ECA Financing of Water Projects in this Moment of Global Capital

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Posted on December 12 2003

Alok Agarwal / Chittaroopa Palit
Narmada Bachao Andolan, India

National liberation struggles and the phenomenal resistance of colonized peoples in the continents of Asia, Africa and the Americas to colonial rule and extraction in the first half of the last century led to the emergence of large numbers of independent countries with the right to self determination in these continents in the decade of the 40’s and the 50’s.

Socialism achieved in the USSR after the October Revolution in 1917 also set a model for these developing countries and emphasized the rights of the people of these newly independent nations to development. Access to power and water by the common peoples of these countries was regarded as one of the important benchmarks of this development. To a large extent, the legislative regimes and the allocation of financial resources by the national governments reflected this.

The Indian Electricity Act, 1948, recently repealed by the Indian government, for example, stated that the objectives of the power sector was to provide the least cost power to the common people of this country. However, the reality did not always match the plan. Even after 56 years of independence, large parts of rural India are still without electricity; there is uneven access to drinking water and water for irrigation.

Yet, it could be stated that this post-colonial paradigm envisaged water as a community resource and provision of water for drinking water and irrigation as public services. Water and power infrastructure was in the public sphere, belonged to the state, and under public control. The financing of these sectors came primarily from public funds. This was the situation not only in India but more or less all over the developing world.

In the 80s and the 90s, the situation changed. Socialism was eclipsed worldwide and the USSR dismantled. The notion of the public sector was in disarray. The neo-liberal agenda of privatization and corporatization of natural resources and public infrastructure was ascendant. A handful of global corporations ruled the world. The ideas of the sovereign nation state and democratic control and accountability were in retreat. Universal provision of water and power as a responsibility of the state was seen as populist and a direct obstruction to the imperatives of global capital and corporations facing worldwide recession, exhausted markets in their domestic countries and hungry for super-profits.

The water and power sectors in the Third World were to be the new pastures. The first task for this profit hungry cartel and their friends was to ideologically discredit the notion of water as right and public service, and then to seize control of these resources. Thus, in the last two decades, water has been fashioned to be a source of business and profits, not of life. Public control over infrastructure and public access to water was to be replaced by private and indeed corporate control. No popular political choices or decisions favoring the access to water and power are to be brooked. Under the guise of “reforms”, the water and power sectors are being intentionally deformed. Thus it was not an unintended consequence of the three years of power sector reforms in Madhya Pradesh, India (for which the ADB gave a 350 million dollars loan and set its own conditionalities) that the power tariffs for farmers rose between 300 to 800% and 0.6 million electricity connections out of a total of 1.2 million electricity connections for farmers – a full 50% were disconnected. That was the plan, raise the tariffs, make the sector lucrative and discard the low paying majority. There was to be no difference between the water, power or haute fashion industries. Those who could not follow the “Have money, will pay” edict were to be abandoned. Thus was the neo-colonial, neo-liberal agenda at the turn of the century to be achieved.

The combine takes over

To effect this transformation to wrest water and power from public control and make it a matter of business, a number of players swung together. These included the already active World Bank and World Bank look-alikes such as the Asian Development Bank in Asia. (the Inter-American Bank in the Americas and the African Bank for Development and – in Africa) Their main task is to effect policy change in Third world countries and structural adjustment that includes far reaching institutional changes and changes in the legal and fiscal regime.

The Asia Development Bank Report on Madhya Pradesh Integrated Water Resources Management Strategy prepared by International consultant Halcrow Water admits, “In common with the reform of many other water economies however, the approach currently intended for Madhya Pradesh is somewhat lacking as regards the robust institutional steps that will also be necessary. These are likely to be far more expensive in terms of political capital and should address the need for : financial / economic mechanisms which will include tradable water rights and markets whereby to trade them...”

The second set of actors in this takeover are the agencies that support the financing of the water and power Projects – private and public foreign banks, the multilateral institutions such as the World Bank and the Asia Development Bank and Export Credit Agencies.

The third set of players are the Export Credit Agencies (ECAs) of the Northern governments who guarantee these projects and the super-profits of the corporations involved against all political risk. In effect, it means that if there is any popular outcry against these projects, if they grind to a halt, if payments are held up, or there is any opposition to the rip-offs involved, as is possible in any robust or semi-robust democracy by people being stripped not only of their existing benefits but the very basic conditions needed for their living – water and light, the private risk gets converted into public debt. That is, even if the projects stop or fall by the wayside, the payments will be honored – to the corporation by the Export Credit Agency, to the Export Credit Agency by the importing Third World country or financial institution that has counter-guaranteed the investment or export, and if the institution or government in question still fails to pay up, the amount will be automatically converted into public debt for the importing country. Therefore, no matter what, they pay.

