Mexico’s Development Banks Fuel the Fossil Energy Trade

Demonstrators demand clarification of the murder of land rights activist Samir Flores and the shutdown of a thermoelectric plant in the state of Morelos, in central Mexico, in a February 2019 protest on Mexico City's emblematic Paseo Reforma. CREDIT: Emilio Godoy/IPS

Demonstrators demand clarification of the murder of land rights activist Samir Flores and the shutdown of a thermoelectric plant in the state of Morelos, in central Mexico, in a February 2019 protest on Mexico City’s emblematic Paseo Reforma. CREDIT: Emilio Godoy/IPS

By Emilio Godoy
MEXICO CITY, May 20 2020 – Since 2012, Teresa Castellanos has fought the construction of a gas-fired power plant in Huexca, in the central Mexican state of Morelos, adjacent to the country’s capital.

“We don’t want the power plant to operate, because it will cause irreparable damage, polluting the water and air. This project was imposed on us; we have to defend the water and the land. This is not an industrial zone,” the activist, coordinator of the Huexca Resistance Committee, told IPS.

During the tests, the constant noise of the turbines also altered the life of this small community of just over 1,000 people, mostly farmers, near the Cuautla River, within the rural municipality of Yecapixtla.”Development banks must have safeguards and principles for sustainable investment. National regulations are needed, which define climate finance and green finance, what principles govern them, what are the climate risks. The trend should be to increasingly finance green projects and less and less hydrocarbons.” — Liliana Estrada

The Central Combined Cycle Plant, located in Huexca and with a capacity of 620 megawatts based on gas and steam, is part of the Morelos Integral Project (PIM), developed by the state Federal Electricity Commission (CFE). It also consists of an aqueduct and a gas pipeline that crosses the states of Morelos, Puebla and Tlaxcala.

The People’s Front in Defence of Land and Water of Morelos, Puebla and Tlaxcala and its ally, the Permanent Assembly of the People of Morelos, have managed to get several court orders that have blocked the operation of the plant, the 12-km aqueduct and the 171-km gas pipeline since 2015.

Castellanos, who has won an international and a national award for her activism, has been involved in the battle against the plant from the very start, which has earned her persecution and threats.

The opposition to the power plant by local communities that depend on planting corn, beans, squash and tomatoes and raising cattle and pigs, focuses on the lack of consultation, the threat to their agricultural activity, due to the extraction of water from the rivers, and the discharge of liquid waste.

In February 2019, a public consultation that did not meet international standards supported the completion of the project.

A few days earlier, activist Samir Flores had been murdered, a crime that remains unsolved – just one more instance of violence against environmentalists in Mexico. Despite Flores’ murder, the government of leftist President Andrés Manuel López Obrador went ahead with the referendum and upheld the result.

Public funds have fuelled the conflict, as the state-owned National Bank of Public Works and Services (Banobras) lent some 55 million dollars for the pipeline.

As in the case of other projects, development banks have become a financial pillar for the oil industry in Latin America’s second-largest nation, population 130 million.

The National Bank of Foreign Trade (Bancomext), Banobras and Nacional Financiera (Nafin) have funneled millions of dollars into building pipelines and oil and gas facilities in recent years, even though the climate change crisis makes it necessary to abandon such investments.

They have also financed renewable energy projects, but in much smaller amounts than fossil fuels.

The construction and operation of the Central Combined Cycle Plant, of the state Federal Electricity Commission, financed with public funds, unleashed a conflict with residents of Huexca, a small community in the central Mexican state of Morelos, which has brought the operation of the thermoelectric plant to a halt. CREDIT: Emilio Godoy/IPS

The construction and operation of the Central Combined Cycle Plant, of the state Federal Electricity Commission, financed with public funds, unleashed a conflict with residents of Huexca, a small community in the central Mexican state of Morelos, which has brought the operation of the thermoelectric plant to a halt. CREDIT: Emilio Godoy/IPS

Energy reform pillar

The energy reform that then conservative president Enrique Peña Nieto (2012-2018) enacted in 2013 opened the sector to private capital, broke the monopoly of the state-owned Petroleos Mexicanos (Pemex) oil giant and CFE, and made Mexico an attractive market for international investment in the sector.

