Overseas Private Investment Corporation: Environmental Review Procedures

Overseas Private Investment Corporation: Environmental Review Procedures

Order Code RS21587
August 11, 2003
CRS Report for Congress
Received through the CRS Web
Overseas Private Investment Corporation:
Environmental Review Procedures
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
Congress requires the Overseas Private Investment Corporation (OPIC) and other
U.S. agencies whose programs have the potential for adversely affecting the
environment abroad, to develop and follow an established set of guidelines to mitigate
the environmental impact of its programs. To comply with this directive, OPIC has
developed a multi-stage process to screen proposed projects to determine if they meet
the Corporation’s environmental standards. OPIC conducts environmental impact
assessments of all applicants for its programs and is directed by Congress to protect the
environment and natural resources of developing countries. In particular, Congress has
directed OPIC to protect tropical forests, endangered species, and national parks. This
report will updated as warranted by events.
Background
The Overseas Private Investment Corporation (OPIC)1 was established in 1969 and
began operations in 1971 as an independent U.S. government agency charged with
providing project financing, investment insurance, and other services for U.S. businesses
investing in developing nations.2 At the time OPIC was established, Congress was
conducting an overall review of U.S. aid programs, especially large infrastructure
projects, and was exploring alternative ways to assist developing countries. In his first
message to Congress on aid, President Nixon recommended the creation of OPIC to
assume the investment guaranty and promotion functions that were being conducted by
the Agency for International Development (AID). President Nixon also directed that
1 For additional information, see OPIC’s Internet address [http://www.opic.gov/].
2 Foreign Assistance Act of 1961 (P.L. 87-195); Executive Order No. 11579, January 19, 1971,
36 F.R. 969, as amended.
Congressional Research Service ˜ The Library of Congress

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OPIC would provide “businesslike management of investment incentives” to contribute
to the economic and social progress of developing nations.3
In creating OPIC, the Nixon Administration indicated that it was not attempting to
end official U.S. foreign assistance. Instead, the administration mentioned that, “private
capital and technical assistance cannot substitute for government assistance programs,”
but the combination can provide, “official aid on the one hand, and private investment and
technical assistance on the other.” Private investment activities, however, were meant to
complement the official assistance programs and, thereby, multiply the benefits of both.
In addition, market-oriented private investment was viewed as an antidote to the
government-oriented aid projects that were viewed by some as costly and inefficient.
OPIC was created as a first step in the eventual overhaul of the entire U.S. aid program.
In 1973, this overhaul was completed as the United States largely abandoned
infrastructure building and other large capital projects in favor of humanitarian aid to
meet basic human needs.
OPIC’s Environmental Mandate
Congress has adopted various measures that require OPIC, and other government
agencies whose operations have an effect beyond U.S. borders, to take into account the
impact their programs may have on the environment of developing countries. These
measures include:
In 1972, through P.L. 92-226, which is codified in 22 USC 2199(g) and was
amended extensively in 1985 through P.L. 99-204, Congress required OPIC to conduct
environmental impact assessments:
The requirements of section 2151p(c) of this title relating to environmental impact
statements and environmental assessments shall apply to any investment which the
Corporation insures, reinsures, guarantees, or finances under this subpart in
connection with a project in a country.
(h) Preparation, maintenance, and contents of development impact profile for
investment projects; development of criteria for evaluating projects. In order to
carry out the policy set forth in paragraph (1) of the second undesignated paragraph
of section 2191 of this title, the Corporation shall prepare and maintain for each
investment project it insures, finances, or reinsures, a development impact profile
consisting of data appropriate to measure the projected and actual effects of such
project on development. Criteria for evaluating projects shall be developed in
consultation with the Agency for International Development.
In 1985, through P.L. 99-204, Congress amended 22 USC Section 2191 to require:
The Corporation, in determining whether to provide insurance, financing, or reinsurance
for a project, shall especially -
(3) ensure that the project is consistent with the provisions of section 2151p of this
title, section 2151p-1 of this title, and section 2151q of this title [originally designated
as sections 117, 118, and 119; redesignated by the Special Foreign Assistance Act of
3 Public Papers of the Presidents: Richard Nixon. Washington, U.S. Govt. Print. Off., 1969. p.
412.