Thus, the end of the circle and the kitty that will be called upon eventually to bolster markets and profits for these corporations will be the public funds of the Third world country. They were first called upon for repayments for vastly over-capitalized projects where the participating global corporations have already made their pickings during the process of construction; and again later when the projects have to be paid for and the public is unable to pay because of the very high tariffs, by invoking guarantees.

Export Credit Agencies and their guarantees: The crutch of global capital

The World Bank and other multilateral institutions stepped back in the last decade (only somewhat) because of widespread opposition to these institutions’ support for socially and environmentally destructive projects and because of the systemic crisis they created in Asia and certain countries of Africa, resulting from their fiscal prescriptions.

Stepping into the breach, global corporations have come forward to take a more active and visible role. This role was to take over the sectors that were previously in the public domain and convert it into business. So Vivendi and Bechtel are to take over today what the municipalities of Cochabamba and Bangalore were doing until now – supplying water to citizens. Only now, consumers will no longer be subsidized, but the supply of water will be at cost plus a hefty mark-up. Since, people unfortunately require water whether they can pay or not, there will be a risk involved. Risks range from non-payment, low collections, receiving lower than super-profits and riots by thirsty people.

Predictably, the global corporations entering into these privatization arrangements will seek and secure government guarantees against all these risks. But honoring of the government guarantee itself may be endangered by the democratic control of the local populace, and therefore the Northern country (usually) from which the TNC comes from is brought into the picture. They guarantee payments to the corporation, and if there is a problem with repayments, the Northern government uses the guarantee by its Export Credit Agency that is counter-guaranteed by the local government or by its sovereign agency to resolve the matter in favor of the corporation. In addition, ECAs also provide financing to private corporations. In this way, ECAs provide TNCs the crucial insulation that is required to make privatization profitable and sustainable in a world that is highly skewed toward the rich, between countries and within countries. This insulation is to be both from the discrimination of the market and from the risks and uncertainties that result from democratic censure when life-supporting sectors like water and power are allowed access only on the basis of purchasing power.

Here the role and scope of the ECAs will move in tandem with the increasing role of the transnational corporations. It is true that even before the 1980s and 1990s, there were significant imports in the hydroelectric and irrigation sectors (turbines, electrical and mechanical equipment, etc.) though not in the drinking water sector; the latter has phenomenally increased since. Peter Bosshard puts the share of foreign imports in hydropower at 43 percent of total costs of hydropower capacity creation between 1990 and 1997. Superior local corporations, in many cases state-owned such BHEL in India have been actively discouraged and foreign TNCs favored. Thus, the first move of these TNCs was, as suppliers of equipment, accompanied by credit mostly from foreign banks. The next step was to promote, own and control equity in these projects. In the first instance, the extent of ECA contribution asked for was lower and only a part of the projects. In the second situation, guarantees and financing were sought for almost entire projects.

In addition, many ECAs extend lines of credit to the financial, governmental, and semi-governmental institutions in these countries. For example, Power Finance Corporation - the Corporation that has been chosen to privatize India’s power sector through loans and agreements with each of the State Electricity Boards, and which are in most cases their largest lenders, was supported in 1992 by USAID and in 1995 by KfW of Germany, by the World Bank. Now funding from JBIC and the US Exim Bank are on the anvil.

Similarly, the Rural Electrification Corporation – one other state corporation that is being turned to for financing power projects with the exposure limits of the large financial corporations such as the IDBI and the IFCI already having been crossed, has received funds of up to US$24.4 billion in 1991. ECAs clearly ensure imports from global corporations.

Which are the main ECAs?

In the case of India, the most important foreign equipment supplier up to 1997 was Japan, followed by Canada, the former USSR, UK, France and Germany, the US, Sweden and Switzerland. Peter Bosshard has noted in Power Finance that Japan’s share directly was less than hydropower, supported by Japan additionally by soft loans from the OECF, now part of the Japanese ECA – JBIC. Further documentation and analysis of ECA involvement, supplies and investment from the different Northern countries and Japan and by country of receipt needs to be done in detail for coherent intervention.

Some of the other main ECAs of the Northern countries or similar agencies include the following–

• Japan – JBIC (Japanese Bank for International Cooperation) and NEXI (Nippon Export and Credit Insurance)
• Canada- EDC (Export Development Corporation)
• UK - ECGD (Export Credit Guarantee Department)
• France – COFACE
• Germany – Hermes, KfW, C&L
• US – Exim Bank
• Sweden – EKN
• Portugal – COSEC
• Norway – GIEK, etc.

