APPENDIX 18
Memorandum from The Corner House
ECGD'S MISSION
What specific changes do you think should be made
to ECGD's Mission Statement?
1. At present, the ECGD's mission is entirely
focused on promoting UK trade by "helping exporters of UK
goods and services to win business, and UK firms to invest overseas,
by providing guarantees, insurance and reinsurance against loss."
The only criteria that it employs for assessing projects and investments
are "its normal underwriting criteria to ensure that the
provision of support . . . involves an acceptable risk."
Although, in some instances (and generally only as a result of
public pressure), environmental and social factors are taken into
account in this underwriting process, the risks assessed are those
posed to the financial and political viability of the project,
not the risks that the project poses to the environment and to
people.
2. This needs to be corrected. The ECGD
should take immediate steps to develop an Ethical Guarantees Policy,
embodying a commitment to equitable and environmentally sound
development, the promotion of good corporate governance and the
strict adherence to human rights. This policy should be firmly
anchored in its Mission Statement, which should be legally binding.
If necessary enabling legislation should be introduced in Parliament.
3. Specifically, the current Mission Statement
should be amended so that its aims reflect these commitments,
namely: "The ECGD's mission is to support the export of UK
goods and services and investments overseas that meet the highest
standards consistent with environmentally sustainable and equitable
development, adherence to human rights and the promotion of good
corporate governance through the provision of guarantees, insurance
and reinsurance against loss in an open, transparent and publicly
accountable manner."
Would you be prepared to see a tax increase to
extend the range and volume of ECGD's activities or support?
Future taxpayer support for the ECGD's activities
should be conditional on the agency adopting:
A. Mandatory environment and development
standards
At present, the ECGD has no legal obligation
to consider the environmental impacts of its investments or the
contribution they will make to development; no obligation to ensure
that all its projects comply with a set of mandatory human rights,
environmental and development standards; and no obligation to
screen out projects with adverse social and environmental impacts.
This is despite clear language in the Final Communique of the
June 1997 Denver Summit Meeting of G7 leaders, which Prime Minister
Tony Blair attended as Britain's Prime Minister, committing the
UK Government to:
"help[ing] promote sustainable practices
by taking environmental factors into account when providing financing
support for investment in infrastructure and equipment."
5. There are no formal policies, for example,
that require environmental impact assessments for ECGD-backed
projects or export deals; no requirements to ensure that rigorous
safety measures and emergency accident response plans are in place
for projects involving hazardous facilities, such as nuclear power
or chemical plants; no requirements to ensure that those forcibly
evicted as a result of a project will be adequately compensated
and resettled; no requirements to consult with local people or
concerned non-governmental organisations; no requirements to release
documents that are relevant to assessing the social and environmental
impacts of a project; no requirements to give timely advance notice
of upcoming projects so that affected peoples can voice their
concerns and objections; and no requirements to publish details
of funded projects.
6. Unsurprisingly, the ECGD has backed (or
is considering backing) a wide range of projects with egregious
social and environmental impacts. Background material on three
such projects—the Ok Tedi mine in Papua New Guinea, the
Lesotho Highlands Water Development Project and the Ilisu Dam
in Turkey—is annexed. Moreover, in at least one instance,
serious corruption charges have been alleged by the host government
of the companies involved (The Lesotho Highlands Water Development
Project) and in another (the Naptha Jhakri Dam) the technical
design of the project was so incompetent that there are now serious
doubts both about the project's financial viability and its ability
to meet its stated objectives.
To correct this, the ECGD should adopt a clear
and unambiguous set of mandatory environmental and development
standards, reflecting current best practice in the field.
7. These standards should be aimed at ensuring,
inter alia, that ECGD-back projects and exports:
— have the minimum impact on the environment;
— safeguard the lives and livelihoods
of those directly affected;
— has the prior informed consent of
those directly affected, particularly where forced relocation
is involved;
— minimise the need for resettlement
and ensure that those resettled are better off than prior to the
project or export;
— permit the full and active participation
of affected people and interested groups in the decision-making
process associated with the project or export;
— assess alternatives to the proposed
project, including the option of the project not being implemented;
— have provision for independent procedures
to hear and adjudicate on complaints by the public, along the
lines of the World Bank's Inspection panel.
B. Rigorous internal controls, including
environmental screening process and career incentives and penalties,
to ensure that these standards are enforced.
8. Such screening procedures should reflect
internationally recognised standards and should the guidelines
and procedures already in use or recommended by the World Bank
group, the United Nations Environment Programme (UNEP), the Organisation
for Economic Co-operation and Development (OECD), OPIC and US
Exim-Bank.
9. The screening process should be aimed
at weeding out and prohibiting financial support for:
— Projects which involve the production
or emission of listed toxic substances or which are environmentally
harmful;
— Projects that contribute directly
or indirectly to the violation of basic human rights;
— Projects that lack transparent, independently-prepared,
participatory environment and development impact assessments;
— Projects that lack systematic environmental
assessments of alternative investments, sites, technologies and
designs, including the "No Project" option;
— Projects that where the institutional
capacity and political will of project developers to adhere to
mitigatory measures is in doubt or unproven;
— Projects will rely for their implementation
on following lower national standards than those which would be
consistent with the UK Government's sustainable development policy
and with the highest international standards.
C. Institutional reforms to ensure that the
principles of good governance—openness, transparency and
accountability—are built into the procedures and practices
of the ECGD.
10. A number of concerns surround the ECGD's
current governance structures and these should be addressed.
11. Secrecy:
Despite the UK Government's commitment to open
and transparent government, the ECGD remains one of the most secretive
and unaccountable of all UK government departments. Although the
ECGD has since commissioned a study "to examine the question
of how export credit agencies can best take environmental factors
into account", it has refused to make the document available
for public comment. Likewise, although the Department of Trade
and Industry has assured NGOs that "the ECGD is strengthening
and deepening its procedures for assessing the environmental impact
in the broadest sense of the projects which it supports",
no details have been released to the pubic and there has been
no consultation with leading UK environmental and development
groups, let alone project-affected peoples.
Even parliamentarians seeking information on
the environmental and social impacts of ECGD projects have been
stonewalled. In February 1999, for example, Cynog Dafis MP requested
a complete list of ECGD export credits and insurance agreements
since 1995. In response, the Minister for Trade and Industry told
the House of Commons: "ECGD does not report individual guarantees
without consent of the firms concerned and, in view of the number
of guarantees involved, disproportionate cost would be involved
in obtaining this." The ECGD has also refused to release
copies of an environmental impact assessment undertaken by a Swiss
consultancy firm of the Ilisu dam in Turkey. The Swiss Government's
review of the assessment was given to the ECGD in July 1998.
