International Court of Justice rules on Uruguayan Botnia case
World Bank’s IFC, Nordea, Calyon and Finnvera complicit in violations of International Law
By CEDHA | The Hague, Apr 20 2010
With nearly a 4-year road block firmly in place on the
Argentine Uruguayan border in protest over a World Bank (IFC-financed) Finnish
pulp mill, the long-awaited International Court of Justice (ICJ) verdict came
in today, clearly legitimizing local protests and indicating that ‘Uruguay
violated international law' in the unilateral decision to allow the Finnish
mega pulp mill Uy Metsa Botnia to go up on the border.
"By thirteen votes to one, [the International
Court of Justice finds], that the Eastern Republic of Uruguay has breached its
procedural obligations under Article 7 to 12of the 1975 Statute of the River
Uruguay" ... [and that] "Uruguay did not transmit to the CARU [the bi-national
commission protecting the river] ... despite the request made to it by the
Commission to that effect on several occasions. The initial environmental
authorizations were therefore ... without complying with the procedure".
"Uruguay granted an authorization for Botnia for
the first phase of the construction of the Botnia mill and an authorization to construct
a port terminal for its exclusive use and to utilize the river bed for
industrial purposes, without informing ... [and as such] by not informing ... has
failed to comply with the [its'] obligation [under the treaty]".
"Uruguay failed to comply with its obligations to
notify plans to Argentina [to authorize the mill as it should have under the
The court finds that Uruguay was not entitled ...
either to authorize the construction of or to construct the planned mills and
the port terminals. And that by authorizing the construction of the mills and
the port terminal at Fray Bentos ... Uruguay failed to comply with the obligation
to negotiate [as per the treaty]. Uruguay therefore, in the view of the Court, "disregarded
the whole of the co-operation mechanism."
This verdict is a blow to the World Bank's
International Finance Corporation (IFC) and the international financial
community that came in behind the Finnish pulp mill Botnia, providing key
financing that made the project viable. Today, the magnitude of the social and
political dispute caused by this project is enormous. Communities are divided,
two otherwise friendly countries are engaged in a long standing legal battle,
and millions, even billions of dollars are lost yearly due to road blocks in
place opposing this now illegal investment.
Knowing full-well of the outstanding legal dispute
between Argentina and Uruguay over the pulp mill, the World Bank (IFC), Nordea
(a Swedish private bank), Calyon (the financial arm of the French Credit
Lyonnais), and Finnvera (the Finnish state owned Export Credit Agency), pushed
by the IFC, all decided to move forward with the loan, ignoring the World
Bank's Legal Council concerns over the potential illegality of the project, and
ignoring the World Bank's International Waterways Policy 7.0 which states that
the World Bank should not finance projects that violate international law.
The World Bank's IFC decided in November of 2006
to give US$370 million to Botnia, a Finnish paper pulp mill producer, despite
the unresolved legal dispute between Argentina and Uruguay over the legality of
the mill. The affected community within the sphere of impact (which is
overwhelminglyaligned against the investment), NGOs and the Argentine
government insisted that the IFC and other banks, such as Calyon and Nordea,
should wait for the ICJ verdict, before moving to provide financing for the
mill. IFC's portion of the investment, which amounts to 20% was key, as it
would in turn give a green light to other financial institutions such as ING,
Calyon, Nordea, Finnvera (the Finnish State Export Credit Agency) to
participate in theinvestment, making the project viable.
The Dutch bank, ING, decided to pull US$480
million in financing following a verdict by the World Bank's Compliance
Advisory Ombudsman, which agreed with the local community on alleged violations
of the project of the IFC's Social and Environmental Safeguards. Calyon's Corporate
Social Responsibility team, also showed concern over financing the mill, but
financial drivers at Calyon pushed forward, despite their sustainability team's
warnings, claiming they did not need to follow social and environmental
safeguard commitments under the Equator Principles because the loan to Botnia
was a general loan and not project finance.
The IFC, which collected and guided information
about the projects' social and environmental compliance, had to send Botnia
back to the drawing board several times, following an unfavorable verdict from its
Compliance Advisory Ombudsman (the CAO) who found the project seriously
violated the IFC's procedural norms and safeguards. The question of legality,
at the time, was being defined at the International Court of Justice, and would
not be resolved for several years (the verdict took 4 years in total). The
World Bank's lawyers expressed concern over the bank's potential complicity if
it financed the project if it later turned out that authorization of the project
was in violation of international law, which is precisely what has happened.
Nonetheless, IFC plowed on, despite the warnings,
despite egregious procedural errors in project preparation which were uncovered
by the Ombudsman, and most importantly despite massive protests by stakeholder communities.