To support this transformation, the state development banks also opened their coffers.´

Since 2012, Banobras, which finances infrastructure and public works and services, has lent at least 721 million dollars for the construction of gas pipelines, 10.2 billion dollars for oil and gas projects, 251 million dollars for electrical cogeneration, from steam generated in hydrocarbon plants, and eight million dollars for the construction of a thermoelectric plant that will burn fuel oil in the northwestern state of Baja California Sur.

Bancomext, which provides financing to exporters, importers and nine strategic sectors, has delivered some 500,000 dollars to oil companies in the eastern state of Tamaulipas and another 446 million dollars in Mexico City. It has also provided 65.4 million dollars to gas initiatives in the northern state of Nuevo Leon and 626.7 million dollars in Mexico City.

In addition, it has contributed 1.5 billion dollars for the supply of gas through pipelines to the final consumer; 324 million dollars for the extraction of oil and gas; 216 million dollars for the construction of public works for oil and gas; 126 million dollars for the manufacture of products derived from oil and coal; nearly seven million dollars for oil refining; 0.65 million dollars for the commercialisation of fuels; 0.25 million dollars for the drilling and maintenance of hydrocarbon wells; as well as 0.25 million dollars for oil platform maintenance and services.

In February, Bancomext granted a loan of 7.1 million dollars to Grupo Diarqco, in what it presented as the first credit to a private Mexican company in the industry, to exploit an oil field in the southeastern state of Tabasco.

Nafin, which grants credits and guarantees to public and private projects, created in 2014 the Energy Impulse Programme for these initiatives, endowed with more than a billion dollars.

It also manages, along with the economy ministry, the Public Trust to Promote the Development of Energy Industry National Suppliers and Contractors, designed for the industrial promotion of local production chains and direct investment in the energy industry, which this year has a fund of some 41 million dollars.

Missing: social and environmental safeguards

As in the case of the Morelos Integral Project, the gas pipelines have been a source of conflict with local communities, arising from the lack of socio-environmental safeguards and standards to guarantee that a project and its financing will respect the human rights of potentially affected communities.

Nafin and Banobras lack such safeguards, while Bacomext has had an “Environmental and Social Risk Management System Guide” since 2017, with no evidence of whether and how it has been applied to energy projects financed since then.

Since 2003, three platforms of international standards have emerged, to which Mexico’s development banks have not adhered, on human rights; social and environmental assessments and impacts; the application of safeguards; stakeholder participation; complaint resolution; and transparency.

The planet needs 80 percent of the global hydrocarbon reserves to stay underground in order for the temperature increase to remain at 1.5 degrees Celsius, as set out in the Paris Agreement on climate change.

The treaty, signed by 196 countries and territories in 2015, will enter into force at year-end and is considered indispensable to avoid irreversible climate disasters and human catastrophes.

Liliana Estrada, a researcher with the Climate Finance Group of Latin America and the Caribbean, told IPS that most investment in energy still goes to fossil fuels.

“After the reform, they have to enter into strategic projects and follow the guidelines of the government; they cannot go against these strategic lines. The gas and gas pipelines became strategic,” with the boost to the megaprojects of the López Obrador administration, said the representative of this coalition of non-governmental organisations and academics.

These credits are part of the fossil fuel subsidies that Mexico has pledged, to several international bodies, to eliminate.

The Mexican energy industry has also attracted international private banks, which have lent 55.95 billion dollars to 12 corporations, according to “Banking on Climate Change: Fossil Fuel Finance Report 2020”, released in March by six international environmental organisations.

The CFE received some 5.4 billion dollars from 12 banks between 2016 and 2019, and Pemex received 48.3 billion dollars from 20 foreign banks.

Based on Huexca’s experience, Castellanos demanded that these investments be stopped.

