Landowners' threats stop work on major hydro project in Honduras

Landowners' threats stop work on major hydro project in Honduras
By Carlos Cardenas
10 June 2013
IHS Global Insight Daily Analysis

News emerged yesterday (9 June) that that China's Synohydro had halted
construction work at its Patuca III hydropower project in Olancho since
last week, following death threats made by landowners against the firm's
personnel. Local media has highlighted that the company decided to
withdraw Chinese and Honduran workers from the site due to security
concerns. The landowners are demanding compensation for the compulsory
purchase of their land, a prerequisite for the project's dam
construction. Landowners were supposed to have been paid a total of
USD70 million by the state-owned National Electric Energy Company (ENEE)
by October 2012. They argue that to date around half of the more than
350 landowners affected have received only part of the agreed
compensation, with the remainder yet to receive any compensation.

Significance: The government has deployed security forces to maintain
order near the site. However, the fact that the landowners have made
violent threats poses risks of property damage to the company's assets,
particularly if no compensation reaches the land owners in the next
month. The longer it takes the government to pay the landowners, the
higher the risk to the company's personnel and assets. The government
has said that it is awaiting a USD295-million loan from China to move
the project forward. The state's failure to pay the affected landowners
additionally highlights Honduras's rising non-payment risks. Throughout
2012 and 2013, the government has been struggling to pay contractors on
time, affecting electricity, telecommunications, health, and the
construction sectors. Non-payment risks have progressively increased
since March 2012. The government has been attempting to renegotiate a
new stand-by-arrangement with the IMF since then. Lack of agreement with
the IMF has made it difficult for the country to obtain alternative
sources of financing.
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