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DAM-L Bloomberg "China plays by own rules on Three Gorges Dam" (fwd)
----- Forwarded message from owner-irn-three-gorges@netvista.net -----
Date: Mon, 26 Nov 2001 10:30:22 -0800 (PST)
Subject: Bloomberg "China plays by own rules on Three Gorges Dam"
Sender: owner-irn-three-gorges@netvista.net
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Web link: http://www.taipeitimes.com/news/2001/11/22/story/0000112694
China Plays by Own Rules on Three Gorges Dam
International investors lament that China hides its intentions and changes
the rules willy-nilly, which makes it difficult to assess the risks of
doing business there
BLOOMBERG, HUBEI, CHINA
Three Gorges Dam, which is rising on China's Yangtze River, is the world's
biggest construction project. As many as 30,000 workers have manned nine
concrete plants, 40 cranes and hundreds of trucks as the wall stretches
toward its 18-story summit. When completed in 2009, the dam will be wide
enough to block the Golden Gate Bridge.
The project, costing an estimated US$25 billion, will generate as much
electricity as 18 nuclear plants for homes and industries as far as 1,000km
away in Shanghai and Guangdong, according to State Power Corp, the
government utility that will distribute the power. And the government says
Three Gorges Dam will tame the Yangtze's floods, which killed over 320,000
people during the 20th century.
International investors aren't convinced about the benefits of the dam,
which will take a toll on people and the environment. To make room for the
660km-long reservoir the dam will create, the government is uprooting at
least 1.1 million residents. When the basin fills, towns will vanish and
people like Shen Yauyin, a 93-year-old former shopkeeper, will have to move.
"I have lived here all my life," says Shen, his great-granddaughter tugging
at his blue Mao suit. "But moving is state policy, so we have to do it." As
China steps on to the international stage -- hosting the APEC summit this
past October, completing its 15-year quest to enter the WTO and preparing
for the 2008 Olympic Games -- investors are struggling to decipher the
rules for doing business in the world's most promising market. The Three
Gorges project embodies the contradictions and difficulties they face.
On one hand, the dam reinforces the expectation that China will put
national goals first, even as it agrees to adopt rules of free trade. On
the other, China's 1.3 billion consumers form a market that is too large to
ignore. GDP rose 7 percent in the third quarter -- almost triple the IMF's
forecast for the rest of the world this year. Trade Minister Shi Guangsheng
predicts that GDP will expand to US$1.51 trillion by 2005 -- a 40 percent
surge from last year.
"We know China has a lot of problems, lots of hindrances and difficulties,"
says Michael Lung, president of Dow Chemical Co's China unit, which is
awaiting Beijing's approval to build a US$3 billion petrochemical plant in
the northern city of Tianjin. "But the rewards are pretty big too. Can you
afford to take the risk of not being a player in the Chinese market and
hope 20 years later you are still a major player?"
Many investors think not. Foreign direct investment increased 20 percent in
the first eight months of this year to US$27.4 billion, according to the
Ministry of Foreign Trade and Economic Cooperation.
Contracted foreign investment, a gauge of future projects, rose 32 percent
to US$43.7 billion. And the number of companies registered as foreign
funded -- those that derive 51 percent or more of their registered capital
from non-Chinese firms -- climbed 19 percent to 16,344.
Still, many foreign investors have shunned the Three Gorges project. State
Power officials acknowledge that it's difficult to reconcile the dam with
investor expectations.
"We are trying to state clearly our stance on migration issues," says
Deputy Director General Chen Dongping, seated in the utility's Beijing
headquarters, a former Qing dynasty home with carved pillars and Chinese
paintings on the walls. "Based on the situation in China, it's very
difficult for us to do so in a way that will satisfy Western investors."
State Power says it intends to tap overseas funding sources when the
country builds another 23 large hydro-power dams at an estimated cost of
more than US$56 billion. Ouyang Changyu, head of planning at State Power's
Department of Strategic Study and Planning, says the utility wants outside
funding to account for a quarter of those investments.
First, China will have to quell concern over the dam's social and
environmental costs and avoid stirring similar objections with future
projects, analysts say. "If [Three Gorges] is unsuccessful, including the
resettlement and other issues, it will be a black eye to China," says
Lester Ross, Beijing-based counsel for law firm Paul, Weiss, Rifkind,
Wharton & Garrison, which advises foreign businesses on establishing and
running operations in China.
Because of the controversy over Three Gorges, more than US$12 billion of
the dam's funding is coming from a tax on household electricity. China's
State Development Bank provided more than US$3.6 billion in loans.
China plans for power generation to repay the loans once the dam is
completed, says Wang Jiazhu, vice president of China Yangtze Three Gorges
Project Development Corp, the company set up to build and run the dam.
The World Bank, which has financed 170 dams since 1970, has stayed away
from Three Gorges.
