Mexico: The Case

Case Summary

Mexico The Cerro de Oro Project

 Read our case study of the historic agreement reached through the mediated dialogue process in this case.

Accountability Counsel filed complaints on November 30, 2010, on behalf of the villages of Paso Canoa and Santa Ursula, and on January 17, 2011, on behalf of the neighboring community of Cerro de Oro.  The complaints detail harm caused by the Overseas Private Investment Corporation (“OPIC”)-supported Cerro de Oro Hydroelectric Project.  They were filed with OPIC’s internal accountability mechanism, the Office of Accountability (“OA”), which convened a dialogue table between the communities, the Company, and other Project stakeholders, as part of its dispute resolution function.  At the final meeting of the OA’s dialogue table, representatives of the communities of Paso Canoa, Santa Ursula, and Cerro de Oro delivered a joint decision rejecting the Project.  As of today, the Project remains stopped.

a.     History

The Cerro de Oro Hydroelectric Project entailed converting the existing Cerro de Oro Dam and reservoir into a hydropower project through the construction of a water intake and conduction tunnel, powerhouse, voltage elevation substation, tailrace channel, and transmission lines.  The Project was funded in part through a $60 million investment by OPIC (contract part 1, part 2, part 3, and part 4), a U.S. agency, in U.S.-based Conduit Capital Partners, LLC.  The Cerro de Oro Project is one of Conduit’s investments through its Latin Power III fund.  The Project operators are Electricidad del Oriente and Corporacion Mexicana de Hidroelectricidad (“COMEXHIDRO”) (Project operators and Conduit collectively referred to as “the Company”).  All of the energy generated by the project would have been sold to private companies.

The complainants are predominantly members of the Chinanteco indigenous group.  They live in the area directly affected by the Project in the State of Oaxaca, one of Mexico’s poorest and most vulnerable regions.  They are mostly farmers and laborers who harvest fruits, rubber, sugarcane and other natural products from the land and use fishing to supplement their incomes and diets.

In the 1980s, approximately 26,000 Chinanteco people were forcibly displaced to make way for the Cerro de Oro Dam.  The recent Cerro de Oro Hydroelectric Project built on that legacy of harm.  The people who remained in or returned to the area despite the disastrous impacts of the original dam’s construction faced devastation for a second time.

Viewing destruction of the Arroyo Sal, Oaxaca, Mexico

At the time Accountability Counsel became involved, Project activities had already begun to cause harmful impacts: cement had leaked into drinking water, blasts from explosives had damaged homes, and land acquisition practices had disrupted local culture.  Community members had not received full information about the Project and had not been consulted about the Project’s health, safety and environmental impacts and any planned mitigation measures.  While a “Third Party Environmental Compliance Review” was conducted, major environmental impacts were not addressed and mitigation measures for those impacts were therefore not proposed or adopted.

Project operators attempted to silence dissent by requiring community members to sign statements affirming that they would not talk to organizations about the Project.

b.     Initial Steps

Prior to Accountability Counsel’s involvement in the case, community groups and NGOs had voiced concern and petitioned the government about the new Project’s potential impact on the environment and the well being of nearby residents, but had not had any success in halting or altering the Project.

AC Attorney Komala Ramachandra conducting a community training in Oaxaca, Mexico

At the request of community leaders, Accountability Counsel made an initial trip to visit the affected communities in October 2010, to gather information about the Project and its impacts, as well as to meet with impacted communities about the possibility of filing a complaint with OPIC’s Office of Accountability.  Community members in Paso Canoa and Santa Ursula voiced significant concerns about and opposition to the Project and decided to file a complaint with the OA.  The community of Cerro de Oro later decided to join the complaint.  Members of the community closest to the Project, the village of Los Reyes, had been intimidated into signing agreements with the Company stating that they would not talk about the Project with outside organizations and did not attend meetings during our initial visit.

c.     The Complaint

Accountability Counsel assisted in filing complaints with the OPIC Office of Accountability on November 30, 2010, on behalf of the villages of Paso Canoa and Santa Ursula, and on January 17, 2011, on behalf of the neighboring community of Cerro de Oro.  The complaints requested both problem-solving and a compliance audit.

