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Large Dams and the OECD
A Trojan Horse for Large Dams:
How export credit agencies are offering new subsidies
for destructive
projects under the guise of environmental protection.
Produced for ECA Watch by: The Corner House, Environmental Defense,
FERN, Friends of the Earth-Japan, the Halifax Initiative, International
Rivers Network, Probe International and the World Developoment Movement
September 2005 (30 page PDF version)
Under the guise of an initiative to promote sustainable energy
technologies, governments are about to grant subsidised export credits
for hydropower projects. This report looks at the experience over the last
ten years with dams financed with official export credits. It finds that
these projects have had massive social and environmental impacts, including
large-scale involuntary resettlement, human rights abuses, the loss of
critical habitats of endangered species, and, in some cases, greenhouse
gas emissions greater than those from thermal power plants. If the governments
go ahead with their plan, they will turn an environmental effort into a
Trojan horse for environmental destruction.
By Peter Bosshard, International Rivers Network; and Aaron
Goldzimer, Environmental Defense
Large dams are among the most socially and environmentally
risky and controversial of infrastructure projects, and the export credit
agencies of wealthy countries have a long history of granting public financial
assistance so that their dam-building industries can build these projects
in Southern countries. Official export credit agency support can be confirmed
for 30 of the world's most controversial dams. The recent decision by industrialised-country
governments to grant special export credit terms—amounting to
new financial incentives—for hydropower projects in Southern
countries threatens to result in publicly subsidised environmental destruction
and impoverishment.
In April 2005, the member governments of the Organisation for Economic
Cooperation and Development (OECD)—known
as the "rich man's club" of wealthy countries—decided to extend
special financial incentives to renewable energy and water projects through
the Arrangement on Officially Supported Export Credits. This responded
to a long-standing demand from civil society organisations that export
credit agencies do more to shift their portfolios from their heavy support
for fossil fuel and large dam projects towards sustainable energy technologies.
However, instead of shifting their portfolios away from high-impact projects
like large dams, the OECD
governments included hydropower in their definition of "renewable energy"—thereby
allowing even more generous financial support for large dams than before.1
While the preferential terms given to sustainable sources of energy
like solar, wind, and geothermal are welcome, the extension of favourable
financial terms to hydropower projects—already a long-standing
and powerful industry—may be the most important impact of the
new agreement on the global environment. If a realistic assessment of the
recent past is any guide, more generous export credit subsidies for large
dams will bring about major adverse environmental and social impacts in
Southern countries.
The impacts of large dams have been extensively documented, most comprehensively
and authoritatively by the World Commission on Dams (WCD)
in the year 2000.2
They can be summarised as follows:
Large dams have displaced 40-80 million people. Millions more have been
affected by the loss of land and fisheries, the disappearance of flood-
recession agriculture, and water-borne diseases such as malaria that are
spread by reservoirs. According to the WCD
report, the failure to adequately resettle and rehabilitate people displaced
by dams has led "to the impoverishment and suffering of millions".3
Poor, marginalized rural communities, including indigenous peoples,
have been particularly negatively affected by large dams. Resettlement
and compensation plans have had a nearly universal record of failure, almost
always failing to restore, much less improve, the livelihoods of affected
populations. According to the WCD
report, a "lack of equity in the distribution of benefits has called into
question the value of many dams in meeting water and energy development
needs when compared with the alternatives".4
The WCD found that "large
dams generally have a range of extensive impacts on rivers, watersheds
and aquatic ecosystems" and "have led to irreversible loss of species and
ecosystems". Dams have altered 60 per cent of the length of the world's
large river systems and have caused a rapid loss of freshwater biodiversity.
Up to 35 per cent of freshwater fish species are estimated to be extinct,
endangered or vulnerable. Large dams have flooded hundreds of thousands
of square kilometres of valuable ecosystems, including irreplaceable habitats
for endangered species and the farmlands of the rural poor.
The environmental impacts of large dams also include the emission of
greenhouse gases. Because of their methane emissions, the climate impacts
of tropical hydropower reservoirs have often exceeded those of conventional
fossil fuel plants generating equivalent amounts of energy. Emissions from
the Balbina reservoir in Brazil (a project financed with official export
credits), for example, are estimated to be some 25-28 times higher per
kilowatt hour than emissions from modern coal-fired power plants.
