World Bank's thirst for hydropower

World Bank's thirst for hydropower
Bretton Woods Bulletin, 27 February 2014
www.brettonwoodsproject.org/2014/02/world-banks-thirst-hydropower/

Summary

IFC linked to controversial hydropower project in Guatemala through
financial intermediary
Bank postpones decision on much-criticised Inga 3 dam in Democratic
Republic of Congo, IFC rumoured to step in
Concerns raised over Bank funding for dams in East Africa, Niger
Bank and IFC funding for hydropower projects in Pakistan confirmed
Proposed Bank funding for Macedonia dam in national park criticised
by scientists
Uruguay buys Bank insurance to protect state hydropower company
Bank's "thirsty energy" initiative raises concerns on viability of
hydropower

The World Bank has continued its push for hydropower projects (see
Bulletin Dec 2013, Observer Autumn 2013, Update 86), including through
its private-sector arm, the International Finance Corporation (IFC).
After the US appropriations bill in January gave fresh hope for long
awaited compensation for the communities affected by atrocities
associated with the Chixoy dam in Guatemala (Observer Winter 2014,
Update 86, 84), the spotlight has turned to the IFC's involvement in
another controversial dam through a financial intermediary, linked to
human rights violations of indigenous communities (see Bulletin Dec
2013, Update 86, 84). In a February open statement, the Guatemalan NGO
Departmental Assembly of Huehuetenango (ADH) referred to a five-year
conflict over two hydroelectric projects on the Cambalam river being
built by Hidro Santa Cruz, a subsidiary of Spanish company Hidralia
Energía, resulting in "persecution, intimidation, and co-option of
community leaders. There have been assassinations, imprisonment; there
is fear and terror."

The statement alleged: "The sad and terrifying story of Chixoy is
related to the current persecution … through international financial
institutions", the World Bank and the Inter-American Development Bank.
In 2008 the IFC provided $20 million in loans and invested $9.9 million
in equity in Corporación Interamericana para el Financiamiento de
Infraestructura (CIFI), "a nonbank financial institution that funds
small and midsize infrastructure projects in Latin America and the
Caribbean". CIFI in turn invested in Hidro Santa Cruz and the Cambalam
project in 2010, with "a long term loan of up to $8.2 million, and a
mezzanine facility of up to $2.5 million." The NGO statement included a
call for: "The governments of Europe, Canada and Latin America to
investigate and make a public statement against the improper use given
to funds provided by the World Bank and Inter-American Development Bank."

In early February, NGOs opposing the Inga hydropower developments in the
Democratic Republic of Congo (DRC) celebrated as a heavily criticised
Bank proposal for technical assistance to the Inga 3 project (see
Observer Autumn 2013, Update 86, 81) was removed from the Bank board's
calendar only days before approval was scheduled to take place. However,
the victory was short lived as unconfirmed information emerged that a
deal has instead been struck between the IFC and an unnamed Chinese
company as a private investor. According to Peter Bosshard, policy
director of US-based NGO International Rivers "the IFC deal was arranged
by the heads of the World Bank, IFC and USAID behind the scenes, without
any accountability to the DRC parliament, the World Bank's board of
directors and civil society. Handing the project over to a private
investor will make it even less likely the country's poor people would
benefit from the project." Prior to the expected board approval, 12 DRC
NGOs, including Centre National d'Appui au Développement et à la
Participation Populaire, wrote to the Bank's board members, questioning
the project's focus on "supplying power for export and promoting
industrial and mining development" and asked for the energy needs of the
DRC population to be prioritised: "Sadly, we the Congolese continue to
ask whom this energy is for?"

