(June, 29, 2001) Probe International’s report on EDC’s draft disclosure policy.

Submitted to: Export Development Corporation
151 O’Connor Street
Ottawa, Canada
K1A 1K3
Tel.: (613) 598-2500
Fax: (613) 237-2690
E-mail: disclosure@edc-see.ca

Submitted by: Probe International
225 Brunswick Avenue
Toronto, Ontario
M5S 2M6
Tel: 1-416-964-9223 ext. 227
Fax: 1-416-964-8239
https://journal.probeinternational.org/

Date submitted: June 29, 2001

Re: Draft Disclosure Policy

Probe International’s Interest

Probe International has been investigating the activities of the Export Development Corporation (EDC) for the past two decades. Based in Canada, we have worked with citizens groups in Third World countries, and OECD countries, to research the environmental, social, and financial damage caused by projects supported by EDC. Probe International has 20,000 supporters across Canada, many of whom regularly write letters of concern about EDC to their members of parliament. Patricia Adams, Probe International’s Executive Director, and an economist, has written about the costly activities of EDC and other export credit agencies in Odious Debts: Loose Lending, Corruption, and the Third World’s Environmental Legacy (Earthscan 1991), in The Next City magazine, Spring 1997 edition, and in the National Post.¹ Probe International has corresponded with Canadian government officials, including the various ministers who have been responsible for EDC, and with EDC officials, in an attempt to disclose details of EDC’s operations for the Canadian public. We believe review of this information is in the public interest, and that this information must be in the public domain. The following position on EDC’s Draft Disclosure Policy is the result of Probe International’s work investigating EDC’s activities.

Summary and Recommendations

The Export Development Corporation transfers the private risks of international business to the public sector. By socializing this risk, it spawns moral hazard allowing exports, investments, and projects to proceed that are otherwise economically unviable. It also interrupts important messages, conveyed by the market, that an open, transparent, accountable, and honest government that respects the rule of law is good for business. By doing so, it bankrolls or reinforces bad government and spawns crony capitalism.

Because of its exemption from the Access to Information Act, EDC’s activities are sheltered from public view. The absence of public sector oversight and market discipline make EDC-supported projects a perfect breeding ground for corruption and business activities that destroy the environment, sink Third World citizens in debt, and cost Canadian taxpayers money. Most profoundly, EDC secrecy potentially threatens lives, and undermines Canadian democracy.

With its preferential financing, tax, and regulatory position, EDC crowds out viable private sector businesses. Probe International argues that there is no public policy reason for EDC to exist. As long as EDC does exist, however, it must be subject to the Access to Information Act.

Probe International has observed over the past 20 years that the Export Development Corporation has become more secretive. In its Draft Disclosure Policy, EDC has agreed to release bare-bones details of its operations that were, prior to 1984, routinely published in its Annual Report. EDC maintains that it cannot automatically release more information on the grounds that this information is protected by confidentiality agreements, and that its operations are commercial.

The Canadian government’s tendency to secrecy is alarming. The Information Commissioner’s “Mayday – Mayday” plea last October in his 1999-2000 Annual Report to Parliament alerted Canadians to this threat to our democracy. In his report, the Honourable John M. Reid, lays out how the Access to Information Act is under siege from governmental institutions. This is consistent with Probe International’s experience.

The U.S. Commission on Protecting and Reducing Government Secrecy, headed by United States Senator Daniel Patrick Moynihan, said in its 1997 report “secrecy has significant consequences for the national interest when, as a result, policy-makers are not fully informed, government is not held accountable for its actions, and the public cannot engage in informed debate.”²

Greater openness, the Commission said, permits more public understanding of the government’s actions. “It makes free exchange of scientific information possible and encourages discoveries that foster economic growth.” Moreover, by allowing for a fuller understanding of the past, openness “provides opportunities to learn lessons from what has gone before . . . helping to prepare for the future.”

“Secrecy,” concludes Senator Moynihan “is for losers.”³

Canada’s former Supreme Court Justice Gerard LaForest also eloquently described the importance of information disclosure to democracy in Dagg v. Canada (Minister of Finance), [1997] 2 S.C.R. 403 at 432. The overarching purpose of Canada’s access to information legislation, he said, “is to facilitate democracy. It does so in two related ways. It helps to ensure first, that citizens have the information required to participate meaningfully in the democratic process, and secondly, that politicians and bureaucrats remain accountable to the citizenry.”

