By Probe International

Investment criteria to assure sustainable development, part 2

Energy Probe Research Fund
November 22, 1994
Q. Why is it so important that these rights and tools be properly
identified and enshrined in law?

A. By endorsing the “sovereign right of each nation to develop
its resources” OHII is endorsing governments’ views that it is
right to trade off the interests and security of some citizens
for some other supposed benefit such as SED.

As David Hopper, a former senior vice-president in charge of
policy, planning and research at the World Bank, and today OHII’s
Chairman, once explained in a TV interview,[Endnote 10] “You can’t have
development without somebody getting hurt for the benefits that
are going to accrue.” Underlying this attitude is a belief that
development creates winners and losers and that the role of
government is to decide who will win and who will lose, to strike
a balance.

But this balancing act, especially when conducted by proponents,
is prone to serious miscalculations. To say that losers in the
development process are inevitable, as proponents such as Mr.
Hopper seem to think, is another way of saying that fair
compensation cannot be built into development schemes. Projects
are thus built at the expense of losers and the losers have no
defence. They have been stripped of their right to fair
compensation and fingered as those in society who must carry the
burden of progress. Losers are thus routinely deprived of their
right to force proponents to internalize the costs of the damages
inflicted on them. Under such an unaccountable regime, where
there are no checks on the proponents, there is no limit to the
number of losers that this balancing act can create. As the Three
Gorges and Sardar Sarovar dams illustrate so tragically, the
losers can number in the hundreds of thousands and even millions.

As long as proponents do not have to account to those whose
environments they destroy, and those whose money and security
they risk, the expected costs and benefits of these development
schemes can be based on unsubstantiated engineering and
compromised economics. By claiming unlimited rights to the
environments and economies of citizens, governments and the
corporations they empower sever development from the values of
the citizenry that would otherwise shape it. If, on the other
hand, citizens’ rights to the tools I suggest were enshrined and
enforced, those affected by proposed developments would
themselves conduct the balancing act between the costs and
benefits and the ultimate decision would be based on realistic
accounting that reflected the values of the winners and losers.

Q. Why is it in the interests of Ontario Hydro ratepayers for
OHII to respect the rights of individuals in host countries?

A. Without respecting the rights of citizens in host countries,
OHII cannot get the best possible estimates of the costs and
benefits of its proposed investments.

For example, the World Bank has always respected the sovereign
right of each nation to develop its resources, and today has the
world’s riskiest loan portfolio,[Endnote 11] with over one-third of its
projects failing, according to the Wapenhans report, a high level
internal study.[Endnote 12] The Export Development Corporation, meanwhile,
which lends on the same premise as the World Bank and as OHII
proposes, has had to reschedule (some financial experts argue
this is effective forgiveness) loans to borrowing Third World
nations. Following a recommendation from Canada’s Auditor
General, $8 billion was added to the Canadian national debt in
1990, in part because of EDC activities.[Endnote 13]

The World Bank’s and the EDC’s loans are failing and are in some
cases not being repaid because, by ignoring the rights of
individuals in the host countries, they failed to get an accurate
picture of the real costs of their projects and they financed
projects that are neither economically nor environmentally
viable.

Alternatively, by satisfying the risk concerns and by mitigating
environmental costs identified by individuals and communities,
and by designing alternatives to unacceptable technical
proposals, OHII staff and engineers would be maintaining their
skills in a more accountable environment than they would
operating in a regulatory regime that has lax standards
accountable to the host government only.

Q. OHII plans to rely on World Bank guidelines for assessing the
impact of its investments on the environment, on native peoples,
on communities forcibly resettled, and on SED. In your opinion,
is this acceptable?

A. The World Bank’s guidelines, like OHII’s, are premised on
respect for the sovereign right of each nation to develop its
resources. Elsewhere in this testimony I have detailed the
negative consequences of this operating principle for the
environment, for SED, for the host country’s population and
economy, and for investors such as Ontario Hydro ratepayers and
World Bank shareholders.

