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Africa: World Bank Industry Review

AfricaFocus Bulletin
Apr 13, 2004 (040413)
(Reposted from sources cited below)

Editor's Note

In 1996, in a report on Poverty Reduction in Sub-Saharan Africa, World Bank researchers wrote that poverty assessments "have done a reasonably good job of identifying ... options that will assist the poor ... " They added, however, that "these options, typically, are not being reflected in the Bank's assistance strategies or operations." This spring, as the World Bank delays consideration of the report of its own Extractive Industies Review, there is a similar disconnect between Bank-fostered proposals for internal change and ongoing operations.

This issue of AfricaFocus Bulletin highlights the Extractive Industries Review, a multi-year process examining World Bank support for oil and mining projects. Civil society groups are urging the Bank to adopt the proposals of the Review, which submitted its final report in December. The Bank's official response has been delayed, however, in the face of strong industry reactions against proposals to phase out bank funding for the oil industry, invest more in renewable energy, and enforce higher standards for consultation, environmental review, and human rights protection.

For a careful background study (too long to be included here), see Scott Pegg, Poverty Reduction or Poverty Exacerbation?: World Bank Group Support for Extractive Industries in Africa, April 2003. This report is available on-line at:
http://www.environmentaldefense.org/pdf.cfm?ContentID=2737&FileName=2737_PovertyRedux2.pdf

Another AfricaFocus Bulletin sent out today highlights policy critiques and protests planned for this month's spring meetings of the World Bank and IMF.

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Many thanks to readers who have sent in voluntary subscription payments to support AfricaFocus Bulletin - more than 80 of you in the last two months. If you have not yet made such a payment and wish to do so, please visit http://www.africafocus.org/support.php for details.

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Striking a Better Balance: the Extractive Industries Review

Executive Summary

[excerpts only: full text of summary and full report are available on the Review's website at http://www.eireview.org.]

... In Chad, one of the world's poorest countries, a WBG-supported project [is developing] oil fields in the south and build a 1,070-kilometer pipeline to offshore oil loading facilities on Cameroon's coast.

Are these projects and others in oil, gas, and mining consistent with the World Bank Group's overall objective of achieving poverty alleviation through sustainable development? That is the issue at the heart of the debate about WBG involvement in extractive industries.

In June 2000, at the annual meeting in Prague, WBG President James Wolfensohn responded to criticism from the nongovernmental community about WBG involvement in extractive industries with a promise to review the Bank's role in this sector. In July 2001, the Extractive Industries Review (EIR) was initiated with the appointment of Dr. Emil Salim, former Minister of the Environment for Indonesia, as Eminent Person to the review. ...

The basic question addressed throughout this process was, Can extractive industries projects be compatible with the WBG's goals of sustainable development and poverty reduction? Based on more than two years of consultations and research, the answer is yes, the Extractive Industries Review believes that there is still a role for the World Bank Group in the oil, gas, and mining sectors but only if its interventions allow extractive industries to contribute to poverty alleviation through sustainable development. And that can only happen when the right conditions are in place.

The three main enabling conditions are:

  • pro-poor public and corporate governance, including proactive planning and management to maximize poverty alleviation through sustainable development;
  • much more effective social and environmental policies; and
  • respect for human rights.

In order for the WBG to be able to promote these conditions, the institution itself needs to implement a number of serious reforms, including improvements and reinforced implementation of its Safeguard Policies and changes in WBG staff incentives.

Pro-poor Governance

The first consideration if the WBG is to help countries reduce poverty while seeking to develop extractive industries is that programs should be tailored to the specific requirements and needs of the country and to the existing adequacy of governance ...

The criteria of governance adequacy should be developed transparently and with the involvement of all stakeholders. It should include minimum core and sectoral governance criteria, such as the quality of the rule of law; the absence of armed conflict or of a high risk of such conflict; respect for labor standards and human rights; recognition of and willingness to protect the rights of indigenous peoples; and government capacity to promote sustainable development through economic diversification. ,,,

Governance should be strengthened until it is able to withstand the risks of developing major extractions. Once that has happened, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) can add support for the promotion of a well-governed extractive sector. ...

