Development & Aid, Economy & Trade, Headlines, North America

DEVELOPMENT: World Bank Oil Loans Boost Business, Not Poor – Report

Emad Mekay

WASHINGTON, May 17 2004 (IPS) - The World Bank, the world’s largest public lender whose mandate is to reduce poverty, may be reluctant to stop funding oil projects because its traditional borrowers – western corporations – stand to lose lucrative contracts, a watchdog group charges in a new report.

Almost all oil projects supported by the Bank benefit large corporations based in countries that are the institution’s political masters – the Group of Seven (G7) most industrialised nations, says the study by the Washington-based Institute for Policy Studies.

U.S. engineering giant Halliburton, whose former chief executive officer is U.S. Vice President Dick Cheney, leads the group of companies that benefit from World Bank lending for energy projects, it adds.

Most of the oil pumped in those projects feeds the global North’s growing demand, and does little to provide energy for poor nations, contradicting the Bank’s stated mission of alleviating poverty in developing nations, argues the report, ‘The Energy Tug-of-War: Winners and Losers in World Bank Fossil Fuel Finance’.

"You need to prime the pump somehow and what we are saying is that public money should be spent on the public good and the World Bank should be spending it to serve the poorest and that is not happening," said Daphne Wysham, a fellow at the Institute for Policy Studies.

The Bank is the single largest source of development financing in the world.

The 38-page report comes as the international community awaits a decision on whether the Bank will adopt a set of recommendations made in December in the Extractive Industries Review (EIR), a study the Washington-based institution commissioned to reassess its role in financing the mining, oil and gas industries.

The independent review recommended the Bank cease funding those industries by 2008 and re-channel the money into cleaner renewable energy sources, among others. It also concluded that World Bank funding of those industries over many years did not help fulfil its stated mission of poverty reduction.

The review has received a lukewarm welcome from the institution. Bank officials have told the media that while they may accept some recommendations, they disapprove of ending funding to oil and gas projects because that would do more harm than good to the developing nations that rely on cash from those projects.

Last month several international investment banks urged the Bank to rebuff the EIR’s recommendations.

A spokesperson from the International Finance Corporation, the World Bank’s private sector arm, told IPS the Bank would make its decision on the review in two months and that it had no comment on the Institute for Policy Studies report.

The new critique, written by the Institute’s Sustainable Energy and Economy Network (SEEN), charges that judged against the Bank’s mission of poverty alleviation, the record in financing oil projects has been dismal.

"Outside of the Middle East, there are no examples of successful oil-based economic development, and even those countries exhibit many of the other characteristics of oil export dependency (e.g. autocracy, human rights violations)," says the report.

"The record supports the contention that oil development is in fact antithetical to the (World Bank’s) mission."

The report also charges that Bank-supported oil projects serve mostly to supply the energy needs of industrialised countries, not developing nations, and to help the North diversify its energy sources away from the Middle East.

"Over the past dozen years, the World Bank Group has facilitated a massive transfer of developing countries’ oil and gas resources to northern consumers and corporations," the report said. "This resource transfer has no connection to the Bank’s stated mission to create a ‘world without poverty’."

The report finds that the leading beneficiaries of 133 financial packages – worth over 10.7 billion dollars – approved by the World Bank Group since 1992 were mostly western-based companies.

No company has benefited more than Halliburton. The institute’s research identified 13 projects, supported by over 2.5 billion dollars of World Bank money, in which Halliburton was involved – as a contractor, developer or investor.

Six of the top 12 beneficiaries of World Bank oil investments are U.S. corporations: Halliburton, ChevronTexaco, ExxonMobil, Bechtel, Unocal and Enron. The U.S. government is the largest World Bank shareholder.

Other companies benefiting from the Bank’s support for oil included BP (from the United Kingdom), Eni (Italy), BHP (Australia) and British Gas.

The Institute’s examination of the Bank’s portfolio also found that 82 percent of the oil projects are export-oriented.

"World Bank staff contend that they must keep supporting ‘big oil’ to provide energy for the poor and alleviate poverty," said Steve Kretzmann of the Institute, a co-author of the report. "This new study shows that Halliburton, not the poor, stands to lose the most if World Bank support for oil is eliminated."

It charges that the Bank, U.S. fossil fuel corporations and the U.S. government are pressuring the Government of Bangladesh to export its gas reserves, although only 17 percent of the country’s people have access to electricity. The gas should first be used to generate electricity locally, contends the report.

Instead of working to end poverty, it charges, the Bank is actively involved in securing energy supplies at a minimal political cost for northern nations.

"In regard to diversifying non-OPEC oil supplies for northern consumption, and opening southern oil and gas reserves to northern corporate investment, the World Bank has carried out its mission with precision and success."

Last year, the World Bank Group approved more financing for fossil fuel extraction projects than it has since 1997. Big oil and gas projects were approved for the Caspian region, southern Africa and South America, the report says.

"If one conceives that the Bank actually designed its energy lending program around those goals, then it’s been succeeding brilliantly," said Kretzmann, "it’s been a complete smashing success. But judged against poverty alleviation, it’s been a dismal failure."