Blessed are the last for they shall be first! How the “last resort” option of biodiversity offsetting has become a key tool for Rio Tinto to legitimise its controversial Oyu Tolgoi copper mine in Southern Gobi Desert in Mongolia
hether it is global warming, loss of Wbiodiversity, or other environmental crises, the limits of our planet are becoming more and more evident to us. At the Paris climate conference held in December 2015, parties agreed that we urgently need to limit greenhouse gas emissions and mitigate global warming, but there are different approaches to doing this. One is a fundamental transition of the economy away from fossil fuels. A more moderate option relates to the idea of “net Mongolia. Photo © Olexi Pasyuk zero emissions”, a concept that world’s land. Scientists say that civil society to project financiers, implies that the world can continue habitat destruction has reduced the including international public to produce emissions, as long as variety of plants and animals to the development banks, Rio Tinto there is a way to “offset” them1. point that ecological systems could decided to move ahead in finalising It is in fact in climate politics soon become unable to function its offset plans, which still remain that offsetting is used the most. properly, with risks for agriculture questionable both in their logics Though, with very limited success2. and human health. Biodiversity and feasibility in the Southern Gobi However, the apparent limitations is particularly under threat in Desert. of this concept, have not prevented those remote areas of the world the mining industry from quickly where mining operations are being Worrying findings coming from new incorporating it and promoting it increasingly developed in order to civil society fact-finding missions, to “offset” the negative effects of extract the last remaining minerals and recent plans advanced by mining on biodiversity. and metals available. project sponsors to expand the mine and build a related coal plant4 As recently proven by international The Oyu Tolgoi mine in Southern raise the urgency to shed light on experts3, biodiversity is below safe Mongolia is a prominent example how biodiversity offsetting is used levels across more than half of the of biodiversity offsetting, praised as to cover up severe environmental, a set of “first-time ever initiatives” social and development impacts 1 http://us.boell.org/2015/12/15/cop-21-and- by its main project promoter Rio associated with the mining project paris-agreement-force-awakened Tinto. Civil society organisations in Mongolia. 2 https://www.theguardian.com/sustainable- visited the project area in April business/blog/why-are-carbon-markets- failing 2015, in order to observe what was happening on the ground, but the 3 https://www.theguardian.com/ environment/2016/jul/14/biodiversity-below- reality was far from convincing. safe-levels-across-over-half-of-worlds-land- In spite of the concerns raised by 4 http://bankwatch.org/publications/tavan- study tolgoi-coal-power-plant
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EBRD and IFC, together with Export as the third-largest copper mine 1. Background Development Canada (EDC) and the in the world, according to Wood French bank BNP Paribas, acted as Mackenzie Ltd.8 Furthermore, the Initial Mandated Lead Arrangers 600 MW Tavan Tolgoi power plant on Oyu Tolgoi, and helped OT putting together a is currently under discussion at the financing agreement worth over government level. Although this Rio Tinto and USD 4.4 billion. The participants plant is considered critical for the are: EDC, EBRD, IFC, the US Export- future energy needs of the three Import Bank, the Export Finance and major mines in the South Gobi biodiversity Insurance Corporation of Australia, region, including Oyu Tolgoi, a BNP Paribas, ANZ, ING, Société recent Bankwatch field visit showed offsetting Générale Corportae & Investment a complete lack of space for local Banking, Sumitomo Mitsui, Standard communities‘ participation in Chartered Bank, Canadian Imperial discussions about the project, as Bank of Commerce, Crédit Agricole, well the absence of an assessment of Intesa Sanpaolo, National Australia potential alternatives for the water- The OT project Bank, Natixis, HSBC, The Bank scarce region.9 The Southern Gobi region in of Tokyo-Mitsubishi UFJ, KfW Mongolia supposedly holds one IPEX-Bank and FMO. World Bank’s It is not only its sheer size that of the largest undeveloped high- Multilateral Investment Guarantee makes the Oyu Tolgoi project grade copper deposits in the world. Agency (MIGA) provided political special. It is also the first project in The Oyu Tolgoi (OT) open pit and risk insurance for the commercial Mongolia to include a biodiversity underground copper and gold banks6. offset action in its EIA and mining project is also the largest related biodiversity management mining investment to ever be The agreement was preceded by a plan - under the guidance of licensed in Mongolia. The project two year long dispute between OT The Biodiversity Consultancy of company, Oyu Tolgoi LLC, is owned and the Mongolian government over Cambridge and with the aim to to 66% by the Vancouver-based the development costs of the mine, involve a series of conservation Turquoise Hill Resources which, ownership terms and government organisations during its future in turn, is majority owned (51%) revenues accruing from the project. implementation. A specific by mining giant Rio Tinto. The The dispute was settled in May 2015 biodiversity offset plan has been remaining 34% of Oyu Tolgoi is when parties agreed on a financing agreed between project sponsor and held by Mongolian state company plan for the next phase addressing the public lenders. Erdenes Oyu Tolgoi. Project costs the key outstanding shareholder for the development of open pit and issues and setting out an agreed Rio Tinto and offsetting underground mines are estimated at basis for the funding of the project7. about USD 12 billion. It is believed Rio Tinto acts as the OT project that, once at full production In May 2016, Rio Tinto and its manager, and it is therefore capacity, the mine will increase partners approved a USD 5.3 billion promoting OT’s biodiversity Mongolia’s GDP by 30-35%5. expansion investment, that would offsetting as well. The company more than double the output at the has a history with offsetting. Between 2010 and 2013, Oyu Oyu Tolgoi copper and gold mine, Back in 2004, at the Third IUCN Tolgoi secured support from the as commodity producers race to World Conservation Congress European Bank for Reconstruction meet a forecasted global deficit in Bangkok, the Rio Tinto and Development (EBRD) and the that is supposed to materialise Group launched its biodiversity International Finance Corporation by the end of the decade. At full strategy, committing to achieve a (IFC), which committed to provide production, Oyu Tolgoi will rank “Net Positive Impact” (NPI) on direct loans and help to arrange biodiversity: “Our aim is to have a further loans. In December 2015, 6 www.riotinto.com/media/media- 8 https://www.bloomberg.com/news/ releases-237_16275.aspx articles/2016-05-06/rio-approves-5-3-billion- 5 http://ifcext.ifc.org/ifcext/spiwebsite1.ns oyu-tolgoi-copper-mine-expansion f/651aeb16abd09c1f8525797d006976ba/d8 7 www.theguardian.com/global/2015/ a67e4647784ed385257a62005d32e1?opend may/19/rio-tinto-and-mongolia-sign- 9 http://bankwatch.org/sites/default/files/ ocument multibillion-dollar-deal-on-mine-expansion briefing-TavanTolgoi-08Nov2016.pdf
