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Complaint

KTNC Watch et al vs KEXIM

Violations of FPIC, consultation at Philippine Jalaur dam

Date filed
15 October 2018
Keywords
Countries of harm
Current status
Rejected
Sectors
NCP

Allegations

On 15 October 2018, the Jalaur River for the People Movement, the People’s Solidarity for Participatory Democracy and the Korean Transnational Corporations (KTNC) Watch filed a specific instance to the Korean NCP against the Export-Import Bank of Korea (KEXIM) and Daewoo Engineering and Construction Co. Ltd. (Daewoo).

The complaint concerned implementation of the Jalaur Multipurpose Dam Project in the Philippines. In 1976, the Philippine government initiated development of the Jalaur Multipurpose Dam Project, and between 1977 and 1983 the first stage of the project was completed with funding from the World Bank. The second stage of the project was suspended due to low economic feasibility expetations until 2010, when the Philippine government conducted a new feasibility assessment. The Philippine government developed a new assessment and budget of 2.6 billion dollars. The Philippine government requested funding from the Korean government to support phase 2 of the project, and in 2012, KEXIM decided to provide a tied loan of 2.1 billion from its Economic Development and Cooperation Fund. Daewoo joined as a contractor and executor of the Jalaur Multipurpose Project Phase 2 in September 2018.

The complainants assert that in its implementation of the project, the Philippine government violated the rights of indigenous people to their cultural heritage and free prior and informed consent over the alienation of their land. The government implemented an involuntary resettlement plan and provided inadequate compensation for farmland and cemeteries of impacted people. Further, the Philippine government did not adequately mitigate risks of a potential earthquake.

The complainants allege that the respondents in the case – KEXIM and Daewoo – had a responsibility through their business relationship with the Philippine government to address its shortcomings by themselves pursuing consultations or communications with affected people, including securing FPIC from impacted indigenous groups. The complainants alleged that the respondents should not have proceeded with the investment and support of the project knowing of the human rights abuses and harmful impacts that had not been addressed. The complainants alleged that the respondents’ failures to meet their own responsibilities for these impacts constitute violations of the General Policies, Human Rights, and Environment chapters of the OECD Guidelines.

Relevant OECD Guidelines

Outcome

During its initial assessment of the case, the Korean NCP received responses from all parties, which it shared between parties, and held separate meetings with the parties.

KEXIM argued that the Guidelines are not applied to the Bank because the Bank is participating in the project as an Official Development Assistance (ODA) agency, not as an Export Credit Agency; the loan in this case is highly concessional and not related to international investment or commercial activity; the project is a public one conducted by the Philippines government and it is a financially non-viable project; and an ODA agency is separately guided by the OECD DAC’s Good Practices for Environmental Impact Assessment of Development Projects.

Daewoo simply alleged that because the violations occurred before it joined the project, it was not responsible for the violations.

The NCP agreed with the respondents and rejected the complaint. Regarding KEXIM, the Korean NCP wrote, “The project funded by KEXIM is not an investment activity but a public project promoted by the Philippine government. As it is classified as a non-commercial project under the OECD Ex-Ante Guidance, such a concessional loan provision for the project is not considered to be an international investment or a commercial activity. Therefore, as the Guidelines are not applicable to KEXIM, it is not appropriate to examine this specific issue with regard to KEXIM in light of the purposes of the Guidelines.”

Regarding Daewoo, the Korean NCP asserted that “Daewoo E&C was not in a position to affect the problems that occurred before the conclusion of the construction contract. In this regard, there seems to be no link between the enterprise’s activities and the issues raised by complaints.”

The Korean NCP also noted that, “Prior to this specific instance, the Philippine Court of Appeal confirmed that the project concerned was legitimately conducted by the Philippine government. …The Philippine Court ruled that the ‘free, prior and informed consent’ procedures were conducted for the indigenous people in accordance with the Indigenous Peoples Rights Act and found that a Filipino geologist’s argument cited by the complainant regarding the risk of a potential earthquake was insufficient.”

OECD Watch’s analysis
Regarding the Korean NCP’s decision on Daewoo, OECD Watch and the complainants believe strongly that the Korean NCP’s analysis is incorrect. Under the OECD Guidelines, Daewoo has a clear responsibility to conduct due diligence to assess actual or potential impacts, and then to seek ways to prevent or mitigate adverse impacts that are directly linked to their business operations, products or services by a business relationship, even if they do not contribute to those impacts.

Regarding the Korean NCP’s decision on KEXIM, OECD Watch notes that some NCPs have declined to apply the OECD guidelines to the “non-commercial” financial activities of central banks, state-level development finance institutions such as KEXIM, and sovereign wealth funds governed by state entities, on grounds that these institutions do not qualify as multinational enterprises when engaging in non-commercial activity. NCPs determine whether financial activity is non-commercial on a case-by-case basis. OECD Watch is concerned that NCPs’ analysis may be resulting in the inappropriate exclusion from the specific instance process of some overseas investment activities that do involve commercial activity, multinational enterprises, and serious human rights violations. OECD Watch also emphasizes that truly non-commercial activities of state financial institutions must still comply with the higher ‘state duty to protect human rights’ under international law. The set of responsibilities and obligations to respect, protect and fulfil human rights and fundamental freedoms described in the United Nations Guiding Principles then apply in full to such financings. KEXIM is a governmental agency operating a governmental project, meaning that the UNGPs apply which set higher standards to protect rights, such as urging state-owned cooperations to lead by example.

More details

Defendant
Company in violation
Other companies involved
Complainants
Affected people
Date rejected / concluded
18 January 2019

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