Types of water projects with existing and potential ECA involvement

The types of water projects in which there is existing or potential ECA involvement are the following: hydroelectric projects, irrigation and drainage, drinking water and sanitation, and countrywide river-linking projects. Since ECAs fund, finance and guarantee the profits of private and global corporations, or sweeten government corporations in the Third World with loans or lines of credit, sectors that have already been privatized such as Hydel will receive the maximum amount of ECA support. Meanwhile, sectors such as drinking water will have to wait while the ADB and the World Bank open them up to privatization, through loan conditionalities. (The ADB loan for water privatization in Madhya Pradesh, India was scheduled to be signed on 18 December 2003).

Let us use India and the state of Madhya Pradesh as an example. The ADB Report of October 2002 prepared by global consultants Halcrow Water comment:
Hydel: “Multipurpose Reservoirs are being promoted in the State Water Plan…The potential for hydel power in MP is considerable and provided the economic benefits are positive, the environmental benefits are acceptable, and the social and resettlement issues can be successfully accommodated, they are an excellent means of meeting the state’s power needs”.

The only projects planned by the Madhya Pradesh government in which there has been some movement are the large dams on the Narmada – Narmada Sagar where Armed Forces are even presently being used to move out people, in Omkareshwar and in Maheshwar – the first privatized Hydel Project in India. In these areas, not a single family has been resettled, the environmental impacts are massive and the benefit – cost of these projects especially the latter – has been the focus of huge public controversy. But dams mean business and so where the ADB has concurred, ECAs will continue to follow. Thus, hydel projects will continue to retain their preeminence in garnering ECA support.

Irrigation and Drainage: The Halcrow Report of the ADB quoted above also states that “[i]n time Water User’s Associations will be expected to assume control and responsibility of even more of the infrastructure ( of small scale irrigation projects) to enable the Water Resources Department to concentrate on the planning, design construction and management of the bulk water supply infrastructure."

The language is clear – the stress is to be on privatized bulk water storage and bulk water supply infrastructure financed and guaranteed by corporations and ECAs, while smaller irrigation projects will be carted out to farmers.

Drinking Water and Sanitation for urban and peri-urban areas: In this regard, the Halcrow Report notes, “Huge problems exist in the [government’s] drive to improve and extend sanitation services across the state… The problem is probably worse in the urban and peri-urban environment.” Apparently, drinking water and sanitation in urban and peri-urban areas will be a matter of multilateral concern and corporate control (as well as ECA support) in the coming years.

In addition to the above, another area about which enough information is still not available but which will be the focus of TNCs and their marauding client states such as the US are going to be the river-linking projects, whether in India or in China. Asia has a significant portion of the world’s fresh water sources and the control of that for corporate and strategic purposes will be through the river-linking projects, especially in the context of the environmental and water crisis the world over and climate change.

Although most ECA support hitherto has come for hydel and large irrigation projects, we are looking at urban drinking water and sanitation, bulk water storages and river-linking projects as increasing in importance in mobilizing ECA support in the coming years. This has to be part of any analysis and strategy.

ECA involvement of water projects
in Asia/Pacific:
Public Risks, Public Finance,
Costs to People and Environment,
Private Profits

The following case studies of ECA support in Asia, based on ECA Watch Reports – Race to the Bottom I and II as well as NBA experience illustrate that the consequence of ECA financing and guarantees is exactly that: all risks are borne by the public. Financial resources come from the public either:

Directly, with the private and sometimes global developer commandeering enormous resources from public financial institutions in the host countries that have advocated privatization in the last two decades on grounds of non-availability of public resources, or,

Indirectly, through the conversion of the repayments of unviable, overcapitalized projects where the pickings have already been made, into public debt. Thus, what is guaranteed with public money and risk- taking is not survival for the people, but profits for corporations. The people immediately affected by these projects and the environment pay the heaviest costs.

