by Ellen Schmidt
5. The World Bank's Answer: Amoco Will Fix it
Is Control (Im)Possible?
Environmental problems do not arise when a multinational oil corporation such as Amoco is involved. Everything is done in accordance with international standards and these standards are high. Talking one-on-one with World Bank staff members, one learns that international bureaucrats are preparing the Russian oil project loan on the basis of these or similar premises. Despite the environmental hazards, the World Bank has a clear conscience when betting its money on the catalytic effect that this model joint venture is supposed to have on the future development of gas and oil fields in Russia. New, more environmentally compatible extraction technologies are also to be introduced into the Russian Federation as a result of the international oil corporations' involvement. These staff members also extol Amoco in particular as being one of the most responsible international oil corporations in the business.
Even given the best of intentions, putting what looks good on paper into reality will be extremely difficult. The World Bank is not likely to make provisions for allocating more than the usual amount of funds for monitoring Amoco's performance in keeping its promises. Does the World Bank have such a long arm? How can it monitor two oil corporations operating in an area as vast and remote as Western Siberia? How does Amoco intend to check its Russian partners' customary working methods and enforce new standards? As Alexei Grigoriev of the Socio-Ecological Union, one of the largest environmental organizations in Russia, says, "the oil industry works according to the principle: time is money". And: "The implementation and enforcement of environmental laws in Russia are very 'flexible' and depend upon who the violator is" (Grigoriev 95a, 10).
Rather than invest time and money in the environment, many companies often prefer to pay fines. Time magazine's Eugene Linden reports that the man in the street is frustrated because of the corruption in the courts, the 'self-service attitude' and the nepotism that have all grown as a result of large international projects (Linden 95, 51). Black marketeering is being conducted on an increasingly grand scale particularly in the case of oil. Billions of dollars are finding their way into dubious Swiss bank accounts (SZ, 26 Feb. 1996). Workers in Russia's energy sector are hardly ever paid and companies go unpunished when they withhold wages, a situation that puts workers completely at the mercy of the monopolistic oil companies (SZ, 26 Feb. 1996; FR, 6 March 1996). Environmental protection work receives absolutely no support from Russian authorities, the Die Zeit newspaper reports. Companies with enormous amounts of money at stake have even hired killers upon occasion. A member of Russia's new green party reports that 15 environmental activists were murdered in 1993 (Die Zeit, 11 Nov. 1994). President Yeltsin's former environmental adviser Aleksei Yablokov recently summed the situation up as follows: "Ordinary people are becoming more environmentally aware, but the economic elite couldn't care less about the environmental situation" (SZ, 5 Jan. 1996, author's italics).
What the World Bank Doesn't Check
The World Bank's statutes require a comprehensive environmental impact assessment (EIA) for oil projects like the North Priob joint venture. The EIA for the North Priob project, however, will be conducted on a joint basis by the potential beneficiaries of the loan – Amoco and YNG. This in turn rules out the possibility of a truly independent EIA. The provisions governing the EIA require the report to list alternatives to the project as well. How can corporations be trusted to actually list genuine alternatives to a project they have a very strong interest in conducting themselves? One alternative, for example, would be to refrain from increasing production in the area any further for the time being. Although this recommendation can be considered sensible in view of the situation, YNG and Amoco are certain not to make it.
Improvements in the 'terms of reference' – the parameters for the EIA – were made in 1995 at the instigation of several non-government organizations and the US Agency for International Development (USAID). When pressured, the World Bank also promised to have the results of the EIA reviewed by an independent panel of experts. In addition, the World Bank and Amoco committed to extensively study the social, environmental and cultural situation in the larger project area. The EIA has not been finished yet. It appears that the study however will not examine the consequences the targeted catalytic effect will have, such as the expansion of the export pipeline network that has been called for in conjunction with the North Priob project, or the possible enlargement of the harbor facilities on the Arctic Sea and the expansion of the northern ocean route for tankers. In this region, an accident involving oil could lead to an inconceivable catastrophe for Arctic marine ecosystems. Furthermore, the ocean route through the polar ice follows the migratory paths used by sea mammals and migratory birds (Linden 95, 51). Another consequence of this catalytic effect would be the expansion of existing oil refineries and the construction of new refineries. Amoco for example plans to extend its activities to Russian oil refineries and the petrochemical industry (Segodnya, 14 Dec. 1994, 13; Finansovye-Izvestia, 24 Nov. 1994, 2; Bizges-Segodnya, 10 March 1994).
Amoco's Promises: Please Pin Them Down!
