Lessons from my three years engaging with China’s hydropower giants

A first-person account of how China’s hydropower giants engage with civil society groups when operating overseas

By Stephanie Jensen-Cormier

PPDC-Hydro2
Flooded temples and homes, Lower Sesan 2 Hydropower Project in Cambodia, August 2018, International Rivers

Global hydropower is a big industry. It currently supplies around 16% of global electricity and, though capacity installation rates have remained steady since 2008, is seeing a huge rise in investments. In 2017 the amount of money committed to hydropower projects doubled from the previous year. Chinese hydropower companies hold by far the lion’s share of this market, up to 70% according to the People’s Daily.

Increasingly packaging their projects under the “Belt and Road Initiative”, China’s hydropower companies tend to speak of their overseas projects in terms of poverty reduction, improving livelihoods, protecting the environment, and encouraging development. The negative effects of large scale hydro projects have been broadly documented, however. To take just one example, dams have displaced over 80 million people worldwide and are estimated to have negatively affected 472 million people.

With evidence stacking up against their claims to bring green development to communities, it is important to assess and judge just how serious China’s hydropower companies are about their words. One lens through which to judge this is companies’ engagement with civil society, who play an indispensable role in increasing companies’ accountability and warning about negative environmental and social impacts which the company may otherwise ignore.

During my three years working for International Rivers in China I had the opportunity to engage with some of these companies on their overseas projects. I’ve seen companies take steps towards greater openness to engage, understand and learn about the environmental and social concerns surrounding their projects. This has even led to tangible results in some cases. On the whole, however, my experiences showed that there is a long way to go before China’s hydro giants are ready to take that extra leap away from their traditional operating models and towards one which is more transparent, accountable and open to engagement. This blog outlines some of my key observations from interactions with Chinese hydropower companies and thoughts about how such corporate – civil society engagement may progress in the coming years.

From increased budgets to limited engagement

Some companies have tried to improve their domestic and overseas operations by increasing the size of project teams responsible for environmental protection and conservation, increasing budgets to compensate resettled and affected communities and environmental management and biodiversity offsets. These actions can provide an important step in internalizing costs that are otherwise externalized onto local people and the environment. However, in order to avoid such endeavors from ‘green-washing’ harmful projects, companies need to prioritize efforts to meaningfully include communities and NGOs in discussions, especially in the planning and design stages.

The 1,075 MW Nam Theun 2 dam in Laos demonstrates the blind spots of simply throwing resources at the problem. Beginning operation in 2010, the dam was heralded by the World Bank as a way of ‘doing a dam better’, due largely to the amount of money allocated to resettlement (USD 16 million) and conservation (USD1 million annual conservation fund) out of USD 1.45 billion total budget. Nonetheless, reports published from 2010 through to today by the Independent Panel of Experts established by the World Bank and project proponents demonstrate that the project’s intention for genuine benefit-sharing failed and that outcomes had failed to ensure indigenous peoples’ rights, negatively impacted the livelihoods of displaced communities, damaged fisheries, and precipitated the degradation of forests and wildlife (Shoemaker, International Rivers).

What the Nam Theun 2 dam case shows is that there is a pressing need for hydropower companies to engage in frank discussions with civil society organizations and NGOs, often squeezed by local governments for speaking against their priorities,

Since 2009 PowerChina, which owns over 50% of the global market share for hydropower, has made efforts to communicate with International Rivers. The engagement has included dialogue over the Nam Ou hydropower cascade in Laos. Consisting of a seven dam cascade, the Nam Ou cascade is the first time a Chinese company has obtained rights to develop an entire river basin outside of China. Its location on a major tributary of the Mekong is of significant concern, as are limitations in the project consultations with affected communities and its projected impact on a large number of fish and other riverine species.

Over several years, PowerChina Resources and the Nam Ou River Basin Hydropower Co. Ltd (in which PowerChina Resources owns 85%) hosted International Rivers staff in meetings at the Nam Ou Hydropower Project head office in Luang Prabang and in site visits to the Nam Ou cascade. The company provided access to high level and relevant management personnel, documents related to the project and prepared presentations with updates on the project status. Company representatives endeavored to be welcoming, constructive and informative. These were all positive signs, but limitations remained in terms of the information shared, including non-disclosure of key project documents and impact assessments. This constrained the substantive dialogue on the social and environmental performance of the cascade that we were aiming for.

Nonetheless, the company have been open to receiving feedback and have indicated that they would like to have training sessions on some of the aspects in which their project could be improved to ensure better outcomes for the health of the river system and well-being of affected communities.

