Ethiopia Dam Blot on China's Record

Originally published in the South China Morning Post

The tale of two dams in Africa - one under construction, the other completed - captures two starkly differing sides to China's image as a major player in the development of hydropower around the world.

The Gibe 3 Dam in Ethiopia, now under construction by Italian hydropower developer Salini Costruttori, is the target of international lobbyists opposed to what they say is the devastating environmental consequences it will have.

Funding to cover the full US$1.75 billion construction of the project has not yet been secured, and against a background of opposition from local and international lobbyists, both the World Bank and the African Development Bank have withheld funding until an environmental impact report is received.

Meanwhile, Salini Costruttori is proceeding with the project, with the support of Industrial and Commercial Bank of China (ICBC) and mainland power equipment supplier Dongfang Electric Corporation, who are now also the targets of the groups opposing the project.

In contrast to the international ire being raised over Gibe 3, the Merowe Dam in Sudan shows China appears to have learned the lesson of taking environmental issues into account.

News that ICBC, one of China's Big Four state banks, will help finance the 1,870 MW Gibe 3 in Ethiopia, which will be the largest hydropower project in Sub-Saharan Africa when completed by 2014, dismayed Peter Bosshard, policy director of International Rivers, an international environmental NGO. "If ICBC funds the Gibe 3 Dam, this will be a serious setback for the efforts to make China's overseas dam building more sustainable," Bosshard said.

"The Gibe 3 Dam is one of the most destructive infrastructure projects in recent years, and the World Bank and other international financial institutions have not approved funding for it," he said.

The dam, which is part of a larger project on the Omo River, threatens the livelihood of 500,000 indigenous people, says International Rivers, because it could end the river's natural flood cycle and thus destroy harvests and grazing land.

"China has made impressive progress in reforming its banking sector through its green credit policy. Funding an environmental disaster like the Gibe 3 Dam would make a mockery of the environmental efforts in China's banking sector," said Johan Frijns, coordinator of BankTrack, a network of civil society organisations that tracks banks.

In May, China and Ethiopia signed an agreement on the Gibe 3 dam, which covered the supply of equipment by Dongfang, a state-owned enterprise that is one of China's largest suppliers of generating equipment.

While the total cost of the Gibe 3 Dam is US$1.75 billion, the contract involved in the May agreement was US$495 million, with 85 per cent to be financed by a loan from ICBC, according to Ethiopian media.

"Dongfang will supply the most important equipment for the Gibe 3 Dam. Together with the Ethiopian government and the financiers, they will share responsibility for the project's social and environmental impact," Bosshard said.

South China Morning Post was unable to reach Dongfang for comment, but ICBC responded in an e-mail: "ICBC has long been attaching great importance to environmental protection, and will not finance projects that fail to reach environmental standards. We will keep a close watch on the progress and the environmental evaluation of the project." ICBC, listed in Hong Kong and Shanghai, adopted the Equator Principles in 2008, which was a significant step forward in developing corporate social responsibility in China's banking sector, said Cristelle Maurin, a PhD candidate in international law at the University of Paris. "There are still gaps in Chinese banks' adherence to international standards. Only one Chinese bank, ICBC, has signed up for the Equator Principles," she said.

The Equator Principles is an international standard that ensures projects are financed in a socially responsible and environmentally sound manner.

Outside China, there are 251 dam projects in 57 countries with Chinese financing and/or construction, Bosshard said. "China has become by far the most important actor in global dam building."

Globally, dam construction has generated problems. The World Commission on Dams has found that up to 80 million people around the world have been displaced by the construction of reservoirs, many of them impoverished in the process.

However, John Briscoe, a professor of environmental engineering at Harvard University, sees China playing a positive role in global dam development.

The World Bank's lending to hydropower projects fell 90 per cent during the 1990s, Briscoe wrote in an article on May 24 on the website of China Dialogue, an organisation which hosts discussions on environment. In recent years, the World Bank financed only two major dams in the developing world, but China now finances over 200 such projects in Africa and Asia, he said.

"This is a great service to the developing world. It would be even greater if China were to export not only its superb construction capabilities but also its world-leading capability in the sensitive area of resettlement," Briscoe said.

In contrast to the controversy surrounding Gibe 3, the Merowe dam, Africa's largest completed dam, left a positive impression of China's track record on hydropower after an initially poor start, according to some observers.

Since it was completed in 2008, the Merowe Dam has doubled the power generating capacity of Sudan. China Export-Import Bank (Exim Bank), a leading Chinese state-owned lender to overseas Chinese projects, was the main foreign financier of the US$1.2 billion project with US$519 million of financing.

A joint venture of two Chinese state-owned firms, Sinohydro and China International Water and Electric Corporation, built the dam's concrete body. Sinohydro, China's biggest dam builder, is preparing to list in Shanghai this year.

"I had the chance to visit the Merowe Project in 2005. It was a very bad project. It displaced more than 50,000 people from the fertile Nile valley into desolate desert locations," Bosshard said.

But Exim Bank had agreed to fund the project in 2003, after the Sudanese government failed to attract funding from European, Canadian and Malaysian financiers.

"Since 2003, China Exim Bank and Sinohydro have improved their environmental performance. China Exim Bank adopted an environmental policy in 2004 and a more detailed environmental guideline in 2007," Bosshard said.

"I am confident that today, China Exim Bank would not fund a project like the Merowe Dam again."

As part of its efforts, China has attempted to reach out to the grassroots.

"In 2008, I met the Chinese envoy to Sudan, Liu Guijin, in London," said Ali Askouri, president of the leadership office of Hamdab Dam's Affected People, a London-based NGO. Hamdab is the other name for the Merowe Dam.

"I raised my concerns over the Merowe Dam with him, and he promised to look into the matter and work to improve the Chinese companies' performance in regard to the affected communities in Sudan.

"My biggest concern was that the Sudanese government wanted to uproot our community out of its traditional land. This did not happen, which represented an extremely positive step that helped to ease the tension considerably," Askouri said.

"I have seen the Chinese seriously looking into improving their performance with local communities. Before, the Chinese never discussed environmental impact.

"The Chinese are now talking about getting with international bodies to improve the quality of their work to meet international environmental standards, and the affected communities," Askouri said.

"Exim Bank requires environmental monitoring and management before, during and after the project implementation. Only projects obtaining approval from recipient countries' environmental administration will be funded," said Maurin, who studies the international ventures of Chinese firms.

In 2007, Exim Bank signed a memorandum of understanding with the World Bank to exchange information on project evaluation procedures which may have a positive impact on Exim Bank's social standards and transparency, Maurin said.

In 2008, the State-owned Assets Supervision and Administration Commission (Sasac) issued guidelines on corporate social responsibility for state-owned enterprises.

Since Sinohydro is preparing for its listing on the Shanghai Stock Exchange, the company has been working to comply with the Shanghai bourse's corporate social responsibility requirements, Maurin said.

To that end, Sinohydro is preparing an environmental policy in collaboration with international NGOs like International Rivers, Bosshard said.

Although the corporate social responsibility of Chinese companies in hydropower projects is improving, "we will not let our guards down", Bosshard wrote on the International Rivers website.

"There are serious problems in many ongoing projects. Sinohydro has expressed an interest in extremely problematic projects such as the Gibe 4 Dam in Ethiopia."

Any dam on the Omo River, including Gibe 4, will hinder the river's natural flood cycle, Bosshard explained. "We are concerned that Gibe 4 would have similar impact on the ecosystems and populations as Gibe 3."

[Note: According to the website of the Equator Principles, the only Chinese bank which has adopted the Principles is Industrial Bank, not ICBC. - International Rivers]