Amoco's production and environmental standards – particularly in the USA – are doubtlessly much higher than those to be found in Russian companies. This is due largely to the USA's tougher and enforceable environmental regulations. However, the majority of Amoco's oil exploration activities are conducted outside of the USA.
Amoco's glossy Russian-language brochures claim that the company is the international leader in the environmental, safety and social fields (Amoco 94b). Amoco's North Priob Information Bulletins also state that environmental protection will be one of the company's top priorities during all phases of the project (Amoco 95b, 2). According to these Bulletins, the very latest, environmentally compatible technologies are to be used for all work on the project – from site construction and setting up drilling pads on up to the local pipelines and oil processing plants. All workers on the project are to undergo environmental protection training. The Bulletins also mention a contingency plan which involves the participation of selected members of the village located in the middle of the North Priob project area. Amoco has also organized town-hall meetings in the village to answer local residents' questions and dispel any reservations they might have.
Amoco's promises should be examined carefully. The company says it will "only" be necessary to build a new infrastructure for the project's 600 permanent (outside) oil workers and that it will minimize every negative effect of this migration. "Only" two to four percent of the area's more than 5,500 square kilometers will allegedly be needed for permanent production sites. Amoco's Russian-language brochures do not however mention how much temporary infrastructure will have to be built and how much soil will have to be moved temporarily. At the same time, Amoco speaks in other documents of a "significant number of temporary construction personnel entering the area" and of a "large amount of material being delivered" (Amoco 95a). The wording used in the Information Bulletins creates the impression that the project will generate a large number of jobs for the villagers living in the center of it. It is however clear that most of the skilled labor will be imported and that the jobs will be only temporary.
An Island in a Sea of Misery
Even if they were to be actually put into action, none of Amoco's or the World Bank's honorable, well-intended promises would be able to do anything more than treat the symptoms of what is, taken as a whole, a strategy for unsustainable development. The World Bank is advancing the status quo of social and environmental misery in Russia by supporting the predatory exploitation of crude oil – a non-renewable, environmentally destructive and climate-threatening resource. In addition, accelerated production of Russian oil will provide the global market an impetus to increase rather than throttle oil consumption and will concomitantly obstruct efforts to replace fossil fuel consumption with energy conservation measures and renewable energies.
Furthermore, the project contributes nothing to long-term sustainable development. There may be fewer accidents and environmental transgressions than usual in the course of the North Priob project. But the targeted expansion of oil operations into even more remote, environmentally sensitive areas with the concomitant expansion of the oil infrastructure helps neither the people nor the environment of Western Siberia on a long-term basis. And nothing – including Amoco's well-intended end-of-the-pipe measures to protect the environment in North Priob – will change this. The political scientist Elmar Altvater uses the terms 'enclave strategy' and 'island strategy' to describe the phenomenon where international environmental and living standards apply within a specific project while the surrounding region flounders all the more in poverty and social disintegration (Altvater 87, 299f.)
Hungry for Oil Money
A long-standing US oil corporation, Amoco is the global leader in the natural gas business today. Worldwide, Amoco generated revenues of more than US$ 30 billion and profits of nearly US$ 1.8 billion in 1993. In contrast to previous years when it operated in more than 100 countries throughout the world, Amoco centered its oil and gas activities around "just" 25 countries in 1993 (Amoco 94). A closer look at Amoco's corporate background raises doubts as to whether Amoco could be a custodian of tough environmental standards in an environmentally hostile industrial climate.
The interest that Amoco and a number of other transnational oil corporations have in Siberian oil arises primarily from the prospect of generating enormous revenues in regions where environmental and working standards are either inadequate or nonexistent (Greenpeace 94, 7). Today, it's possible to minimize even normal business risks to one's advantage in Russia: Once the World Bank or other international finance institutions have acquired a participating interest in a project, it is much easier to obtain government-backed risk guarantees and private bank loans at favorable conditions.
Clean Image, Dirty Business
For years, Amoco – like many other transnational oil corporations – has been shifting its exploration activities and production operations to areas which had previously been considered to be too remote or not profitable enough. The northern part of Russia is one such area: Test drilling has been conducted in regions that are even more inaccessible, have scarcely been explored and are home to even fewer people who could object to any exploitation of the area's oil reserves. In keeping with this tactic, Amoco developed plans to pump oil on a large scale in the fragile ecosystem in the eastern part of Canada's Alberta province (Ward 93). The region is a very important habitat for elk, mountain lions and bears. Amoco's operations in the South China Sea (the Liuhua field), in Azerbaijan and in the Chittagong hills of Bangladesh must also be mentioned here. The Chittagong hills for instance constitute the last remaining continuous expanse of sub-tropical forest in Bangladesh. Development and exploitation activities, such as Amoco's oil exploration, pose a threat to this nature reserve (Adams, Billington, 90).
