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DAM-L Criticism, Financial Uncertainty Surround China's Three Gorges Dam (fwd)
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Date: Tue, 25 Jul 2000 17:46:43 -0700 (PDT)
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Subject: Criticism, Financial Uncertainty Surround China's Three Gorges Dam
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Asian Assets Direct
Criticism, Financial Uncertainty Surround China's Three Gorges Dam
July 25, 2000
By Abid Aslam and Antoaneta Bezlova
WASHINGTON A controversial Chinese dam that has received billions of dollars in financing from U.S., European and Japanese banks and export credit agencies is being bombarded with fresh criticism in a country where government projects are seldom questioned.
Financial backers of the Three Gorges Dam project have included Bank of America, Barclays Capital, Chase Manhattan, Credit Suisse First Boston, Deutsche Bank of London, HSBC Markets, Merrill Lynch, Morgan Stanley Dean Witter and Salomon Smith Barney/Citigroup.
In a rare sign of defiance, 53 senior Chinese engineers and academics recently warned the government that the dam - the world s largest hydro-power construction project - is beset with technical and financial problems.
Their protest follows revelations by the government-controlled media of corruption and shoddy work and warnings from outside experts that the dam will end up operating at a financial loss.
"This is a further nail in a coffin that's already being buried," said Simon Billenness, a senior analyst at Boston's Trillium Asset Management who has led investor opposition to U.S. participation in the dam.
Because the project is so risky, Three Gorges "can only tap capital markets through intermediaries and even that route's getting more difficult," Billenness said.
Reports of corruption, human rights violations and environmental risks associated with the dam have fueled the efforts of "socially responsible" investors such as Trillium and the Domini group of funds to dissuade underwriters from having anything to do with the project.
The World Bank and U.S. Export-Import Bank walked away from the project years ago amid warnings from Chinese and international experts that the dam, designed to help control floods while generating electricity, carried serious environmental, social and human-rights risks.
"It was a textbook-case disaster in the making," said one World Bank official.
Private financiers then stepped in, underwriting Yankee bonds issued by the China Development Bank, formerly the China State Development Bank.
Last May, Salomon Smith Barney acted as co-lead manager for the latest bond issue of $500 million. Salomon officials said they were trying raise general-purpose capital for the bank. Executives at institutions involved in previous issues said the same thing.
But Billenness and other opponents argue that the difference is academic. Three Gorges, they claim, became one of China Development Bank's chief clients after Beijing gave the bank the job of raising money for the dam.
No new bond issue has been announced, but investment executives and project critics say another round of fundraising remains possible.
Meanwhile, Trillium and Domini continue to file shareholder resolutions critical of the dam at institutions like Chase, Citigroup and Merrill Lynch. Environmental groups have launched consumer boycotts of the Discover Card, a Morgan Stanley Dean Witter affiliate, and of Citigroup's retail banking services.
As a result of the activity, said Billenness, China Development Bank "bonds could end up being as politically and financially radioactive as the recent IPO for PetroChina."
That IPO, underwritten by Goldman Sachs, was slashed from $10 billion to around $3 billion under intense opposition from labor, environmental and human rights groups.
The Three Gorges project, expected to be completed in 2009, is designed to generate some 18,000 megawatts of electricity. But with three years remaining before the $24 billion dam's first phase comes on-line, critics question its financial prospects.
A recent report by Probe International, an activist group based in Canada that tracks the portfolios of export credit agencies, foresees a "death spiral" of bankruptcy and stranded investment costs for the massive dam even before its completion.
Already, independent estimates of the real cost of the dam project have risen to as high as $70 billion.
"Electric power from the dam will cost at least two times more than power from the new high-efficiency gas turbines and cogeneration plants," the report predicts.
This is aggravated by the fact China is experiencing a glut in electricity and new nuclear and thermal plants are scheduled to open soon, making it even more difficult for the Three Gorges dam to sell the power it will produce.
Export credit agencies from Germany, Switzerland, Canada and Japan have also vied to help secure construction, equipment and consultancy contracts for the project.
The latest protest from the Chinese academics and engineers warns President Jiang Zemin that "a staggering number of 500,000 people" may be added to the one million already expected to be forced from their homes when the dam is completed.
The project would also block navigation at the Yangtze River, where the dam is under construction, by increasing siltation at the port of Chongqing, the protesters said.
Even the tightly controlled state media has begun leaking accounts of corruption in connection with Three Gorges, an indication of public suspicion about the controversial project.
In January, the People's Daily, the Communist Party's flagship newspaper, reported that state auditors had implicated at least 14 people in a $57 million embezzlement ring to divert funds earmarked for resettling residents displaced by the dam.
Abid Aslam is Asian Assets Direct's News Editor. Antoaneta Bezlova, a correspondent for Inter Press Service, reported from Beijing.
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