Historically, the benefits of large hydro projects have been overestimated
and the costs vastly underestimated. The average of cost overruns for the
81 large dams that the WCD
studied in its representative cross-check survey was 56 per cent.5
In addition to social and environmental costs that are not adequately taken
into account, construction delays, cost overruns, and lower-than-projected
power outputs have been the rule, rather than the exception. Furthermore,
the functional lifetime of many dams is being severely impacted by sedimentation.
Some large dams have silted up within a few years or decades. The huge
Tarbela hydropower project in Pakistan, a dam financed with official export
credits, has lost one quarter of its storage space to sedimentation. The
World Bank estimates that 300-600 new large dams must be built every year
simply to offset the loss of storage capacity due to the sedimentation
of existing dams.
Export credit agencies have for at least a decade claimed that they
have learned lessons from the errors of the past and that their environmental
guidelines adequately address the environmental and social impacts of the
projects they finance. As the export credit agencies of the OECD
countries look to extend even more generous financial terms to hydropower
projects, this report looks at the social, environmental and economic track
record of hydropower and other water projects that export credit agencies
have supported during the last ten years.
The case studies confirm that dam projects financed by export credit
agencies continue to have serious detrimental social, environmental, and
human rights impacts. Export credit agencies should, therefore, not allow
their special export credit terms for large dams to come into effect—particularly
under the guise of an environmental initiative—and should only
support dams in the future under strict conditions adequate to the task,
namely the recommendations of the World Commission on Dams.
ECA-Watch, Website on export
credit agencies and large dams, http://www.eca-watch.org/problems/dams/index.html
ECA-Watch, Race to the Bottom,
Take II, September 2003, http://www.eca-watch.org/eca/race_bottom_take2.pdf
Hildyard Nicholas, The OECD
Arrangement and New Subsidies for Dams: The Case for Strengthened Standards,
The Corner House, August 2005.
McCully Patrick, Silenced Rivers, The Ecology and Politics of Large
Dams, 2nd Edition, Zed Books 2001.
World Commission on Dams, Dams and Development: A New Framework for
Decision-Making, Earthscan 2000, http://www.dams.org
By Lori Pottinger, International Rivers Network
One of Africa's biggest infrastructure projects has succeeded
in delivering water to South Africa but has left a trail of social ills
and environmental problems in its wake. The Lesotho Highlands Water Project
(LHWP), a huge inter-basin water-transfer scheme,
comprises five dams, 200 kilometres of tunnels blasted through the Maluti
Mountains, and a 72-megawatt hydropower plant. The project's primary purpose
is to transfer water to South Africa. Two of the dams and the hydropower
component have been completed at a cost of approximately $3.5 billion.
Financing for the project comes from the World Bank, the Development Bank
of South Africa, the African Development Bank, the European Development
Fund, European commercial banks, and the following export credit agencies:
Germany's Hermes, the UK's Export
Credit Guarantee Department, COFACE of
France and SACE of Italy. In March 1993,
the Norwegian Agency for Development Cooperation (NORAD)
rejected an application by Kvaerner Energy for credit support, on the grounds
that the contract supported a series of dams whose cumulative social and
environmental effects had not been studied.
The once remote mountain communities of the Lesotho Highlands have changed
dramatically because of the project. More than 27,500 people have been
affected by the first phases. Resettlement housing took years to complete.
Since Lesotho has so little arable land, most of the displaced farmers
did not receive "land for land" compensation, which meant they needed to
be trained with new skills for alternative livelihoods—an effort
that has mostly failed. The key strategy for restoring livelihoods was
the Rural Development Plan (RDP), which was widely
criticised; even World Bank reports called it "the sick man of the project".
A June 1996 World Bank report stated: "After about eight years of implementation
of RDP progress, a recent evaluation shows
that, although there is some potential for this program in the Highlands,
it cannot be trusted to restore incomes and sources of livelihoods as required
by the treaty and Bank resettlement policy."6
Health impacts have also been particularly severe. The dam's workforce
of 20,000 moved into the Highlands, bringing AIDS
to previously isolated communities. As a consequence, Lesotho has today
one of the highest AIDS rates in Africa,
and the Highlands have an inordinately high rate. The greatly reduced flow
of water has also led to adverse health impacts for communities downstream
of the dams.
