The Ilisu Dam: A Definite Case for Export Credit Agency Reform

Such reform need not involve the ECAs turning their backs on their primary concern of promoting exports but would require rigorous social and environmental assessment of projects before they are supported. These measures would draw the ECAs into line with Multinational Development Banks' procedures (such as those of the World Bank), and assist further moves towards sustainable development within the international financial institutions.

This briefing outlines the workings of the world's ECAs and broadly explains what changes are necessary to bring the agencies up to date with globally agreed standards for sustainable social and environmentaldevelopment.

The Ilisu Dam in Turkey is the latest in a number of projects highlighted by NGOs to exemplify the desperate need for changes in ECA policy. It is a project that violates the most basic development guidelines set by OECD countries, yet one that at least nine OECD nations are considering supporting financially. The Turkish connection and its massive political, environmental and social implications will be looked at in further detail, below.

It is essential to point out that the international export credit system could be an important tool for beneficial change in the developing world, but only if the suggested fixes are made. Otherwise the ECAs will continue to support projects that contribute to environmental degradation and social impoverishment of affected communities, violating internationally agreed standards of human rights and sustainable development.

In this way the great body of major infrastructure projects in developing countries is carried out with the support of ECAs. By their very nature these large- scale projects such as dams, mines, coal-fired power plants etc. often have significant environmental and social impacts, and are consequently considered risky ventures. The only way banks will lend money for such endeavours is with an ECA guarantee. In other words, tax-payers' money in industrialised countries is committed to shore-up the loan should anything go wrong.

In the UK our official ECA is known as the Export Credit Guarantee Department (ECGD). It is an agency within the Department for Trade and Industry, ultimately answerable to the Secretary of State for Trade and Industry. Like the vast majority of the world's ECAs it has no environmental or development mandate and, despite its claims to be one of the most innovative ECAs , it has been lukewarm about the notion of reform, hitherto demonstrating no leadership and making little contribution to the debate.

The Ilisu Dam itself is on the Tigris river, and is currently the largest hydropower project in Turkey, 40 miles upstream of the Syrian and Iraqi borders. Its reservoir willflood 15 towns and 52 villages, and is expected to displace about 20,000 people [2].

Ilisu is a relatively expensive power-project, electricity being produced at a cost of $1,300 per kW. Alternatives have not been properly assessed and an in-depth study of the project by the Berne Declaration, a Swiss NGO, argues that it would be considerably more cost-effective to modernise Turkey's notoriously wasteful power transmission system than to build the dam [3].

Who's funding the project?
According to the Berne Declaration “The World Bank declined to fund GAP projects in 1984 and will not become involved in Ilisu.” [4] This loan refusal by the World Bank meant that private banks saw Ilisu as 'high risk' and therefore demanded support from ECAs before they would put any money into it.

Currently nine OECD countries (Austria, Germany, Italy, Japan, Portugal, Sweden, Switzerland, the UK and the US) are considering underwriting a loan of about $850 million [5] to finance an international consortium of construction companies, headed by Balfour Beatty (UK), Impregilo (Italy), Skanska (Sweden) and three Turkish companies, to work on the Ilisu Dam. Balfour Beatty, the lead contractor in the controversial Pergau Dam project in Malaysia, is seeking guarantees worth hundreds of millions of pounds from the ECGD.

The ECGD has claimed that a “...full Environmental Impact Assessment study [was] produced by Hydro Concepts Engineering, Switzerland” and submitted to Swiss Government [6]. The Swiss Government's review of the report was passed to the ECGD in 1998, neither have since been published. Balfour Beatty was reported as saying that “...it is too early for anything but preliminary environmental assessments to have been made and they should not be published.” [7]. This non-disclosure of project details is entirely in-line with current ECA procedure.

Why the World Bank steered clear
The World Bank had very good reason to refuse any funding of the GAP scheme since it appears to violate five World Bank policy guidelines, on 18 accounts, and breach the UN Convention on Non-Navigational Uses of Transboundary Watercourses (the Berne Declarationdetails these breeches [8]). There are four main problem areas.

Political
The GAP scheme raises enormous security questions both internally and externally. The scheme is situated in the Kurdish region of Turkey where a bitter civil war is being fought between the Kurdish Workers' Party (PKK) and the Turkish military. According to Nicholas Marsh, in his study of water-related flashpoints in the Middle East for the UK Defence Forum, the Ankara government hopes the new wealth and infrastructure for hitherto impoverished Kurds, due to the dam projects, will act as an inducement for the people to support the Government. Marsh also sees the scheme as radically altering the social geography of the region; moving Kurds out of their traditional mountain homes into planned urban areas will mean the government is better able to control them and will also deny the PKK their topological advantage [9].

