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Peter Bosshard

Peter Bosshard

Posted: August 10, 2010 03:10 PM

The Gibe 3 Dam in Ethiopia is Africa's most destructive dam project. So far, the Ethiopian government has not managed to attract any international finance for it. After several other funders pulled out, China's biggest bank is expected to decide about a loan for Gibe 3 soon. The decision is an important test case for the environmental responsibility of China's overseas lenders.

The Gibe 3 Dam is currently under construction on Ethiopia's Omo River. Environmental organizations have documented in eyewitness reports, articles and commentaries, the dam could lead to the collapse of the fragile ecosystems of the Lower Omo Valley and Lake Turkana. No less than 500,000 poor indigenous people depend on these ecosystems for their survival. The dam endangers two World Heritage Sites.

The concerns of affected people and NGOs have meanwhile been confirmed by official studies. A review of the project's impacts on Lake Turkana commissioned by the African Development Bank states: "Lake Turkana is dependant on the Omo River for almost 90% of its inflow. The river is the lake's umbilical cord. If the Omo River inflow is cut, the lake level will fall. (...) The filling of the dam has the potential to dry up Ferguson's Gulf, the most productive fishing area of the lake." The Ethiopian government has expressed an interest in using the Gibe 3 Project for irrigation. If this happens, the study finds, the world's largest desert lake "could drop 40 metres, and could ultimately be reduced to two small puddles."

Ethiopia will not be able to build the $1.7 billion dam project without international support. Yet in spite of strenuous efforts over the last four years, the government has not managed to secure any foreign funding. The institutions which have evaluated Gibe 3 include the World Bank, the African Development Bank, the European Investment Bank, Italy's export credit agency SACE, and US bank JP Morgan Chase. For one reason or the other, none of them have become involved. Funders don't usually inform the public if they decide not to finance a project, but it is clear that the Gibe 3 Dam would violate environmental standards which many of them have endorsed.

In May, Ethiopia's government announced that the Industrial and Commercial Bank of China (ICBC) would fund a Chinese equipment contract for Gibe 3 with a loan of approximately $450 million. ICBC is China's and the world's biggest commercial bank. Kenya's Friends of Lake Turkana, BankTrack and International Rivers immediately called on ICBC to stay out of the project. "Funding the Gibe 3 Project would seriously damage ICBC's reputation as a diligent, environmentally responsible bank," the three organizations warned in a letter to the bank's CEO.

ICBC has meanwhile clarified that it has not yet taken a decision on the Gibe 3 loan. Wei Guoxiong, the bank's Chief Risk Officer, assured a Chinese business newspaper that ICBC was evaluating the project "very carefully, very carefully". "Although ICBC is a commercial bank, we are not a mercenary," Wei Guoxiong said. "We will not support [projects with serious environmental impacts], whether domestically or abroad." ICBC has expressed a strong commitment to China's Green Credit Policy and has won numerous banking awards, including a prize for the country's Best Corporate Citizen. Gibe 3 will put those commitments to the test.

ICBC has a 20 percent stake in South Africa's Standard Bank. Standard Bank is advising ICBC on African projects such as Gibe 3. The South African bank has signed the Equator Principles, an environmental standard for the international banking sector. The Gibe 3 Dam would violate the banking standards on social and environmental assessment, indigenous peoples, and biodiversity conservation. While ICBC has not signed the Equator Principles, its Chief Risk Officer argues that its policies are "in some cases more stringent" than these standards.

Chinese investment in African infrastructure is much needed. We have often pointed out problems with specific projects and the environmental standards of Chinese funders. We have also acknowledged the environmental progress that has happened in recent years. With this background, the Gibe 3 Dam is a test case for China's future role in Africa. Hardly any other project has been so extensively documented, discussed by international financiers and civil society, and covered in the media.

If ICBC declines to fund Gibe 3, China's biggest bank will demonstrate that it respects international environmental standards in its funding decisions, and that it can become a leading actor in the global banking sector. If ICBC does provide funding for the project, it will put hundreds of thousands of poor people at risk, undermine international environmental standards, and taint its own reputation.