Many of the most important environmental and social studies were carried
out too late to influence project design or to add meaningfully to the
debate about project viability. Because the feasibility study for the project
had declared that there were no major "environmental obstacles" to the
project, the LHWP began without even an
environmental impact assessment. In addition, there were no studies on
problems such as erosion and sedimentation, although these issues are critical
to the project's long-term viability. An instream flow requirements study
(IFR), which analyzes how much water is needed
in areas downstream of a dam to support life and livelihoods, was not completed
before construction of the second dam had begun, greatly reducing the impact
of the report.
A number of rare and endangered species are known to have lost habitat
because of the project. Diverting most of the river's flow has had substantial
downstream impacts. If the entire project is built and Lesotho delivers
as much water to South Africa as the original treaty requires, the IFR
study reports that the rivers affected by the project could deteriorate
to "something akin to waste-water drains".
Widespread corruption was discovered in the LHWP
in 1999, when more than twelve multinational firms and consortia were found
to have bribed the chief executive officer (CEO)
of the project. After the CEO himself was
convicted of bribery, three major international firms were found guilty,
and one (Canada's Acres International) was debarred at the World Bank.
According to the Lesotho Attorney General, the court cases themselves have
cost the government $4.3 million as of 2004—2 per cent of the
country's annual budget for public services.
Now that the World Bank is about to close its books on the first phase
of the project, it admits it cannot guarantee that people were not made
poorer as a result of the project—although this minimal requirement
was an explicit commitment made by the parties to the project contract.
Sadly, although the Bank considers the LHWP
a project a model for future large dams in Africa, this case study clearly
shows that the Bank safeguard policies are inadequate to address the challenges
associated with large dams.
By Hozue Hatae, Friends of the Earth-Japan
The San Roque Multipurpose Project is one of the most controversial
projects funded by Japan Bank for International Cooperation (JBIC)
to date. The dam was constructed on the Agno River in the northern Philippines
for four main objectives: electricity generation (345 megawatt capacity),
irrigation of 87,000 hectares of land, flood control, and water quality
improvements. Despite failure to comply with several JBIC
policies and Philippine laws, and despite strong opposition from local
communities, dam construction was completed, and the commercial operation
of the power component began in May 2003.
The total cost of the project was $1.19 billion. JBIC
and private banks provided $500 million in loans to the San Roque Power
Corporation (SRPC), and JBIC
alone provided $400 million in loans to the Philippine National Power Corporation
(NPC). The financing for the power component has
been disbursed entirely (as of January 2005), even though many outstanding
environmental and social problems have not been resolved. The Philippines
government also requested a JBIC
loan for the irrigation component (some $160 million), which has not yet
been implemented.
Now that the dam has been built, sediment will be accumulating behind the
reservoir. This will raise the level of the river bed and flood adjacent
low- lying lands. This flooding will affect up to 20,000 villagers of the
Ibaloi, an indigenous people who depend on the Agno River basin upstream
of the dam. The sediment will eventually bury the Ibaloi's ancestral lands,
including their homes, rice terraces, orchards, pasture lands, gardens
and burial grounds. These impacts, acknowledged by project proponents,
cannot be mitigated or avoided and will deprive the Ibaloi of their communities
and their indigenous culture.
2,545 families were also forced to give up their agricultural land to
make way for the project, and more than 3,000 gold-panners lost their livelihoods.
Most of these people were tenant subsistence farmers who met their basic
needs from gold-panning, farming, gardening and animal husbandry. These
tenant farmers were relocated after the NPC
bought the land from the owners. The tenants were made to sign forms in
English indicating their agreement to be relocated, even though most of
them did not understand English. They were entitled only to cash compensation
for their houses, land improvements, and crops and were given no alternative
means to restore their livelihoods. As a result, the standard of living
of those resettled has deteriorated. Six years after they were moved, many
are struggling to survive in resettlement sites and lack sufficient sources
of income. Some cannot afford to pay their electricity and water bills
and have had to move away again.
The Indigenous Peoples' Rights Act of the Philippines requires the free,
prior and informed consent of indigenous peoples for projects that impact
their ancestral lands. When the affected Ibaloi communities learned of
the San Roque Dam project, they immediately raised their concerns with
the government about the adverse impacts of this project. In spite of their
efforts to defend their rights and appeal to the Philippine government,
to JBIC,
and to the power companies, through consultations, legal appeals, and petition
letters, the project was still pushed through.