Amoco is far from the squeaky clean oil corporation it likes to present itself as being. The company achieved dubious fame through the Amoco Cadiz tanker catastrophe off the northern coast of France in 1978 when 120,000 tons of oil leaked into the ocean (six times the amount spilled by the Exxon Valdez). During subsequent litigation which lasted until 1992, Amoco tried to keep claims for damages as low as possible – without success (ITP 96a; Lloyds List, 27 April 1992). A leakage report issued in 1992 for a ten-year period lists the volume of Amoco's oil leaks at 35 billion gallons (Oil Spill Intelligence 92). In the USA, Amoco's refineries and bulk storage tanks have caused substantial environmental problems which have brought the corporation several lawsuits and fines (Doyle 92, 31, 40-41). Amoco subsidiaries in the USA have attempted to build waste incineration plants on Indian reservations in the face of strong opposition from environmental organizations (Ekker 91, 8-10). Numerous occupational safety violations in the USA and the Baltic Sea have also been reported (Financial Times, 5 Oct. 1990).
Amoco was active in Myanmar, formerly Burma, for many years and apparently supported the military regime there. Human rights organizations have accused Amoco of trampling on Myanmar's efforts to establish democracy. Amoco withdrew from the country in 1994, following years of massive international protest (ITP 96a). Among the many mines in its possession, Amoco also owns 30 percent of the Ok Tedi gold and copper mine in New Guinea. This mine has developed into a socio-environmental disaster for the local residents and the surrounding ecosystem. Following a number of accidents, sodium cyanide was discharged into the Fly River, one of the world's largest rivers, in 1984. Toxic effluents are still being discharged directly into the river today at the rate of 80,000 to 150,000 tons of highly poisonous waste a day (ITP 96b; Rainforest Action Network 92). Amoco was quoted yet in 1991 as saying that the mine had no significant impact on the environment (CEP 91). And last but not least, Amoco is also a paying member of numerous American business organizations (including the Global Climate Coalition, GCC) which use aggressive methods to fight national and international environmental laws and agreements. The GCC is jointly financed by Amoco and has in recent years played an extremely detrimental role in negotiations to improve the UN Climate Convention (Der Spiegel 14/95, 36).
7. Trampling on Climate Policy
Russia, a Key Country for Greenhouse Gases
Producing or burning oil and natural gas releases gases that not only cause local and regional pollution (as in the case of sulfur and nitrogen emissions) but also trigger far-reaching changes in the global climate system. The primary culprits among climate-changing gases are carbon dioxide (CO2) and methane.
Russia ranks third in the world in CO2 emissions, generating approximately 1.7 billion tons of CO2 emissions a year, nearly ten percent of total global CO2 emissions (OECD/IEA 95, 74, 79). And, as the World Bank points out, Russia is one of the largest methane emission source countries in the world as well (World Bank 95, 2). Russia probably generates ten million tons of methane emissions every year. This is 28 percent of all methane emitted in the world each year. This amount corresponds to more than 200 million tons of CO2 annually because methane's effect as a greenhouse gas is 20 to 30 times more potent than carbon dioxide. According to a report in the New Scientist, pipeline leaks generate some 35 million tons of methane emissions in Russia every year. It also points out that this figure corresponds to Germany's annual CO2 emission level. Russia is consequently one of the key countries to counter the threat of global climate change.
In light of the enormous amount of greenhouse gases it produces every year, Russia also has a special obligation to the rest of the world to reduce them. Following ratification by the Russian parliament, Russia acceded to the UN Framework Convention on Climate Change in 1994. By signing the convention, Russia declared its willingness to bring its emission levels down to 1990 levels by the year 2000 and agreed to submit a national report on the status of emission levels and measures to reduce them. Russia has yet to submit such a report. Climate-friendly conditions are not being established and new technologies are not being promoted, even though doing so would fulfill one of the climate convention's goals. The level of greenhouse gases in Russia has indeed fallen, but solely due to the involuntary decline of the industrial sector. Russia has yet to develop a national climate protection policy (OECD/IEA 95, 79).
Except for issuing formal declarations and setting up an interdepartmental commission, the Russian government has done little to implement energy conservation and efficiency plans, even though the reform process in the industrial and electricity sectors is at a stage which would favor such action. As Russian experts note, "We believe that implementation of integrated resource planning and demand-side management tools could have significant impact on Russia's energy consumption, and thus on CO2 emissions. So far these kinds of approach are being introduced only very slowly and with great difficulty" (CAN 95, 27). According to these experts, lack of funds is one of the main reasons for this situation. In light of the billions of dollars in public funds that multilateral and bilateral sources are pumping into Russia, this would seem to be a matter of priorities.
