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Down to Earth IFIs Update

No 27, July 2002

People Affected by Kotopanjang Dam to Sue Japanese Government

About 3,000 people from 13 villages affected by Japanese ODA-funded Kotopanjang Hydropower Project in Sumatra are planning to file a lawsuit with the Tokyo District Court to seek compensation from the Japanese Government agencies, the Japan International Cooperation Agency, the Japan Bank for International Cooperation, and Tokyo Electric Power Services, Co. (a private company). The case will be the first legal challenge to a project funded by Japanese overseas development assistance.

The four institutions were involved in building the Kotopanjang Dam, which has forced about 23,000 people to resettle. The dam, completed in 1997 at a cost of Y 31.18 billion (approximately USD 270 million), is located on the border of Riau and West Sumatra provinces. Those affected say that they've been left without adequate facilities, such as clean well water, on the resettled land, and that they have not been guaranteed new job opportunities.

Akihiko Oguchi, who heads the Japanese lawyers representing the plaintiffs, said that the plaintiffs and local residents are seeking restoration of their living conditions and the natural environment, while a growing number are calling for the dam to be dismantled. Oguchi further said that it will be impossible for the plaintiffs to seek Tokyo's decision to decommission the dam because it belongs to the Indonesian government. The Japanese government, however, will be urged in court to recommend its Indonesian counterpart to decommission it. The amount of compensation requested is yet to be decided. Oguchi also said that Japanese supporters will soon file a taxpayers' suit claiming that the government misused public funds for the controversial dam project.

(Source: Dow Jones, July 8, 2002
Contact: Japan NGO Network on Indonesia

Japan Considers Compliance Mechanism for JBIC and Announces Reform Plan for its ODA

The Japan Bank for International Cooperation (JBIC) is considering establishing a compliance mechanism for its new environmental guidelines. If established, the mechanism would allow people affected by JBIC-funded projects to file a complaint with JBIC if non-compliance with the new environmental guidelines is suspected. A second public consultation on the compliance mechanism took place on June 28, 2002.

The corporate sector's reaction to this issue has not been positive. In the first consultation, company representatives indicated that bilateral financial institutions in other countries do not have compliance mechanisms, and therefore they questioned the need for JBIC to have one. Some demanded concrete examples of cases where JBIC's current handling of problems was insufficient.

These remarks show that the corporate sector is unwilling to recognize the many concrete examples, such as the Samut Prakarn Wastewater Management Plant (Thailand), San Roque Dam (Philippines), and Sondu-Miriu (Kenya) projects. They also do not seem to realize that by being so resistant to a compliance mechanism, they are only emphasizing the need for such a mechanism. If they were confident that their current business practices were not in violation of the guidelines, they would not feel the need to resist so strongly.

The next public consultation will be held on July 23rd, 2002, to discuss the compliance mechanisms and complaints procedures of export credit agencies. A representative from the corporate sector will give a presentation on how companies have dealt with conflicts arising during project operation.

JBIC and the Japan's Ministry of Finance are ahead of other countries in addressing the pressure for establishing a compliance mechanism for bilateral public financial institutions. Another progressive step taken by the Japanese government was the announcement by the Foreign Minister Kawaguchi in early July 2002 of a fifteen-point reform plan for Japanese ODA. Point nine is relevant to NGOs working in developing countries; it says, "In the developing countries where many Japanese NGOs are carrying out activities, regular meetings will soon be established among Japanese embassies, local offices of JICA and JBIC, and NGOs."

Overall, the reform plan addresses issues of inspection and evaluation of ODA operations, cooperation with NGOs, capacity-building, and disclosure/dissemination of information. While reform is welcome, it is unfortunate that the plan does not call for a fundamental reevaluation of the use of ODA as a tool for diplomacy or of the process of project implementation, which has largely excluded local communities from decision-making processes. It is hoped that the upcoming inspections and evaluations of ODA operations will enlighten the Ministry on these points.