The Power Purchase Agreement between the SRPC
and the Philippine government's NPC heavily
favours SRPC. The cost of the power is greatly
inflated, and the NPC has agreed to pay $10
million a month to the SRPC regardless of
whether there is sufficient water available to generate power or not.7
Furthermore, now the Philippine government is responsible for paying back
$400 million in loans to JBIC,
increasing the debt burden of an already heavily indebted country.
Development Disasters: Japanese-Funded Dam Projects in Asia—a
report about JBIC
and large dams in Asia, published by RWESA,
FoE-Japan and IRN
in March 2003, http://www.irn.org/programs/seasia/030309.irnjbic.pdf
By Fraser Reilly-King, Halifax Initiative; Kevin Yuk-shing
Li, International Rivers Network; and Pat Adams, Probe International
In 1993, work began on the world's largest and most controversial
hydroelectric facility, the Three Gorges Dam in China. When completed in
2009, the dam will provide up to 22,400 megawatts of electricity,8
and its reservoir will stretch 600 kilometres upstream. The reservoir is
submerging over 20,000 hectares of farmland, two cities, eleven county
seats, 119 small towns, 6,300 villages, and 1300 archaeological sites and
will displace over 1.2 million people.9
For those directly affected, the combination of resettlement failures,
inadequate compensation, flagrant corruption, and the collapse of the resource
base that many depend on for their livelihoods is condemning them to a
lower standard of living. Furthermore, in confidential official documents,
Chinese officials reveal that the flood control benefits (one of the main
justifications for the project) were vastly exaggerated.10
Export credit agencies from eight countries, as well as 26 private banks
and the Chinese government, helped finance the dam. Canada's export credit
agency, then called the Export Development Corporation (EDC),
was the first to sign an export credit agreement for the dam, in 1995.
Since then, export credit agencies have provided more than $1.4 billion
in financing, or 6-8 per cent of the total budget. Loans, guarantees and
insurance came from Canada's EDC, France's COFACE,
Norway's GIEK, Germany's KfW and Hermes,
Switzerland's ERG,
Sweden's SEK, Spain's CESCE
and Brazil's BNDES.11
Both the World Bank and the United States' Export-Import Bank did not provide
any support for the project, largely because of environmental, economic,
and/or transparency concerns.12
Agriculture is the main economic activity in the affected region, and arable
land is already extremely scarce. The loss of the valley's most fertile
agricultural land and the further aggravation of soil erosion downstream
from the dam is beginning to undermine local food security, especially
since the land used for resettlement has proven to be insufficient and
of poor quality. This will be compounded by the fact that silt from the
Yangtze, which would normally provide important nutrients and ensure the
future fertility of farmland, will largely be impounded by the dam. Meanwhile,
hundreds of factories have been submerged by the reservoir, adding to the
ranks of the unemployed in the region. The reservoir has also wiped out
aquaculture facilities, as well as irrigation ponds and rice fields that
had been used for raising fish, reducing fish production in the region
by thousands of tonnes a year.
Forced displacement and inadequate resettlement and compensation are
producing some of the most severe impacts. A 2003 report published by the
International Rivers Network found that:
Land and jobs that had been promised to displaced communities were either
no longer available or of inferior quality, leaving many individuals landless,
homeless and jobless.
Many of the resettlement villages consist of shoddily constructed buildings
lacking sufficient infrastructure for water and power.
Compensation fell far short of the amount needed to restore livelihoods.
No independent grievance mechanism exists, and protests about resettlement
problems have been quelled with repressive police tactics that have included
violence and other serious human rights abuses.13
Corruption has exacerbated many of these dynamics. Millions of dollars
have been siphoned off from resettlement funds by local bureaucrats, who
have been charged with using stolen money in real estate schemes, leisure
hotel construction, and stock market speculation. In 2005, the Xinhua news
service reported that hundreds of cases of corruption, involving tens of
millions of dollars, had been uncovered to date.
