DARIALI HPP REQUEST NUMBER: 2014/05 COMPLIANCE REVIEW REPORT – February 2017 The Project Complaint Mechanism (PCM) is the independent accountability mechanism of the EBRD. PCM provides an opportunity for an independent review of complaints from one or more individual(s) or organisation(s) concerning an EBRD project, which allegedly has caused, or is likely to cause harm. PCM may address Complaints through two functions: Compliance Review, which seeks to determine whether or not the EBRD has complied with its Environmental and Social Policy and/or the project- specific provisions of the Public Information Policy; and Problem-solving, which has the objective of restoring a dialogue between the Complainant and the Client to resolve the issue(s) underlying a Complaint without attributing blame or fault. Affected parties can request one or both of these functions. For more information about PCM, contact us or visit www.ebrd.com. Contact information Inquiries should be addressed to: The Project Complaint Mechanism (PCM) European Bank for Reconstruction and Development One Exchange Square London EC2A 2JN Telephone: +44 (0)20 7338 6000 Fax: +44 (0)20 7338 7633 Email: [email protected] http://www.ebrd.com/work-with-us/project-finance/project-complaint-mechanism.html How to submit a complaint to the PCM Complaints about the environmental and social performance of the EBRD can be submitted by email, telephone or in writing at the above address, or via the online form at: http://www.ebrd.com/work-with-us/project-finance/project-complaint-mechanism/submit-a- complaint.html Table of Contents Executive Summary .......................................................................................................................................... A. Background ............................................................................................................................................ 3 B. Scope of Review ..................................................................................................................................... 3 1. The Complaint .................................................................................................................................... 3 2. Eligibility Assessment and Terms of Reference ............................................................................... 6 C. Process Considerations ......................................................................................................................... 7 D. Analysis .................................................................................................................................................... 9 1. Whether environmental and social impacts were adequately assessed, including whether improper site selection led to the deaths of workers and members of the public as a result of landslides. ............................................................................................................................................. 9 2. Whether geodynamic risks were adequately assessed, and proper mitigation measures put in place, and whether the ESIA included sufficient baseline data regarding river flow ................ 11 3. Whether the EIA studied the impacts of the Project on the Stepantsminda settlement, including the impacts on the Tergi, Kuro and Chkheri rivers ......................................................... 16 4. Whether construction of the HPP occurred in a protected area, namely Kazbegi National Park .................................................................................................................................................... 19 5. Whether additional studies were carried out adequately, including biodiversity studies ............. 21 6. Whether the Bank failed to ensure adequate information and stakeholder engagement prior to decision making .................................................................................................................... 25 7. Whether the Bank permitted Dariali Energy to commence construction before it had a construction permit ............................................................................................................................ 27 8. Whether the Bank repeated mistakes and violations from the Paravani HPP .............................. 30 E. Conclusions and Recommendations .................................................................................................. 31 Annex 1: Abbreviations ................................................................................................................................. 33 NOTE: Unless otherwise defined, capitalised terms used in this Compliance Review Report refer to terms as defined in the PCM Rules of Procedure. Executive summary The PCM received a complaint on 22 November 2014 from Association “Green Alternative” and “Stepantsminda,” in the Republic of Georgia relating to the EBRD investment in the Dariali Hydropower Plant, Georgia. EBRD formally responded to the Complaint according to the PCM Rules of Procedure on 12 January 2015. The PCM commissioned an eligibility assessment of the Complaint and based on the eligibility criteria in the PCM Rules of Procedure the Eligibility Assessors found the Complaint eligible for a compliance review. In September 2015, Neil A.F. Popović was appointed as the PCM Compliance Review Expert. The PCM compliance review has included a review of public domain project information and EBRD internal documents. The Compliance Review Expert participated in conference calls with EBRD environmental and social and investment staff. In April 2016, the Compliance Review Expert, accompanied by a representative of the PCM Officer, conducted a site visit to Georgia. The site visit included meetings with local office representatives of the Bank in Tbilisi, meetings with Complainant Green Alternative in Tbilisi, a tour of the facilities at the Dariali Hydropower Plant in Stepantsminda with representatives of Client and the Bank, a private meeting with Client, a tour of the area near the project site with Complainants Green Alternative and Stepantsminda, and a meeting with a local geologist in Kazbegi, arranged by Complainants. The project includes the funding of a senior A/B loan to JSC Dariali Energy of up to USD 80 million (EUR 57 million equivalent), against a project cost of USD 123 million (EUR 92 million) for the financing of the development, construction and operation of the Dariali HPP, a hydroelectric power plant located on the Tergi river in northeastern Georgia (the “Project”). Dariali HPP will have installed capacity of 108 MW with expected electricity output of 510 GWh at P50 scenario (implied load of 54%).1 The Complaint alleges inadequate assessment of the environmental and social impacts of the project, with eight (8) overlapping areas of concern— 1. Complainants allege inadequate assessment of social and environmental impacts, including improper site selection, failure to consider the risk of a glacier break from the Devdoraki glacier, and inadequate consideration of alternative sites. The Compliance Review Expert has concluded that the ESIA adequately considered technically and financially feasible alternatives, including documentation of the rationale for selecting the particular course of action proposed. 2. Complainants allege improper assessment of “geodynamic risks,” including changing water and solid flows, as well as the risk of development of geodynamic processes independent of the Project that might have an impact on the Project.2 The Compliance Review Expert has concluded that, in contrast to the requirements of EBRD Performance Requirement (PR) 1.9, the ESIA did not adequately consider certain geotechnical risks independent of the Project that might have an impact on the Project. The Compliance Review Expert has also concluded that the Bank did not comply with PR 1.5 because the ESIA does not include sufficient, timely baseline data regarding river flow. 1 P50 scenario indicates a 50% likelihood expected output will be reached. 2 The Complaint uses the term “geodynamic risk” to encompass a range of geological phenomena, including seismic risk, as well as erosion, landslides, rock falls, debris flow and sedimentation. The Compliance Review Expert understands geodynamics to mean geological phenomena that relate to the earth’s interior, such as plate tectonics, volcanoes and seismic activity. Phenomena such as landslides, when not linked to seismic activity, are more properly considered under the rubric of geotechnical risks. 3. Complainants allege the project poses risks to the Stepantsminda settlement because increased sedimentation could lead to flooding in the Kuro Valley. Complainants allege the Bank violated PR 1.6 because the ESIA failed to study the impacts of the Project on Stepantsminda. The Compliance Review Expert has concluded that the ESIA adequately considered risks to the Stepantsminda settlement, including flood risks. 4. Complainants allege the Project involves hydropower plant construction in a protected area in violation of Georgian law and PR 1.5 and PR 6.8. The Project does involve land that was previously part of Kazbegi National Park, but was transferred to Dariali Energy for use in connection with the Project. Complainants challenged the land transfer in Georgian courts, but the courts rejected their challenge. The Compliance Review Expert has concluded that the Bank confirmed the validity of the land transfer under Georgian law, and that the Bank and the Client considered the biodiversity