World Bank - World Bank Group and the Extractives Sector

Extractive Industries Review

The World Bank Group (WBG) has continually been criticised by civil society for its involvement in the Extractives Sector, for making controversial oil extraction and transportation possible, or for helping to realise mining projects. Protests reached a peak after IBRD and IFC both agreed to give money for the controversial Chad-Cameroon pipeline in June 2000. In response to these protests World Bank President James Wolfensohn committed at the World Bank's annual meetings in September 2000 to launch a review process. The aim of this process was to evaluate the Bank's lending to the extractive industries and determine if this lending fosters sustainable development and poverty alleviation. In June 2001, Mr. Wolfensohn appointed Dr. Emil Salim, the former Indonesian Environment Minister under Suharto, a former director of Indonesia's largest coal company, and Chair of the 2002 United Nations Johannesburg World Summit on Sustainable Development (WSSD), to direct the independent review. Dr. Salim was assisted by a secretariat that was initially situated in Washington DC, but moved to Jakarta in February 2002. Apart from the secretariat, Dr. Salim was assisted by an Advisory Group comprising

Over the two following years, the Extractive Industries Review (EIR) consulted with many stakeholders, including representatives of civil society, labor, industry, and governments. The Secretariat held regional consultations in Latin America and the Caribbean, Africa, Asia-Pacific and Central and Eastern Europe. The EIR also conducted independent research analysing the social and poverty impacts of the extractive industries. Throughout the process, the World Bank Group was an active participant in the EIR.

In January 2004, Dr. Salim presented President Wolfensohn with the Extractive Industries Review Final Report: “Striking a Better Balance”. The review came to the conclusion that the World Bank Group can play a role in the oil, gas and mining sector, but only if its interventions allow extractive industries to contribute to poverty alleviation through sustainable development, which can only happen with the right conditions in place with three main enabling conditions: pro-poor public and corporate governance, much more effective social and environmental policies and respect for human rights. Concretely, the EIR recommends, among other things, that the World Bank Group undertake the following changes:

Governance

• Strengthen governance first so that countries are able to withstand the risks of major extractive developments. Develop explicit governance criteria, transparently and in a participatory manner, which should be met before investments for the extractives industry.

Pro-Poor Policies

• Help client countries assess the advantages and disadvantages of the oil, gas, and mining sectors compared with other development options and undertake a comprehensive options assessment before a project is supported.
• Support projects that benefit all affected local groups, including vulnerable ethnic minorities, women and the poorest.
• Provide an equitable share of the revenues to local communities.
• Ensure that poverty reduction plans are in place prior to project start
• Support projects with voluntary resettlement and resettled groups must be substantially better off
• Ensure that public health services associated with projects are available to all in the vicinity
• Require health impact assessments to be conducted during project preparation

Human Rights and Indigenous Peoples

• Develop system-wide policy integrating human rights into the Safeguard Policies and establish a human rights unit
• IFC/MIGA should assess human rights records of sponsor companies prior to involvement
• Endorse and comply with all four core labor standards
• Ensure that borrowers and clients engage in consent processes with indigenous peoples and local communities directly affected by oil, gas, and mining projects, to obtain their free prior and informed consent
• All agreements with indigenous people and affected communities should be covenanted in project agreements/contracts
• Ensure that the revised Indigenous Peoples policy is consistent with international law and agreed upon by consensus of Indigenous Peoples
• Convene a legal roundtable discussion prior to approval of new indigenous peoples policy
• No support for extractive industries in areas of conflict or at high risk of conflict
• Ensure that local grievance mechanism is in place for all extractive industry projects

