Revisiting Financing Blue Economy

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Blue Economy has suffered a definitional crisis ever since it started doing the rounds almost around the turn of the century. So much has it been plagued by this crisis, that even a working definition is acceptable only contextually, and is liable to paradigmatic shifts both littorally and political-economically. 

The United Nations defines Blue Economy as: 

A range of economic sectors and related policies that together determine whether the use of oceanic resources is sustainable. The “Blue Economy” concept seeks to promote economic growth, social inclusion, and the preservation or improvement of livelihoods while at the same time ensuring environmental sustainability of the oceans and coastal areas. 

This definition is subscribed to by even the World Bank, and is commonly accepted as a standardized one since 2017. However, in 2014, United Nations Conference on Trade and Development (UNCTAD) had called Blue Economy as

The improvement of human well-being and social equity, while significantly reducing environmental risks and ecological scarcities…the concept of an oceans economy also embodies economic and trade activities that integrate the conservation and sustainable use and management of biodiversity including marine ecosystems, and genetic resources.

Preceding this by three years, the Pacific Small Islands Developing States (Pacific SIDS) referred to Blue Economy as the 

Sustainable management of ocean resources to support livelihoods, more equitable benefit-sharing, and ecosystem resilience in the face of climate change, destructive fishing practices, and pressures from sources external to the fisheries sector. 

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As is noteworthy, these definitions across almost a decade have congruences and cohesion towards promoting economic growth, social inclusion and the preservation or improvement of livelihoods while ensuring environmental sustainability of oceanic and coastal areas, though are markedly mitigated in domains, albeit, only definitionally, for the concept since 2011 till it has been standardized in 2017 doesn’t really knock out any of the diverse components, but rather adds on. Marine biotechnology and bioprospecting, seabed mining and extraction, aquaculture, and offshore renewable energy supplement the established traditional oceanic industries like fisheries, tourism, and maritime transportation into a giant financial and economic appropriation of resources the concept endorses and encompasses. But, a term that threads through the above definitions is sustainability, which unfortunately happens to be another definitional dead-end. But, mapping the contours of sustainability in a theoretical fashion would at least contextualize the working definition of Blue Economy, to which initiatives of financial investments, legal frameworks, ecological deflections, economic zones and trading lines, fisheries, biotechnology and bioprospecting could be approvingly applied to. Though, as a caveat, such applications would be far from being exhaustive, they, at least potentially cohere onto underlying economic directions, and opening up a spectra of critiques. 

If one were to follow global multinational institutions like the UN and the World Bank, prefixing sustainable to Blue Economy brings into perspective coastal economy that balances itself with long-term capacity of assets, goods and services and marine ecosystems towards a global driver of economic, social and environmental prosperity accruing direct and indirect benefits to communities, both regionally and globally. Assuming this to be true, what guarantees financial investments as healthy, and thus proving no risks to oceanic health and rolling back such growth-led development into peril? This is the question that draws paramount importance, and is a hotbed for constructive critique of the whole venture. The question of finance, or financial viability for Blue Economy, or the viability thereof. What is seemingly the underlying principle of Blue Economy is the financialization of natural resources, which is nothing short of replacing environmental regulations with market-driven regulations. This commodification of the ocean is then packaged and traded on the markets often amounting to transferring the stewardship of commons for financial interests. Marine ecology as a natural resource isn’t immune to commodification, and an array of financial agents are making it their indispensable destination, thrashing out new alliances converging around specific ideas about how maritime and coastal resources should be organized, and to whose benefit, under which terms and to what end? A systemic increase in financial speculation on commodities mainly driven by deregulation of derivative markets, increasing involvement of investment banks, hedge funds and other institutional investors in commodity speculation and the emergence of new instruments such as index funds and exchange-traded funds. Financial deregulation has successfully transformed commodities into financial assets, and has matured its penetration into commodity markets and their functioning. This maturity can be gauged from the fact that speculative capital is structurally intertwined with productive capital, which in the case of Blue Economy are commodities and natural resources, most generically. 

But despite these fissures existing, the international organizations are relentlessly following up on attracting finances, and in a manner that could at best be said to follow principles of transparency, accountability, compliance and right to disclosure. The European Commission (EC) is partnering with World Wildlife Fund (WWF) in bringing together public and private financing institutions to develop a set of Principles of Sustainable Investment within a Blue Economy Development Framework. But, the question remains: how stringently are these institutions tied to adhering to these Principles? 

Investors and policymakers are increasingly turning to the ocean for new opportunities and resources. According to OECD projections, by 2030 the “blue economy” could outperform the growth of the global economy as a whole, both in terms of value added and employment. But to get there, there will need to be a framework for ocean-related investment that is supported by policy incentives along the most sustainable pathways. Now, this might sound a bit rhetorical, and thus calls for unraveling. the international community has time and again reaffirmed its strong commitment to conserve and sustainably use the ocean and its resources, for which the formations like G7 and G20 acknowledge scaling up finance and ensuring sustainability of such investments as fundamental to meeting their needs. Investment capital, both public and private is therefore fundamental to unlocking Blue Economy. Even if there is a growing recognition that following “business s usual” trajectory neglects impacts on marine ecosystems entailing risks, these global bodies are of the view that investment decisions that incorporate sustainability elements ensure environmentally, economically and socially sustainable outcomes securing long-term health and integrity of the oceans furthering shared social, ecological and economic functions that are dependent on it. That financial institutions and markets can play this pivotal role only complicates the rhetorics further. Even if financial markets and institutions expressly intend to implement Sustainable Development Goals (SDGs), in particular Goal 14 which deals with conservation and sustainable use of the oceans, such intentions to be compliant with IFC performance Standards and EIB Environmental and Social Principles and Standards. 

