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DEVELOPMENT: World Bank Oil and Gas Reforms Fall Short – Critics

Emad Mekay

WASHINGTON, Jun 22 2004 (IPS) - The World Bank has promised to reform its loans to the oil, gas and mining industries, in what some watchdog groups call a “disappointing” response to a study that recommended the Bank halt all funding of the controversial extractive industries.

“Our future investments in extractive industries will be more selective, with greater focus on the needs of poor people, and a stronger emphasis on good governance and on promoting environmentally and socially sustainable development,” said the Bank in a draft proposal for reforming its involvement in the industries posted on its website.

The Washington-based institution says that under the new plan, it will commit to a five-year target of at least 20 percent average growth annually of its current energy efficiency and renewable energy portfolio.

It would also take steps like requesting clearer “good governance” indicators in assessing and designing projects, and it would work to ensure “broad community support” for projects before making lending decisions.

“The Bank Group will require revenue transparency as a condition for new investments in the extractive industries sector,” said the Bank.

Under the new proposal, the Bank responded to criticism that revenues from those industries were often misused and led to sweeping corruption in developing nations.

The Bank now says it will require stronger disclosure of revenue figures and of key terms of contracts for all large projects that benefit from Bank Group support.

“There is a continuing role for the Bank Group in supporting extractive industries, provided its involvement can help ensure that extractive industries contribute to poverty reduction and sustainable development,” said the Bank in its draft response.

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

The international community was anticipating the decision from the Bank on whether it will adopt a set of recommendations made in December in the Extractive Industries Review (EIR), a study the Bank itself commissioned to reassess its role in financing the mining, oil and gas industries.

The review was headed by Emil Salim, a former minister of population and environment in Indonesia, and began in 2000. It recommended the Bank cease funding for those industries by 2008 and re-channel the money into cleaner renewable energy sources.

It also concluded that World Bank funding of those industries over many years did not help fulfill its stated mission of poverty reduction.

Among its many recommendations is a call for the Bank to implement “much more effective social and environmental policies”.

The review 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.

In April, international investment banks, which lend for such projects, urged the World Bank to rebuff the recommendations of the study. In its latest response, the Bank appeared to side with the industry, critics say.

“For many developing countries, oil, gas, and mining (extractive industries) are important assets that will have to play a role if these countries are to achieve the MDGs (Millennium Development Goals),” said the Bank.

The eight MDGs, set by the United Nations in 2000, include halving the incidence of poverty from 1990 levels, achieving universal primary education and developing a global partnership for development, with targets for aid, trade and debt relief, all by 2015.

“It looks like the Bank’s response is leaning very heavily towards the industry’s side,” said Steve Kretzmann of the Washington-based Institute for Policy Studies.

“I think that they failed to protect the poor but they have protected interest groups. They could have leaned towards the renewable energy industry, but they chose not to.”

Kretzmann also criticised the response for using loose language, and said it should have language that is more binding. For example the Bank speaks of “free and prior consultations” as opposed to “consent”, he said.

Watchdog groups said that the Bank’s decision was inadequate and falls short of the recommendations, which include more respect for the environment and social rights.

“Our experience is that without clear rules, there is no way to hold the World Bank accountable to anything,” said Petr Hlobil of the Central and Eastern Europe Bankwatch Network, which groups non-governmental organisations in the region.

“This document does little to raise the bar where it counts: with measurable targets and timetables.”

But the Bank, which has invested some two billion dollars annually in oil, gas and mining and other non-renewable energy projects in developing countries over the past decade, has publicly said it, too, is increasingly concerned about the environmental risks created by these projects.

“Overall, the World Bank’s response to the extractive industries review is very disappointing and raises serious questions as to whether the Bank can ever change,” said Jeremy Hobbs, executive director of the development group Oxfam International.

“Its failure to follow the recommendation to phase out of coal and oil projects was widely expected and completely inadequate.”

Civil society groups that campaign for poverty alleviation and a more equitable approach to running the global economy had urged the Board of the World Bank to accept the recommendation.

Oxfam says that the Bank should only support projects that have the broad approval of affected communities.

The Bank says it will seek public comment on its management response for 30 days to consider all views and to authorise an official Bank response.

In its draft response, the Bank says it sought to balance the often diverse views of many stakeholders, including governments, civil society, private sector and local communities.

But that too failed to impress critics of the institution, who described the Bank’s proposal as business as usual.

“Nice new talk, same old walk,” Kretzmann said of the new proposal. “Very few commitments.”