Communities using the Arroyo Sal, Oaxaca, Mexico

The complaints detailed harm already caused by the Project, as well as anticipated harm, including: destruction of villagers’ access to drinking water; destruction of fishing areas that people rely on for sources of income and protein; removal of agricultural land relied on for livelihood support; contamination and destruction of ecosystems; land erosion and encroachment; disruption of local and indigenous infrastructure, housing and culture; gender impacts; and feared impacts on community health and safety.  The complainants live next to the dam curtain, and they feared for their safety due to the use of explosives in Project construction.

The communities’ complaints to the OPIC Office of Accountability requested that:

1. The project be immediately suspended;

2. An independent environmental impact assessment be conducted and a mitigation plan be created;

3. The Project cease alterations to the Arroyo Sal, a creek relied on by the communities;

4. A complete record of Project documents be made available to the communities and presented in a manner that was easy to understand;

5. The Company fully comply with promises made to the communities and bring the Project into compliance with OPIC policy;

6. The Company provide documentation regarding the risks to health created by the hydroelectric expansion and plans to avoid those risks; and that

7. Negotiated agreements between the Project sponsor and Complainants address all remaining issues, including those regarding land use, health, and the environmental and social impacts of the Project.

84-year old man hauling firewood across a creek after the company destroyed the land bridge, Los Reyes, Oaxaca, Mexico

In addition to assisting the communities of Paso Canoa, Santa Ursula and Cerro de Oro in filing complaints, Accountability Counsel sent a Letter to the President and CEO of OPIC on November 30, 2011, requesting that the community of Los Reyes be joined to the request for compliance review.  We noted that we had reason to believe that members of the community of Los Reyes feared participation in a complaint to the Office of Accountability because they signed an agreement that they would not seek support from outside “organizations,” despite the potentially significant impacts that the Project would have on the community.  Given the potentially serious impacts on Los Reyes, as well as the illegal silencing of community members, Accountability Counsel sought the President’s assistance in initiating a compliance review, arguing that OPIC’s policy of allowing the President to initiate a compliance review is meant for situations precisely like this one, where a complaint cannot emanate from a community for fear of retribution or retaliation.  To date, Accountability Counsel has received no response to that letter.

d.     The Process

Registration of the Complaint

December 6, 2010 – The OPIC OA registered the complaint from Paso Canoa and Santa Ursula.

January 17, 2011 – Accountability Counsel assisted the community of Cerro de Oro in filing an addendum to the original complaint.

The OA’s Initial Site Visits

Executive Director, Natalie Bridgeman Fields with children from the village of Cerro de Oro, Oaxaca, Mexico

January 5-12, 2011 – The OA made two site visits to appraise the potential for convening a problem solving dialogue.  The OA visited the Project site and spoke with The Company, municipal authorities and community members from Paso Canoa, Santa Ursula and Cerro de Oro before determining that there was a problem solving dialogue could potentially help resolve key issues raised in the complaints.  Accountability Counsel accompanied the communities during this initial site visit.  The OA delegation included the outgoing Director of the Office of Accountability, Dr. Jean Aden, the incoming Director, Dr. Keith Kozloff, an OA-hired mediator, Juan Dumas, and a translator.

February 2011 – The OA’s mediator, Juan Dumas, returned to the communities without notifying Accountability Counsel as the communities had requested be done for all communications.  The trip was problematic because a number of the community members expressed concern and confusion about why the OA was sending their representative without notifying Accountability Counsel.

