Independent report: Dutch and German development banks failed to comply with environmental and human rights standards in financing the Barro Blanco dam in Panama

Kiad, Panama/Amsterdam/Bogota – Last Friday, a long-awaited report by an independent panel, found that FMO and DEG, the Dutch and German development banks, violated their own policies by failing to adequately assess the risks to indigenous rights and the environment before approving a US$50 million loan to GENISA, the developer of the Barro Blanco hydroelectric project in Panama.

FMO and DEG’s response to the findings, while acknowledging some deficiencies in their assessment, does not commit to any measures to address the outstanding policy violations. Even while the report concludes that “the lenders have not taken the resistance of the affected communities seriously enough,” it appears that FMO and DEG continue to do so.

No ‘Free, Prior and Informed Consent’

In May 2014, the Movimiento 10 de Abril (M-10), representing indigenous peoples directly affected by the project, with the support of Both ENDS and SOMO, filed the first complaint to the Independent Complaints Mechanism (ICM) of the FMO and DEG. The complaint alleges that the Barro Blanco dam will affect part of the Ngöbe-Buglé indigenous territory, flooding their homes, schools, and religious, archaeological, and cultural sites. Despite national and international human rights obligations, the Panamanian government, GENISA and the banks failed to obtain the free, prior, and informed consent (FPIC) of the Ngöbe-Buglé before the project was approved. The ICM found that the “lenders should have sought greater clarity on whether there was consent to the project from the appropriate indigenous authorities prior to project approval.”

“Stop the project”

“We did not give our consent to this project before it was approved, and it does not have our consent today,” said Manolo Miranda, a representative of the M-10. “We demand that the government, GENISA, and the banks respect our rights and stop this project.”

The ICM found that “while the [loan] agreement was reached prior to significant construction, significant issues related to social and environmental impact and, in particular, issues related to the rights of indigenous peoples were not completely assessed prior to the [loan] agreement.” The banks’ failure to identify the potential impacts of the project led to a subsequent failure to require their client to take any action to mitigate those impacts. The environmental and social action plan (ESAP) appended to the loan agreement “contains no provision on land acquisition and resettlement and nothing on biodiversity and natural resources management. Neither does it contain any reference to issues related to cultural heritage.”

Failure

“This failure constitutes a violation of international standards regarding the obligation to elaborate adequate and comprehensive Environmental and Social Impact Assessments before implementing any development project, in order to guarantee the right to free, prior and informed consent, information and effective participation of the potentially affected community”, explained Ana María Mondragón, lawyer at the Interamerican Association for Environmental Defense (AIDA).

While FMO and DEG acknowledged in their official response to the ICM’s report that they “were not fully appraised at credit approval,” they made no further concrete commitments to ensure that the rights of those affected by the dam will be respected. The banks claim that they are “facing limitations in their influence” over government processes to come to a satisfactory agreement with all stakeholders involved. Their actions, however, reveal a different story.

Dialogue

In February, the Panamanian government provisionally suspended construction of the Barro Blanco dam. Subsequent to the suspension, the government convened a dialogue table with the Ngöbe-Buglé, with the facilitation of the United Nations, to discuss the future of the project. Rather than encouraging the Government of Panama to respect the rights of the Ngöbe-Buglé, FMO and DEG have requested that Panama’s environmental authority reconsider the suspension and allow their client to resume construction. In February, they sent a letter to the Vice President of Panama, expressing their “great concern and consternation” about the suspension and noting that it “may weigh upon future investment decisions, and harm the flow of long-term investments into Panama.”

Independent investigation

While the banks asserted that their consultants found nothing that would warrant the suspension of the project, they failed to mention that their own independent accountability mechanism was undertaking an investigation of the project. Indeed, by that time, the banks had already seen a draft of the ICM’s report with findings that the project was not in compliance with its own policies.

“We were surprised to find out about the role of the banks in influencing the national process, as this is in contradiction to their assertions that they are not in a position to intervene in national decision-making.” said Anouk Franck, senior policy advisor at Both ENDS, based in Amsterdam. “They should now show their commitment in coming to a solution and start taking FPIC seriously, in the case of Barro Blanco, where due to delays in tackling the issue, the banks might need to accept losses on their loan. And they need to find ways to assure themselves FPIC is obtained where relevant, for example through human rights impact assessments.”

Secret agreement

The handling of the complaint was a lengthy and at times frustrating process. GENISA refused to cooperate with the ICM and provide them with access to project documents, leading the banks to conclude a secret side agreement with GENISA. The secret side agreement superseded the publicly available procedures of the ICM and allowed GENISA to review the draft and final investigation reports before they were shared with complainants.

“FMO and DEG are more concerned with protecting the interests of their client than they are with protecting the rights of those affected by the projects they finance,” said Kris Genovese, senior researcher at the Centre for Research on Multinational Corporations (SOMO). “It’s a tragic irony that banks asked the consent of the company to publish the ICM’s investigation report, but didn’t ask consent of Ngöbe-Buglé for the project.”

Clean development?

The Barro Blanco project was registered under the Clean Development Mechanism, a system under the Kyoto Protocol that allows the crediting of emission reductions from greenhouse gas abatement projects in developing countries.

“As climate finance flows are expected to flow through various channels in the future, the lessons of Barro Blanco must be taken very seriously. To prevent that future climate mitigation projects have negative impacts, a strong institutional safeguard system that respects all human rights is required,” said Pierre-Jean Brasier, network coordinator at Carbon Market Watch. “The opportunity to establish such a necessary safeguards system is now, ahead of the Paris agreement, to put the respect of human rights on top of the UNFCCC agenda.”

The ICM will monitor the banks’ implementation of corrective actions and recommendations. Meanwhile, the M10 expect FMO and DEG to withdrawal their investment from the project and ask that the Dutch and German governments show a public commitment to ensuring the rights of the affected Ngöbe-Buglé. At the same time, the banks should refrain from putting pressure on the Panamanian government.

Read the full Independent Expert Panel’s Compliance Review Report here(opens in new window) .