Infrastructure

Analysis

World Bank says “stars are aligned” for large infrastructure

26 June 2013

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The World Bank, in conjunction with the G20, is reinvigorating its infrastructure focus, paying particular attention to leveraging resources from the private sector and investing in fragile and conflict affected states. It announced a return to big hydropower projects, despite continued concerns about projects in the Democratic Republic of Congo, Guatemala and Uganda.

A February report with associated issue notes responding to the G20’s theme on “financing for investment”, largely written by Bank staff with input from other institutions, confessed that IFIs like the World Bank “will have limited capital for the foreseeable future” meaning “that governments must consider alternative financing models to leverage private capital into infrastructure.” It pushed for public-private partnerships (PPPs), but noted several constraints, such as “a severe lack of bankable projects which can attract private capital.” It argued that the G20 is “uniquely positioned” to “set the tone and urgency of the PPP agenda”. This message was reinforced by the G20 Russian Sherpa in March, who said: “We are considering the possibility of modifying the mandates of national and international development banks with the goal of focusing the institutions for development on the goal of promoting investment, primarily in infrastructure and supporting [PPPs] in this area.” However, Shoujun Cui of the Renmin University of China raised concerns about the failure “to articulate how the feasibility and implementation of infrastructure operations should take into account social and environmental considerations and safeguards”. Cui cautioned: “In a worst-case scenario, the original aim of economic resilience will be undermined. This is an area that should not be neglected.”

PPPs for the poor

The PPP model is also being pushed in the negotiations for the 17th replenishment of the Bank’s low-income country arm, the International Development Association (IDA, see Update 85), including for fragile and conflict affected states (FCSs). A March paper on IDA support to FCSs said that jointly IDA and the Bank’s private sector arms “would focus on primary constraints to private sector growth, in particular access to infrastructure (including power), access to finance and access to markets.” In mid May Makhtar Diop, the Bank’s vice president for Africa, wrote in a blog that fragile states “are home to some of the world’s most valuable natural resources – timber, iron ore, diamonds and hydropower” and “strongly encourage[d] institutional investors in Europe and the US, currently making very modest returns on their portfolios at home, to look to Africa and especially its fragile states to triple and quadruple their yearly returns.” As an example of Bank supported “regional projects that can transform the lives of people” he mentioned the controversial Cameroon Lom Pangar dam (see Update 81) and the Democratic Republic of Congo (DRC) Inga 3 hydropower project (see Update 81, 79, 70, 67, 56). Jin-Yong Cai, executive vice president of the IFC, told news agency Reuters in April that the IFC “must act as a catalyst both in fragile and poor countries … and be bold in delivering infrastructure projects or services”. He said the IFC could be a “problem-solver” and would “step up our game”.

In June, Bank president Jim Yong Kim confirmed to Reuters that the Bank is working on a global infrastructure facility, including Bank funds, to push infrastructure investments. In late May, Bank president Jim Yong Kim joined UN secretary general Ban Ki-moon on a trip to the Great Lakes region in Africa, announcing $1 billion in proposed IDA funding, including for hydroelectric projects, with a particular focus on the DRC. According to Kim “this can be a major contributor to lasting peace.” However, Pascal Kambale of the Africa Governance Monitoring and Advocacy Project, an Open Society Foundation programme, told news broadcaster Deutsche Welle that this is a “flawed assumption” and that “development will come only if peace is there.” Furthermore, issues around corruption remain unanswered. At a mid April panel discussion ahead of the World Bank and IMF spring meetings Bank managing director Sri Mulyani Indrawati, herself under investigation by Indonesian authorities (see Update 86), conceded that the Bank operates in “many countries where the risks of corruption are very high”. She said: “We are dealing with a dilemma: How are we going to attract more public-private partnership investment without compromising the quality and the integrity of the projects”, concluding that the Bank will have to develop new frameworks on how to combat corruption if it is to expand its public-private partnerships.

The return of big hydro

The Bank’s renewed support for large hydro was emphasised by Rachel Kyte, the Bank’s vice president for sustainable development in the Washington Post in early May: “large hydro is a very big part of the solution for Africa and South Asia and Southeast Asia”. On Inga she said: “The stars are aligned now. Let’s go.” This was confirmed in a presentation by the Bank’s chief technical specialist on hydropower, Jean-Michel Devernay, at the International Hydropower Association world congress in late May in Malaysia. Devernay noted that after withdrawing from the hydro sector for about ten years, the Bank has gradually turned back since 2003 and is now firmly back on the agenda.