The project will not only upend livelihoods but will also destroy vast
treasures of China's cultural heritage. Over 1300 archaeological and cultural
sites are being submerged, including temples and ruins dating from the
ancient Daxi culture and tombs from the Warring States period and the Eastern
Han, Ming and Qing dynasties. Officials in charge of salvaging important
relics admit that, because of the tight schedule, 90 per cent will be lost.
The environmental impacts predicted by various assessments over the past
decade are beginning to be felt:
Unprecedented changes in river hydrology have impeded fish
and river mammal migration, threatening the endangered Baiji Yangtze River
dolphin and the Chinese sturgeon with extinction.
Sediments trapped by the dam are failing to reach lowland floodplains
downstream, thereby starving wetland areas of nutrients and possibly changing
migratory bird habitats.
Heavy metals from submerged coal and phosphorus mines, as well as mercury
from impounded sediments, are leaching into the reservoir. The release
of these elements, in addition to the chemical pesticides and fertilisers
in the reservoir bottom, is creating a severely toxic reservoir environment.
Landslides and seismic activity are likely to increase in the reservoir
zone since the dam has been built in a geologically unstable region prone
to earthquakes and landslides. Prominent scientists have warned that the
impounding of such a large body of water is likely to trigger geological
incidents, putting lives at risk. The construction of new settlements for
people displaced by the dam has already triggered landslides and riverbank
collapses.
Three Gorges Probe, http://www.threegorgesprobe.org
International Rivers Network, Human Rights Dammed Off in China,
January 2003, http://www.irn.org/programs/threeg/pdf/3gcolor.pdf
By Aviva Imhof, International Rivers Network
The Nam Theun 2 Hydropower Project, in Laos, was given the
green light earlier this year when the World Bank, Asian Development Bank,
four export credit agencies and a host of private banks agreed to support
the $1.3 billion project. The 48-meter high dam will be located on the
Theun River, a major tributary of the Mekong. Water will be stored in a
reservoir on the Nakai Plateau and diverted to a powerhouse, before being
released into another Mekong tributary, the Xe Bang Fai River.
The project is being supported by four export credit agencies, namely COFACE
(France), EKN (Sweden), GIEK
(Norway) and Thai Exim Bank. Together, they are providing $230 million
in loans to the Nam Theun 2 Power Company, which is a consortium composed
of Electricit"é" de France, two Thai companies and the Lao
government. The project is supposed to generate foreign exchange for Laos
by selling power to Thailand; this revenue is then intended to be used
for poverty alleviation in Laos.
Approximately one in 50 Laotians will be negatively affected by the Nam
Theun 2 Dam; and as with many other hydropower projects in Laos, it is
the poorest people, often subsistence farmers, who will lose their livelihoods
as a result of the dam. Nam Theun 2 will displace 6,200 indigenous people
living on the Nakai Plateau, and it will affect more than 100,000 people
living in downstream communities along the Xe Bang Fai and Nam Theun rivers.
The project will jeopardise food security for these people, who depend
on freshwater fish for up to 80 per cent of their protein. It will also
affect their ability to grow vegetables along the riverbanks during the
dry season, deprive them of fresh drinking water and impair river transportation.
Experience from other hydropower projects in Laos and elsewhere shows
that replacing subsistence livelihoods is extremely difficult. Independent
reviews of the plans for compensating villagers affected by Nam Theun 2
reveal that these plans are overly ambitious and have a high likelihood
of failure.14
Meanwhile, there are no guarantees that the revenue accruing to the government
from Nam Theun 2 will be used for poverty alleviation. The negative track
record of other dam projects in Laos, such as Nam Leuk and Theun Hinboun,
and the government's failure to transparently manage its revenues are strong
indications that the poverty exacerbated by Nam Theun 2 will be far greater
than any poverty alleviated by it.
In addition to the social impacts, the reservoir on the Nakai Plateau will
submerge an area of rich biological diversity that sustains one of the
last remaining herds of wild elephants in Laos. Several other endangered
and endemic species, such as the white winged duck, will have their habitat
and/or migration routes flooded by the dam. The release of cold water from
the bottom of the reservoir will also impact aquatic ecosystems downstream,
which will likely lead to massive fish die-offs.
Nam Theun 2 may also result in substantially higher greenhouse gas emissions
than combined-cycle natural gas plants generating the same amount of electricity.
