of scientific research marine mammals including the critically endangered Western Pacific Gray Whale. Already Population Affected: in the first phase of the project, fishermen have Nivkh indigenous people and Russian fishing reported declining catches and fish kills and the communities on Sakhalin Island Gray Whale population may have been weakened ECAs and investment insurance agencies by platform installation and other industrial oil and Involved in phase one: gas activities. • EBRD (Europe - $116 million) Now, the proposed second and significantly larger • JBIC (Japan - $116 million) phase of Sakhalin II threatens this environment • OPIC (US - $116 million with the world’s largest LNG plant that would ECAs potentially involved in Phase two: dump massive wastes in the Gulf of Aniva, on- • Exim Bank (US) shore pipelines to be trenched through wild • JBIC (Japan) salmon streams, an off-shore undersea pipeline • ECGD (UK) • SACE (Italy) • COFACE (France) • NCM (The Netherlands)
Status: Sakhalin II Phase One is already producing oil. Project proponent is currently seeking $5 billion in financing for Phase Two
crossing the benthic feeding habitat of the Gray Whale, along with platform dredging, and the dumping of drilling and other industrial wastes into the sea. Sakhalin II does not apply many important international standards. It could critically impair heretofore healthy Sakhalin fisheries and spell the extinction of the Western Pacific Gray Whale.
Project Description Sakhalin II and Sakhalin Island Graphic: Foundation for Russian American The Sakhalin Energy Investment Company, a Economic Cooperation consortium led by Royal Dutch Shell and
Race to the Bottom, Take II 53 including Mitsubishi and Mitsui, began Impacts commercial oil production of the controversial first phase of Sakhalin II in 1999. SEIC is now seeking a reported US$5 billion in financing1 to Environmental Impacts construct the additional platforms and undersea Whales threatened with extinction. pipeline to shore, approximately 800 kilometers of The icy sea around Sakhalin is teeming with life on-shore pipeline down the length of Sakhalin and creates the perfect, and only, feeding grounds Island, and the world’s largest liquid natural gas for the endangered Western Pacific Gray Whale. plant and oil terminal at the island’s Southern end. Recent scientific evidence suggests that less than 700,000 people live on 100 individuals, and the island of Sakhalin, possibly fewer than 20 most of them on the reproductive females southern tip. Island capable of bearing calves 2 residents include the remain. The birth rate of native Nivkh peoples, Western Pacific Gray who depend on fishing Whale exceeds the death 3 for their livelihoods and rate by only 1%, meaning traditional culture. The that additional negative waters offshore of impacts from Sakhalin II Sakhalin include risks pushing this species abundant crab, herring over the brink of and cod, and one of the extinction. few healthy wild salmon According to a Wall Street fisheries left in the Journal report, Sakhalin II world. The area is also Critically endangered Western Gray Whale with oil has dumped toxic drilling home to 25 marine platform in the background muds into these shallow mammal species, Photo: Sakhalin Environment Watch waters off Sakhalin, while including 11 endangered the practice is prohibited in species, most notably much of coastal Alaska.4 It has also carried out the world’s most critically endangered gray whale underwater seismic blasts as part of their population, the Western Pacific Gray Whale. exploration activities. The impact on the whales has been profound. In 1999, scientists for the first ECA Support time reported "skinny whales," or whales that were showing visible signs of malnourishment. By In 1997, Shell and other project sponsors received 2000, 27 - more than a quarter of the population - a total of US$348 million from the U.S. Overseas skinny whales were identified. Scientists fear that Private Investment Corporation (OPIC), the continued and expanded oil drilling projects may Export-Import Bank of Japan (JEXIM, now JBIC) stop any chance the whales have for recovering. and the multilateral European Bank for Sakhalin II fails to meet the World Bank policy on Reconstruction and Development (EBRD) in first 5 phase financing. Natural Habitats. The Natural Habitats policy states, “The Bank does not support projects that, in Shell and other project sponsors now reportedly the Bank's opinion, involve the significant seek a US$5 billion in financing for the conversion or degradation of critical natural significantly larger second phase of the project. habitats,” including “sites that are critical Reports indicate that the project consortium has for…vulnerable, migratory, or endangered approached the US Export-Import Bank (Ex-Im) species,” such as the critically endangered Western and the Japan Bank for International Cooperation Pacific Gray Whale. Russian Academician and (JBIC). It has also expressed an interest in ichtyological expert M. E. Vinogradov has stated, approaching Italy’s Sezione Speciale Per “Without designing special measures for gray l'Assicurazione Del Credito All'Esportazione whale conservation, the continuation of the (SACE), France’s COFACE, the Dutch ‘Sakhalin-II’ project can lead to extinction of this Nederlandsche Credietverzekering Maatschappij unique population.”6 NV (NCM) and the United Kingdom’s Export Credit Guarantee Department (ECGD) for phase 2 While the first phase of Sakhalin II fails to meet financing. World Bank policy on natural habitats, impacts from the enormous second phase is widely expected to be much worse. Degradation of
