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IFC RELEASES OUTSIDE REVIEW OF CHILEAN HYDROELECTRIC PROJECT


Mark Constantine
Phone: (202) 473-9331
Fax: (202) 974-4384
E-mail: mconstantine@ifc.org


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 and capacities.


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," Lindbaek said.


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 in 1992.


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
E-Mail: pic@worldbank.org


IFC has also arranged for copies to be available in Chile at the following address:


Andrea Teiza
World Trade Center
Nueva Tajamar 481 Of. 101
Las Condes, Santiago


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