WASHINGTON, D.C., Dec. 17 -- The Board of Directors of the International Finance Corporation (IFC) today approved an investment in the Pangue hydroelectric power generation project located on the Bio Bio River in Chile. Board ratification of the proposed investment followed a comprehensive environmental review of the project by IFC. IFC is a member of the World Bank Group and the largest source of direct project financing for private sector projects in developing countries. Board members voiced strong approval of the work done by IFC in setting high environmental and social standards with respect to the Pangue project. The Board stressed a number of positive points including: * IFC's insistence on the preparation of a publically released comprehensive environmental assessment of the project; * IFC's insistence on the creation of the Pehuen Foundation, funded by the project's income to enhance the quality of life for the local indigenous population; * the ongoing work to monitor the impact of the dam; * the co
nstructive dialogue between non-governmental organizations and IFC; and, * the study of potential alternatives and energy conservation commissioned by IFC. Total project cost is expected to be US$465 million. IFC will lend up to US$70 million for its own account and make an equity investment of up to US$4.9 million in Pangue S.A. In addition, IFC will seek to syndicate commercial bank lending of up to US$50 million. Pangue S.A., the company which will build, own and operate the hydroelectric plant, is a wholly owned subsidiary of Empresa Nacional de Electricidad S.A. (Endesa), Chile's foremost electricity generating company. Chile's economic growth rate has averaged 6% per year for the past five years. This high level of economic activity has significantly increased the demand for electricity and has compelled the country to identify and build additional sources of power. The Pangue project, when it comes on line in 1997, will permit the operation of a power plant of 450 megawatts capacity. Pangue, given the
relatively small reservoir of 500 hectares created by the dam, is highly efficient in comparison with other hydropower projects in terms of hectares flooded per megawatt of capacity and the number of people to be resettled (9 families). The power generated will be clean and economically produced, for the use of the 93% of the Chilean population who live in Santiago and central Chile.
An independent study commissioned by IFC assessed the power generation alternatives in Chile, including the potential for improved energy conservation and efficiency. This study, in measuring the economic and environmental implications of various generating alternatives, concluded that the Pangue project is the least cost alternative from both an economic and environmental perspective. In working with the company over a period of more than three years, IFC also reached agreement on a number of other measures to ensure an environmentally responsible project. These steps include the establishment of an Ecological Station to monitor environmental conditions in the project area, a watershed management protection plan, development of a construction impact minimization plan, and an equitable resettlement plan including housing and land ownership for the 53 people displaced by the reservoir. Of particular significance will be the creation of the Pehuen Foundation, which is the first of its kind. The Foundation has b
een formed to help alleviate the conditions of extreme poverty which afflict the three neighboring Pehuenche Indian communities of Petril, Callaqui, and Quepuca-Ralco. The Foundation intends to promote economic development while ensuring respect for the Pehuenche's dignity and cultural uniqueness. The Foundation will provide the communities with a permanent source of income drawn from project dividends, which will be used to develop locally-based income generation opportunities, and improve access to healthcare, housing, education and training facilities. The Foundation's programs and activities will be formulated and executed with the direct and active participation of the Pehuenche communities. William Ryrie, Executive Vice President of IFC, noted IFC's "sensitivity to the impact of this project on the indigenous communities near the project site. We have placed a high priority on working with the sponsor to create the Pehuen Foundation. The Foundation will be a developmental and cultural partnership that m
akes it unique in Latin America". The action by IFC's Board continues recent efforts by the Corporation to support an increasing level of private sector participation in large infrastructure projects. The Pangue project will add substantially to the existing power generation capacity of Chile in a sustainable and environmentally responsible manner.
