The European Investment Bank has large investments in Nepal, with four projects in its energy sector, but has done little to stop rights violations.
Indigenous rights are at a critical crossroads after communities in Nepal have succeeded in holding the European Union’s investment bank accountable for its role in forcibly constructing a hydropower project on Indigenous land. At a time when the EU has ambitious plans to step up its development finance operations, member states have instructed the Bank not to provide further financing to the project unless violations are rectified. While all eyes now turn to the Bank’s response, this case has far-reaching repercussions for development projects globally, sending a strong message to project companies and governments to respect community consent or face financial consequences.
Nepal’s efforts to realize its enormous hydropower potential have been hindered by conflicts between project developers and local communities over energy infrastructure, particularly high-voltage transmission lines. These projects often encounter delays and financial setbacks due to failures to provide communities a voice in project design and adequate benefit-sharing and compensation in order to minimize negative impacts on their livelihoods, biodiversity, and social fabric.
One such conflict implicating the EU is the Marsyangdi Corridor transmission line project in western Nepal, a set of high-voltage transmission lines being built to transfer electricity produced by hydropower projects from the Annapurna Conservation Area down to the Kathmandu Valley. The project is part of the 95 million euro Nepal Power System Expansion Project funded by the European Investment Bank (EIB), which will construct and operate several transmission lines. While the project’s purported rationale is to increase access to energy through renewable sources in line with EU climate change priorities, local communities argue it is violating EU human rights commitments.
In October 2018, a coalition of community groups, the FPIC & Rights Forum, filed a complaint to the EIB’s Complaints Mechanism, documenting that affected communities had been left in the dark about the project’s design, route, and impacts, including environmental impacts arising from deforestation, health and safety impacts, and economic impacts, including insufficient compensation to landowners. The Forum includes Indigenous peoples, Dalits as well as upper caste Brahmin/Chhetri people, collectivizing to assert their rights.
Free, prior, and informed consent (FPIC) is an international legal standard applying especially to Indigenous peoples, empowering them to give or withhold consent to projects. The principle is crucial to Indigenous peoples’ self-determination and comes after centuries of denying them decision-making power. Although FPIC is protected under the social and environmental rules of many international financial institutions, it has seldom been upheld in their projects. The FPIC & Rights Forum’s hard-fought victory means that might change.
In April 2021 the Complaints Mechanism released its investigation report finding that no FPIC process had taken place, in breach of the Bank’s rules and international law. The report also uncovered that the Bank improperly provided funding to the Nepal Electricity Authority (NEA), the state-owned power company implementing the project, turning a blind eye to conditions of disbursement requiring environmental and resettlement plans to be completed prior to construction activity. In fact, project construction began in 2018 even though land acquisition and compensation issues remain unresolved today, with some community members reporting intimidation to accept compensation.
By the end of 2020, the Bank had made three disbursements totaling 15.3 million euros out of 95 million to the NEA. The EIB Board of Directors has now instructed that all disbursements be suspended moving forward until credible progress is made to address the violations. Two steps are urgently needed.
First, the EIB and NEA must suspend project construction and commit to undertaking an FPIC process according to a clear timeline. Communities have already designed that process in an FPIC protocol released in October 2020 through intensive community consultations. The protocol provides comprehensive guidance including on where and how community-level meetings should take place, what assessments are needed to study the project’s impacts on Indigenous peoples, and the steps needed to ensure women are included in the decision-making process. The EIB must use its leverage to ensure the Complaints Mechanisms’ other recommendations are implemented in a timely and consultative fashion. If the Bank’s zero-tolerance approach to reprisals has meaning, it will investigate reports of intimidation by project authorities and take necessary action.
Second, the EIB should learn lessons from this case in its review of its environmental and social safeguards. Sound assessment of impacts on affected communities and meaningful consultation must be at the heart of EIB operations moving forward.
The EIB has large investments in Nepal, with four projects in its energy sector, but has done little to stop rights violations. While affected communities are closely monitoring the EIB’s response to this investigation, it sets an important precedent globally. As financiers increasingly target tackling climate change across their portfolios, this case is a reminder that they have a responsibility to ensure the projects they invest in respect community consent when they impact Indigenous peoples’ land, livelihoods, and ecosystems.