Probe International argues that EDC, as a Crown corporation that operates on the good faith and credit of the Canadian taxpayer, must be subject to the Access to Information Act. The Access to Information Act is one of the few effective tools available to Canadian citizens that allow them to find out what they want to know about government actions, rather than what the government wants them to know.

We therefore recommend that:

• EDC immediately be made subject to the Access to Information Act;
• much of the detail about EDC projects be readily available, online, automatically, thereby eliminating the need for citizens to rely on EDC discretion to release information;
• the disclosure of information on public interest grounds should prevail over corporate interests.

If private companies do not want to accept the terms of greater disclosure required of public agencies, such as EDC, they should seek private sector financing instead.

EDC’s Draft Disclosure Policy is Fatally Flawed

The Export Development Corporation is a Crown corporation that subsidizes the exports and foreign investments of Canadian companies. In 2000, it supported roughly $45 billion in exports and foreign investments and carries liabilities of nearly $18 billion on the good faith and credit of the Canadian taxpayer. EDC has committed funds to such notorious projects as the Three Gorges dam in China, gold and copper mines in South America, and the export of old growth forests from British Columbia. Yet EDC is exempt from the Access to Information Act. EDC has the power to exercise an extraordinary level of secrecy, and it does so with impunity. Probe International argues that EDC’s exemption from the Act shelters EDC’s damaging and costly activities from public view. The absence of public sector oversight and market discipline make EDC-supported projects a breeding ground for corruption and cronyism. EDC’s secrecy can also spawn a recklessness that creates unacceptable environmental, financial, and social costs. Perhaps most importantly, EDC secrecy can put lives at risk.

EDC claims that it must uphold this secrecy because the majority of its business is commercial. Probe International unequivocally rejects this claim, as do many other independent financial experts and industry groups.⁴ For an explanation of why this claim is a myth spun by EDC and how EDC maintains this myth by virtue of its exemption from the Access to Information Act, please see the referenced articles by Patricia Adams, Executive Director of Probe International.⁵ The World Trade Organization has been frustrated by EDC’s refusal to disclose information and other OECD members have suspected that EDC is breaking an OECD trade agreement by extending prohibited subsidies and hiding the evidence behind a wall of secrecy.⁶

Under public pressure to be more transparent, EDC recently released its Draft Disclosure Policy for public comment. The Chairman of EDC, Patrick Lavelle, lauded EDC’s newfound transparency. “I think it allows the sun to shine on the EDC and the projects that it is financing which are supportive of Canadian exporters . . . And I think it is a way to provide accountability for the agency to the taxpayer,” said Mr. Lavelle.⁷

Probe International has reviewed EDC’s Draft Disclosure Policy and concluded that it will do neither. EDC’s Draft Disclosure Policy is a legally unenforceable guideline that relies on the discretion of EDC and its clients to release what they choose and when. The vast majority of the draft policy simply codifies the status quo. While EDC says it will require proponents of projects to release environmental and related social information at least 45 days prior to signing by EDC, given the conflict of interest of proponents and the discretionary nature of EDC’s Environmental Review Framework, this disclosure requirement will have little effect in changing the constellation of damaging and costly projects that EDC supports.

Probe International has requested information from EDC for nearly 20 years. Based on this experience, as well as our extensive experience using the Canadian Access to Information Act and the U.S. Freedom of Information Act, we believe EDC’s Draft Disclosure Policy, which is arbitrary, discretionary, and unenforceable, is fatally flawed. It should be scrapped and EDC subjected to the Access to Information Act in the interest of making this institution, which derives its wherewithal from Canadian taxpayers, more accountable to them.

Our reasons are as follows:

EDC Assesses Itself

EDC commits itself to disclosure if, in its own assessment, “accountability is relevant,” if there isn’t “a compelling reason for confidentiality,” and if disclosure does “not jeopardize its pursuit of its legislative mandate,” which, according to the Export Development Act, is to support Canadian capacity to engage in export trade and respond to international business opportunities.

Any information, EDC says, that relates to commercial competitiveness or is “unrelated to public accountability” will be deemed confidential and withheld.