To help ensure that local communities receive benefits from extractive industry projects, the WBG should:

  • require companies to engage in consent processes with communities and groups directly affected by projects in order to obtain their free prior and informed consent,
  • require revenue sharing with local communities,
  • mandate the use of poverty indicators that are monitored systematically, encourage the incorporation of public health components in all extractive industry projects,
  • urge NGOs to build the capacities of affected communities, and
  • help set up independent grievance mechanisms.

...

Environmental and Social Components of WBG Interventions

The second enabling condition that will allow extractive industries to contribute to poverty alleviation through sustainable development involves a strengthening of the environmental and social components of WBG interventions in this sector. In some cases, this will entail revisions in current WBG policies; in other cases, new requirements or guidelines are called for.

+ Require Integrated Environmental and Social Impact Assessments.

The WBG should take a holistic, multidimensional approach to assessments, identifying cumulative impacts of projects and socioeconomic linkages to environmental issues. Social impacts should be fully identified, including health impacts and projects' effects on vulnerable groups. And a strategy for impact prevention, minimization, and mitigation is needed. Extractive industry projects should be classified as Category A projects likely to have significant adverse environmental impacts unless there are compelling reasons to the contrary. ...

+ Address the Legacy of the Past.

IBRD and IDA should make a strong commitment to helping governments tackle the legacy of extractive industry projects. Compensation funds should be established for people affected by past developments. In cooperation with other funding agencies and in partnership with all the stakeholders, the WBG should establish a targeted program aimed at restoring degraded lands, improving the life of the poor who are affected by previous project closures, and generating employment and skills training.

Human Rights

The third key EIR recommendation regarding WBG involvement in extractive industries is to respect human rights. ... The WBG should ensure that it does not undermine the ability of its member countries to faithfully fulfill their international obligations or that it facilitates or assists violation of those obligations. It should systematically incorporate experienced, independent, and reputable third parties to verify the status of human rights in all relevant projects.

...

Institutional Priorities

At the moment, the WBG is not set up to effectively facilitate and promote poverty alleviation through sustainable development in extractive industries in the countries it assists. So if it is to make any progress on the key elements of its involvement in extractive industries - pro-poor governance, more effective social and environmental policies, and respect for human rights - it must take certain steps to rebalance its institutional priorities.

In terms of staff and budget allocation, the WBG does not appear to be as committed to the social and environmental aspects of sustainable development as it is to the economic aspects of development. Success indicators for career development need to be improved: instead of putting an emphasis on quantitative lending targets, staff should be rewarded for contributions to ensuring compliance with Safeguard Policies and maximizing poverty alleviation impacts.

...

In addition to these institutional changes, WBG priorities within the energy sector need to be rebalanced. IBRD and IDA should position themselves to help governments adopt sustainable energy strategies that address the energy needs of the poor and that minimize climate change, which will disproportionately affect the poor. Countries should be helped to remove subsidies from carbon-based fuels. And WBG lending should concentrate on promoting the transition to renewable energy and endorsing natural gas as a bridging fuel building new pipelines and renovating leaking ones. On this basis, the WBG should phase out investments in oil production by 2008 and devote its scarce resources to investments in renewable energy resource development, emissions-reducing projects, clean energy technology, energy efficiency and conservation, and other efforts that delink energy use from greenhouse gas emissions. ...

The WBG should aggressively increase investments in renewable energies by about 20 percent annually, thereby moving toward a better balance between support for fossil fuel projects, currently 94 percent of the energy portfolio, and support for renewables projects, currently just 6 percent. ...