So far, what is being seen is small ticket size deals, but there is a potential that it will shift on its axis. With mainstream banking getting engaged, capital flows will follow the projects, and thus the real challenge lies in building the pipeline. But, here is a catch: there might be private capital in plentiful seeking impact solutions and a financing needs by projects on the ground, but private capital is seeking private returns, and the majority of ocean-related projects are not private but public goods. For public finance, there is an opportunity to allocate more proceeds to sustainable ocean initiatives through a bond route, such as sovereign and municipal bonds in order to finance coastal resilience projects. but such a route could also encounter a dead-end, in that many a countries that are ripe for coastal infrastructure are emerging economies and would thus incur a high cost of funding. A de-risking is possible, if institutions like the World Bank, or the Overseas Private Investment Corporation undertake credit enhancements, a high probability considering these institutions have been engineering Blue Economy on a priority basis. Global banks are contenders for financing the Blue Economy because of their geographic scope, but then are also likely to be exposed to a new playing field. The largest economies by Exclusive Economic Zones, which are sea zones determined by the UN don’t always stand out as world’s largest economies, a fact that is liable to drawing in domestic banks to collaborate based on incentives offered  to be part of the solution. A significant challenge for private sector will be to find enough cash-flow generating projects to bundle them in a liquid, at-scale investment vehicle. One way of resolving this challenge is through creating a specialized financial institution, like an Ocean Sustainability Bank, which can be modeled on lines of European Bank for Reconstruction and Development (EBRD). The plus envisaged by such a creation is arriving at scales rather quickly. An example of this is by offering a larger institutional-sized approach by considering a coastal area as a single investment zone, thus bringing in integrated infrastructure-based financing approach. With such an approach, insurance companies would get attracted by looking at innovative financing for coastal resiliency, which is a part and parcel of climate change concerns, food security, health, poverty reduction and livelihoods. Projects having high social impact but low/no Internal Rate of Return (IRR) may be provided funding, in convergence with Governmental schemes. IRR is a metric used in capital budgeting to estimate the profitability of potential investments. It is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. NPV is the difference between the present value of cash inflows and present value of cash outflows over a period of time. IRR is sometimes referred to as “economic rate of return” or “discounted cash flow rate of return.” The use of “internal” refers to the omission of external factors, such as the cost of capital or inflation, from the calculation. The biggest concern, however appears in the form of immaturity of financial markets in emerging economies, which are purported to be major beneficiaries of Blue Economy. 

The question then is, how far viable or sustainable are these financial interventions? Financialization produces effects which can create long-term trends (such as those on functional income distribution) but can also change across different periods of economic growth, slowdown and recession. Interpreting the implications of financialization for sustainability, therefore, requires a methodological diverse and empirical dual-track approach which combines different methods of investigations. Even times of prosperity, despite their fragile and vulnerable nature, can endure for several years before collapsing due to high levels of indebtedness, which in turn amplify the real effects of a financial crisis and hinder the economic growth. Things begin to get a bit more complicated when financialization interferes with environment and natural resources, for then the losses are not just merely on a financial platform alone. Financialization has played a significant role in the recent price shocks in food and energy markets, while the wave of speculative investment in natural resources has and is likely to produce perverse environmental and social impact. Moreover, the so-called financialization of environmental conservation tends to enhance the financial value of environmental resources but it is selective: not all stakeholders have the same opportunities and not all uses and values of natural resources and services are accounted for. 

Infrastructure and Asian Infrastructure and Investment Bank. Some Scattered Thoughts.

What is Infrastructure?

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Infrastructure, though definitionally an elusive term, encompasses an economic standpoint consisting of large capital intensive natural monopolies. The term attains it heterogeneity by including physical structures of various types used by many industries as inputs to the production of goods and services. By this, it has come to mean either social, or economic infrastructure, wherein, in the former, are schools, hospitals etc, while in the latter are energy, water, transport, and digital communications, often considered essential ingredients in the success of the modern economy. Conceptually, infrastructure may affect aggregate output in two main ways: (i) directly, considering the sector contribution to GDP formation and as an additional input in the production process of other sectors; and (ii) indirectly, raising total factor productivity by reducing transaction and other costs thus allowing a more efficient use of conventional productive inputs. Infrastructure can be considered as a complementary factor for economic growth. How big is the contribution of infrastructure to aggregate economic performance? The answer is critical for many policy decisions – for example, to gauge the growth effects of fiscal interventions in the form of public investment changes, or to assess if public infrastructure investments can be self-financing.