12. Lack of accountability
The ECGD's governance procedures are also self-referential
and unaccountable to the public. No minutes of the Advisory Council's
deliberations, for example, are made public and its members are
drawn from a narrow circle, many of whom have links with companies
which receive the bulk of ECGD support. No representatives from
development or environmental bodies sit on the Council.
13. Lack of procedures for ensuring
good corporate governance
At present, the ECGD has no procedures in place
requiring it to debar companies which have been convicted of malpractice.
This despite the UK having signed the Organization for Economic
Cooperationand Development's 1997 convention on corruption and
bribery. The OECD Convention obliges signatories to adopt national
legislation which makes it a crime to bribe a foreign public official
(www.oecd.org/daf/nocorruption). In addition to criminal penalties,
the OECD convention lists the following economic sanctions which
may be imposed on those who bribe: exclusion from entitlement
to public benefits or aid; temporary or permanent disqualification
from participation in public procurement or from the practice
of other commercial activities, and placing under judicial supervision.
Monetary sanctions equivalent to the amount of the contract can
also be levied.
It is noteworthy that the World Bank has already
instituted measures to crack down on bribery. A little more than
two years ago, its president, James D Wolfensohn, denounced the
"cancer of corruption" and its corrosive impact on poor
countries. The Bank, which has 181 member countries, adopted guidelines
pledging to "declare a firm ineligible, either indefinitely
or for a stated period of time, to be awarded a bank-financed
contract" if the firm is found to have "engaged in corrupt
or fraudulent practices in competing for, or in executing, a bank-financed
contract." So far, the Bank has debarred nine relatively
small companies.
The ECGD should follow the lead taken by the
World Bank.
To address these concerns, the following procedures
should be required of the ECGD in order to ensure greater transparency,
accountability and good governance.
14. Transparency:
— Advance notification on pending applications,
detailing the type of project, the amount guaranteed, the companies
involved, the country involved and likely human rights, environmental
and development impacts;
— Release of all documents relevant
to the human rights, environmental and development impacts of
ECGD-supported projects and the dissemination of translations
in the languages of project affected people;
— A presumption in favour of disclosure,
with companies having to demonstrate commercial confidentiality
before a document is withheld from public release;
— A requirement on the ECGD to consult
with affected communities and interested public interest groups
prior to any decision being taken on approval of a project and
to demonstrate how account has been taken of the issues raised.
15. Accountability
— An independent procedure to hear
and adjudicate on complaints received by the public over ECGD-backed
projects, along the lines of the World Bank's Inspection Panel;
— Measures to broaden the base of the
ECGD's Advisory Council, by including those with an expertise
in human rights, environment and development issues;
— A requirement on the ECGD to report
annually to the UK Parliament and for the Government to hold a
debate on the report.
16. Good Governance
— A requirement on the ECGD to consider
the past human rights, environment and development record of companies
applying for ECGD credits and investment guarantees;
— A requirement on UK companies receiving
ECGD support that they agree to meet the same environmental, labour
and development standards in other countries as they would be
expected to observe in the UK;
— The cancellation of all cover to
companies which have been proved to have been involved in bribery
or corrupt practices and disbarment from future support for a
minimum period of 10 years;
— A requirement on the ECGD to ensure
that the contracts which it supports have been awarded through
open tendering processes.
Until such measures are in place, a rise in
taxpayer to extend the range and volume of the ECGD's activities
and support should not be countenanced. On the contrary, tax payer
support should, if anything, be withdrawn, except in so far as
it is necessary to reduce the burden of ECGD debt on lower income
countries.
What role should the ECGD play in the credit insurance
and export finance markets in relation to the private sector?
17. As a rule, private sector projects and
exports should be covered through the market and the ECGD should
not assume risks that the market is not itself willing to bear.
The ECGD should not issue credits or insurance guarantees for
private sector exports and projects that do not have an explicit
and proven developmental objectives and which do not conform to
the highest environmental standards.
1. ECGD support for private sector companies
should be conditional on:
— the company's past human rights,
environment and development record meeting strict standards;
— the company meeting the same environmental,
labour and development standards in other countries as they would
be expected to observe in the UK;
— the company undertaking to accept
a presumption in favour of disclosure of project documents, with
companies having to demonstrate commercial confidentiality before
a document is withheld from public release;
— the company demonstrating that its
contracts have been won through open tendering processes;
— the companies not having been involved
in bribery and corruption or having been in breach of the OECD
Guidelines on Corporate Governance for a period of at least 10
years.
2. The ECGD should also avoid underwriting
private sector projects that properly belong in the public sector.
As the ECGD's former Chief Executive, Malcolm Stephens, has pointed
out:
"I have long argued that there are some
projects which are so inherently `government projects' that it
is unhelpful for them to charade as private deals—given
not least the cat's cradle of government undertaking or agreements
or letters of comfort which are required to complete increasingly
complex security packages. In addition, I think that various parties—including
the international financial institutions such as the World Bank
Guarantee Programmes—should be very cautious about encouraging
emerging markets which could well face shortages of foreign currency
and depreciating exchange rates, to seek external financing for
large projects which generate no foreign exchange." 1
Stephens explicitly mentions projects involving
the privatisation of water supplies in this context.
3. No further ECGD support should be given
for non-productive projects and programmes, including arms exports
and the export of equipment that could be used for military means
or civil repression.
4. There is also a strong case for building
"stakeholder obligations" into any export credit or
investment guarantee extended to private sector companies: if
public money is invested, why should this not give the public
a stakeholding?
How can ECGD help exporters compete to win as
much worthwhile business as possible?
18. The key word here is "worthwhile".
At present, the ECGD's Mission Statement gives
no indication of what the agency considers a "worthwhile"
project or export. This is not surprising since the ECGD has no
mandatory guidelines to enable it to make such a judgement. As
a result, it has supported numerous projects which, from a social,
economic and environmental perspective, are far from "worthwhile"
and which, in some instances, have severely damaged the UK's standing
and reputation abroad. This would include unproductive arms sales
and socially and environmentally damaging projects, such as large
dams, coal-fired power stations and nuclear plants.
19. As a matter of priority, the ECGD should
therefore institute mandatory social and environmental guidelines
which would enable staff to weed out "worthwhile" business
from business that is not "worthwhile".
Such standards would not only bring a focus
to the ECGD's support but would also give exporters the certainty
they need in order to plan ahead. They would also signal the types
of exports which the UK wishes to encourage as part of a wider
strategy of promoting environmental sustainable development.
20. Currently, many of the industries that
the ECGD supports—particularly those in the construction
sector—are "sunset" companies, heavily committed
to technologies that are increasingly viewed as uneconomic, unsustainable
and unacceptable.