It appears that the World Bank has recognized the magnitude of the emission problem in Russia. In one of its reports, the World Bank spells out the enormous inadequacies on the part of the Russian government:
environmental data are unreliable [...];
environmental regulations and laws to govern and control the most egregious of environmental problems [...] have been slow to appear, and
GHG emissions have received little attention at the legislative level; and
responsibilities are poorly defined.
Although the concept of environmental impact assessment has been recognized, little attention has been given to the impact of GHG emissions attendant to development activities.
World Bank 95a, 2
This can hardly come as a surprise: "It is clear that the fossil fuel industry is one of the strongest lobbies [...]," Russian scientists involved in a Climate Action Network study are quoted as saying (CAN 95, 27). And an OECD study on Russia's energy policy reports that Russian industry finds paying fines preferable to reducing the amount of waste and emissions it produces (OECD/IEA 95, 85). By focusing on expanding oil and gas production, the World Bank and the donor countries' policies (which include Germany's) are responding as the oil lobby would like. Despite some efforts to include energy efficiency measures in housing and environmental management projects, there is no indication that the World Bank directs its loans towards an environmentally sound climate protection policy.
The World Bank and its Responsibility
The member states to the climate convention established a fund to help developing countries and the former Eastern Bloc states with the financial side of setting a corresponding course for climate protection in trade and industry and anchoring it in legislation. This fund was combined with the Global Environmental Facility (GEF). The World Bank is one of the primary administrators of these monies. The World Bank officially stated at the first conference of the parties held in Berlin in 1995 that its loan programs would be actively geared toward promoting climate-friendly investments (World Bank 95a).
However, despite the fact that the GEF is conducting a small project to gather data for a more accurate picture of the level of methane emissions in Russia and to increase the safety of the natural gas pipelines near Volgograd, the World Bank is pumping billions of dollars into Russia to expand fossil fuel production. In doing so, the World Bank is assuming that Western Europe will be importing ever larger quantities – as if GEF donor nations were not obligated under the climate convention to reduce their CO2 and other climate-relevant emission levels. "An absurd policy," Alexei Grigoriev of the Socio-Ecological Union comments. "These direct investments in global warming are much, much greater than the investments the same nations make to avoid global warming, such as through projects sponsored by the Global Environmental Facility" (Grigoriev 95b, 18).
Climate Costs – Billions up in Smoke
The World Bank's Environment Department introduced the concept of Global Overlays in 1995. This initiative to internalize global environmental costs was developed as a tool for calculating the real cost of CO2 emissions. The concept was developed for use by the World Bank's project departments and its clients – the governments of developing countries.
A variety of opinions exist on how to calculate the cost of avoiding CO2 emissions. A World Bank report issued by its Vice-President for Sustainable Development cites a possible cost range of US$ 5.30 to US$ 50 per ton of CO2 for the years 1991 to 2000. The report places the cost of CO2 emissions at US$ 10 to US$ 120 per ton for the years 2021 to 2030 (World Bank 94).
During the course of its 50-year duration, the planned Russian joint venture will produce approximately 600 million tons of crude oil. This oil will be combusted at one time or another. Accordingly, one can assume that a total of almost 1.9 billion tons of CO2 will eventually be released into the atmosphere solely as a result of this project (endnote 3). In principle, the total cost of the joint venture should be calculated and then balanced against what it would cost to avoid generating 1.9 billion tons of CO2. Such a comparison would reveal whether it would not be cheaper to forego extracting and burning new resources, and instead conserve the energy that would otherwise have been generated. Unfortunately, the World Bank has yet to conduct such an assessment although its own Global Overlays initiative requires it to do so for every energy project. If it were to do so, the project's overall cost-benefit evaluation would look less rosy.
This final section deals with potential strategies for the Russian energy sector which the World Bank pays scant attention to. What ultimately counts is ensuring Russia's energy supply on a long-term basis, in a way which is both environmentally sustainable and socially acceptable. Generating foreign exchange through the sale of crude oil and natural gas will also play a role in these alternative strategies, but only as one part of a comprehensive efficiency plan that includes other sectors as well.
Energy Efficiency
When developing a strategy for overall sustainable development, it is not possible to sever the oil and natural gas sector from the rest of the Russian energy sector. A strategy for sustainable development also entails integrating climate protection measures into plans and making them a part of concrete projects. The World Bank has shown its willingness to do this in a few projects, but seems not to follow an overarching strategy. In addition, this type of climate protection policy necessitates modernization of the trade and industry sectors in both the East and West, according to the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU 95, title).
