Summary: A letter from international NGOs regarding JP Morgan Chase's proposed financing of Gigel Gibe III Dam in Ethiopia which demands: "Prior to the consideration of financing, JP Morgan Chase should ensure due diligence of project compliance with Ethiopia's national laws, international standards and its own policies as well as consider the integrity of this project in relation to Ethiopia's development needs."
Amy Davidsen, Director, Office of Environmental Affairs
JPMorganChase
270 Park Avenue, 29th Floor
New York, New York 10017
Re: Gilgel Gibe III Hydropower Dam, Ethiopia
Dear Ms. Davidsen:
We are writing to express our deep concern regarding JPMorgan Chase’s
consideration of the provision of a $400 million commercial loan to the
Government of Ethiopia for its controversial Gilgel Gibe III
Hydroelectric Dam project. We note that JPMorgan Chase has not only its
own environmental policies but has also adopted the Equator Principles
and has committed to extending those principles to “all loans, debt and
equity underwriting, financial advisories and project-linked derivative
transactions where the use of proceeds is designated for potentially
damaging projects.” In this case, the use of loan proceeds would be for
a damaging project that is in violation of national environmental and
procurement laws as well as relevant international standards. We
believe that JPMorgan Chase should give the highest consideration to
the dramatic environmental and social impacts associated with the
project, as well as the financial risks it creates for Ethiopia.
The Gilgel Gibe III project would cost about €1.4 billion, and consists
of the construction of the largest dam in Ethiopia and a powerhouse
which will generate 1,870 MW. A fact-finding mission carried out in
November 2007 by the non-governmental organizations Campagna per la
Riforma della Banca Mondiale (CRBM) and International Rivers confirmed
significant concerns about the project planning and procurement
processes which had already been raised in Italian and Ethiopian media
in the last two years. We would be glad to share the mission report
with your office once it is complete in coming weeks. In the meantime,
we would like to bring to your attention the following immediate
concerns:
Illegal Procurement. The Engineering Procurement Construction
(EPC) Contract between the Ethiopian Electric Power Corporation (EEPCo)
and the Italian firm Salini Costruttori for the construction of Gilgel
Gibe III Dam was signed in July 2006 following a direct negotiation. No
international tender was called, contradicting the internal legislation
issued by the Ethiopian Ministry of Finance and Economic Development.
This practice is out of compliance with European Union legislation on
public procurement as well as the procurement guidelines of the World
Bank, African Development Bank, and European Investment Bank.
Investigations are underway regarding the contract procurement and
financing of the nearly-complete Gilgel Gibe II Dam. In 2006, members
of the Ethiopian Parliament raised concerns over the project’s direct
contract procurement used by the same parties, EEPCo and Salini.
Italy’s Ministry of Foreign Affairs is under criminal investigation by
the Finance Police of Rome for corrupt actions associated with its
approval of a €220 million loan for Gilgel Gibe II, the biggest loan
ever granted by the Italian revolving fund, after negative opinions
were issued by its own internal Evaluation Team and the Ministry of
Economy. The decision to approve the loan has been the subject of two
points of order in the Italian Parliament, in 2004 and 2006,
respectively. Ironically, the loan was given shortly after a decision
by the government of Italy to cancel €367 million of bilateral debt to
Ethiopia. The problems of Gilgel Gibe II raise concerns about the
possibility of corrupt, illegal and/or unethical practices involved in
the contract procurement and financing of Gilgel Gibe III. Financial
involvement in this project could risk the reputation of JPMorgan
Chase.
The Ethiopian Energy Sector. Gilgel Gibe III represents a tripling of
Ethiopia’s current domestic demand and is part of an aggressive energy
plan by the government of Ethiopia to build surplus power for export,
raising concerns about the prioritization and financial risk of
developing this and other large hydrodam projects. Although EEPCo is
undertaking an aggressive expansion of its domestic distribution
system, peak demand as of January 2006 stood at less than 600 MW and
the nation is not expected to be able to absorb supply from Gilgel Gibe
III. Electricity from Gilgel Gibe III is earmarked for export (to
Kenya, as confirmed by Ethiopian officials) yet there is no power
purchase agreement close to being put in place. This export-oriented
project is a questionable priority for the government of Ethiopia,
especially in light of investments needed in order to meet the
Millennium Development Goals which could directly address the country’s
grave poverty. The current generation and grid expansion require an
additional €3 to 4 billion of investment just to complete the
construction of ongoing projects in the next few years. These
investments are also putting EEPCo’s financial health at risk, a
situation to which the World Bank publicly expressed alarm in 2005.
Until recently, the World Bank and IMF discouraged the government of
Ethiopia from guaranteeing a commercial loan from JPMorgan Chase.
However, the government’s risky decision to guarantee this loan is
reportedly why the loan negotiation has been able to advance.
Environmental Non-Compliance and Negative Impacts. The construction of
Gilgel Gibe III dam has already started without receiving the required
environmental permit from the national Environmental Protection
Authority (EPA), a violation of Ethiopia’s Environmental Policy. At the
present time, EEPCo reports that construction of the project is already
13% complete, and the Omo River will soon be diverted. Yet the EPA
states that they have yet to receive the Environmental Impact
Assessment (EIA) of the project. The same lack of compliance with the
national environmental policy was seen during construction of Gilgel
Gibe II project.
