Panama\u27s Pando and Monte Lirio Dams: Proactive Engagement in Environmental Human Rights Through Project Due Diligence Leads to Improved Risk Management and Cost Controls

The Pando-Monte Lirio Hydroelectric Power Project (Pando Project) is located along the Chiriqui Viejo River (CVR) in Western Panama. It consists of two hydroelectric dams that are part of nineteen hydroelectric installations planned and partially constructed along the CVR in Western Panama. The Pando Project reflects the Inter-American Development Bank’s (IDB’s) commitment to investments in “clean energy” in Central America. The project is an important contribution to Central America’s energy needs, but has caused a number of residents and citizen organizations in the CVR region to raise issues regarding the impact the project will have on the CVR and their livelihoods and way of life. The IDB approved a loan for the Pando Project on December 9, 2009 in the amount of $40 million, and the International Finance Corporation (IFC) approved a series of loans on February 4, 2010 for a total loan risk of $40 million. According to the IFC’s Compliance Advisor Ombudsman Appraisal Report, the investment decision to fund the Pando Project was made despite the undefined potential cumulative impact of the development on the entire CVR. The World Bank Group’s (WBG’s) traditional mandate is to advance human rights through poverty reduction by assisting developing countries to enhance their infrastructure and economic resources. Operating within this WBG framework, the IDB and IFC implement the mandate for advancing human rights by combating poverty in developing countries. The new Human Rights and Environment (HRE) paradigm adds innovative human rights concerns; concerns that are at times at odds with the traditional role of the WBG members to combat poverty in developing but impoverished communities throughout the world. Part I of this paper reviews the evolution of the Pando Project and the IDB’s and the IFC’s funding of the Pando Project in Panama. Part II reviews the role of the WBG, IDB, and IFC in funding economic development, including the evolution of the WBG’s traditional role and its emerging integration of the new Human Rights and Environment (HRE) paradigm into its lending practices through the IFC’s Performance Standards and the subsequent development of the Equator Principles III. Part III reviews the Pando Project’s failure to fully engage all stakeholders early in the due diligence process. Part IV proposes that proactive, synergistic engagement in integrating HRE leads to improved risk management and cost control. Promoting proactive engagement of HRE principles in Multilateral Development Banks’ (MDBs’) lending practices leads to improved economic development projects and HRE protections through lower project costs, increased cost certainty, and reduced financial and political risk