CEP project: Japanese insurer to examine environmental and social risks

The Government has commissioned Nippon Export and Investment Insurance ( NEXI) to carry out an environmental and social due diligence on the third and most complicated stage of the Central Expressway ( CEP III), according to a source from the Finance Ministry’s External Resources Department (ERD).

An environmental and social due diligence examines environmental and social risks associated with the business activities of a potential client or investee. It aims to ensure that the transaction does not carry environmental and social risks which could present a liability or risk to the financial institution--in this case, the Bank of TokyoMitsubishi UFJ Ltd (BTMU).

“The project is still in the negoti- ation stage,” the source said. “After the environmental and social due diligence is completed, it will be decided how the loan will be finalised.”

Last month, Sri Lanka’s Cabinet approved the granting of the 100 billion Japanese Yen ( more than US$ 917million or Rs 144 billion) CEP III contract to Taisei Corporation of Japan.

The initiative--one of the country’s most expensive road construction projects ever-is to be funded with a concessional loan from BTMU.

But the ERD source said the project was still in the negotiation stage. “After the environmental and social due diligence is completed, it will be decided how the loan will be finalised,” he added.

CEP III will be a 32.5 kilometre four-lane carriageway from Pothuhera to Galagedara, with four interchanges, 12 main bridges and 17 viaducts across the floodplains of three main rivers--Rambukkan Oya, Kuda Oya and Kospothu Oya. It will have 106 culverts, 23 underpasses, 14 overpasses and three tunnels. Certain sections run through steep mountain slopes while others run across paddy fields and low-lying areas.

The Central Environmental Authority ( CEA) approved implementation of the complex project without waiting for the outcome of a series of vital geological surveys and tests. Consent was expedited due to the Government’s focus on speed over caution.

Last week, experts slammed the Road Development Authority’s (RDA) “resettlement action plan” (RAP) for minimising effects of massive displacement from CEP III as being “riddled with holes and spelling disaster for affected parties”.

One specialist--who was on the committee that drafted Sri Lanka’s National Involuntary Resettlement Policy-- defined the RAP as “mostly a set of recommendations” with no confirmed data on key aspects, no final inventory of losses or count of affected people, no identification of encroachers and no resolution of land ownership disputes.

It is now likely that the RAP was rushed through owing to NEXI asking for evidence of it during the environmental and social due diligence process. The document states that land acquisition -- 107,975 perches or 674.8 acres -- will be completed in six months.

This means that the acquisitions-- as with most other land acquisitions in Sri Lanka--are being done under Section 38(a) of the Land Acquisition Act. This allows for “immediate possession of such land on the ground of urgency”. Land is vested with the State within 48 hours with compensation to be paid at a later date, unless land owners go to court. Such urgent acquisition absolves the acquiring agency from hearing objections to the project.

It is not clear why Section 38(a) is being employed for CEP III when the project has been in the pipeline for years. “First of all, the RDA should have prepared and published the RAP before starting any acquisition,” one expert said.