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CSOs Ask AIIB’s India Executive Director to not to go Ahead on NIIF

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To,

Shri. M.M. Kutty

Executive Director, India

Asia Infrastructure Investment Bank

March 14, 2018

Subject: AIIB’s proposed investment in National Investment and Infrastructure Fund 

Dear Shri M.M. Kutty,

We are writing with regard to the AIIB’s proposed investment into India’s National Investment and Infrastructure Fund (NIIF), which will come before the Board for approval at its next meeting in April 2018.

We want to raise a number of concerns regarding this proposed investment and we ask you to not go ahead with the approval of the Board, considering the potential environmental and social risks it involves.

The NIIF will invest in several high-risk sectors in India, including energy, transport and ports, which have potentially serious impacts on local communities and natural resources. Given this, we are deeply concerned about the lack of transparency around NIIF’s sub-projects and clients, and serious concerns that social and environmental protections will not be applied to projects funded by NIIF.

Transparency concerns

At present, there is no information available either on the NIIF or the AIIB websites about, which sub-projects or clients will receive NIIF support. This total absence of transparency is not acceptable. How can the AIIB’s Board take a decision to invest in a fund when it does not know where that money will end up and therefore cannot guarantee that those projects will do no harm? Eight months after the Board’s approval of AIIB investment into the India Infrastructure Fund (IIF), there is no information publicly available about the projects supported by that fund, a situation the NIIF threatens to repeat.

It is crucial that the AIIB contractually require its financial intermediary (FI) clients such as NIIF and IIF to disclose publicly all of its investments. Access to information is the basic right of every individual who is being affected by any project. AIIB must also disclose this information on its website. This step would help to ensure that affected communities are aware that the sub-projects must comply with environmental and social standards and can approach, the AIIB, and it’s Board at early stages if those standards are not being met.

Institutions like Asian Development Bank have a policy requiring 120-day public disclosure of draft environmental and social assessments “where the subprojects financed by the FI … through either credit-line, other loans, equity, guarantee, or other financing instruments, have the potential for significant environmental or social impacts.” Despite this policy, the experiences on the ground have shown that these are not followed in letter and spirit. In most cases the public disclosure is not done properly, information is not made available to those being affected in local languages, proper notice period is not provided etc. At present, AIIB does not even have a draft Public Policy on Information nor do Environmental and Social Framework guarantee time-bound disclosure of such crucial information as resettlement actions plans or social and environmental impacts assessments.

Concerns around social and environmental impacts

As the enclosed report documents, there is a high risk of losing control of the outcomes of sub-projects when funding through FIs, threatening to result in harm to communities and natural resources. This risk is especially high in infrastructure projects. The International Finance Corporation (IFC) has learnt this lesson the hard way – and has acted to cut its high-risk FI lending significantly in the last year, from 18 to 5 investments. The IFC has also reduced its exposure to harmful sub-projects by turning away from equity investments.

In India, one such FI project that was funded by IFC is GMR Kamalang thermal Power Project in the state of Odisha. The project has been marred by serious human rights violations and environmental and social concerns. With none of the social and environmental policies of IFC applicable to the FI projects, the affected community had no access to information as to whom the funder of the project was and whom to approach. When the fund was traced back to IFC, the community took a chance to approach Compliance Advisor Ombudsman (CAO), the grievance redressal body of the IFC. An audit done by the CAO confirmed the serious environmental and social concerns. In spite, of IFC having a redressal mechanism in place and their intervention, nothing has changed for the community on the ground who continue to suffer the negative impacts of the project.  Like the NIIF fund, the IFC fund also supported equity investments in energy projects and utilities, transport infrastructure, telecommunications, and other infrastructure solely in India. AIIB would do well to take these lessons on Board and limit its exposure to high-risk funds such as IIF and NIIF which also support high-risk infrastructure sectors.

A significant risk associated with the NIIF is its mandate to re-start ‘stalled’ projects. Such projects in India have often stalled for very good reasons: often as a result of local opposition to the high toll threatened to their communities and natural resources. Recent research found that a quarter of stalled projects in India had stalled as a result of conflicts over land. With this as the case, it would be highly irresponsible of AIIB to go ahead with the approval of the fund without knowledge of which sub-projects are being funded and it’s disclosure to the public thereof.

Recommendations 

Given the high risk that NIIF will end up financing harmful sub-projects, we recommend that the board does not give its approval to this (NIIF) project. With the risk involved and the fact that no proper policies are in place with regard to the FI investments specifically and with most of the policies of AIIB still in its draft phase; it would be highly irresponsible for AIIB to go ahead with the approval of any FI project.

Additionally, AIIB needs to put in place robust policies and systems around financial intermediary investments to ensure transparency, accountability and efficient channels of communication with all stakeholders.  These requirements, in AIIB’s policies, investment, decision-making and contracts with FI clients should be mandatory and include:

  1. No funds should be disbursed and no loans granted until there is clarity as to which particular project is being supported by the fund and there is public disclosure of that information.
  2. Until all Environmental and Social and transparency policies are approved after a thorough process of consultation with all stakeholders including CSOs and affected communities, and adequate complaints and accountability mechanism is in place, no further projects should be approved, whether co-financed or through FIs.
  3. All policies, which are applicable to AIIB financed projects, should also be applicable to FI projects such as NIIF.
  4. Communities should be informed of the relevant AIIB policies and the availability of complaints and accountability mechanism in a language and manner they can understand and their consent should be sought before a project is approved.

We look forward to your response to these questions and concerns.

Yours Sincerely,

Anuradha Munshi
Centre for Financial Accountability

Endorsed by

  1. Narmada Bachao Andolan, Madhya Pradesh
  2. National Alliance of People’s Movements
  3. All India Union of Forest Working People
  4. National Hawker Federation
  5. Bharat Jan Vigyan Jatha
  6. North East People’s Alliance
  7. Focus on the Global South
  8. International Rivers South Asia
  9. Bargi Bandh Visthapit Sangh, Madhya Pradesh
  10. Centre for Financial Accountability, New Delhi
  11. Chennai Solidarity Group, Chennai
  12. Chutka Parmanu Virodhi Sangharsh Samiti, Madhya Pradesh
  13. Citizen consumer and civic Action Group (CAG), Chennai
  14. Delhi Forum, New Delhi
  15. Environment Support Group, Bangalore
  16. Himdhara Environment Research and Action Collective, Himachal Pradesh
  17. Indigenous Perspectives, Manipur
  18. Institute for Democracy and Sustainability, New Delhi
  19. Intercultural Resources, New Delhi
  20. Khan Kaneej Aur Adhirkar, Jharkhand
  21. Machimar Adhikaar Sangharsh Sangathan, Gujarat
  22. Manipur Cycle Club, Manipur
  23. Manthan Adhyayan Kendra, Pune
  24. Matu Jan Sangathan, Uttrakhand
  25. Nadi Ghati Morcha, Chhattisgarh
  26. Paryavaran Mitra, Ahmedabad
  27. Public Finance Public Accountability Collective (PFPAC), New Delhi
  28. Srijan Lokhit Samiti, Madhya Pradesh
  29. Teeradesa Mahila Vedi, Kerala
  30. The Centre for Research and Advocacy, Manipur
  31. The Research Collective, New Delhi

 


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