Early Warning System Projects

Ongoing Trends in Hydropower

By Jocelyn Medallo (International Accountability Project) and Alexandre Andrade Sampaio (International Accountability Project)

A mural on a wall in the city of Altamira protesting the Belo Monte Dam in Brazil

A mural in the city of Altamira protests the Belo Monte Dam in Brazil

This post is based on a briefer that was initially presented at a hydropower conference at the Massachusetts Institute for Technology in April 2016.  We wish to thank the staff of International Rivers for their insight and contributions.

The Itaipú Dam in Brazil destroyed the Guaíra falls, the biggest waterfall in the world in terms of volume, and displaced at least 10,000 families.  Brazilian poet Carlos Drummond de Andrade, at the time, wrote: “Here seven visions, seven liquid sculptures; vanished through the computerized calculations; of a country ceasing to be human; in order to become a chilly corporation, nothing more. A movement, becomes a dam.”

In India, the Sardar Sarovar Dam on the Narmada River tells a similar story. The dam resulted in the displacement of more than 40,000 families, most of which are traditional adivasis. The human and environmental rights abuses drove writer and activist Arundathi Roy to state: “Big Dams are to a Nation’s ‘Development’ what Nuclear Bombs are to its Military Arsenal. They are both weapons of mass destruction. They represent the severing of the link, not just the link—the understanding—between human beings and the planet they live on.”

Large hydropower has long been met with criticism from experts, civil society, and local communities from around the world, given its adverse impacts on the environment and communities. Until recently, the World Bank had abandoned large hydropower development. Now under the banner of tackling climate change and despite the mounting evidence of its negative environmental and human rights impacts, the World Bank has returned to hydropower as a focus of its energy lending.

The World Bank is not alone. In fact, in recent years, many development banks, and coalitions like the G20, have revisited their focus on mega- infrastructure projects. They herald the return to the big hydropower projects of the past as a purported source of clean and cheap energy.

The Early Warning System provides a snapshot of project financing by development banks and discusses emerging trends, to the extent that information is available.  We highlight, among other things, that development banks are not only financing large hydro projects directly, but that they are also enabling an environment for future hydropower construction. Emerging banks and new financing instruments are fast-tracking more mega-infrastructure, including hydropower, with questionable regard for environmental and human rights impacts. The problems with the lack of transparency and accessibility of the environmental and human rights impacts of these projects continue to exclude communities from shaping the development processes that directly impact their lives.

Scope and Limitations of Data

Below we provide a snapshot of hydropower projects that are financed and proposed, at least in part, by a development bank between January 2015 to April 2016. While exact figures could not be obtained, we understand that projects financed by development banks represent a very small portion of proposed hydropower investments globally. This is by no means an exhaustive list of all hydropower projects globally. It does not cover hydropower that is entirely financed by private financiers, governments, or emerging banks.  Nor, as discussed below, does it represent hydropower financed by financial intermediary lending.

There were limitations in accessing data about the impacts of hydropower projects. For example, limited information about human and environmental impacts of hydropower projects fails to account for all the impacts – including the realities of displacement, the changes to local livelihoods and access to basic resources and cultural sites. Many other key project documents were not publicized, such as the resettlement action plan, severely limiting our ability to gauge the broader environmental and human rights impacts of the projects.  Finally, another critical limitation in our research is the lack of transparency when banks finance projects via financial intermediaries. As stated in a recent study by the Center for International Environmental Law, “the public has virtually no access to information about activities funded by most financial intermediary clients of Development Finance Institutions.” The fact that MDBs have an increasing trend of lending through financial intermediaries, including to high risk projects such as dams, requires that the results of this research are taken as only a small sample of what could actually be the amount of hydropower investments.