21. In recent years, for example, the ECGD
has backed a number of large dam projects—the Lesotho Highlands
Water Project and the Nathpa Jhakri Hydro Electric Power project
being two examples—and the agency is currently considering
involvement in the controversial Ilisu Dam in Turkey. Yet, within
both the private sector and the major international development
agencies, large dams are increasingly seen as high risk investments.
22. Worldwide the industry is floundering,
with many in the power sector increasingly turning their back
on hydropower. In Europe, for example, the emergence of an open,
competitive power market and the advances in other power generating
options, notably gas combined technology, have meant that hydro
projects are no longer regarded as the most valuable assets of
utilities and power companies. Indeed, when compared to other
power sources, the outlook for growth in hydro is poor—just
4 per cent a year worldwide for the period 1990 to 2020. This
is much lower than for other power industries and stands in sharp
contrast to renewables which are growing at 10-20 per cent a year.
23. Moreover, as Roberto Picciotto, Director-General
of Operations Evaluations at the World Bank, points out, the hydro
industry has proved itself slow to face up to the changing political,
economic and financial landscape in which the power industry is
now operating as a result of the increasing privatisation of infrastructure
development. Although proposals for Independent Power projects
(IPPs) have mushroomed since the early 1990s, only 11 per cent
of the greenfield IPPs under development worldwide are dams—and
only a handful of these have reached financial closure,"Unless
the industry responds promptly to the challenges it faces, it
could become obsolete", Piccioto recently told a high-level
industry.
Such figures would suggest that the ECGD
should be using its funds to encourage UK companies involved in
hydro development to diversify into other energy technologies
with a more secure future rather than subsidising them to remain
in an industry which even the dam industry's house journal International
Water Power & Dam Construction describes as "embattled".
24. Other energy opportunities at the cutting
edge of new technologies—from energy efficiency technologies,
through high-efficiency gas energy generation to truly renewable
technologies, such as wind and solar—signal the future direction
of the energy sector and their promise is already reflected in
the market. Without particular support from governments, cumulative
investment in renewable energy is expected to be $169 billion
in 2000, rising to $889 billion in 2020. The renewable energy
industry would probably regard these figures as conservative.
Backing these technologies would help the UK gain a competitive
edge in world markets.
How should ECGD play a role in helping promote
the Government's sustainable development policy and take forward
its trade and environment principles which include:
— Using the international framework
to resolve global environmental problems;
— The development of environment and
trade policies in a framework of good governance;
— Trade arrangements with developing
countries being used to promote sustainable development;
— Helping to ensure that developing
countries do not reacquire a burden of unsustainable debt?
25. In common with other government departments,
the ECGD should place sustainable development at the heart of
its policies and practices. The UK government's White Paper, Eliminating
World Poverty: A Challenge for the 21st Century, not only
lays down the policies to which the Government is committed in
this regard but specifically commits the Government to ensuring
"that the full range of government policies affecting developing
countries, including environment, trade, investment and agricultural
policies, take account of our sustainable development objective."
In other words, the policies are to be implemented by all government
departments. The ECGD is not exempted.
26. At present, the ECGD is supporting many
projects that are in flagrant breach of the principles set out
in the White Paper and other environment and development policy
commitments made by the UK government. To give one example:
In June 1997, British Prime Minister Tony Blair
told the Special United Nations Session on Sustainable Development:
"Industrialised countries must work with developing countries
to help them combat climate change . . . We must live up to our
side of the bargain and ensure they have the resources to do this."
The DFID White Paper clearly spells out the Government's intended
strategies for fulfilling this pledge, including "promoting
and encouraging the use of renwable energy resources". Similarly,
the UK Minister for the Environment, along with colleagues from
other G8 countries, has stressed the need for international policies
that "encourage developing countries to abate their greenhouse
gas emissions while taking full account of their legitimate need
to eradicate poverty and achieve sustainable development."
Yet, despite such policy commitments, the ECGD is actively backing
the construction of a number of carbon-dioxide emitting, coal-fired
power plants in the developing world, thus ensuring that tonnes
of greenhouse gases will be added to the atmosphere when non-polluting
alternatives are available. These include: the Shiheng II, Heze
II and Liaocheng coal-fired power plants in Shadong Province,
China; the Huaneng power plant in Dalian Province, China; and
the construction of a 1,040-megawatt power plant in Visakhapatnam,
Andhra Pradesh, India.
To ensure future policy coherence, the ECDG
should take immediate steps:
1. To introduce mandatory environment
and development standards that are consistent with:
(a) the UK Government's stated policies
on sustainable development as outlined in Eliminating World Poverty
and A better Quality of Life;
(b) OECD and other policy statements
(such as the Schwerin Declaration) which have been endorsed by
UK environment and development ministers. These would include
inter alia;
— the OECD Development Assistance
Committee's Guidelines for Aid Agencies on Involuntary Displacement
and Resettlement in Development Projects (endorsed December
1991).
— The OECD Development Assistance
Committee's Guidelines on Good Practice for Environmental Impact
Assessment of Development Projects.
— The OECD Development Assistance
Committee's Guidelines for Aid Agencies on Chemical Management.
— The OECD Development Assistance
Committee's Guidelines for Aid Agencies on Pests and Pest Management.
— The OECD's Convention on Bribery
and Corruption.
— The OECD's Convention on Good
Corporate Governance.
(c) The World Bank Group's environment
and development standards. It should be noted that the standards
used by the International Finance Corporation have been designed
with private sector projects in mind. Such standards include:
— IFC OP 4.04 Natural Habitats
— IFC OP 4.09 Pest Management
— IFC OP 4.10 Indigenous Peoples
(forthcoming)
— IFC OP 4.11 Safeguarding Cultural
Property (forthcoming)
— IFC OP 4.37 Safety of Dams
— IFC OP 4.12 Involuntary Resettlement
(forthcoming)
— IFC OP 7.50 Projects on International
Waterways
Other World Bank standards of particular relevance
are:
— OD 4.04 Natural Habitats
— OD 4.20 Indigenous Peoples
— OD 4.30 Involuntary Resettlement
— OD 4.00 Environmental Assessment
— OP 11.03 Management of Cultural
Property
— BP 17.50 Disclosure of Operational
Information
(d) International Conventions and Treaties,
embodying internationally agreed standards on human rights,
good governance and sustainable development. These would include:
— International Convention on Civil
and Political Rights (1966)
— The Universal Declaration of
Human Rights
— The UN Declaration on the Rights
of Persons belonging to National or Ethnic Religious or Linguistic
Minorities
— The UN Covenant on Economic,
Social and Cultural Rights
— The UN Convention on Biological
Diversity
— The UN Convention on the Rights
of the Child
— The UN Convention on the Elimination
of Discrimination Against Women
— The UN Climate Convention
— The Rio Declaration on Sustainable
Development
— The Basle Agreement on Transboundary
Movement of Waste
— The UNCTAD Rules for the Control
of Restrictive Business Practices
— The International Labour Organisation's
Conventions 107 and 169 on Tribal and Indigenous Peoples
— The International Labour Organisation's
Convention 29 Concerning Forced and Compulsory Labour
— The EU Resolution on Indigenous Peoples
and Development
2. Institute rigorous internal procedures
to ensure the implementation of such mandatory guidelines. Such
procedures should include:
(a) Environmental screening of projects,
as discussed above
(b) Screening of companies applying for support,
as detailed above
(c) Staff incentives and penalties to enforce
observance of the guidelines and screening procedures.