54 Sakhalin II critical natural habitats associated with the next up dead on local beaches, and local schools of phase of Sakhalin II include: saffron cod have since shrunk dramatically.” 9 These collapses have particularly negative impacts • The risk of extinction of the critically on native inhabitants, who depend on fish as a endangered Western Gray Whale and other basis of their economy and traditional culture. marine species with construction and operation of an additional platform directly adjacent to whale habitat. Financial Sakhalin II project sponsors originally indicated • An undersea pipeline routed directly that the first phase of Sakhalin II would yield through whale feeding grounds profit, yet official project documents for the • Roughly 800 kilometers of pipeline crossing second phase of the Sakhalin II project now state that “economic analysis shows that Phase I by 1100 watercourses along nearly the entire 10 length of Sakhalin Island, to be trenched itself will not be profitable.” SEIC further directly through ecologically and admits that a proposed second phase of the project economically vital streams bearing salmon will only be profitable if, in addition to the oil, and other salmonid species, including the they are able to sell a minimum of nine million tons of gas annually. News reports indicate that, endangered Sakhalin taimen despite years of efforts, the project sponsors have • Pipelines will cross 24 seismic faults in this been unable to conclude contracts for the sale of heavy earthquake zone (by comparison, the gas.11 Hence, project sponsors’ previous Trans-Alaska Pipeline crosses 3 seismic representation of project’s financial health has faults) been inaccurate and ECAs’ requirement that project sponsors prove credit-worthiness has not • Construction of the world’s largest liquefied been met. natural gas processing facility and oil terminal at the Southern tip of Sakhalin Worse, economic benefits to Russia are in Island which will dump 500,000 metric tons question. EBRD's Establishing Agreement directs the Bank to give support to sound and of waste annually into the Gulf of Aniva economically viable projects.12 But according to a • Exponentially higher risk of oil spill report of the Auditing Chamber of the Russian associated with the additional drilling Federation (March, 2000),13 the project has had no platform and increased tanker traffic at the economic benefit for the budget of Russia. Southern terminus of the island According to this report, due to provisions in the Production Sharing Agreement, project sponsors Irresponsible risk of spills. will pay US$ 19 billion less in taxes than they SEIC has done little to ensure its oil spill otherwise would have over the life of the project prevention and response system meets recognized under normal contracting procedures. As such, international standards. Sakhalin II depends Sakhalin II fails to meet this international primarily on emergency response equipment standard. stored on the north side of the island, roughly 50 miles from the oilfields and including about 30 Disclosure and public consultation miles of often-impassable dirt roads.7 Independent experts from Alaska and the Shetland Islands Despite repeated promises by project sponsors for issued a report in 1999 called “Sakhalin's Oil: ongoing consultation and access to information, Doing It Right” warning that the current oil spill consultation has been inadequate, and in 2002 prevention and response measures leave the NGOs were compelled to file a lawsuit against the coastlines of Sakhalin and Hokkaido vulnerable to Russian government and project sponsors to obtain a catastrophic spill.8 The report recommended 78 public-interest information about this project. On specific measures, but SEIC hasn’t implemented January 8, 2003, 50 environmental organizations most of them. from Russia, the U.S., Japan, and Europe sent written common demands to Shell and other project sponsor, other area operators, government Human Rights agencies, international financial institutions and Saffron cod and herring stocks are a key food company shareholders.14 These organizations source for the native Nivkh peoples. As the Wall demand that the project proponents use the best Street Journal report indicates, local fishermen available technology, meet the highest report that “[i]n 1999, the first year of commercial international environmental standards and comply oil production, herring by the thousands washed with Russian law. Until they are met, Sakhalin II
Race to the Bottom, Take II 55 and other Sakhalin projects should not be allowed defendant. Russian law clearly prohibits harm to to move forward, they argue. SEIC has refused to the habitat of listed endangered species such as the meet these conditions. Sakhalin Taimen, a salmonid species threatened by the proposed 800 kilometer pipeline. Violations of host country law and treaties OECD Common Approaches Russian law forbids carrying out any work that negatively impacts an endangered species. Rev 6 However, the Russian government has been slow Sakhalin II is under active consideration by as to enforce these laws, and the big oil companies many as six ECAs, despite clear evidence that it are taking advantage of this legal vacuum. should not be approved under the OECD Draft The indigenous Nivkh peoples’ food source, Recommendation for Common Approaches on livelihoods and traditional way of life are being Environment and Officially Supported Export threatened by this project. Article 11 of the Credits: Revision 6 of December 2001: International Covenant on Economic, Social and • It involves a project in a sensitive sector and Cultural Rights (ICESCR) states that all people area; negatively impacting the habitat for a have the right to adequate food. Russia ratified the critically endangered species, and of crucial ICESCR in 1976. Any government program that importance