The international political implications of the project are vast. In 1997 Turkey was one of only three out of 133 countries to reject the UN's Convention on Transboundary Waterways, devised to restrict the negative impacts of waterway development projects on neighbouring riparian states. The Tigris courses into Iraq and Syria 40 miles from the Ilisu Dam. The dam will profoundly affect the quantity and quality of water reaching these neighbouring states, both of which rely on the river for drinking water, irrigation and electricity generation, and will give Turkey the power to cut off the supply of water downstream entirely, should it wish to. At the formal opening of the Attaturk Dam (part of the GAP scheme) the then Turkish President, Demirel, gave a speech in which he stated that “Neither Syria nor Iraq can lay claim to Turkey's rivers anymore than Ankara could claim their oil. This is a matter of sovereignty. We have a right to do anything we like. The water resources are Turkey's, the oil resources are theirs. We don't say we share their oil resources, and they cannot say they share our water resources.” [10]

The South-East Anatolia Project is, therefore, a huge bargaining chip for Turkey since both the Tigris and the Euphrates run though it before reaching Syria or Iraq. Turkey now has a measure of power over Syria, which has been sympathetic to the PKK for many years but which, in 1998, expelled the notorious PKK leader Abdullah Ocalan. Iraq has most to lose from the GAP project as it is furthest downstream, however, due to its weakened position following the Gulf War it has lacked the political leverageneeded to mount opposition to the dams. The mutual antagonism and distrust between the three states suggests that a consensual solution to the problem is unlikely, indeed a report by the UK Defence Forum warns of the potential of armed conflict over the right to water from the Tigris. Both Syria and Iraq (through Jordan) have recently made formal protests to the UK Foreign Office over the Ilisu Dam. Is this dispute something the UK really wishes to further intensify?

Impact assessment
Although the previously mentioned Environmental Impact Assessment (see What's an Export Credit Agency) has not been published and the full details are only familiar to the commercially interested parties, it is known that no local consultation was undertaken, nor was any independent panel of environmental panellists engaged with. No comprehensive cost-benefit analysis was carried out, neither was there assessment of alternative investments, according to information given to the Berne Declaration. All these are specific requirements, of a very basic nature, for World Bank project funding.

Resettlement
The World Bank calls for involuntary resettlement considerations to be dealt with at the earliest stages of project preparation, and states that “...affected hosts and resettlers need to be systematically informed and consulted during preparation of the resettlement plan about their options and rights.” [11]. In the case of the Ilisu Dam decisions regarding displacement, resettlement and compensation had not been made by the time the project was submitted to ECAs, and the affected communities have never been privy to any project information, nor given an opportunity to participate in planning. Indeed, it appears the only attempt to assess the likely numbers of displaced persons from the 15 towns and 52 villages that will be flooded, has been carried out by helicopter.

With previous projects in the GAP scheme, such as the Attaturk Dam, compensation has been inadequate. Hundreds of thousands of people have been displaced but only some have been compensated, many were not even rehoused and shifted to the slums of big cities such as Diyarbakir and Istanbul. Compensation has, in the past, usually been tied to property. Since it is mostly the village headmen who hold the land in South-East Anatolia many landless families were left with nothing [12].
Cultural damage
Turkey's cultural heritage is under also threat from Ilisu. The reservoir will flood Hasankeyf, one of the oldest settlements in the world and the only town in Anatolia to have survived since the middle ages. Prior to the announcement of the project the 5,500 inhabitants were forbidden even to build a hotel in the town, such was the complete archeological protection awarded to the site; now tourists are being encouraged to visit before it's too late, wrote a foreign correspondent in The Independent [13].

Race to the Bottom
The fact that there are no recognised common standards means that those few agencies that have signed up to clear and transparent environmental and development criteria (as some have in the US, such as the Export-Import Bank and the Overseas Private Investment Corporation or OPIC, due to the high level of NGO lobbying there) are placed at a competitive disadvantage and there is a 'race to the bottom', with those ECAs willing to ignore potential social and ecological costs winning contracts. In 1996 the US Export-Import (Exim) Bank turned down an application to fund the Three Gorges Dam on environmental grounds. This project was later taken up by German, Swiss, Japanese and other ECAs. In this way best practice is penalised whereas ECAs with no standards benefit.

High Risk Projects
International private sector investment, with the necessary backing from ECAs, is the greater part of finance going to the developing world, and growing in proportion compared with official aid budgets. Consequently, this funding has major development implications and is increasingly used for large infrastructure projects with enormous local and global environmental repercussions.

