23 August 2021

Five lessons the European Investment Bank must learn from its mistakes in an infrastructure project in Nepal

This month, Accountability Counsel provided feedback to the European Investment Bank (EIB) as part of its public consultation process to review the Bank’s draft Environmental and Social Sustainability Framework (ESSF). Our concerns and recommendations to improve the draft ESSF were grounded in our support to communities in Nepal who have waged a long struggle for an EIB funded transmission line to respect their rights. The ESSF revision is an important opportunity for the EIB to strengthen its environmental and social standards and practices, particularly by learning from the mistakes of its investment projects.

Local communities including Indigenous Peoples in the Lamjung and Manang districts of Nepal have been adversely affected by the EIB’s investment in the development of the 220 kV Marsyangdi Corridor transmission line, a component of the 95 million-euro Nepal Power System Expansion Project. In October 2018, the communities voiced concerns of environmental and social harms to the EIB’s accountability office, the Complaints Mechanism (CM), which published the findings of its investigation into the project in a Conclusions Report released in April 2021. The report condemns the project’s violations of Indigenous Peoples’ rights and other substandard practices.

Our comments on the EIB’s draft ESSF consultation identified shortcomings in the Nepal project that demonstrate the need for reforms to the Bank’s environmental and social framework. Five of the most critical lessons the EIB should learn from this project follow.

  1. Meaningful consultation with affected communities

In the Nepal case, the Conclusions Report found that there were major flaws in the public consultation process with low participation levels of women, and in one project area, the total number of people who attended public consultations was as low as one percent of the total population. One of the causes of low public participation is the project authorities’ failure to utilize effective communication channels and provide information in a language that the communities fully understand.

The project authorities failed to provide meaningful information disclosure and consultation about the project’s environmental, human rights, and economic livelihood impacts, and the Bank has failed to credibly investigate concerns raised by communities about intimidation by local authorities to accept compensation.

Unfortunately, despite these clear stakeholder engagement failures found by the Bank’s own accountability office, the stakeholder engagement standard in the new draft ESSF does not currently reflect the reforms necessary to promote more consistent and effective stakeholder engagement. Our submission recommends that the standard be strengthened by providing more robust instructions on addressing reprisals, Stakeholder Engagement Plans, and the means of communicating with local communities.

  1. Time-bound requirements for the completion of all required assessments

In Nepal, project authorities were allowed to begin construction and received financial support from the EIB even though environmental impact assessments and resettlement plans were not completed. This remains the situation years after construction started. The environmental and social impact assessments should not be treated as an academic exercise but rather should be an important condition when deciding to approve projects. Therefore, the EIB should revise its ESSF to include time-bound requirements for the various environmental and social documentation required by the standards. This would result in project promoters presenting a complete picture to the Bank of how a project will affect the local environment and communities, enhancing the Bank’s decision-making and project monitoring.

  1. More guidance on the development of resettlement plans

Local villagers in the Lamjung and Manang districts of Nepal, both those who are landowners and those who are displaced under the line’s right of way, have received little information about resettlement impacts and compensation. The Nepalese authorities in this case applied a broad national compensation model without considering different needs and level of impacts suffered by each household. The CM recommended a flexible and transparent approach based on best practice whereby the actual impacts of land use restrictions under the right of way are assessed on a case-by-case basis. Therefore, the EIB should include in its revised standards when the resettlement plan must be completed and indications of how far in advance of the proposed resettlement plan and other documentation should be disclosed to project-affected communities and consulted on.

  1. Safeguarding Indigenous Peoples’ right to free, prior, and informed consent (FPIC)

The CM found that the Nepal project promoter failed to take steps to seek local peoples’ free, prior, and informed consent (FPIC), even though the project area implicates the community land rights of traditionally governed Indigenous communities, and Indigenous Gurung are the majority members in Lamjung district. In this regard, the project authorities and the EIB have violated international and domestic requirements to seek FPIC of Indigenous Peoples.

Despite these significant failings, the draft ESSF seemingly takes a step back in terms of protecting the rights of Indigenous Peoples. The EIB should reestablish its commitment to the UN Declaration on the Rights of Indigenous Peoples (UNDRIP) in its policy framework and require all project promoters to fulfill FPIC requirements as a condition of the project appraisal. The Indigenous and local communities must be involved in an equitable and meaningful participation process that allows sufficient time for Indigenous communities to make informed decisions, including the possibility of a collective decision to reject a project.

  1. Effective monitoring as a project is being implemented

In the Nepal case, the CM found that despite the noncompliance of the project authorities who did not provide complete environmental and social assessments before the construction began, the EIB continued to make financial disbursements to the project. This has highlighted the Bank’s lack of capacity to regularly and effectively monitor project implementation on the ground. In addition, the EIB’s failure to enforce corrective measures when mistakes were identified in the Nepal project demonstrates that the Bank is contributing to social and environmental harms which are suffered by the very people whose livelihoods the Bank had sought to improve. To address these shortcomings, the EIB’s policy should ensure monitoring is conducted routinely, at periodic intervals. The ESSF should require the promoter to submit periodic monitoring reports on its environmental and social performance and specify how often the Bank will conduct monitoring site visits. It should also detail how the Bank should use financial, contractual, and other forms of leverage to ensure promoters take corrective action when gaps are identified.

To summarize, the EIB should immediately address its shortcomings in the Nepal case and strengthen its institutional policies and standards on social and environmental practices. This is a crucial step for the EIB to live up to its commitments to sustainable development, transparency, and accountability. The first step to improve the Bank’s environmental and social practices should start by listening carefully to the local communities and Indigenous Peoples who have been adversely affected by its projects.