to an ethnic group, the indigenous jeopardizes people’s access to adequate food Nivkh peoples. Yet, it fails to even constitutes a direct violation of Russia’s treaty approximate international standards for the obligations. Russia has also ratified the industry and World Bank Group standards and International Convention on the Elimination of all safeguard policies regarding the oil and gas Forms of Racial Discrimination (March 6, 1969), sector, natural habitats, and indigenous which prohibits any action which harms ethnic peoples. Compliance with these international minorities. Since the project’s impact on fish stock standards should be implicit under the have a disproportionate impact on the Nivkh Revision 6 benchmarking recommendations people, this constitutes a form of government- for environmental review; sanctioned discrimination. Thus, the project leads to violations of two international treaties. • It violates host government law on endangered species and international treaty obligations Shell and other project sponsors have worked regarding indigenous peoples’ right to actively to weaken Russian environmental adequate food and freedom from racial standards. The Wall Street Journal report detailed discrimination. Compliance with host country how oil company-funded research led to the standards is an approval criteria under downgrading of the area fisheries classification, Revision 6 provisions; clearing the way for Sakhalin 2 to dump drilling wastes into the seas, which had theretofore been • Project proponents have failed to consult with illegal under Russian law. The Wall Street project-affected populations as suggested by Journal article quotes a chief Russian fisheries Revision 6 authority as saying, “I don’t believe we can get an While the earlier phase of Sakhalin II was objective opinion from scientists who are approved prior to Rev 6, the current phase should 15 dependent on companies.” be held to the provisions of the Common A federal court’s ruling to block Exxon Mobil Approaches, weak and voluntary as they are. Thus, from dumping drilling mud at the Sakhalin I the voluntary nature of Revision 6 could fail halt project didn’t apply to the Shell-led consortium this project and prevent irreparable harm to critical because it had a Production Sharing Agreement habitats, indigenous peoples and endangered with the Russian government, according to the species. This case has been forwarded to the Sakhalin Environment Watch group.16 Thus, Shell European Court for Human Rights. and other project sponsors’ bilateral investment agreement with Russia superceded host country Conclusion law and this court ruling. As currently designed and operated, Sakhalin II In 2001 Russian NGOs filed an environmental poses a major and unacceptable hazard from its lawsuit against the Russian government to halt any platform dredging, undersea pipeline through construction or industrial development in the endangered Western Pacific Gray Whale feeding defined Gray Whale habitat area, naming Sakhalin grounds, on-land pipelines trenched through wild Energy Investment Company, Ltd. as a third party salmon-bearing streams and crossing 24 seismic 56 Sakhalin II fault lines, the continuous dumping of wastes into the sea and the Gulf of Aniva, and potential 12 Agreement Establishing the European Bank for catastrophic oil spills into this delicate terrestrial Reconstruction and Development, Article 2. and marine environment. Sakhalin II presents Functions (vi). these risks without adhering to internationally 13 “Report adopted at the Collegium of the Auditing accepted safeguards and inadequate consultation Chamber of the Russian Federation on April 17 1998 with project-affected peoples. based on the results of a thematic evaluation of the organization of levying of taxes and payments into Sakhalin II meets neither the Draft the budget during the execution of the Production Recommendation for Common Approaches on Sharing Agreement in correspondence with the Environment and Officially Supported Export federal law ‘About Production Sharing Agreements’ Credits: Revision 6, nor the environmental policies at enterprises and organizations of Sakhalin Region,” of the specific ECAs currently considering the Auditing Chamber of the Russian Federation, March project. 21, 2000 14http://www.pacificenvironment.org/russia/sakhalin demands.htm For more information, contact: 15 Carlton, 2003. 16 Sakhalin Environment Watch, Natalia Barranikova Carlton, 2003. or Dimitry Lisitsyn, [email protected] Pacific Environment, Doug Norlen, [email protected] Friends of the Earth Japan, Ikuko Matusmoto, [email protected] CEE Bankwatch Network, Petr Hlobil, [email protected]
Endnotes:
1 Sakhalin Energy Seeks US$5 Billion In Financing From Lenders, FSU Oil and Gas Monitor, June 11, 2003. 2 Webster, Paul, Will Oil Spell Trouble for the Western Pacific Gray Whales? Science, May 30, 2003 3 Spiridonov, Vassily, Can Whales Survive in the Vicinity of Drilling Platforms, INFORMNAUKA Russian Science News Agency, March 21, 2003. 4 Jim Carlton, Stymied in Alaska, Oil Producers Flock to a New Frontier, The Wall Street Journal, September 4, 2003. 5 World Bank Operations Manual, Natural Habitats, OP 4.04. 6 Letter to Academician Yu.S. Osipov, President of the Russian Academy of Sciences, B.A. Yatskevich, Minister of Natural Resources, and E.I. Nazdratenko, Chairman of the State Committee of Fisheries, #1- 33/149 on June 6, 2001. 7 Carlton, 2003. 8 Lawn, Steiner & Wills, Sakhalin’s Oil: Doing it Right, Pacific Environment and Sakhalin Environment Watch, 1999. 9 Carlton, 2003. 10 Preliminary Environmental Impact Assessment for Phase II of the Sakhalin-II project, Sakhalin Energy Investment Company, November 2001, p. 8-5 of Russian version. 11 Vedomosti, July 12, 2002 and others.