Let us ponder on this a bit and begin with the question. Why is infrastructure even important? Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular economy. Well-developed infrastructure reduces the effect of distance between regions, integrating the national market and connecting it at low cost to markets in other countries and regions. In addition, the quality and extensiveness of infrastructure networks significantly impact economic growth and affect income inequalities and poverty in a variety of ways. A well-developed transport and communications infrastructure network is a prerequisite for the access of less-developed communities to core economic activities and services. Effective modes of transport, including quality roads, railroads, ports, and air transport, enable entrepreneurs to get their goods and services to market in a secure and timely manner and facilitate the movement of workers to the most suitable jobs. Economies also depend on electricity supplies that are free of interruptions and shortages so that businesses and factories can work unimpeded. Finally, a solid and extensive communications network allows for a rapid and free flow of information, which increases overall economic efficiency by helping to ensure that businesses can communicate and decisions are made by economic actors taking into account all available relevant information. There is an existing correlation between infrastructure and economic activity through which the economic effects originate in the construction phase and rise during the usage phase. The construction phase is associated with the short-term effects and are a consequence of the decisions in the public sector that could affect macroeconomic variables: GDP, employment, public deficit, inflation, among others. The public investment expands the aggregate demand, yielding a boost to the employment, production and income. The macroeconomic effects at a medium and long term, associated with the utilization phase are related to the increase of productivity in the private sector and its effects over the territory. Both influence significantly in the competitiveness degree of the economy. In conclusion, investing in infrastructure constitutes one of the main mechanisms to increase income, employment, productivity and consequently, the competitiveness of an economy. Is this so? Well, thats what the economics textbook teaches us, and thus governments all over the world turn to infrastructure development as a lubricant to maintain current economic output at best and it can also be the basis for better industry which contributes to better economic output. Governments, thus necessitate realignment of countries’ infrastructure in tune with the changing nature of global political economy. Infrastructure security and stability concerns the quantity of spare capacity (or security of supply). Instead of acting on the efficiency frontier, infrastructure projects must operate with spare capacity to contribute to economic growth through ensuring reliable service provisions. Spare capacity is a necessary condition for a properly functioning system. To assure the level of spare capacity in the absence of storage and demand, the system needs to have excess supply. However, no rational profit-seeker will deliberately create conditions of excess supply, since it would produce a marginal cost lower than the average cost, and to circumnavigate this market failure, governments are invested with the responsibility of creating incentives ensuring securities of supply. This is seeding the substitutability of economics with financialization. 

So far, so good, but then, so what? This is where social analysts need to be incisive in unearthing facts from fiction and this faction is what constitutes the critique of development, a critique that is engineered against a foci on GDP-led growth model. This is to be done by asking uncomfortable questions to policy-makers, such as: What is the most efficient way to finance infrastructure spending? What are optimal infrastructure pricing, maintenance and investment policies? What have proven to be the respective strengths and weaknesses of the public and private sectors in infrastructure provision and management, and what shapes those strengths and weaknesses? What are the distributional consequences of infrastructure policies? How do political forces impact the efficiency of public sector provision? What framework deals best with monopoly providers of infrastructure? For developing countries, which have hitherto been plagued by weaker legal systems making regulation and enforcement more complicated, the fiscally weak position leads to higher borrowing costs. A most natural outcome is a systemic increase in financial speculation driven by deregulation transforming into financial assets. Contrary to common sense and what civil society assumes, financial markets are going deeper and deeper into the real economy as a response to the financial crisis, so that speculative capital is structurally being intertwined with productive capital changing the whole dynamics of infrastructure investment. The question then is, how far viable or sustainable are these financial interventions? Financialization produces effects which can create long-term trends (such as those on functional income distribution) but can also change across different periods of economic growth, slowdown and recession. Interpreting the implications of financialization for sustainability, therefore, requires a methodological diverse and empirical dual-track approach which combines different methods of investigations. Even times of prosperity, despite their fragile and vulnerable nature, can endure for several years before collapsing due to high levels of indebtedness, which in turn amplify the real effects of a financial crisis and hinder the economic growth. 

Role of Development Banks and AIIB

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Where do development banks fit into the schema as regards infrastructure investment? This question is a useful gamble in order to tackle AIIB, the new kid on the bloc. As the world struggles to find funds to meet the Sustainable Development Goals (SDGs), development banks could be instrumental in narrowing the gap. So, goes the logic promulgated by these banks. They can help to crowd-in the private sector and anchor private-public sector partnerships, particularly for infrastructure financing. However, misusing development banks can lead to fiscal risks and credit market distortions. To avoid these potential pitfalls, development banks need a well-defined mandate, operate without political influence, focus on addressing significant market failures, concentrate on areas where the private sector is not present, monitor and evaluate interventions and adjust as necessary to ensure impact, and, finally, be transparent and accountable. All of these are the ideals, which more often than not go the other way. China-led Asian Infrastructure Investment Bank (AIIB), despite having no track record still enjoys the highest ratings on par with the World Bank. This has fueled debates ranging from adding much-needed capital augmenting infrastructure to leniency in observing high standards of governance, and possibly ignoring environmental and societal impacts.