3. Press for OECD Export Credit Agencies
(ECAs) to adopt common, mandatory environment and development
standards, consistent with or higher than those required by the
World Bank and agreed by the Development Assistance Committee
of the OECD.
Pressure from environmental and development
groups, particularly in the US, has led to ECA reforms now being
placed firmly on the international policy agenda. The urgent need
to reform the OECD's national ECAs, for example, was fully recognised
at the Denver G7 Summit in 1997. The Final Communique for the
Summit stated:
"Private sector financial flows from industrial
nations have a significant impact on sustainable development worldwide.
Governments should help promote sustainable practices by taking
environmental factors into account when providing financing support
for investment in infrastructure and equipment. We attach importance
to the work on this in the OECD and will review progress at our
meeting next year."
Although the Final Communique of the May 1998
Birmingham G8 Summit failed to follow through with a further statement
on ECA reform, the G8 Foreign Ministers addressed the issue in
their own Ministerial Statement, arguing:
"Building on the efforts of the OECD on
taking environmental factors into account when providing official
export credits, we encourage further work by the OECD to this
end and ask for a report back next year."
More recently, the Environment Ministers of
the G8 endorsed the need for ECA reform in the Ministerial Communique
issued after their G8 preparatory meeting at Schwerin in March
1999, their Final Communique specifically calling for measures
to "better integrate the environment dimensions into the
work of international financial institutions and export credit
agencies". Significantly, Paragraph 4 of the Communique stressed:
"Global competition should never become
a race to the bottom in environmental protection. We will therefore
use our best efforts to expedite international co-operation on
establishment, general recognition and continual improvement of
environmental standards and norms. This is not just a question
of appropriate legally-binding international standards and norms;
it also involves other instruments at international level such
as voluntary environmental initiatives, agreements and codes of
conduct, innovative and flexible approaches as well as greater
attention to environmental performance, compliance and public
reporting, for example in standardisation work by the International
Standards Organisation (ISO) and other organisations. In this
context we welcome UNEP's strengthened co-operation with the banking
and insurance sectors. We welcome the new Environmental Handbook
of the World Bank as a good starting point and call for a continuous
application and improvement of these standards and encourage other
public and private financial institutions to follow this example.
We furthermore stress the need to apply environmental considerations
to both domestic and foreign direct investments."
Although welcoming "the work being done
by the OECD with a view to strengthening procedures for taking
environmental considerations into account in the operation of
export credit agencies", the environmental ministers unanimously
called for the ECA reform process to be strengthened:
"The progress achieved in international
co-ordination during the past year is encouraging, but needs to
be followed up. We agree that the OECD Export Credit Group should
accelerate its work. The Group should report to OECD ministers
on a regular basis, including on general progress and on any progress
attained on common agency action for specific projects."
The call for accelerated action is timely. Despite
several years of discussion within the OECD Export Credit Group,
little progress has in reality been made in reaching agreement
on common environmental standards for ECAs. Regretfully, the UK
has been at best lukewarm to the reform process, demonstrating
no leadership within the OECD discussions and making a minimal
contribution to the debate.
Negotiations have proceeded at a dilatory pace
and have been crab-like in their direction, moving sideways rather
than forward. In May 1998, for example, the Export Credit Group
produced a Statement of Intent on Officially Supported Export
Credits and the Environment. The statement has never been made
public but is opaque in its language and limited in its content.
For example, the statement commits ECAs to paying greater attention
to environmental concerns when preparing their risk assessments.
The statement of common intent is so weak and ambiguous that it
can readily be interpreted as a call to examine the risks that
the environment poses to a project's financial and technical viability
(something which ECAs should in any case undertake as a matter
of due diligence) rather than the risks that the project poses
to the environment and to society. Such self-serving ambiguity
inevitably calls into question the commitment of the ECAs to taking
environmental concerns seriously. Although this criticism was
raised within the Export Credit Group, the UK nevertheless proceeded
to endorse with other Export Credit Group members a statement
that is so vague as to be meaningless.
More recently, the Export Credit Group has adopted
what it terms a "common line approach", under which
ECAs participating in a common project have agreed to share information
on environmental issues and to consider whether or not to undertake
an environmental impact assessment (EIA). Such EIAs will not be
mandatory in projects covered by the new agreement; the "common
line" merely allows the participating ECAs to "consider"—the
language goes no further than this—commissioning impact
assessments. In addition, such impact assessments will be restricted
to reviewing environmental issues: no account need be taken of
wider social and sustainable development concerns.
Moreover, because the "common line"
will only apply to a handful of projects at most, the vast bulk
of the guarantees and export credits backed by ECAs will not be
covered by the agreement. Critics also point out that there is
not even a methodology for deciding which projects should be covered
by the "common line". Furthermore, discussions on the
projects will be informal, with no record being made available
to the public—thus denying non-governmental organisations
and project-affected groups the chance to comment. And the language,
such as it is, refers only to environmental concerns, not to wider
social and sustainable development concerns.
The UK Government should encourage the ECGD
to take a more active and progressive lead in the Export Credit
Group. Specifically, the UK Government should:
— Lead by example, taking unilateral
action to introduce mandatory standards.
— Press for the current reform process
within the OECD's Export Credit Group to include Investment Insurance
Agencies, such as the UK's Commonwealth Development Corporation.
— Insist on a strict timetable for
reaching an international agreement within the OECD on the adoption
of common, mandatory environmental and development standards for
all OECD Export Credit and Investment Insurance Agencies.
— Stipulate World Bank and OECD DAC
standards as the minimum acceptable starting point for negotiation
on future standards.
How should the ECGD manage its debt? At present,
ECGD manages a substantial portfolio of debt, but is obliged,
under existing legislation to do so in a manner, which represents
proper financial management to maximize recovery of claims, paid.