Oaxacan Congressional Commission

Men viewing damage to the Arroyo Sal, Oaxaca, Mexico

February 17, 2011 – At the urging of the communities and under the leadership of local Tuxtepec representative to the Oaxacan Congress, Angela Hernandez Solis, the members of the Oaxacan Congress used the information in the communities’ complaint to launch their own investigation into the Project.  The Congress unanimously voted to form an 11-person Commission to tour the area, and on February 17, 2011, the Commission convened a meeting in Oaxaca City to discuss the results of their tour with the Company and public.  At the meeting, attended by community representatives, the Company, local officials, academic institutions and the press, the community representatives demanded suspension of the Project.

February 22, 2011 – The Company agreed to suspend the Project as a result of the February 17 meeting.  At that point, the suspension was a voluntary act taken outside the context of the OA process.

The OA’s Problem-Solving Process 

March 2011 – The OA contacted representatives from Los Reyes and determined that the community wanted to join the dialogue process.  The communities of Los Reyes, Santa Ursula, Paso Canoa and Cerro de Oro and the Company entered into a dialogue process mediated by professional mediator Juan Dumas.  Local, state and federal representatives of the Government of Mexico witnessed the meetings of the dialogue table.

Company representative, AC’s Natalie Bridgeman Fields and Authorities of Los Reyes, Oaxaca, Mexico

March 11, 2011 – The communities and the Company reached an historic agreement at the dialogue table.  The agreement formalized the suspension of the Project and placed the future of an alternate design for the Project into the hands of the communities.  Specifically, the agreement called on the Company to prepare an Alternative Project that would avoid use of the Arroyo Sal, the spring-fed creek relied on by the communities that the original Project would have destroyed, after which the communities would decide whether they wanted the Original Project, the Alternative Project, or no project.  The Company agreed to accept the decision of the communities and to suspend all work until a decision had been made.  The communities and the Company also agreed to commission an expert study regarding the risks posed by the Project to the safety of the dam curtain.

May 5, 2011 – The four communities and the Company reached a second agreement, in which they selected Raul Flores Berrones as the expert for the dam safety study.

June 2-3, 2011 – The expert Flores Berrones and his hydrogeologist, Luis Valasquez, went to the area to do an initial study of dam safety and take samples of the water in the Arroyo Sal.  There was a great deal of controversy surrounding this visit.  Flores Berrones arrived without instruments and, after nothing more than a visual survey of the dam curtain, declared that the dam was safe.  The hydrogeologist took initial samples of salinity from the water in the Arroyo Sal and declared that the Arroyo Sal is not a natural spring, or manantial, but rather filtered water from the dam.  These declarations caused the communities to loose faith in the expert and hydrogeologist because they expected the expert to do a technical study of the dam’s safety, using appropriate instruments, and because their historical knowledge of the area tells them that the Arroyo Sal is a spring, not a filtration from the dam, since the spring pre-existed the dam.

View of vegetation growing atop the Cerro de Oro Dam curtain in Oaxaca, Mexico

July 7, 2011 – Flores Berrones circulated a Methodology Report and initial assessment of the safety of the Cerro de Oro dam.  According to the report, frequent visual inspection is the most important way to monitor dam safety, although one can also use various instruments.  At the Cerro de Oro dam, however, many of these instruments were no longer functional and could not be used by Flores Berrones to assess the safety of the dam.  Among other things, Flores Berrones recommended that all of the instruments be reactivated so that dam safety could be better monitored in the future.  There were no recommendations regarding who should reinstall the instruments or cover costs of reinstallation, and with what timeline.

July 17, 2011 – Flores Berrones presented his methodology report to each of the four communities.  In each of the presentations, Flores Berrones explained the construction and make-up of the dam curtain and the most common failures for dams built in this manner.  He noted that the most common failures for a dam of this nature are: (1) water coming over the top of the dam curtain; (2) instability of the walls of the dam, which would cause cracks along the top of the dam curtain; (3) instability of the cementation below the dam, which would also cause cracks along the top of the dam curtain; and (4) tubification of the dam curtain.  According to Berrones, tubification is common and can be caused by earthquakes, explosions, or holes caused by roots or animals.