The AIIB was officially launched in Beijing on January 16th, 2016, with 57 founding members, including 37 in Asia and 20 non-regional countries. Being the largest shareholder of the AIIB, China has an initial subscription of $29.78 billion in authorized capital stock in the AIIB out of a total of $100 billion, and made a grant contribution of another $50 million to the AIIB Project Preparation Special Fund on January 16th, 2017. India is the second-largest shareholder, contributing $8.4 billion. Russia is the third-largest shareholder, contributing $6.5 billion, and Germany is the largest non-regional shareholder (also the fourth largest shareholder), contributing $4.5 billion. While being open to the participation of non-regional members, the AIIB is committed to and prioritizes the ownership of Asian members. This is reflected in the capital structure requirement and the requirements for the composition of Board of Governors in the AIIB’s Article of Agreement (AOA), which requires no less than 75 percent of the total subscribed capital stock to be held by regional members unless otherwise agreed by the Board of Governors by a Super Majority vote. The AOA also requires that 9 out of the AIIB’s 12 members be elected by the Governors representing regional members, and 3 representing non-regional members. The prioritization of Asian-members’ ownership of the AIIB does not necessarily mean that the AIIB’s investment is restricted only to Asia. According to its AOA, the AIIB aims to “improve infrastructure connectivity in Asia,” and it will invest in Asia and beyond as long as the investment is “concerned with economic development of the region.” The bank currently has 64 member states while another 20 are prospective members for a total of 84 approved members. 

The AIIB’s EU/OECD members potentially could have some positive influence over the institutional building and standard setting of the young institution. The European Commission has recognized that an EU presence in China-driven institutions would contribute to the adoption of best practices and fair, global standards. Adherence to such standards will be promoted by the AIIB entering into partnership with existing Multilateral Development Banks. It has also been argued that joining the AIIB would give the European countries access to the decision-making process within the AIIB, and may even allow the European countries to play a role in shaping the AIIB’s organizational structure. As an example of EU/OECD members’ activism in monitoring the AIIB’s funds allocation, both Denmark and the UK, who are AIIB’s OECD members, proposed that contributions to the AIIB would qualify as official development aid (ODA). After a thorough review of AIIB’s AOA, mandate, work plan and other available materials, the OECD’s Secretariat of the Development Assistance Committee (DAC) recommended including AIIB on the List under the category of “Regional development banks,” which means the OECD would recognize the AIIB as one of the ODA-eligible international organizations. Once approved, the Secretariat of DAC will be able to “monitor the future recipient breakdown of the AIIB’s borrowers through AIIB’s future Creditor Reporting System and thereby confirm that the actual share of funds going to countries on the DAC List of ODA Recipients is over 90%.” That is to say, if approved, there would be additional external monitor to make sure that the funds channeled through the AIIB to recipient countries are used properly. 

The AIIB’s initial total capital is $100 billion, equivalent to about 61 percent of the ADB’s initial total capital, 43 percent of the World Bank’s, 30 percent of the European Investment Bank’s (EIB), and more than twice of the European Bank for Reconstruction and Development’s (EBRD). Of this $100 billion initial capital, 20 percent is to be largely paid-in by 2019 and fully paid-in by 2024, and the remaining 80 percent is in callable capital. It needs to be noted that according to the AOA, payments for paid-in capital are due in five installments, with the exception of members designated as less developed countries, who may pay in ten installments. As of any moment, the snapshot of AIIB’s financial sheet includes total assets, members’ equities and liabilities, the last of which has negligible debt at the current stage since the AIIB has not issued any debenture or borrowed money from outside. However, to reduce the funding costs and to gain access to wider source of capital, the AIIB cannot rely solely on equity and has to issue debenture and take some leverage, particularly given that the AIIB intends to be a for-profit institution. In February 2017, the AIIB signed an International Swaps and Derivatives Association (ISDA) Master Agreement with the International Finance Corporation (IFC), which would facilitate local currency bond issuance in client countries. Moreover, AIIB intends to actively originate and lead transactions that mobilize private capital and make it a trusted partner for all parties involved in the transactions that the Bank leads. In the long term, the AIIB aims to be the repository of know-how and best practices in infrastructure finance. 

It is widely perceived that the AIIB is a tool of Chinese foreign policy, and that it is a vehicle for the implementation of the Belt and Road (One Belt, One Road) Initiative. During a meeting with global executives in June 2016, the AIIB President Jin Liqun clarified China’s position, saying the AIIB “was not created exclusively for this initiative,” and that the AIIB would “finance infrastructure projects in all emerging market economies even though they don’t belong to the Belt and Road Initiative.” It is worth pointing out that despite the efforts on trying to put some distance between the AIIB and the Belt and Road Initiative, there is still a broad perception that these two are closely related. Moreover, China has differentiated AIIB projects from its other foreign assistance projects by co-financing its initial projects with the preexisting MDBs. Co-financing, combined with European membership, will make it more likely this institution largely conforms to the international standards” and potentially will steer the AIIB away from becoming solely a tool of Chinese foreign policy. This supports China’s stated intention to complement existing MDBs rather than compete with them. It also means that the AIIB can depend on its partners, if they would allow so, for expertise on a wide range of policy and procedural issues as it develops its lending portfolio.

