Global Policy Forum

By Jim Lobe

To the disappointment of independent environmental and development groups, the executive board of the World Bank Group (WBG) has given general approval to a management plan to continue investing in oil, gas, and mining projects despite a three-year Bank-sponsored review that called for an immediate halt to the WBG's support for coal projects and a four-year phase-out of its lending for oil projects in poor countries.

In an all-day meeting at WBG headquarters Tuesday, the 24 executive directors, who represent the Bank's 184 member-countries, agreed to management's response to the "Extractive Industries Review" (EIR), headed by former Indonesian Environment Minister Emil Salim, subject to a further "refinement" of some provisions regarding poverty reduction and local participation in mining and energy-related projects.

Most important, however, the board backed up management's determination to continue investing in oil, gas, and mining projects in developing nations while only gradually increasing its portfolio for renewable-energy projects which the EIR had recommended be increased by as much as US$500 million a year.

"The harsh reality is that some 1.6 billion people in the developing nations still do not have electricity, and some 2.3 billion people still depend on biomass fuels that are harmful to their health and the environment," said Bank president James Wolfensohn after the meeting. "That underscores the need for our continued but selective engagement in oil, gas, and coal investments," he stressed, noting that the Bank will give greater emphasis on how these projects can better reduce poverty in its lending to extractive industries.

He also announced that the WBG will initiate an annual review with the board on progress toward achieving its goals, particularly reducing poverty, improving governance and transparency in host countries, ensuring that local communities are included in the design and implementation of future projects, and increasing loans for renewable-energy and energy-efficiency projects by about 20 percent annually over the next five years.

Reaction to the results of Tuesday's meeting from non-governmental organizations (NGOs) that had favored the original recommendations of the EIR was negative across the board.

"By largely ignoring the (EIR's) recommendations, the Bank's management has ensured that the poverty pipeline will continue to flow," said Keith Slack, Oxfam's Extractive Industries policy advisor. "The Bank's unwillingness to change means that this process will likely result in precious little for the poor communities affected by oil and mining projects around the world."

"Despite its mandate to reduce poverty, the Bank has been unable to demonstrate that its extractive projects have actually done this," he added, noting that Oxfam was particularly concerned that the EIR's recommendations on fully integrating human rights into Bank-supported extractive projects had been largely ignored by the WBG.

The reaction from environmental groups was much the same. "The World Bank has ignored the EIR recommendations and endorsed business as usual," said Jon Sohn of Friends of the Earth (FoE). "The EIR called for an 'extreme energy makeover,' and the World Bank opted for a cheap pedicure. It has missed a historic opportunity to bring its lending more in line with its mission to alleviate poverty."

Launched three years ago, the EIR was designed to address a series of increasingly urgent questions about the generally poor record that extractive industries have in developing countries, most importantly why oil, gas and mining projects in countries such as Nigeria, Indonesia, Bolivia, and the Democratic Republic of Congo had historically done so little to alleviate poverty - the WBG's core mission -- particularly in local communities where the projects were carried out.

NGOs and some of the WBG's government shareholders have also become increasingly concerned about the environmental impacts of such projects, particularly amid growing consensus in the scientific community that emissions from fossil fuels - oil, gas, and coal - are contributing to global warming and climate change.

The WBG -- which includes the World Bank; its soft-loan affiliate, the International Development Association (IDA), and the International Finance Corporation (IFC), which provides loans and other support to the private sector - has long been a major backer of extractive-industry projects in developing countries. While it has provided on average only about $1 billion a year in lending to that sector over the past decade, its mere endorsement of such projects - through such instruments as co-financing, advisory services, and insurance - still acts as a powerful magnet for private capital that would otherwise be reluctant to invest in certain countries.

After three years of wide-ranging consultations with civil society, local communities, extractive-industry officials, national governments, and Bank staff, the EIR commission headed by Salim issued an unexpectedly sweeping and critical report calling for the WBG to get out of the coal business, phase out its involvement in oil-related projects by 2008, impose tight social and environmental conditions on mining projects, and devote a much greater percentage of its portfolio to promoting renewable-energy sources, such as wind and solar power.

These recommendations were greeted with great enthusiasm by environmental, human rights, and development NGOs, but with undisguised horror in other quarters, most especially big oil and gas companies and the private banks that underwrite their projects. Developing-country governments, particularly those that rely on extractive industries as a major source of export earnings, also expressed strong reservations about such sweeping changes in the Bank's lending practices.

Unsurprisingly, WBG officials indicated already several months ago that the Group would reject the most far-reaching proposals, a position that became official in June when management issued a report thanking Salim and the commission for their work and committing itself to a "more selective" approach to extractive projects that put place greater emphasis on poverty reduction and promoting transparency and good governance. It was that response that the executive board generally endorsed Tuesday.

For one EIR consultant who asked to remain anonymous, the WBG's reaction was all too typical of its approach to many outside reviews. "The Bank has really developed to an art form high-minded ways of saying that the (EIR's) conclusions are misguided; everything is this way for a reason, and much as we all want a better world, we are already doing about as much as can reasonably be expected," he said, adding that the Bank's past record, particularly in reducing poverty, invited skepticism about its ability to follow through.

"The surprising thing is that while there has been a lot of big talk about how these industries do or don't reduce poverty, the Bank has until very recently done almost nothing to find out the answer, at least in any rigorous or objective way." That is also one of the major concerns of the NGOs.

"The EIR's key conclusion was the Bank should do much more to ensure that its extractive industries projects contribute to measurable poverty reduction, especially with respect to the severe impacts suffered by the poorest and most vulnerable groups, such as indigenous peoples and especially women and children," Oxfam noted.

"While the Bank has taken some steps, such as requiring revenue transparency and disclosure of more information, it failed to address the most fundamental question posed by the EIR: how will World Bank investments in extractive projects reduce poverty and help the poor?" it added.

"The World Bank has once again demonstrated that it is all talk and little action," according to Shannon Lawrence, international policy analyst at Environmental Defense (ED), while Jim Vallette, research director of the Sustainable Energy and Economy Network (SEEN) complained that ultimately the main beneficiaries of the extractive industries supported by the WBG were western multinationals. "The Bank likes to think of itself as an organization that promotes positive change, but when it comes down to it, it refuses to serve the poor rather than transnational corporations."