IFI governance

Analysis

The IFCs lessons of experience & the Chad-Cameroon oil and pipeline project

23 November 2006 | Briefing

versión en español

In September 2006, the IFC published the first issue of its new publication series entitled Lessons of Experience, which it dedicated to the experience of employing external monitors in the Chad-Cameroon Oil & Pipeline project.

According to the IFC, external monitors can provide a transparent, impartial and independent record of a project’s compliance with its environmental and social commitments. Although the upfront costs of external monitoring may be significant, the IFC argues that these costs represent a valuable investment in reputational risk management and help prevent litigation, costly project delays and community upheaval. The IFC recommends the use of external monitors especially in highly visible projects such as those involving extractive industries and involuntary resettlement.

the certificate of compliance referring to the environmental management plan was a mere formality

In the case of the Chad-Cameroon Oil Project, the IFC appointed D’Appolonia S.p.A., a consulting firm from Italy, to form the External Compliance Monitoring Group (ECMG). The ECMG began by making quarterly site visits during the construction period which was reduced to one annual visit during the project’s operational phase.

The work of external monitors can indeed provide much value added but can also be used as a public relations tool and a fig leaf for poor implementation of social and environmental commitments.

The specific case of the ECMG’s work in the Chad-Cameroon projects is a case in point. The ECMG’s technical expertise on issues ranging from hazardous waste management to archaeological heritage protection has helped fill gaps in the information about project impacts. Its meticulous checklists and access to company records have further added to a systematic knowledge base about the implementation of a complex environmental management plan.

Unfortunately, however, the ECMG’s work has not made the difference on-the-ground that it could have. There are inherent structural problems when the ECMG has to make repeated recommendations about serious problems – such as intense dust pollution that diminishes visibility, damages fields and crops and affects public health – which are not adequately being solved after several years of ECMG warnings.

In addition, the ECMG committed a serious error in August 2004 when it provided the project with a certificate of compliance, certifying that the project had adhered to the environmental management plan. According to the ECMG, it had only found one level 3 non-compliance (the most serious non-compliance) which concerned the failure to protect archaeological sites, an area often considered to be of minor importance in the context of poor African countries.

When questioned about this, a member of the ECMG responded that the certificate of compliance was a mere formality and that the ECMG fully recognized that there were numerous outstanding issues ranging from toxic waste management to additional land expropriation, dust control management and public health. He explained that the ECMG had only listed one serious non-compliance problem because it had decided not to assign categories to the violations it encountered. He added that this decision was based on concerns that assigning categories would focus discussion on the reasons for the categorisation instead of on finding solutions.1

Unfortunately, the certificate of compliance and the listing of a single serious non-compliance issue were quite misleading and provided both lenders and project-sponsors with apparent proof of their claim that the project was a success story. However, even a cursory reading of the most recent ECMG report reveals that issuing a certificate of compliance was at best premature.

The report lists several instances where project sponsors have failed to live up to the commitments they had made at the time when the certificate of compliance was issued. For example, the ECMG found that the project had taken twice the amount of land and that there were three times the number of households who could no longer survive on their land than the Environmental Management Plan (EMP) had estimated.

Yet despite the severe impact on already very poor populations, the ECMG observed that EMP obligations with regard to monitoring livelihood restoration were not being complied with2. The ECMG observed other serious non-compliant conditions such as the failure to minimize the risks to the safety and health of local communities in the oil field region. An example from the Cameroonian side of the project includes the ECMG’s warning about the continued ineffectiveness of FEDEC, the foundation set up by the project to meet the requirements of World Bank Operational Policies on Natural Habitats (OP 4.04) and Indigenous Peoples (OP 4.20). The ECMG considers that the failure to meet the Bank’s policies could be considered a major non-compliance with the EMP commitments3. On a broader level, the ECMG notes that there are insufficient staff and resources dedicated to the EMP in the oil field region.

Returning to the IFC’s Lessons of Experience, the IFC rightly emphasizes the need for the external monitors to be perceived as neutral in order to be effective. It also provides guidelines meant to allow the external monitor to avoid conflicts of interest.

These are important underpinnings because ultimately the usefulness of the external monitor depends on being accepted by both project sponsors and by the affected communities and the NGOs they work with. However, the IFC’s lessons drawn from the experience with the ECMG in the Chad-Cameroon project read more like a tool to market the concept of external monitor to IFC clients than lessons meant to design a more effective role for the external monitor in improving implementation of social and environmental commitments.

There are additional lessons we can draw from the Chad-Cameroon project experience which we would like the IFC to include:

  1. It is frustrating when the external monitor makes repeated recommendations on serious social and environmental problems without any obvious results. The IFC should systematically acknowledge these recommendations, work with its clients on mitigation, and report publicly on how the problems have been addressed.
  2. The IFC paper acknowledges that environmental and social management plans may be too narrowly focused and may not address environmental and social problems which become evident during the life of the project. It is therefore important that the terms-of-reference for the external monitor allow sufficient flexibility to address problems as they arise.
  3. Issuing a certificate of compliance while serious non-compliance problems persist undermines the credibility of the external monitor and harms working relationships with civil society organizations. The external monitor should not feel pressed into issuing a certificate of compliance as if it were a mere formality and should have the right to withdraw such a certificate once the situation on-the-ground reveals non-compliance problems.

Furthermore, the IFC might wish to explain why it does not use an external monitor to cover the development of new oil fields in Chad. The World Bank Group and the government of Chad had agreed that all new oil development that will eventually use the World Bank-supported pipeline would have to be subject to the same environmental and social safeguards as the original project. In view of this agreement, it is difficult to discern why the work of the external monitor is limited to the initial three oil fields.

According to the IFC, the up-front costs for the ECMG are estimated at less than $ 2 million ($ 1.5 million during the construction phase and $ 100,000 per visit during the operational phase). The IFC’s argument is that such expenses have a way of paying for themselves by preventing problems such as corporate brand damage. While it is the project sponsors who pay for the external monitor, it is important to keep in mind that profits from the project pay for this expense and that ultimately the real costs of the project are born by the communities whose environment and livelihoods are deeply affected by the project.

Footnotes

1. Conversation with Jean Le Bloas during the World Bank sponsored workshop on the Project Completion Implementation Project in Yaoundé, Cameroon, October 14, 2005

2. D'Appolonia, report of the External Compliance Monitoring Group, second site visit- post-project completion, November 2005, published in December 2005 (available at www.ifc.org).

3.Ibid