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1986] relating to the environment and natural resources of, and tropical forests and
endangered species in, developing countries, and consistent with the intent of
regulations issued pursuant to section 2151p of this title, section 2151p-1 of this title,
and section 2151q of this title.
OPIC is subject to three provisions of the Foreign Assistance Act, the first of which
is contained in 22 USC Section 2151p. This provision was adopted in 1979 through P.L.
96-53 in accordance with Ex. Ord. No. 12163, Sept. 29, 1979, 44 F.R. 56673, as
amended. The section provides for protecting the environment and natural resources of
developing countries. It authorizes the President to furnish assistance to developing
countries to assist them in protecting and managing their environment and natural
resources.
The next provision, 22 USC Section 2151p-1, adopted by Congress through P.L. 87-
195, Dec 30, 1969, as amended, provides for protection of tropical forests, by placing a
high priority on “conservation and sustainable management of tropical forests” and to “the
fullest extent feasible” supporting programs and other efforts that carry out this objective.
The final section, 22 USC Section 2151q, was adopted through P.L. 98-164 as the
' International Environment Protection Act of 1983,'' and concerns preserving and
protecting endangered species as another consideration in U.S. programs abroad.
In addition to the provisions of the Foreign Assistance Act, Congress added 22 USC
Section 2191(3)(n) to OPIC’s charter in 1985 through P.L. 99-204. The provision states
that:
[the Corporation, utilizing broad criteria, shall undertake] - to refuse to insure,
reinsure, guarantee, or finance any investment in connection with a project which the
Corporation determines will pose an unreasonable or major environmental, health, or
safety hazard, or will result in the significant degradation of national parks or similar
protected areas.
In 1985, through P.L. 99-204, Congress also added 22 USC Section 2197(m)(1) to
OPIC’s environmental requirements.
Before providing insurance, reinsurance, guarantees, or financing under this subpart
for any environmentally sensitive investment in connection with a project in a
country, the Corporation shall notify appropriate government officials of that country
of -
(A) all guidelines and other standards adopted by the International Bank for
Reconstruction and Development and any other international organization relating to
the public health or safety or the environment which are applicable to the project; and
(B) to the maximum extent practicable, any restriction under any law of the United
States relating to public health or safety or the environment that would apply to the
project if the project were undertaken in the United States. The notification under the
preceding sentence shall include a summary of the guidelines, standards, and
restrictions referred to in subparagraphs (A) and (B), and may include any
environmental impact statement, assessment, review, or study prepared with respect
to the investment pursuant to section 2199(g) of this title.

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In 1999, Congress also directed OPIC through P.L. 106-158, in 22 USC Section
2191a(b), to decline its services if it determines that an activity will have an adverse
environmental impact that is “sensitive, diverse, or unprecedented”:
The Board of Directors of the Corporation shall not vote in favor of any action
proposed to be taken by the Corporation that is likely to have significant adverse
environmental impacts that are sensitive, diverse, or unprecedented, unless for at least
60 days before the date of the vote - (1) an environmental impact assessment or initial
environmental audit, analyzing the environmental impacts of the proposed action and
of alternatives to the proposed action has been completed by the project applicant and
made available to the Board of Directors; and (2) such assessment or audit has been
made available to the public of the United States, locally affected groups in the host
country, and host country nongovernmental organizations.
OPIC is also subject to Executive Order No. 12144 (44FR 1957) entitled
“Environmental Effects Abroad of Major Federal Actions.” The Executive Order requires
federal agencies that take actions that are subject to the Order to implement procedures
that are consistent with the Order. On September 4, 1979, OPIC adopted a series of
procedures to comply with the Executive Order. These procedures are contained in
OPIC’s Environmental Handbook, which is available on the Internet.4
OPIC’s Environmental Procedures
In accordance with the requirement to develop procedures for assessing the
environmental impact of its programs, OPIC has developed a multi-stage process to
screen proposed projects to determine if they meet the Corporation’s environmental
standards. First, OPIC screens the proposed project to determine if it violates any
categorical prohibitions.5 If the project is determined not to fall within one of the
categorical prohibitions, it is subject to an environmental screening to determine the level
of environmental impact that is associated with the industrial sector or site that is
involved.
OPIC’s Environmental Unit assigns a category from A to F to projects that depends
on the level of public disclosure that is required to satisfy OPIC’s environmental
requirements. Category A projects are those that are deemed likely to have “significant
adverse environmental impacts” that are sensitive (irreversible; affect sensitive
ecosystems; or involve involuntary resettlement).6 These projects require a full-scale
4 OPIC’s web address is [http://www.opic.gov/].
5 Projects that would be categorically prohibited for environmental reasons would be:
infrastructure and extractive projects located in primary tropical forests; projects involving the
construction of “large dams” that “significantly and irreversibly” affect the environment; projects
that involve the commercial manufacturing of ozone-depleting substances or pollutants that are
banned by international agreement; and projects that require the resettlement of 5,000 or more
persons.
6 There are over two dozen industries listed in this category. These industrial sectors are: large-
scale industrial plants; industrial estates; crude oil refineries, large thermal power projects; iron
and steel smelting; chemicals; projects with a occupational or health risk; transportation
infrastructure; major oil and gas developments; disposal of toxic or dangerous wastes; landfill;
(continued...)

