China's dam builders clean up overseas
By Peter Bosshard
In the early years of the new century, Chinese dam builders and financiers
appeared on the global hydropower market with a bang. China Exim Bank and
companies such as Sinohydro, China Gezhouba Group and China Southern Power Grid
started to take on large, destructive projects in countries like Myanmar and
Sudan, which had previously been shunned by the international community. Their
emergence threatened to roll back progress regarding human rights and the
environment which civil society had achieved over many years.
However, new evidence suggests that Chinese dam builders and financiers are
trying to become good corporate citizens rather than rogue players on the
global market. Here is a progress report
from the perspective of an international civil society advocate.
In December 2003, China Exim Bank approved US$519 million in loans for the
Merowe Dam in Sudan. The Chinese government’s export credit agency thus helped
kick off a project which would displace more than 50,000 people from the
fertile Nile Valley into desert locations and for which the Sudanese government
had failed to attract funders for many years. China Exim Bank also provided
support to projects in Myanmar such as the Yeywa and Lower Paunglaung dams,
which no other funder was prepared to touch. "The Bank specializes in financing
projects that no other financial institutions would fund," International Rivers
and Friends of the Earth warned in July 2004.
Once they acquired the technology to build large hydropower projects, Chinese
dam companies wasted no time rolling up the international market. Low costs,
access to cheap loans and a big portfolio of domestic projects make them
attractive partners for clients around the world. We are aware of at least 216
dam projects in 49 countries which have some form of Chinese involvement - and
counting. Chinese companies are currently building 19 of the world’s 24 largest
hydropower stations. The president of Sinohydro recently estimated that his
company controls half the global hydropower market.
The primary interest of Chinese dam builders in their new "going out" strategy
is to win international contracts, which typically have much bigger profit
margins than projects in China. Companies such as China Southern Power Grid and
Yunnan Joint Power Development Co are also building projects in Myanmar and
Laos to supply electricity to the Chinese home market.
The rapid emergence of China's overseas dam builders alarmed environmental
organizations and the Western dam builders and financiers, which had controlled
the global market for decades. "The competition of the Chinese banks is clear",
Philippe Maystadt, president of the European Investment Bank, warned in 2006.
"They don't bother about social or human rights conditions."
Maystadt claimed that Chinese banks had snatched projects from under his bank's
nose in Africa and Asia, after offering to undercut its conditions on labor
standards and the environment. The following year, the Organization for
Economic Cooperation and Development recommended that China "improve
governmental oversight and environmental performance in the overseas operations
of Chinese corporations".
Like every country, China tends to export its own development philosophy when
financing and investing in overseas projects. Throughout the second half of the
20th century, the Chinese government built dams and other large infrastructure
projects without regard to their social and environmental impacts. This
growth-first approach is exacting a huge toll on the environment and public
health. The World Bank estimates that water and air pollution cause 750,000
premature deaths in China every year. In the past few years, the government has
strengthened environmental regulations, created a Ministry of Environmental
Protection, and has become the world's leading promoter of renewable energy
options.
Chinese dam projects have triggered strong protests among affected communities,
environmental organizations and trade unions in countries such as Sudan,
Botswana, Zambia and Myanmar. With a certain time lag, the government's growing
concern for the environment has also left its mark on China's overseas
investment policy.
In 2006, the State Council (cabinet) called on Chinese investors to "protect
the legitimate rights and interests of local employees, pay attention to
environmental resource protection, care and support of the local community and
people's livelihood cause", and to "preserve our good image and a good
corporate reputation". The Ministries of Environmental Protection and Commerce
are preparing a guideline that will urge Chinese investors to apply China's
domestic environmental laws in overseas projects if host country standards are
too weak.
International Rivers has witnessed the growing concern for the environment in
our own work with Chinese dam builders and financiers. After we first warned
about the role of China Exim Bank in funding rogue dam projects in 2004, a bank
manager wrote back saying: "To my knowledge, [the Bank] actually cares about
the environmental issues of its projects. Maybe its standard cannot reach yours
or international common practice. Since it is one of export credit agencies in
the world it really needs to meet the international practice."
Two years later, I had the chance to meet the president of China Exim Bank. He
insisted that countries needed to reach a certain level of prosperity to care
about the environment but agreed that his institution shared an environmental
responsibility for the projects it funds. The bank adopted an environmental
policy in 2004, and made it public after a request from NGOs in 2007. More
detailed guidelines followed in 2008.
In late 2008, the China Exim president told Deborah Brautigam, an expert on
Chinese aid practices, that his institution only worked with Western agencies
for the assessment of environmental impacts. They were "more credible", the
president said, and "we do not want the environment to be an issue".
Seeing some progress with China's main financier of overseas dams,
International Rivers decided next to approach the biggest hydropower company.
In February 2009 a coalition of non-governmental organizations called on
Sinohydro to "establish a world-class environmental policy and strengthen its
relations with the host communities of its international projects". The NGOs
also offered to enter into a dialogue with the company on how it could achieve
this goal. In response, Sinohydro's management invited me to meet with them. In
what was likely the first dialogue between a Chinese state-owned enterprise and
an international advocacy group, the management expressed a commitment to
protecting the environment and said that they would consider preparing an
environmental policy.
