Following the Money Trail: Unanswered Questions in Kanaky/New Caledonia

Following the Money Trail: Unanswered Questions
Mining and Export Credit Finance in Kanaky/New Caledonia

Stephanie Fried, Ph.D. and Rick Anex

Source: Point Zéro / Base Line

January, 2004

Background: Biodiversity and Nickel Mining in Kanaky/New Caledonia

Kanaky or New Caledonia, a country under French rule in the Southwestern Pacific, is one of the most unusual biodiversity hotspots on earth. A remnant of ancient Gondwanaland, the main island, La Grand Terre, separated from Australia some 85 million years ago and has existed in isolation from other land masses, surrounded by deep ocean trenches. Kanaky contains the largest concentration of nickel laterites in the world (approximately 20% of the known reserves) and contains 75% of the reefs and lagoons under French control. Due to the country's geological history, isolated location and unusual soils which are poor in nitrogen, potassium and phosphorous and rich in chromium, magnesium, nickel, iron and cobalt - elements usually toxic to plants - over 75% of the country's plant species are endemic and are found nowhere else on earth. Some of New Caledonia's terrestrial ecosystems have rates of endemism as high as 91%. Kanaky is home to extraordinary "living fossils" including 18 species of the Winteraceae family of plants which date back 120 million years, to the age of dinosaurs.

Surrounded by an extraordinary barrier reef - the second largest in the world, after Australia's Great Barrier Reef - Kanaky contains one of the world's largest lagoon systems. The location of Kanaky's reefs relative to prevailing currents and temperature regimes has allowed them to remain relatively unscathed by recent massive coral bleaching events which have had profound impacts on the reefs of neighboring Australia and throughout the Pacific. This little-researched reef and lagoon system - occupying close to 10 million acres (44,000 km2) - is home to a vast number of marine species including many found nowhere else on earth.

Recently, marine researchers discovered over 2,700 species of marine molluscs at one Kanaky site, alone - several times the number of species than those recorded from any other comparable area in the world. This recent discovery and other current analyses of Kanaky marine molluscs is likely to force an upward recalculation of the total number of living species on Earth.

In January 2002, after pressure by courageous indigenous Kanak leaders and local environmentalists, the French government proposed New Caledonia's reef ecosystems for listing as a UNESCO World Heritage Site. In March, 2002, sixty-two coastal and marine scientific experts convened in Hanoi, Vietnam and concluded that the reefs of New Caledonia were of "Outstanding Universal Value" in terms of their biodiversity attributes, placing these reefs at the top of priority list for World Heritage designation in the Pacific. The UNESCO process, however, has since been blocked and the nomination has not progressed. The French Minister of Ecology and Sustainable Development has stated that France now prefers to "work with international mining companies...to ensure environmental protection" instead of seeking World Heritage status for the reefs.

Given the nickel-rich soils, and a recent "World Nickel Meeting" held in the country, large international mining companies are preparing to initiate massive mining operations on indigenous lands in this fragile island ecosystem. In addition, there are plans for the development of large-scale industrial shrimp aquaculture operations. There are indications that both mining and aquaculture companies are attempting to secure international finance, including ECA support, for their proposed ventures. This paper focuses on the provision of public finance for mining sector. The potential impact of public finance on the aquaculture sector will be examined in a later paper.

Mining and Public Finance

New Caledonia has sometimes been called the "El Dorado of Nickel" by the international mining community. However, international nickel prices have not been stable and civil unrest appears to be on the increase locally. Under conditions of clear political and commercial risk, it is likely that transnational mining companies and their investment partners are seeking methods of shifting the risk burden to the public sector, especially through the utilization of various forms of public finance and political risk insurance from ECAs in their countries of origin.