"The World Bank evaluation process would have taken too long," says State
Power's Chen. "We chose to go it alone."
World Bank officials declined to comment.
The US Export-Import Bank, which provides financial assistance to companies
with a view to promoting US trade, refused to extend credit to US firms
trying to work on the dam, citing environmental concerns such as silt
building up in the reservoir.
The lack of financing or loan guarantees meant that most US contractors got
excluded from bidding on contracts for the dam. Only a few companies, such
as Rotec Industries Inc -- which had the only system capable of delivering
concrete to a project the size of Three Gorges -- are taking part.
One reason international lenders have shied away is that environmental
groups have mounted a drive against the dam.
Berkeley, California-based International Rivers Network and Toronto's
ProbeInternational charge that Three Gorges Dam will cost triple the
official estimate of US$25 billion and will fail to prevent flooding.
Environmentalists also have targeted such international banks as Morgan
Stanley Dean Witter & Co. International Rivers says the banks have helped
raise money for the dam by working with China's State Development Bank, the
nation's second-biggest issuer of bonds used to finance construction
projects such as roads.
China International Capital Corp, which is managed and 35 percent owned by
Morgan Stanley, serves as Three Gorges Corp's adviser on overseas capital
raising. In addition, Morgan Stanley says it was one of six co-lead
managers of a US$500 million bond issue for China Development Bank in 1999.
Morgan Stanley spokesman Bret Gallaway says his bank hasn't directly raised
money for the dam and doesn't control State Development
Bank investments.
The issue of whether US banks are directly supporting controversial
projects is likely to draw closer scrutiny if China seeks outside funding
for future efforts, analysts say.
"The experience with the Three Gorges has shown they're likely to run into
all kinds of opposition and difficulties if they want to get overseas
finance," says Fred Hu, director of Asian economic research at Goldman
Sachs Asia in Hong Kong.
One US company, Dallas-based Panda Energy International Inc, says it's
already had a hard time working in China. In 1995, Panda began building a
coal-fired generating plant near Beijing.
Panda's president Todd Carter says the Chinese government agreed to buy
electricity for 0.70 yuan (US$0.08) a kilowatt hour. By 1999, China was in
an economic slump and cut the rate in half, Carter says. Panda also faced a
tough competitive situation because government-subsidized plants were
selling cheaper electricity.
Panda sold its plant in September, and Carter is reluctant to return. "The
playing field was not level, and the commitments were not honored," he says.
Right now, China is focusing on ensuring that it moves people from the
reservoir area without creating dissent or attracting further criticism.
The first relocations began in 1994, one year after work on the dam started.
When the reservoir rises, 129 towns and cities and 24,500 hectares of
farmland will be flooded. That's caused an outcry from some who will lose
their homes.
"We are farmers. Our land is our livelihood," says 52- year-old Nie
Guangqing, who grows cucumbers on her farm in Xiufeng Village, about 180km
upstream from the dam.
"If you flood it, what will we live on?" At the dam site, construction
bustles day and night. The dam's main section will begin to hold back the
Yangtze within a year, according to Three Gorges Corp's Wang Jiazhu. The
first of 26 700-megawatt turbines will begin to turn in 2003.
"We're under a lot of pressure to get it completed on time," says worker Xu
Lijun, 23.
Some scientists say criticism will escalate when the reservoir starts
filling in 2003. The reservoir will end in Chongqing about 640km upstream.
Here, the river will slow, dumping mud and rock that some hydrologists say
will block shipping and cause floods.
"Chongqing will be overwhelmed by the scale of sediments that they have to
dredge out," says James Simpson, professor of geology at Columbia
University in New York.
In 1998, the Yangtze carried more than 700 million tonnes of sediment past
the dam site. Wang says most will be flushed out each year through 23 gates
near the bottom of the dam.
To reduce pollution, the government is closing 7,000 factories along the
river. "The pollution along the Yangtze River is very serious, especially
in the reservoir area," says Wang Yaoxian, head of the State Environmental
Protection Administration's planning department.
China plans to spend a total of 700 billion yuan from this year through
2005 on environmental protection -- about 1.3 percent of its GDP, Wang
Yaoxian says.
"It's the lack of transparency that worries me," says Henry Coolidge,
managing director of Mirant Asia-Pacific Ltd, a unit of Mirant Corp, one of
the largest power producers and energy traders in the US and the owner of
stakes in power plants in Guangdong and Shandong.
Even as a member of the WTO, China isn't likely to provide such
information. It will be up to investors such as Coolidge to decide whether
they can play China's game without knowing all the rules.
--------------
Doris Shen
Three Gorges Campaign
International Rivers Network
tel 510 848 1155 ext 317
fax 510 848 1008
ACTION ALERT:
Urge Morgan Stanley to refrain from supporting financial intermediaries to
Three Gorges Dam-
www.boycottdiscover.org
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