If a requestor is able to ascertain the reasons why EDC is withholding information, and wishes to challenge EDC’s self-assessment, he would have the option, under EDC’s proposal, to appeal to an EDC-designated Compliance Officer. This Compliance Officer would be paid by EDC and accountable to EDC’s Director of Internal Audit who will keep the Audit Committee of the Board of Directors informed. The decisions of this Compliance Officer would not be subject to judicial review.

This process has no credibility. Self-assessment, without independent oversight, and recourse to judicial review, as provided for under the Access to Information Act, means that EDC will have unrestrained powers to hide mistakes, losses, improprieties, and unacceptable risks behind closed doors.

EDC’s Freedom From Legally Binding Information Disclosure Laws, and the Auditor General Act, Handicaps the Auditor General’s Ability to Inform the Canadian Public of EDC’s Internal Workings

As long as EDC is exempt from the Access to Information Act, even the Auditor General, EDC’s auditor, is unable to inform the public of the details of his evaluations, as he would for other government departments. For example, the Auditor General recently released his review of EDC’s compliance with its new Environmental Review Framework and declared that in most cases “the Framework was not operating effectively.”⁸ The Auditor based this on a review of more than 30 EDC projects. When we asked the Auditor General for a list of those projects, we were informed by the OAG that “when doing an audit the Office of the Auditor General must respect the confidentiality policy of the organization being audited” (Auditor General Act section 13(3)). This bound the OAG to EDC’s policy, which is, “consistent with commercial practice, EDC considers any transaction information that is not known to the public as confidential and will not disclose such information without the permission of the relevant party or parties, as the case may be.” Richard Smith, Special Advisor in the Audit Operations at the OAG said in a May 30, 2001 letter to Probe International, “We believe strongly that the Corporation should be more open with the public.”

Furthermore, EDC makes the empty promise that perhaps the Auditor General, in his special examination of the EDC every five years will review “the appropriateness of this [Disclosure] policy, and EDC’s adherence to it.” Yet the Auditor General’s special examination of EDC is not disclosed to the public. Probe International asked for the OAG’s special examination reports from 1994 and 1999, and was refused both times. As EDC spokesman Rod Giles explained to Probe International in a December 24, 1998 e-mail message, “The AG special examination of EDC sent to our Board of Directors is private and, therefore, not available to the public.”

While the Auditor General carries out an annual financial audit of EDC’s books, his conclusions are limited to a single-page letter reprinted in EDC’s Annual Report. Last year, when Probe International attempted to get more detailed financial information and an explanation of how the books are prepared, in order to understand how EDC losses, liabilities, and cross-subsidies are handled, the Office of the Auditor General told us in a June 27, 2000 letter from Stuart Barr, Director, Crown Corporations Group, that “questions pertaining to the financial statements would be more appropriately directed to EDC management as EDC management is responsible for the financial statements. I would kindly ask you to direct further questions pertaining to EDC financial statements to EDC management.” Needless to say, Probe International regularly asks EDC for financial information, but rarely gets the level of detail we need to effectively evaluate EDC’s published financial statements.

EDC Lets Canadian Corporations Set Its Rules of Disclosure

Throughout the Draft Disclosure Policy, EDC states over and over that its client corporations compel it to secrecy: “EDC’s disclosure practices must reflect its legal obligations and concerns for protecting confidential information entrusted to EDC by its customers in the normal course of conducting its business.”

Probe International believes that EDC has its lines of responsibility and accountability exactly backwards. EDC is a Crown corporation that would not exist were it not for its ability to operate on, what Michael Mackenzie, former director of the Office of the Superintendent of Financial Institutions described as “Her Majesty’s credit card.”⁹ Without taxpayers backing it, there would be no EDC. EDC’s first responsibility, therefore, is to Canadian taxpayers. EDC should, accordingly, inform its corporate customers that since it is a public institution, those corporations will have to accept a level of public disclosure that they might not have to accept if they were seeking financial support from a private sector financial institution. If those corporations do not want to accept that level of disclosure, they are free to seek financing elsewhere. This is the approach used by the Export-Import Bank of the United States, the American EDC-equivalent, which is subject to the U.S. Freedom of Information Act.

