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The AIIB is sailing into uncharted waters…

Notes by Eugene Simonov, Rivers without Boundaries (RwB).

Activists Organized a Demonstration in Front of the AIIB Meeting Venue

Rivers without Boundaries after two years of abstinence again took part in the annual general meeting of the Asian Infrastructure Investment Bank. We have noticed with concern that in 2019 the AIIB in a great haste has financed its first greenfield hydropower project in Nepal (Upper Trishuli 1) and now eyes Tamakoshi V Hydro as the next project there. As BIC-Europe reported 70% of non-fossil energy generation investment of the AIIB has been spent on hydro. Another point of interest is that the AIIB lately began active investment in non-hydro water infrastructure with at least 5 projects funded so far. In the AGM program a roundtable on “Water Strategy Development” Roundtable was announced. Announcement said something not very specific to water: “AIIB’s existing policies and strategies and its thematic priorities of sustainable infrastructure, cross-border connectivity and private capital mobilization will be the key parameters shaping the strategy”.

So, we had to check it out and headed for Luxembourg.

Water Strategy Roundtable on July 12 provided little clarity on the scope and focus of the intended strategy. Opening the event, President of the International Fund for Agricultural Development (IFAD) Gilbert HOUNGBO insisted that Water Strategy requires both Investment in physical infrastructure AND investment in management system. He also warned to explore upstream and downstream impacts from intended projects at early stages of planning. Winston Yu- principal strategy expert, seconded from the WB, suggested that Water Strategy should shift focus from civil engineering to institution-engineering. Banks face severe shortage of well-prepared projects and it is unclear whether there is a potential for domestic commercial finance. May be water infrastructure is too risky for private sector? The European Investment Bank rep claimed that the EIB spends 3 billion/year on water sector, not counting irrigation, and facilitates private involvement, but it is problematic. In EIB-wide statistics out of 131 water projects only 15 operations are borrowed by private entities, of those 10 in England. Ekaterina Miroshnik of EBRD said that her bank in 20 years in total has spent 3 billion USD on 200 projects in water infrastructure. Why projects in Eurasia are small typically 1-10 million per project? – Poor population cannot afford large costs. 81% borrowed by sovereign –states, 7-% private entities, 12% provincial budgets. Official from the foreign ministry of Hungary stressed that WATER is the public good –whatever you invest. Societal risks are more important than banking risks. Risk of no investment may be much higher than risk of investment failure…. Representative of Israel simply said that his country has the highest water use efficiency and is ready to support AIIB by expertise and technologies. ….

After so many difficult questions brought up, the AIIB VP Joachim von Amsberg could not stop from exclaiming that – AIIB is inherently biased in hardware investment and needs partners for management side. He said that AIIB cannot promote institutional reform. (AIIB to position itself as computer-vendor which sells only hardware, hoping that clients will take care of the rest…) Some situations too complex to think of investment, concluded the vice president…

After hearing all that I have sincere doubts this institution is capable of developing useful water strategy, as it completely failed on transportation and has largely mediocre performance in energy sector. Nevertheless the Strategy is being produced and as good partners we should think about minimizing damage. External parties will be given a chance to comment on draft from Strategy Sept 2019 to March 2020.

Civil society may request that Water Strategy should be about holistic water management and water ecosystems rather than just about water infrastructure. Water should be viewed as cross-cutting theme not as a separate sector. This does not exclude specific parts of strategy devoted to specific societal needs such as waste treatment. Basin-wide river management planning is the main common denominator for most water infrastructure projects. Therefore here the AIIB has no choice but to face strategic planning processes and employ strategic environmental assessments. Water Strategy development should take advantage of simultaneously undertaken revision of the AIIB Environmental and Social Framework and vice-versa. Water ecosystem services are what matters at the end of the day and therefore nature-based solutions should be considered\prioritized in the strategy, building on provisions already written into the ESF.

Hydropower, thanks to CEE Bankwatch, was a very hot topic at the AIIB meeting. Infamous Nenskra Hydro project in Georgia, which is still residing in the AIIB pipeline has demonstrated proven failures on social, environmental, legal, ethnological, economic, geopolitical and purely financial fronts. Nevertheless the AIIB officials insist that there are still not enough reasons to take Nenskra off the project pipeline, but they promised publicly that Nenskra will not go to Board approval this year.

Hydropower already occupies too much of AIIB portfolio inconsistent even with world-wide investment trends. In response VP von Amsberg noted that AIIB has high cost of its loans and  is lagging behind on concessional funding and thus all better RE projects are funded by other IFIs, (while the AIIB gets retarded, handicapped and outdated items which no one else wants….OK this is an exaggeration, but trend is obvious)

The “lean” AIIB is quite inefficient in project selection, for it lacks clear strategic planning approach, so the Bank opportunistically funds whatever offered by countries and resulting energy portfolio has high risks and nothing to offer for time-bound climate mitigation needs. Climate-mitigation related funding should be time-bound, but hydropower is not solving any GHG-related problems due to too long construction periods and frequent delays. Other possible measures in energy sector typically bring results in 1-4 years, while hydro requires 9-15.

In terms of “green innovation” the example of AIIB finally getting foothold in Nepal is a good illustration: 25 other donors support this country in haphazard hydropower development, so it is a shame that instead of contributing to some underserved development needs (e.g. Nepal has less than 1 MB of solar, needs better transmission and distribution networks, energy efficiency measures, etc.) the AIIB joins that already overcrowded space;

After the ceremonial meeting with NGOs the AIIB President Jin Liqin stopped me at the exit and insisted that he personally keeps check on large hydro and any hydro in AIIB portfolio, since he fully understands how problematic such investment could be. He made this statement just half an hour after telling us that “everyone should make sacrifices for common development” and once at Three Gorges Dam (“very important and useful project”) he had a conversation with displaced people by who confessed that they do not want to go back to old lifestyle in ancestral places. Likely it was an example of Marxist dialectics….

Unlike President Jin, VP von Amsberg at the same meeting took a fight defending his dam policies. He said that most of hydro investment went to rehabilitation of old plants with minimal environmental damage, besides some money was invested into transmission and distribution, thus reducing need for new capacity. And all that is factually correct, but the RwB would very much prefer not seeing greenfield hydro in the AIIB  portfolio at all, unless it is closed-loop pump-storage or equipping existing dams and canals with turbines.

The AIIB generously provided each of participants with event app and the electronic button on the badge that allowed us to calculate our carbon footprint. The irony, however, is that the AIIB itself for 3 years fails to calculate GHG emissions from the projects it funds, despite being regularly reminded about that by NGOs. No surprise that out of just over $8 billion invested so far, 20% of the AIIB’s funding or $1.6 billion has gone towards fossil fuels, while only 8% ($660 M) has gone to renewables (primarily hydropower).

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