ECGD will write off debt only in conformity with this obligation
and government policy on debt.
The failure of the ECGD and other export credit
agencies to take account of the environmental and development
impacts of their projects has inevitably meant that many have
failed socially, environmentally and financially. Indeed, the
very nature of export credits encourages businesses to take unwarranted
financial risks at the public's expense, while enjoying the full
benefits if a project is successful. As Michael Van Poorest of
Erodad, a Brussels-based NGO, notes:
"This is a clear case of moral hazard: exporters
are incentives to maximize their exports, in the knowledge that
they will, at public expense, be bailed out of deals that go bad.
This also distorts pricing: the financing terms of deals do not
reflect the real level of risks, with the illusion of cheap financing
encouraging unnecessary borrowing."
Many of the export credit debts owed to the
UK ECGD were incurred through loss-making arms deals; others through
poorly conceived projects; and still others in the pursuit of
foreign policy objectives with little regard paid to the financial
viability of the projects supported.
Ultimately, the debts incurred are paid by the
poorest people in the South, except in those cases where the debts
are forgiven. The debt burden is not purely financial: the support
of ECA's for dictatorial regimes has also subjected the citizens
of many countries to internal repression. Moreover, the use of
ECA credits to establish new markets for Northern companies has
been a major force in promoting a development model that favours
the North over the South, fuels inequality, exacerbates environmental
degradation, marginalises poorer groups and, in many instances,
entrenches cronyism.
The ECGD should take steps to:
— Institute an independent review of
the ECGD's debt portfolio with a view to sharing financial responsibility
for projects that were poorly conceived.
— Write off debts incurred through
the moral hazard attendant on the use of export subsidies made
available through the UK ECGD.
What factors should ECGD consider when determining
the availability of cover for a country?
The ECGD should not give cover for countries
which engage in internal repression and/or which have poor records
on human rights and environmental issues.
The role that ECGD support, particularly for
arms sales, has played in keeping repressive regimes in power
has been well documented elsewhere, notably in respect of Indonesia.
In order to bring home to the Review Team and ECGD staff what
such ECGD support has meant in human terms, it is worth quoting
at length from a recent Guardian article:
"Our governments have been able to facilitate
genocide in East Timor partly because, numbered by statistics,
we find it hard to engage with the consequences of that support.
No human mind can circumscribe 200,000 violent deaths. So I want
to tell you the rest of the story, the part from which we have
been shielded and which, I think, all of us can understand.
There is a convention in journalism that details
of torture are not revealed, for fear, it seems, of upsetting
the readers. But it is partly because our sensibilities have been
spared that the agonies of people like the East Timorese have
not.
Torture in Indonesia, Amnesty International
has shown, is common, crude and, as an instrument of terror, devastatingly
effective. Soldiers smash the fingers with hammers, drive nails
through their toes, break their ribs and knees with iron bars,
place a table leg on the prisoner's foot and jump on the table,
and burn people's genitals with cigarettes and embers. But the
Indonesian army's favourite method is vivisection.
In West Papua, another of the regime's occupied
territories, I met a man called Tom. At the age of 12 he had watched
as his uncle became an experiment in agony. The operation took
12 hours. Early in the morning, Tom's uncle had reported to the
local army headquarters to ask permission, as required, to go
hunting. He had a large, bushy beard, and this, the soldiers decided,
identified him as a rebel. They took him into the kitchen and
started questioning him. Tom hid in the bushes by the window and
saw everything.
His uncle denied that he had done anything
wrong. The men produced the simple equipment that all soldiers
in Indonesia's annexed lands carry: cut-throat razors. They sliced
off his ears. They held them in the kitchen fire with tongs, cooked
them, then forced him to eat them. Then, very slowly, they opened
up his cheeks, so that the flesh hung off the bone. They began
to strip the muscles from his arms and legs. . . .An iron bar
was heated until it was red hot, then pressed into his thighs.
The soldiers mixed up a pan of chilli and salt, and rubbed it
into his wounds. By nightfall, Tom's uncle had been scalped and
largely flayed, but he was still alive.
The soldiers stuffed him into a rice sack,
dragged him a mile over rocky ground, then dumped him in a hole.
Tom could still hear his uncle's cries, but by the time he had
fetched his relatives, the man was dead."
The author goes on to stress that this was no
aberration and to document the patterns of human rights abuses
of which this incident is a part.
2. STRIKING THE
BALANCE
When striking a balance between competing priorities,
the ECGD should give priority to meeting the needs of equitable
and sustainable development, in addition to encouraging good corporate
governance. To do otherwise would mean
— Support being given for unsustainable
projects, with profound implications for the global environment,
for project risk and for human rights;
— Less money being available to support
the new growth industries of the 21st century, principally those
manufacturing environmentally sustainable technologies, with profound
implications for future UK competitiveness;
— Continued policy incoherence, with
possible legal implications for the UK Government;
— Encouraging companies with poor environmental
and human rights records, to the detriment of the UK's reputation
abroad.
Fears that unilateral changes in the ECGD's
conditions for support would adversely affect UK competitiveness
are unfounded. On the contrary, such action would
— Provide businesses with a clear and
unambiguous framework for planning future export strategies;
— Open up new opportunities for UK
exporters.
Significantly, in the US, where both Exim and
OPIC have adopted mandatory environment and development standards,
Ex-Im vice-chair Jackie Clegg denies the guidelines are necessarily
a burden on exporters. "We are seeing more and more borrowers
who don't see the environmental add-ons as a deterrent but rather
as products desirable in their own right." She cites the
example of a power project in Argentina which, under the guidelines,
got extra financial support for clean cooling technology and scrubbers.
SECTION B
4. The Corner House is a UK non-governmental
organisation.
5-12. The Corner House undertakes research
and advocacy work on environmental and development issues. It
has been researching the practice and policies of OECD Export
Credit Agencies for the past two years. Its staff has over 20
yeaers of experience monitoring the environmental and social impacts
of international development loans, trade policies and bilateral
aid.
REFERENCES
1 Stephens, M, "A New Challenge
for Insurers", Project Finance, November 1998, p 38.
2 Monbiot, G "Crowd control made simple",
The Guardian, 15 September 1999.
Annex
Projects supported by the ECGD (or currently
under consideration for support) involving environmental destruction,
human rights abuses, corruption, flawed planning and/or other
problems.