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net positive impact on biodiversity. This means minimising the impacts of our business and contributing to biodiversity conservation to ensure a region ultimately benefits from our presence.”10 Rio Tinto lays out their Mitigation Hierarchy Framework: “To achieve NPI, we first need to reduce our impacts on biodiversity values through avoidance, minimisation and rehabilitation. We then aim to achieve a positive impact, with the use of biodiversity offsets and additional conservation actions.”11
The claim behind the Net Positive Impact (NPI) concept is that the negative impacts on biodiversity caused by a given project will be Mongolia. Photo © Olexi Pasyuk compensated for through mitigation and additional conservation approach goes far beyond the more of achieving mining licenses and activities on biodiversity in non- “modest” EU policy goal of a “no net broadens the range of instruments project areas, to be implemented loss” of biodiversity – as defined in of mitigation measures provided within the project life-cycle. the EU Biodiversity Strategy up to for under environmental laws in Through additional conservation 202012 - although even that goal is most countries. Therefore, it is no activities the general outcome questionable regarding its feasibility surprise that Rio Tinto is heavily will (supposedly) be positive for and effectiveness. promoting biodiversity offsetting biodiversity, hence “net positive and NPI not only in Mongolia but impact”. For example: Several Rio Tinto itself lays out the motivation in other of its mining projects couples of a bird species might lose for coming up with its biodiversity as well. For example in Guinea their habitat because of mining strategy: “Our aim to find and develop (where it operates the Simandou activities, but additional protection high value, long life and low-cost iron ore mine which will impact measures for this bird species, mineral resources is being increasingly key areas of Chimpanzees and rare carried out in other areas, will challenged by changing societal forests14), in Madagascar (where increase the total number of birds. expectations and a growing number of it owns the QMM ilmenite mine, Needless to say, the NPI concept environmental issues such as climate whose offsetting plan consists in is based on several assumptions: change, water and biodiversity. As the protection of forests located That the birds would not flourish the global population moves towards tens of kilometres away from the without the additional protection nine billion by 2050, competition for mine, through the introduction of measures, but rather their habitat land-based resources is also growing, access restrictions on communities would deteriorate thus decreasing increasing the tension between mining living in the area15), in Namibia the bird population; That the place and other land uses.”13 (for the Rössing uranium mine, where the additional measures are where the company has carried being carried out will not itself be Introducing the NPI strategy can out an invertebrate monitoring impacted through, for instance, be seen as a genius PR strike from programme16), or in South Africa mining activities conducted by Rio Tinto, since the biodiversity other companies, etc. The NPI offsetting, even if portrayed as the 14 www.thebiodiversityconsultancy.com/ last resort in the mitigation hierarchy, map/simandou/ 10 „Rio Tinto and biodiversity – Working adds another argument in favour towards Net Positive Impact“ 2012, p.4 15 Re:Common, http://edition.pagesuite-professional.co.uk/ WRM „Rio Tinto’s biodiversity offset in Launch.aspx?PBID=e2a60f70-54c9-431d- 12 http://ec.europa.eu/environment/nature/ Madagascar – Double landgrab in the name a7ea-471cf2ba01b2 biodiversity/nnl/index_en.htm of biodiversity?“ 2016 11 ibd., p.13 13 ibd., p.6 16 www.rossing.com/our_environment.htm
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(Palabora copper mine, which used Offsetting industry to be owned and managed by Rio Major conservation organizations Tinto, before selling its interests The revitalized debate on have been playing a crucial in 2013, and where the project compensation has brought new role in helping companies, company coordinates several blood to the offsetting industry, such as Rio Tinto, in greening onsite wildlife management and which initially emerged after the their image by embracing the cultural heritage programmes.17). A ratification of the Kyoto Protocol new mantra of biodiversity critical look at these pilot projects, and the conceptualization of carbon offsetting. Rio Tinto partnered often implemented in some of the offsetting schemes. with Conservation International, most remote areas in the world Despite the poor results achieved by BirdLife International, Fauna is important to understand the carbon offsets and related trading and Flora International and the concept of biodiversity offsetting of emission permits, the same Royal Botanical Gardens in the and its shortcomings. mechanism is now being proposed development of its Biodiversity for preserving biodiversity, and Rio Strategy18. In many projects around There is little denying that mining Tinto is among its main advocates. the world, Rio Tinto is working operations have massive impacts with The Biodiversity Consultancy, on nature and that, as Rio Tinto As in the case of carbon trading, BirdLife International, The Nature admits itself, extractive companies once the avoidance option is ruled Conservancy19, and Wildlife are increasingly expanding into out – since of course the mine has Conservation Society. the few pristine areas where to be where resources lie regardless natural resources are still available. of the nature and biodiversity at the While these organisations might Such expansion implies that site – actual mitigation measures agree that biodiversity offsetting environmental impacts are set to have proved to be quite costly and should be regarded as the last significantly increase in the coming to affect the design of planned option, they seem to have embraced years, especially within or near operations. Furthermore, mitigation the worrying idea that if the to protected areas. The decline in outcomes have been poorer than destruction is going to happen commodity prices until late 2016 what was expected, especially in anyway… ‘We might as well save may have slowed down this process, the light of the increasingly larger what can be saved’. The ostensible but the trend is set to continue, scale of extractive projects and their pragmatism of this approach – especially since recently prices of impacts. sometimes encouraged by the e.g. copper went up again. Mining possibility for conservationist impacts cannot be compensated Originally presented as the last groups to accept financing for their by on-site minimization and resort, offsetting has thus emerged work from mining and extractive rehabilitation measures alone more and more as the first option corporations - however, fails to – which in any case are often for impacts