Race to the Bottom, Take II 57
Uganda – Bujagali Dam
Project Summary Human Rights and Environmental Issues: • Forced resettlement with inadequate This US$530 million hydropower project – the compensation largest private development in East Africa – • Failure to assess cumulative impacts and could become a white elephant for Uganda's downstream fisheries and agricultural taxpayers and increase the nation's unsustainable impacts, potentially affecting 6,000 people • Project contract is unfavorable to Uganda, a debt burden, while also drowning the culturally HIPC country, and could increase debt important and beautiful Bujagali Falls. The US- • Alleged corruption by project proponent’s based AES Corporation was contracted by the contractors Ugandan government in 1994 to build the project and sell its electricity over a 30-year period – a Population and Sensitive Areas Affected: contract which has been found by an independent 820 villagers to be displaced and 6,000 local financial analysis of the document to be highly residents affected by changes to river unfavorable to Uganda. Although 95% of the Ugandan population does not have access to ECA’s Potentially Involved: • Finnvera (Finland) electricity, most could not afford this dam's costly • ERG (Switzerland) power even if they were offered free connections • GEIK (Norway) to the national grid. • EKN (Sweden) On August 8, 2003, lead project proponent AES • MIGA (World Bank Group) decided to pull out of the Bujagali project, writing Status: off its $75 million invested to date. The Construction halted due to corruption charges government of Uganda remains determined to go and ongoing investigations. Lead project forward with the project, going as far as proponent AES withdrew in August 2003, though proposing to raid the National Social Security Uganda and the World Bank Group remain Fund to keep the project afloat. The IFC and the committed to the project. World Bank are working with Uganda to fund a new public-private partnership for the project. considered by the World Bank Group’s IFC and Prior to this announcement, the project was being MIGA, Finland’s Finnvera, the Swiss ECA Geschäftsstelle für die Exportrisikogarantie (ERG) and possibly Sweden’s Exportkreditnämnden (EKN) and Norway’s Guarantee Institute for Export Credits (GEIK).
Project Description Bujagali Dam is a 200-megawatt hydropower project proposed for the Nile River at Bujagali Falls, near Lake Victoria. The dam is projected to cost U$530 million. A transmission system is a separate component with its own impacts and costs. The project has been on hold since 2002 due to corruption allegations, but the Government Bujagali Dam Land-Take map of Uganda, the World Bank and the AES Graphic: Bujagali Hydro Project Web site Corporation had expressed interest in going ahead
58 Bujagali Dam with the project if it is cleared by the anti- awarded based on competitive bidding, and that corruption investigations. In the statement the World Bank’s economic analysis of the announcing its withdrawal, AES says it had been project was over-optimistic and contradictory in cooperating with the US Justice Department important aspects. regarding alleged violations of the US Foreign Uganda has promising potential to develop Corrupt Practices Act.1 geothermal energy. Neighboring Kenya has An analysis of the project’s Power Purchase exploited its geothermal reserves at a lower cost Agreement (PPA) prepared by the independent and with far fewer impacts than the Bujagali Prayas Energy Group of India demonstrated that project. In documents to justify Bujagali, the this key agreement falls short of international World Bank dismissed the nation's geothermal standards. As a result, Uganda will be faced with potential despite the fact that their own research an average $20 million in excessive payments shows that Uganda has excellent geothermal each year if the dam moves forward under this power reserves. In 1997, the Bank promised the contract.2 government that it would support the next dam on the Nile, in return for a liberalization of the power Three powerful project proponents have pushed 4 sector, without assessing any other options. the project forward to this point, despite unresolved questions on its environmental, economic and social impacts: the US-based AES ECA Support Corporation, Uganda's President Museveni, and the World Bank. ECAs from Finland, Norway, Sweden and Switzerland and the Dutch development finance In December 2001, the World Bank Group institution, FMO, had initially approved funding approved approximately US$215 million in for the project. As of July 2003, the Norwegian support for the dam, hoping to make the project a and Swedish ECAs had reportedly canceled their showcase for private investment in Africa. An support, after the Swedish and Norwegian firms investigation by the World Bank Inspection Panel that were to head up the construction consortium concluded in May 2002 that the Bujagali project pulled out of the project. violated five World Bank policies, including the policies on involuntary resettlement, The involvement of the World Bank's MIGA environmental assessment, and disclosure of came after several ECAs expressed concern with information.3 Despite this, the Bank later put the project's risk and appeared poised to withdraw forth a US$215 million political risk guarantee support. World Bank board meeting notes from through its insurer MIGA. The final World Bank February 2002 state that the Swedish ECA Board vote on this has been put on