US Rebukes World Bank’s IFC Over Environmental Concerns in Pakistan Hydro Loan

In the World Bank’s board that thrives on consensus, the United States took the unusual step of voting against The International Finance Corporation’s (IFC) investment in the 108 MW Gulpur hydropower project on Pakistan’s Poonch River. Calling the methodology to assess the project’s environmental impacts “fundamentally flawed,” the US cited IFC for breaching its own rules by failing to ensure sufficient downstream flows to sustain endangered fish species (see more below). The IFC is the World Bank arm that lends to private companies.

While not enough to block the project, the US’s “No” vote is consistent with new legislation mandating that that the US only support large dam projects that meet key criteria, including sustainability of downstream ecosystems and demonstrated public support. The US in the midst of a process setting out how the legislation will apply to new large dam projects that enter the pipeline in development banks, among them the World Bank-led Fomi Dam that would jeopardize the lifeline for over 1 million people in Mali.

These rules are critical for ensuring that the potential negative impacts of large dams on the environment are thoroughly considered and the rights of communities are respected. The US Treasury’s leadership on this is timely and welcome, coming at a time when the World Bank is once again ramping up lending for destructive dams, and we hope these new rules will serve as a catalyst for broader change at the development banks and beyond.

Key U.S. concerns related to Gulpur hydropower project

In violation of its policies, the IFC ignored its own analysis on the downstream releases necessary to sustain endangered fish species. By opting to restrict ecological flows in a bid to maximize profitability, the IFC is all but assuring the species’ demise. As the US position notes: 

“Located on a river considered to be the endangered [fish species] Mahaseer’s ‘last resort,’ this project would block its migration to important breeding habitat …This project also would inundate the breeding habitat of the critically endangered Kashmir catfish…and selects a level of minimum environmental flow that is insufficient to protect them.”

Poonch River, Pakistan
Poonch River, Pakistan

The IFC claimed that the project would result in a net gain to these endangered fish species. However, it claims this net gain not against current numbers, as its policies require, but rather against future predictions in which fish populations would plummet due to factors such as overfishing and mining. The US statement notes: 

“Replacing a ‘current’ baseline with a ‘dynamic’ baseline that is based on various hypotheses about future actions and inactions invites ‘loading the dice,’ and erodes the fundamental requirement that it be demonstrated that the project will not result in harm.” This “sets an unacceptable precedent for IFC engagement in areas of critical habitat” and, “in sum, the United States believes this project… does not strike the right balance between economic development and environmental preservation.”

As is too often the case in hydropower projects, the IFC bent over backwards – and in this case broke its own rules – to downplay the environmental harm for a project that, at an estimated $365 million, would prove too costly to justify if it didn’t cut corners.

Monday, March 2, 2015