mitigation. Hence recognize that contributing to inadequately implemented. the need for the mining industry establish the biodiversity offsetting Therefore, offsetting emerges as to quickly identify flagship offset concept de-facto helps mining the new frontier for compensating projects that show that damages companies obtain their much (and thus enabling it in the first related to mining operations can be needed social licence to operate, place!) irreversible impacts taking fully compensated. a precious asset for them in light place at the mining site. This is to be of the increasing tension between done by carrying out environmental It is therefore legitimate for mining and other land-uses, which improvement measures in other civil society to wonder to what even Rio Tinto admits. sites. But to do so it is necessary to extent the hierarchy of different establish some equivalences,both mitigation options, as provided for biological and economical, between by environmental laws, in practice is being changed to the advantage of what gets destroyed and what has to 18 „Rio Tinto and biodiversity – Working be theoretically improved in order offsetting. This would be convenient towards Net Positive Impact“ 2012, p.8 for mining companies, since to offset intentional nature and 19 In Mongolia for example TNC did a biodiversity destruction. offsetting is theoretically easier and study „Identifying conservation priorities cheaper to implement, regardless in the face of future development: Applying of its effectiveness for biodiversity Development by Design in the Mongolian Gobi“ in 2013 funded by a grant from Rio 17 www.palabora.com protection. Tinto.
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2. Offsetting in Mongolia
n April 2015 four European campaigners from Both Ends I(Netherlands), Re:Common (Italy), CEE Bankwatch Network (Central and Eastern Europe) and Urgewald (Germany), in cooperation with OT Watch (Mongolia), have carried out a fact-finding mission to Mongolia, to investigate on the provisions of the new Mongolian EIA legislation, which includes biodiversity offsetting. Mongolia. Photo © Olexi Pasyuk
The main goals of the field visit environmental conditions, such as Mongolia has thus introduced the were to assess the administration’s in a desert. concept of biodiversity offsetting overall capacity to oversee the into its law, becoming a testing implementation and deal with Despite the company’s ambition, ground for the implementation implications of conservation however, findings collected during of this concept in a resource-rich activities in the country and, more this and other missions reveal that country. specifically, to analyse Oyu Tolgoi’s Rio Tinto’s goal is still far from approach to biodiversity offsetting, achieved in the Mongolia’s Gobi Civil society organisations identified and understand how the new EIA law Desert. serious limitations in the new was being integrated into their plans. law, especially with regards to the New Environmental Impact provisions related to biodiversity Initially, the research team met with offsetting. the environmental ministry and Assessment law in Mongolia nature conservation organisations Firstly, virtually every respondent in Ulaanbaatar, to then move to – source of great confusion appeared confused about the Southern Gobi, where they With support from the World Bank, the meaning, definition and held meetings with the local the Mongolian government has implementation procedures of administration, herders and people started a process of rationalisation biodiversity offsetting. Such in charge of protected areas. of its environmental laws that confusion is widespread among began with the approval of the government authorities, companies, Follow-up research and interaction 68th Decree, which calls for consulting companies and civil with different stakeholders at the elimination of overlaps, society organisations, not to national and international level contradictions and gaps in existing mention local communities confirmed that the offsetting environmental laws. Among and the general public. The project linked to the Oyu Tolgoi the revised legislations, there environmental ministry reported21 mine was crucial for Rio Tinto’s is the Environmental Impact that some companies used strategy to achieve a “net positive Assessment law, which lays out different methodologies from the impact” on biodiversity. OT is one the implementation procedures of the projects that Rio Tinto needs for biodiversity offsetting winter-2013-alum-newsletter/mongolias- in order to prove that biodiversity 20 programmes . By doing so, new-environmental-law-packet/ offsetting is a feasible and effective option, even in the most extreme 21 Meeting with environmental ministry on 20 http://beahrselp.berkeley.edu/newsletter/ 21st April 2015
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one adopted by the Mongolian implementation of offsetting government, because they worked projects. The national ministry said with international consulting that the monitoring obligation lies companies that were ‘importing’ within the local administration, their own evaluation frameworks. while the local administration In particular, there seem to be simply lacks this capacity, whether different opinions concerning the is in terms of vehicles, fuel or location of the offsetting project technical experts. Offsetting and how distant this should be from plans carried out without strict the project site (reportedly such monitoring certainly risk to allow distance should be of maximum companies to implement poor 50 km according to government’s measures and get away with it. technical guidelines22). The hierarchy of first avoiding But there is also a lack of clarity negative impacts, second mitigating, on what can be considered as third rehabilitating or restoring, offsetting and what not. A case in and only use offsetting as a last point is the Ukhaa Khudag coal resort, seems to have not been mine in Tsogttsetsii, run by Energy clearly regulated. This leaves too
Resources. The company reported Mongolia. Photo © Olexi Pasyuk much room for discretion and rehabilitation measures, such as potentially could act as an incentive planting of trees near the mining for companies to use biodiversity site and a tree nursery program, offsets, since it is often a cheaper have defined the areas (already as offsetting measures, whereas option for the company compared protected or to be protected) where relevant authorities would not to mitigation and rehabilitation biodiversity offsetting projects accept these activities as part of strategies. Also, there is no could take place, and then submit an offsetting plan. After all, they regulation about the liability of the list to the central government. are not because they are clear companies in the long run, namely This was done in spring 2015 by mitigation/compensation measures. on whether the offsetting works the Southern Gobi aimag, which correctly for the foreseen period and defined in its decree #55 a list of under which obligations. Conflict over offsetting areas, with the principle that each mining project in the province had sites It is still unclear how these to implement offsetting activities uncertainties, the lack of capacity Within the framework of the OT within the