Endesa Strategy & Tactics I – Revisiting the Ralco & Pangue Hydroelectric Projects on the Rio Bio Bio

How Transparent is Endesa?

Endesa exploits weak environmental protection laws, conflicted national and international bureaucracies, suppresses adverse environmental impact statements, negotiates in secret, misleads investors, diverts funds, files incomplete environmental impact statements, tramples indigenous people's rights, fails to comply with contractual obligations, fails to disclose future hydroelectric development plans, and inadequately compensates affected displaced local people.

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Excerpted from: Hydroelectric Development on the Bío-Bío River, Chile

Overview

Until recently, the Bío-Bío river cascaded through the heart of Pehuenche territory. Today the river is harnessed by the Pangue dam and the soon to be completed Ralco dam. The hillsides have been stripped of their timber and the river valleys flooded. Many of the Pehuenche–a cultural group often described as the last Chilean Indigenous group to live by traditional means on traditional lands–have lost their homes and are being forced to accept resettlement in the distant and difficult mountains. The Pehuenche had no opportunity to participate in the decisions to dam their river, deforest their hills or flood their valleys. And the Pehuenche had no opportunity to help shape the varied remedies offered by project developers as meagre compensation for the loss of ancestral lands, resources, community cohesion and way of life. Inept planning and inadequate local involvement in decision-making resulted in hydroelectric dam development without adequate assessment of the real human and environmental costs. The end effect is that a small, poverty-stricken band of Pehuenche Indians have been forced to subsidize Chilean hydroelectric power development at the cost of their economy, resources and culture.

Dam Development Decisions and Controversy

In 1989 hydroelectric dam development on the Bío-Bío river was first proposed by Empresa Nacional de Electricidad SA (ENDESA)–a private energy and resource development corporation in Chile. In 1990, the newly elected Chilean government approved plans for hydroelectric development of the Bío-Bío river. Implementing this project would require invoking the Electrical Services Law (decreed during Augusto Pinochet’s regime in 1982) to privatize Pehuenche reservation land. ENDESA applied for a loan to the private-sector arm of the World Bank Group–the International Finance Corporation (IFC)–to finance the construction of the state-sanctioned, privately owned Pangue Dam. ENDESA did not request, nor did the IFC make any reference to, involvement in another five hydroelectric dams on the Alto Bío-Bío river. In 1990 the IFC began appraising the Pangue Dam proposal.

(When first assessing a river for hydroelectric utilization, Endesa typically exploits Chile's liberal mining laws: Environmental impacts of the Endesa El Porton Dam in the Puelo River Basin )

In December 1992, the IFC board approved the decision to invest US$150 million in the Pangue dam project. On 22 October 1993, the IFC and ENDESA signed an investment agreement providing a US$170 million loan to ENDESA to build the Pangue dam, and US$4.7 million in equity for the Pangue project. Both parties accepted the state of New York as the legal jurisdiction. Since the agreement was secret, the Pehuenche had no way to know that arrangements were being made about them. The loan agreement, in addition to containing plans that would determine the fate and livelihood of an Indigenous nation, granted the IFC a 2.5 per cent equity interest in Pangue SA, a subsidiary wholly owned by ENDESA (then a Chilean company). Pangue SA would build and operate the hydroelectric facility. At the same time that the IFC finalized its Pangue funding agreement with ENDESA, work began to develop the initial plans for the second dam, the Ralco dam, immediately upstream from the Pangue.

