Belo Monte Dam Does Not Meet Equator Principles, Say Rights Groups

Monday, November 7, 2011


Brasilia, Brazil – The controversial Belo Monte Dam, slated for construction in Brazil's Amazon region, does not meet the standards of an international framework used by the world's largest private banks to evaluate sustainability, say human rights groups in Brazil.

In a letter sent to Itaú, Banco do Brasil, Bradesco, Santander, and Caixa Econômica Federal, 150 Brazilian social and environmental organizations warned that Belo Monte developer Norte Energia, S.A. (NESA) has not complied with the Equator Principles, a set of voluntary standards created in 2003 that aid private financiers in assessing and managing social and environmental risk in project finance. As signatories of the Equator Principles, the five banks commit to not providing loans to projects where the borrower will not or is unable to comply with the Principles' respective social and environmental policies and procedures.

The five banks have been mentioned by the Brazilian government as possible co-financiers of the Belo Monte Dam, and at least one, Banco do Brasil, has been mentioned as the top-runner to co-finance nearly $20 billion reais that would be disbursed by the Brazilian National Development Bank (BNDES) to NESA. The Brazilian civil society groups argue that BNDES is using tax-payer funds to finance what is ultimately a costly boondoggle. In October, Credit Suisse reduced its outlook for Cemig and Light, two Brazilian electric utilities that joined NESA, stating that the project's rate of return is far below government estimates.

“The legal violations that have accumulated throughout the planning process of the Belo Monte Dam clearly illustrate that the project does not live up to the standards of the Equator Principles. We recommend that Equator Principles banks stay away from co-financing Belo Monte, because the reputational risks associated with the project are very large,” said Zachary Hurwitz, Policy Coordinator at International Rivers, which published a risk report with Amigos da Terra-Amazônia Brasileira in early 2011 detailing the project's history.

In order for any of the five private banks to co-finance a loan for the Belo Monte Dam, they would have to illustrate that NESA has complied with the guidelines' ten principles. For example, Principle 5 requires borrowers to “consult with project affected communities in a structured and culturally appropriate manner,” and to “ensure their free, prior and informed consultation and facilitate their informed participation as a means to establish whether a project has adequately incorporated affected communities’ concerns.”

However, recent evidence suggests that NESA, a project consortium composed of nearly 75% state-owned enterprises, did not hold free, prior, and informed consultations with affected indigenous communities.

In a hearing of Brazil's Regional Federal Tribunal, judge Selene Maria de Almeida decided that three tribes who live on a 100km stretch of the Xingu River that would be dried out because of the dam— the Juruna, the Arara, and the Xikrín Kayapó— had not been properly consulted. Environmental agency IBAMA and state electric utility Eletrobras, the largest holder in NESA, only began studying the project's impacts on tribes in 2008, three years after the Brazilian Congress had approved the project. The Brazilian Constitution mandates that developers must hold proper consultations before a development project that impacts indigenous people is approved by the Brazilian Congress.  If de Almeida's decision is upheld in court, Belo Monte would be suspended until proper consultations were held. 

The warning letter also argues that the developer has not complied with Principle 4 of the Equator Principles, which requires the borrower to create an Action Plan that “implements mitigation measures, corrective actions and monitoring measures to manage the impacts and risks” in compliance with host country social and environmental regulations. An injunction brought by Carlos Castro Martins at the end of September barred NESA from beginning any work that would interfere with the natural flow of the Xingu river, after it was found that the developer had not properly assessed the risks to local fish stocks, nor planned a program to mitigate the impacts on families who make a living from fishing.

The warning letter also argues that NESA has not complied with Principle 6, which requires the borrower to create a grievance mechanism as a condition of managing the risk of Category A and B projects. The Equator Principles consider Category A projects to have significant risk, while Category B are considered to have limited risk.

The Equator Principles, last revised in 2006, are directly based on the Performance Standards of the International Finance Corporation (IFC), which were revised and strengthened in 2011. The new version of the Performance Standards includes language that protects indigenous peoples' right to informed consultation and participation, and, in certain cases, upholds their right to free, prior, and informed consent. The Equator Principles will also be updated in 2012, and are likely to adopt the stronger language.

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