(Source: Mekong Watch CATFISH TALES, 15 July 2002, Issue #4

Parliament Delays Approval of New Power Bill, New Power Plants to be Developed

On July 18, 2002 the Indonesian Parliament decided to delay discussion of the new Power Bill, making it impossible for approval of the bill as scheduled by the government. The Indonesian government is under heavy pressure from the ADB to have the bill approved by parliament if Indonesia wants the last tranche of a USD 400 million Power Sector Restructuring Loan to be disbursed. The money is needed to secure the country's balance of payments and the current budget.

Critics who have followed the debate on the power bill agree that parliament's decision to delay the approval is necessary as there is too much unclear language in the bill on the proposed unbundling of the sector. "Unbundling" refers to the separating out and transfer of power generation, transmission, and distribution activities to different companies or corporations. Without more clarity, the process is very likely to derail and this means that the public interest is at stake.

Meanwhile, in response to the imminent power shortage in Java and Bali in 2004 as well as blackout problems in 28 other areas, including several areas in Sumatra, the following power plants are planned:

Java-Bali (total cost USD 658 million)
  -   183 MW Pemeron gas-fired power plant in Bali (to start in 2003)
  -   30 MW Gunung Salak power plant in South Sumatra (2005-2006)
  -   715 MW Tanjung Priok plant (2006)

Outside Java Bali (total cost USD 977 million)
  -   400 MW power plant I South Sumatra (2005-2006)
  -   500 MW plant in West Sumatra and Riau (2007)
  -   114 MW plant in Kalimantan (2003-2005)

Indonesia Power, a subsidiary of state-owned company PLN, is seeking partnerships to develop the new plants. The Japan Bank for International Cooperation has been mentioned as one of the agencies possibly interested in the partnership.

The Indonesian government has also reached new power purchase deals with several of the 27 independent power producers whose power purchase agreements were postponed as a result of the financial crisis in 1997. One of them is the continuation of a 1,320 MW Tanjung Jati B power plant in Central Java, targeting 2005 as the completion schedule.

(Sources: Jakarta Post, July 8, 2002; Response on the Outcome of the Parliament's Review Team on the Power Bill, by NGO Working Group on Power Sector Restructuring (no date).
Contact: M. Suhud of the NGO Working Group on Power Sector Restructuring)

Two Gas Pipeline Developments Planned - Unclear if Environmental and Social Issues are Being Publicly Monitored

A 1,100 km natural gas pipeline is being planned between East Kalimantan province and the Island of Java , as well as a 600 km pipeline to supply gas to the western part of the island, where the capital is located. The total cost of the construction is estimated at USD 1.7 billion.

Slated for a completion in 2008, the state-owned gas company, Perusahaan Gas Negara is seeking foreign partners to start the project in 2005. The project is aimed at meeting the growing needs of gas to fuel homes and power plants. Gas producers in East Kalimantan include Unocal Corp., and Total Fina Elf SA.

Another natural gas pipeline is being planned from Sumatra to Singapore. The ADB-funded project is in the bidding process to select the winner for a 40% stake in PT Transgasindo, the company that will build the pipeline. The ADB set the condition that PGN must sell 25% to 40% of the unit in order to be eligible for the Bank's financing. The USD 470 million pipeline is scheduled to deliver gas to Singapore in 2003.

DTE is not aware whether any environmental and social issues raised by the two planned pipelines have been publicly discussed or monitored.

(Source: Bloomberg, July 8, 2003)

World Bank Revised Forest Policy Draft Lacks Direction

The World Bank is currently revising its Forestry Policy as part of its ongoing policy conversion process. Serious concerns have been raised over the Bank's underlying assumption that market force or marketing arrangements will address deforestation. There is no evidence to date that large-scale timber export and carbon sequestration projects can be effective in promoting environmentally sound and socially equitable development. The proposed policy will allow the Bank to support all types of investment in any forest unless the Bank bureaucrats categorize it as 'critical forest'. Participation of forest-dependent people nearly one billion worldwide -- in having a say in the forest management issues is not mentioned in the draft.

The Forest Policy is one of the Bank's Safeguard Policies. However, Instead of proposing clear and strong new safeguards to protect the world's forests, the draft refers to seven other existing Safeguard Policies as a means of ensuring the protection of ecosystems and forest-dependent people. Also, the draft does not address the controversial issues of the impacts on forests of the Bank's own policy-based lending but just passes this important issue to a long-delayed, forthcoming revision of the Bank's overall policy on adjustment lending.