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environmental assessment. Category B projects are those that are not classified in any
other category. Category C projects are those projects that are expected to have minimal
or no adverse environmental impact. Category D projects are comprised of financial
intermediaries that make investments in or are providing financing to certifiable projects
or enterprises. Category E projects include small-scale, stand-alone business ventures that
have demonstrable environmentally beneficial impact. Category F projects are comprised
of those projects that OPIC will not support due to U.S. statutory restrictions or a
determination that the project will have a “major or unreasonable” adverse impact on the
environment, health or safety as set forth in OPIC’s authorizing statutes.
In the next step, OPIC requires applicants with projects classified as Category A
projects to submit an environmental assessment,7 principally either an Environmental
Impact Assessment (EIA)8 or an Initial Environmental Audit (EAU).9 By statute, OPIC
is required to provide some degree of environmental assessment to every project that it
considers for insurance or finance and it cannot provide a final commitment to a project
until its environmental assessment is complete. Category A projects that are subject to
an Environmental Impact Assessment or an Initial Environmental Audit are required to
make the reports available to the public and are published on OPIC’s Internet website.
OPIC then conducts an internal assessment of the project based on the Environmental
Impact Assessment and reviews any public comments.
Category B projects are subject to an internal OPIC assessment based on information
supplied by the applicant. Since Category C projects are not expected to affect the
environment, they are not subjected to an environmental assessment.
6 (...continued)
dam and reservoir construction; pulp and paper manufacturing; mining; offshore hydrocarbon
production; petroleum storage; forestry logging; wastewater treatment; solid waste processing;
large-scale tourism development; large-scale power transmission; large-scale reclamation; large-
scale agriculture; projects with major impacts on people or serious socioeconomic concerns; and
projects that are near sensitive locations.
7 The environmental assessment is the main tool OPIC uses to evaluate the environmental impact
of a project and to improve the project by preventing, minimizing, mitigating, remediation, or
compensating for any adverse impact as a condition of OPIC support. The process of
environmental assessment involves identifying any potential adverse environmental effects;
assessing these effects and comparing them with the potential impact of alternative approaches;
designing and implementing measures and plans to avoid, minimize, or compensate for adverse
effects; and designing and implementing associated management and monitoring measures.
These assessments include Environmental Impact Assessments, Environmental Management and
Monitoring Plans, Initial Environmental Audits, Environmental Remediation Plans, and
Environmental Impact Statements as directed by statute and Executive Order 12114.
8 An Environmental Impact Assessment is a comprehensive assessment of the diverse impact a
project has on nature and ecology. It includes a detailed description of the pre-existing
conditions, all project activities that have a potential environmental impact, and the net effect of
the project.
9 An Initial Environmental Audit is designed to identify pre-existing adverse environmental,
health, or safety conditions at a facility or site on which industrial activity previously occurred
that could affect the future impact of a project.

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After reviewing the project, OPIC’s environmental staff also assesses the standards
and conditions for mitigating the impact of the project that are applicable for OPIC’s
support. OPIC uses a set of environmental standards adopted by a number of international
organizations, such as the World Bank, the World Health Organization, and the Forest
Stewardship Council to determine if a project will pose an unreasonable or major
environmental, health or safety hazard, or will result in significant degradation of national
parks or similar protected areas. In addition to complying with the guidelines set out by
the World Bank, all projects submitted to OPIC must meet host country environmental
regulations. OPIC also applies a set of standards to projects that involve privatizing
existing facilities, or investments in existing large, diversified enterprises. Such
conditions are discussed with the applicant and are included as representations, warranties
and covenants in the loan agreement or political risk insurance contract.
OPIC reserves the right to monitor projects throughout the term of the OPIC loan
agreement or insurance contract to make sure the applicant abides by any conditions that
have been attached to the approval. In addition, OPIC routinely conducts on-site
monitoring of projects to assess environmental effects and U.S. economic and host
country development effects. OPIC conducts compliance audits after a project begins
construction or is operational to determine if the project is complying with all
environmental and social conditions attached with the project and to assess the
methodology that is used for all projects that are monitored by the project developers.
Category A projects are also required to conduct at least one independent environmental
audit during the first three years of OPIC support.