Although AIIB has attracted a great number of developing and developed countries to join as members and it has co-financed several projects with other MDBs, there is no guarantee for any easy success in the future. There are several formidable challenges for the young multilateral institution down the road. Not all the infrastructure investment needs in Asia is immediately bankable and ready for investors’ money. Capital, regardless it’s sovereign or private, will not flow in to any project without any proper preparation. Although Asia faces a huge infrastructure financing gap, there is a shortage of ‘shovel-ready’ bankable projects owing to the capacity limitations. The young AIIB lacks the talent and expertise to create investor-ready bankable projects, despite that it has created a Project Preparation Special Fund thanks to $50 million by China. The AIIB aims to raise money in global capital markets to invest in the improvement of trans-regional connectivity. However, infrastructure projects are not naturally attractive investment due to huge uncertainties throughout the entire life cycle as well as unjustified risk-profit balance. Getting a top-notch credit rating is just a start. The AIIB has to find innovative ways to improve the risk-adjusted profitability of its projects. This issue itself has been a big challenge for many MDBs who engage in infrastructure financing for a long time. It is uncertain if the AIIB could outperform the other much more matured MDBs to find a solution to tackle the profitability problem in infrastructure financing. The highest rating it has received from ratings agencies could pose a challenge in itself. The high rating not only endorses the bank’s high capital adequacy and robust liquidity position, but also validates the strong political will of AIIB’s members and the bank’s governance frameworks. A good rating will help the AIIB issue bonds at favorable rate and utilize capital markets to reduce its funding costs. This certainly will contribute to AIIB’s efforts to define itself as a for-profit infrastructure investment bank. However, there is no guarantee that the rating will hold forever. Many factors may impact the rating in the future, including but not limited to AIIB’s self-capital ratio, liquidity, management, yieldability, risk management ability, and its autonomy and independency from China’s influence. 

Killing Joke: Tata Power’s CGPL launches Bio-Diversity Club in Mundra. A Response

Let us stray into the some of the cold corners of the human heart. Its not that this blog hasn’t been doing that already, but, this time, it is with a difference, and that being some sort of activism that I was involved in, in one of the most ecologically rich marine diverse system I have had the chance to walk through. So, whats the cold corner of the thought referred to being here. Thanks to Joe, I chanced upon reading this piece, which on a cursory glance and to the one who hasn’t been privileged enough to walk the ecosystem, this might be good intentioned, but then road to hell is paved with good intentions and for the perpetrators of this large-scale eco-disaster, man-made and waiting to explode and go defunct, hell is the other people, just to echo Sartre. The post in question deals with Tata Power’s thermal-fired power plant in Mundra in Kutch (variously spelled as Kachchh in the Indian state of Gujarat), through its wholly-owned subsidiary, Coastal Gujarat Power Limited (CGPL), and how as part of Corporate Social Responsibility (CSR), the company has had the audacity to launch a bio-diversity club in Mundra to safeguard the rich ecology, after having first built one of India’s largest 4000 MW power plant on the coast and in the process wrecking an irreversible damage to the rich ecosystem the company now has suddenly woken up to safeguarding. So, it is a matter of flogging the dead horse, or even more tersely bringing back to life from dead through these exclusively hollowed CSR activities. I shall come to that in a while, but before that let us look at the background of the disaster in brief.

Why is it that the Tata Mundra Project keeps bouncing back to become a bone of contention for all across the spectrum; from the financiers to the beneficiaries, the owners, as well as the people of the area? Why is this project, likely to become the largest power generation unit in the country, being opposed nationally and globally? Obviously, there is more than meets the eye. So, what exactly went wrong? Let us take the first step through the power quagmire in the country. India has always had chronic problems in meeting the electricity needs of its’ peoples. At the beginning of the post-liberal era or the mid-1990s, the then Congress Government, headed by P.V. Narsimhan Rao, initiated a series of measures to address the already growing crisis. It promulgated a Mega Power Policy, whereby projects of more than 1,000 MW would be built to improve the electricity grid in the country. This would apply to projects anywhere in the country, except for the states of Jammu & Kashmir and North-East India, where the cap on generational capacity was reduced to 700 MW. What looked like a decent plan on paper, however, failed in practice, as the gap between supply and demand just kept increasing. It was ten years before the Government decided to amplify the Mega Power Projects (MPPs) by setting up Ultra Mega Power Projects (UMPPs) in a bid to overcome the shortfall. The prefixing of ‘Ultra’ meant a multiplication by a factor of 4 of what the MPPs were hitherto envisaged to generate. In other words, a generational capacity of 4,000 MW made the projects Ultra Mega. Fair enough.

The Tata Mundra Project (Coastal Gujarat Power Limited and CGPL hereafter), a wholly owned subsidiary of Tata Power, became the first UMPP that got approved by the Government of India in 2006-07 and was established in Mundra in the Kutch area of Gujarat. Kutch is an ecologically fragile region having a coastline dotted with mangroves, sand dunes, coral reefs, mudflats and a nest of some of the rarest marine species. The coalfired thermal plant adds to the vulnerability of the marine ecology and is built near the massive Mundra SEZ (Special Economic Zone). It also happens to be one amongst the many power generational units over the coastline of 70 km that together would produce 22,000 MW of power.

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Photo Credit: Sanjeev Thareja

So, how did this project come about? As in the case of UMPPs, the proposal for this project was initially nurtured by the government-owned Power Finance Corporation of India (PFC) and after a competitive bidding process, Tata Power took over by offering the lowest levelized tariff of Rs. 2.26 (US $ 0.04) per KWh. The project consists of five units of 800 MW each and is priced at a whopping US $4.14 billion. The funding for the project comes from a consortium of Indian banks, led by the State Bank of India and contributions from other National Financial Institutions; like India Infrastructure Finance Company Limited, Housing and Urban Development Corporation Limited, Oriental Bank of Commerce, Vijaya Bank, State Bank of Bikaner and Jaipur, State Bank of Indore, State Bank of Hyderabad and State Bank of Travancore and also through External Commercial Borrowing (ECB). The ECB comprises of International Finance Corporation (IFC) – the private lending arm of the World Bank Group, Asian Development Bank, Exim Bank of Korea, Korea Export Insurance Corporation and the BNP Paribas. Of the whopping cost of the project, the financing from IFC and ADB is US $450 million each, which appears to be a mere chunk of the whole. However, it has a huge leverage point, since it is assumed that funding from these multilateral giants gets approval only if safeguards and guidelines laid down by them are met successfully.