"Russia has turned into a country with the largest energy conservation potential ... the Saudi Arabia in the field of energy savings" (Gray 95, 4, quoting the Russian scientist Igor Bashmakov). Pertinent literature is unanimous that Russia's energy sector has an enormous energy conservation potential. Russian authors were pointing out the energy sector's inefficiency even during the days of political upheaval. Hella Engerer summarized their comments in 1992: "The magnitude of the energy-saving potential that can be tapped into is apparently enormous" and lies somewhere between 30 and 60 percent of consumption levels (Engerer 92, 60).
The Fraunhofer Institute for Systems and Innovation Research published what is probably the most comprehensive study on ways to conserve energy in the Russian energy sector in 1995 (FhG-ISI). Commissioned by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), this collaborative German-Russian study sums up by saying that when the power conversion and energy production sectors are included in the equation, the Russian Federation could cut its energy consumption by between 37 and 45 percent (based on primary energy consumption levels in 1990) (FhG-ISI 94a, 217). This amount corresponds to Germany's total primary energy consumption.
Conducted in conjunction with Russian institutes, the study also demonstrates that the amount of energy that is actually saved will vary greatly depending upon the amount of political will involved. The "probable case scenario" calculates a potential savings of some 13 to 17 percent over 1990's primary energy consumption level by the year 2000 and a savings of approximately 25 percent by the year 2010 (FhG-ISI 94a, 224). On the other hand, the "efficiency scenario" – which assumes a rigorously implemented climate protection policy – would conserve an additional 132 million tons oil equivalent (MTOE) over the probable case scenario's performance in 2010, or an additional 16 percent. A consistently applied energy efficiency policy would lead to a drop in domestic primary fossil fuel consumption; lower domestic consumption levels in turn would greatly enlarge the potential for oil and gas exports while simultaneously conserving underground resources and nature. Which is precisely what the real goal of a sustainable World Bank strategy for the Russian energy sector should be. In other words:
The 16 researchers from Germany and Russia who worked together on the Fraunhofer study concluded that urgent action is called for in the transport sector as well. The growing trend toward energy-intensive modes of transportation such as road transport and air transport must be decelerated as quickly as possible. Assistance in building a modern rail transport system is indispensable just to maintain the portion of freight transported by rail at its current level, the report states. The same applies to local public transport systems which are supposed to contribute to limiting the growth of environmentally damaging and energy-intensive private transport, the report points out (FhG-ISI 94a, 218). Unfortunately, the World Bank pursues a rather counteractive policy with its ongoing and pending loans for the reconstruction and expansion of the country's road network (US$ 350 million for bridge construction, for example).
Another prerequisite for tapping the savings potentials cited by the Fraunhofer report is the elimination of obstacles arising from Russia's economic policies. The report and the World Bank only appear to be in agreement on this point. The World Bank brings pressure to bear on efforts to reform legislation governing the petroleum and natural gas sectors and encourages greater legal protection for foreign investors and a liberal price policy. By contrast, the scientists who conducted the Fraunhofer study (funded by the German environment ministry) call for a much broader range of measures. In their opinion, laws requiring the rational use of energy (precise rules and regulations for the provision and use of energy) are just as important as any reform of legislation regulating the oil sector (FhG-ISI 94a, 229).
Raising prices is not enough to achieve energy efficiency. Rather, the "key to success" for any energy conservation policy is a "set of measures that simultaneously eliminates the several, often coexistent obstacles in a target group" (FhG-ISI 94a, 230). This means measures not only on the supply side, but also on the demand and consumer sides: regulations, technical standards, financial incentives for energy conservation measures, new business concepts (such as least cost planning) for power utilities, pilot projects for new service companies (contracting), efficiency-oriented joint ventures and continuing education programs. The World Bank should include this list much more prominently in its portfolio and assign it top priority. The German Institute for Economic Research (Deutsches Institut für Wirtschaftsforschung – DIW) also calls for this in its study of the Russian oil and gas sector (DIW 95, 248). But instead of following this recommendation, the World Bank is reinforcing the policy of "constantly expanding the supply" which both the Soviet and Russian governments have pursued to date (Engerer 92, 60).
