OIL AND GAS: WORLD BANK CHOOSES BETWEEN ENDING OR REFORMING PARTICIPATION IN EXTRACTIVE INDUSTRY

Copyright 2003 E & E Publishing, LLC
Greenwire

December 11, 2003

Charles Donefer, Greenwire reporter

Two initiatives designed to provide solutions to the sometimes corrupting effects of large-scale energy and mineral development on poor countries come to different conclusions as to whether the World Bank should stay involved in oil development.

The World Bank-commissioned Extractive Industries Review, released last month calls on the bank to increase sensitivity to environmental, human rights and wealth distribution aspects of mining and energy development projects it funds in developing nations. Recommendations include an end to funding oil development projects by 2008 (Greenwire, Dec. 4).

Officials are meeting in Lisbon at the final consultation meeting for the report. Three months after the presentation of the final report, World Bank management will present its recommendations regarding which portions of the report to adopt to the bank's board of directors.

On Tuesday, the World Bank Group announced its endorsement of the Extractive Industries Transparency Initiative, a British-led project to encourage transparency in transactions between companies engaged in extractive industry projects in developing nations and those nations' governments. The initiative could lead to additional pilot programs, best-practices research and donor funding for transparency initiatives, officials say.

Bank officials point to transparency projects already under way as models for future investments.

The World Bank, which provided a portion of the funding for an oil pipeline from Chad to Cameroon, implemented a plan to prevent Chad's estimated $2 billion of future royalties from being spent for non-productive endeavors. The country's revenues from the pipeline will go into a London-based escrow account. The bank will earmark 10 percent for a "future generations" fund, 5 percent for the production region, and the remainder for spending in sectors such as education, health care and transportation, all examined by an oversight committee.

Officials said similar projects in which all sides participate in ensuring the transparency of oil revenues is more effective than "publish what you pay" initiatives proposed by activists for other projects where the World Bank is not participating, since the bank's participation can elicit cooperation from both sides of the transaction.

"It can be extremely difficult for companies to publish what they pay if governments won't publish what they receive," said World Bank spokesperson Corrie Shanahan.

CAN EITI AND EIR COEXIST?

With a World Bank-sponsored report calling for the phaseout of oil development and a bank-endorsed initiative calling for better transparency in oil development, is there room for compromise between those who seek to end World Bank participation the extractive industries and those who seek to reform it?

Bank officials said developing countries will enter into extractive industry projects anyway, and the bank's continued participation can act as a bulwark against corruption that would otherwise not exist.

"If you're looking for better governance and better standards, that is most easily done when you're involved in investments, when you have leverage," Shanahan said.

Opponents of World Bank lending for extractive development projects said oil, gas and mining projects simply do not reduce poverty no matter how the royalties are handled since the projects themselves employ few local residents but often require large-scale dislocation of families and farms.

A Friends of the Earth report released today entitled "Hands Off: Why International Financial Institutions Should Stop Drilling, Piping and Mining," said "it is time for international financial institutions and the countries that govern them to abandon their archaic orientation towards export-led growth. ... Phasing out investment in the extractive industries would be an important step towards achieving that goal."

"With limited development assistance money, the banks should focus on plans that are demonstrably successful at alleviating poverty," said Carol Welch of Friends of the Earth. "We would never rule anything out, but that if you look at present circumstances, we don't see bank investment in extractives supporting sustainable development."

But will the EIR's recommendations be implemented even as the EITI proposes new ways to improve the bank's participation in extractive projects? "[EITI] comes under some of the general recommendations of the EIR calling for the bank to work towards improved governance on revenue in extractive industries," Shanahan said.