Dutch state violates own CSR procedures in Egypt's Suez Canal Expansion

Eva Schram (1988) is research editor at OneWorld
The original Dutch article can be read here
4 June 2015

When Muhamed Mohamed al-Mahdy was stationed in 1973 during the Yom Kippur War in the Sinai Peninsula in Egypt, he fell in love with the region. He sold his land near Cairo and moved into the Sinai. He started an orchard and a family. He built houses for his sons and thought he would never have to leave.

Until last year soldiers entered his village Abtal and ordered Mahdy (65) and his family to leave their homes within a week. Abtal lies on the track for the expansion of the Suez Canal, in which the Dutch dredging companies Van Oord and Boskalis participate. Mahdy now lives in a hut of bamboo and sells candy bars and drinks along the edge of the road. "Life has become a humiliation," he said to John Beck, reporter and photographer of VICE.

Mahdy (65) was evicted from his home in Abtal, a village in the Sinai, in order to make room for the new Suez Canal. As compensation he was given a small piece of waste land.

Evicting people from their homes is a major human rights violation, according to the UN Commission on Human Rights. Therefore, it is disturbing that two Dutch companies are involved in the project that according to several reports in international media already led to 2,000 evictions. Even more disturbing: the Netherlands guarantees the payment risks that Van Oord and Boskalis incur for this project.

The Dutch state helps

Van Oord and Boskalis applied for a so-called export credit insurance for the project from the Dutch state. This is a financial product to promote the export of Dutch companies (see box).

What is an export credit insurance?
In capital-intensive projects or for exports with a very long maturity Dutch exporters run the risk that they are only partially or not getting paid at all by their foreign customer, as they often incur costs during the project. If that risk is too high to insure in the commercial market, as is often the case in emerging economies, the Dutch state jumps in: it then offers an insurance to cover the risks.

Export credit insurances are assessed and issued by Atradius Dutch State Business, an implementing agency of the Ministry of Finance and a subsidiary of the commercial insurer Atradius. The budget from which any compensation should be financed, and where the proceeds of the issued insurance policies (the exporter pays premiums) go, is on the budget sheet of that ministry.

Before Atradius DSB issues an insurance, the organization looks at the financial risks of the transaction as well as the environmental and social risks. The Corporate Social Responsibility (CSR) policy, prepared by the State and implemented by Atradius DSB, is based on guidelines drawn up in the OECD, the so-called Common Approaches (see box). The Dutch CSR policy goes beyond the OECD Guidelines: also projects that last less than two years or for which no financing is required (sometimes banks or exporters advance expenses for the project before they get paid themselves) are subject to a CSR screening.

According to the guidelines?

The Suez Project in which Van Oord and Boskalis participate is a Category A project. Almost all dredging projects fall into that category. The OECD prescribes special rules for such projects in case is medium or long-term financed projects. An Environmental and Social Impact Assessment (ESIA) is mandatory to assess what impacts the project will have on the environment and human rights, and how the companies plan to mitigate such effects. The standards for such an ESIA are extensively described in the Common Approaches.

The OECD also stipulates that a credit insurer needs to provide thirty days advance notice in case it plans to insure a Category A project. That allows those involved the time to ask the ESIA and any other documentation and to submit an opinion on the project.

OECD Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence

The Common Approaches of the OECD (Organisation for Economic Co-operation and Development, an association of the 34 most prosperous countries) prescribe a categorization of projects.

    A: there is great potential of irreversible negative environmental and / or social impacts, possibly beyond the location of the project
B: there are significant potentially negative environmental and / or social impact, but these are limited to the boundaries of the project
C: there are few or no negative environmental and / or social impacts

According to the Common Approaches, applicants for a Category A project, almost always applicable for dredging projects, have to submit an environmental impact assessment (EIA, in English ESIA).

Atradius DSB has never announced in advance that it planned to issue an insurance to Van Oord and Boskalis for the Suez Project. This can be concluded from an e-mail of Atradius DSB to Both ENDS sent in the beginning of March 2015, a copy of which is in the hands of OneWorld. It reads: "In recent months we have been making serious efforts to obtain information in connection with the environmental and social assessment. These efforts included a visit to Egypt, as well as information from the Dutch Embassy in Egypt, the public domain and the Dutch exporters. These efforts have not led to an ESIA, or sufficiently similar information for ex ante publication of the project. "

Thus no ESIA has been done. There was not even sufficient information to announce that Atradius DSB would issue this insurance on behalf of the State. Was there then enough information to assess which potential harm to the environment or social harm might be brought about?

To the question "Did you add an Environmental Impact Assessment (acronym in English: ESIA) to the application for an export credit insurance?" Boskalis responds, also speaking on behalf of Van Oord: "YES (sic), there is a comprehensive "Environmental and Social Assessment" conducted by Witteveen and Bos. This assessment was part of the application.".

Atradius DSB confirms the existence of the report of Witteveen and Bos, but the insurance company would not comment on the contents of the report. Also Boskalis declines to respond to that question.