Late last year, Sinohydro announced that it planned to be listed at the
Shanghai stock exchange. Through an initial public offering (IPO), a company
defines its profile for international investors: does it plan to take on
contracts at any cost to the environment, or does it try to minimize social and
environmental risks as a good corporate citizen? We strongly suggested that if
Sinohydro wanted to become a world-class brand, it needed to adopt and
implement a world class environmental policy.
As part of its green credit policy, China's Ministry of Environmental
Protection needs to clear IPOs of companies in polluting sectors. In early
March, the ministry invited the public to comment on the Environmental Audit
Report Sinohydro had prepared for its public offering. At the same time,
Sinohydro informed International Rivers that it was now indeed preparing an
environmental policy, and invited our recommendations. Working together with
partner groups from China and other countries, we again recommended that the
company adopt highest international standards if it wanted to become a leading
global brand, and submitted specific suggestions. We will also conveyed this
message to Sinohydro's potential investors.
Policy changes at the leading Chinese dam builder and financier are important
first steps. Yet as we know from other institutions, including the World Bank
and Western banks, there is often a big gap between an environmental policy and
actual practice on the ground. The proof of the pudding is in the eating. What
is happening there?
In December 2009, we learned that Turkey had invited China to build the Ilisu
Dam on the Tigris. The project in Eastern Anatolia had become a cause celebre
among NGOs due to the strong resistance by the local population. After an
independent committee of experts had documented persistent social and
environmental policy violations, the German, Austrian and Swiss export credit
agencies pulled out of the project in July 2009. Now the Turkish government was
trying to fill the gap which the Western financiers had left. Turkish NGOs and
International Rivers immediately wrote to the Chinese authorities to warn
against such involvement. Chinese support for the dam would enable a social and
environmental disaster in Turkey, and undermine the international efforts to
strengthen the social and environmental standards in big infrastructure
projects.
Ilisu is a test case for the future role of Chinese dam builders and
financiers. We expected China's involvement to be confirmed by January, but so
far there has been no such news. The Chinese ambassador in Ankara has
repeatedly stressed that China was not getting involved in Ilisu. Have Chinese
dam builders and financiers indeed opted against this project even if it meant
offending an important government and passing up a lucrative deal?
While the jury is still out on Ilisu, we have witnessed progress on the ground
in Gabon. With support from China Exim Bank, Chinese investors plan to develop
a huge iron ore deposit in this West African country, complete with a
hydropower dam, railway line and port. Brainforest, Gabon's inspiring
environmental NGO, sent a letter to the Exim Bank pointing out that the
proposed dam was to be built in a national park, and would violate its
environmental guidelines. In due course, Brainforest learnt from the Gabonese
government that China Exim Bank had suspended the project over environmental
concerns.
In a separate development, Sinohydro agreed to work together with the Global
Environmental Institute, a Chinese NGO, in an effort to address the social and
environmental impacts of the Nam Ngum 5 Dam, a $200 million hydropower project
in Laos. Sinohydro also applied for a guarantee by the World Bank's
Multilateral Investment Guarantee Agency (MIGA), evidently to learn more about
how international financial institutions are applying their safeguard policies.
While there has been significant progress, we will not let our guard down.
While Sinohydro is preparing an environmental policy, there are serious
problems in several of its ongoing projects, including the Bakun Dam in
Malaysia, the Bui Dam in Ghana, and the Shweli and Tarpein dams in Myanmar.
Sinohydro has also expressed an interest in extremely problematic projects such
as the Paklay Dam on the Mekong mainstream and the Gibe 4 Dam in Ethiopia. The
Mekong hosts the world's most important inland fisheries, and if built, the
Paklay Dam could seriously impact the main protein source of millions of
people.
While China Exim Bank and Sinohydro have embarked on a process of environmental
reform, many smaller Chinese actors still disregard social and environmental
concerns at will. Companies such as China Gezhouba Group, Yunnan Machinery
Equipment Import & Export Co and China Power Investment Corporation are
building rogue dams in Myanmar under horrific conditions. China Southern Power
Grid, which is also building several dams in the Mekong Basin, has so far
ignored all inquiries from civil society. On April 17, 2010, a series of bomb
blasts rocked the construction site of China Power Investment Corporation's
Mytsone Dam in Kachin State, Myanmar, and according to unconfirmed sources
killed several Chinese workers.
In conclusion, the most important institutions in China's hydropower sector
have expressed an interest in following international environmental standards
and are open for civil society concerns. After we warned about rogue dam
builders a few years ago, we are happy to acknowledge progress now. We will
work to ensure that the new environmental policy principles translate into
changes on the ground, and that the environmental stragglers fall in line.
Peter Bosshard is the policy director of International Rivers, an
environmental organization with staff in four continents. He has a PhD from
Zurich University, and has worked to strengthen international environmental
standards for more than 20 years. Before joining International Rivers, Bosshard
was the coordinator of the Berne Declaration, a Swiss development organization.
He frequently visits China and is currently learning Chinese.
This article, written for The Asia-Pacific Journal, is an expanded version of a
text that was originally published at International Rivers.
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