International Finance Corporation under fire for Chilean hydro-dam

Jan. 8, 1997 The World Bank is in doubt whether to suppress or make public a precedent-setting independent report on an alleged scandal involving the International Finance Corporation (IFC), the Bank affiliate that promotes private sector investments. The report looks into allegations that the IFC broke environmental and resettlement rules in lending some $ 70 mm for the construction of the Pangue dam on the Bio Bio river in Chile.
The project, begun in 1990, is to be a network of five dams, but it has drawn fire from environmentalists, indigenous organisations, human rights activists, and even parts of the Chilean government. Non-governmental organisations (NGOs) are pressing World Bank President James Wolfensohn to make the entire report public, but well-placed Bank and NGO sources say officials at the IFC want him to suppress all but its most superficial details. How Wolfensohn and the IFC handle the report is said likely to be a major test of the Bank president's commitment to openness and reform, and the IFC's willingness to be accountable for its operations. Wolfensohn has repeatedly emphasised this commitment, and even the Bank's strongest critics here praise him for commissioning the independent investigation and looking into ways to enable communities to seek redress if they have been harmed by the IFC's operations. He and IFC managing director Jannik Lindbaek should receive the report's final version around the end of the month. In the meantime, IFC officials are reviewing a draft of the report, written by Jay Hair, the former head of both the US National Wildlife Federation and of the World Conservation Union, also known as the IUCN. They are said by sources at the IFC and the World Bank to be deeply concerned that Hair's findings constitute an indictment of their agency perhaps even more damning than the 1995 complaint that prompted the investigation. That complaint, filed by the Chilean NGO Grupo de Accion por el Bio Bio (GABB), charged the IFC with failing to conduct proper environmental reviews when planning the dam project. It charges that the agency ignored information regarding the project's likely environmental consequences all along the thousand-kilometre long river, and that it overlooked Endesa's alleged violations of the terms of its loans, instead continuing to secure additional funding from other official and private sources.
The hydro-electric complex, of which the almost-complete Pangue is the first dam, will wreak environmental havoc all along the river, which starts high in the Andes and cascades to the sea, the complaint states. It will drastically alter the ecology of the Bio Bio basin, which contains some 15,000 waterways, and the health and livelihoods of the estimated one million people who depend on the river for drinking water, and the fisherfolk and industrial fishing fleets harvesting the fertile waters around the river's mouth. "The Bio Bio river and its watershed are both culturally and ecologically one of Chile's most important bioregions," according to documents filed with the complaint. The rugged territory along the river's upper reaches is home to some 10,000 Pehuenche Indians who have survived centuries of armed attacks by colonial powers and then by the country's military government, attempts by Pinochet to move them onto reservations known as "reductions," and "a series of assimilationist laws (that) resulted in further loss of land and rights for Chile's indigenous people." The Pehuenche now face losing their land as the dams are built and reservoirs are filled. They have sought redress from a foundation created under the terms of the IFC loan to safeguard their interests -- only to be betrayed by their ostensible protectors, according to the complaint. "The Fundacion Pehuen and other Pangue/Endesa-related personnel...are deceiving and pressuring the Pehuenche communities to relocate...despite Pehuenche rights, under the new Indigenous Law, to remain on their land," the document states. "Mitigation plans that were supposed to be in place for Pangue have not been adequately implemented, resulting in increased logging activity, in uncontrolled real estate development on the shores of the future (reservoir), and in the transfer of land Pehuenche claim belong to them, to new private owners," it adds. Bank management initially dismissed the complaint, filed in November 1995, saying the Bank's independent inspection panel was not authorised to investigate IFC projects. Wolfensohn later commissioned Hair's investigation amid protests from NGOs and growing concern within the agency that its private sector affiliate was evading accountability.