Development plans and financing decisions occurred despite the many and vocal protests by various Pehuenche, Chilean citizens, and nongovernmental organizations who expressed deep concern over the environmental and social impacts of building the first and then second of a proposed series of six dams on the Bío-Bío. Beginning in 1991, the Pehuenche community and their advocates participated in public protests and letter-writing campaigns, and provided testimony to the Chilean public, Chilean government and international forums. They expressed opposition to the dam project and their desire to retain their ancestral lands. As the years went by and development decisions fuelled the early stages of dam construction (clearing of hillsides, building of roads), local protests continued and were further strengthened with increased references to Chilean laws protecting Indigenous land rights. These laws include the Chilean Constitution adopted in 1990, the October 1993 Indigenous Peoples Law, and the March 1994 Environment Law. Under the 1993 Ley Indigena (Indigenous Peoples Law), the Pehuenche control their lands. The national Indigenous development corporation, Corporación Nacional de Desarrollo Indígena (CONADI), a government agency formed by this law, has the fiduciary right to accept or refuse transfers, exchanges, privatizations or expansions (permutas) of Indigenous lands. And, under the 1994 Environment Law, a similar commission–Comisión Nacional del Medio Ambiente (CONAMA)–was established to review and approve all development-related decisions affecting the natural environment. The Chilean environmental organization GABB–Grupo de Alto Bío-Bío–emerged as a major force in Chilean politics, educating citizens about the environmental impacts of dams on the Bío-Bío and the importance of enforcing the newly created laws. GABB developed close collaborative ties with a number of international NGOs, most notably the International Rivers Network (IRN), whose educational efforts brought the issue to the awareness of tens of thousands of environmental activists around the world.

Dam development protests citing violations of Chilean national law were dismissed by ENDESA as irrelevant, since the project was approved prior to the formation of these laws. Furthermore, ENDESA argued that under the 1982 Energy Law, the nation’s need for energy superseded Indigenous rights. In response, dam opponents argued that Pangue was designed to work in conjunction with a large reservoir dam upstream (Ralco), that the government should consider environmental and social effects of building two dams before giving approval to build Pangue, that new development proposals should be assessed for their individual and cumulative impact, and that development decisions should reflect full compliance with current Chilean law.

Public protests against the World Bank funding of the Pangue dam were widely covered in the Chilean and international media, and this coverage raised considerable concern among private investors who were brought in following the initial IFC/ENDESA financing agreement. Pangue project supporters, including IFC staff, produced rebuttal arguments describing Pangue as a single, stand-alone dam unrelated to ENDESA’s other dams, and a hydroelectric development project that was located adjacent to but not on Pehuenche lands. Thus, the project reportedly would not involve any involuntary resettlement of Pehuenche. The IFC’s assurance that Pangue was a stand-alone dam, and ENDESA’s assurance that it would only use IFC funds for this single dam, calmed investor fears, and the project proceeded. In 1996, despite long and intense protest in Chile and abroad, the Pangue dam was completed and its reservoir filled.

Endesa Eludes the National & International Regulatory Authorities

The intense period of national and international protest in the early and mid-1990s provoked a wide array of responses. The Pehuenche and Mapuche communities became increasingly politicized by their conditions and experiences, and their place-based issues involving land and resource rights increasingly came to be seen as national issues. National and international nongovernmental organizations developed close collaborative ties to communicate and encourage political action. The Chilean government was continually challenged by the contradictions between rights-protective legislation and the lack of political will or power to enforce the law (challenges that produced significant political fallout). And the World Bank saw its image and actions placed under increasingly critical international scrutiny.

In 1995, in response to Chilean and international advocacy criticizing Bío-Bío dam development and human rights abuses, the IFC hired Dr Theodore Downing (President Emeritus of the Society for Applied Anthropology) to conduct an external audit of the social impacts of the Pangue dam. Specifically, Downing was asked to evaluate the efficacy of the Pehuen Foundation, an organization created by IFC and ENDESA to offset the socio-economic impacts of hydroelectric development. In October 1995 Downing travelled to Chile and met with some sixty stakeholders representing different sides of the dam development conflict. Downing presented the evaluation plan to the IFC, which accepted it, completed his fieldwork in November and December 1995, and submitted his report to the IFC in May 1996 (Downing 1996).

The Downing audit findings supported conclusions that the Pehuen Foundation implemented a programme of resettlement that failed to incorporate the rights of Indigenous peoples, and failed to compensate all affected peoples adequately–in direct violation of the World Bank Group’s involuntary resettlement and indigenous policies. In addition to these and other critical findings, Downing documented those instances where Foundation objectives were being met, and also offered a number of specific recommendations to address past failures and improve the ability of the Pehuen Foundation to address the socio-economic needs of the Pehuenche community.