Switching over to the financial impracticality of the project, the coal that fires the plant comes wholly from Indonesia. After a decision by the Indonesian Government to link mineral exports to market rates in September 2010 and taking effect in 2011, importing coal has become dearer. The immediate logical implication of this is a restructuring of the tariff rates from the one that helped bid for the project in the first place. That was exactly the route undertaken and based on some riders that the Central Electricity Regulatory Commission (CERC) extended, including sharing profits earned by Tata’s Indonesian mining companies, sacrificing one per cent return of equity (RoE) and lowering auxiliary consumption of 4.75 per cent, further brought down the effective compensatory rate to 47 paise (US $ 0.01) per unit. As a result of this compensation, the retail rate from the CGPL for consumers in the five procuring states of Gujarat, Rajasthan, Haryana, Punjab and Maharashtra is expected to rise by 0.4 – 1.8 per cent.

This might come as a relief, but is clearly not, since four of the five states benefiting from the electricity generated at the plant, plan to legally challenge the move by the regulator to let CGPL pass on increased fuel costs on power purchasers. Maharashtra, Gujarat, Haryana and Punjab have taken an in-principle decision to approach the Appellate Tribunal for Electricity (APE) against the order by the CERC. These states are pondering filing separate petitions against the compensation extended to CGPL. An official involved with a long-drawn legal and regulatory battle, on conditions of anonymity, said, “The states are approaching the ATE on a major issue of sanctity of the PPA (power purchase agreement) signed by these for 25 years. CERC’s order will ensure that financial condition of buyer utilities will further deteriorate.” In a very recent development, Tata Power even signed the option of selling 5 per cent of its stake in its Indonesian coal mine to the Bakrie Group at US $250 million to reduce its debt.

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Photo Credit: Sanjeev Thareja

Since the Kutch coastline is marine rich, fishing becomes one of the major means of livelihood. Thus, the main inhabiting population of the coast happens to be a migratory fishing community locally called bunders. They live in fishing settlements for 8-9 months of the year when fisheries reach an economic peak and then go back inland to the villages for the remaining part of the year. Other economic means are more rural-economy oriented and involvement in salt making, animal rearing and cashcrop cultivation is common. Mundra is a blessed oasis, in an otherwise hot and parched area that borders the great desert, with groundwater fit for drinking and agricultural and horticultural options in the offing. The Project has undoubtedly disrupted the prevalent order with a promise too difficult to keep and the players involved too complacent to mend their ways.

CGPL is located next to another UMPP, the Adani Power Project and both of these are fueled by coal- the thorn in the bush to climate change polylogues all over the world. Tata Mundra is fed entirely on coal imported from Indonesia. With the world trying hard to come to grips with excessive hazard due to the burning of this fossil fuel, the ratiocinating of the Government of India seems to have gone on a tailspin, with a trail of such plants dotting the vast shoreline of the country and the mineralrich hinterlands. All of this in an attempt to solve the official line of the “demand versus supply” equation.

The northern coast of Kutch, where Mundra is located, has witnessed large-scale, rampant industrialization in the last decade. Adani port (the largest private-sector port of the country), Adani SEZ, OPG’s coal-fired thermal plant and metal forging units have already done more than enough to cause irreparable damages to the geography of the land and sea. They have torn the social fabric of the population and left their economic means in tatters. What should really be occupying the mind of the company has eluded it completely, for CGPL plans for an expansion of 1,600 MW to the existing capacity, disregarding the mitigation that it has orchestrated in the first place.

So, what is amply clear is the presence of resistance to such large-scale industrialization by ground-level and grassroots movements, who are trying not just to safeguard the rich-biodiversity, but at the same time also trying to safeguard their livelihood, which is largely marine-dependent and is now under the constant threat of shrinking to a point. These people, of the ethnic clan and minority religion are getting sandwiched between the devil and deep sea with their resources fast depleting. And, these were the ones who primarily owned up to their coexistence with the diversity the piece now speaks of safeguarding, for the former knew this damage would be irreversible and the only way to save the region was to halt this rampant industrialization. The fisherfolk took their call and fought and are still resilient in the face of diminishing returns.

