news - FMO’s involvement in Barro Blanco ends

Since 2011 FMO has been a lender to the Barro Blanco hydropower project, a hydroelectric plant at the foot of a dam, located on the Tabasara River in the district of Tolé in Panama. This involvement has come to an end, as Genisa, the borrower and operator of the plant, has chosen to prepay its loan to FMO in full. Initially the loan would run until 2029.

With our loan to the Barro Blanco project, FMO aimed to contribute to delivering clean, cheap and stable energy to the people of Panama and thereby to assist them in their ambitions for economic growth and livelihood improvement. Now that the hydro plant is operating, it generates 28MW of clean energy to Panama, enough to supply 50,000 households and avoid the imports of 180,000 barrels of oil, thereby reducing CO2 emissions. But the building of the dam has also affected local communities more than FMO had initially foreseen.

In May 2014, a complaint was submitted with the ICM of both FMO and co-lender DEG by the M10 movement and the Cacica General of the Comarca Ngäbe-Buglé. The complaints state – among others – that the lenders should have ensured that the project respected the rights of the indigenous Ngäbe-Buglé people, in particular the right to Free, Prior and Informed Consent (FPIC). The dam floods about 6.7 hectares of the annexed lands of the Comarca.

The complaints were one of the first complaints that have been lodged with the then newly-established Independent Complaints Mechanism of FMO and DEG, and the first to be declared admissible by the Independent External Panel. The project has been the subject of significant correspondence between the lenders and various NGOs in Panama and the Netherlands over the course of our involvement.

In its Compliance Review report the Independent External Panel (IEP) concluded FMO was not fully in compliance with its own standards. At the time of credit approval, the lenders did not have sufficient information available regarding consultation of and the impacts on indigenous peoples. The panel also concluded that lenders should have obtained a more thorough legal opinion on the two agreements signed between the company and the formal Ngäbe Buglé community representatives.

In response, FMO has strengthened its approval process for very high-risk projects, notably regarding the level of analysis available at the time of credit approval and at the moment of finalizing the environmental and social action plan (ESAP). We have implemented broad measures to identify and respect human rights in investment projects. One of them is that in our due diligence for high-risk projects we identify vulnerable groups and individuals through contextual and project-specific analysis, and specifically include the rights of Indigenous People to give (or refuse) Free Prior and Informed Consent.

Like the IEP said, the Barro Blanco Project is significant in terms of socio-political impacts. A dispute that centred on an apparently small area of land has given rise to national and international scrutiny, including an UN-mediated process of investigation and dialogue, complaints to the highest courts of Panama and to visits from, and project reports by the United Nations Special Rapporteur on the Rights of Indigenous Peoples.

This project has made us very aware that our role as a Development Finance Institution (DFI) asks of us not only to contribute to a healthy private sector, clean energy, creating jobs, generating tax income and challenging our customers to raise the bar. We must challenge ourselves in making sure that international standards regarding the welfare of people, corporate governance and the environment are being adhered to. We have to carefully weigh the interests of the broad group of stakeholders surrounding our projects. Barro Blanco made clear that we have to look even more closely at local and historic context on a case-by-case basis to make a sound decision. 

Despite the pre-payment, Genisa has confirmed to FMO that the company will still accommodate a visit of the Independent Complaint Mechanism (ICM) panel, just as they have accommodated prior visits. The Independent External Panel of the ICM – or a representative of the panel - will conduct a final monitoring visit. Genisa will also accommodate a final E&S audit and evaluation by FMO – or a representative of FMO. Both evaluations will be used by us to again take a close look at our own performance in the Barro Blanco project and further determine the lessons learned during our involvement as a lender.