EDC maintains that it is no different than a private sector financial institution and therefore should not be subject to the disclosure rules of a public agency. As mentioned earlier, this is a myth that few outside EDC believe. EDC also argues in its Draft Disclosure Policy that EDC “is one of the only real options for Canadian companies seeking trade finance solutions.” Various representations by the insurance and banking industry to Parliament over the past decade, arguing that EDC keeps them out of the international trade and investment market by using its government-granted preferential finances, disprove EDC’s claim. EDC pays no taxes or dividends to the government, it borrows at the preferential government rate, and gets compensation for its written-off loans from the consolidated revenue fund.

EDC’s Wide Net of Exemptions Threatens Economic Development, Good Governance, and Public Health and Safety

EDC has a long record of financing projects with enormous environmental costs (the Omai gold mine in Guyana, the Kumtor gold mine in Kyrgyzstan, the Mae Moh lignite power plant in Thailand, etc.);

that are economically unsound (the Three Gorges dam will produce power at two to three times the price of competitors, the Guavio dam in Colombia, the Chamera dam in India, etc.);

that contribute to the violation of human rights (Three Gorges evacuees are being detained and allegedly tortured for appealing for funds to help them resettle after the dam floods their farms, the Ralco dam in Chile is violating indigenous rights, and the Colombian Urra dam has lead to extra-paramilitary executions of indigenous people protesting their forced dislocation);

and which are plagued by corruption (in Argentina, former President Menem called the EDC-supported Yacyretá dam “a monument to corruption,” and the Candu nuclear reactor sale involved payments that a former Auditor General of Canada discovered had all the characteristics of a bribe).

EDC secrecy also threatens public safety in other countries. The most graphic and current example is provided by the two Chamera dam projects in India.

In 1998, Probe International filed an Access to Information request to CIDA for details of the Chamera I dam project on India’s Ravi river. A Canadian consortium of companies – including SNC and Acres International, Marine Industries of Montreal, and Canadian General Electric had won the contract in 1984 to build this $1.3 billion hydrodam. They won the contract thanks to $645 million in loans from CIDA and EDC – their largest joint loan ever.

By the year 2000, after an appeal to the Access to Information Commissioner, Probe International received more than 1,600 pages of documents including correspondence, internal memos and emails, reports by the client (the National Hydro Power Corporation of India or NHPC), and performance and safety reports about this troubled project that were prepared by an independent monitor hired by CIDA.

This case is important with respect to EDC, for several reasons:

1) The released documents contain information about a project that received a large EDC loan and that is clearly and irrefutably important to Canadian foreign and economic policy. But this information is especially important to the health and safety of thousands of Indian citizens. This information – a few of the troubling details are listed below – is vitally important to those living downstream of this dam. This information is now public, for the first time.

2) Probe International secured this information only because funds from CIDA, which is subject to the Access to Information Act, were involved. Under EDC’s Draft Disclosure Policy, none of the documents containing this information, which is clearly in the public interest, would have been released.

3) The Chamera II project, a second dam project which is a mere 30 kilometres upstream of the troubled Chamera I dam, is now under construction. CIDA and EDC intended to jointly fund this dam as well, but CIDA withdrew. In 1999, EDC decided to award a $175 million loan to the project. Given EDC’s exemption from the Access to Information Act, Canadian citizens will be unable to inform themselves of the financial risks EDC is taking in supporting Chamera II and Indian citizens may be kept in the dark about the risks to their lives posed by the Chamera II project.

Probe International is carefully reviewing the more than 1,600 pages of documents received. The following is a preliminary review of the problems those documents reveal with the Chamera I dam:

