The EU Energy Project Sets a New Standard for Indigenous Consent in Nepal

After communities in Nepal were successful in holding the European Union’s investment bank accountable for its part in forcibly constructing a hydropower project on Indigenous land, indigenous rights are at a critical crossroads.

Member states have directed the Bank not to provide future funding to the project unless the irregularities are corrected, at a time when the EU has ambitious intentions to expand its development finance activities.

While all eyes are now on the Bank’s response, this case has worldwide ramifications, sending a clear message to project companies and governments that they must respect community consent or suffer financial penalties.

Conflicts between project developers and local communities over energy infrastructure, notably high-voltage transmission lines, have hampered Nepal’s efforts to exploit its huge hydropower potential.

Due to a failure to provide communities a voice in project design and proper benefit-sharing and compensation in order to limit negative effects on their livelihoods, biodiversity, and social fabric, these projects frequently face delays and financial losses.

The Marsyangdi Corridor transmission line project in western Nepal, a set of high-voltage transmission lines being built to transport electricity produced by hydropower projects from the Annapurna Conservation Area down to Kathmandu Valley, is one such controversy in which the EU is involved.

The project is part of the European Investment Bank’s (EIB) 95 million euro Nepal Power System Expansion Project, which will build and operate numerous transmission lines. Local communities claim the project violates EU human rights commitments, notwithstanding the initiative’s professed justification of increasing access to electricity through renewable sources in line with EU climate change aims.

The FPIC & Rights Forum, a coalition of community organizations, filed a complaint with the EIB’s Complaints Mechanism in October 2018, alleging that affected communities were kept in the dark about the project’s design, route, and impacts, including environmental impacts from deforestation, health and safety impacts, and economic impacts, such as insufficient compensation to landowners. Indigenous peoples, Dalits, and upper-caste Brahmin/Chhetri people are all represented in the Forum, which is banding together to claim their rights.

FPIC (free, prior, and informed consent) is an international legal requirement that empowers Indigenous peoples to grant or withhold approval to projects. After decades of denying Indigenous peoples decision-making power, this notion is critical to their self-determination. FPIC is covered by many international financial institutions’ social and environmental norms, however, it is rarely followed in their projects. That may change as a result of the FPIC & Rights Forum’s hard-won win.

The Complaints Mechanism released its inquiry report in April 2021, concluding that no FPIC procedure had occurred, in violation of the Bank’s norms and international law. The investigation also revealed that the Bank inappropriately gave financing to the Nepal Electricity Authority (NEA), the state-owned power utility in charge of the project, by ignoring conditions of disbursement requiring the completion of environmental and resettlement plans prior to construction activities. Even though land acquisition and compensation concerns remain unresolved today, project building began in 2018, with some community members alleging intimidation to take payments.

The Bank had made three disbursements to the NEA totaling 15.3 million euros by the end of 2020, out of a total of 95 million euros. The EIB Board of Directors has now ordered that all disbursements be halted until the infractions are addressed in a credible manner.

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