Because these projects are taken on without adequate impact assessments they run a higher than otherwise risk of failure. They are also more risky than other projects due the nature of ECA funding; businesses are more willing to take a chance since they know that if the deal goes wrong the public sector will bail them out.

In addition to the ECA's resident tax payers paying the price for risky ventures, the countries hosting the projects are seriously undermined by failed schemes. Over 95 per cent of Third World debt owed to the UK is in the form of export credit guarantees; these are often backing up irresponsible loans that, in many cases, would never have been cleared by the multilateral development banks or official development aid bodies [14].

Conflict with Existing Laws and Agreements
The nature of the projects they support often brings the ECAs into direct conflict with existing national and international rules or commitments regarding sustainable development and ethical standards. The kind of loans guaranteed also mean that tax-payers' funds in major exporting countries may be working at cross purposes, as governments press for better environmental and development standards from the multilateral development banks whilst continuing to support the mainly ethically unaware ECAs.

Anti- sustainable development
The same Governments that signed up to international environmental commitments at the 1992 Rio Earth Summit, including the Climate and Biodiversity Conventions and Agenda 21, are seriously undermining moves towards sustainability through their official support for ECA-backed projects. These projects often have huge environmental and developmental costs for countries due to their scale and the lack of rigorous impact assessments being carried out. Britain's ECGD continues to insure financing for projects to build hugely polluting coal-fired power stations in the developing world despite the leading role taken by the Deputy Prime Minister, John Prescott, at the International Climate Negotiations in Kyoto. Theseprojects include the Shiheng II, Heze II and Liaocheng plants in Shadong Province in China, the Huaneng power station in Dalian Province, also in China, and a plant in Visakhpatnam in Andhra Pradesh in India.

In addition, tax-payers' money is working at cross purposes if it is being spent both on making stringent agreements to advance international sustainability and to further tighten the environmental and development mandates of the multilateral development banks whilst also being used to shore up loans for projects that are ecologically and socially devastating.

Policy incoherence
The actions of the UK's ECGD is in flagrant opposition to the present Government's high profile 'ethical foreign policy'. This is a policy that pledges to respect and reflect environmental and human rights issues throughout government with the Foreign Office at its helm. In February 1999 Robin Cook, the Foreign Secretary, made a speech in which he stated that “...the environment must be central to foreign policy because it cannot be separated from other issues with which we have to grapple. The prospects for peace in the Middle East would be enhanced if the region's freshwater were properly conserved.” [15] Clearly this line is not reflected in the present approach of the ECGD in the case of the Ilisu Dam.

A major focus of this foreign policy 'with an ethical dimension' was its stated aim not to back sales of arms to countries where the items could be used for internal repression. In the last two years, two-thirds of arms exported from the UK have gone to regimes with appalling records on human rights, including Saudi Arabia, Turkey and Indonesia, many of these exports have had ECGD support. Indeed, in Indonesia, which presently deploys death squads in East Timor, the ECGD is currently exposed to £760 million for 'defence' related equipment [16].

In the European context the dislocation between rhetoric and reality is even more blatant. In the Maastricht Treaty, Article 130v calls for “coherence” between the activities of ECAs of member states and their development assistance policies (most of which now include ideals of sustainable development and require environmental impact assessments). This policy aim has clearly made little difference on the ground.
Lack of Transparency
The secretive and unaccountable nature of most ECAs is a scandal. A study by Yale University in conjunction with the Environmental Defence Fund has found that even the most basic information on transactions is kept hidden by many agencies such as the breakdown details of transactions by country, sector and projects supported. This kind of information is readily available for any multilateral development bank in its annual report [17].

The DTI has assured NGOs that it is looking at strengthening its assessment of the environmental impacts of the projects it supports, but no details of this have yet been released and neither NGOs nor project affected people have played any part in this review [18]. Even the 1998 OECD Statement of Intent on Officially Supported Export Credits and the Environment, which has been cited by many agencies as the basis for their 'improved standards' remains secret, though according to accounts given to Bruce Rich of the Environmental Defence Fund, the Statement is “...rather general and vague, and in no way involves a commitment or movement towards common, harmonised environmental and social policies and standards.” [19]

In June 1999 FOE was on course to sue the UK Government over its refusal to even reply to a request to publish details of the Swiss Environmental Impact Assessment it holds. As mentioned earlier, it is thought that this document falls very far short of being an adequate study of the potential environmental and social risks of the Ilisu Dam project. This withholding of information was judged by FOE to be at odds with the EU's freedom to access to environmental information Directive 1992 and certainly not in the spirit of earlier commitments to openness made by the Government. The DTI responded with a letter to FOE with claims that it was only given the environmental assessment report “...on the clear understanding that the documents were confidential and would only be used for the purposes of evaluating the project.” [20] In the same letter Brian Wilson, the Minister for Trade with responsibility over the ECGD, announced that the DTI had commissioned an independent report which would be published as soon as possible. This last shift in position is taken as clear evidence of short-comings in the original Swiss study.