• •As early as 1992 and 1993 Rousseau Sauvé Warren Inc (RSW), hired by CIDA to be the Project Monitor, warned that the integrity of the dam structure is jeopardized by the inherent weakness of rock at right abutment of the dam near the power tunnel intake. RSW said, “the power tunnel intake structure is founded on and surrounded by rock which had demonstrated several weaknesses and, therefore, may not be competent to support this very important structure without further treatment.”
• •In 1987, CIDA describes Chamera as “the most cost effective hydro project in India.” By 1994, a memo from the Canadian High Commission in New Delhi to CIDA headquarters in Hull, reports that NHPC has indicated that the “cost of producing hydroelectric power at Chamera will be more costly than any other hydroelectric plant in India.”
• •In July 1994, RSW reports to CIDA that problems with the dam remain. The spillway gates cannot be operated safely due to continuing failure of post tensioned anchors; the eight radial gates display significant leakage; the four sluice gates are not watertight due to damaged seals; significant leakages exist from the power tunnel; water from the pressure shaft infiltrates the valve gallery of the powerhouse; and operations and maintenance manuals have yet to be prepared. A year later, RSW is still not presented with the manual and warns again “without a comprehensive manual, which is available at all times to operating staff, there is a distinct risk that the safety of the project may be jeopardized some time in the future.”
• •In 1994, CIDA agrees to pay for millions of dollars worth of remedial work.
• •In September 1994, CIDA and EDC are concerned about the integrity of the project given the problems now being encountered in operating the spillway gates safely.
• •In June 1995, RSW warns that data collected about dam behavior is not being interpreted. Failure to do so “may prove to be catastrophic.” RSW notes an unusual vibration when the emergency gate was opened concurrently with the service gate, and unexpectedly rapid sediment accumulation.
• •In May 24, 1996, a major landslide occurs. The landslide reveals, in RSW’s words, that the “depth of the overburden immediately downstream from the dam is much greater than generally reported.” “In view of the foregoing, the Monitor considers the signs of instability extremely serious.” Any further signs of structural unsoundness, slides, increasing seepages into the dam and downstream of the dam, vortices on the reservoir “must be considered as being potentially catastrophic requiring the immediate, controlled lowering of the reservoir and, eventually, the shutting down of the power plant and the notification of NHPC Management, Government of India and all concerned administrative authorities in the area.” The Project Monitor reminds CIDA that it warned of this geological instability in 1993 and feels “it is regrettable that the opinion expressed in this report had received so little attention at that time.” RSW alerts CIDA to “serious symptoms of instability” and warns: “Degradation of the already precarious situation could lead to a catastrophic event involving not only a major shortage in power production but, more important than all, potential losses of lives in the communities installed downstream of the dam.”
• •As of June 1996, the operation and maintenance manual is still not available.
• •At an October 1996 meeting of RSW experts, Indian experts and others it is recommended that an elaborate program of instrumentation, monitoring and geologic mapping of the abutment and slide area be carried out “religiously and thoroughly” for “the life of the project.”
• •In October 1996, a stator cap fails and bottom end caps of all three units overheat.
• •In November 1996, turbine-generator Unit #2 is shut down.
• •In May 1997, Unit #2 is affected by obstruction upstream – possibly a chunk of concrete.
• •In June 1997, Unit #1 experiences problems similar to Unit #2.
• •Sometime in 1997 (date illegible), a memo from CIDA headquarters to the Canadian High Commission in New Delhi explains “We wanted to bring closure to our involvement in this project. We did not want to be continually funding on going [sic] repairs at Chamera. Hence, with the completion of repairs at Chamera, now should be the time to end our involvement . . . Could I please have the views of the post. Does the potential for Chamera II alter our position.” On July 4, 1997, the post then recommends that “we continue to support the current repair process (within reasonable time and cost parameters) in order that we maintain a positive front for Canadian business interests at this critical stage.” This same message is repeated on July 11, 1997 from the post to CIDA headquarters as Canadian engineers struggle with problems concerning Chamera I’s generating units.
• •On July 17, 1997, RSW warns CIDA of the potential risk of powerhouse flooding caused by failure of concrete lining in the hydraulic passage. If left untreated, RSW warns “the failed lining may result in a sudden and potentially catastrophic collapse with every possibility to not only damage the turbines but, by the debris accumulating in the inlet valves, prohibit the isolation of the powerhouse in case of emergency and flood it with fatal consequences to the operating personnel.” One such incident in the life of a hydroelectric project, RSW explains may be dismissed as a highly unusual event. “The second incident brought us considerable cause for concern and now the third similar incident has increased that level of concern to the point where we believe that CIDA should be advised in writing of the potential dangers.” “We, as Project Monitor, are of the opinion that the continued operation of this power plant by subjecting the units to such abuse amounts to dereliction of duty by NHPC towards the public that entrusted the operation and maintenance of this facility to it.”
• •In September 1997, a letter from the Chairman and Managing Director of the NHPC to a Canadian High Commission official lists “the maladies afflicting the operation” of Chamera I. Unit #2 suffered damage and has been out of operation for over a year; Unit #3 sustained damage to its stator and overheating; the Siemens supplied GIS of Unit #2 failed in February 1996; SNC/Acres, “who were the principal consultants for the project with a moral obligation to ensure satisfactory operation,” have shown a lack of interest and been inactive.
• •By January 1998, the operation and maintenance manual is still not available.
• •By April 1998, Unit #2 is not operational and Unit #1 is running in an erratic fashion. Project documents end soon after.

