WASHINGTON, D.C., July 15—The International
Finance Corporation (IFC) today released an outside review assessing IFC’s
performance in handling the environmental and social aspects of the Pangue
hydroelectric project, a 450-megawatt dam on the Bio Bio River in Chile
that the Corporation helped finance.
IFC President James Wolfensohn and Executive Vice President Jannik Lindbaek
commissioned the review, which was conducted by Dr. Jay Hair. The report
covers events dating from 1990 when IFC was undertaking its initial appraisal
of the proposed project and beginning to develop its environmental procedures
The two officials acknowledged that the report contains a number of valid
and useful criticisms that relate to the Pangue project while noting their
disagreement with others.
"IFC’s performance in some areas should have been better," Wolfensohn
said. "There were shortcomings in IFC’s appraisal of the project
which would have benefited from a more systematic approach to the analysis
of environmental and social issues."
"However, it is equally clear to me that the Pangue project benefited
from IFC’s involvement," Wolfensohn added. "IFC made a major
contribution by insisting on environmental and social improvements. These
measures simply would not have been integrated into the project’s design
without IFC’s participation."
Lindbaek added, "Dr. Hair has raised some legitimate concerns which
reinforce and confirm the importance of the changes and improvements we
have made in our environmental and social review procedures and in-house
expertise in the years since the Pangue project was under consideration.
In addition, a number of the project-specific environmental and social
issues discussed in the report have been addressed in a recent agreement
between IFC and Pangue S.A."
"It is also important to put the project in the proper perspective.
The World Bank recently reviewed its experience in financing 50 large hydroelectric
projects; in comparison to these 50 projects, Pangue has one of the lowest
environmental and social impacts. Pangue’s reservoir size of 500 hectares
relative to the amount of electrical capacity installed, 450MW, is very
small compared to most hydroelectric projects. With respect to resettlement,
only 53 people, none of whom were Pehuenche Indians, were relocated. This
resettlement was carried out in strict accordance with World Bank policies,"
Referring to the report’s findings, Wolfensohn and Lindbaek agreed that,
in retrospect and according to best practice, IFC should have waited for
more complete information and analysis before moving forward with the Pangue
project, especially with respect to the downstream impact of the dam.
"Today, we would not move forward without first having more complete
information in hand on an issue as significant as the downstream impact
of the dam. It is also clear, despite the substantial social mitigation
measures associated with the Pangue project, that we could have handled
the indigenous peoples issues more thoroughly," Lindbaek said.
"We realize that we have to do better in the future and are putting
in place a number of new initiatives," Wolfensohn said. "I have
already announced my intention to establish, on a World Bank Group basis,
a stronger system of compliance monitoring for environmental and social
policies. We are also clarifying World Bank Group environmental and social
policies for our private sector operations and have established an environmental
and social network to better share our in-house expertise."
But IFC disagreed with some of the report's conclusions. While the Corporation
acknowledged that three of the eight relevant environmental and social
policies applicable to the Pangue project were not fully adhered to, the
Corporation also noted that the report, in a number of instances, applies
a higher standard than those in place at the time.
"IFC intervention clearly helped improve the project," Lindbaek
said. "The record shows that our involvement resulted in several lasting
benefits." Among the more significant contributions:
IFC required an environmental assessment of the project, which led to the
development of an operational plan that maintains a minimum flow in the
river below the dam to help protect the downstream environment;
IFC required the establishment of an ecological station to monitor the
effects of the project and to rehabilitate affected lands;
IFC negotiated the establishment of the Pehuen Foundation, a first in Chile.
The Foundation, funded with a portion of Pangue's profits, carries out
programs that benefit the local communities of Pehuenche Indians.
IFC was approached in 1989 to provide financing for Pangue by Empresa Nacional
de Electricidad S.A. (ENDESA), Chile's leading electric power company and
the project sponsor. At the time, the project had already been authorized
by the Chilean government. The project was approved by IFC's Board of Directors
Pangue S.A., the company that owns and operates the dam, prepaid its outstanding
debt obligations to IFC in March 1997. IFC is no longer involved in Pangue,
with the exception of holding a small 2.5 percent equity stake in the project
company. IFC is not extending financing in support of any other proposed
dam on the Bio Bio River.
Dr. Hair is the former president of the National Wildlife Federation and
of the International Union for the Conservation of Nature and Natural Resources.
On the advice of external counsel, IFC has released comments, findings
and recommendations in the report relating only to IFC, and not those pertaining
to Pangue S.A., or its parent company, ENDESA. Copies of the study are
available upon request through the World Bank's Public Information Center:
Phone: (202) 458-5454
Fax: (202) 522-1500
IFC has also arranged for copies to be available in Chile at the following
World Trade Center
Nueva Tajamar 481 Of. 101
Las Condes, Santiago