The characteristics of Nam Theun 2—a tropical reservoir with
a large drawdown zone—are similar to those of Brazilian reservoirs
where high methane emissions have been measured. Extrapolations from the
average net emissions per square-kilometer flooded calculated for four
reservoirs in the Brazilian Amazon indicate that Nam Theun 2 could emit
the equivalent of nearly 5 million tons of carbon dioxide every year. By
comparison, a natural gas combined-cycle plant generating the same amount
of electricity as Nam Theun 2 would emit the equivalent of around 2.53
million tons of carbon dioxide. In other words, Nam Theun 2 could have
twice the greenhouse gas emissions and climate impacts of fossil fuel alternatives.15
Despite repeated calls from project critics for an assessment of Nam Theun
2's compliance with World Commission on Dams guidelines, the World Bank
and other donors refused to conduct such an analysis. Instead, the World
Bank said that it would rely on its own safeguard policies to determine
whether to support the project or not. The four export credit agencies
involved in the project primarily relied on the World Bank's appraisal
to determine their own positions on the project. In doing so, the export
credit agencies abdicated their environmental and social due diligence
responsibilities.
If a true, open and transparent options assessment process had taken
place—as included in the WCD
recommendations—it is likely that Nam Theun 2 would not have
been considered the best option either for meeting Thailand's energy needs
or for alleviating poverty in Laos. The World Bank claims that Nam Theun
2 will benefit Thai consumers, who will be forced to purchase over 90 per
cent of the electricity from the dam for the next 25 years. But the economic
analyses for the project, which were released just a week before the World
Bank Board meeting, contain several startling errors and unjustified assumptions
that make Nam Theun 2 appear in a favourable light compared to other alternatives.16
In addition, a World Bank report found that renewable sources of power
and efficiency improvements could generate the same amount of electricity
for the Thai market as the Nam Theun 2 Project, but at a 25 per cent lower
cost.17
Furthermore, without a series of legally binding mitigation and compensation
agreements with affected people—another of the WCD
recommendations—the rights of affected communities will be difficult
to protect. There is no independent legal forum in which to seek redress
if promises are not met. This is of particular concern for Nam Theun 2,
because Laos lacks an independent judicial system, meaning that affected
communities will have nowhere to turn when promises are broken. Indeed,
the lack of an independent media and freedom of expression in Laos has
prohibited open scrutiny of the project from the beginning—communities
are unable to access information and freely express opinions and concerns
about the project. Finally, the absence of adequate baseline data, particularly
for the hydrological analysis, calls into question the technical and economic
viability of the project. An independent review of the hydrological data
for the project found that the power company's analysis is so deficient
that it is impossible to predict how much water will be available for power
generation.
Nam Theun 2 is the most recent large dam approved by the World Bank.
Taken with the evidence concerning social and environmental impacts presented
above, it is clear that the World Bank's safeguard policies are inadequate
for assessing hydropower projects.
http://www.irn.org/programs/mekong/namtheun.html
By Judith Neyer, FERN, and Nicholas
Hildyard, The Corner House
Birecik and, if it is built, Ilisu, are both part of Turkey's
$32 billion South Eastern Anatolia Project (known as GAP
after its Turkish name, Guneydogu Anadolu Projesi). Consisting of a planned
network of 22 dams, 19 power plants and ancillary irrigation and industrial
projects, GAP
is intended to use the waters of the Tigris and Euphrates Rivers to transform
the Southeast of Turkey into a regional "breadbasket".
GAP
had been largely financed by the Government of Turkey, with $3.79 billion
coming from foreign sources. Turkey's economic problems during the 1990s,
however, led to an increasing reliance on external financing, including
export credits from Germany, Switzerland, Italy, Austria and the USA.
In addition to Birecik, dams funded through such export credits have included
Ataturk, Karakaya and Karkamis. Export credit agency support is currently
also being sought again for Ilisu, the project having been temporarily
shelved in 2002, and for the Munzur and Hakari dams. The World Bank has
declined to support GAP
projects.
Other dams are also planned outside of the GAP
project, including the Ermenek dam. Ermenek is currently under construction.
Financing was arranged after the Common Approaches (the OECD
agreement on common environmental guidelines for export credit agencies)
had come into effect for the export credit agencies involved, demonstrating
the woeful inadequacy of the Common Approaches for managing the challenges
of large dams.
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