On 17 November 1995, while Downing was in the field conducting his Pehuen Foundation evaluation, a group of nearly four hundred Chilean citizens, including Pehuenche Indians, environmentalists and other concerned individuals, filed a complaint with the World Bank’s Inspection Panel. This complaint was unrelated to Downing’s investigation. The Chilean NGOs, led by GABB, alleged that the IFC had violated Bank rules on environmental assessment and its own environmental and social policies on dam and reservoir projects, Indigenous peoples, involuntary resettlement, management of cultural property, wildlands protection and management, and project supervision, as set forth in ‘IFC: Environmental Analysis and Review of International Finance Corporation Projects’. They were unaware that Downing had discovered and was reporting the same conclusion from within the IFC. Both the Downing report and the Chilean complaint charged that IFC funds allocated to Pangue SA were appropriated and applied to the Ralco project, in clear violation of the loan agreement and the IFC’s assurances that its loan funds would be used only for Pangue, not Ralco.

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In May 1996 the IFC received Downing’s report. According to Downing’s statements, on the day he submitted his report, IFC and ENDESA announced their new agreement to use the Foundation to mitigate the social impacts of Ralco dam construction–especially resettlement. Two weeks later IFC staff submitted a summary of Downing’s report to ENDESA for their approval before releasing it to the Pehuenche in completion of the participatory evaluation. ENDESA rejected the summary and threatened to sue the IFC and Downing if they released the report to the Indians or the public (Downing, personal communication). The IFC agreed to suppress the Downing report and terminated the final phase of his investigation–a reporting requirement included in Downing’s consultant contract that involved disseminating findings and recommendations to Pehuenche and the broader Chilean community.
At the same time that the IFC accepted and then censored the Downing report, in the spring of 1996, GABB commissioned a critique of the Ralco environmental impact statement (EIS). The resulting report prompted the Chilean environmental agency CONAMA to declare the Ralco environmental impact statement unsatisfactory. The GABB critique found that not only did the EIA omit an analysis of environmental impacts, it lacked details on resettlement plans for the more than five hundred Pehuenche who would be moved for the Ralco dam. Subsequent pressure from ENDESA and government officials prompted CONAMA to retract its finding.

*(Such flimsy environmental impact statements are still the norm today: False Environmental Impact Statements induce Regional Environment Commission to Implement Fines. )

Also in the spring of 1996, World Bank President James Wolfensohn contracted Jay Hair, President Emeritus of the National Wildlife Federation, to evaluate ENDESA’s compliance with the IFC/ENDESA agreement (including environmental and social-impact mitigation plans) and review the findings of the still censored Downing report. Commissioning another independent evaluation provided a legitimate excuse to delay the release of the Downing report (a tactic that ultimately kept the Downing findings secret until the Ralco comment period had passed and development plans were approved). Wohlfensohn’s actions also served to deflect public criticisms over the failure of the World Bank Inspection Panel to investigate the environmental and social complaints associated with Pangue dam.

In February 1997, in response to the abundant evidence of project failures and political pressures emerging from all quarters, the IFC served notice to ENDESA that failure to meet the environmental conditions of their loan would result in a declaration of default. Rather than take action to comply with contracted obligations, ENDESA found a way to deflate the power of the World Bank in this affair by seeking financing elsewhere. In March 1997, the World Bank Group/IFC loan was repaid by ENDESA with funds secured from a German private development bank consortium (Dresdner Bank). This action reduced IFC participation to its 2.5 per cent equity in Pangue SA.

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The CfHR review was partially enhanced by unanticipated access to the censored Downing report. On 24 December 1997, Downing finally received notice from the IFC that it would not seek legal remedy if he copied and distributed his report, providing that he added a qualifying statement that the report was not an official IFC document. The IFC granted this permission to release Downing’s research findings after the public review period for the Ralco project had expired. Thus, while the CfHR had the opportunity to review the Downing evaluation as part of their inquiry into human rights abuse, the Chilean people did not have access to this critical information when they most needed it. During the eighteen months that the IFC kept Downing’s report secret, ENDESA negotiated resettlement packages with individual Pehuenche families, with the assurance that the Pehuen Foundation would implement the resettlement programme. These assurances were made despite ENDESA having on file the evidence provided by Downing that the Pehuen Foundation failed to meet the economic, social, cultural and environmental needs of the Pehuenche already affected by the Pangue dam, and lacked the technical means to mitigate adequately the impoverishment that would result from resettlement associated with further dam development.