The World Bank's pronounced policy of increasing prices is the source of strong misgivings among Russian non-government organizations. Higher prices are indisputably an important incentive for energy conservation and are generally propagated in pertinent literature for this reason. However, a one-sided policy which focuses only on prices will place a further strain on people who are already living below the poverty level and will meet with a lack of understanding among the general public. As a consequence, both the OECD and the Fraunhofer report advocate using tax revenues to selectively and directly assist that group of persons who would be hardest hit by higher energy prices rather than to subsidize energy prices across the board (Popova 96, 19; FhG-ISI 94a, 223f). This would require a tremendous amount of money because more than one third of the Russian population lives below the poverty level. Despite the fact that the World Bank makes similar statements (Gray 95, 58f), it has yet to develop an explicit strategy or allocate funds for such measures. On the other hand however, the IMF and the World Bank have obtained energy price hikes ever since the start of their involvement in Russia.
Further Course of Action in the Oil and Natural Gas Sector
In light of the enormous losses that oil and natural gas production in Russia continues to generate, it should be emphasized once more how important it is that both operating and abandoned production sites be systematically repaired and modernized. Little progress is apparent in this area despite two relatively large World Bank projects. The World Bank is guilty of window-dressing when it states that it has jump-started rehabilitation with these two projects. The low loan disbursement rate reveals that the First and Second Russian Oil Rehabilitation Projects have scarcely generated any concrete orders (see the section "Modernizing oil production: Overnight success is still just wishful thinking"). There have apparently been enormous problems involved in implementing these projects. In an unpublished progress report on its activities in Russia, the World Bank now rates these two loans with a "U" for unsatisfactory – in respect to achieving their targeted goals and the status of their implementation. Just one year before, the World Bank was confident that at least the project goals could be realized to its satisfaction.
These modernization projects are very complex and involve a large number of players. The World Bank itself states in its 1995 Country Assistance Strategy (CAS) for Russia – which is not available to the public – that numerous factors make Russia an extremely difficult credit environment for the World Bank. And yet, those responsible are betting on a new oil expansion project using some of the same players (YNG). The new project holds the potential for even greater environmental and social problems and contributes nothing to solving those that already exist.
To be precise: Even a modernization of the sector's production and transport systems would not be enough to combat the environmental problems associated with oil and gas production (DIW 95, 239). Modernization projects do not assign priority to cleaning up inherited environmental problems because, on the surface, such measures do not promise any economic benefits. In light of this, the following action was called for in a report issued by the German Institute for Economic Research (DIW) which the German Ministry for Environmental Protection placed in charge of developing recommendations on reducing the environmental damage caused by Russia's oil and gas sector:
The report also makes it clear that conventional joint venture projects have very little effect in terms of reducing environmental stress because they focus almost exclusively on developing new oil fields (DIW 95, 238 f).
A more effective approach for the World Bank would be, for example, to systematically register the technical, bureaucratic, financial and human problems involved in implementing the modernization projects and then make this information available to the public. Doing this would increase the pressure on the political sector. Together with its Russian partners, the World Bank should continue to work toward rehabilitating the oil fields, incorporating the experience and insights gained during this learning process. Environmental considerations must be viewed as an integral part of any modernization measure. Furthermore, the pipeline network is in urgent need of repair and steps must be taken to remedy this situation. The fact that several million tons of oil are lost every year through breaks and leaks in the pipelines is a clear indication that action must be taken and it must be taken before any subsidized development of gigantic new oil fields.
Renewable Energy
Although they are entirely neglected by the World Bank, renewable sources of energy definitely play a role in the Russian energy sector. Russia used hydropower to generate approximately 17 percent of its energy in 1992. Some one percent of the energy consumed that year was produced by firing wood (OECD/IEA 95, 257). According to OECD calculations, "new" renewable energies such as wind energy, photovoltaic energy, solar thermal energy, geothermal energy and tidal energy could cover two to three percent of Russia's electricity and heating energy needs in the year 2010. However, reaching this goal will be possible only if sufficient investment capital is made available (OECD/IEA 95, 260).
A few innovative research projects are being conducted which the World Bank writes off as being too insignificant for Russia's energy strategy. Examples include an 11 MW geothermal power plant, a 400 kW tidal power plant and some 1,500 functioning turbine windmills. Eight large wind-power projects with a total nominal value of 170 MW are in the planning. A 1.5 MW combined photovoltaic-solar thermal power plant is also being developed for the North Caucasus by the state electric power company RAO ESS Rossii (OECD/IEA 95, 257). However, precise technical or economic estimates of the potential capacities offered by renewable sources of energy are not available for the Russian Federation (Matthes, Mez, Wanke 92, 26). In view of the country's enormous size, climate, and agricultural and forestry resources, it can be assumed that all inexhaustible energies have considerable potential. Multilateral and bilateral donors should support research projects in these areas.
