Nr. dodgy deals
Developer backing out of loan for construction of risky Belo Monte Dam
After last week’s green light to begin construction, the dam consortium faces another hurdle as BNDES reveals it will not release funds until full license granted
Rio de Janeiro, Brazil, Feb 7 2011
Rio de Janeiro, Brazil-After learning that the Brazilian National Development Bank (BNDES) will not release funds from the $640 million bridge loan issued in late December unless Brazilian legislation is honored, the dam consortium Norte Energia, S.A. (NESA) is threatening to drop the loan and is now seeking private funders to finance initial construction on the Belo Monte Dam Complex in the Brazilian Amazon. This follows last week's issuance of a "partial" installation license-non-existent within Brazilian environmental legislation-by Brazil's environmental agency IBAMA, allowing NESA to open access roads and initiate forest clearing at dam construction sites in an area of 2,118 acres.
While BNDES has publicly committed to financing 70-80% of the cost of the Belo Monte Dam Complex, it will not release any funds until Norte Energia, S.A. has met 40 social and environmental loan conditions tied to the project's preliminary license and until a full installation license is issued. In frustration, NESA is seeking private funders who may be less concerned about conditions being met to bankroll initial construction while compromising indigenous and local communities, thousands of acres of rainforests and the Brazilian law.
"NESA's decision to drop the bridge loan issued by BNDES sends a pretty clear message that the project's legal risk is higher than analysts thought. It is a signal that NESA is not interested in following Brazilian federal legislation. If they are unwilling or unable to oblige BNDES' standard loan conditions now, there's a good chance they will also ignore subsequent legislated loan conditions further on, when the real costs of the project start to emerge. The resulting credit risk is dangerous to the bank," said Zachary Hurwitz, Policy Program Coordinator at International Rivers.
The issuance of a "partial" installation license by IBAMA last week, prior to addressing over 40 social and environmental conditions, has been decried by impacted communities, Brazilian civil society and the Federal Public Prosecutor's Office (Ministério Público Federal or MPF), which issued a record tenth lawsuit related to the hydroelectric dam after finding evidence that the license violated Brazilian constitutional law. BNDES has come under increasing scrutiny from the MPF and NGOs due to alarming evidence that approval is based on political rather than economic grounds, often downplaying problems of economic viability and compliance with social and environmental safeguards.
"We welcome the BNDES decision to observe Brazilian environmental laws," said Atossa Soltani, Executive Director of Amazon Watch. "Given that the Belo Monte Dam project clearly violates the Equator Principles for environmental and social sustainability, we urge BNDES and other potential investors to reject future financing of the project."
The risky USD $17 billion Belo Monte Dam Complex will divert nearly the entire flow of the Xingu River along a 62-mile stretch. Its reservoirs will flood more than 100,000 acres of rainforest and local settlements, displace more than 40,000 people and generate vast quantities of methane - a greenhouse gas at least 25 times more potent than carbon dioxide.
NOTE: Amazon Watch, International Rivers and Rainforest Foundation UK will be leading a delegation of indigenous leaders from Brazil and Peru impacted by BNDES loans to European cities from February 20-March 2.
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