IFC Conducts Training for Banks on the Implementation of Equator Principles
Rome - 12 May 2004
International Finance Corporation (IFC) conducted a training programme in Rome this week for banks that have adopted the Equator Principles. The programme was designed for professionals working in project finance, corporate finance, credit, legal, customer relations and other relevant areas dealing with environmental and social risk management within banks. The programme covered risk assessment, categorizing projects, selecting appropriate assessment tools and identifying value-added solutions for project sponsors. Representatives of nine banks attended the programme conducted in Rome. IFC has, in addition, conducted training programmes on the Equator Principles at individual banks, customized to their needs. To date, a total of thirteen banks have received training from IFC, and IFC estimates it has trained 365 professionals at banks that have adopted the Equator Principles.
Twelve Banks Speak Out on the Extractive Industries Review
Washington D.C. - 5 May 2004
Eleven of the banks that have adopted the Equator Principles have written a joint letter to the World Bank President, James Wolfensohn, to express their views on the Extractive Industries Review (EIR). Another bank has sent a separate letter to Mr. Wolfensohn stating its concerns.
In the joint letter, the banks expressed their concerns about EIR recommendations that the World Bank Group (WBG) withdraw from lending to coal immediately and to oil by 2008. The letter states that the banks believe the "EIR has not given sufficient consideration to the fact that the extractive industries are essential to global economic growth and poverty reduction, and that for some countries the extractive industries represent a very important means of creating revenue for government programs."
The banks expressed concern about an EIR recommendation that it should be a precondition of WBG investment that countries have robust governance criteria in place. The banks said that "a country's current inability to meet robust WBG governance criteria should not prevent that country from gaining access to the support, both financial and structural, that is required in order to develop such governance mechanisms. Otherwise, countries that are most in need of such developmental assistance could be excluded ... and will either remain mired in poverty or find less desirable paths to develop their extractive potential."
They also expressed concern about EIR recommendations concerning 'prior informed consent,' and stated the view that the implementation of the WBG Safeguard Policies is intended to result in effective consultation with affected groups and tangible benefits for local communities.
The banks did support the EIR recommendation for increased transparency on revenues paid to governments.
For the full text of the banks' letter, see EIR Banks Letter (pdf - 90k).
IFC Conducts an Equator Principles Workshop
Washington D.C. 18 March 2004
IFC held a workshop on social risk assessment for banks which have adopted the Equator principles. The workshop was held at IFC's offices in Washington on 11 March, 2004. Among the topics discussed were IFC's experience in managing social assessments and issues relating specifically to resettlement, indigenous people and cultural property. There was discussion of how to identify vulnerabilities to social issues in project development. Other topics discussed included sharing of project benefits with local communities, transparency, and promoting effective consultation and stakeholder engagement.
BTC Project is the First Major Test of the Equator Principles
London - 27 February 2004
The $3.6 billion Baku-Tblisi-Ceyhan oil pipeline project, financing for which closed on February 3, 2004, was the first major test of the Equator Principles. Because implementation of the project required resolution of sensitive environmental and social issues, the project was categorized by banks as a "Category A" project under the Equator Principles. BTC thus became the first project treated as Category A under the Equator Principles.
BTC will transport oil from Azerbaijan through Georgia to the Turkish port of Ceyhan. The principal developer and operator of the pipeline is BP, a global energy company with world-class capabilities to manage complex environmental and social situations. The pipeline solves the thorny question of how to commercialize Caspian oil without shipping it through the fragile and overcrowded Bosporus Straits.
The project presents a number of environmental and social challenges, including pipeline routing near potentially critical natural habitats, the claims of a number of groups for special recognition and compensation, seismic activity along parts of the route, and political turmoil in Georgia. The financing consortium initially included four private-sector banks, as well as IFC, EBRD and OPIC, which each have extensive environmental and social policies and staff experienced in environmental and social issues evaluation. The consortium developing BTC conducted comprehensive reviews. The senior lenders engaged an independent consultant, Mott MacDonald, to conduct due diligence and assess compliance with the Equator Principles. It was decided that an independent consultant would also be used to assess the project going forward and to monitor the project's compliance with its environmental and social management plan.