The many grounds for reform were detailed in a letter sent to Robin Cook, the UK Foreign Secretary, from 13 groups working on the issues, prior to the latest round of G8 discussions at the end of June 1999 [21]. The calls for reform focus on the need for clear and common obligatory environment and development mandates for all OECD Export Credit Agencies and Investment Insurance Agencies, with the standards used by the World Bank and OECD Development Assistance Committee (DAC) as the baseline for negotiations. The workings of the agencies must be made more transparent and accountable, giving the public access to environment and development impact information and ensuring adequate consultation with those affected by or with an interest in the projects under consideration.

If the ECAs are to have a legitimate development role in the future then ethical standards will form an essential part of their policy. It is apparent that if standards are set they must be common to all Agencies if some are not to suffer competitive disadvantage, as the Exim Bank and OPIC in the United States currently do.

Clear, Common Standards for All
A major breakthrough was made at the last G8 summit in June 1999 following repeated lobbying by concerned NGOs. After many years of prevarication and delay the G8 made a decision to “... work within the OECD towards common environmental guidelines for export finance agencies. [They] aim to complete this work by the 2001 G8 Summit.” [22]. At last a timetable has been given for some standardisation. Of course we can't know what these standards will be yet and so it is more important than ever that groups working on this issue continue to make their demands for strong, transparent policies heard.

It has already been noted that existing World Bank and OECD DAC standards should be used as a baseline for reform. Regardless of what moves are made by the aboveorganisations it is clear that the ECGD must start to take responsibility for its own actions and make some urgent commitments of its own to sustainable development. Any reform the ECGD makes must include those undertakings within the international agreements and conventions the UK has previously ratified. The Corner House, a research and solidarity group, provides a list of such agreements in their detailed study of the export credit system. They include the UN Covenant on Economic, Social and Cultural Rights; the UN Convention on the Rights of the Child; the UN Convention on the Elimination of Discrimination Against Women; the UN Climate Convention and Kyoto Protocol; the UN Convention on Biological Diversity; the Rio Declaration (on sustainable development); the Basle Agreement (on the transboundary movement of waste); the UNCTAD Rules for the Control of Restrictive Business Practices; and relevant International Labour Organisation conventions [23]. The Corner House study also highlights the need for good corporate practice by those companies taking up ECGD- backed commissions abroad, including working to the same environmental, labour and development standards that they would be expected to use in the UK.

Transparent, accountable policies
Robin Cook made clear his recognition of the need for transparency when 'wiring in' the environment to the work of international organisations, in a speech he made to the Green Alliance in February 1999. He stated that “Concerned citizens and pressure groups can have a huge impact. Their principle weapon is fact, and so they need access to the facts.” This is indeed the truth, but is in fact far removed from the reality of the situation with ECAs. For the Agencies to be accountable to both the tax-payers from whom they borrow money, and those people affected by ECA-backed projects, their policy and procedures must be truly transparent.

In the case of the ECGD, there are calls for a number of changes to be made. Advance notification should be given of projects under consideration for ECGD backing, and details and documents pertaining to likely social and environmental impacts should be made available to the public. Translations in the languages of those potentially affected by any project should also be available. Prior to the approval of any project the ECGD should be obliged to consult with both affected communities and interested parties and subsequently be able to show how the issues raised have been taken account of. In addition, grievancesregarding ECGD backed projects should be heard by an independent committee, similar to the World Bank's Inspection Panel.

With better standards of assessment the risk of projects failing will decrease. This mitigation of risk is in the best interest of the clients, tax-payers and project-affected people. The reduction of risk would also lessen the growth of debt in developing countries. Indeed, it has been argued that the debt portfolios of ECAs should be reviewed and that the financial responsibility for those projects that were poorly conceived be shared or written off.

It is possible that in the future ECAs will move away from non-productive programmes including arms exports and, instead of backing environmentally and socially destructive projects, concentrate on developing a more sustainable future for those less able to foot the bill. In the meantime, the case of the Ilisu Dam must be urgently addressed by the ECGD. FOE, supported by Britain's United Kurdish Committee, is calling on Brian Wilson, the Trade Minister, and the ECGD to:
.    Withhold support for the dam pending a full public debate and consultation with locally affected communities and neighbouring countries.
.    Release all documents it holds regarding the social, political and environmental risks posed by the dam.
.    Agree a policy to prevent serious environmental and social impacts arising from any other projects supported by the ECGD, by at the least incorporating existing World Bank standards.