Malaysian leader lures investors with promise of ‘responsible’ dams

Five years ago, Sarawak’s ruler Mr. Abdul Taib Mahmud announced that he will “transform Sarawak into a developed state” by building 12 large dams in the state’s remote, tropical forests. He argues that the dams will produce an abundance of cheap electricity, which will attract heavy industry and create jobs. Reuters has called Taib’s scheme “staggeringly ambitious,” especially since the dams will produce 450 per cent more electricity than Sarawak currently needs.

Mr. Taib’s scheme has caught the attention of the world’s leading hydropower companies. On May 20 to 25, Sarawak hosted the industry’s world congress, which is organized every few years by the International Hydropower Association (IHA). The IHA’s mission is to demonstrate that large dams—which are often a source of controversy—can be built in an environmentally and socially responsible way. The IHA is now promoting Sarawak as an example of responsible dam-building that brings profit as well as local development.

Sarawak has a dark history of dam building, having completed the disastrous Bakun Dam in 2011 after five decades of delays. The project is widely criticized for displacing 10,000 indigenous people and leaving them in impoverished conditions, while much of its electricity remains unused.

However, Mr. Taib says his government has learned lessons from the Bakun Dam and is committed to do a better job on the next 12 dams. IHA is advising the Sarawak government and will showcase its efforts at next week’s congress. The Sarawak government will also use the opportunity to reach out to potential investors.

Doing business in Sarawak requires buying the favor of Mr. Taib, who has ruled Sarawak since 1981. Corruption is well documented by Global Witness. The government carefully controls the information that reaches the public, and journalists are forbidden from publically scrutinizing Mr. Taib due to the threat of losing their job. This creates serious risks for investors who want to steer clear of corruption and human rights abuses.

The IHA has helped the Sarawak government to make modest improvements in its dams. Yet this has not been enough. To date, IHA’s efforts have been largely cosmetic and do not address the real challenges of investing in Mr. Taib’s dams.

Taib’s personal control over the dams

The developer and public face of the Sarawak dams, Sarawak Energy, is trying desperately to portray itself as an independent company that operates according to international standards. In fact, the company is 100% owned by the government and is directly accountable to Mr. Taib. Mr. Taib was actively involved in selecting the company’s current CEO, and a majority of the board members previously served as Mr. Taib’s political appointees.

The chairman of the board is Mr. Taib’s cousin and one of his closest business partners. Sarawak Energy is the main implementer of Mr. Taib’s rapid development scheme, which he calls the Sarawak Corridor of Renewable Energy (SCORE). Because of these close connections, it should come as no surprise that Sarawak Energy has started providing key SCORE contracts to companies owned by Mr. Taib’s family.

This also means that the Sarawak dams are not constrained by the law. The IHA’s first project in Sarawak, the Murum Dam, is a prime example. Affected communities did not even learn about the Murum Dam until after construction started. Construction began before an environmental and social impact assessment was conducted. The impact assessment still has not been made available to the public or affected communities, although the project is nearly operational. Despite these violations of Sarawak law, the government has made no efforts to bring the project back into compliance. The IHA continues to uphold the project as a model for the industry to follow.

Corruption as a way of doing business in Sarawak

During his 30 years in power, Mr. Taib has allegedly used his position to become one of Southeast Asia’s wealthiest men according to the Bruno Manser Fonds. His family is believed to control most of the Sarawak economy and has a controlling ownership stake in many of the local companies involved in the dams and SCORE initiative, including Sarawak’s largest construction company and cement monopoly Cahya Mata Sarawak. Mr. Taib has also allegedly used his power to distribute Sarawak lands and forests to his family members and friends, often to be exploited for timber and palm oil.

In 2012, the Malaysia Anti-Corruption Commission began investigating Mr. Taib and Sarawak Energy’s CEO. Swiss lawmakers have taken steps to freeze Mr. Taib’s assets, and the U.S. government has noted that Mr. Taib is “highly corrupt.” In March 2013, Global Witness released a video of an undercover investigation that recorded members of Taib’s family admitting to various corrupt practices. During the recent Malaysian national elections, investigative journalists at the Sarawak Report documented hundreds of cases of bribery inside Sarawak by Mr. Taib’s colleagues. However, Mr. Taib is largely untouchable due to his strong political ties to Malaysia’s ruling party, which itself has been in power for 56 years.

The IHA has not found a way to address these corruption issues. In 2012, Australian company HydroTasmania - one of the most active IHA members and the main author of the IHA’s flagship “Hydropower Sustainability Assessment Protocol” - came under scrutiny for its role in the Sarawak dams.

In an interview on ABC Radio Australia, HydroTasmania’s CEO Roy Adair admitted that the company did not conduct any anti-corruption auditing before agreeing to work with the Sarawak government, nor did it conduct any human rights due diligence. Rather, Mr. Adair assumed there was no corruption because Sarawak Energy was a member of the IHA. Eventually, HydroTasmania was forced to announce that it would withdraw from the Sarawak dams by the end of 2013.

Long legacy of human rights violations

Over 40 indigenous groups, comprising tens of thousands of people, have lived in Sarawak’s forests for generations. Since Mr. Taib came to power, these communities have found their traditional lands taken and sold, often without their knowledge. Only 5 percent of Sarawak’s primary forests remain, much of the rest having been logged and converted to palm oil plantations. This rapid deforestation has already placed great stress on indigenous communities, who have been displaced and have lost access to many of the natural resources that they depend on.

Discrimination against indigenous peoples is pervasive. Mr. Taib’s government does not fully recognize indigenous people’s claims to their traditional lands. Many Malaysian court rulings in favor of indigenous rights are not upheld in Sarawak. Thousands of indigenous people are unable to obtain the state identity cards that allow them to gain employment and access public services.

Local activists report that the government has threatened to withhold welfare services from indigenous communities if they do not support government initiatives, including the dams. In many communities, Mr. Taib has allegedly ok gone as far as appointing village headmen, undermining traditional structures and leaving many communities without leaders to represent their interests at the state level. With such deeply embedded problems, companies that invest in the Sarawak dams face a huge risk of becoming involved in human rights violations against Sarawak’s indigenous peoples.

IHA’s involvement in Sarawak has only helped to cover up these violations. In 2012, indigenous people blockaded the Murum Dam construction site for over one month after receiving a leaked copy of the resettlement plan. The communities considered the government’s compensation to be unfair. Sarawak Energy now claims that people’s concerns have been resolved, but in fact the affected communities have been forced to negotiate the terms of their resettlement without having access to information about the dam’s impacts and without having independent legal and technical support.

Instead, Sarawak Energy appointed a committee of hand-selected community members to represent the interests of Murum Dam-affected people, which the company closely oversees. IHA has invited representatives of the Sarawak Energy-appointed committee to next week’s congress to praise Sarawak Energy’s efforts and provide a “community perspective.”

The Sarawak government has made no efforts to strengthen indigenous communities’ rights to land before seizing it for the dams. The next dam scheduled to begin construction, the Baram Dam, will displace up to 20,000 indigenous people and flood an area of 388 square kilometers. Unless reforms are made, the risk of conflict remains high.

By gaining the IHA’s support, Mr. Taib has succeeded in giving many investors the impression that the Sarawak dams are being developed in a responsible way. In reality, enormous challenges exist that the IHA has proved unable to manage. Companies that invest in the Sarawak dams are still exposed to the risk of becoming embroiled in corruption scandals, human rights violations, and conflict. Unfortunately, for some investors, this is not a deterrent.