EDC Can Abuse Cost Recovery Principle to Deter Disclosure

EDC intends to charge requestors of information for expenses incurred by EDC in fulfilling those requests under its own Disclosure Policy. This, EDC says, is consistent with Treasury Board’s Cost Recovery and Charging Policy. Probe International generally supports the concept of cost recovery. But in the absence of an independent reviewer, such as the Information Commissioner, and recourse to a judicial procedure, Probe International is not confident EDC won’t abuse the principle by levying fees against those it wishes to deter, and waiving fees for those it considers more sympathetic.

But EDC’s proposal seems especially unjustified in light of the costly TV and magazine ads, and news program sponsorships that it pays for to promote itself to the Canadian public. When Probe International asked EDC spokesman Rod Giles for EDC’s advertising budget with breakouts for radio, print, and TV ads and program sponsorship, he responded on May 17, 2000, “Unfortunately, EDC does not disclose specific details of its administrative expenses which, as you know, are derived from general revenues and not from tax dollars.”

Probe International believes that, given EDC’s apparently ample advertising budget, any expenses incurred by EDC in processing public information requests should be paid out of this budget. Review of the numbers, we believe, would show that the costs of filling these requests are a mere fraction of the advertising budget.

Endnotes

1.”EDC tempts a trade war,” National Post, July 6,2000.

“U.S. threat over ‘unfair’ exports: Canada’s EDC targeted,” National Post, July 6, 2000.

“Secret of EDC’s ‘success’: Taxpayers’ money,” National Post, May 25,2000.

“‘I think the EDC should be shut down’: Q&A,” Ottawa Citizen, May 19,2000.

“EDC is buying off its opponents Public-private collusion to create export cartel,” National Post, November 18, 1999.

“EDC’s Quebec tilt hardly ‘commercial’,” Financial Post, March 1, 1999.

“All aboard the EDC money train,” Financial Post, January 11,1999.2. Commission on Protecting and Reducing Government Secrecy, Secrecy: Report of the Commission on Protecting and Reducing Government Secrecy (Washington, D.C.: Government Printing Office, 1997).

3. Daniel Patrick Moynihan, Secrecy (New Haven, Yale University Press, 1998). p.1.

4. “‘Bottomless hypocrisy’ demands scrutiny: Economist calls for royal commission,” Ottawa Citizen, April 3, 2000.
References to experts comparing EDC to private sector banks are made in “Secret of EDC’s ‘success’: Taxpayers’ money,” National Post, May 25, 2000.
“Crown agency cloaks deals in secrecy,” Ottawa Citizen, May 9, 2000.

5. “Secret of EDC’s ‘success’: Taxpayers’ money,” National Post, May 25, 2000.
“EDC tempts a trade war,” National Post, July 6, 2000.

6. “‘Bottomless hypocrisy’ demands scrutiny: Economist calls for royal commission,” Ottawa Citizen, April 3, 2000.
“Secret of EDC’s ‘success’: Taxpayers’ money,” National Post, May 25, 2000.
“U.S. threat over ‘unfair’ exports: Canada’s EDC targeted,” National Post, July 6, 2000. “EDC tempts a trade war,” National Post, July 6, 2000.
“U.S. assails Canada over secrecy: Urges WTO to force disclosure of subsidy and government support for aerospace firms,” Globe and Mail, May 29, 1999.

7. “Secretive EDC agrees to be more transparent: Dramatic reversal in disclosure policy credits Citizen,” Ottawa Citizen, May 22, 2001.

8. Report on the Export Development Corporation’s Environmental Review Framework, Office of the Auditor General of Canada, May 2001.

9. “Crown agency cloaks deals in secrecy,” Ottawa Citizen, May 9, 2000.