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Cost of Ghana’s Aluminium projects will outweigh the potential benefits- Duke University report warns

A US-based Duke University report is sending a warning signal to the government of Ghana that, the cost of the proposed aluminum industry projects linked to the Sinohydro agreement would outweigh the potential benefits.

According to the report by the Nicholas Institute for Environmental Policy Solutions at Duke University, Ghana’s environmental assessment laws are not adequately tailored to address risks, and the government has not facilitated comprehensive transparency concerning the planned aluminum industry projects and the Sinohydro agreement.

“To collateralize the loans, Ghana also agreed to establish an offshore escrow account that is to be Ghana’s sole account for receiving revenues generated from the sale of refined bauxite. So far, US$646 million of the loan funds have been approved for disbursement. “If Ghana fails to comply with its collateral or repayment obligations, Sinohydro is entitled to prepayment of outstanding loan balances and may seize the full balance of the escrow account,” the report said

The report said, although infrastructure projects are moving forward, Ghana’s domestic aluminum industry does not generate sufficient revenues to satisfy its loan repayment and collateral obligations.

“To overcome this hurdle, Ghana has created a state-owned enterprise known as the Ghana Integrated Aluminum Development Corporation (GIADEC) and given it a mandate to implement a plan to develop aluminum industry projects and related infrastructure (the Integrated Aluminum Industry Plan). GIADEC plans to establish up to three new bauxite mines, three new alumina refineries, and one new aluminum smelter, and will hold a minimum 30 percent interest in new aluminum industry projects alongside private investors.

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The report noted that, due to the potential legal and fiscal implications of defaulting on the Sinohydro agreement infrastructure loans, President Akufo Addo appears in favor of quickly developing the aluminum industry projects, which undermines the ability to properly perform environmental assessments and implement risk avoidance measures. “This is all unfolding despite President Nana Akufo-Addo and GIADEC’s purported commitments to implementing the Integrated Aluminum Industry Plan in a manner consistent with international standards and sustainability principles”, it said.

It further revealed that, although Ghana has one of the most comprehensive legal frameworks for environmental assessment in Africa, its laws have certain weaknesses that undermine their ability to safeguard against high-risk projects and projects deemed unacceptable by impacted communities.

“Internationally accepted best practices dictate that, the Government of Ghana should have performed a strategic environmental assessment at the conceptual stages of the Integrated Aluminum Industry Plan and before the Government pledged to rely on revenues from its domestic aluminum industry to satisfy its infrastructure loan obligations, but Ghana has not performed one. This can be partly attributed to ambiguous provisions of Ghana’s environmental assessment laws that do not clearly state whether strategic environmental impact assessment is required for government sectoral plans and that fail to establish procedures for performing strategic environmental assessment”, it added.

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Foothills of the Atewa forest range. Image by Ahtziri Gonzalez/CIFOR via Flickr (CC BY-NC-ND 2.0)

Environmental Pollution and Human Health Impact

The main contention with environmentalists is however the plan to permit bauxite mining in Atewa Forest – a biodiverse forest preserve – the main source of three major rivers that provide water for five million people. Three global manufacturing companies – BMW Group, Tetra Pak and Schüco International – recently said they would not source bauxite from Ghana’s Atewa Forest due to the environmental risks associated with mining the forest.

“By calling out the risky nature of mining bauxite in the Atewa Forest, BMW Group, Tetra Park and Schüco International have certainly put the business community on notice and at the minimum their peer firms are likely to proceed with caution when sourcing bauxite from Ghana in the future,” said Terrence Neal, a natural resources governance researcher and author of the report.

The report noted that, the aluminum industry projects would likely contribute to deforestation and biodiversity loss across Ghana, which presently has one of the highest rates of deforestation in Africa. According to the World Resource Institute, Ghana experienced the “highest percent rise in primary forest loss between 2017 and 2018 of any tropical country.

“Of the aluminum industry projects, bauxite mining poses the greatest threat. Mining companies generally extract bauxite using open pit or strip-mining methods, which involves removing topsoil and everything above it (e.g., trees and plants) to excavate the underlying bauxite. The amount of forest habitat disturbed at any given mining site can be substantial because bauxite mines are often large, even in relation to mines for other types minerals”, it said.

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“When considering deforestation, it also important to weigh the loss of ecosystem services. Two of Ghana’s bauxite deposits lie under the Tano-Offin Forest Reserve and the Atewa Forest Reserve, which contain Ghana’s last remaining tracts of biodiversity-rich upland evergreen forest. The canopies of these forests intercept moisture from clouds, facilitating the transfer of water from the atmosphere to small creeks that feed into larger streams and rivers that provide water for human consumption and crop irrigation. The forests also filter water and thus can greatly reduce municipalities’ water filtration/purification costs. These ecosystem services would be lost or greatly impaired, if the forests are wiped out or become heavily fragmented or degraded”, the study added.

The study therefore recommended that, Parliament enact new environmental assessment legislation or EPA should promulgate new regulations that explicitly require government ministries, agencies, and state-owned enterprises to undertake strategic environmental assessments when formulating industry or sectoral policies, plans, and programs, adding, Ghana could leverage the expertise and resources of international institutions, such as the African Development Bank, to support the reform of its environmental assessment laws.