Flores Berrones largely failed to address concerns raised by community members that features of the dam curtain and reservoir, such as the trees growing out of the dam curtain and the high levels of sedimentation in the reservoir, seemed to put the dam at risk of failure.  Based on his review of available documents and a visual inspection, Flores Berrones concluded that the Cerro de Oro dam was well designed and built, was behaving according to its design, and that the use of explosives to construct the Project would not cause damage as long as the Company’s use of explosives conformed to international standards.  Nonetheless, Flores Berrones recommended the installation of modern instruments and emphasized that the dam needed active monitoring both by the communities and CONAGUA, the federal agency responsible for dam safety.

Birds standing on sediment buildup in the Cerro de Oro reservoir in Oaxaca, Mexico

July 19, 2011 – Accountability Counsel and community representatives accompanied Flores Berrones on a boat ride in the reservoir so that he could observe the other side of the dam curtain and the area of the dam reservoir to the north (something he had not done in reaching his initial conclusions).  Among other risk factors, the group observed large trees growing on the dam curtain and sediment so high on one side of the reservoir that people were planting corn in land where water was once 18 meters deep.

July 20, 2011 – Representatives of the four communities met with the Company at another dialogue table convened by the Office of Accountability.  Flores Berrones again presented his initial study as he had in each community, but this time with updates from the previous day’s site visit.  He emphasized that the trees and other vegetation growing on the dam curtain should be removed and that more verification should be done regarding dam capacity.  He also presented his Final Study on Impacts to the Arroyo Sal.

The Company then presented the Alternative Project, which involved building the machine house further away from the Arroyo Sal, and then constructing a large discharge canal as close to the dam curtain as possible (essentially through Los Reyes).  After the presentation, the communities again expressed their opinion that the dam safety study presented by Flores Berrones did not fulfill the requirements of the March 2011 agreement, given that Flores Berrones had not relied on any instruments in assessing dam safety.  Due to remaining uncertainty regarding dam safety, the community representatives viewed the study as incomplete and refused to allow the Company to present the Alternative Project to the communities, as originally planned.

View of vegetation growing on the side of the Cerro de Oro Dam curtain in Oaxaca, Mexico

The communities’ representatives at the dialogue table and the Company reached a third agreement, under which the communities agreed to inform the OA and the Company by August 1, 2011, whether the Alternative Project presented was a basis for continued dialogue.  They also agreed to have CONAGUA, the Mexican agency in charge of monitoring dam safety, write a report regarding the safety of the Cerro de Oro dam, and that only after CONAGUA issued the report would the Company be allowed to present the Alternative Project to the communities.

July 31, 2011 – Representatives of the four communities sent a letter to the Company and the OA informing them that each community had decided in their community assemblies that they could not make any decisions with respect to the whether the Alternative Project was a basis for continuing dialogue until after Flores Berrones issued his final dam safety studies and the study regarding the Arroyo Sal had been completed and presented to the communities.

August 16, 2011 – Flores Berrones circulated his Final Dam Safety Study.

October 4, 2011 – CONAGUA circulated its Dam Safety Report.

Completion of the OA’s Problem-Solving Process

September 6, 2011 – The Director of the OA sent a letter to the Governor of Oaxaca, Gabino Cué Monteagudo, explaining the process to date and expressing his opinion that there was not enough trust between parties for the OA problem-solving process to continue to function.  The Director asked for a meeting with the Governor and suggested that the Governor’s office may be better suited to help move the process forward than the OA.  The Director of the OA did not ask the communities whether they wanted the Governor to continue the dialogue process and were not consulted regarding the transfer of their complaint to a new entity.

October 11, 2011 – The Director of the OA met bilaterally with representatives of the Governor regarding the Project, the OA and the dialogue process to date.