Not only does the World Bank operate by flawed principles, it
fails to adhere to the specific elements in its own guidelines.
For example, OHII cites World Bank resettlement guidelines, which
OHII claims are designed to minimize resettlement and, where that
is impossible, to try to restore or improve former living
standards (Interrogatory 4.20.3). However, recent internal
reviews of the World Bank’s resettlement record could not find “a
single study” or data on Bank-financed projects in Latin America
and Africa which quantitatively demonstrated that a resettlement
population had been adequately rehabilitated. Although World Bank
guidelines require that displaced people be provided with the
means “to improve, or at least restore, their former living
standards, earning capacity, and production levels,” the
investigators found that “few projects have information on
incomes of the affected populations,” giving “rise to an
impression that the World Bank is not seriously interested in the
achievement of this objective.”[Endnote 14]

The internal reviews also found that “information on minimization
of displacement is hard to find” even though World Bank
guidelines state that “involuntary resettlement should be avoided
or minimized,” and “many Bank projects were approved without any
detailed or viable rehabilitation plan; data on costs are lacking
or not fully treated” and its resettlement projects lack
rehabilitation measures.

The internal reviews also discovered that the World Bank commonly
underestimates the number of people displaced by its projects,
and that, despite World Bank statements that it is reforming, the
World Bank is preparing projects that will displace at least 1
million more people before 1996.

Recent and planned World Bank loans to the energy sector would
also not qualify as investments in SED, contradicting OHII’s
claim that the World Bank is a leader in incorporating SED
principles and that the World Bank has “special responsibility to
ensure that the programs and projects its supports are consistent
with the objective of SED.”

OHII’s choice of the World Bank as the model does not bode well
for OHII’s promised performance. If OHII fails to enforce its
investment conditions, as the World Bank has failed (indeed, in
addition to its unenforced guidelines, the Wapenhans report found
that only 22% of the Bank’s legal loan covenants are adhered to
by borrowers), I predict that OHII will repeat the World Bank’s
failed investments.

Q. Are you arguing that OHII impose its own standards on another
country?

A. No. I am simply arguing that OHII qualify its investments by
defining precise minimum standards which it must meet before
making an investment, by informing host countries of those
standards, and by simply refusing to invest or to withdraw its
participation if those standards are not met. OHII cannot impose
SED standards on Malaysia’s Prime Minister Mahatir, for example,
but neither can Prime Minister Mahatir impose investment
decisions on OHII and Ontario Hydro ratepayers that violate the
minimum standards laid out by Ontarians; neither can Mr. Mahatir
fetter the work of regulatory bodies such as the OEB.

Q. What would those standards include?

A. After 15 years of experience trying to distinguish sustainable
development projects from unsustainable ones, I recommend that
OHII be bound by the following standards:

1) Respect for the property or customary rights of people
affected by a proposed development, including their right
to develop their own resources;

2) Disclosure of all documents regarding a proposed
project (including but not limited to all engineering
studies, technical feasibility studies, economic
assessments, environmental reviews, and social
assessments) to the communities affected, in their mother
languages;

3) The right to a hearing in which those affected can
challenge the proponents’ project justifications;

4) The right to fair compensation;

5) The right to fair and timely notice of a proposed
development.

It is my recommendation that OHII replace its existing operating
principles with these five principles outlined above.

Q. What is the danger of not defining these minimum standards for
all OHII investments?

A. As with the Three Gorges dam, the Sardar Sarovar dam, and
countless other development projects that are failing, real costs
are more likely to be overlooked, imaginary benefits exaggerated
and, in the words of the World Bank’s Wapenhans report that
documented over one-third of its projects failing, “Appraisal
becomes advocacy.” Meeting these principles, on the other hand,
would act as a check on the proponents’ assumptions and would
result in a truer picture of the real costs and benefits of a
proposed project. Ultimately, Ontario Hydro ratepayers would be
better protected from dubious investments.

Q. Will your recommendations contribute to ensuring OHII is
accountable to ratepayers?

A. For Ontario ratepayers to properly scrutinize the OHII
investments for their SED effects on host communities and to
ensure that OHII’s investments do not violate principles of due
process that Ontarians hold dear, groups like Probe International
must have access to information about OHII’s investments
(including various feasibility studies and assessments, details
of how the projects will be implemented and operated), a forum
for obtaining information and for cross-examining OHII’s
representatives on the corporation’s activities and plans, and
ultimately an opportunity to hold OHII responsible for damages
caused.

I know from my experience at Probe International that groups
similar to the Energy Probe Research Foundation, in virtually
every country in the world, are concerned about the
environmental, social and economic effects of Canadian-financed
and built energy projects in their country. They contact Probe
International regularly for assistance in securing information
about these projects (including technical, engineering,
financial, and environmental), and in securing the right to a
hearing and to compensation for those harmed by such activities,
and in some cases to seek our assistance in stopping projects. In
virtually every case, they cannot secure this information in
their own countries, they have no forum in which to challenge
proponents and analyze project assessments, and they have no
recourse to fair compensation.