Letter from Chad Civil Society Organizations

Source (for this and other background documents on the EIR): http://www.bicusa.org/bicusa/issues/energy_and_extractive_industries/index.php

N'Djamena, February 7, 2004

His Excellence
Callisto Madavo
Vice President
Africa Region

World Bank Information Center

Re: Final Report of the Extractive Industries Review

Your Excellence, Mr. Vice President,

On January 31, 2004, the secretariat responsible for the EIR process, under the leadership of Dr. Emil Salim, officially presented the Final EIR Report to the President of the World Bank Group. The Report endorses the outcomes of a two-year consultation between different actors, including the World Bank, multinational corporations, governments, civil society organizations and populations affected by oil, mining and gas projects.

We congratulate the WBG for this initiative, which generated important recommendations regarding pro-poor governance, the rights of project-affected people, and norms and policies of environmental protection.

The findings and conclusions of this report constitute for Chadian civil society organizations who participated fully in different stages of the EIR process, a fundamental experience for the World Bank, an institution committed to poverty reduction.

Your Excellence, Mr. Vice President

The participation of Chadian civil society in the EIR process is a reflection of our hope that the recommendations of the Final Report will be implemented in the Chad oil project, which has been cited as a "model project" in all of the consultations-despite the widely divergent perspectives that punctuated debates between civil society representatives on the one hand, and governments, the World Bank and multinationals, on the other.

Very often, reality puts an end to any such hope. We are exposed to such a risk with regard to the governance of the Chad-Cameroon project, which your institution designated as sustainable human development.

However, Mr. Vice President, as the World Bank's Board of Directors prepares to discuss the Report, we appeal to you to act as our spokesperson to your colleagues, as the voice of all developing countries, so that all of the relevant recommendations contained in the Final Report as well as the suggestions contained in the annexes be adopted. Because, recalling the moving speech of Dr. Emil Salim when he presented the report in Lisbon in December 2003, this report "is the voice of all of our consciences; a report in favor of the poor; a report for future generations."

Mr. Vice President, the adoption and implementation of the recommendations in this report present a historic opportunity for the World Bank to carry out the reforms that are required if it is to become a true Development Bank in the service of the poorest.

For Chadian civil society, these reforms should begin already with: * the WBG's adherence to and participation in the "Publish What You Pay" initiative

  • no financing for extractive industry projects in countries where minimal conditions of good governance and respect for human rights are not guaranteed
  • the integration of human rights and ILO labor standards into the safeguard policies of the entire World Bank Group
  • the evaluation of the cumulative environmental impacts of projects financed by the World Bank so as to require multinationals to take these externalities into account.

Your Excellence, Mr. Vice President, civil society organizations in Chad and throughout Africa and other continents, are convinced that the men and women who work at the World Bank Group, without having themselves experienced the suffering of people affected by the disastrous impacts of extractive industries projects, will nevertheless, at least once in their lives, listen to the voice of their consciences and subscribe fully to the recommendations of the Final EIR Report. Therein lays our hope that you will act as the spokesperson for the poor in whose name we make this appeal to you.

Your Excellence, Mr. Vice President, please accept our most sincere appreciation for your consideration of these concerns.

For the Commission Permanent Petrole
Mr. Boukinebe Peugonba Garka

Pour le GRAMPTC
Mr. Maoundonodji Gilbert

[For additional background on the pipeline project in Chad and related issues, see
http://www.africaaction.org/docs03/oil0306.htm and http://www.africaaction.org/docs01/pipe0103.htm]


Sign-on Letter initiated by
Sustainable Energy and Economy Network


http://www.seen.org

[Note: This is one of many letters and statements by civil society groups, members of parliament, and others, available at the civil society website on the Extractive Industries Review - http://www.eireview.info]

February 12, 2004

Mr. James Wolfensohn
President
World Bank Group
1818 H Street NW
Washington, DC 20433

Dear Mr. Wolfensohn:

We write to you today in good faith and with genuine hopes for meaningful action towards our mutual goals of poverty alleviation and sustainable development. As you know, Dr. Emil Salim has just completed the Final Report of the Extractive Industries Review (EIR). We want to thank you for initiating this historic process in Prague more than three years ago, and for devoting significant World Bank Group (WBG) staff time and financial resources to the review over the last several years.