Nam Ou 7 construction site, Nov 2017, b
Part of the construction site at Nam Ou 7, Lao PDR, November 2017, International Rivers

Mismatched motivations

In 2015 International Rivers published a scorecard report on Chinese overseas hydropower companies. Ranking last out of seven companies, Huaneng Lancang River Hydropower Inc. (Huaneng Lancang), a subsidiary of energy monolith China Huaneng Group, used the moment to reach out to International Rivers, dropping an earlier unwillingness to interact with the organization over the Lower Sesan 2 dam in Cambodia.

In 2015 and 2016, International Rivers participated in a series of meetings with the Huaneng Lancang. Several executives, including the company Chairman, travelled from Kunming to Beijing on short notice in order to attempt to rectify the poor review of their company and project. The Chairman (who has since retired) even participated in exchanges with NGOs during the ‘2015 Greater Mekong Forum on Water, Food and Energy’ held in Phnom Penh.

The company’s willingness to meet and exchange with NGOs was unprecedented for them and a step towards greater transparency. But parallel to these efforts, the Lower Sesan 2 project continued to face community resistance and was marred by negative attention concerning the project’s extensive environmental and social impacts, involuntary displacement of indigenous peoples, and lack of adequate consultation with affected communities.

Huaneng Lancang were keen to use their unprecedented engagement with International Rivers to urge us to modify the report ranking, which would cast the company and the Lower Sesan 2 project in a better light. We did not revise the report, however, and the company has since declined to meet with International Rivers. From 2017 Huaneng Lancang deprioritized communication and delegated junior employees with responding to us.

From the three year experience of our interactions with Huaneng Lancang it was apparent that there was a significant gulf between the two sides’ motivations for engagement. While International Rivers were keen to use the opportunity to engage the company on issues such as benefit sharing, comprehensive impact assessments and community engagement, Huaneng Lancang appeared to be seeking a quick fix, namely, changing their ranking in the scorecard report.

Since our interactions with the company were downgraded to junior staff, numerous reports, including a statement in 2018 by the UN Special Rapporteur on Human Rights in Cambodia, documented the project’s violations of the rights of communities. China Huaneng Group was expelled from the UN Global Compact in September 2018 for “failure to communicate progress.”

Hiding behind contract types

There are two main contract types for hydropower projects. In Build Operate and Transfer (BOT) arrangements, companies assume the liability for environmental and social aspects of the project; they finance, design and build in exchange for operating rights, typically 20-30 years. Engineering Procurement Construction (EPC) contracts have less liabilities. In my interactions and meetings, Chinese companies with EPC contracts tended to deflect the responsibilities for environmental and social impact assessments and compliance with local and international laws to clients – usually the host country government. Under an EPC contract, the company designs, builds and delivers the asset in an operational state. The client (not the company) is responsible for the financing, preliminary studies (including environmental, social and cumulative impact assessments) and legal requirements. Companies building EPC projects therefore have convenient excuses for why they do not ensure that proper due diligence is conducted. When companies with EPC contracts do implement environmental protection measures or provide compensation to resettled communities, no matter how insufficient these are, they claim to be going beyond their contract obligations.

Hiding behind contract types can mean that companies do not strive to develop better policies, mechanisms and practice, related to due diligence, environmental impact mitigation and monitoring or benefit-sharing with local populations.

This creates reputational risks for companies. For example, the complaints about improper contracts, low pay and poor treatment from workers of subcontracted companies at the 183 MW Isimba Hydropower Project in Uganda, expected to come online in this year, has had a reputational impact on the contractor China International Water and Electric and the parent company, China Three Gorges.

Failing to obtain a social license to operate

Chinese entities involved in developing hydropower projects overseas prioritize amicable government-to-government relations, and typically fail to actively demonstrate their social and environmental responsibility and commitments or understanding of benefit sharing.

The World Bank defines benefit sharing as “the systematic efforts made by project proponents to sustainably benefit local communities affected by hydropower investments.” It also contains recognition that affected people must be consulted about plans for compensation. In my experience Chinese hydropower companies have shown very limited understanding of this concept, and that lack of understanding is at the root of companies’ failure to obtain a social license to operate in the eyes of the public.

When companies have outlined their plans for benefit-sharing, these generally include providing one off payments of cash compensation for displaced communities, infrastructural development such as leveling land, building or improving roads and bridges, building schools or local community centers, adding fish to reservoirs or gifting company vehicles after the construction team leaves. Benefit sharing at this level, focusing on short rather than long term outcomes, falls short on a number of fronts.

