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24th Jan 2022

EU banks finance destructive Chinese dam builder in Congo

  • The project would flood 48km2 of forest in a Upemba national park, where the European Union has been one of the biggest donors (Photo: KD Dijkstra)
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A new report has revealed how investment firms and banks from Europe and the US financed a Chinese company that is building a dam that is threatening to subsume a large tract of protected forest in the Upemba national park in the Democratic Republic of Congo.

The human rights organisation Global Witness reported on Wednesday (8 December) that France's Société Générale and the British bank Standard Chartered have cumulatively underwritten €530m in bonds issued by engineering giant PowerChina - in 2018 and 2019, respectively.

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  • Area photo of elephants in Upemba national park, DR Congo (Photo: H Vanleeuwe)

When investment bankers underwrite bonds, they assume the risk of buying newly-issued bonds from the corporation, reselling them to pension funds and insurers, thus providing companies like PowerChina with easy access to finance.

Standard Chartered policies, however, expect hydropower companies to abide by rules outlined by the International Finance Corporation (IFC), which advises against undertaking projects in protected areas in national parks - such as Upemba.

Likewise, Société Générale has a policy on hydropower dams that says the "impact of clients' investments on critical habitats and protected areas should be evaluated."

Instead, banks often rely on information provided by the companies themselves - in this case, PowerChina, with investment giants BlackRock and Vanguard also maintaining substantial stakes in the company.

According to Global Witness, banks should scrutinise clients' investment projects themselves to prevent environmental destruction, "which should include meeting with local communities and NGOs critical of the project."

Environmental impact

The €442m Sombwe dam will provide energy to mining companies in the DRCongo's copper and cobalt belt and will be built by PowerChina.

PowerChina is a major player in the Belt and Road Initiative, China's project for creating a '21st century Silk Road' through overseas infrastructure investment.

If completed, the project would flood up to 48km2 of dryland forest in a protected valley where the EU, one of the biggest donors for years, describes Upemba as a "site of biological priority."

Hydroelectric dams are widely seen as a renewable energy source, making them attractive to green investors, which often include pension funds and insurers.

But dams are not without risk, and in the case of the Sombwe dam, information about the impact on the natural environment and the local population is publicly available.

Global Witness cites two EU-commissioned technical studies that raise serious concerns over the dam.

By submerging the patch of forest, the dying trees would emit 1.3m tonnes of CO2 into the atmosphere - equivalent to burning three million barrels of oil, the University of Edinburgh's School of GeoSciences calculated.

Another EU study cited by Global Witness has highlighted eight sites outside the park better suited for hydroelectric projects.

These would produce up to twice the amount of electricity the Sombwe dam.

And the areas mentioned are little-populated, primarily because they are already prone to flooding.

The EU ambassador to the DRCongo, Jean-Marc Châtaigner, sent a letter in November 2020 addressed to Cosma Wilungula, the head of the country's conservation authority, saying that ready alternatives existed.

These "would allow on the one hand to bring energy to the populations of the region, and on the other hand, avoid building works within the Upemba-Kundelungu complex itself," he said.

The Congolese human rights NGO Justicia in September 2021 also warned against the dam, calling it "a real violation of [Congolese environmental] law."

However, the Congolese parliament opposed the idea of relocating the project, saying the "project will address the energy deficit in Katanga, the seat of many mining companies".

Global Witness also notes how the project is licensed to Kipay, a company belonging to a well-connected Congolese businessman called Eric Monga, citing a history of millions of dollars in controversial transactions.

EU pledges

Hydropower projects like the Sombwe dam call into question recent EU pledges made at the United Nations climate summit in Glasgow (COP26) to halt deforestation and biodiversity loss.

China's recent announcement that it will no longer finance coal-fired power stations outside China signifies "a growing awareness of the impact of its financing globally on the climate," Global Witness writes.

But to make good on promises, financial institutions need to properly check the impacts of their financing scheme, even if those projects are nominally green.

"This case shows....the need for governments to regulate companies and financiers, obliging them to mitigate the environmental risks of their investments in a far more rigorous way," Global Witness wrote.

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