WHAT IS CHINA'S ROLE IN DAM BUILDING?
Since 1999, the government of China has advanced policies that encourage domestic companies and banks to conduct business overseas. The Chinese state-owned Sinohydro Corporation is now the largest hydropower company in the world. many Chinese companies involved in the construction of large hydropower projects such as the Three Gorges Dam are now taking the lead role in new hydropower projects around the world. The China Export-Import Bank (China Exim Bank) has become a major funder of large dams. Furthermore, the Chinese government has increased its lending to foreign governments, and hydropower projects are often part of bilateral trade and investment packages that the Chinese government provides.
HOW MANY MORE DAMS ARE CHINESE COMPANIES AND FINANCIERS HELPING TO BUILD?
As of August 2012, we are aware of at least 308 dam projects (mostly for hydropower generation) in 70 different countries around the world in which Chinese companies or financiers are involved. This represents a 300% increase in the number of active hydropower projects over the past four years. Many of these projects are located in Southeast Asia, but new hotspots for Chinese dam building are Africa, Latin America and South Asia (in particular, Pakistan).
The number of dam projects continues to rise, despite several African hydropower projects with signed memorandums of understandings not going ahead. Just under half of Chinese overseas dams (proposed, under construction or operational) exist in Southeast Asia. Africa is the next major geographic concentra-tion, with 85 Chinese overseas dams, representing 28% of all Chinese overseas dams in the world. The number of Chinese dam projects in Latin America has grown rapidly since 2008 and now accounts for 8% of all dams.
WHAT ARE THE VARIOUS ROLES THAT CHINESE COMPANIES PLAY IN OVERSEAS DAM BUILDING?
- Chinese companies can act as contractors for a dam project. Contracting roles can range from responsibility for building the entire project (referred to as "EPC Contracts - Engineering, Procurement and Construction" and "turnkey contracts") or for specific parts of hydropower construction such as civil works, hydraulic works or electric equipment supply.
- Chinese companies may also act as project developers. Usually this involves the company find-ing and arranging the financing (usually from Chinese banks), designing and building the dam, and usually operating the dam for a number of years before handing back ownership of the dam to the government. During the period of operation, the company will sell the power to the host country government for a profit to recoup the initial investment outlay.
- Chinese financiers can provide funding for Chinese overseas dam projects in a number of ways. A loan from a Chinese bank to the host country for a significant portion of the project is the most common form of financing. The loan terms can vary from concessional to commercial interest rates. Chinese financiers may also support projects by issuing export credits. In such cases, Chinese financiers may provide guarantees, insurance or direct financing for a Chinese company to fulfill an overseas dam contract. Overseas Chinese dam projects may also be supported by a bilateral loan from China, in which the project and other infrastructure projects are funded. Such loans usually require that Chinese companies carry out the project. Finally, Chinese companies may use existing credit lines issued to them from Chinese banks such as China Development Bank and China Exim Bank to develop overseas dam projects. In such cases, there may be no loan at all to the host country government.
WHAT ARE THE MAIN CONCERNS ABOUT THE OVERSEAS EXPANSION OF THE CHINESE DAM-BUILDING INDUSTRY?
- Few Chinese dam builders and financiers have adopted environmental policies in line with international standards. Chinese financiers have provided funding for projects previously rejected by other financing institutions due to non-compliance with social and environmental standards (examples include Merowe Dam in Sudan, Gibe III in Ethiopia, and Bakun Dam in Malaysia). The industry's reputation has been affected by the involvement of Chinese companies in destructive dam projects such as the Merowe Dam, the Gibe III Dam, and the Myitsone Dam in Burma.
- Chinese dam builders are relatively late to the game. Many low impact dam projects have already been built. As a result, they are forced to take projects in remote, politically unstable areas that have important ecological values. In addition, many of the countries that Chinese dam builders are active in have low environmental protection requirements, weak human rights protection and high level of corruption. In such contexts, it is difficult for Chinese companies to build projects that meet international standards because the requirements are so low.
- While some Chinese companies have been active in the international market for over ten years, many are new to the international market. Chinese dam-building companies often lack experience in dealing with political and environmental risks overseas. They may also be confronted with challenges and responsibilities unfamiliar to them in China, such as resettlement, local opposition and stricter implementation of environmental protection laws. In China, local and provincial governments undertake resettlement of affected communities and deal with local opposition.
BOX 1: A New Role for Chinese Dam Builders in Dam Planning
In April 2011, Sinohydro and the government of Laos signed a Master Agreement for the development of seven hydropower dams on the Nam Ou in Laos. In Sinohydro's words, the Nam Ou was the "first time that a Chinese company can obtain the development rights towards the whole river basin." Sinohydro has been investigating and planning various formulations of a dam cascade for the Nam Ou since 2007. Under the terms of the deal, Sinohydro would build and own the dams for 25 years before handing them over to the government of Laos.
While Chinese dam builders have experience in developing entire river basins within China, they have had limited opportunities to do so overseas.
However, Sinohydro's Nam Ou hydropower cascade project may represent a new trend for Chinese overseas dam building. In May 2011, the government of Colombia hired HydroChina, a Chinese state-owned hydropower design firm to create the "Master Plan for the Exploitation of the Magdalena River." Under the two-year agreement, HydroChina will develop a plan for infrastructure development to control floods, improve freight transportation and promote the development of hydropower production "without adversely affecting the environment." At the time of writing, HydroChina had completed its initial survey and had even gone as far as to investigate the hydropower potential of all the tributaries of the Magdelena River.
CAN DAM-AFFECTED COMMUNITIES WORK WITH CHINESE INSTITUTIONS?
The Chinese government and most companies want to be responsible and respected international actors. They are interested in international experiences in implementing environmental and social standards but are not always receptive to direct criticisms raised by western institutions or organizations. Concerns voiced by southern NGOs and dam-affected communities, on the other hand, may be better received. At the same time, NGOs are new to China and the Chinese government has greatly limited citizen activism. This guide provides suggestions on how to best work with Chinese institutions to influence their dam projects overseas.
Number of Dams by Regions
Chinese dam builders. A meeting of Chinese hydropower company officials and engineers to discuss dam construction progress in Sichuan, China. Photo: powerfoo.com