Ghana’s bauxite for infrastructure deal with China’s Sinohydro faces environmental concerns

Facing a severe infrastructure financing gap estimated at US$30 billion, Ghana two years ago turned to China to help it fund the building of roads, highways and power dams.

The West African nation signed a bauxite-for-infrastructure deal with Chinese state-owned firm Sinohydro Corp in 2018 that would allow the Chinese company to invest about US$2 billion in Ghana’s infrastructure.

In exchange, Ghana would use money earned from the sale of bauxite (the primary ore used to make aluminium), refined bauxite and aluminium to repay the loans. As collateral, Ghana agreed to establish an offshore escrow account for receiving revenues generated from the sale of bauxite.

But the project has drawn fire from conservationists and researchers who warn that mining in the country’s key forests would pose significant environmental and social risks.

Aerial view of the Awaso bauxite mine in Ghana in 2019. Photo: Thomas Cristofoletti/Ruom

A Duke University report warned that the cost of implementing the proposed aluminium industry projects linked to the Sinohydro agreement would outweigh the potential benefits.

“Ghana’s environmental assessment laws are not adequately tailored to address these risks, and the government, thus far, has not facilitated comprehensive transparency concerning planned aluminium industry projects and the Sinohydro agreement,” said the report by the university’s Nicholas Institute for Environmental Policy Solutions.

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.

However, Ghana’s domestic aluminium industry does not generate sufficient revenues to satisfy its loan repayment and collateral obligations.

To overcome this, Ghana created a state-owned enterprise known as the Ghana Integrated Aluminium Development Corporation to develop aluminium industry projects and related infrastructure.

The corporation plans to establish up to three new bauxite mines, three new alumina refineries, one new aluminium smelter and will hold a minimum of 30 per cent interest in new aluminium industry projects alongside private investors.

A woman walks past a Chinese construction site for a new flyover in Accra in 2019. Photo: Thomas Cristofoletti/Ruom

The main contention with environmentalists is 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.

European companies were increasingly facing pressure from regulators, investors, and the public to address environmental and human rights risks throughout their supply chains, Neal said, but environmental risks were less likely to deter Chinese manufacturers from sourcing bauxite and alumina from the Atewa Forest.

Neal said studies had shown that Chinese extractive companies often had less experience and less developed internal structures for engaging with local communities and other stakeholders than their Western counterparts.

When developing and operating overseas projects, Chinese investors and firms often placed less importance on voluntary environmental and social standards, he said.

“This is not to say, however, that China-Africa resource-financed infrastructure agreements per se cannot be leveraged in a manner that comports with sustainable development objectives,” he said.