ILISU HYDROELECTRIC
PROJECT, TURKEY
The UK ECGD is one of several ECAs (the others
being those of Germany, Italy, Japan, Portugal, Sweden, Switzerland
and the US) which are considering support for the controversial
Ilisu Dam in Turkey. If approved, ECGD support would provide a
£200 million investment guarantee for Balfour Beatty, the
UK company which will be the lead contractor in the project. Switzerland
has already given its approval for an ECA-backed guarantee of
SF470 million for two Swiss companies, ABB Power Generation Ltd.
and Sulzer Hydro, which will supply the electromechanical equipment
for the dam. Other European companies involved in the $2 billion
project include Italy's Impregilo and Sweden's Skanska. The Swiss
bank UBS is arranging finance for the project.
According to the Berne Declaration, a Swiss
NGO, the project, if constructed, would violate not only five
of the World Bank's guidelines for development projects on 18
counts, but also a UN convention aimed at preventing wars between
states that share water resources.
The proposed dam is on the Tigris River, 40
miles upstream of the Syrian-Iraq border. The dam would flood
Hasankeyf, a city which is unique repository of Assyrian, Christian,
Byzantian, Eyyubian, Abbasidian and Ottoman culture, in addition
to totally or partially submerging 93 villages and hamlets. The
exact number of affected people is unknown. Balfour Beatty assesses
the number of people directly affected by the project at between
12-16000. Documents obtained by a recent fact-finding mission
organised by the Kurdish Human Rights Project suggest that a figure
of 25,000 may be more accurate. Balfour Beatty suggests that,
since the data was complied in1990, many have left the dam region
in search of economic prosperity in nearby conurbations. Independent
reports and documentary evidence obtained by the KHRP delegation,
however, indicate that this is an incorrect interpretation of
the data. Its preliminary report states: "Much resettlement
has taken place under duress. Many villages have been razed to
the ground and few villagers, if any, have been compensated. The
construction of the dam will remove the chance for a forcibly
resettled villager to return to his or her home if it has been
submerged in the Ilisu reservoir. Such persons must be entitled
to categorisation as `project affected'."
There have been no formal consultations between
local government representative and either the relevant Turkish
government agency (the State Hydraulic Works, DSI) or the applicant.
Elected officials have invariably stated that they only learned
of the project through the press and their own research. None
had access to official documentation and requests for such access
have been ignored. Rural communities, some of which will be submerged
in the reservoir, have not been individually informed of the Turkish
Government's approval of the project. It appears that the people
of the region, many of whom are illiterate, will not be informed
until financial support for the project has been confirmed.
Moreover, due to conditions in the region, which
has been wracked by a 15 year civil war, involving brutal repression
of the local Kurdish population, local people are afraid to voice
their concerns. The war has already killed 15,000 people and laid
waste to more than 3,000 villages in "anti-terrorist operations".
Draconian laws have also been introduced to stamp out the Kurds'
identity: until relatively recently, it was illegal to teach the
Kurdish language or to give a child a Kurdish name. Hundreds of
thousands of Kurds have fled the repression by migrating to neighbouring
countries or to the West.
Many see the Ilisu Dam—which forms part
of the massive $32 billion South-eastern Anatolian Project (GAP)
programme—as motivated primarily by the Turkish Government's
desire to bring home 13 million Kurds, under full Turkish control.
The Turkish Government, however, argues that the dams are needed
to irrigate thousands of hectares of farmland and to generate
electricity.
No rehabilitation plans for those who would
be ousted by the project have yet been adopted. In other dam projects
in the area (such as the Ataturk dam), only landowners have been
compensated for resettlement: landless families have been left
to fend for themselves. Although the consortium of Export Credit
Agencies which are considering support for the project are reported
to be pressing for independent monitoring of the project, there
are currently no prospects of effective independent monitoring
taking place. As the KHRP mission, which was under constant police
surveillance during its visit to the region, concludes: "The
political tenor of the region, together with intimidatory police
tactics, make the collection and analysis of independent data
and information in the preparatory stages of the project extremely
difficult, if not impossible. The delegation infers from this,
and from the recently stated position of the DSI, that effective
independent monitoring remains an elusive prospect in this region."
There are also concerns that Turkey will use
the 22 dams being built under the GAP programme to exert political
pressure on Syria and Iraq by restricting the flow of the Tigris
to the two downstream states, both of which rely on the river
for drinking water, irrigation and electricity generation. The
spare storage capacity of Ilisu's planned reservoir alone would
be sufficient to block the flow of the River Tigris for, on average
two to three months. Syria has protested to Britain over its involvement
in the dam. A report by the UK Defence Forum, a think-tank which
advises the Government on regional risks, has also warned that
the project could involve Britain in armed conflict between Syria,
Turkey and Iraq over the right to water from the Tigris.
Although the Swiss Government commissioned an
environmental impact assessment of the project, the report has
never been made public. The EIA is understood to have highlighted
the problems with resettlement. According to reports in the national
British newspaper, The Guardian, Balfour Beatty has said
that it is too early for anything but preliminary assessments
to have been made and that they should not be published.
With the electricity generated by Ilisu costing
an estimated $1,300 per kilowatt (kW), argues the Berne Declaration,
"the Ilisu project will be considerably less cost-efficient
than modernising Turkey's notoriously wasteful power transmission
system."
LESOTHO HIGHLAND
WATER PROJECT
Phase 1 of the Lesotho Highlands Water Project
received US $411 million in export credit support from a number
of export credit agencies, including the ECGD. The World Bank
also supported the project, which involves building five large
dams as part of a massive water-transfer scheme, intended to pipe
water from Lesotho to Johannesburg.
The project has been fraught with social problems
from the beginning. Local people have lost their fields, access
to water and often their homes. Their problems are likely to be
exacerbated by the project's environmental impacts, as well as
Lesotho's own growing water scarcity.
Widespread corruption on the project is thought
to be one reason that a social fund intended to help affected
communities undertake development projects has accomplished virtually
nothing.
The project's CEO, Masupha Sole, is currently
on trial for corruption. The charge sheet filed by the Lesotho
authorities on 28 July 1999 contains highly specific data on payments
totaling about $2 million and 12 companies, mostly European, allegedly
provided for deposit in Sole's bank accounts in South Africa
and Switzerland. A Swiss court has also found evidence indicating
that the bribes were paid. According to the charge sheet, $57,269
were paid by the Lesotho Highlands Project Contractors (an international
consortium which includes Balfour Beatty, Spie Batignolles, LTA,
Zublin) to Sole.
NATHPA JHAKRI
HYDRO ELECTRIC
POWER PROJECT,
INDIA
UK ECGD support for the 1500 MW Nathpa Dam on
the Satluj River in Northern India was agreed in 1996. The Nathpa
Jhakri Power Corporation Ltd, a special purpose company jointly
owned by the Indian central Government and the state Government
of Himachal Pradesh, is building the dam. The ECGD is providing
a £22.85 million guarantee for a loan by Barclays Bank plc
to Kvaerner Boving, the lead contractor for the project. The project
was also financed by £437 million loan from the World Bank,
but the Bank withdrew after the Indian Government admitted that
it had made crucial errors in calculating the height of the dam.