 

Country Bank Project Status Risk Category
Myanmar World Bank National Electrification Project Approved A
Nepal World Bank First Upper Trishuli-1 Pending A
Nepal World Bank Power Sector Reform and Sustainable Hydropower Development Pending A
Pakistan IFC China Three Gorges South Asia Investment Approved A
Pakistan IFC Karot Power Company Limited Unclear A
Vietnam MIGA Hoi Xuan Hydropower Project Approved A
Georgia MIGA Adjaristsqali Hydro Project Approved A
Nicaragua EIB Nicaragua Hydro Development and Transmission Approved A
Morocco EBRD ONEE Hydro Development and Transmission Approved B
Kenya IFC KTDA Small Hydro Approved B
Zambia AfDB Itezhi-Tezhi Hydropower Project Approved A
Turkey IFC Karaca Hydro Pending B
Vietnam IFC Gia Lai Electricity JSC Pending A
 Central Asia Region  World Bank Central Asia Water Resources Management Pending B
Vietnam  World Bank Vietnam Dam Rehabilitation and Safety Improvement Project Approved A
 Malawi World Bank  Lilongwe Water Project Pending A

From January 1, 2015 to April 15, 2016, 16 hydropower projects were proposed for funding by multilateral development banks, totaling over $1.9 billion USD in commitments. Information about the total project cost was not made available for all projects. However, low estimates place the aggregate cost of at least $2.7 billion USD. Eight of these projects are located in Asia — specifically, in South Asia (Pakistan and Nepal) and the Mekong region (Vietnam and Myanmar).  Four projects are in Africa and three in Europe/Central Asia.  There was only one hydropower project disclosed for Latin America.  In terms of numbers, the main financiers in this dataset are the World Bank funding six projects and its private sector arm, the International Finance Corporation (IFC) funding five.

Emerging trends

Since this snapshot is limited to 15 months, long-term trends will not be clear without a deeper assessment of projects proposed before 2015.  With this limitation, the following highlights are noteworthy:

A pro-hydropower enabling environment.  While development banks continue to finance the construction, operation, and/or rehabilitation of hydropower, they have also shifted their focus to creating the policy and regulatory enabling environments that will spur potential hydropower investments.  For instance, the European Bank for Reconstruction and Development funded the ONEE Hydro Rehabilitation Project, which will support studies for the production of potential hydropower in Morocco and establish the Project Preparation and Implementation Unit to manage the pipeline of investments–in addition to overhauling at least 4 hydro facilities. In Myanmar, the IFC signed an advisory services agreement with the Myanmar government to purportedly improve the environmental and social risk management of hydropower projects, under which the IFC will commission a country-wide strategic environmental impact assessment of the hydropower sector.  Meanwhile, the World Bank-funded Myanmar National Electrification Project will aim to increase electricity access in the country, with an emphasis on hydropower as a long-term energy solution.  Similarly, in Nepal, the World Bank has funded the Power Sector Reform and Sustainable Hydropower Development Project to reform the country’s hydropower sector and to strengthen the capacity of the power sector agencies to plan and prepare hydropower.  And, as one final example, in Central Asia the World Bank is financing capacity building for the governments of Uzbekistan, Kyrgyz Republic, Turkmenistan, Tajikistan, and Kazakhstan in attempts to improve their water resources planning, which may well include hydropower.

New and diversifying sources of finance.  Emerging economies and new vehicles for financing are making investment in mega-infrastructure, like hydropower, attractive for the private sector.  The Upper Trishuli 1 dam in Nepal and the MIGA-financed Adjaristsqali Hydro Project in Georgia are co-developed by IFC Infraventures. Also known as the IFC Global Infrastructure Project Development Fund, this $150 million global infrastructure fund aims to develop a “bankable” pipeline of public-private partnerships and private projects for infrastructure.  This fund and others are catalyzing the development of big hydropower by decreasing the initial financial barriers to investment and decreasing the financial risks so that the project is attractive to the private sector.  For IFC Infraventures, the IFC then gets an equity stake in return.  At least two other projects have had financing from a special purpose vehicle. Civil society groups have also called into question whether using a private-public vehicle is the right approach to big infrastructure, noting that there may be serious implications for transparency, governance, and accountability. Finally, media reports state that the Chinese Silk Road Infrastructure Fund may provide equity funding to complement IFC investment in the cascade of five large hydropower on the Jhulum River, possibly marking the first project financed by this Chinese fund.