	Three Gorges, China	Tehri Dam, India	San Roque Dam, Philippines
Issues Involved	Forced Displacement of more than 1.23 million people with inadequate compensation Loss of farm land, factory employment and livelihood Police brutality against peaceful protests and petitions to highlight corruption and inadequate compensation State censorship of project criticism Increased health risks due to water borne diseases and submerged mines and factories. Increased greenhouse gas emissions	Forced displacement of 67 – 97,000 people without adequate compensation or resettlement plan Six corruption cases pending against project components Diverting water from poor communities in the Himalayas to New Delhi Interrupting the main tributary to the sacred Ganges river Catastrophic flood danger due to inadequate design and faulty construction, threatening up to 10 million people downstream No consultation with affected populations Multiple environmental reviews recommending cancellation overruled for political reasons.	Claimed benefits - 345 MW / 87,000 hectares irrigation, but… Around 1000 families to be affected by direct submergence without any resettlement with land and houses. 160 families already forcibly evicted. Thousands more families to be affected by downstream impacts Destruction of fisheries Reduced water quality Increase in water-borne disease
Population & Sensitive Areas Affected	More than 640,000 people already displaced; between 1.2 – 1.9 million to be displaced overall 20 million people upstream, 300 million downstream to lose livelihoods due to the dam 25,000 hectares of productive farmland and 1,300 cultural and archeological sites to be submerged	100,000 displaced and between half a million to 10 million people threatened by dam failure from seismic activity.
ECAs and Amount Involved	Over US dollars 1.5 billion from ECAs (figures in US $ millions, wherever available) BNDES (Brazil - $202M loans) EDC (Canada – CDNS $189M loans) COFACE (France) GIEK( Norway) KfW ( Germany - $ 271M loan, $40M guarantee) JEXIM ( Japan - $120M loan, $40M guarantee) ERG (Switzerland - $253M guarantee) SEK ( Sweden- $351M loan)	Hermes (Germany) - $35M guarantee) KfW (Germany) - $35M loan)	JEXIM, Japan – US$702M out of a total outlay of US$1-1.5 B San Roque Corporation owned by Japanese company – Marubeni, US company – Sithe Energies, Japanese utility Kansai Electric. Contracts to US Company – Raytheon Co. and Japan’s Toshiba Corporation. 25-year power purchase agreement with the National Power Corporation, Philippines
Status	Repayments ongoing; project scheduled to be completed by 2009	Approved by Hermes in October 2001. Under construction since 1979, currently 60% complete.	Under Construction

Blocking ECAs, Unraveling the Neo-Liberal Agenda: The case of Mahehshwar Project

In 1991, power policies in India were changed to enable private participation in the Indian power sector, which had hitherto been overwhelmingly in the control of the state. The Indian power equipment market alone is worth billions of dollars. Also, there seemed to be openings for foreign capital and corporations to take over utilities, worth many more billions of dollars. These represent very lucrative opportunities for global corporations like Siemens and Asea Brown Boveri (ABB).

The initial financing plan for Maheshwar envisaged as much as 78 percent of the total financing for the Maheshwar dam project coming from foreign sources. In 1997, S. Kumars first partnered with Bechtel, which subsequently became notorious for its efforts to privatize water sources in Cochacamba (Brazil), and was successfully resisted by the people of that town. Bechtel soon fled the area.

In 1998, a power utility from the US, PacGen (Pacific General) decided to invest in 49 percent of the project equity. However, in May 1998, PacGen withdrew from the project, as hundreds of protestors barricaded all roads leading to the Maheshwar dam through the entire summer.

After the departure of PacGen, S. Kumars (with the help of Siemens) roped in two German power utilities - VEW Energie and Bayernwerk to take up 49 percent of the total project equity. These corporations were supposed to bring two big tied loans (from a private German bank, Hypo Vereinsbank) of US$134.15 million to purchase electro-mechanical equipment from Siemens and US$55.67 million for the purchase of hydro-mechanical equipment from ABB, Portugal.
For this, an export credit guarantee from the German and Portuguese governments respectively came in handy.

The export guarantee for Siemens was to be guaranteed by the German government, with German public money. This was to be counter-guaranteed by the Indian financial institutions or the Indian government -- that is, with Indian public money. If the private promoters failed to pay for the equipment, the guarantees and counter-guarantees could be invoked. However, if these were not honored, these would be automatically transferred and added to the Indian foreign debt.

An intense mass struggle gained momentum on the ground and an international campaign targeting the ECAs and their client governments blocked the ECAs in Maheshwar and forced the global corporations to withdraw.

Just as the power purchase agreements for projects like Maheshwar are actually rip offs with public funds, the ECA guarantees serve to ensure private profits, provide markets and cover risks with public funds, whether German or Indian. This is the weakest point in the strategies of global capital and allows space for popular intervention and interrogation.

The use of public funds creates a space for the exercise of public control, but also philosophically, it exposes one of the crucial contradictions of corporate globalization and privatization strategies -- the absence of “free market competition”, and “risk-taking” that are supposed to be the virtues provided by private entrepreneurship.

Finally and most significantly, without the ECA, global capital is not ready to face the play of either consumer choice or robust democracy. Therefore, it is important that the role of ECAs to bolster an unviable crony capitalism and erode national sovereignty be exposed; that ECAs be targeted by popular protest along with the global corporations and the colluding governments for popular protest, and thereby, the march of the global corporations pitting profits over survival, and denying millions of ordinary people the world over access to and public control over life-supporting water and power sources and infrastructure, be stopped. •