Machimar Adhikar Sangharsh Sangathan (MASS) that transliterates into Association for the Struggle for Fish workers’ Rights is a local organization of the affected communities which filed a complaint with the Compliance Advisor Ombudsman (CAO) – an independent recourse mechanism for the IFC and Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group – in June of 2011. The complaint outlined parameters where the IFC committed significant policy breaches and supervision failures and wanted the CAO to weigh in with its findings. After a two-year long rigorous process, CAO came out with its findings that validated the complainant’s case by admitting to policy breaches, supervision failures and leniencies on IFC’s part. As a result, there were lapses and impacts:

1. The Environment and Social Impact Assessment (ESIA) filed by CGPL was deficient and shockingly, even failed to identify certain communities as project-affected. 
2. A cumulative impact study was not carried out despite the presence of certain large-scale polluting industries in the vicinity. 
3. CGPL failed to conduct adequate, meaningful and informed consultation with the affected communities and even shied away from sharing information about the action and mitigation plans. 
4. There was a clear violation of the environmental clearance with large stretches of mangroves, dry-land forests and bio-diversity rich creeks meeting a destructive end during the construction of the outfall and inlet channels. 
5. CGPL U-turned from the initial deal to have a closed-cycle cooling system and switched over to a cheaper and more environmentally destructive once-through cooling system. Why CGPL turned the degrees is reason defying. 
6. Access roads for the fisher-folk and pastoralists to their respective fishing and grazing grounds were either blocked or diverted, forcing the villagers to unusually longer routes and impacting their finances as a result of increased transportation costs and delays. 
7. The project has accentuated a decline in fish catch, which has been recorded empirically ever since the CGPL became fully operational. The situation has also aggravated due to the adjacent Adani project. 
8. There is inadequacy in addressing the health and environmental impacts of ash contamination from the project. It has contaminated drying fish, salt and animal fodder in the area, giving rise to significant health concerns. Adding to the woes, ignoring the potential hazard of radioactivity from the coal ash pond has deteriorating health impacts. Due to such health hazards, the children and the elderly are most vulnerable to respiratory ailments and the gravity of the situation can be gauged by the fact that the two coal plants are together burning 28 million tons of coal every year. 
9. Turning over to the finances and cost-benefit side of CGPL. The company totally ignored cost overruns and a likely tariff increase in times to come, by either misrepresenting it or underestimating its bid. As a result, the financial burdens would conveniently be placed on the customers.

CAO confirmed the inadequacy on IFC’s part to consider in its risk assessment studies the seasonally resident fishing community; the majority members of which belong to a religious minority and are most susceptible to be affected by the project. This excluded a population of close to 25,000 from application of land acquisition standards, biodiversity conservationism and other relevant policies enacted for their protection as laid down in the Performance Standard 5 of the IFC.ii The audit report pointed that IFC was lackadaisical in fulfilling requirements to manage impacts on airshed and the marine environment. On a more specific level, CAO brought to light that IFC did not ensure that its client CGPL applied the 1998 WB guidelines for thermal power, which puts a cap on the net increase on emissions of particulates or sulphur dioxide within the airshed. In case of marine environment, CAO found that the IFC did not possess any robust baseline data and thus, the future impacts of the project were bound to be missing a crucial component. IFC did not assure itself of the plant’s seawater cooling system as complying with the applicable IFC Environmental, Health and Safety (EHS) Guidelines. This could be gauged from the fact that when CGPL bid for the project, they had a closed water cooling system in mind, which suddenly got switched over to a once-open cooling system, which is more hazardous, even if economically cheaper. The failure not to comply is significant, since the thermal plume from the project’s outfall channel will extend well into the shallow waters of the estuary, posing an existential risk to marine life and marine resources. The coast of Mundra is getting dense with industries that are highly polluting and a failure to conduct a cumulative study when a new industry is planned is a grave injustice, not only to the geology of the region, but also to the demography of the region. The latter is largely left ignorant of the hazards that accompany the erection of a new industry, which, incidentally are the cumulative causes of an alliance with other industries in the vicinity. A lender like the IFC, which is known for its safeguards and guidelines and is at least insistent on paper that a strict adherence to it is be followed, could not have deliberately chosen to ignore this grave risk. This was nothing but a felony committed by IFC, since it failed to undertake a cumulative impact assessment of the area. It even failed to advice and admonish its client CGPL that environmental and social risks emerging from the project’s proximity to the Mundra Port and the Adani Power Plant and SEZ should have been assessed by a third party, neutral in stature, which in turn would help devise mitigation measures. Therefore, a compounded assessment made by the CAO sternly suggested that IFC’s review and adoption of its client’s reports are not robust to ensure that the performance standards and supervision requirements are met.

So, how did the IFC react to the recourse mechanism’s findings? They reacted by proficiently dismissing and essentially rejecting them. They audaciously defended their decision to fund the project, their client CGPL and even passed over any remedial action plan. Since the CAO reports directly to the President of the WBG, the report with its findings was tabled before Dr. Jim Yong Kim; who sat over it in bureaucratic silence for close to a month. He eventually cleared the management response, thus acquitting the IFC of any wrong doing and putting a question mark over the need for the compliance mechanism. Dr. Kim – who with his constant rant of a sensible investment by the Bank that would give highest importance to climate change mitigation on one hand and a commitment to eradicate extreme poverty on the other – clearly failed to deliver on his promises. Three months after the CAO’s findings, ADB’s Compliance Review Panel (CRP) decided to investigate policy violations while financing the 4,000 Mw coal plant. ADB’s board of directors approved the recommendation of its accountability mechanism, the CRP for a full investigation. According to Joe Athialy, in its eligibility report, CRP said, “The CRP finds prima facie evidence of noncompliance with ADB policies and procedures, and prima facie evidence that this noncompliance with ADB policies has led to harm or is likely to lead to future harm. Given the evidence of noncompliance… the CRP concludes that the noncompliance is serious enough to warrant a full compliance review.” CRP found the following evidence of noncompliance: insufficient public consultations; the project-affected area is defined erroneously; CGPL discharges water at a higher temperature than is allowed by ADB standards; ADB’s air emission standards are not met; insufficient cumulative impact assessments; flawed social and environmental impact assessments; harmful effects of the cooling system on the environment and the fish harvest; inaccessibility of fishing grounds and effects of coal-dust emissions. The full investigation is underway, Joe added.