Environment

• Increase support of renewable energy lending by 20% annually
• Ban the use of riverine tailings and suspend all support for projects with submarine tailings pending outcome of independent studies
• Develop tailings criteria and should revise its cyanide guidelines to be more consistent with UN, EU guidelines and minimize support for mines using toxins, like cyanide, and promote safer substitutes
• Clarify ban on financing of extractive industry in protected areas as defined by UN, Natural Habitats Policy, or as designated by national or local governments
• Use safe, modern and well run vessels to carry oil or hazardous cargoes
• Establish clear guidelines on mine closures and condition financing on the set-aside of sufficient closure funds, which should be ring-fenced even after the World Bank Group's exit
• Emergency response plans should be in place at project outset and conform to best practices

Disclosure and Transparency

• Disclosure of (revenue) payments on company and government level
• Vigorously pursue revenue transparency at country and company level
• Disclosure of: project contracts and agreements, like Host Government Agreements, Production Sharing Agreements, Power Purchase Agreements; monitoring documents, economic, financial, environmental and social assessments.
• Environmental and social obligations should be covenanted in loan and project agreements and those should be disclosed
• Documents should be made available in local languages, in a timely and culturally appropriate manner
• Produce and disclose a net benefit analysis for all projects
• Establish an information ombudsman to oversee application of the disclosure policy and decisions about confidentiality

Institutional and Procedural Changes

• Phase-out support for oil by 2008, and formalize its moratorium on lending for coal projects immediately.
• Require comprehensive Environmental and Social Impact Assessments, including health impacts, for all policy lending affecting the extractive industry sectors in countries with significant EI or anticipated growth in EI sectors
• All extractive industry projects should be classified as Category A except where there is a compelling reasons to the contrary
• Create staff incentives to ensure safeguard policy compliance and achieve poverty alleviation impacts
• Increase the number of staff trained as human rights, social, environmental specialists
• Involve environmental, social, human rights and poverty specialists early in project cycle

In September 2004 the World Bank Group Management Response was released. It basically stressed that the EIR had a beneficial impact on the Bank Group’s approach to the sector. The response says that “future investments in extractive industries will be 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. When requested, we will also continue to advise and help governments create appropriate policy and regulatory frameworks for the sustainable development of their countries’ resources. In addition, we will take major steps to increase our own support, as well as to encourage and advocate for more global support, for economically viable renewable energy and other clean fuels. (…) In many areas the Management Response is a first step in addressing complex issues where there are strong opposing views. ….”

A number of concerns have been raised regarding the Bank’s response to the EIR, namely: the failure to address recommendations regarding human rights; the watering down of the recommendation on indigenous and community consent to read “free prior informed consultation”; lack of clarity in definition of “significant projects” for which revenue transparency will be required; no requirement of contract disclosure for “non-significant” projects; lack of commitment to respect “no-go zones” including sensitive biodiversity zones and conflict-affected areas; failure to require assessment of environmental and social impacts of policy-lending; and failure to define prerequisite conditions for extractive industries support.

The Board of Directors agreed that the Bank Group would conduct an annual review of progress toward the achievement of the objectives outlined in the management response and would remain engaged with all stakeholders. To do so, an Extractive Industry Advisory Group has been formed, comprising government, industry, and civil society representatives (4-5 each). More information on this can be found on the website of the World Bank.

Research by CEE Bankwatch Network and Bank Information Center, released by the end of 2005, found that the World Bank Group’s implementation of its Extractive Industries Review in Europe and Central Asia neglected even those commitments which the Bank’s management had agreed upon in the Management Response. The research found that far too often the World Bank Group followed a “business as usual” approach resulting in negative social, environmental and human rights impacts rather than poverty alleviation. The report “Grounded in Washington” can be downloaded on the website of CEE Bankwatch Network. 

Another report, “The World Bank Group, the Extractive Industries Review and Governance: Evaluating the Bank Group’s implementation of its commitments” from January 2006 done by Environmental Defense Fund and Bank Information Center looked into the World Bank Group's implementation of its post-EIR commitment to factor governance into decisions about the selection and sequencing of extractive industries operations. The review of five country strategies and six EI projects approved or proposed during the year 2005 revealed that the World Bank Group has done little to effectively and transparently implement its own minimal commitments, and has not undertaken a participatory process to identify EI-specific governance indicators and clearly link these indicators to support for EI projects and policies.