hold pending concluded that Uganda posed "too high a risk" the outcome of corruption investigations. and therefore withdrew its $112 million in planned financing.5 The prospect of MIGA Non-governmental organizations, including providing political risk insurance has therefore Uganda’s National Association of Professional helped keep the project alive. It is worth noting Environmentalists (NAPE) International Rivers that the MIGA guarantee does not make the Network (IRN), the Bank Information Center project any more viable, and would not alleviate (BIC), FIVAS and others in Europe, have for the risk of further years criticized the indebtedness for project’s lack of Uganda. transparency and accountability. In July 2001, the They have also ECAs of OECD exposed serious countries agreed on economic, social principles to avoid and environmental unproductive problems. expenditures in Specifically, NGOs Highly Indebted pointed out that no Poor Countries alternatives to (HIPC) countries. Bujagali were ever Bujagali continues seriously to be a test case for Bujagali Falls is an important cultural and spiritual site for the ECA commitment considered, that the Bujagali, and revered for its natural beauty contract was not Photo: www.harpatkaot.com to the OECD
Race to the Bottom, Take II 59 principles on unproductive expenditures.6 The project will permanently submerge highly productive agricultural land as well as islands Other funders that have rejected Bujagali as too supporting valuable natural habitats. The changes economically or environmentally risky in recent to the river could permanently harm fisheries, and years include Germany's DEG, France's Proparco, possibly send some species toward extinction. and the US OPIC. The status of ECA backing in The Environmental Impact Assessment conducted the wake of AES’ withdrawal is undetermined. by AES failed to adequately assess downstream fisheries, ignoring some species, making it Impacts difficult to fully quantify the potential impacts.7
Environmental Impacts Human Rights Impacts The proposed dam site is a few kilometers below The dam and reservoir alone will permanently two other large dam projects. Environmental displace about 820 people, and affect about 6,000 harm goes beyond that of these three dams, since, more. The transmission lines’ right-of-way may according to the World Bank's Project affect many more. AES claims that the project is Information Document, Bujagali is expected to a “model case” of successful resettlement. "catalyze" further hydro development along the However, a group of villagers who have already Nile. The Ugandan been resettled when government has groundbreaking and road said it hopes to construction began, have build up to six more complained that they never dams on the Nile. received the full Cumulative impacts compensation they were due. of Bujagali and the They say the land they two existing dams received is poor and stony. have not been Drinking water is scarce, and assessed, and the toilets tend to overflow. existing dams did People have lost their access not have an EIA or to markets and firewood in subsequent the vicinity, and to the Nile monitoring. Failure for fishing. They have been to assess barred from using common cumulative impacts Bujagali woman land for cultivating crops, violates the World Photo: Ventana Pictures and there is no area for Bank’s EIA policy, grazing livestock. Breaking as confirmed by the Bank’s Inspection Panel. It earlier promises, the project also contravenes paragraph 10 of the OECD authorities have not moved their ancestral graves. “If we could, we would return to our earlier Common Approaches on Environment and 8 Officially Supported Export Credits: Revision 6, villages running,” says one displaced villager. of December 2001, which calls for analyzing “current and proposed development activities Financial Viability within the project area but not directly connected Uganda's payments to AES would have exceeded to the project,” or cumulative impacts, in other the debt relief Uganda has received under the words. Heavily Indebted Poor Countries (HIPC) The project will drown Bujagali Falls, a national Initiative. Furthermore, Uganda has suffered from treasure and cultural icon. The "Source of the low commodity prices, and even with this debt Nile" corridor is one of the most spectacular river relief, a recent IMF/World Bank report admits stretches in the world, say whitewater rafting that Uganda's debt sustainability outlook is professionals, who use the stretch to be “worrisome” and requires a major improvement submerged by the dam for revenue-generating in export performance and increased donor adventure tourism. Tourism is a larger earner of support. Yet this project would put huge financial foreign exchange than everything but coffee in burdens on the government, further exacerbating Uganda, and local tourism experts believe the the debt problem. Nile could become as big a draw as the Zambezi AES had for over a year been experiencing River in Zimbabwe and Zambia, which is a multi- serious financial difficulties, which further million dollar business. highlight the concerns over the project's financial