same province. The among relevant authorities and biodiversity offsetting project, a aimag’s environmental specialist the presence of strong institutional conflict emerged among competent vividly explained the reasons behind conflicts will shape the outcomes environmental authorities. The his decisions: “If the shirt of person of the proposed biodiversity offset issue concerns the sites that might A is torn apart, it wouldn’t help projects, especially given that be suitable for offsetting activities. A if a person B would get a new these projects are already affected In March 2014, a workshop was shirt, while B’s shirt might still by numerous controversies and held in Ulaanbaatar, attended be perfectly fine.” His provision, hurdles, as reported below. by local, provincial and national however, apparently conflicts authorities, companies and nature with the environment ministry’s conservation organisations. The intention to allow cross-province aim of the meeting was to discuss offsetting, which is what happened guidelines for the implementation in the specific case of OT, as of the new law. During the described below. workshop, it was agreed that each aimag (Mongolia consists All levels of government (national, of 21 provinces, or aimag) would regional and local level) in Mongolia stressed, when asked, that they lacked capacity to monitor the 22 Meeting with TNC on 22nd April 2015
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3. The conception of Oyu Tolgoi biodiversity offsetting
yu Tolgoi was the first Mongolian project to Oinclude a biodiversity offset action in its EIA and related biodiversity management plan – developed under the guidance of The Biodiversity Consultancy of Cambridge, UK. The project’s EIA has been approved by lenders and the Mongolian environmental ministry. Oyu Tolgoi formulated a biodiversity strategy claiming that:
“Oyu Tolgoi seeks to ensure that the biodiversity of the southern Gobi region ultimately benefits from the Mongolia. Photo © Olexi Pasyuk project’s presence in the region. In keeping with the Rio Tinto corporate Demonstrating and contributing to yet in 2015 was not ready to meet Biodiversity Strategy, Oyu Tolgoi’s best-practice regional development; this FFM team to discuss the topic: goal is to have a net positive impact Establishing strong enabling “Oyu Tolgoi is engaged in numerous on biodiversity of the southern Gobi mechanisms; Monitoring and biodiversity initiatives in the South region. Oyu Tolgoi aims to reach this evaluating, and Building Oyu Tolgoi Gobi, some of which are first-time ever goal by mine closure but will seek capacity24. initiatives (e.g., ungulate aerial survey, opportunities to achieve net positive black-tailed Gazelle collaring). This impact as early as practicable in the Activities carried out until the April work is providing an unprecedented project life.”23 of 2015, therefore those that the knowledge of biodiversity in the Gobi research team was able to observe and providing insights that will help At first consultants developed a in person, concerned the reduction to improve biodiversity management biodiversity offsets strategy for the of illegal hunting, improvement and conservation as well as serve as a Oyu Tolgoi project to achieve the of rangeland management and goal for biodiversity management for goal of Net Positive Impact. They research that might feed into other extractive sector projects around identified a set of actions as offset the “strengthen protected areas the world. In addition to these ground- objectives: Reducing illegal hunting; management” or “monitor and breaking projects, Oyu Tolgoi is Improving rangeland management; evaluate” objectives. OT has been engaged in dialogue with international Reducing the impacts of non-project boasting about its biodiversity experts in the field of biodiversity powerlines (elsewhere in southern offsetting activities and approaches, offsets. Gobi region); Strengthening (…) The extensive work which has protected areas management; 24 TBC and FFI (2012) Biodiversity been done and is continuing at Oyu Offsets Strategy for the Oyu Tolgoi project. Tolgoi is widely available in the public Unpublished draft report of the Biodiversity 23 ESIA Appendix 1, Oyu Tolgoi LLC Consultancy Ltd and Fauna & Flora domain and as such, I do not see the Biodiversity Strategy, December 2011, p.1 International, April 2012, p.1 need for a formal meeting with our
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staff members. I thank you for your completed, and since the industrial poaching units were established interest in our efforts and trust you activities are already impacting and some specific equipment was will share our excitement regarding nature at the project site and its provided to them. Surprisingly, what we are accomplishing in the surroundings (as clearly witnessed project sponsors at first did not South Gobi, on many fronts, not just by civil society organisations that involve the specialised staff of the biodiversity.”25 went to the field), it is now de-facto Special Protected Areas South Gobi impossible to conduct a baseline A and South Gobi B, located about Notwithstanding OT’s ‘excitement’, study, given that the baseline has 100 km from the project site. One the team was all but impressed by been altered. reserve manager was involved in an the activities carried out by the anti-poaching unit only after his company. This means that, from now on, any repeated requests.28 When asked offset will be screened against a whether the teams did catch any Endangered species, or how baseline which already includes a poachers, local representatives change in pattern of population explained that due to delay in to best sell a baseline study and lifestyle of these species, funding, the poaching season was As part of the biodiversity offset thus potentially favouring project well over by the time they got fully strategy OT identified certain sponsors in implementing lighter equipped, therefore no poachers “priority biodiversity features”, and cheaper offset measures. It could be caught. Several meetings among which are the Khulan (a would be very unfortunate if, in the were held in 3 soums (districts) and rare wild ass) and other ungulates, future, mining companies could 4 baghs (villages) to raise awareness such as the black tailed Gazelle. conduct baseline studies covering among the local population on the Therefore, among the first harm already caused by their own urgency of eradicating poaching, in activities financed by OT, there activities and get measures assessed particular of endangered species. was a research on the population against such flawed baseline of these species, which was not recognised as biodiversity offsetting, The offset strategy aims to sensitise completed yet by April 2015. eventually resulting in a net positive the local population, which is Senior consultants carrying out impact. deemed primarily responsible for the research clearly acknowledged poaching in the region. However that several more years of studies Furthermore, the fact that an offset the fact finding mission learned were needed in order to properly project will be implemented only from rangers and environmental understand how these species in the future, several years after local authorities29 that the influx