We also want to thank Dr. Salim for his adherence to the principle that "genuine development requires partnership not only with governments and companies, but with civil society as well." Dr. Salim's commitment in this regard allows us to endorse his recommendations to you, and to encourage you to adopt all of them without exception or reservation.

The EIR correctly concluded that if the WBG intends to pursue its mandate of poverty alleviation, then it should not support extractive industries unless the broad set of enabling conditions outlined in the Report's recommendations are in place. Furthermore, the EIR found that support for certain types of extractive activities does not represent the best use of the WBG's money to promote and support sustainable development, and thus that the WBG should phase-out its financing for these types of projects and reallocate its funds to other activities.

We will not view as sufficient the adoption of only a certain percentage of the EIR's recommendations. The failure to meet any one of them can lead and has indeed led to a failure to contribute to poverty alleviation or sustainable development.

At your insistence, the EIR integrated World Bank Group staff at nearly every level, and the process and the Final Report were clearly richer for it. We certainly hope and expect that this integration of Bank staff and perspectives now translates smoothly into implementation of all the Report's recommendations. This was, after all, the premise upon which it was argued that Bank staff should be deeply involved in the EIR.

Those of us who have previously engaged in the Structural Adjustment Participatory Review Initiative and the World Commission on Dams review already have great reason to be skeptical and that skepticism would only harden if the World Bank Group were to pick and choose only those recommendations from the EIR Report that are least challenging. In the intervening time that it may take to fully adopt the EIR recommendations, we feel that a good faith gesture would be for you to instruct staff and management to immediately freeze any further action on policies or projects that are potentially affected by EIR recommendations.

We congratulate the EIR for recognizing climate change to be a profound threat to sustainable development and poverty alleviation and we strongly endorse the recommendation for the World Bank to immediately end its support for coal mining and to phase-out financing for oil projects by 2008. By shifting financial support from fossil fuels to new renewable energy, the Bank could play an important catalytic role toward new renewable energy development in the South, in turn leveraging significant global benefits.

We would like to also highlight the EIR's endorsement of the right of free, prior and informed consent for indigenous peoples and the importance of securing a "social license" from affected communities to operate before projects proceed. While this right is already recognized for indigenous people under international law, other communities often have very little influence over project decisions despite the significant impacts that extractive industry operations have on their livelihoods and on the environments on which they depend. Empowering communities is not only the right thing to do, it will also spare the Bank and project sponsors considerable reputational risk and added cost.

Recognition of and respect for human rights is one of the core elements of sustainable development. Despite your best efforts to date, which we recognize and applaud, the World Bank is far behind many other intergovernmental organizations in accepting its human rights responsibilities, including the rights of workers, and in integrating these and other human rights- related issues into its operations and programs. As the EIR correctly concludes, this is not a matter of discretion but rather it is a matter of compliance with international law that is binding on the Bank; it is also sound development practice. We are aware that you have expressed an interest in human rights and have promoted rights-related issues within the Bank. We hope that now you will use all of your influence to demonstrate that commitment by adopting all of the EIR's recommendations.

We are confident the EIR will be remembered as one of the most important initiatives of your tenure, and one of the cornerstones of your legacy as World Bank President. We would submit to you that the true test of the World Bank Group's willingness to place poverty alleviation and sustainable development above bureaucracy, corporate interests, corruption, and institutional barriers to change will be in your willingness to push to redefine the Bank and the way in which it approaches development. The upcoming formulation and adoption of a concrete and specific EIR action plan will prove to what extent the World Bank is serious about ensuring that the twin goals of poverty alleviation and sustainable development are strongly upheld.

Sincerely,

[over 300 organizations; list of signatories available on http://www.eireview.info]


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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