Archived press release

Historic Opportunity Missed for Radical Reform of World Bank

3 August 2004

The World Bank Group today rejected moves to a more sustainable and development-led investment policy when it failed to adopt the recommendations put forward in the Extractive Industries Review (EIR), commissioned by Bank's own president James Wolfensohn [1].

After spending three years and several million dollars reviewing the impacts of World Bank investments in the extractive industries on affected communities and the environment, the Board of the Bank, including a UK government representative [2], decided not to implement the findings.

The Review concluded that the World Bank must phase out its investments in oil and coal in order to tackle the immediate threat of climate change. It said the Bank had also failed to show that its support for projects in the oil, mining and gas sectors, such as the Baku-Ceyhan pipeline and the Chad-Cameroon pipeline [3], led to direct poverty alleviation. But acting on advice from World Bank Management, the Board decided not to make any significant commitments to ensure that investment in this sector meets the Bank's mandate of poverty reduction and sustainable development.

Friends of the Earth's International Financial Institutions Campaigner, Hannah Ellis said:

"The EIR called for a full makeover of World Bank investments in the oil and mining sectors, but the Bank has opted for a pedicure instead. This decision effectively spells good news for the companies that benefit from these investments and bad news for the communities the World Bank is supposed to serve."

Many of the recommendations made in the EIR, which were endorsed by the European Commission, would have helped reduce corruption and human rights infringements oil, mining and gas sectors. The Review also proposed that the Bank should only fund projects where it could demonstrate how they specifically helped alleviate poverty and how local communities would benefit from the investment.

The Bank has accepted it must improve revenue transparency and information disclosure, but Friends of the Earth said it had 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?

Friends of the Earth campaigner Hannah Ellis said:

"It is extremely disappointing after so much time and so much money being spent, that so little progress has been made. The World Bank has missed a historic opportunity to bring its lending more in line with its mission."

Notes

[1] The recommendations Bank Management will not commit itself to include:

• obtaining prior informed consent of indigenous peoples and local communities affected by extractive *projects as a precondition for financing;
• phase out lending in support of oil and coal and to focus its scarce development resources for renewable energy;
• set lending targets of increasing renewable energy lending by 20% a year;
• ensuring the establishment of indigenous peoples' land rights as a pre-condition for project finance;
• prohibiting the forcible resettlement of indigenous peoples and local communities;
• guaranteeing indigenous peoples' rights in relation to small-scale mining programmes;
• ensuring that revenues of Bank-financed projects benefit all affected local groups;
• requiring that freedom of association be present in Bank financed projects as a basic human/labor rights requirement;
• ensuring that good governance structures are in place before project finance and implementation occurs;
• protecting biodiversity through establishing "no go" areas for internationally recognized critical habitats such as national parks;
• requiring that submarine tailings disposal not be used in World Bank Group supported mining projects;
• ensuring use of safe, modern vessels for oil transport in World Bank Group financed off-shore oil development;
• and promoting overdue key institutional reforms to deal with the long documented "pressure to lend" in the World Bank that has resulted in weakening of implementation of key environmental and social protection policies.

[2] The Department for International Development (DFID) directs the World Bank's UK Executive Director, Tom Scholar, on behalf of the UK Government.

[3] The Chad-Cameroon Oil and Pipeline Project, operated by Exxon-Mobil, has become a huge institutional investment for the World Bank Group and shows why the EIR recommendation to address governance issues first is so fundamental. The Bank Group continuously sends its managers, including top level senior staff, to address problems with the project. These include the Chadian Government spending a portion of the first proceeds in 2000 on military expenditures, as well as appointing the President's brother-in-law to the revenue oversight committee. Meanwhile, the communities that live in the oil field area lack access to electricity and all the oil is exported overseas.

Similarly, the construction of the Baku-Tblisi-Ceyhan Pipeline project, which was approved by the IFC less than a year ago, has been halted by the Georgian Government for problems with due diligence, and the IFC has been inundated with complaints from local communities affected by this pipeline.

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Published by Friends of the Earth Trust