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dam-l May 6, 1999 Bloomberg News: Wall Street Firms Urged Not to Help Finance Chinese Dam

Wall Street Firms Urged Not to Help Finance Chinese Dam
May 6, 1999 18:50

        New York, May 6 (Bloomberg) -- Goldman Sachs Group Inc., Merrill
Lynch & Co. and Salomon Smith Barney Inc. were urged by environmentalists
not to help finance China's Three Gorges dam, a project expected to flood
hundreds of
square miles and dislocate more than a million people.  
        San Francisco-based International Rivers Network led five environmental
groups in sending letters today to the Wall Street investment banks' top
executives.  The firms are indirectly funding the dam, the letters said,
because they underwrite securities for the Chinese government and
state-owned organizations that funnel proceeds to the project.  
        The firms were asked to establish guidelines for minimum environmental
and human rights standards for their businesses, which could effectively
preclude their involvement with the Chinese dam.  The IRN said it's "committed
to enlisting the support of these companies' clients and shareholders to see
that these concerns are addressed."
        "This is a test to see if they will draw any kind of line at all," said
Simon Billenness, senior analyst at Trillium Asset Management in Boston, which
specializes in socially responsible investing.  "If any kind of human rights or
environmental criteria are used, no one will touch the Three Gorges dam."  
        The dam will span the Three Gorges area of the Yangtze River, China's
leading west-to-east waterway.  The mile-wide dam was started in 1994 and is
expected to take 20 years to finish.  When completed, it's expected to generate
more than 18,000 megawatts of electricity for the country's 1.2 billion people,
control damaging annual flooding and improve navigation.

Inland Sea
        A 400-mile reservoir created by the dam will displace at least 1.3
million people and submerge 1,500 factories and hundreds of towns and
archaeological sites, IRN said.  It's also seen breeding disease because of
poor sanitation and drainage in the area, it said.  Inadequate engineering may
also mean problems with the facility's mechanics when it's finally working, it
added.  
        The World Bank and United States Export-Import bank refuse to support
the project, which is expected to cost $75 billion by completion, IRN said. 
Direct bond issues for the project have failed because of construction concerns
and international investor's reluctance.
        IRN said Morgan Stanley Dean Witter & Co., the biggest U.S. Securities
firm by equity capital, is now considering environmental and social standards
for its practices.  Bank of America Corp. crafted a policy specific to the
Three Gorges dam in 1997, it said.  
        New York-based Goldman Sachs underwrote a $1 billion Chinese government
bond issue last year, of which up to $200 million "found its way to the
project, " according to the letter to chief executive Henry Paulson, signed by
IRN vice president Owen Lammers.  

Active CEO
        The letter points out that Paulson is co-chair of the Nature
Conservancy's Asia Pacific Council and attended China's first international
forum on the environment.
        "Since you are actively promoting river conservation in China, we look
forward to your leadership in the development and implementation of (social and
environmental) policies for Goldman, Sachs & Co.," the letter said.  Goldman
declined comment on the letter or the company's underwriting business in
China.  
        Merrill Lynch Chief Executive David Komansky and Salomon Smith Barney
chief executive Michael Carpenter were asked to stop a $500 million debt
offering their firms are underwriting for the China Development Bank, a funding
agency for Chinese infrastructure projects.  The bonds are expected to be
priced next week, potential investors have been told.  
        The letter to Komansky said the leading borrower of China Development
Bank is the Three Gorges project. 
        Merrill said it has never underwritten bonds for the CDB before and
that
it was "advised by China Development Bank officials that no portion of the
proceeds of this bond issue will be used to fund the Three Gorges project,"
said spokesman Timothy Gilles. 
        He declined comment on whether Merrill will heed the call to set up
environmental criteria for its business in the region.

'No Role'
        A spokeswoman for Salomon, a unit of Citigroup Inc., said the firm "has
no advisory role with respect to the Three Gorges project."
        Trillium's Billenness said even though funds raised for China may
not be earmarked for the Three Gorges dam, any underwriting for the China
Development Bank will result in more money for the project.
        "As long as the money is being raised by an entity that does any
funding for the dam, there should be a high degree of risk" that they will be
participating, he said.  "It's disingenuous of the investment banks to
underwrite these bonds." 
        Environmental groups that signed the letters include the Sierra Club,
Friends of the Earth, the Environmental Defense Fund and Accounting for the
Environment.

--Lisa Kassenaar in the New York newsroom 212-940-1694 jh