NGOs monitoring this policy are calling on the Bank to delay finalizing the draft until adequate time is given for debate and further input. They are also demanding that the bank rewrite the policy inline with the technical advice and NGO recommendations made during the Bank's public consultations on its Forest Policy Implementation Review and Strategy.

(Source: "World Bank's Proposed Policy Puts World's Forests at Risk" by World Rainforest Movement, Forest Peoples Program, and Environmental Defense. June 2002.
Bank Information Center (BIC) website

Stiglitz' New Book, Globalization and Its Discontents, Highlights Fund - Bank Split

Former World Bank Chief Economist, Joseph E. Stiglitz, was severely criticized by current IMF Chief Economist, Kenneth Rogoff, in a July 2002 World Bank-sponsored launch of Stiglitz' new book Globalization and Its Discontents (Norton, USD 24.95) where Stiglitz and Rogoff were the featured speakers.

Stiglitz's book says the IMF made a big mistake when it demanded cutbacks in budget deficits and increases in interest rates by governments undergoing crises. Stiglitz argues against the Fund's logic that higher interest rates and lower deficits help restore financial calm in a crisis-stricken country by making it more attractive for investors to keep their money there. He says such policies cause recessions and thus increase the likelihood that investors will leave the country.

In the past, the IMF has responded to such criticism with bureaucratic detachment. However, this time the Fund hit back. At the book launch, Rogoff derided Stiglitz's ideas as "at best highly controversial, at worse, snake oil" and quipped that "we on the Planet Earth" recognize Stiglitz' policy prescription as likely to worsen countries' problems by fuelling inflation. (quoted from Washington Post article)

The Fund and the Bank have developed an antagonistic relationship as they struggle with the challenges of reducing poverty and assisting countries stricken by financial crises, and have sometimes played roles that seem to be in conflict with each other. The Fund's approach to a financial crisis is to provide countries with short-term loans to tackle the balance of payment problems during the period of economic turmoil. It insists on cutbacks in public spending to force governments to live within their means. This approach has often conflicted with the Bank's long term approach of development by promoting poverty reduction goals in education, health, and other programs slow achievements that can easily be wiped out by the Fund's public spending cutback conditionalities.

(Source: Washington Post, July 2, 2002, July 7, 2002)

ADB Loan for Financial Governance Reform Program Completed

The ADB disbursed the third and final tranche of a USD 350 million Governance Reform Program Loan to Indonesia in early July 2003. The delayed disbursement followed President Megawati's signing of the new anti-money-laundering law in April this year the main condition attached to the last disbursement. The total loan is USD 1.2 billion, with the first disbursement in June 1998 and the second in January 1999.

The ADB said that while Indonesia has made good progress in financial sector restructuring, it still faces many challenges in further strengthening financial and corporate governance in the mid- and longer-term and in improving the integrity and efficiency of the judicial system both of which are prerequisites for Indonesia regaining investor confidence and achieving economic recovery and future growth.

The newly approved anti-money-laundering law will be implemented by a financial transaction reporting and analysis centre which is not yet established. Until now, this task has been done by the central bank. The law requires financial services firms to inform the agency about all cash transactions worth 500 million rupiah (approximately USD 57,000) or more. It also requires individuals to make reports if they bring in or take out 100 million rupiah (USD 11,000) or more in cash from the country.

(Source: AFX-Asia, July 4, 2002)

World Bank/IMF Annual Meeting Scheduled for September 28-29 in Washington, DC

The World Bank and IMF Board of Governors' Annual Meeting will be held this year on September 28-29 in Washington, DC. Traditionally, the Bank holds its Annual Meeting for three days, but this year the meeting has been consolidated to two. The Bank and the Fund are anticipating protests from global justice and other movements, though probably on a smaller scale than in the past.

Civil society organizations are planning various meetings, workshops, and discussions around the Annual Meeting. Possible topics include power sector restructuring, accountability mechanisms, water privatization, etc. For further updates, visit or contact

(Source: Washington Post, July 11, 2002)

This IFI update is published by Down to Earth, the International Campaign for Ecological Justice in Indonesia.

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