There was opposition to the project development by several NGOs which alleged 127 "violations" of IFC Safeguard Policies and therefore of the Equator Principles. IFC took the unusual step of issuing a rebuttal to the NGO criticism.
The banks involved in the financing evaluated the criticisms and conducted extensive due diligence on environmental and social issues with BP as well as with IFC and other agencies involved in the financing. As a result of their evaluations, eight banks which have adopted the Equator Principles concluded that the project had complied with IFC Safeguard Policies and the Equator Principles. Mott MacDonald confirmed this assessment. The IFC Board also concluded that its Safeguard Policies had been met. US Eximbank, which effectively applies IFC Safeguard Policies, came to the same conclusion, and the project was also approved by EBRD, OPIC and four other export credit agencies.
BTC is the first major application of the Equator Principles. Because the Safeguard Policies referenced in the Equator Principles are processes and questions to be asked, they require significant judgment on the part of the banks. This means that, in spite of intensive work and good faith by all parties, people can differ on their conclusions. In this case, while some NGOs have a different view, the private-sector banks, the multilateral and bilateral agencies, the sponsors and the host governments all believe that this project incorporates significant measures to respect the environment and social concerns, and should go forward.
There is extensive public disclosure and consultation concerning BTC. The project maintains a comprehensive website. NGO criticisms are also accessible on the web, as is IFC's rebuttal of NGO criticism. ABN AMRO issued a statement on its application of the Equator Principles to the BTC project. Mott MacDonald's report is also available.
For more information on BTC, see:
BTC project website
ABN AMRO statement
Banks Hold Implementation Conference
Amsterdam - 5 January 2004
Eighteen banks which have adopted the Equator Principles met in Amsterdam on 15 December, 2003, for an Implementation Conference. The topics discussed by the banks included the Equator Principles' categorization process, training in environmental and social issues assessment, internal business and risk management models being put in place to deal with banks' implementation of the Equator Principles, and the timing of each banks' implementation steps. There was also discussion of consultants with environmental or social issues capability. IFC sent several representatives to the meeting to discuss IFC's training program for banks which have adopted the Equator Principles. The conference resulted in in banks sharing their implementation steps to date, discussing implementation areas of concern, and learning more about each others' risk management processes.
Linklaters Comments on the Equator Principles
London - 23 July 2003
The Equator Principles – protecting green shoots
The recent launch of the “Equator Principles” casts a fresh light on the environmental and social impacts of project financing, particularly in the emerging markets. The banks who have adopted the “Equator Principles” aim to address environmental and social issues in their review of project proposals and to require sponsor compliance with environmental and social policies that are based on World Bank/IFC requirements http://www.ifc.org.
Equator Principles – New Environmental and Social Guidelines for Project Finance Transactions
New York - 18 June 2003 and London - June 2003
Two prominent project finance law firms, Sullivan & Cromwell in the US, and Norton Rose in the UK, have issued commentary on the Equator Principles to their clients. In its letter to clients, Sullivan & Cromwell said that the Equator Principles represent a step towards the adoption of IFC's environmental standards "even where financing is expected to come primarily from private sources of capital. Sponsors should continue to plan larger projects, especially in low- and middle-income countries, with a view towards adopting these policies and procedures." In assessing the implications of the Equator Principles for lenders, Norton Rose recommends that "lenders should from now on include specific reference to the Equator Principles when negotiating term sheets." In assessing their impact on borrowers, Norton Rose commented that "in many instances the application of the Equator Principles will not significantly increase the compliance burden faced by project sponsors. However, the Equator Principles will impose additional burdens in some areas," particularly in the emerging markets. "The guidelines are significant in that they impose requirements in relation to the social implications of projects."