Teesta disaster and the need for accountability in development finance

The devastation unleashed by the washing away of the 1,200 MW Teesta Stage III hydel power project in the Glacial Lake Outburst Flood (GLOF) in Sikkim highlights the role of banks and financial institutions in funding such projects.

The state is accountable for promoting a development model that endorses ill-advised mega-infrastructure projects in ecologically fragile areas. And so do the financial institutions (FIs) that invest in such projects.

The lack of accountability and the deliberate indifference to the social and environmental impact of these massive hydroelectric projects emphasise the insensitivity of FIs that remain in the shadows in the aftermath of such disasters involving mega infrastructure projects.

The near total collapse of the Teesta Stage III dam, managed by the state government enterprise Sikkim Urja Limited, had been predicted by researchers and environmentalists, who had warned about the repercussions of unchecked development in the region.

The region’s vulnerability became evident first during the 2011 earthquake and then during the 2012 cloudburst. Constructing a 1,200 MW, 60-metre-high dam in the seismically active Shivalik mountain range was a risky choice, exacerbated by the escalating climate crisis.

A government committee on landslides had recommended as early as 2000 that no construction be allowed on the rivers, based on the study of tectonic plate movements in the region.

Furthermore, the ongoing glacier melt in the Himalayas has led to the formation of over 5,000 glacier lakes, many of which are blocked by unstable moraines, posing a looming threat.

Reports and articles, including the Human Development Report 2001: Sikkim, warned about Glacial Lake Outburst Floods (GLOFs) well in advance. When scientists examined the infrastructure at risk due to GLOFs in the Teesta Valley, it became apparent that many settlements and assets situated along the river channel in Chungthang were vulnerable to GLOFs.

The alteration of the river’s natural flow, extensive tunnelling in the fragile hills, and the construction of dams and hydroelectric reservoirs have disrupted the region’s delicate ecological balance, threatening people’s livelihoods for years. This includes the vulnerable Lepchas, an adivasi community pushed to the brink by development.

Who is funding ‘vikas’?

The banks played a crucial role in funding the Teesta hydropower project, and there were notable lapses in their due diligence, whether intentional or unintentional, particularly in the areas of social and environmental assessments.

They overlooked the need for comprehensive evaluations of the potential environmental and social risks and impacts on local communities. This lack of proper check resulted in catastrophic consequences in the 2011 earthquake and 2012 cloudburst, which were entirely avoidable.

The 1,200 MW Teesta III dam, initially budgeted at Rs 5,705 crore in 2002, had exceeded the Rs 14,000-crore mark by the time the project commenced operations in 2013, primarily due to unforeseen events like earthquakes and cloudbursts in the region.

Despite these significant cost overruns and evident failures, banks continued to inject substantial amounts of public funds into the project. The budget overruns and unforeseen challenges in the project should have prompted a reevaluation of the project’s feasibility and the effectiveness of the funds being allocated.

In the context of the climate emergency, there is near total consensus, alas no commitment, on the idea that banks should be accountable for the non-financial effects – environmental and social – of the projects they fund.

The banks’ massive investments in hydropower are in the name of renewable energy, even though expert committees, local communities and climate advocates have consistently pointed out the destructive effects of massive infrastructure projects.

Data collected by Himdhara Environment Research and Action Collective and Manthan Adhyayan Kendra indicate that even on the financial front the hydel projects have fared poorly. From 2012 to 2022, despite the growth of hydropower projects, revenues have been falling.

Publicly available documents show that banks such as Punjab National Bank, Canara Bank, Bank of Baroda and non-banking investors such as India Infrastructure Finance Company Limited, India Renewable Energy Development Agency and REC Limited (formerly Rural Electrification Corporation) are among the financiers, pumping loans into the Teesta III dam project at different points in its life cycle.

Do they get affected by the fact that the project they financed has turned to rubble, very possibly enabling the destruction of life and land? The banks themselves do not even publish the amount of loans provided to specific projects, the status of loan and closure reports. Such utter lack of disclosures and transparency calls for immediate remedial measures.

It is ironic that LIC is funding projects like Teesta III that were predicted to cause havoc and destruction, and public sector banks are investing savings in projects that could harm vulnerable people and ecology. Public disclosure of corporate and developmental loans is essential for accountability.

Despite all the climate talk produced at conferences, speeches and annual reports by a nexus of banks, corporate NGOs and CSR departments, the reality is that banks and financiers are bankrolling a destructive model of development. It is high time that their role is brought under the spotlight.

Why no safeguards?

Indian banks do not have internal safeguards to respond to environmental and social impacts of the projects they finance; neither do they disclose the specific projects in which they invest public money, citing confidentiality rules. Limited information regarding the financiers of Teesta III is available in public because of recovery proceedings initiated by banks against the project developers.

A robust safeguards policy should incorporate free, prior and informed consent from the affected communities, environmental and social assessment by independent agencies, have a grievance redressal mechanism at the level of the project developer and the bank/financial institution, provide social audit of impacts periodically, and set a threshold over which projects will not be funded.

While the democratic state is the final arbiter of public accountability and is responsible for environment and social protections, an additional layer of liability falls on the finance institution funding high-impact projects. This is even more true in the case of national finance institutions, which are run on public money and deposits.

The Sikkim disaster should serve as a call to strengthen safeguard mechanisms in Indian financial institutions.

(The writers are researchers at the national finance team of the Centre for Financial Accountability, New Delhi)