More hydro: East Africa, Niger, Pakistan, Macedonia

In August 2013 the Bank signed a $340 million deal with Rwanda, Tanzania
and Burundi for the cross border 80 MW Rusumo hydroelectric project,
scheduled to commence in 2014. However, concerns have been raised over
the development impacts of the project, including over the location in
an area prone to drought and that it is likely to primarily power the
mining industry (see Update 61). In December, Niger secured $172 million
from the Bank and other funders to finance the 130 MW Kandadji
hydroelectric project. According to a 2011 report by the International
Union for Conservation of Nature, the dam would displace 38,000 people.
Samuel Nguiffo, coordinator of the Cameroon-based NGO Centre for the
Environment and Development, told news agency Thomson Reuters Foundation
"communities along the project area have to sacrifice their land and
livelihood for little or no benefits."

In January, the Bank agreed to provide over half of the funding for the
$1.4 billion first stage of Pakistan's Dasu hydropower project located
on the Indus River. The final project estimated at $7 billion is
expected to generate 4,320 MW. According to the Bank's assessments of
the project, 767 households from 34 villages will require relocation.
Furthermore, "potential cultural and social conflict" is expected
between the local residents and the vast number of migrant labourers
required during the construction phase. Moreover, the environmental
assessment concluded that due to climate change "glaciers in the
Himalaya and Karakorum [mountains] are receding faster than happens in
any other part of the world", confirming that "most of the water of the
Indus River originates from glacial melt". Also in Pakistan, the IFC is
due to approve equity investment of up to $125 million for China Three
Gorges South Asia Investment Limited in March. The company's prospective
activities include the development and operation of two hydropower
projects, the 720 MW Karot and the 1,100 MW Kohala projects.

The Bank is considering a $70 million loan for the planned Lukovo Pole
dam in Macedonia's Mavrovo National Park. Furthermore, the European Bank
for Reconstruction and Development (EBRD) has committed €65 million for
the Boshkov Most dam in the same park. In a January open letter to the
World Bank president Jim Yong Kim and the EBRD president Suma
Chakrabarti, 119 scientists from around the world urged them to
"reconsider your institutions' position to fund these projects".
According to the scientists: "Not only are these projects threatening
specific habitats that this national park provides for many endangered
species, they also undermine the very idea of national parks in general
[and] violate EU law. … We are surprised that your institutions have
even considered supporting these dam projects." A late January Bank
statement clarified that "no decisions have been taken at this point",
and that "all national, EU, and World Bank standards for due diligence
will be met … when a detailed design proposal is ready."

Thirsty energy

Despite the Bank's continued promotion of hydropower, its own research
has raised concerns about its viability. In December the Bank completed
a $450 million "weather and oil price insurance" agreement for the
Uruguay state-owned hydropower company. The transaction will insure the
company for the next 18 months "against drought and high oil prices,
both of which have had negative financial impacts on the company in the
past." According to the Bank's press release the "size of the contract
is large because the financial risk is significant", noting that in 2012
"the costs of supplying demand for electricity reached a record of $1.4
billion, far exceeding the company's original projections of $953
million" due to water shortages.

In January, the Bank launched a new initiative on "thirsty energy", to
"help developing countries better plan and manage scaling-up energy
capacity to meet rising demand, in tandem with water resource
management". Rachel Kyte, the Bank's vice president and special envoy
for climate change, said: "With demand rising for both resources and
increasing challenges from climate change, water scarcity can threaten
the long-term viability of energy projects and hinder development."

The initiative follows a June 2013 Bank report with the same name which
outlined several problems with hydropower, including that hydropower
plants can alter "the timing and flow of the water. This impounded water
affects water quality and aquatic life". Furthermore: "A changing
climate and increasing water variability will also affect hydropower as
flows shift due to changing precipitation. In addition, glaciers that
feed hydropower plants may disappear, thus jeopardising the ability of
nations to generate power" noting: "Glacier retreat has already affected
the output of hydropower plants in areas of Bolivia and Peru." It also
referenced a 2010 study by US-based NGO World Resources Institute
assessing "existing and planned power plants in India and southeast
Asia", which concluded that "over half are located in areas that will
likely face water shortages in the future." In contrast, the report
concluded that "wind (which requires virtually no water) and
photovoltaic (which requires a small quantity of water to wash the
panels) have negligible impacts on the water and energy nexus."
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