“If it’s our company, as the government says, then we can close it down. We have to defend the space in which we live, because we only have one planet and it belongs to all of us, it belongs to every living being, and it is our obligation to contribute something to this planet, because we are only here for a short while, we are guests of the earth”, she said.

Estrada called for sustainable financing regulations and questioned the lack of government leadership in this regard.

“Development banks must have safeguards and principles for sustainable investment,” she said. “National regulations are needed, which define climate finance and green finance, what principles govern them, what are the climate risks. The trend should be to increasingly finance green projects and less and less hydrocarbons.”

To Restore Forests, First Start With a Seed

Emmanuel Nsabimana, a casual labourer at the National Tree Seed Centre, in Huye, in Rwanda’s Southern Province, has worked planting trees for over 40 years. He believes there has been considerable improvements in the seed quality from the centre since the International Union for Conservation of Nature (IUCN) became one of the contributors to its restoration. Credit: Emmanuel Hitimana/IPS

Emmanuel Nsabimana, a casual labourer at the National Tree Seed Centre, in Huye, in Rwanda’s Southern Province, has worked planting trees for over 40 years. He believes there has been considerable improvements in the seed quality from the centre since the International Union for Conservation of Nature (IUCN) became one of the contributors to its restoration. Credit: Emmanuel Hitimana/IPS

By Emmanuel Hitimana
HUYE, Rwanda, May 20 2020 – In 2011, when Rwanda committed to restoring 2 million hectares of land in a global effort to restore 150 million hectares of degraded and deforested areas by 2020 — it seemed like a big ask. 

The densely populated and geographically small African nation had many limitations which could stand in the way of this as well as a commitment to achieving forest cover increase of up to 30 percent of total land area by 2030 as part of the Bonn Challenge.

Aside from limited land availability — Rwanda’s land area only encompasses 2.4 million hectares or 24,000 square kilometres — the country’s terrain did little to support the efforts. The country’s topography includes steep slopes, and it is the country with the highest mean soil erosion rate, according to the Food and Agriculture Organisation of the United Nations (FAO).

There were other factors too:

But by 2018, Rwanda, along with South Korea, Costa Rica, Pakistan and China, was considered one of the lead countries in the world with its successful restoration programme.

How did the country manage to restore more than 800,000 hectares — almost half of its original pledge — in less than a decade? 

Part of the answer lies in the restructuring and strengthening of the country’s National Tree Seed Centre, located in Huye, in Rwanda’s Southern Province, some 133 kilometres from the country’s capital.

The centre is tasked with centralising the supply of tree seeds across the country, including establishing new seed sources, improving trees with growth deficiencies, and collecting and certifying seed.

Until 2014, the Rwanda Agriculture and Animal Resources Development Board (RAB) managed the centre. But farmers complained that they were unable to grow plants from almost 90 percent of the seeds from the centre.

Emmanuel Nsabimana, a casual labourer at the National Tree Seed Centre, has worked planting trees around Huye for over 40 years.

He remembers the attitude of local farmers and communities.

“Farmers were always bitter towards the centre because they thought that it was incapable of providing them with adequate seeds,” he recalls.

“Many would return the seeds.”

But in 2014 the centre shifted from RAB to become a unit of the Rwanda Forestry Agency. In 2016, the International Union for Conservation of Nature (IUCN) — one of the founders and Secretariat of the Bonn Challenge, along with the German Government — stepped in to become one of the most significant contributors to the restoration of Rwanda’s National Tree Seed Centre.   

IUCN also partnered with the Rwandan Government, the Belgian Development Agency (ENABEL) and the University of Rwanda (UR) to strengthen the centre.

IUCN supported capacity building, including the training of staff, providing equipment to the centre, upgrading and developing infrastructure like greenhouses, maintenance of the seed stands where seeds are collected form, and rehabilitation of seed store where seeds are kept before they are distributed, Jean Pierre Maniriho, Forest Landscape Restoration Officer at IUCN, tells IPS.