would have been impacted by OT project operations started, would of workers linked to OT operations mining operations, as well as by not be in line with the principles contributed to the increase of this those associated with OT’s planned highlighted in the guidelines for phenomenon, and so did the higher expansion project and cumulative the new Mongolian environmental demand for meat and organs of impacts due to other projects impact assessment law. As a matter endangered species from China already implemented in the same of fact, they require offset measures (the border with China is just 100 region. The civil society fact-finding to coincide with the duration of the km away from the OT site). It team had the impression that the project.27 would seem that local poachers consultants carrying out these do not use these goods for local studies might have been subject Anti-poaching, or it is the consumption, rather they are part of to some pressure from project a wider network aimed at exporting sponsors to shorten the timing of others, not us, OT them to China. Moreover, from 30 this complex research, taking place Reducing illegal hunting was one meetings with local herders and on a very large territory.26 of the important issues identified in OT’s offsetting strategy. A six- 28 Meeting at the office of South Gobi A and Eventually, project operations B natural reserves in Khan Bogd, on 24th month pilot project took place April 2015 began before the baseline study was in 2014, in order to enhance 29 Meeting at the office of South Gobi A cooperation between different local and B natural reserves in Khan Bogd, on 25 ibd. authorities on the issue. Three anti- 24th April 2015 and meeting with local environmental monitoring office at Khan 26 Meeting with WCS on 23rd April Bogd soum on 24th April 2015 2015 27 Meeting with TNC on 22nd April 2015 30 Meetings, which took place between 24th
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discussions with local employees roads, and that in order to better practically responsible for project of protected areas it emerged that protect the pastures and leave implementation and monitoring there was a common understanding more time for their regeneration for the long time to come, possibly that mining operations and related the pastures should be have been several decades in the future (as infrastructure were already used less. The herder found this long as mining operations will be impacting on endangered species proposal rather frustrating as there running and even afterwards). and livestock by destroying and is no alternative area herders can While the new environmental fragmenting habitats – and related use in the very fragile and limited law makes project companies migratory routes - which is seen ecosystem of the Gobi Desert. responsible for the definition of as a more important factor than Therefore, OT’s proposal implies offsetting projects, third parties poaching. that herders must significantly should implement these and the reduce their herds. Even though government should monitor them. It seemed unclear whether the anti- the mine is by far the main cause However, as mentioned above, civil poaching programme, as defined of the deterioration of pastures, society organisations detected a until mid-2015, would have been it is herders that, according to clear lack of capacity of national and physically extended to other aimags, project proponents, should bear local environmental officers – as however, only the extension could the burden of compensating for repeatedly stated in meetings at all be regarded a not-on-site offset this degradation by reducing their levels: government, aimag and soum rather than an on-site mitigation animal stocks. Rather than imposing – as well as a potential conflict of measure. As mentioned above, responsibility on herders, OT (along interest around nature conservation the issue remains problematic in with other mining companies) organisations, which advise terms of involvement of all relevant should put more effort into companies and government on the local authorities as well as in terms countering habitat fragmentation. definition of offset projects and of funding. In the immediate their regulation and subsequently vicinity of OT, the anti-poaching However, the approach shows a could potentially be contracted for should focus on OT workforce and pattern in biodiversity offsets: A implementing some of the same subcontractors as well as migrant field report by Re:Common and projects. workers, rather than targeting the World Rainforest Movement herders as if they were the “main on Rio Tinto’s biodiversity offset in It is worth pointing out that culprits”. Madagascar found that restrictions the Independent Audit Report have been imposed on villagers of September 2015 produced Improvement of rangeland on the land-use in a forest that is by project’s independent defined as offset site. The villagers environmental and social consultant management, or you need to felt that this has been done without – namely D’Appolonia – had negotiation and with little regard already clearly highlighted the reduce your herds because for their situation. And while lack of “dedicated resources for we, OT, heavily impact on the the restrictions were imposed OT’s biodiversity management very quickly, promised income- programme”. In reference to this land generating alternatives to alleviate gap, the updated Biodiversity In 2015 several herders had heard the loss of access to the forest still Action Plan simply states that OT about the rangeland management had to materialise.31 will ensure that the biodiversity improvement, but few really knew management program will be what it implied. One herder had Nebulous costs and financing resourced and financed with participated in activities on this completion indicator and timeframe issue. He explained that experts At the time of the completion of the “ongoing”32, which is not exactly a came and discussed with herders financial package of the OT project precision. concluding that only 30% of the in 2015, the costs and the financing herded pastures was not at all of the offset projects remained unclear, as well as who will be 32 Biodiversity Action Plan, p. 1, available impacted by mining operations and at: http://ot.mn/media/ot/content/page_ content/commitments/ESIA/2_Operation_ Management_Plans/4_Biodiversity_ April and 26th April 2015 in the eastern area 31 Re:Common, WRM „Rio Tinto’s Management_Plan/Biodiversity/4_OT-10- of the project up to a distance of about 100 biodiversity offset in Madagascar – Double E14-PLN-0004-E-Biodiversity_Action_Plan_ km from OT project site. landgrab in the name of biodiversity?“ 2016 v1.1.pdf