Although the Soviet Union had already gathered many years' experience with renewable energies before its dissolution, today's Russia is less active in this field than the other former Soviet republics. A 1995 OECD report attributes this in part to Russia's huge oil reserves and the low cost of extracting oil and gas (OECD/IEA 95, 257). Research budgets for renewable energy sources have been cut in the last five years – despite the fact that funding requirements have increased because research projects have since taken on a demonstrational character (OECD/IEA 95, 258). The lack of coordination between the state, the private sector, lenders and foreign companies presents yet another obstacle. At the same time, it is obvious that the Russians are keenly interested in bilateral and multilateral cooperation. The desire for greater cooperation with the West – which is due in no small part to diminishing state assistance in Russia – was expressed at the German-Russian conference on renewable energy sources and their role in the energy policies of Russia and Germany which was organized by the Fraunhofer Institute for Systems and Innovation Research in 1994 (FhG-ISI 94b).
The World Bank's inadequacy is clearly revealed here. If it were genuinely interested in a lasting reform of the Russian energy sector, it would have paid more attention to the financial crisis that has befallen renewable energy sources. To underscore the point: Even though it is urgently necessary to raise energy prices for a number of reasons including greater profitability for renewable energies, higher energy prices are not enough to effect extensive structural change. In fact, Russia has watched its energy efficiency level fall (= rising energy intensity) since 1990 despite a decline in the gross domestic product and rising energy prices (Gray 95, 4).
The development and expansion of renewable energies would be an important element in a Russian climate protection policy. "New" renewable sources of energy produced nearly four times as much energy and heat in the efficiency scenario outlined in the Fraunhofer study than in the "politics as usual" scenario (FhG-ISI 94a, 222). This finding induced those responsible for conducting the CO2 emission reduction study and the German Federal Ministry for the Environment to set up an exemplary contact and information-sharing forum for German and Russian companies working in the renewable energy field (BMU 95).
Efforts to support renewable sources of energy also have a political component. The Russian scientist Lydia Popova has referred to the important role the military-industrial complex plays in restructuring and reforming the energy sector. The Russian military industry's immense technical and scientific capacity and know-how that has been freed up in recent years "could be used for developing new technologies and constructing more efficient and environmentally benign sources of energy" (Popova 96, 20f). According to Popova, several military facilities are already developing and producing wind power plants and components, photovoltaic cells and solar energy systems. In the aircraft construction sector, some facilities are being used to produce gas turbines. Given appropriate incentives, the defense industry could, in Popova's opinion, develop a stronger interest in switching from military to civil energy production.
One of the most important prerequisites for increasing renewable energy production is the existence of a corresponding legal framework which would allow independent energy producers onto the market. Independent producers would include block-type industrial thermal power stations, private utilities, cooperatives and individuals. The OECD recommends offering appropriate tax breaks and other incentives to give renewable energy sources a further boost (OECD/IEA 95, 261). It also continues to emphasize the importance of joint ventures in the field of renewable energies: "Every effort should be made to facilitate multilateral co-operation in the renewable energy manufacturing industry" (OECD 95, 262). Furthermore, the report's authors advise the Russian government to spend time thinking about export strategies for renewable energy sources. The report also outlines possible areas of activity for the World Bank which do not involve fossil fuels.
More Information, More Communication, More Public Participation
What hinders the World Bank from pursuing a loan policy based on climate protection and resource conservation in Russia? Besides the aforementioned political considerations, it tends to be rather bothersome for such a large bureaucracy to strike out on new paths, even though this may be necessary. The new paths in this case would be those marked by an energy efficiency strategy. They are little known or do not appear interesting to a broad spectrum of people which ranges all the way from the Russian government to the managers of state-owned operations down to the consumer.
The lack of information and adequate training in regard to the technical and economic possibilities offered by efficiency strategies were the focus of complaints expressed by experts during an unpublished discussion organized by the International Energy Agency (IEA) (OECD/IEA 93, 2). The OECD report also considers information campaigns to be of key importance (OECD/IEA 95, 261). The human factor – in other words, motivation and abilities – plays a decisive role in the success of any efforts in the fields of energy efficiency and renewable energies, the seven Western energy experts taking part in the discussion agreed (OECD/IEA 93, 2). These experts felt that Russia's present training and management system acts as an impediment to any shift in direction toward energy efficiency goals. Although a number of institutions such as the Moscow Energy Agency have been established, the experts pointed out that even the specialists working there would have no chance of being successful without additional training.