Unless these basic standards of accountability are required of
OHII in its overseas investments, I predict that concerned and
affected citizens in the host countries will be uninformed of
OHII’s activities and unable to alert OHII to costs overlooked
and benefits overestimated. I also predict that OHII will
inadvertently inflict costs on unsuspecting and undefended
populations, undermining its stated intention of sponsoring
sustainable energy development.

 

Endnotes

1. Patricia Adams, Odious Debts: Loose Lending, Corruption, and the Third World’s Environmental Legacy (London and Toronto: Earthscan, 1991).

2. “The beautiful and the dammed,” The Economist, March 28, 1992.

3. Dai Qing, ed., Yangtze! Yangtze!, Patricia Adams and John Thibodeau, English edition editors (London and Toronto: Earthscan, 1994).

4. CIPM Yangtze Joint Venture (CYJV), Three Gorges Water
Control Project Feasibility Study, Vol. 1, Appendix A, August 1988, p.
1-2.

5. Margaret Barber and Gr√üinne Ryder, eds., Damming the Three Gorges: What Dam Builders Don’t Want You To Know (London and Toronto: Earthscan, 1993).

6. Barber and Ryder.

7. Bradford Morse and Thomas Berger, Sardar Sarovar: the Report of the Independent Review (Ottawa: Resources Futures International, 1992).

8. World Commission on Environment and Development, Our Common Future
(Oxford and New York: Oxford University Press, 1987); James Marshall
Memorial Lecture in New York City, cited in Patricia Adams, “A Proposal
for Conducting Environmental Assessments for Foreign Aid Projects,”
Probe International, May 1992.

9. The International Bill of Human Rights, Office of Public Information (New York: United Nations, 1978).

10. “The Price of Progress,” Viewpoint Special, Central Independent Television, U.K. 1986.

11. Patricia Adams, “The World Bank’s Finances: An International S&L Crisis,” Policy Analysis, No. 215, Cato Institute, Washington, D.C., October 3, 1994.

12. Portfolio Management Task Force, Effective Implementation: Key to Development Impact,
report of the World Bank’s Portfolio Management Task Force (Washington:
World Bank, October 2, 1992). Also see the earlier confidential
discussion draft dated July 24, 1992.

13. Eugene Rotberg, a former treasurer of the World Bank, considers loan rescheduling to be a financial charade.

If someone owes you money and you say “You
don’t have to pay it for ten years,” then ten
years go by, and you don’t collect, and
another ten years — well you may not wish to
call that forgiveness for bookkeeping or
political purposes, but you’re not getting
paid. “Forgiveness” is a legal term that
says, “You owed me the money — you no longer
owe it.” The Paris Club says, “You owe me the
money, you haven’t paid me, and I agree that
you don’t have to pay me, but you still owe
it.” Now I’m not going to talk about how many
angels can dance on the head of a pin, but
that is de facto forgiveness.

(From Lenny Glynn, “Look Whose Turn It Is To Bite The Bullet” Global Finance, New York, March 1990).

Canada’s former Auditor General also expressed concern about
rescheduling sovereign loans. “The problem,” Kenneth Dye explained in
his 1989 annual report, “is that rescheduling is used as a shield to
hide from public scrutiny losses the government has suffered or is
likely to suffer on its sovereign loans. Paperwork disguises reality.”
In both his 1989 and 1990 reports to the House of Commons, the Auditor
General criticized the Export Development Corporation for inadequately
recognizing their sovereign risk. By late 1990, the Canadian government
acknowledged that many of EDC’s loans were unlikely to be repaid and
added to EDC’s provisions against loan losses, which contributed to a
$8.4 billion addition to the national debt. See “Ottawa’s debt rises
$8B at stroke of pen,” The Financial Post, October 30, 1990. Also see EDC 1989 Annual Report, Export Development Corporation, Ottawa, 1990 and Report of the Auditor General of Canada to the House of Commons, Fiscal Year Ended 31 March 1989.

14. Operations Evaluation Department, Early Experience with Involuntary Resettlement: Overview, Report No. 12142, The World Bank, June 30, 1993.

Vice President and Secretary, “The Bank-Wide Resettlement
Review: Mid-Term Progress Report,” International Bank for
Reconstruction and Development, SecM93-916, August 25, 1993.

Resettlement and Development: The Bankwide Review of Projects Involving Involuntary Resettlement 1986-1993, The World Bank, Environment Department, April 8, 1994.

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