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site visit conducted by the IESC, OT biodiversity offsets 4. The impossible D’Appolonia confirms that the Project is in substantive compliance with programme: 5 projects and Lender requirements, apart from with many doubts mission of the respect to IFC PS6/EBRD PR6. On the basis of evidence to date, the Project’s In its new Offsets Management Oyu Tolgoi implementation of its commitments Plan OT confirmed its commitment and plans for biodiversity and to achieve a net positive impact the resources allocated are not for all critical habitat-qualifying Offsets commensurate with the level required biodiversity features and no net for assurance of a net positive outcome loss for other priority biodiversity Management for species with critical habitat affected features, including natural habitat. by the Project. There are discussions OT is committed to reaching net ongoing between the IESC, Lenders positive impact by 2040 – meaning Plan and OT to address these aspects (see that in the next 25 years biodiversity footnote 6). Key findings identified losses will likely exceed gains! - and as part of the IESC periodic audits maintaining a net positive legacy, are presented in in the Issues Table though it is not clear for how long Consultants not impressed (Section 3 of the IESC report). These such legacy should last. either are being addressed by the Project through on-going corrective actions “The proposed biodiversity offsets After their field visit in the spring whose status and progress is regularly programme consists of a suite of of 2015, civil society organisations monitored as part of IESC monitoring offset projects covering: engaged with international public visits.”34 development banks financing OT - * Anti-poaching activities, to reduce namely the International Finance Footnote 6 of the IESC report illegal hunting and collecting, Corporation of the World Bank explains that OT disagrees with and thus compensate for any Group and the European Bank for the IESC opinion related to non- indirect OT impacts which might Reconstruction and Development compliance to IFC PS6/EBRD PR6, be linked to population/wealth - to share with them their findings which detail specific standards influx to the southern Gobi as a and concerns about the feasibility of on biodiversity safeguard. OT result of OT’s presence, and for the offset plan in the Southern Gobi acknowledges that there are some potential disturbance to wildlife desert33. Nevertheless, international non-conformances, but insists that and fragmentation of their habitat financial institutions decided to since the date of the monitoring due to OT infrastructure across the move ahead and contribute to visit OT has agreed on a revised landscape; finalise the financial package for the biodiversity action plan with the project. lenders. A new Offsets Management * Sustainable cashmere initiative – to Plan got indeed published in April reduce livestock overgrazing impacts It is remarkable that some of the 2016.35 on Natural Habitat, which might be civil society’s concerns about linked to population/wealth influx the biodiversity offsetting plan to the southern Gobi as a result of were echoed by the independent 34 D’Appolonia „Report oft he: Independent OT’s presence; environmental and social consultant Environmental & Social Consultant – Oyu (IESC) hired by lenders to review Tolgoi Mine Project Mongolia – Site Visit: * Development and implementation of September 2015“, p.5 the project. In IESC’s words: a national power line standard that “(…) Based on the above and 35 http://ot.mn/media/ot/content/page_ requires wildlife-friendly power content/commitments/ESIA/2_Operation_ upon the review of the additional Management_Plans/4_Biodiversity_ line design and mitigation – to environmental, social, health and Management_Plan/Biodiversity/OT-10-E14- compensate for residual impacts of safety documentation provided by OT PLN-0007-E-Offset_Management_Plan_ OT power lines; and the outcomes of the September v1.0_ENG.pdf and http://ot.mn/media/ ot/content/page_content/commitments/ ESIA/2_Operation_Management_ * Installation of insulation on 33 http://bankwatch.org/sites/default/ Plans/4_Biodiversity_Management_Plan/ non-OT power lines with high bird files/briefing-biodiversity-offsetting-MNG- Biodiversity/OT-10-E14-PLN-0007-E-Offset_ 25May2015.pdf Management_Plan_v1.0_-_Annex_1_ENG.pdf electrocution rates – to compensate
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Mongolia. Photo © Olexi Pasyuk for any residual impacts of OT you would expect to be written in OT recognises the need to power lines; and a plan set in (desert) stone! This “compensate for indirect (only? evident uncertainty about the Ed.) OT impacts which might * Railway fence removal along the planning and the feasibility itself be linked to population/wealth Ulaanbaatar-Beijing railway – to of the Offsets Management Plan, influx to the Southern Gobi as a make available additional habitat which OT publicly admits 6 years result of OT’s presence, and for in the east for Asiatic wild ass that after the beginning of construction potential (only? Ed.) disturbance have been blocked by this (non- of the mine and 3 years from the to wildlife and fragmentation of OT) railway, to compensate for beginning of its operations, supports habitats due to OT infrastructure fragmentation and habitat loss all concerns expressed already to across the landscape”36. But it is which may be caused by OT.” project financiers by international curious that, in OT’s views, anti- civil society in the spring of 2015. poaching activities – however What is particularly surprising is under-staffed and under-financed that the Offsets Management Plan Despite project sites have not so far – focusing on few selected candidly admits that “final offset been determined yet, the Offsets species should balance all these implementation sites have not been Management Plan at least brings impacts. Anti-poaching activities selected because: * The government some clarity about what OT will try will take place only in a few soums, of Mongolia is still finalising to do in practice over the coming while impacts on the fragmentation guidance for the 2014 Ministerial years in terms of biodiversity of habitats due to mining and ore Order on offsets; this may include offsetting, after years of speculation transport operations – given that conditions on offset locations, as and nebulous documentation the road linking the mine with may similar orders and guidance produced on this matter. However, the Chinese border is heavily used being passed by soum governments; it is striking how each of the 5 - might extend to a much larger and * Some offset activities still proposed projects raises serious distance. require piloting to determine how questions about their rationale, effective they can be, and hence before even questioning their In the case of the sustainable over what scale implementation will alleged effectiveness and feasibility. cashmere initiative, OT does not be required.” Not necessarily what 36 Offsets Management Plan, p.4
