SANTA URSULA, Mexico — When the U.S. government backed construction of a new hydroelectric plant in southwestern Mexico, residents rose up and defeated a three-year, $30 million project supported by the little-known Overseas Private Investment Corp. in Washington.
It marked a rare instance of a community fighting off development in a country where projects are often pushed through over local objections.
Planners envisioned a project that would power the community and stir the economy in Oaxaca state. Yet to residents, the project near the Cerro de Oro dam stirred painful memories and fresh fears.
"For us, the arroyo is life," said Federico Cohetero, a farmer in Santa Ursula, a hamlet six hours southeast of Mexico City.
The fight also opened a window into the impacts that residents sometimes encounter in developments backed by OPIC, a U.S. government agency with a low profile but global mission.
In Mexico, OPIC provided an $8.5 million loan guarantee for the hydropower retrofit. Its projects, intended to spur economic progress, have prompted protests in Liberia, Mexico and Chile, an Associated Press review found. The agency said its developments have triggered thousands of jobs, but even as it approves $3 billion a year in global financing, it receives scant public attention or regulatory scrutiny.
This week, after AP published an investigation into a failed $217 million energy project in western Africa, U.S. senators said they want more oversight of the agency and may revisit legislation that would have created the position of an inspector general inside OPIC to scrutinize its activities, among other provisions.
In Mexico, it took vocal community protests to bring the friction to light.
People in Santa Ursula began to worry, late in 2010, when logging started to strip densely forested riverbank from the Arroyo Sal, also known as La Sal Creek, to make way for heavy dredging equipment. Next came dynamite explosions. In Santa Ursula, some 1.5 miles away, the ground shook and cracks formed in homes, some residents say. Finally murky gray water began flowing from the taps, leading locals to fear the worst: contamination in the gurgling mountain spring that provides drinking water for nearly 2,000 people and feeds the arroyo.
"When they started cutting down the trees of the Arroyo Sal ... that's when we understood the magnitude of the damage they were beginning to do," said Gabino Vicente, a Santa Ursula town official.
OPIC and the project developer, New York's Conduit Capital Partners LLC, defend the undertaking's ambitions. The U.S. agency visited the site and hired experts to assess the development impacts, and said the developer voluntarily suspended the project out of goodwill.
George Osorio, Conduit's managing partner, disputes the allegations of harm and said jobs and other benefits would have ensued. "We become really good citizens in those local communities," he said.
For residents, the Cerro de Oro dam had a painful history even before work began in 2010. Ahead of the dam's opening in 1989, 26,000 people were forced out, with many resettling in the coastal city of Veracruz.
The hydroelectric facility was to be built directly adjacent to the dam and reservoir. Developers planned to divert water through an intake tunnel, with water passing through turbines and being discharged into the Arroyo Sal, also known as La Sal Creek.
La Sal Creek had become a lifeline for the residents.
"It is something that is really part of the identity of the culture there," said Mariana González Armijo, a researcher with Mexico City-based Fundar, Centro de Análisis e Investigación, a civil organization focused on public policy advocacy. "It is a creek that is used for fishing, for washing, for recreation."
The development was approved, records show, though contract paperwork forbade degradation of critical natural habitats. "Based on the information currently available, no indigenous people and cultural heritage sites near the project have been identified," OPIC concluded. Yet advocates, in a formal complaint to OPIC, said indigenous people would indeed be impacted.
In October 2010, seven months after it consented to the project, OPIC strengthened its environmental and social policy guidelines. Spokesman Charles Stadtlander said the agency has "increased consultation with indigenous people, including deeper historical and social consideration of a project's local impact."
The protests formally began not long after the explosions. In November 2010, advocates filed a 40-page complaint to OPIC on behalf of residents from the towns of Paso Canoa and Santa Ursula in Tuxtepec, Oaxaca, Mexico. The development violated OPIC policies on several key fronts, the protest said. In November 2011, the communities formally rejected the project.
"Everyone was wondering why they were cutting down the trees in the arroyo," farmer Cohetero said. "We know that clean energy is important, but what sense is there in saying there is clean energy but in exchange we're killing the arroyo?"