Voluntary transparency not enough in IFI extractive operations

26 September 2008

By Heike Mainhardt-Gibbs, Bank Information Center

A forthcoming NGO assessment of World Bank and IMF operations in over 55 resource-rich countries finds that the IFIs have lacked consistency in insuring transparency of the revenues generated from extractive industries.

The World Bank and IMF advocate revenue transparency mainly through promoting the Extractive Industries Transparency Initiative (EITI) ­ a voluntary programme involving the public reporting of government revenue payments (see Update 35). The two institutions’ support many activities aimed at transparency including workshops, country dialogue, and capacity building grants. However, it is important to determine whether the institutions’ official assistance, especially to resource-rich countries, ensures meaningful transparency – not just seminars and promises of progress.

The assessment conducted by Bank Information Center and Global Witness concluded that the institutions have not implemented a comprehensive and consistent programme across their operations to ensure revenue and contract transparency in all extractives activities. For the World Bank, the study found that although revenue transparency is frequently raised in project documents, it is only occasionally a programme benchmark tied to future funding. At the IMF, revenue transparency was a benchmark in 60 per cent of resource-rich countries with active lending programmes, but rarely (about six per cent of the time) a benchmark in IMF non-lending country programmes.

revenue transparency is only an occasional benchmark tied to future funding

Moreover, the disclosure of contracts between governments and industry, critical to verifying revenue and recommended by the IFIs, was not addressed by 90 per cent of IFI operations. The Bank and IMF also falsely assume that if a country has endorsed EITI then civil society engagement will automatically be a part of implementation. However, not all countries are engaging civil society adequately and not all governments fully accept CSOs having a seat at the table.

The study recommends that the two institutions must: be consistent across countries and establish clear indicators of progress on extractive industry revenue transparency; require contract disclosure; and require meaningful civil society participation.

On a positive note, there are indications that the Bank is listening to calls for expanded transparency. In 2007 the Bank´s private sector arm, the International Finance Corporation (IFC), began requiring all of its extractive projects to publicly disclose revenues paid to governments. In response to requests from the Publish What You Pay coalition, the IFC now provides a website with links to borrowers’ payments to governments. In April of this year, the Bank announced its plans for EITI++, intended to promote transparency along the entire value chain including contracts and budgets. The current focus of EITI++ is Africa, with Guinea and Mauritania as the two pilot countries.

These two positive steps are not without concerns. As of mid-August, the IFC´s website only had revenue information for six out of nine applicable projects and did not include the 16 projects that voluntarily agreed to disclose revenues prior to the 2007 requirement. The data varies greatly among companies, is not clear, and is difficult to find. These discrepancies reflect a lack of clarity in IFC policy.

EITI++ is aimed at “willing governments” and thus may not be applied widely. Although the Bank states that they will assemble an advisory committee of stakeholders to guide the initiative, it is unlikely that governments will be willing to discuss all the value chain issues in a setting that includes full civil society participation.

Chad as test case

The World Bank finally pulled out of the Chad-Cameroon oil pipeline in September after long-standing tensions with the government over failed promises to spend the oil profits on programmes for the poor instead of funnelling resources to military expenditures (see Update 60, 56, 53). The pipeline was one of the Bank´s biggest investments in Africa and billed as a test case for how loan requirements could ensure that Africa’s oil wealth benefits the poor and is spent properly and transparently.

The Bank gave up on ensuring the poor benefit from oil profits, but ensured it was prepaid the outstanding balance on its $140 million loan before pulling out. NGOs criticised the Bank’s plan from the outset, saying the mechanisms set up to ensure transparent use of revenues would have little chance of survival given Chad´s authoritarian government and history of civil war.

As shown by the failure of Bank efforts in the Chad-Cameroon pipeline project, promises of transparency do not necessarily translate into poverty reduction, nor do IFI-induced increased transparency measures alone justify IFI involvement in the extractive industries.