By withholding this crucial documentation on the functional viability of the Pehuen Foundation from the people that the foundation was supposed to serve, the IFC and ENDESA prevented the Pehuenche from making an informed decision about their future.

On 8 January 1998, despite lack of approval from CONADI, ENDESA announced that it would complete agreements with contractors in February 1998 and begin bidding in March 1998 for two civil construction projects: a tunnel and the dam itself. Construction of Ralco dam required the displacement of more than 1,000 people, including 600 Pehuenche from the communities of Ralco-Lepoy and Quepuca-Ralco. ENDESA relocated some Pehuenche on farms in the snow-covered Andean highlands above the dam and others onto downstream settlements. Construction in the area has continued, as have civil protests.

*(The Mapuche are currently under threat from SN Power (Norway) to dam more rivers in their ancestral homelands: Mapuche Protest against Norwegian Hydroelectric Power , Norwegian Power Projects in Mapuche, Chile Heartland Plunder Environment )

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The World Bank Apologizes for Involvement with Endesa

In April 1998, while attending the Summit of the Americas meeting in Chile, World Bank President James D. Wolfensohn apologized for the Bank’s alleged participation in the Ralco hydroelectric project in southern Chile, noting that it will displace some 96 Indigenous Pehuenche families from their homes on the upper Bío-Bío river. Wolfensohn said to reporters covering the Summit that Ralco ‘was not one of the high points in the bank’s experience’.

*(The World Bank suspended funding for large dams after this incident only until recently, See: Nam Theun II Hydroelectric Project in Laos)

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The Vultures Circle - Post Dam Natural Resources Exploitation

The previously isolated Bío-Bío region is now characterized by unchecked in-migration, land speculation and deforestation. The area has attracted a number of independent timber contractors who give Pehuenche landowners small sums of money, harvest their trees and leave, making the landowners unwittingly responsible for the violation of Chilean forestry laws, which require permits and reforestation. Fines have been levied, and a number of Pehuenche, unable to pay the steep fines, live in fear of losing their land rights or are currently threatened with eviction. As indicated in the previous chapter in this volume and evidenced in recent events, the Ralco dam development controversy continues as Pehuenche communities resist resettlement, protest dam development activities and related deforestation, and deal with the difficult outcomes of increasingly violent confrontations.

* (Exploitation of the Hydro Aysen dam project is already being planned by the mining industry. See: Xstrata & Transelec Negotiate Cuervo River Dam Project )

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Exploitation of Legal Loopholes Paves the Way for Hydroelectric Projects

For a brief period of time (much of the 1990s), the international political climate and the operating culture of institutions and corporations increasingly supported endeavours that enhanced human rights and protected the environment (as evidenced by global treaties, social and environmental rights-protective policies, ethical codes of corporate conduct). However, while the nations of the world passed human rights and environment legislation, and organizations like the World Bank became increasingly transparent (see Cernea 1997), a major shift occurred in development financing. The financing of public utilities–water supply, electrical generation, and telecommunications networks–increasingly occurred via privatized processes. By the late 1990s the mode of operation evidenced by the IFC/ENDESA relationship–where public financing was used in private partnerships to fund development projects that first and foremost meet the interests and needs of the private partner–became the norm. What this case suggests is that international development financing through private partnerships require that institutions and agencies negotiate in secret, retain control over ‘sensitive’ human and environmental information, and thus have the means to circumvent rights-protective laws, policies and procedures presently contained in national governments and multinational lending agencies. This case demonstrates a culpability gap–one that is likely to widen in the years to come.

* (The Carbon Credits (Cap & Trade) loophole from the Kyoto Treaty is already being exploited to develop Patagonia, Chile as a mining mecca to "offset global warming". See: Chile Environment Exploited to Offset European Pollution )

Here is the full article.