60 Bujagali Dam viability. (According to press reports, the Swedish Disclosure and public consultation firm Skanska pulled out of the project in June in The project has been marked by a lack of part because it had not received payments from transparency. Numerous requests from Ugandan 9 AES for over a year.) As the project's civil society groups to review the PPA were “bankability” has sunk with AES’ fortunes, denied, and the document was kept confidential. wilder schemes have surfaced to keep the project In November 2002, a Ugandan court finally afloat. Recently, the Ugandan Energy Ministry mandated the release of the document to the proposed dipping into the nation's social security public. The PPA was reviewed by Prayas Energy fund to obtain US$10 million and help finance the Group, and the results were given to the Ugandan project, a plan rejected by the Ugandan government, the World Bank and others. Prior to Parliament on Aug. 8, 2003. AES’ withdrawal, the Ugandan government had The project's economic viability analysis, carried been asking for a new PPA, citing the Prayas out by the World Bank, is based on over- review as proof that the previous PPA was unfair. optimistic macroeconomic assumptions, such as If a new company is brought in to build the unrealistic GDP and income from coffee exports, project, a new PPA will be necessary, again as well as inflated figures for increasing demand raising issues of transparency and fairness. for electricity. As the World Bank's excessively optimistic projections for export income now Violations of Host Country Law and undermine Uganda's debt sustainability, so too International Standards could faulty assumptions about Bujagali's When the World Bank first approved the Bujagali financial viability threaten the Ugandan economy. project in December 2001, Uganda was ranked The project will result in the third-most corrupt country the loss of a significant by Transparency source of foreign currency International’s corruption for Uganda. Rafting in the perception index. In spite of Bujagali Falls area is this, the project went ahead already the biggest draw without full competitive for foreign tourists in bidding. In 2002, the project’s Uganda, and tourism is the main civil contractor admitted second largest source of to having bribed Uganda’s foreign exchange in former Minister of Energy. Uganda. According to The project was suspended by rafting companies in the World Bank and ECAs, Uganda, over 6,000 people pending the conclusion of raft the Nile each year near Bujagali Falls is a popular destination for corruption investigations. The Bujagali, spending nearly adventure tourism contractor eventually withdrew $4 million in Uganda on Photo: www.rafting.co.ug for financial reasons caused by activities not related to the delays. rafting. Finally, the project’s Power Purchase Agreement OECD Common Approaches (PPA) would have delivered a sweetheart deal for Rev 6 AES, which could have been a significant burden on Uganda. The Ugandan government had While this highly controversial project is on hold, pledged to pay AES for electricity for 30 years, and now with an uncertain future as to a possible regardless of whether the project actually yielded replacement for the lead project proponent, the the amount of promised electricity or whether all fact that any ECAs are considering it at all the electricity produced could be sold. According demonstrates that the non-binding OECD to various sources, including the report of the guidelines for environmental review are woefully Inspection Panel, local politicians, independent inadequate. AES’s Environmental Impact economists and others, it is likely that the dam’s Assessment failed to consider the development tariffs will be unaffordable – at least for some context of two other dams just kilometers years – to most Ugandans. Uganda citizens would upstream of Bujagali on the Nile, which will still have borne the burden of meeting the potentially generate significant cumulative government's financial obligations to AES. impacts. There was insufficient baseline analysis of existing fish populations to assess, much less mitigate, impacts on downstream fisheries and
Race to the Bottom, Take II 61 people dependent on the Nile’s waters for and financial institutions should not fund farming and fishing. The project subcontractors future power projects based on confidential have clearly violated host country corruption PPAs. laws. Problems with the early resettlement of 30 Corruption remains a serious concern. Export families confirm NGO concerns that the project's • Credit Agencies should not support any resettlement plans are inadequate, and little has projects, which are not based on full been done to resolve these problems since the competitive bidding. project is on hold. On these grounds alone, this project should not be under consideration by export credit agencies. For more information, contact: It is telling that a World Bank Inspection Panel National Association of Professional review, and investigations by US, British, and Environmentalists (NAPE), Uganda, Frank Ugandan authorities were required to halt further Muramuzi, [email protected] work on this project. The fact that the Common IRN, Lori Pottinger, [email protected] Approaches are non-binding and that ECAs have FIVAS, Bjørn Ivar Fyksen, b.i.fyksen@inl- no obligation to make environmental assessments stud.uio.no and PPAs public has meant that patently bad Bank Information Center, Nikki Reisch, projects can be considered and potentially [email protected] supported, flaunting any OECD mandate for supporting sustainable development. Endnotes:
