In recent years China has become the world’s leading dam builder. China not only builds the biggest number of hydropower projects within its borders, but Chinese companies have also begun to dominate the world market. Sinohydro, a state-owned enterprise, claims to control 50 per cent of the world’s hydropower market. The state’s Export-Import Bank of China (China Eximbank) has become the most important financier of such projects, including in Africa.

In the early years of the new century, Chinese dam builders and financiers took on overseas projects which no other dam builders would touch because of their social and environmental impacts, such as the Merowe Dam in Sudan. Recently the major actors have begun to carry out environmental reforms; China Eximbank strengthened its environmental guideline in 2007 and Sinohydro is preparing an environmental policy.

Smaller Chinese dam builders have also entered the global market. And the government is urging Chinese exporters to rely less on support from government financiers and more on commercial banks in their overseas projects. Will the new overseas dam builders and financiers follow the environmental reforms of China’s leading actors, or will they damage the country’s international image by taking on more destructive projects? The Gibe III Hydroelectric Dam in Ethiopia is now putting this question to the test.

The Gibe III dam on the Omo River is Ethiopia’s biggest infrastructure investment and one of the most destructive hydropower projects in recent years. By stopping the Omo River’s natural flood cycle and reducing the flow of water into Lake Turkana, it will negatively affect fragile ecosystems and 500,000 desperately poor people in southern Ethiopia and northern Kenya.

Parts of the lower Omo River valley and Lake Turkana – the world’s largest desert lake – have been recognized as UNESCO World Heritage Sites for their unique ecological and cultural heritage. Water scarcity is already fuelling deadly resource conflicts between Ethiopian and Kenyan tribes in the region. The Gibe III dam would aggravate these conflicts.

The World Bank, the African Development Bank and the European Investment Bank have studied the Gibe III dam for years but have so far not committed any support for the project. On 13 May the Ethiopian government announced that China’s Dongfang Electric Corporation would provide the turbines for the controversial project and the Industrial and Commercial Bank of China Limited (ICBC) would fund the deal with a loan of approximately $400 million. This creates the impression that new Chinese dam builders and financiers do not care for the social and environmental impacts of their projects.

While Sinohydro wants to become a leading global brand and is careful to protect its reputation, the smaller Dongfang Electric Corporation may simply not care about its international image. ICBC, however, is China’s top international bank and has become the world’s largest bank. ICBC has expressed a strong commitment to China’s Green Credit Policy and is developing a range of environment-friendly financial products. The bank won 131 banking awards in 2008 alone, including for its corporate social responsibility efforts. ICBC’s ill-considered support for a destructive dam in Ethiopia will leave a big stain on this reputation.

Is ICBC not aware of the controversy around the Gibe III dam? Has the bank not considered the impact that support for an international symbol of environmental destruction will have on its image? In a joint letter, Friends of Lake Turkana, International Rivers and the global BankTrack network have called on ICBC’s chairman to reconsider lending for the Gibe III dam before it is too late. If ICBC allows the project to be completed, it will do lasting damage not only to the environment and affected people, but also to its own reputation.

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* Peter Bosshard is a policy director at International Rivers.
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