As important as these "soft" or "human" issues may be, a centralized bureaucratic giant like the World Bank is scarcely suited to tackling them. To date, the World Bank has placed its prime focus on and gathered the bulk of its experience with large-scale financial, technical and economic policy projects – rather than with collaborative projects in the social sector. This is also precisely the reason why the World Bank must reconsider its policy of injecting massive amounts of capital into Russia's primary energy sector. In the past, little consideration has been given to the fact that enabling public involvement and participation is particularly important for effecting any changes in general conditions. As Lydia Popova says, "Public participation in energy policy design is crucial. It will help to develop sustainable energy programs and will also strengthen democratic institutions in Russia" (Popova 96, 24).
Germany's Role
The Federal Republic of Germany is one of Russia's most important donor and debtor nations. When granting loans, the Federal Republic can direct project focus toward a sustainable transformation of the Russian energy sector. The German Federal Ministry for the Environment has launched several commendable initiatives for working together with Russian partners on developing plans for a climate protection policy and on reducing environmental damage in the oil and gas sector. However, the findings of the previously mentioned studies should also be taken into consideration when granting loans to the energy sector.
Further, Germany is also in a position to exert considerable influence within the World Bank. The Federal Republic holds the third largest share of votes after the USA and Japan (endnote 4) and can consequently exercise political influence through its executive director on the World Bank's executive board. The German executive director receives his instructions from the Federal Ministry for Economic Cooperation and Development (BMZ). It is imperative that loans granted to Russia be subjected to intensive strategic controls. The findings of the German environment ministry should also be incorporated into such controls.
9. Demands of WEED and WWF-Germany
Stop the Loan
We call upon the World Bank not to approve the loan it is currently preparing for a private Russian-American joint venture to develop the North Priobskoye oil reserves in Western Siberia.
Moratorium
In view of the catastrophic environmental situation in Western Siberia, we call for a moratorium on all activities to develop and finance new oil fields in Western Siberia. A systematic, independent study of the environmental situation in Western Siberia should be conducted during this voluntary freeze on further development.
Modernization
The systematic repair and modernization of operating and shut-down production sites and the modernization of the pipeline network and the refineries must be cofinanced before any further oil fields are developed. Any modernization must include environmental rehabilitation. We call upon the World Bank to explain the reasons for the failure of its projects, outline the consequences that must be taken in regard to its future loan policy for the Russian oil sector as a result of this failure, and to make this information available to the public.
Energy Strategy for the Future
The World Bank should conduct a comprehensive study of the Russian energy sector's efficiency potential before it grants another major loan to expand the country's oil sector. This study should list measures for tapping these potentials and should take renewable energy sources into account. It is also urgently necessary to conduct a comparative cost-benefit analysis of existing options as part of an integrated resource utilization plan.
Proper Economic Assessment
Information on how much oil is to be exported to Europe and which pipelines it is to flow through will be necessary for a cost-benefit audit of the planned project. This information has not been available to date. A scenario estimate of how world market oil prices will develop is also necessary for a cost-benefit audit on the project.
Independent Environmental Impact Assessment (EIA)
We call for a truly independent EIA – in other words, an EIA that is conducted by a third party – of the planned joint venture project in North Priobskoye. This EIA should also detail the indirect consequences of the targeted catalytic effect, such as the expansion of the Arctic Sea route for oil tanker traffic and the expansion of the export pipeline network.
The accountable parties are to be clearly identified in case an accident involving oil occurs during the planned project. In such an event, those accountable must bear all costs.
The World Bank, assisted by its Environment Department, should analyze the possible subsequent effects the planned joint venture project could have on further global warming. This analysis should be included in any EIA that is conducted.
More Public Participation
The public – Russian non-government organizations, independent institutions and scientific institutes in particular – should be allowed to participate as equal partners in formulating a development strategy for Russia and its energy sector strategy.
The German Government's Role
The German government should exert its considerable influence within the World Bank and insist upon implementation of the demands outlined above. Findings from bilateral studies on measures needed for a Russian climate protection policy are to be taken into account in these activities.
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Notes
1. Although the EBRD uses this figure in its 1994 annual report, it cannot be ascertained from the report's list of approved projects.
2. Please also refer to Tatjana Chahoud's extensive critique of the World Bank's rehabilitation loans in "Akteure und Voyeure beim Russischen Roulette," Informationsbrief Sonderdienst Weltwirtschaft und Entwicklung, 14 March 1994.
3. Assuming that carbon comprises 86 % of each ton of oil, the oil expected to be pumped over a 50-year period will have a carbon emission value of approximately 516 million tons. Based on a conversion factor of 3.667, this represents approximately 1.89 billion tons of CO2.
4. Germany held 4.88 % of the votes in 1994; it provided 8.73 % of the World Bank's capital in 1993.
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