Concerns over the rising costs of the project, time overruns and
industrial unrest at the project site were also believed to lie
behind the Bank's withdrawal. By the time the Bank withdrew, however,
£300 million of its loan had been spent.
The miscalculation of the dam's height means
that the dam will only be able to generate its peak output for
half the time originally projected—1.5 hours a day as against
three hours. The dam will therefore fail in one of its prime objectives:
helping to meet peak demand in the region. The Himachal Pradesh
Government has vetoed the idea of allowing the project developers
to raise the height of the dam because they now fear that to do
so would inundate the head-race tunnel of the already existing
250 MW Sanjay Bhaba dam upstream
The project was expected to be commissioned
by December 1998 but is running four years behind schedule. The
cost has risen from an estimated $1 billion in 1988 to about $1.7
billion despite a worldwide fall in power equipment prices worldwide.
As a result, the cost of electricity from the dam in expect to
almost double—from Rs 1.22 per kilowatt/hour (Kwh) to Rs
2.29 per Kwh. In May 1999, with the project reported to be facing
"an acute financial crunch", the Power Finance Corporation
of India sanctioned a loan of Rs.1118 crore for the dam.
HAWK JETS
TO INDONESIA
In 1996, the ECGD agreed to underwrite a £280
million guarantee on the sale of 16 Hawk jets to the Indonesian
Airforce. The deal followed an earlier ECGD-backed sale of 24
Hawks to Indonesia in 1993.
The then Conservative administration claimed
that the Hawks, supplied by British Aerospace, were simply training
aircraft and that they had assurances from the Indonesian authorities
that they would not be used for internal repression.
Yet numerous eyewitnesses have reported seeing
Hawks in action against villages in East Timor, where the Indonesian
armed forces were engaged in a brutal war to crush popular resistance
to Indonesian rule. Robin Cook, now UK Foreign Secretary, stated
in the House of Commons in 1994: "Hawk aircraft have been
observed on bombing runs in East Timor in most years since 1984."
The same year, East Timorese leader, now Nobel laureate, Jose
Ramos-Horta said:
"Hawk aircraft have been used extensively
in the last three months, mostly in the eastern region with an
average of six sorties a day, each bombing raid lasting 10 minutes
with the launching of two missiles each."
The export licence for the 16 Hawks was announced
in November 1996, but delivery of the aircraft only started in
April 1999, almost two years after New Labour announced its commitment
to an "ethical foreign" policy. In September 1999, the
deal was suspended by the Government following the referendum
in East Timor and the eruption of violence by local militias and
the Indonesian army. Eight of the hawks had already been delivered
and a further three are in transit. The decision to suspend the
deal will be reviewed at the end of 1999. The Government has refused
to cancel the deal altogether.
Since the election of New Labour in May 1997,
arms sales to Indonesia have continued at the same rate as under
the Conservatives. In the period 1 May 1997 to 31 December 1998,
92 licences were granted for a range of equipment needed to upgrade
Indonesia's military capability.
Indonesia is just one of several countries with
repressive regimes to which Britain has supplied ECGD-backed arms
sales. The ECGD typically issues over £3 billion worth of
policies a year: over the last decade, an average 27 per cent
of this support has been for defence-related equipment. Nearly
55 per cent of the ECGD's defence portfolio goes to the Middle
East and 38 per cent to Asia. The bulk of military cover is for
aircraft (58.2 per cent), vehicles (23 per cent), radar and radios
(12 per cent) and ancillary equipment (6 per cent).
Many of the arms deals backed by the ECGD have
resulted in heavy losses—losses which must be met by the
debtor countries. UK citizens have also subsidised many past deals
through taxpayers' money being used to provide concessional interest
rates.
Recent loss-making ECGD-backed arms contracts
include: £96 million for a contract in Egypt; £15 million
for an arms deal in Jordan; and £63 million for defence equipment
to Algeria. In all three cases, the Government has refused to
disclose the nature of the equipment supplied.
Although the New Labour Government has pressed
for ECAs internationally to agree not to support "non-productive"
investments, which would include arms sales, it has balked at
taking meaningful unilateral action. Thus, although New Labour
has pledged not to provide export credits for non-productive expenditure
to Heavily Indebted Poor Countries (HIPC), only two HIPC countries
are currently listed as eligible for export credit cover: the
pledge is one that will therefore have little impact on the arms
industry.
NUCLEAR POWER
PLANTS
Although the nuclear power industry in Britain
is virtually dead, not least because of public concern over safety
and the reluctance of the private sector to shoulder the financial
risks of dealing with nuclear wastes, the ECGD is backing nuclear
power stations in China.
Support has already been given for the Daya
Bay nuclear plant being built by Framatome, Electricite de France
and Alcatel-Alstrom, and, in March 1999, the ECGD announced that
it would underwrite a $56 million loan from HSBC Investment Bank
plc for work on a nuclear plant at Quisham. Bechtel Limited, the
UK susidiary of the US construction giant Overseas Bechtel Inc,
will undertake the work.
China is planning a major expansion of its nuclear
power programme, with plans to build more than 50 reactors by
the year 2020. Most of these will be constructed by Northern-based
companies—much to the relief of the North's beleaguered
nuclear industry, which has undergone virtual meltdown since the
heyday of nuclear power prior to the Three Mile Island accident
in 1979. In the US, not a single new order for a nuclear station
has been placed since 1979. As Christopher Flavin and Nicholas
Lenssen of the Worldwatch Institute comment:
"Global nuclear capacity stands at 343,086
MW, providing just under 17 per cent of the world's electricity."
This is less than one tenth of the 4,500,000 MW predicted by the
US Atomic Energy Authority in 1974."
According to Flavin and Lenssen: "Nuclear
power's biggest problems are economic. It is simply no longer
competitive with other, newer forms of power generation. The final
20 US reactors cost $3-4 billion to build, or some $3,000 to $4,000
per kilowatt of capacity. By contrast, new gas-fired combined
cycle plants using the latest jet engine technology cost $400-600
per kilowatt, and wind turbines are being installed at less than
$1,000 per kilowatt."
Without the export subsidies provided by ECAs
like the ECGD, the nuclear industry in the North would probably
have been forced to diversify out of nuclear power and into other
safer and more economic forms of energy. Such alternatives could
well benefit the South: as it is, however, Southern countries
are being fobbed off with yesterday's technologies to meet tomorrow's
energy needs.