The EIA, prepared by Italian consultant, CESI, and disclosed in late
2007 by the Italian Export Credit Agency, SACE, is wholly inadequate
according to international best practice. It excludes any assessment of
downstream impacts associated with the building of the new dam. The Omo
River, which flows south a further 600 km downstream of the dam’s site,
crosses the Omo National Park, an area of great biodiversity in Africa
and populated by more then fifteen different indigenous groups still
engaged in traditional agricultural and pastoral activities. The
construction of such a mega-dam will alter the river flows and could
cause serious impacts to downstream ecosystems. We note that JPMorgan
Chase’s forestry policy says that it will not support projects that
would significantly convert or degrade critical natural habitat, with
the definition of critical natural habitat including “existing
protected areas and areas officially proposed by governments as
protected areas” such as the Omo National Park. The Omo River empties
into Lake Turkana (a cross-boundary lake), and crosses the Lower Omo
Valley, which was designated a UNESCO World Heritage Site in 1980.
Upstream of the dam site, a 150 km long reservoir will be created,
flooding a unique canyon. The reservoir will submerge 500 hectares of
agricultural land, 1,500 hectares of riverine forest and 25,000
hectares of deciduous woodland. While the EIA argues that the
greenhouse gas emissions from Gilgel Gibe III would be negligible, no
scientific analysis has been conducted to estimate potential reservoir
emissions. This is of particular concern as the EIA argues that the
best mitigation action for removal of the 20.4 million cubic meters of
woody biomass in the reservoir area is to take no action, leaving it to
decompose in the reservoir. The decomposition of such biomass would
create a significant amount of greenhouse gas emissions from the
reservoir. According to JPMorgan Chase’s environmental policy, the
financial cost of greenhouse gas emissions should be quantified and
integrated into the project’s financial analysis.
The total population of the affected region is over 210,000 people. The
EIA reports that approximately 400 households (at least 2,000
individuals) will be displaced and social and commercial exchange
between the communities living on both sides of the river will be
interrupted. However, the EIA lists a total of only 52 affected
individuals which were officially consulted. This is an inadequate
consultation process and out of line with Chapter 10, Article 92 of the
Ethiopian Constitution which states that people have the right to full
consultation and to the expression of their views in the planning and
implementation of environmental policies and projects that affect them
directly. While the social impacts seem inadequately addressed as a
whole, one of the most concerning is that the EIA estimates that the
grazing lands of some 275 nomadic households (about 1,400 people) will
be affected by the dam’s reservoir. However, these households have not
been considered for compensation, nor have they been consulted.
Public Consultation and Participation. Extremely limited and
inadequate public consultation has been organized during the
preparation of the Gilgel Gibe III project. While construction has
already begun, there was virtually no consultation of affected
communities and virtually no project information available more
generally to the public. During the November 2007 visit, CRBM and
International Rivers encountered a very worrying situation concerning
the freedom of expression of the Ethiopian civil society. Local
environmental associations fear government persecution should they
attempt to address issues related to the energy sector and impacts of
dams. This is consistent with broader government repression of
political and civil society groups. In October 2005, a resolution of
the European Parliament expressed the concerns of the European Union
about the anti-democratic conduct of the Ethiopian Government and its
brutal repression of the opposition, asking, among others, “to balance
its assistance to the country according to progress of the democratic
process”.
Position of Other Investors. Due to the clear non-compliance
with its procurement standards the World Bank has stated that it is not
ready to support Gilgel Gibe III, replicating its decision not to
support the Gilgel Gibe II Dam for identical reasons. Contract
procurement is also out of compliance with the standards of the
European Investment Bank and the African Development Bank, and has been
brought to the attention of both institutions. SACE, the Italian Export
Credit Agency, has officially declined a request by Salini for an
export credit guarantee, repeating its 2006 decision on Salini’s
request regarding Gilgel Gibe II. In a reply letter sent on January 10,
2008, the Italian Export Credit Agency stated that “SACE has been
unable to support the [Gilgel Gibe III] project in any form”.
We expect JPMorgan Chase to review the Gilgel Gibe III project against
its policies and international standards and to fully consider the
project's environmental and social impacts. Prior to consideration of
financing, JPMorgan Chase should ensure due diligence of project
compliance with Ethiopia’s national laws, international standards and
its own policies as well as consider the integrity of this project in
relation to Ethiopia’s development needs. Given that other important
investors have already declined any possible financing, we would urge
you to also consider the economical, political and reputational risk
associated with this project, and therefore to refuse any loan or other
financial support at this time for the Gilgel Gibe III hydropower
project.
We look forward to hearing from you at your earliest convenience on how
JPMorgan Chase will address these outstanding issues and we count on
your attention to the project.
Best wishes,
Caterina Amicucci
Campagna per la Riforma della Banca Mondiale, Italy
camicucci [at] crbm [dot] org www.crbm.org
Anne-Sophie Simpere
Les Amis de la Terre, France
as.simpere [at] amisdelaterre [dot] org www.amisdelaterre.org
Terri Hathaway
International Rivers, Cameroon / US
terri [at] internationalrivers [dot] org
