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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 treaty]. *
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!