Case studies on Equator Principles

Case study 1: Tangguh LNG Project

Project summary

Tangguh LNG is a major development project involving construction and operation of a plant capable of supplying 7.6 million tons of LNG a year from gas fields in Bintuni Bay in Papua Barat, Indonesia. The gas fields have proven reserves of 14.4 trillion cubic feet.

The Project, operated by oil major BP, has drawn substantial attention worldwide against a backdrop of mounting demand for LNG in recent years. Japan, the world's largest importer of LNG, has shown considerable interest in the Project with a number of Japanese companies participating as sponsors.

Mizuho Bank (former Mizuho Corporate Bank) provided financing for the Project in collaboration with international financial institutions including the Japan Bank for International Cooperation (JBIC) and Asian Development Bank (ADB). Two rounds of financing were conducted, in August 2006 and November 2007. Also, in June 2016, another financing was executed for construction and operation of Train 3 of the Project.

In financing the Project as an Equator Bank, Mizuho Bank conducted assessments to determine the Project's environmental and social impacts.

Preserving and protecting the natural environment

As part of the bank's environmental assessment, it was confirmed that pollution control conducted at plant site and gas fields is in accordance with local laws and environmental standards established by the International Finance Corporation (IFC).*1 It was also confirmed that appropriate action plans were in place to preserve and protect the local natural environment.

A particular point of emphasis was protecting mangrove forests along the shoreline. Mangroves create an environment that is highly suitable for cultivating shrimp, which is done in nearby coastal waters. So, protection of these mangroves was important not only to protect biodiversity but also to support the local community which relied on shrimp cultivation as a source of income.

BP, the Project operator, established a Biodiversity Action Plan to ensure protection of the environment. Scrupulous protection measures are implemented to protect the natural habitats. For example, in laying the pipeline, connecting offshore gas fields with the LNG plant on land, cutting–edge construction methods were used to minimize the impact on the surrounding environment. Underground tunnels were dug horizontally in both directions, one from the offshore fields and the other from the plant construction site. The pipe was pushed in from the offshore fields and pulled from the plant construction site. This avoided digging ground in the mangrove forests to lay the pipe, thereby preserving the mangroves.

*1   IFC (International Finance Corporation): One of members in the World Bank Group that implements investment and lending to private projects, especially in developing countries.

Initiatives for local autonomy

The area around Bintuni Bay is home to a multitude of villages across a wide area populated with ethnic groups with different languages and sets of values. From a social perspective, location of the plant required relocating one whole village (127 households in total*2). Therefore, a major issue was how to ensure harmony between local communities and to share the benefits of the Project.

The assessment found that according to locally held values the benefits reaped by the products from the Bintuni Bay should be shared by all villages in the vicinity of the Bintuni Bay area. Therefore, the operators concluded that it would not only be necessary to compensate a village that had to be relocated to build the planned LNG plant but also support other surrounding villages.

Specifically, Land Acquisition and Resettlement Action Plan (LARAP) was prepared and appropriate compensation was provided for building houses and infrastructure. In accordance with the requirements of IFC standards calling for relocation compensation, the standard of living of residents has been improved above and beyond prior levels. Moreover, a comprehensive social program was established to support sustained social development. This program aims to provide support in generating employment, by providing technical guidance in various fields such as agriculture and food processing. Additional support is also provided in a number of areas such as health, hygiene and education.

*2   Reference:"Land Acquisition and Resettlement Action Plan" July 2006, ADB, p6

Case study 2: Laos' Nam Ngiep 1 Hydropower Project

Project summary

Nam Ngiep 1 Hydropower Project constructs and operates a 289MW Hydropower Plant on the Nam Ngiep River in Laos.

This Project not only aims to contribute to the electricity demand in Laos, but also have a purpose to obtain it's developing finances by selling the electricity to the neighboring country, Thailand. As a result of its large project scale, Asian Development Bank (ADB), Japan Bank for International Corporation (JBIC) and many commercial banks joined in its finance.

Initiatives for local autonomy

As a result of a large project site, the big impact to the local community during construction and operation phase was the top concern.

Based on the findings of prior survey, the Project noticed that they had to acquire the land from approximately 800 households (more than 5,000 people). In addition, there were more than 400 households (approximately 3,000 people) who have to resettle since their house and plowland was in the planned submerging area.

In line with the findings, the Project Company undertook consultations with the identified/affected households to determine the relocation site. Also, they designed their new housing based on their social backgrounds. Furthermore, it was found that 99% of the resettling households belonged to the Mons tribe and, 99% of the accepting communities were from Laos. Therefore, the Project Company hired the specialists and anthropologists who had a good understanding of the Mons culture and traditions, as care persons to manage the resettlement and assimilation process.

After the resettlement, the Project Company provided replacement farmlands which were of either equal or greater value. The affected farmers were also provided working machines and agricultural supports for the households. Furthermore, they constructed some educational facility and medical centers which existing landowners could use. The Project has provided numerous supports for both resettled and existing households to improve and restore their livelihoods.

Reference: "Resettlement and Ethnic Development Plan" June 2014, ADB

Case study 3: Muara Laboh IPP Project

Project summary

The Muara Laboh IPP Project involves construction and operation of an 80MW geothermal power plant in Indonesia. The Project contributes to meet the sharp electricity demand in Sumatra Islands and concurrently helps Indonesia to explore the environmentally friendly geothermal resource. The Project has been under operation since 2019. Mizuho Bank acted as Financial Advisor and financed the project in collaboration with Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI) and Asian Development Bank (ADB).

Preserving and protecting the natural environment

As per the environmental and social due diligence of the project, the lender group hired an external environmental consultant and their site survey found some species classified as endangered (IUCN Red List) within the Project site. The relevant stakeholders engaged in the further critical habitat assessment with the consultant and developed a proper Biodiversity Action Plan to mitigate the potential risks based on IFC Performance Standards and ADB Safeguard Policy Statement (SPS) and ADB SPS Requirements.

In addition, the Project Company and the lender group jointly developed and agreed on an Environmental and Social Action Plan (ESAP) including, for example, a Stakeholder Engagement Plan and a Grievance Mechanism in order to preserve the environmental and social circumstance.

Reference: "Indonesia: Muara Laboh Geothermal Power Project" ADB

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