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China's Global Dam Builders and the Environment: A Progress Report

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A few years ago, Chinese dam builders and financiers appeared on the global hydropower market with a bang. China Exim Bank and companies such as Sinohydro started to take on large, destructive projects in countries like Burma and Sudan, which had before been shunned by the international community. Their emergence threatened to roll back progress regarding human rights and the environment which civil society had achieved over many years. However, new evidence suggests that Chinese dam builders and financiers are trying to become good corporate citizens rather than rogue players on the global market. Here is a progress report.

In December 2003, China Exim Bank approved $519 million in loans for the Merowe Dam in Sudan. It thus helped kick off a project which would displace more than 50,000 people from the fertile Nile Valley into desert locations, and for which the Sudanese government had failed to attract funders for many years. China Exim Bank also provided support to projects in Burma which no other funder was prepared to touch. "The Bank specializes in financing projects that no other financial institutions would fund", International Rivers and Friends of the Earth warned in July 2004.

Chinese dam builders wasted no time rolling up the international market. Low costs, access to cheap loans and a big portfolio of domestic projects make them attractive partners for clients around the world. We are currently aware of at least 216 dam projects in 49 countries which have some form of Chinese involvement - and counting. The president of Sinohydro recently estimated that his company controls half the global hydropower market.

When it comes to the environment, we have seen significant changes in a short period of time. In response to our alert of July 2004, a manager of China Exim Bank wrote back saying: "To my knowledge, [the Bank] actually cares about the environmental issues of its projects. Maybe its standard cannot reach yours or international common practice. Since it is one of export credit agencies in the world it really needs to meet the international practice." When I had the chance to meet China Exim's President two years later, he agreed that his institution shared a responsibility for the projects it funds. The Bank adopted an environmental policy in 2004, and published it after a request from NGOs in 2007. More detailed guidelines followed in 2008.

In late 2008 the China Exim President told Deborah Brautigam, an expert on Chinese aid practices, that his institution only worked with Western agencies for the assessment of environmental impacts. They were "more credible", the president said, and: "We do not want the environment to be an issue."

Seeing some progress with China's main financier of overseas dams, we decided to approach the biggest hydropower company next. In February 2009 a coalition of NGOs called on Sinohydro to "establish a world-class environmental policy and strengthen its relations with the host communities of its international projects". In response, Sinohydro's management invited me to meet with them. In what was likely the first dialogue between a Chinese state-owned enterprise and an international advocacy group, the management expressed a commitment to protecting the environment, and said that they would consider preparing an environmental policy.

Late last year, Sinohydro announced that it plans to get listed at the Shanghai stock exchange. Through an initial public offering (IPO), a company defines its profile for international investors: Does it plan to take on contracts at any cost to the environment? Or does it try to minimize social and environmental risks as a good corporate citizen? We strongly suggested that if Sinohydro wanted to become a world class brand, it needed to adopt and implement a world class environmental policy.

China's Ministry of Environmental Protection needs to clear IPOs of companies in polluting sectors. In early March, the Ministry invited the public to comment on the Environmental Audit Report which Sinohydro had prepared for its public offering. At the same time, Sinohydro informed us that it was now indeed preparing an environmental policy, and invited our recommendations. Working together with partner groups from China and other countries, we again recommended that the company needed to adopt highest international standards if it wanted to become a leading global brand. We will also convey this message to Sinohydro's potential investors.

Policy changes at the leading Chinese dam builder and financier are important first steps. Yet as we know from other institutions, there is often a big gap between an environmental policy and actual practice on the ground. The proof of the pudding is in the eating. What is happening there?

In December 2009, we learned that Turkey had invited China to build the Ilisu Dam on the Tigris. The Turkish government was looking for support after the German, Austrian and Swiss export credit agencies had pulled out of Ilisu because of social and environmental policy violations. Turkish NGOs and International Rivers immediately wrote to the Chinese authorities to warn against such involvement. Chinese support for the dam would enable a social and environmental disaster in Turkey, and undermine the international efforts to strengthen the social and environmental standards in big infrastructure projects.

Ilisu is a test case for the future role of Chinese dam builders and financiers. We expected China's involvement to be confirmed by January, but so far, there has been no such news. The Chinese ambassador in Ankara has repeatedly stressed that China was not getting involved in Ilisu. Have Chinese dam builders and financiers indeed opted against this project even if it meant offending an important government and passing up a lucrative deal?

While the jury is still out on Ilisu, we have witnessed progress on the ground in Gabon. With support from China Exim Bank, Chinese investors plan to develop a huge iron ore deposit in this West African country, complete with a hydropower dam, railway line and port. Brainforest, Gabon's inspiring environmental NGO, sent a letter to the Exim Bank pointing out that the dam was proposed to be built in a national park, and would violate its environmental guidelines. In due course, Brainforest learnt from the Gabonese government that China Exim Bank had suspended the project over environmental concerns. In a separate development, Sinohydro agreed to work together with the Global Environmental Institute, a Chinese NGO, in an effort to address the social and environmental impacts of the Nam Ngum 5 Dam in Laos.

We will not let our guards down. 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 and the Paklay Dam on the Mekong mainstream. And while the biggest actors have begun a process of environmental reform, other Chinese companies disregard social and environmental concerns completely, and are building rogue dams in Burma under horrific conditions. China Southern Power Grid, which is building several dams in the Mekong Basin, has so far ignored all inquiries from civil society.

Even so, the most important institutions in China's hydropower sector have expressed an interest in following international environmental standards, and are open for civil society concerns. We are happy to acknowledge their progress. We will work to ensure that their policy principles translate into changes on the ground, and that the environmental stragglers fall in line.

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