“Before partners came in, many things were not going well. For example, we did not have a cold room, which was bad for seeds. We were only two staff, and the stock was also old. But we have steadily improved until now,” Floribert Manayabagabo, the production officer at the National Tree Seed Centre, says. His job is to make sure the seeds harvested at the centre are ready for market.

Manayabagabo thinks that the centre’s success story is thanks to a combination of great partnerships that ensured the centre now has good infrastructure that includes nurseries, a laboratory, a modern cold room and five full-time staff.

Maniriho says seed quality and quantity are essential to ensure sustainability and to meet demand.

Currently, 30 percent of the seeds come from the nearby 90-year-old, 200-hectare Arboretum of Ruhande, which surrounds the University of Rwanda.

The seeds from the arboretum include 207 exotic and indigenous species, explains Emmanuel Niyigena, a field officer at the centre. 

The remaining 70 percent come from the outside of the centre, with a significant amount of seeds sourced from nine agro forestry-related cooperatives within Rwanda, and the remaining seed being imported from Kenya.

One of many nurseries at Rwanda’s National Tree Seed Centre. The centre is tasked with centralising the supply of tree seeds across the country, including establishing new seed sources, improving trees with growth deficiencies, and collecting and certifying seed. Credit: Emmanuel Hitimana/IPS

One of many nurseries at Rwanda’s National Tree Seed Centre. The centre is tasked with centralising the supply of tree seeds across the country, including establishing new seed sources, improving trees with growth deficiencies, and collecting and certifying seed. Credit: Emmanuel Hitimana/IPS

It’s Eric Kazubwenge’s job to make sure that the seeds from the centre never disappoint. He is in charge of seed inspection and regulation at the centre.

“We normally do a physical inspection to make sure that they are not damaged. Then we proceed with laboratory testing before we conduct other testing in the nursery where seeds are conserved to make sure they will not resist soil plantation.”

He adds that multiple tests are continually carried out to ascertain how long a seed can grow in a nursery or how much moisture they need to survive.

Kazubwenge learnt many of these skills in Kenya, where he was trained through an IUCN partnership.

While Kazubwenge’s training was highly technical, members of cooperatives involved in seed supply chain also received training.

Kazubwenge tells IPS that previously it was very difficult for the cooperatives to supply to the centre the good seeds as they couldn’t distinguish good from bad quality seeds. The Tree Seed Centre was also unable to test and prove the quality of seeds due to lack of equipment (seed laboratory was not well equipped). This combination of limitations meant only a handful of seeds provided to the forest growers before 2014 had been fruitful.

“Our stock is (now) full of good seeds in terms of quality and quantity, thanks to cooperatives that were trained in seed collection and selection through IUCN partnership,” Janviere Muhayimana, who is in charge of the seed stock, tells IPS.

The centre also ensures farmers and the community are given the necessary information about the planting of the improved seeds.

Nsabimana concurs: “There are no more complaints (from farmers) as the seeds respond well to the soil.”

The researchers are optimistic about the future.

Kazubwenge’s vision for the centre’s future involves advanced technologies that will allow him to “carry out genetic assessment and analysis because it gives us deep knowledge about the compatibility of seeds according to their origins”.

Maniriho sees Rwanda on a good path to become a regional seed hub.

“Deforestation is a global challenge. What we have in Rwanda is what exactly is happening in Burundi or Malawi. We are importing seeds from Kenya today, but tomorrow others may be importing from us. We can make those connections that can encourage and strengthen the reciprocal partnership in seed supply and keep us from sending money overseas to only import seeds that we are sometimes capable of producing.”

Rwanda’s successful steps towards meeting its reforestation pledge proves a powerful example of how nature conservation can support livelihoods ahead of the IUCN World Conservation Congress, which will be held in France in January 2021. Held every four years, the Congress is a meeting of conservation experts and custodians, government and business representatives, indigenous peoples, scientists, as well as other professional stakeholders, who have an interest in nature and the sustainable and just use of natural resources. One of the major issues addressed will be the managing of landscapes for nature and people.

** Writing with Nalisha Adams in Bonn.