BIC has a whole section on its website on energy and extractive industries, which includes a variety of reports by the World Bank Group’s operations evaluations division on the Bank’s extractive industry activities.

In June 2008 Friends of the Earth International; Oil Cange International; World Environment, Ecology and Development and Jubilee South – ampdd released a report “poverty, climate and energy: the case against oil aid” making the case that fossil fuel subsidies do not alleviate poverty and contesting the World Bank’s defence of fossil fuel financing.

Extractive Industries Transparency Initiative (EITI)

Following the discussions about the resource curse, that countries rich in natural resources but with weak governance structures leave the populations worse off despite exploiting the resources, a civil society coalition emerged: Publish What You Pay, promoting that these revenues, when properly managed, should serve as a basis for poverty reduction, economic growth and development rather than exacerbating corruption, conflict and social divisiveness.

As a sort of a response to Publish What You Pay the Extractive Industries Transparency Initiative (EITI) was established 2003, which includes governments, resource companies and NGOs. EITI supports improved governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas and mining.

The EITI is both part of the World Bank's response to its own Extractive Industries Review, and also one of the tools identified in the Bank's Governance and Anti-Corruption Strategy. Therefore the Bank works with governments on EITI issues as part of broader Bank-supported programs on extractive industries reform, natural resource management, and good governance/anti-corruption. (source: World Bank)

On this, Bank Information Center has produced an assessment of how the World Bank Group are implementing revenue transparency in their operations involving the extractive industries (oil, gas, and mining - EI). The assessment reviews EI operations in more than 40 countries for the lending period of July 2005 to December 2006. Overall, the assessment concludes that, although the World Bank Group is strongly promoting EITI and requiring private sector projects to disclose revenues, the Bank is missing important opportunities and has not implemented a comprehensive or consistent program to ensure revenue transparency in all its EI operations.

Chad Cameroon pipeline

September 2008 saw the withdrawal of the World Bank from one of its most controversial and disastrous projects, the Chad Cameroon oil pipeline. Campaigners judge that the World Bank’s withdrawal amounts to an admission of failure in this project – once touted as a “model” for high-risk projects - after the Chadian government repeatedly used its newfound oil wealth in contravention of its agreements to invest in poverty reduction.

The announcement came after the Chadian government repaid US$65.7 million in outstanding loans to close out its debt to the Bank for the project. Announcing its withdrawal is misleading since the Bank is still invested in the ExxonMobil-led consortium to the tune of $100 million through IFC.

This development comes as the tenth anniversary of the inauguration of a project that has attracted intense controversy since its inception, and the fifth anniversary of its first oil exports approaches. The World Bank had agreed to help finance the pipeline after ExxonMobil, the leader of the consortium of oil companies, requested Bank assistance as a precondition for pursuing the project, knowing that the project could become a serious reputational liability.

The pipeline, which constitutes one of the largest on-shore investments in Africa, is routed through areas with delicate environments and indigenous groups already wary of their governments. Both the Cameroonian and Chadian governments were widely considered corrupt and repressive dictatorships with questionable capacity to manage such large investments. By agreeing to support the project, the World Bank catalyzed finance for the construction of the pipeline, turning Chad into Africa’s newest oil producer.

A whole series of reports has documented the failure of the project through its lifetime:

• BIC has dedicated a whole page with a variety of reports
• “Broken Promises” by Friends of the Earth International, 2001 (pdf)
• “Access to Justice from Local Village to Global Boardroom – An Experience in International Accountability” by Korinna Horta, Delphine Djiraibe, Samuel Nguiffo , September 2004
• “The Chad-Cameroon oil & pipeline project – A project non-completion report” by Korinna Horta, Delphine Djiraibe, Samuel Nguiffo, April 2007