Firstly, the individuals who comprise the ‘affected people’ are usually defined very narrowly in scope. International practice includes people who have been displaced as well as those who are impacted upstream, downstream or in the areas surrounding the reservoir. For most Chinese companies, however, only displaced people are eligible to receive benefits which have been defined by the company. For example, the Lower Sesan 2 compensation plan lists only six villages, while independent studies have shown that the dam impacted at least 250 villages.

Secondly, initiatives like building or improving roads improves access to the work site often benefiting the company more than local communities. Consulting with local communities in the process of infrastructure development could help ensure the public is better able to benefit from the new infrastructure. Adding non-native fish to reservoirs, which companies frequently do, including at the Lower Sesan 2 reservoir, is likely to diminish the balance of ecosystems and exerts even more pressure on native riverine species.

Lastly, these ‘benefit sharing’ initiatives are generally short term. Companies need to consider longer term monetary and non-monetary benefits like providing free access or preferential electricity rates, payments for environmental or ecosystem services, establishing long term community development funds, creating long-term employment, and ensuring custodianship over wildlife and other natural resources (World Bank).

Planned projects as a test cases

There are opportunities for Chinese companies, banks and the government to show that they are responsive to discussing projects with civil society organizations. One of these opportunities has been in the headlines in recent weeks. The Batang Toru hydropower project is a proposed 510MW dam in Sumatra, Indonesia, which, if constructed, will cut through the habitat of the Tapanuli orangutan, the world’s most recently discovered and most endangered species of orangutan. Campaigners say its construction will almost certainly lead to the species’ extinction.

The project is packaged under the Belt and Road Initiative, slated to be built by PowerChina Sinohydro and likely to be financed by the Bank of China. In recent months the Indonesian Forum for the Environment (WALHI) has filed a lawsuit challenging flawed environmental permits and has attempted to communicate with the Bank of China and Sinohydro for almost a year, but have been unable to open the door to meaningful discussions. In March, WALHI garnered support from peers in twelve countries to deliver letters to their local Chinese consulates and Bank of China branches. Despite months of unresponsiveness, the Bank of China publicly acknowledged reception of the letters within one business day.

Projects as destructive as Batang Toru are currently under consideration by PowerChina Sinohydro and other Chinese hydropower companies. Similarly, the Koukoutamba Dam in Guinea, if constructed, would seriously impact Critically Endangered chimpanzees, flooding a protected national park area and resulting in the deaths of up to 1,500 specimens. If projects like these get built, they will not only damage the reputation of the financiers and builders, but also exacerbate public distrust in the intentions of the Chinese government’s Belt and Road Initiative, something which voices in China are increasingly expressing concern about.

Long term impacts

The foremost experts on dams have warned against a lack of consideration or monitoring for the long-term social and environmental impacts of dams. It is essential for companies to take into account the cumulative impacts of their projects as rivers perform tangible and intangible services on which we all ultimately depend. Yet, Chinese hydropower companies generally lack appropriate tracking and monitoring mechanisms to evaluate the cumulative impacts of multiple projects in their areas of activity. They tend to look exclusively at the project site, ignoring the broader repercussions on the environment and people.

If Chinese hydropower companies open to deeper engagement, their powerful interests will likely be challenged and they may have to change the way they conduct business. In particular, they may need to evaluate whether proposed large infrastructure projects are a means to decrease poverty and promote environmental conservation. They may also have to more closely determine whether governments in Belt and Road regions have sufficient capacity to evaluate, monitor and oversee such projects. Chinese hydropower companies would be able to adapt — they usually have broad energy portfolios and have elsewhere proven their ability to build clean energy projects like solar and wind.

China has the potential to be a global and responsible leader in developing clean energy, but it must not shy away from constructive engagement with civil society and communities. In its endeavor to connect the world in a “people-centered” manner, China must ensure that its SOEs build genuine relationships of open and constructive dialogue with local communities, indigenous peoples and NGOs. If Chinese companies and banks decide to ignore global civil society’s requests to engage, communities will inevitably resort to more confrontational actions to have their concerns and voices heard.

Stephanie Jensen-Cormier is an independent consultant based in Costa Rica where she works on themes that interconnect environmental and social justice. She lived and worked in China for eight years; her last position prior to leaving in 2018 was as International Rivers’ China Program Director.

Leave a Reply