The above quoted email indicates that the investigation of Witteveen and Bos in any case did not meet the standards that the OECD, and thus Atradius DSB, require for an ESIA. If we again explicitly ask Atradius DSB, they answer: "As stated earlier, we could not publish because there is no ESIA available."

The reason to insure the transaction anyway, was according to Atradius DSB: "In accordance with our national policies and taking into account the different aspects of this case, including the environmental and social information that was available and the fact that the Dutch exporters work in a consortium with a foreign party that already obtained an ECA coverage (export credit insurance, ed.). "

Prestigious cash cow

The current Suez Canal is a cash cow for the Egyptian government. In 2014 over 17,000 ships passed through the channel, yielding the Egyptian treasury $ 5.5 billion. But the channel, connecting the Mediterranean and the Red Sea, is too narrow to allow two ships sail alongside each other, so skippers usually have to wait in one of the six so-called bypasses. Ships are there often waiting for hours and on average take 16 hours to travel the 136 kilometers of the channel.

Therefore, one is currently working hard to expand the Suez Canal. Over a length of 35 kilometers, a new channel is dug, so that ships can sail in both directions. Moreover, parts of the existing channel are deepened. The estimated revenue for the Egyptian treasury is $ 12.5 billion annually.

The Suez Project is "one of the largest dredging jobs this decade," said Peter Berdowski, CEO of Boskalis last year in an interview with a Dutch business newspaper (Het Financieele Dagblad). It is also a showcase of President el-Sisi of Egypt: expanding the channel should stimulate the ailing Egyptian economy. Therefore the works are speeded up: el-Sisi wants the channel to be ready by August 5 of this year.

The dredging works are done by Van Oord and Boskalis in a consortium with the Belgian company Jan de Nul and NMDC from Abu Dhabi. The turn-over of $ 1.5 billion is divided by four. The consortium for the project had to compete with Chinese companies.

Google Earth

That the Suez Project, which is compared in scale with the construction of the Second Maasvlakte (Rotterdam Harbor), creates environmental damage is beyond dispute. Dredging projects always cause environmental damage. But that does not mean to be a ground for refusing an insurance. Dutch dredgers are supposed to be the best at limiting environmental damage.

But what about the social risks? Wiert Wiertsema, co-founder and policy advisor at Both ENDS, says: "Human rights in Egypt are violated on a large scale. People who have problems with the authorities are locked up and given draconian sentences. "

Moreover, the news about the thousands of evictions already emerged last year, shortly after the start of the operations. Atradius DSB only issued an insurance to Van Oord and Boskalis on February 12 this year. So they have had time to incorporate the reports of evictions in their assessment.

OneWorld asked Boskalis to comment on the reports of the evictions, and got a quote from the research of Witteveen and Bos: "The Dutch embassy in Egypt told us that all the land in the project is owned by the Suez Canal Authority (entirely owned by the Egyptian government, ed.) and that various persons are unofficially living in the area. A number of plots has been evacuated and people involved are compensated with land where they can build houses. A search on Google Earth shows that since 2004 there have been no large scale settlements within the limits of the project area. "

Complicity not ruled out

John Beck, the freelance journalist who has been in the village Abtal to make the VICE-report, was shocked by what he found there. "I saw the houses that stood there before the project began only in pictures, but the extremely meager ‘compensation’- a small piece of waste land - did not come close to the replacement of lost homes, cultivated land and possessions. A lawyer who works for the displaced villagers told me that according to Egyptian law, evictions can only take place if 'fair' compensation has been paid beforehand. That was absolutely not the case here."

"The media reports about evictions, I have not been able to verify," says Wiertsema, "but that also applies to the claims of the dredging companies and Atradius that enough research has been done. After all, they do not disclose anything.” According to Wiertsema that is particularly unwise. "I'm not saying that the dredging companies, which operate with state support, are complicit in human rights abuses in Egypt. But it can not be excluded, and that's worrisome. "

‘Very exceptional cases'

Wiertsema follows the export credit insurer Atradius DSB for years. He questions the way the investigation into the environmental and social risks is conducted. "That is precisely why it is so important that the information is made public. Then outsiders can assess whether the risks are properly reviewed. In the end of 2014 Atradius DSB has also promised to share the requested social and environmental information with Both ENDS, but it decided this spring otherwise."

Atradius DSB said in a comment: "Annunciation was in this case not required in accordance with the Common Approaches, as the maturity is less than two years." But according to the CSR policy of the State that Atradius DSB implements and applies to all transactions, ex ante announcement and disclosure should have taken place.

Regardless of the OECD Guidelines and its own CSR policy, the Netherlands has signed the Aarhus Convention. That means that the Dutch government (and Atradius DSB, as an implementing agency) should provide access to environmental information. Egypt has not signed the treaty. But the question is whether the Netherlands in this case on the basis of the treaty does not have the legal duty to share environmental information about Egypt with Egyptian stakeholders. There is certainly a moral obligation to do so.

In the meantime, OneWorld has appealed under the freedom of information act, which includes specific provisions for the retrieval of environmental information, to disclose the investigation reports that have been done in preparation for the issuing the insurances.