JBIC loan guidelines take shape

AFTER months of intensive discussions with domestic legislators, businesses and NGOs as well as foreign recipient governments, new Japan Bank for International Cooperation (JBIC) environmental and social guidelines for hydro power development assistance are scheduled to assume their final shape in late March 2003.

They will for the first time apply to both project finance (ODA loans) and export credits (equipment supply) and will shortly be complemented by a separate but probably similar set of Japan International Cooperation Agency (JICA) guidelines that will cover Japan's grant aid to hydro power.

As this coordination suggests, all the guidelines are part of a general overhaul of Japanese ODA that, as part of an emphasis on much greater openness and accountability, is expected to include regular consultations between JBIC, JICA and NGOs in recipient countries. Similarly, the guidelines will apply to all Japanese funded infrastructure projects, not just hydro, encompassing 26 types in all.

The guidelines establish new criteria for hydro power development that all project developers seeking JBIC funding must comply with beginning with any new request after 1 October 2003. The criteria are intended to eliminate or at least minimise all adverse social and environmental impacts thereby implying significantly greater pre-construction project activity that will in turn generate obligations that must be met during project construction and operation.

The guidelines envisage four successive stages that will be incorporated into the normal project cycle. The main departure from existing guidelines is a much greater emphasis on social accountability that includes both full civil society participation in stage 1 and full formal facilitation of independent NGO project monitoring in stage 4. The stages, says JBIC, are:

• Extensive early-as-possible planning-phase consultation and feedback among all project stakeholders including local communities based on substantive information disclosure.

• Early project classification by JBIC according to the project's likely environmental and social impacts into A, B and C categories that reflect significant, moderate and minimal expected impacts, respectively. All major hydro power projects will almost certainly fall into category 'A'.

• Comprehensive internal environmental and social project review by JBIC based on reports submitted by the project developer that are in line with project classification. The reviews must now be conducted before the loan agreement is signed.

• Subsequent project monitoring by JBIC during construction and operation phases as necessary in order to achieve the commitments specified at the review stage. Independent NGO monitoring will also be facilitated.

Under the new guidelines, JBIC reserves the right either not to fund the project at all or to suspend or even cancel funding at any stage of construction if it becomes clear the agreed commitments are not being met. The main control instrument will be the loan agreement backed by JBIC monitoring.

NGO oversight of the entire process will be facilitated by a formal complaints procedure that JBIC has just negotiated with business and civil society that is due to be announced in late March. NGOs have won significant concessions from JBIC in terms of the independence of an envisaged Environmental Inspector and possible intimidation of complainants. JBIC has pledged to play fair in both cases, allowing full transparency in its dealings. It has also agreed to accept formal complaints from NGOs as soon as it decides to fund a project but before the loan agreement has been signed, thereby allowing the possibility of changes to the project and/or loan agreement before the project is set in legal concrete. More generally, it has agreed to full information disclosure that does not violate commercial confidentiality.

Substantive NGO complaints during project implementation and/or operation should result in at least a joint forum among all project stakeholders to find a solution to issues raised. When complaints result in project inspections, the mechanism will double as a project implementation inspection function.

This general outline is supported by very specific requirements. These are first set out as 20 general principles that include four underlying statements as well as specification of the scope of the guidelines and their relationship to legal and social issues. Particular attention is given to involuntary resettlement, indigenous peoples and project monitoring. The main principles are:

Underlying statements

'Environmental impacts that may be caused by a project must be assessed and examined from the earliest possible planning stage. Alternative proposals…to prevent or reduce adverse impacts must be examined and incorporated into the project plan.'

'Such examination must include environmental cost and benefit analyses in as quantitative terms as possible. [They must] be conducted in close harmony with economic, financial, institutional, social and technical analyses.'

'EIA reports must be produced for projects [that have] a reasonable expectation of particularly large adverse environmental impacts.'

'Projects that have [such impacts] or are highly contentious [may be examined by an ad hoc] committee of experts in order to increase accountability.' Appropriate follow-up measures, including 'detailed environment management plans, the costs of implementing [such plans] and the financial methods to fund such costs' must be prepared.

Scope of the guidelines

'…factors that impact human health and safety as well as the natural environment such as air, water, soil, waste, accidents, water usage, ecosystems, biota. Social concerns include involuntary resettlement, indigenous people, cultural heritage, landscape, gender, children's rights and communicable diseases. Derivative, secondary and cumulative impacts are also to be investigated to a reasonable extent.'

Legal aspects

'Projects must comply with [local] environmental and social laws, ordinances, standards, policies and plans.'

Social aspects

'Projects must be adequately coordinated so that they are accepted as socially appropriate to their country and locality.' For category 'A' projects, sufficient consultations must be held with local residents 'via disclosure of information from an early stage where alternative proposals…may be examined. The outcome of such consultations must be incorporated into the project plan.

Involuntary resettlement

'Involuntary resettlement and loss of livelihood are to be avoided where feasible.' If unavoidable, 'effective measures to minimise impact and compensate for losses must be agreed with the people who will be affected'. The agreed measures must be delivered in a 'timely manner'. The affected people must be encouraged to 'participate in the planning, implementation and monitoring' of the agreed measures.

Indigenous peoples

'When a project may have adverse impacts on indigenous peoples, all of their rights in relation to land and resources must be respected. Efforts must be made to obtain the consent of indigenous peoples after they have been fully informed.'

Monitoring

Monitoring plans should be feasible. They should monitor whether any unforeseen situations arise during the project as well as the implementation of agreed mitigation measures. The results should be made available to project stakeholders.

These principles are then elaborated to specify minimum standards and coverage of environmental impact assessment (EIA) reports that must be submitted for all category 'A' projects; which activities and geographic areas (e.g. national parks) will attract an 'A'; and the information required by JBIC for it to screen a project into its appropriate category.

In addition, every one of the 26 infrastructure project types has its own detailed checklist of issues that must at least be investigated in order to provide sufficient information for JBIC's environmental and social reviews. The main items in the hydro power checklist are given in the table below. The guidelines close with a short list of project parameters that should be monitored.

Throughout the procedure, JBIC clearly envisages the project developer doing most of the work. JBIC will monitor compliance through project developer reports and will communicate when necessary through its borrower.

It will take time for the guidelines to achieve their full effect. For although they will apply to all JBIC hydro projects after 1 October 2003, the bank is so far the only bilateral aid agency to allow effective NGO oversight.

Most other sources of funding will therefore at least initially be able to offer effectively less stringent loan conditions. But JBIC insists it is only bringing its activities into line with internationally specified norms that require it to match its activities with its social and environmental policies.
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Summary of hydro power project checklist