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just claim that rangeland is over- based on evidence gathered by the What is more shocking is exploited by herders – after their fact finding mission on the ground rangelands have been impacted and in 2015. the project of removal of reduced to make space to the mine the railway fence along and now compete for the scarcely In this regard, it is worth recalling the Ulaanbaatar-Beijing available land and vegetation – but that the Independent Audit Report even tries to reorganise herders of September 2015 warned that railway and their lifestyle in order to make a proportion of the existing bird them produce less cashmere, despite flight diverters have failed, leading of higher quality. OT might use to incidences of mortality38. While thousand kilometres away from the “Natural Capital Accounting”37 OT has developed the idea to set OT mine. As reported by OT several to measure and communicate the “powerline standards” for Mongolia parties are currently identifying value of sustainable production and as a biodiversity offset measure, options for facilitating wildlife sourcing. they themselves think it is unlikely crossing of this infrastructure. Thus However, it remains to be seen that this will meet the minimum it is legitimate to wonder where the whether herders would really be requirement of no net loss for the additionality of this offset project is able to sell their products for a Houbara Bustard, one of the “high if some institutions, including the much higher price to the few traders value” protected species potentially World Bank, are already considering that dominate the Mongolian negatively impacted by OT39. supporting such a project regardless market, and whether that could of OT operations in Mongolia. balance the significant losses that Furthermore, it should be noted they incurred due to the reduction that one of the new power line to be Secondly, it is remarkable that OT de of their herds. built could be a connection between facto admits its failure to facilitate the new proposed coal plant at wildlife crossings in the case of the Concerning power lines, both Tavan Tolgoi and the OT mine. The new road connecting the mine with as it concerns the definition of a new coal plant project itself might the Chinese border, and thus prefers standard for new power lines and need an offset according to the to focus on improving a project the insulation of non-OT power new Mongolian environmental law. which has existed since decades in lines, it is evident that offsets would Thus, beyond the evident conflict another part of the country, whose take place at a very large distance of interest of OT in this specific negative impacts are suddenly from OT mine, theoretically all over case, it might get very confusing to recognised as significant and to be Mongolia. It should be added that it understand who is offsetting what mitigated as a national emergency. is questionable whether OT has so and where, because the design of In particular, concerning the lack far developed enough knowledge to the new power line from the coal of road underpasses for habitat produce adequate power lines with plant to the mine might offset the connectivity for wildlife species – as reduced impacts on birds, given that power line connecting OT mine, originally discussed and planned ad hoc signals and bird diverters but then some new power line - the Offsets Management Plan on the new power line connecting somewhere else in Mongolia with stresses that “uncertainty over the the OT mine proved unsuccessful, an even better and more futuristic technical, financial and political design might offset the power plant feasibility of wildlife crossings has 37 “Natural capital accounting“ is the line. And so on, while endangered resulted in the project (in collaboration process of calculating the total stocks and flows of natural resources and services in species of birds would likely keep with biodiversity advisors and lenders) a given ecosystem or region. Accounting dying when crossing the increasing deciding not to install such mitigation for such ecosystem goods and services may amount of these power lines. at the outset, but instead to monitor occur in physical or monetary term. In the impacts and adaptively manage last years this concept has been further 40 defined and researched by academia and What is more shocking is the project mitigation and offsets in response” . United Nations specialised agencies, as well of removal of the railway fence In practice this means that the as strongly promoted by the World Forum along the Ulaanbaatar-Beijing fragmentation of the habitats of rare on Natural Capital, including corporations, governments and conservationist groups. railway, which is located about a animals due to the road continues The concept has been heavily criticised by and will only be monitored for the other sectors of civil society for its push 38 Independent Audit Report, Section 1, time being and not mitigated. to commodify, privatise and monetise p.26 the commons. See more at: http:// naturenotforsale.org/ 39 Offsets Management Plan, p.38 40 Offsets Management Plan, p. 28
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biodiversity offsetting commitments in Mongolia over the next decades, it is still unclear which overall costs the company is talking about. Annex I to the Offsets Management Plan presents a range of potential costs for some of the actions proposed - not all of them - without any clear specification on the timing and no overall figure for each action covering the entire lifetime of Rio Tinto’s commitment on biodiversity offsetting in Mongolia. Based on the limited information available, it is thus impossible to get a clear understanding of how burdensome the offsetting programme will be for Rio Tinto
Mongolia. Photo © Olexi Pasyuk and its partners. Consequently, it is hard to determine to what extent biodiversity offsetting will * There would be no in-country and be more economically convenient experienced third-party capable of Some ideas on offsetting than traditional environmental performing the work, in the mitigation actions for Rio Tinto in financing, few figures on unlikely event that Rio Tinto failed Mongolia. to fully implement the Offsets costs Management Plan. This represents Therefore, there are strong doubts As part of the project finance a fatal flaw with these types of that the supposedly last resort agreements signed with various external assurance mechanisms; and lenders in December 2015 to help option of biodiversity offsetting, which has soon become the first fund the underground development * The prohibitively large annual option in Southern Gobi, might of the mine, OT will implement a premium, which would likely be eventually turn out to be much biodiversity Offset Management required to maintain an unusual cheaper than other mitigation Plan. This must include a external biodiversity assurance options that could be implemented description of the preferred mechanism in a developing country on site, and which might have financial assurance mechanism, such as Mongolia. which will be designed to ensure changed the entire design and scope of the mine project, as well as its that OT has sufficient funds and Creation of an internal biodiversity overall economic feasibility in the resolve to complete the actions provision or contingent liability long-run. required by the Offsets Management has been selected as the preferred Plan by 2040. financial assurance mechanism. This is an established and proven method According to OT’s Offsets to account for liabilities related Management Plan “Several potential to external legal and constructive assurance options were evaluated, obligations. Rio Tinto maintains including establishment of surety provisions for closure obligations bonds, irrevocable letters of at most of its properties, so this credit, and an internal biodiversity is a proven mechanism which can provision. Based on a detailed be applied to biodiversity-related analysis, the use of surety bonds and obligations.” irrevocable letters of credit were rejected for two primary reasons: While it is good that OT made clear how it intends to finance its
