Agua Zarca

Several banks and organizations were involved in the financing of this project. The 21.3MW hydropower station was co-financed by Finnish development finance institution, Finnfund, and the Central American development bank, CABEI. The latter was the lead lender. FMO took a more prominent role as it took over the agent function of CABEI in April 2015. FMO was responsible for the finance structure. Structured finance in development banking is highly specialized work. As with every FMO project, a supervision and payment structure was tailored for Agua Zarca. In addition, regular site visits before and throughout the project checked that the plant was being built in line with the technical and Environmental, Social and Governance (ESG) requirements.

Before investing in Agua Zarca, FMO carried out due diligence as part of our standard investment process (Responsible Investment | Dutch Development Bank – FMO). 

FMO signed a credit agreement with DESA in 2014, including ESG requirements, which were then monitored closely from the start of the project. A range of environmental and technical studies (amongst others) were also completed beforehand. In the end, it was a full three years after the Agua Zarca project first came under the consideration of FMO that we signed the credit agreement.

When financing a project, FMO wants to ensure our customer addresses the needs and concerns of the local communities. In the case of Agua Zarca, for example, there was a consultation process with local communities impacted by the project. In response to their concerns, the project was relocated upstream and across the river, and the design changed from an on-river dam to a run-of-the-river weir in a naturally occurring water catchment area. This meant local communities maintained the same river access as before and the impact of construction activities on those communities was minimized.

Once the project began, FMO monitored the progress and potential issues through site visits and external checks; these were conducted by independent experts as well as FMO. This included regular monitoring by SERNA, a Honduran government agency, to ensure compliance with all environmental license conditions. FMO received monthly construction and financial monitoring reports.

The ongoing consultation process with the nine local communities also revealed opposition to the project, in particular from one community, La Tejera. Supported by COPINH (an environmental and indigenous rights NGO in Honduras), they criticized, amongst others, what they saw as DESA’s lack of engagement with communities.

The other eight communities seemed to be satisfied with the consultation process. They welcomed the project’s benefits from jobs, income flows into the local economy, and the various social projects to provide drinking water, electricity, improved roads and small-scale economic activities. When later the project was stalled, many voiced their worries about losing these benefits.

On 3 March 2016, Berta Cáceres, co-founder of COPINH and human rights activist, leading opponent of the Agua Zarca project, was assassinated. FMO was shocked by this horrific news. Now, as then, our hearts go out to her family and all who were close to her. 

Seven people were arrested for the murder. In November 2018, these individuals were found guilty of the murder of Cáceres. Their sentences were set on December 2, 2019. 

In July 2021, DESA CEO, David Castillo, was convicted of involvement in the murder of Berta Cáceres, three years after his arrest. We were and remain profoundly shaken by this news, as it goes against everything FMO stands for and sets out to accomplish. His conviction further underlines that in 2016 we had made the only right decision to end our involvement in the project as soon as possible. On 20th June 2022, the judge passed David Castillo's sentence of 22.5 years in prison.

The right of speech for those who stand for their rights and livelihoods of people is of very high value to FMO. FMO rejects and condemns any violence against those individuals and groups. The death of Berta Cáceres in 2016 marks a dark page in our 50+ years of history; if we had known then what we know today, we would have made different choices.

After we decided to exit the project and end our relationship with DESA, FMO and Finnfund held extensive consultations with many local and international stakeholders. In particular, we commissioned an independent fact-finding mission (pdf English | pdf Spanish ) and hired a separate independent facilitator to make recommendations in the light of the mission’s findings.

From the consultation process, reports and recommendations, it was clear FMO’s exit was a prerequisite to the dialogue amongst local communities and stakeholders that would be needed for them to decide how to move forward. We therefore felt FMO’s primary exit focus should be on helping reduce international and local tensions around the project. Hence, building on the experts’ findings and recommendations, we developed an exit strategy with three main goals:

• Help avoid additional escalation of disputes in the area and internationally.
• Meet some of the development needs of local communities (whether or not they supported or opposed the project).
• Respect our contractual obligations.

 The exit process was completed in July 2017.

Since the exit we improved amongst others our ESG policies, specifically on human rights, human rights defenders and indigenous as well as culturally diverse communities. These measures include:

• Mandatory human rights training for every single employee at FMO.
• Advanced human rights training for all our ESG staff.
• Strengthened measures to perform Free, Prior and Informed Consent (FPIC) for all projects with impact on indigenous peoples. For investments that do not have impact on indigenous peoples, broad community support verification applies.

For more information about improvements click here. 

In 2018 legal action was started against FMO for its involvement in the Agua Zarca project. The complainants are three children of Berta Cáceres, two members of communities near the Agua Zarca project and COPINH. As a group they are referred to as ‘COPINH et al’ in legal documents.

The claim that COPINH et al have put forward is that FMO violated its duty of care and has actively contributed to human rights violations. COPINH et al and FMO decided to start a settlement procedure to find common ground and a way forward that is mutually acceptable to all parties. This process is still ongoing.

For more background information, please follow the link to the news items, the management responses (pdf English | pdf Spanish) and FAQs, we published at the time of events.