Even as the world took note of these damning and scathing reports by extending solidarity with the fisherfolk and their families, joined in by numerous Indian organizations, all of this seemed to have fell on deaf ears. The unanimous nature of their solidarity centered around community woes in accessing contaminated water and the loss of ecological resources at their disposal and suffering the impacts of air pollution. The protesting organizations appeared to be stunned by the decision that would have given a chance for the World Bank President to prove to the world that he, with his past rooted in public health advocacy and constant reminders of the commitment of the Bank to phase out of funding fossil fuels had not just frittered away.

Though a lot of solidarity was promised, what seems to be moving would only require a keen eye to detect, if at all there is even a semblance of it. A meeting with the higher-ups of IFC went on to commit that any actions plans that were being formulated would be diligently shared with the people affected, but eventually, all that came out from the office was what had come even before the project had been commissioned, thus proving the entirety of the exercise of an action plan as a non-starter. Building pressure from the ground-up appears to be the only strategy to work at the moment and this was vociferously expressed at the Spring Meeting in 2014 (+ how the fishermen sued the IFC in a development in the recent past). MASS came out with a four-point agenda, from which there was no question of budging. The petition mentioned above demands urgent actions to restore, rehabilitate and resettle, to provide adequate compensations, to acknowledges its lapses, to refuse the financing of any expansion and to make the IFC pull out of the project.

So far the IFC has hinted that it will not be financing the expansion.vi After being scanned by the compliance mechanism of the IFC, a complaint was also filed with the Asian Development Bank. Their recourse mechanism, the Compliance Review Panel (CRP), has taken the complaint seriously for an audit and is in the process of reviewing adherence to the safeguards and guidelines of the Asian multilateral giant. It is worth noting once more that even the ADB has an investment of US $450 million in Mundra.

This clearly shows that the CGPL finds itself in serious human rights’ violations of the people inhabiting the region. The CRP review process is currently on and their findings are awaited most eagerly. The really surprising question however, is why would the CGPL go in for an expansion of units when it is yet to sort out these urgent issues? What fuels this surprise further is the financial health of the project, which we turn attention to now. And to add salt to the injury, here is the eye-wash in the form of a club to safeguard bio-diversity. According to the piece linked in the beginning, the conservation plan has already been prepared and being implemented. Significant among them on which the work has already started are (a) White Napped tit ( Machlolophus nuchalis), a bird species . (b) Olax Nana which are the two important species of flora and Fauna respectively.

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Further insult come to the fore with CGPL having initiated the Club with the objective of developing a people centered-approach for bio-diversity conservation for creating more awareness among the employees. I wonder where are the people in the spectrum here, those who have been hitherto protectors of the ecosystem and who are now pushed further and further to the peripheries. They are as usual absent from the whole scheme of this delusional propaganda and are paying the price for they understand, they comprehend the episteme. The club will work towards motivating individuals to participate in activities that help protect the environment, and this is precisely where shamelessness embraces its expiration.

But, the most dismal comment on this initiative came from none other than the progenitor of this initiative, one Mr. KK Sharma, ED and CEO, CGPL, who said,

Kutch region is very special from a biodiversity point of view as it harbours its own unique forms of desert flora and fauna. Some species of plants and animals are of high conservation significance, both at the national and international level. Therefore, we at Tata Power’s Coastal Gujarat Power Limited took up this initiative to set up a bio-diversity club that will implement conservation programs to ensure the safety of the various species found in and around our power plants. We are grateful to our employees for the hard work they have put in to ensure the success of this initiative. CGPL’s Bio-diversity Club demonstrates our unwavering support and commitment towards society as a whole.

The entirety of the article/post written before this comment proves his point to be utterly dross, and reminds me of the saying that paranoia feeds on the crumbs of reality, and thats the reason for this sudden wake-up call from a disaster-producing and inducing slumber. In conclusion, what is this, but a drivel of sorts, where everything from the beginning seems to be heading the wrong way and where any attempt to straighten things out only lands the CGPL between the devil and the deep sea, or between the blades of a scissor? Then, why the perseverance by CGPL to make further promises when even the ones it made in the beginning failed disastrously? Is it enough to expand generational capacity to address the deficiency between supply and demand, even if it takes burning fossil fuels and the dirty coal? There isn’t much of an alternative in the thoughts of growth-led development pundits. With the country poignantly poised at an economic downturn and living on a daily basis getting costlier and costlier, whatever energy is generated is beyond affordance for the millions of citizens anyway. Then why not choose for cost-effective renewable sources that at least don’t kill by smoke; for the buzzword today is “coal kills” and there is no denying that. For the people at Mundra, as am sure with people all over the coal and thermal-power belts, their lives are getting darker by the day and whatever electricity is produced at the plant at whatever gain or loss; for the former is a myth while the latter a reality, makes nothing brighter for them.