Conclusion and 1 Campion Walsh, “World Bank Sees Hope for Uganda Recommendations Project Without AES,” Dow Jones Newswires, August 13, 2003. The Bujagali project, including the project’s PPA, 2 Prayas Energy Group, “The Bujagali Power Purchase is fundamentally flawed and not in the best Agreement – an Independent Review,” November 20, interests of the Ugandan people. Regardless of 2002 (available at http://irn.org/programs/bujagali/bujagalippa.pdf) what happens going forward, significant changes 3 International Rivers Network, “A Review of the World need to be made: Bank’s Inspection Panel Report on the Bujagali The World Bank and ECAs should cancel Project,” June 10, 2002, • http://www.irn.org/programs/bujagali/IRN_comment.p their funding of the project under their df . requirements that such an economically 4 See Peter Bosshard, “Pervasive Appraisal Optimism,” unfavorable project is likely to further International Rivers Network, 14 May 2002, exacerbate HIPC country indebtedness. Until http://www.irn.org/programs/bujagali/wb.bujagalipaper it can be shown that the project's PPA is .pdf, for a comprehensive critique of the Bujagali beneficial to Uganda, Bujagali has to be project. 5 World Bank, Board meeting notes, February 2002. considered an unproductive investment. 6 OECD Export Credit Group, “Official Export Credit • Just compensation must be provided to the Support to Heavily Indebted Poor Countries (HIPCs): Statement of Principles,” July 19, 2001. The document displaced villagers whose lives and reads, in part: “Insofar as official export credits livelihoods have already been significantly contribute to a country's overall debt burden, the ECG harmed. Members agree that such credits should not be provided for unproductive expenditure in HIPCs.” • A balanced and participatory process should 7 Ugandan Institute of Fishery Research (FIRRI), be launched immediately to assess all personal communication during NGO Fact-Finding available options to bridge the gap between Mission, 2001. Uganda’s energy needs and supply, including 8 Patrick McCully, “The Sad Truth of a Model the promising potential of geothermal power. Resettlement Site,” World Rivers Review, August 2002. (Based on a July 2002 NGO fact-finding mission • Transparency and accountability are basic to the Naminya Resettlement site.) preconditions of good governance and sound 9 Emad Mekay, “Multinationals Walk Out on economic development. The review of the Controversial Ugandan Dam,” IPS, June 6, 2003. PPA by Prayas Energy Group demonstrates that this rule should also apply to Power Purchase Agreements. Governments should no longer negotiate expensive long-term contracts without public debate and scrutiny,
62 Bujagali Dam
Appendix
Jakarta Declaration for the Reform of Agencies for the Reform of Export Credit and Investment Insurance Agencies." The NGOs Official Export Credit and Investment called for transparency in ECA decision making, Insurance Agencies environmental assessment and screening of ECA financial commitments, including participation of Introduction affected populations, social sustainability (equity and human rights concerns) in appraisal of ECA Non-governmental organizations around the commitments, and for an international agreement world call the attention of governments and in the OECD and/or G8 on common international institutions to the mounting adverse environmental and social standards for ECAs. environmental, social, human rights and economic consequences of ECA activities. We Over the past two years the major industrialized have directly witnessed the unconscionable countries have only made the minimal human suffering and environmental devastation commitment to work towards common that ECAs have produced in Indonesia, which is environmental approaches and guidelines in the only one of many country examples. ECAs have OECD. The lack of transparency and meaningful supported many projects-e.g. in the mining, pulp public consultation in the OECD Working Party and paper, oil and power sectors-which have had on Export Credits and Credit Guarantees, devastating social and environmental impacts. particularly the lack of any consultation with ECAs have supported the export of arms used for representatives of affected groups and human rights abuses by the Suharto government. organizations from non-OECD recipient In 1996, ECA exposure in Indonesia was $28 countries, has rendered this process a travesty. billion, an amount equivalent to 24% of ECAs have consistently learned no lessons from Indonesia's external debt. The Indonesian ECA the past and continue to approve financing for debt places an unacceptable burden on the environmentally and socially destructive Indonesian people, crippling their future operations. development. As a 22 September 1999 "Financial The social and environmental negligence, support Times" article pointed out, careless industrialized for human rights violations, and lack of country export credit agencies share a major transparency of ECAs must come to a halt. ECA responsibility for "violence in East Timor and financing for major arms transactions, for economic disaster in Indonesia." obsolete technologies rejected or illegal in their Official Export Credit and Investment Insurance home countries, and for economically Agencies have become the largest source of unproductive investments is a scandal of global public international finance, supporting in 1998 proportions. over eight percent of world exports. In 1998 ECAs supported $391 billion in private sector Call for Reform business and investment, of which $60 billion Based on the experiences of Indonesia and many was for middle- and long-term guarantees and other countries, NGOs from around the world loans, mainly supporting large-scale project reiterate the April, 1998 international Call for finance in developing countries. This exceeds all Reform of Export Credit and Investment bilateral and multilateral development assistance Insurance Agencies. We call upon OECD combined, which has averaged some $50 billion governments, ministers and national legislatures over the past decade. ECAs account for 24 to undertake with due dispatch the following percent of all developing country debt, and 56 reform measures for their ECAs: percent of the debt owed to official governmental agencies. 