Emerging banks.  Emerging banks are also investing in hydropower. Notably, the New Development Bank, formed by the developing economies of the BRICS [Brazil, Russia, India, China and South Africa] countries, is considering financing hydropower projects. The lack of a transparency prevents stakeholders to assert with certainty which projects are in the pipeline. Coupled with an inaccessible environmental and social policy, which was adopted without stakeholder’s participation, the bank sets the stage for violation of participatory rights at its inception. Concerns only augment when the bank signals, at least for its first projects that were approved without any sort of consultations with civil society or local communities, a total deference to un-designated countries and banks that have not adopted the Equator Principles. The National Development Bank of Brazil, or BNDES, is one of the chosen intermediaries that will allot disbursements coming from the BRICS bank. The Brazilian bank has financed several controversial projects involving corruption and a plethora of human and environmental rights violations, such as the Belo Monte Dam.

Missing, inadequate, and untimely information provided to affected communities on environmental and human rights impacts.  Experience has shown that the impacts of hydropower can be devastating, resulting in physical and economic displacement, the disenfranchisement of indigenous people’s rights, and the destruction of fragile ecosystems. Despite the historically significant impacts of hydropower, the information provided to affected communities and to the general public appears to be woefully inadequate.  Twelve of the projects flagged by the Early Warning System were categorized by development banks as “Category A,” the highest environmental and social risk category by bank standards.  Nonetheless, the disclosure for eight of these projects did not include key environmental and social documents, including the resettlement action plan, prior to board approval.  Based on a reading of the available project documents, it was not possible to gauge, for instance, the estimated economic and physical displacement or the extent to which indigenous populations may be impacted. Specifically, estimates on the number of households to be displaced were available in only six of the projects. In the IFC-funded Gai Lai Electricity in Vietnam, the bank noted that its project would be in areas with dense populations of ethnic minorities and that the government had represented that land acquisition was “insignificant”; however, the breadth of land acquisition could not be verified. In the Myanmar National Electrification Project, funded by the World Bank, land acquisition was also flagged as an issue, though bank documents noted that the scope and locations of land acquisition would not be possible to gauge until sub-projects had been identified.

This is a critical gap.  In a recent study that drew upon 22 years of its caseload involving resettlement (22 investigated cases in total), the Inspection Panel—the independent complaints mechanism of the World Bank—noted that 2/3 of all its investigations involved involuntary resettlement and that the availability of project information is key for stakeholders to challenge miscalculations on impact assessments. This could help prevent the common practice by banks to  underestimate the number of people affected by projects. Moreover, the Inspection Panel cited specific reasons for these inaccuracies, such as the underestimation of projects’ impact areas and improper baseline studies.

Cascading hydropower.  Several of the projects are part of a cascade, or a series of dams along a river.  The IFC-funded Karot Power Company Limited in Pakistan will be part of a cascade of five large hydropower schemes on the Jhulum River.  Likewise, the Vietnam Hoi Xuan Hydropower Project, which is financed by MIGA, is part of the Vietnam Ministry of Industry and Trade’s 2005 Master Plan to develop a cascade of seven hydropower plants on the Ma River in northeastern Vietnam.

Run-of-river and “small” hydropower.  However, development banks are also funding their share of “small” and run-of-river hydropower projects.  A recent article written by International Rivers debunks the myth that run-of-river hydropower is “low impact,” stating that the impacts of these projects can be “particularly detrimental to the ecology of rivers that provide vital services to people living downstream.” At least seven of the projects involve the construction of run-of-river “small” dams, with at least one of projects financing seven run-of-river dams, with a total installed capacity of 16MW at various locations in Kenya. The World Bank-funded Vietnam Dam Rehabilitation and Safety Improvement Project intends to rehabilitate dams in over 30 provinces and an initial 450 “small” dams have already been prioritized. Likewise, the ONEE Hydro Rehabilitation Project, mentioned earlier, reportedly will attempt to rehabilitate 6 small hydropower plants.

The all too common adverse consequences of hydro projects do not seem sufficient to prompt a modification on development banks’ investment priorities. The narrative that paints hydropower as source of clean and cheap energy continues to drive banks’ priorities while sweeping under the rug the unacceptable price paid by marginalized members of society.