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authorities’ capacity. Not to mention While informed about all 5. Conclusions the little openness from OT toward local civil society, especially where these shortcomings, the the company continues moving World Bank and other into more remote and fragile areas International Financial everal years after the with their operations, where civil beginning of OT operations society organisations have even less Institutions backing the Son the ground, its offsetting capacity to monitor projects of this OT mining project decided plans are still in the process of type. being prepared. At the same to disburse their funding at the end of 2015 and time, the credibility of offset Net positive impacts? projects in the Gobi region is then to even agree on the strongly compromised, given the The case of the Sustainable considerable impacts occurred Cashmere Initiative offset project expansion plan of OT before proper baseline studies were shows how OT is actively trying carried out and the on-going effects to create a narrative that blames of fragmentation of the habitat local herders for impacts on land case, it is unclear what outcomes of endangered species and the and water which are instead caused they expect to achieve by patrolling impacts of mining infrastructure on by mining operations and related the desert with limited resources rangeland that are still taking place. infrastructural development. Today and personnel. Inevitably, anti- OT even strives to adjust herders’ poaching measures will eventually Specific sites for offsetting life and their livestock management be implemented only in some soum project implementation have in the name of achieving districts, and likely have limited not been agreed yet and there sustainability. positive impacts. might still be conflicts of views among different authorities in the Similarly, in the case of anti- As concerns the definition of a new country and between them and poaching measures, OT refuses powerline standard in Mongolia OT. At the same time, there is an to acknowledge that the increase to minimise impacts on birds, OT evident lack of capacity among in the phenomenon is due to its has a clear conflict of interest as local administrations to monitor presence and the significant influx these standards will be applied also offset projects, despite OT’s vague of workforce from China that it to a new powerline connecting the commitment to enhance local attracted over the last years. In any proposed Tavan Tolgoi coal plant to the OT mine. However, it is disturbing that OT acknowledges that the existing line powering the mine is having severe impacts on endangered species of birds, despite company’s efforts to minimise some of these impacts.
Additionality is a questionable principle in the case of the proposed offsetting project aimed at removing the fence along the decades-old Ulaanbaatar-Beijing railway, given that this new project along the railway line had already been promoted by the Mongolian government in cooperation with the World Bank and other institutions, long before the beginning of OT operations in the country and Mongolia. Photo © Olexi Pasyuk associated impacts.
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With so many outstanding issues and offsetting plans still not well defined, it is generally questionable whether the “net positive impact” concept associated with biodiversity offsetting in Mongolia can actually work out well. So far it is arguable that Rio Tinto and its partners are clearly lagging behind in implementing their offsetting plans, and the original baseline against which the presumed net positive impact had to be calculated has been already irreversibly altered due to the construction of mining infrastructure. This is a clear failure for Rio Tinto against its ambitious policy commitment and such legacy Mongolia. Photo © Olexi Pasyuk might stay for long. a clear example of how mining suffering outstanding impacts for companies prefer to quickly opt a promised net positive impact Responsibility of funders for the last option of biodiversity that is supposed to materialise in While informed about all these offsetting to compensate the heavy 25 years of time. Only ignorant shortcomings, the World Bank impacts associated with their people - or dishonest ones with a and other International Financial operations in order to get a timely direct personal interest in the story Institutions backing the OT mining justification for moving ahead - would not agree that the time project decided to disburse their with their devastating investment has come to stop the expansion of funding at the end of 2015 and then plans. In short, another form of mining, in particular in frontier to even agree on the expansion greenwashing at long distance areas, because, among the many plan of OT41. This plan, including and spammed in the future. In valid reasons, biodiversity offsetting also the construction of the Tavan the end, it does not matter to is not possible at all and impacts on Tolgoi coal plant which will power project promoters whether or not biodiversity cannot be compensated. the OT mine, would inevitably the actual biodiversity offsetting increase negative environmental programme will remain a mirage and social impacts in the Southern far from reality, in particular, in Gobi Desert and would eventually a desert such as the Gobi. Among require more offsetting projects. A several impossible challenges, a vicious cycle which will hardly stop major loss of access to water, as as long as project financiers do not often due to mining operations, take the responsibility to strongly cannot be mitigated or offset in a question why OT has failed so far in desert. Common sense in Mongolia implementing a credible biodiversity and elsewhere would have soon management plan. And without agreed that such offsetting plans credible answers the disbursement are doomed to become a mission of public funds should stop. impossible in such a unique, fragile and challenging desert environment. To conclude, the case of the biodiversity offsetting associated In the meantime, the OT offsets with the OT mine in Mongolia is underline a pattern: consultants keep drafting and producing well paid studies for mining companies, 41 http://bankwatch.org/sites/default/files/ OyuTolgoi-Phase2.pdf while local communities keep
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Credits
Written by Antonio Tricarico, Regine Richter
Acknowledgements A big thank you to Sukhgerel Dugersuren, Huub Scheele, Fidanka Bacheva-McGrath, Olexi Pasyuk and all CEE Bankwatch team for their inputs to the text and the fruitful cooperation during joint field missions to Mongolia.
Photo by Olexi Pasyuk
Thanks to Alessandro Runci for editing the text
Produced by Re:Common www.recommon.org - [email protected]
Texts closed at the end of February 2017.
This publication has been produced with the financial assistance of the European Union.
The contents of this publication is the sole responsibility of Re:Common and can under no circumstances be regarded as reflecting the position of the European Union.
Blessed are the last for they shall be first!