1. Transparency, public access to information and consultation with civil society and In April, 1998 163 NGOs from 46 countries sent affected people in both OECD and recipient to the finance and foreign ministries of the major countries at three levels: in the assessment of industrialized OECD countries a "Call of ongoing and future investments and projects National and International Non-Governmental
Race to the Bottom, Take II 63
supported by individual ECAs; in the payments related to a contract were made, preparation within national ECAs of new and that any contravention of the ban on procedures and standards; and in the illegal payment should entail cancellation of negotiation within the OECD and other fora the state's obligation to pay. Companies of common approaches and guidelines. found guilty of corruption should be banned from further support for five years, and 2. Binding common environmental and social export credit agencies should not underwrite guidelines and standards no lower and less commissions as part of the contracts they rigorous than existing international support. procedures and standards for public international finance such as those of the 5. ECAs must cease financing non-productive World Bank Group and OECD Development investments. The massive ECA support for Assistance Committee. These guidelines and military purchases and white elephant standards need to be coherent with other projects, such as nuclear power plants, that ongoing international social and would be rejected by OECD bilateral aid environmental commitments and treaties, for agencies and multilateral development example, the conventions of the International agencies such as the World Bank must end. Labor Organization and the United Nations 6. The cancellation of ECA debt for the poorest Convention on Biological Diversity. In countries, much of which has been incurred addition ECAs must conduct full, transparent for economically unproductive purposes. We accounting for climate change impacts and support the call of the Indonesian anti-debt move to increase investments in sustainable coalition for the cancellation of Indonesian renewable energy. So far, some governments ECA obligations, now placing an have established, or are establishing, insupportable burden on the Indonesian environmental and social policies which people. substantially deviate from, and are below these internationally recognized standards and guidelines. Conclusion The OECD Development Assistance Committee 3. The adoption of explicit human rights criteria declared in 1996 that " we should aim for nothing guiding the operations of ECAs. This should less than to assure that the entire range of relevant be done in consultation with affected people industrialized country policies are consistent with and civil society, and based on existing and do not undermine development objectives." regional and international human rights The OECD ECAs, and the OECD Export Credit conventions. In Indonesia and elsewhere Working Party, completely disrespect this call. ECAs have not only supported arms exports These ECAs have so far refused to accept any directly linked to egregious human rights responsibility for their past mistakes, and to draw abuses, their support for mining, paper and any meaningful lessons from them. The current pulp mills and other major infrastructure practices of the ECAs embody a form of corrupt, investments often has been accompanied by untransparent, environmentally and socially destruction of indigenous and local peoples' destructive globalization as serious and rights to land and livelihood resources, armed reprehensible as the concerns raised by civil suppression of dissent, and suppression of society and activists around the world about the press freedom to criticize such abuses. World Trade Organization, the proposed 4. The adoption of binding criteria and Multilateral Agreement on Investment, and the guidelines to end ECAs' abetting of International Monetary Fund and World Bank. corruption. According to Transparency We call upon concerned citizens and International, the continued lack of action by organizations around the world to turn their ECAs to address this issue is bringing some attention to ECAs and their negotiating forum, the ECA practices "close to complicity with a OECD, and to press their governments to criminal offense." We endorse the undertake reform without further delay. recommendations of Transparency International submitted to the OECD and Signed by 347 NGOs from 45 countries. See European Union in September, 1999, on how www.eca-watch.org for a full list. ECAs should avoid continued complicity in corruption. These include, inter alia, recommendations that export credit applicants must state in writing that no illegal
64 Jakarta Declaration
Race to the Bottom, Take II
An Assessment of Sustainable Development Achievements of ECA-Supported Projects Two Years After OECD Common Approaches Rev 6
September 2003
www.eca-watch.org