Risky Business in the Amazon
New Report Reveals Looming Financial, Legal and Reputational Disaster of Belo Monte, World's Third Largest Dam Project
International Rivers, Friends of the Earth – Brazilian Amazonia.
FOR IMMEDIATE RELEASE | January 19, 2011
For more information, contact:
Roland Widmer, Amigos da Terra – Amazônia Brasileira, tel: + 55 11 3887 9369
Zachary Hurwitz, International Rivers, Tel: +1 510 848 1155 email@example.com
Brasília and São Paulo, Brazil – The Belo Monte Dam Complex, slated to begin construction in April along the Xingu River in heart of the Brazilian Amazon, not only threatens ecological integrity and the livelihoods of indigenous peoples and other local communities but also presents tremendous risks for financiers, investors and the country's taxpayers, according to a new report issued by International Rivers and Friends of the Earth – Brazilian Amazonia. The report "Mega-Project, Mega Risks: Analysis of Risks for Investors in the Belo Monte Hydroelectric Complex" was delivered today to over 20 institutions currently or potentially involved in the project, including the Brazilian Development Bank (BNDES), pension funds and private banks, among others.
One of the main findings of the report concerns uncertainties over mitigation and compensation costs of the project, including potentially disastrous social and environmental consequences. According to Federal Public Prosecutor Felício Pontes, "the forced resettlement of indigenous communities living along the Volta Grande (Big Bend) of the Xingu – a 100 km stretch where the river would be diverted to artificial canals to generate electricity – could result in lawsuits against investors of up to a billion dollars".
According to Pontes, such problems reflect an environmental licensing process marred by political intervention during the administrations of ex-president Luiz Inácio Lula da Silva and incoming President Dilma Rousseff. Last week’s resignation of Abelardo Bayma Azevedo, the President of Brazil's environmental agency IBAMA, amidst intense political pressures to grant an installation license for Belo Monte, is the latest in a series of controversies that have overshadowed the project. Nine civil action lawsuits are pending in Brazilian courts, while similar complaints on violations of international agreements on human rights and environmental protection have been filed with the United Nations and the Inter-American Commission on Human Rights.
The role of the Brazilian National Development Bank (BNDES) in Belo Monte has also come under increasing scrutiny. Last month, the Federal Public Prosecutor's office delivered an official letter to Bank president Luciano Coutinho, demanding clarifications on criteria and procedures used for analyzing social, environmental and financial costs and risks of Belo Monte, both in relation to a recently-approved start-up loan of US$ 640 million loan to the dam-building consortium Norte Energia, and BNDES' publicly-announced decision to finance up to 80% of total project costs. Coutinho has yet to answer the letter.
Other key risks identified in the new report concern uncertainties over the construction costs and generating capacity of the Belo Monte Dam Complex. Estimates of total costs of the mega-project have varied between US$ 12 and 20 billion. The construction of Belo Monte, as the world's third largest dam, would require more land excavation than the Panama Canal in an area with scarce knowledge of soil and rock characteristics – a key variable for calculating construction costs. While the project would have a generating capacity of 11,200 MW, only some 40% of that capacity would be effectively used, due to high seasonality of the Xingu River that is expected to intensify with global climate change. The dam would produce almost no energy for several months during the height of the dry season. This dilemma is expected to lead to political pressures to build additional dams upstream on the Xingu River to store water for Belo Monte, resulting in even more disastrous social and environmental impacts, especially for indigenous peoples and greenhouse gas emissions.
According to Roland Widmer, coordinator of the Eco-Finances program at Friends of the Earth – Brazilian Amazonia and a co-author of the study, "in addition to the financial and legal risks of involvement in Belo Monte, banks and other financiers face huge reputational risks, given the tremendous potential for environmental and social damage. Publicly-adhered to social and environmental safeguards would be violated".