ALUMBRERA MINING
PROJECT, ARGENTINA
The UK ECGD is part of an ECA consortium, headed
by Australia's Efic (Export Finance and Insurance Corporation),
which is underwriting the finance for the $1 billion Alumbrera
copper and gold mine in Argentina, one of the largest mines in
the world in terms of output. Other agencies include Canada's
EDC (Export Development Corporation), Belgium's OND (Office National
du Ducroire), Germany's KfW (Kreditanstalt fur Wiederaufbau) and
the World Bank's MIGA (Multilateral Investment Guarantee Agency).
The mine, which began operations in October
1997 and reached full design capacity in February 1998, will produce
three million tonnes of mined and worked copper and gold each
year, yielding 600,000 tonnes of copper concentrate and 640,000
ounces of gold. Copper and gold concentrate will then be transported
through a 230-kilometre pipeline to Tucuman. The mine, which will
be run for 20 years, is jointly owned by the Argentine Government
and the University of Tucuman. The fall in gold prices is affecting
financing for the project, which is also behind schedule.
The mine is operated by two Australian companies,
MIM and North, and a Canadian company, Rio Algon (which is involved
in uranium mining and the mining of copper on Native lands in
the United States). Rio Algon has been embroiled in controversy
in Wisconsin where opposition to its mining activities has been
a key factor in the state drawing up tougher new mining laws.
There is a royalty dispute over the Alumbrera
mine. The regional Government wants 3 per cent royalties, but
the mining companies, supported by the Argentina Government, refuse
to pay royalties until earnings have been sufficient to cover
initial capital outlays.
Gold mines, such as Alumbrera, are highly damaging
to the environment and have brought havoc on the livelihoods of
many communities, polluting local waterways with mercury-laced
tailings, eroded land and acid mine wastes. Such environmental
destruction has often been coupled with human rights abuses.
OK TEDI MINE,
PAPUA NEW
GUINEA
In 1982, the ECGD supported the OK Tedi Gold
Mine in Papua New Guinea through a $100 million export credit
for Lloyds Bank International. Two UK companies—Balfour
Beatty Power Construction and Bamford Excavators—won contracts
for the project.
The mine is operated by Ok Tedi Mining Limited
(OMTL). The company is owned 52 per cent by BHP, 30 per cent by
the PNG Government and 16 per cent by Inmet Mining Corporation
of Canada.
The mine dumps 80,000 tonnes of contaminated
waste rock and tailings per day into the Ok Tedi and Fly Rivers
and has severely contaminated both rivers. BHP has admitted that
the environmental damage from the Ok Tedi mine is irreparable,
and much worse than they first thought. According to an August
1999 report by OTML, the dieback of vegetation associated with
the mine's tailings problems would cover up to 1,350 sq kms along
the Ok Tedi and Fly River.
Over the past 15 years BHP has extracted hundreds
of millions of dollars in profit from Ok Tedi. This has come at
enormous expense to PNG's environment and the people who live
around the mine. BHP now faces many hundreds of millions of dollars
of clean up costs, compensation for the landowners, and economic
transition costs.
"It is simple. BHP destroyed and polluted
this area of Papua New Guinea. It's now up to them to clean up
their mess", argues Geoff Evans, director of the Mineral
Policy Institute, an Australian based organisation that monitors
the mining industry in Asia and the Pacific."
"BHP would never have been allowed to dispose
of toxic mine waste directly into rivers in Australia. Yet BHP
does this in Papua New Guinea, and continues to do so."
In 1995 landowners got an out-of-court settlement
from BHP which obligates the company to dredge the river, compensate
some of the affected communities and build a toxic tailings retention
system.
In August 1999, BHP has announced that the PNG
Government should decide the fate of the mine. "Obviously,
the PNG Government and the local communities will need to find
out how to best balance their short-term and long-term interests
with the environmental impact of the mine. The future of the mine
is ultimately their decision," stated the company.
Commenting on the announcement, the Australian
Financial Review has subsequently written:
"If anyone is handing out an award for
passing the buck this year, someone should nominate BHP's boss,
Paul Anderson, for the prize. It's a sure bet that Anderson would
win. For sheer audacity in trying to flick-pass a massive liability
to someone else, [BHP's] announcement on Ok Tedi yesterday was
Oscar material. What BHP announced in that the Ok Tedi copper
mine's environmental disaster in Papua New Guinea is much bigger
than anyone imagined. But, having conceded that the damage is
getting worse, BHP wants the Government and people of PNG to decide
the mine's future.
What that means in realspeak is that BHP a
52 per cent shareholder in Ok Tedi Mining wants the PNG Government
to take responsibility. BHP would gladly shut the Ok Tedi mine
tomorrow and walk away from what is a world-class environmental
disaster: a mine that's shagged 1,350 square kilometres of once
fertile land.
However, the mine accounts for 10 per cent
of PNG's GDP and 20 per cent of its exports. The PNG Government
can't afford its closure. That would be to invite an economic
and social disaster. So the PNG Government will do just about
anything to keep the mine open.
And "anything" would presumably
include legislation absolving Ok Tedi Mining of the potential
billion-dollar legal liability. BHP avoided stating its preferred
option for Ok Tedi yesterday. It's a safe bet that closing the
mine would rank high on its list of preferences. The estimated
closure cost is a mere $US40 million ($61.4 million).
Under existing compensation arrangements,
Ok Tedi Mining has promised another 500 million kina (about $300
million) to local landowners over the next decade.
If PNG wants Ok Tedi to continue paying, the
Government will presumably be required to absolve Ok Tedi and
BHP of the clean-up cost of another decade of pollution.
PNG can have a mine, jobs and exports today,
or it can have a billion-dollar environmental damages claim against
a mining giant in the future. But, as [BHP's] Paul Anderson tried
desperately not to say yesterday, it can't have both."
Papua New Guinea environmental groups monitoring
the project have demanded that BHP post a bond [assessed by an
independent expert] that will cover the cost of mine rehabilitation.
All environmental damage should be cleaned up during the rehabilitation
on the closure of the mine. BHP shareholders, they state, should
bear the environmental cost of mine closure, and should not be
allowed to offload their environmental responsibilities onto the
PNG taxpayer and the Government of PNG. In addition, if mining
finishes early, "BHP shareholders should carry any cost of
social dislocation to the affected people of the Fly River, by
developing alternatives to ensure that those people have sustainable
livelihoods in future. In any case, BHP should maintain its existing
community, commercial, agricultural, and infrastructural maintenance
capacity until such time as local people can be considered self
sustaining."
The Corner House
October 1999
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