In the final stretch to the World Bank's Board of
Director's decision, IFC's Executive Vice President, the Swedish national Lars
Thunnel stated to the Bank's Board of Directors "If we had to stop financing
every time a community complained, we'd never finance any projects". At the
time of the Board vote, the Finnish government (which was a financial
stakeholder in the project) held the EU Presidency, and strongly lobbied the
World Bank to approve the loan, despite many indicators that showed the project
was not only in non-compliance with bank policy, but that indeed it was likely
the ICJ would rule it violated international law.
This insensitivity of the IFC to stakeholder
communities has been a repeated problem in large scale private investment
projects in sensitive environmental sectors and several members of the Board of
Directors confided to representatives of stakeholders in the Uruguayan pulp
mill conflict, and to officials of the Argentine government, that they were
unhappy with how the IFC has handled consultations, but that politics at the
Bank were likely to favor investment. EU Trade Commissioner Perter Mandelson
even traveled to Argentina to pressure then President Nestor Kirchner to back
off from the Finnish investment or face eventual trade problems with the EU.
Lars Thunnel, who heads the IFC, is an investment
banker from the Nordic states; coincidentally Nordea and Finnvera are two large
multinational banks (private and State owned, respectively) composed of Nordic
financial interests. They both came in strong with funding for Botnia. Both
banks are run by many of Thunnel´s financial colleagues, raising accusations
from stakeholders that this is just another example of how the banking
community makes back-room business deals amongst buddies, ignoring community
concerns. NGO´s have claimed for years, that voluntary agreements under the
Equator Principles signed by some 60+ multinational banks have had little
influence in steering bank decisions on sensitive social and environmental investments.
The IFC was adamant about approving the loan, and
fought hard at the Bank's Board of Directors, ignoring local concerns. At one
point the IFC misinformed the Board of Directors indicating that the project
enjoyed broad public support, only to see the largest over march against one of
their projects 10 days later. Community stakeholders who met with Thunnel
shortly before the Board vote insisted that either his environmental and projects
staff was incompetent in missing such large local opposition, or it was lying
to the Board, and that IFC should hold financing until the ICJ case was
resolved. This fumbling of consultative procedures and errors in due diligence
by IFC has characterized the handling of the Uruguayan Botnia pulp mill
investment from the beginning.
The community has marched yearly to commemorate
its´ struggle against the World Bank and the Finnish pulp mill, with upwards of
100,000 marching each year. The next march planned this month on April 25th
will likely draws thousands following this ICJ verdict, legitimizing local
claims that Botnia's project is illegal. On the eve of the World Bank loan
approval, on November 20th, 2006, the community held a vigil awaiting the vote.
After the IFC confirmed two loans to Botnia for US$370 million, they never left
and no one has been able to cross from Uruguay to Argentina (or back) at its'
most important border crossing since.
The ICJ ruling clearly establishes that Uruguay
violated the bi-national waterways treaty that governs the water border between
Argentina and Uruguay, by not consulting Argentina on the decision to allow for
such a large contaminating industrial project to go up in what have
historically been pristine river lands and a sensitive ecosystem, with local
economic development grounded on eco-tourism. Pulp mills bring algae, noise pollution,
heavy industrial traffic and putrid rotten egg smell, which have already
destroyed the Uruguayan tourist sector at the mills site, and will likely do
the same over time to the Argentine region immediately across from the mill.
But the verdict comes much too late as the mill,
largely thanks to IFC and the other financial institutions that followed behind
(Calyon, Nordea, and Finnvera among others) has already been built and began
operations in 2007, one year after the IFC gave Botnia the two loans. Botnia is
one of the world's large pulp mill operations, dumping millions of gallons of contaminated
water into the Uruguay River each day. The plant operators claim that their
production is so clean that it actually improves the quality of the river,
which they claim is already polluted. The plant dwarfs other similar plants in
Finland which have been progressively closed to transfer operations to
developing countries where environmental controls are more lax, where it is
cheaper to operate, and which offer lucrative financial benefits. Botnia
operates in an entirely tax free zone, exports all of its production for
European and Asian consumption, and employs only 300 people.
The verdict provides some formal retribution to
the community, who can now claim that they were indeed right in opposing the
mill on ground of its' illegality, however, it fails to order a plant
relocation, which is what the IFC should have recommended from the early stages
of project preparation to ease the bi-national tensions which quickly escalated
as time passed and no action came from IFC.
Now everyone must live with the a poor decision
made by the World Bank which has led not only to promoting an illegal
industrial project, but which has caused unimaginable strife between two
otherwise friendly communities and countries. The road block remains firmly on
the bridge, the community shows no intention of tiring, and with this verdict
it is very likely that it will be there for a long time to come!
Center for Human Rights and Environment* CEDHA- Argentina firstname.lastname@example.org Tel +54 351 425 6278 Cel: + 54 9351 5078376