Protest banner in Santa Ursula

November 12-13, 2011 – Flores Berrones and CONAGUA presented their final dam safety studies to all four communities.  Neither study addressed the communities’ concerns regarding the continued presence of risk factors at the dam and reservoir.  The Company also presented the Alternative Project.  Oaxacan Governor’s Sub-Secretary, Oscar Cruz, attended each of the presentations and urged the communities to be open to the Alternative Project.

November 14, 2011– At the final meeting of the OA’s dialogue table, representatives of the communities of Paso Canoa, Santa Ursula, and Cerro de Oro delivered a joint decision rejecting the Alternative and Original Projects.  Remaining dam safety concerns are one of the communities’ primary reasons for rejecting any further project construction, as well as concerns that each village communicated in their own agreements submitted with the joint decision.  Authorities of the community of Los Reyes, however, stated that they wanted the Project to continue, reasoning that they needed the work.

The Director of the OA announced that he was formally ending the participation of the OA in the dialogue process, but suggested that dialogue could continue with the Oaxacan state government.  Throughout the meeting, he abandoned his neutral role by lecturing the communities about it being irrational to have not agreed to the Project.  Oaxacan Sub-Secretary Oscar Cruz indicated that the Oaxacan government was interested in continued dialogue with the communities.

Early 2012 – The OA issued a Final Problem-Solving Report summarizing its perspective on the problem-solving process.  Accountability Counsel had submitted a letter to the Office of Accountability highlighting problems in an earlier draft of the Report, including mischaracterizations and bias on the part of the Office of Accountability.  These problems are unfortunately still present in the final version of the report.

The OA’s Compliance Review Process

View of the Arroyo Sal from Cerro de Oro Dam Curtain, Oaxaca, Mexico

November 14, 2011 – At the final meeting of the OA’s dialogue table, representatives of the communities of Paso Canoa, Santa Ursula and Cerro de Oro delivered a letter to the OA reiterating their request for a compliance audit to evaluate OPIC’s alleged non-compliance with OPIC policy in the support for the Cerro de Oro Project.  Despite multiple requests since filing their complaints, the communities had not received any information regarding how or when the OA would conduct an audit.

November 22, 2011 – The OA sent a letter responding to the request for a compliance audit and explaining, for the first time, the Director of the OA’s view of how the compliance review process would be conducted.  The letter indicated that the OA will first conduct an appraisal to determine whether to conduct a full audit. In that appraisal, the OA:

“considers the magnitude of the environmental and social risks posed by the project, the extent to which those risks could be realized as a result of any deficiencies in the implementation of applicable OPIC policies and procedures, the extent to which a detailed investigation is needed to identify and correct the underlying causes of these risks, and the extent to which an audit is necessary to yield useful information that would inform the application of OPIC policies to future projects.  These considerations help OA determine whether the potential benefits to the requestors, OPIC, and the client from conducting an audit are worth the resources invested in doing so.”

This cost-benefit approach, which gives the Director of the OA complete discretion to weigh costs and benefits, is not part of the Congressional language mandating the OA, the Board Resolution establishing the OA, nor is it described on the OA website or in printed materials.  Read more about our policy work aimed at addressing this problem.

April 27, 2012 – The OA determined in its Compliance Appraisal Report that a full compliance review to determine OPIC’s compliance with its own policies in funding the Cerro de Oro Hydroelectric Project was not necessary in this case. While the Appraisal Report did not include formal compliance findings, it did generate several important recommendations for OPIC aimed at avoiding problems that arose in this case.  Although the recommendations, if implemented by OPIC, will benefit future communities impacted by OPIC projects, the overall tone of the OA’s Report demonstrated the OA’s continued bias towards the communities and its misunderstanding of the compliance violations raised in the complaint.

The OA’s Compliance Appraisal Report concludes its involvement in this case.

October 12, 2012 – OPIC Management Responded to the OA’s Compliance Appraisal Report in October 2012.  The Response demonstrates that the case has had a concrete impact on OPIC’s attention to social and environmental risks associated with their investments and the need to ensure that project-level grievance mechanisms function properly.

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