Inga 3 was highlighted in the Bank’s March IDA paper on “regional transformational projects” (see Update 85). Technical assistance to prepare the PPP project, rated by the Bank as high risk, is in the pipeline for approval by the Bank with possible IDA financing. According to the Bank’s documents, Inga 3 aims to provide power to mines and households in the Katanga province, as well as other power networks in the DRC with possibilities of export. However, according to Peter Bosshard of NGO International Rivers: “South Africa has already signed an agreement with the DRC to import 2500 MW of the project’s 4800 MW generating capacity”. Another component of the Bank’s support for Inga 3 would “assess the eligibility for carbon finance for Inga 3 and mid-size hydropower projects.” The Bank documents reveal that Inga 3 is also called “Grand Inga phase A”, as the project would “kick start future development of Grand Inga”, noting that “Grand Inga phase C and subsequent phases will have significantly more serious environmental and social impacts”. In May, the DRC announced that construction of Grand Inga, which would become the largest hydro project in the world, would begin in October 2015. Despite civil society concerns Grand Inga has also been highlighted by the G20 as an “exemplary project” (see Update 81).

Big hydro, big problems

A mid May letter to president Kim from 19 NGOs, including Groundwork of South Africa and Urgewald of Germany, called on him to avoid “a return to the failed mega-projects of the past”. The letter raised a number of questions about the Bank’s approach to large hydropower projects in Africa, including how they aim to address access to electricity for the poor and avoid corruption, as well as negative impacts of climate change. Moreover, it noted: “Projects such as Inga 1 and 2 have not unleashed economic development, but have been major contributors to African countries’ unsustainable debt burden.” It expressed concerns that the return to large hydro “would repeat social, economic and environmental failures that the countries of Sub-Saharan Africa can least afford”, and instead pushed for distributed renewable energy solutions (see Update 86). A mid May response from Diop said that Africa “is blessed with large hydropower”, as well as other energy sources, and “will have to tap all these resources”. It also said that the Bank will “continue to seek the inputs and advice from all stakeholders, apply the lessons of experience and the best technical knowledge available”.

Some of the Bank’s past involvement in hydro remains unresolved. In early April the coordinator of communities affected by the construction of the controversial Chixoy dam in Guatemala during the 1970s and 80s (see Update 84, 81, 47, 43) wrote to the Bank in relation to its ongoing safeguards review since they had not been invited to the Guatemala consultations. The letter complained about the lack of redress by the Bank: “It is not fair that you continue to deceive the affected people subjected by your irresponsibility to inhuman living conditions which the civilised world condemns through international treaties and conventions.”

A sixth case has been registered with the IFC’s accountability mechanism, the Compliance Advisor/Ombudsman, on the controversial Bujagali dam in Uganda (see Update 80, 62, 55, 26), this time from the chairman of an informal association of former Bujagali construction workers, representing over 300 workers at the construction camp and dam site, raising concerns about unpaid wages and benefits going as far back as 2008. The letter stated: “I definitely suspect a trivial situation of corruption, bribery and maladministration”, but hoped that “these negotiations will yield fruit for these poverty stricken Ugandans.” Furthermore, in an April case study US-based NGO the Bank Information Center highlighted that there was insufficient attention to the needs of children in the Bujagali resettlement plan, which resulted in reduced access to healthcare and education, and increased rates of malnutrition and participation in child labour for affected children. According to Cui additional issues on Bujagali include possible impacts of climate change, which would make the project “a costly mistake if river flow proves insufficient to support its turbines.” He also pointed to the “excessive construction costs” and that since it is a PPP “the added pressure to repay the loan is very high, resulting in a soaring electricity price.”

Also in Uganda, in early May it was announced that a proposed dam project in Mbale, part funded by the Bank, would not be going ahead due to resident protests. The residents claimed the dam would cover their only fertile land and that they had not been involved in the planning. Other controversial hydro projects recently signed off include two projects in Georgia to be developed by India’s Tata Power through an agreement with Norway’s Clean Energy Invest and the IFC. The energy will be exported to Turkey.