The World Bank and extractives: a rich seam of controversy
News||7 February 2012|update 79|
As World Bank projects fail to reduce corruption in the mining sector in the Democratic Republic of Congo (DRC), International Finance Corporation (IFC) investments in extractive industries are provoking complaints and protests around the world.
In 2012 the Bank will launch its new extractives for development (E4D) initiative, a “knowledge sharing platform” aimed at transforming extractives into a force for development. The Bank’s role in extractives has come under fire from critics in the past (see Update 75, 72, 70). Speaking in December last year Rachel Kyte, the Bank’s vice president for sustainable development, admitted that the sector has been blighted by “corruption, rent-seeking, environmental damage, disregard for the rights of local communities, [and] conflict and fragility.” A recently produced business plan for E4D claims that it aims to address these failings by creating a knowledge sharing “platform between governments, relevant civil society organisations, associations anchored in the extractive industries, academic organisations and development agencies.” In doing so it will allow the Bank to “help oil, gas and mining endowed developing countries manage the process of discovery, depletion, development and diversification more effectively and so better leverage their resources for development and poverty reduction.”
Controversy continues in the DRC
Concerns over corruption in the extractives sector was an issue highlighted recently in the DRC. Since 2001, the Bank has led an expansive programme to increase transparency and stimulate economic growth in the DRC’s mining sector (see Update 54, 50). However, opaque sales of mining assets by state-owned mining companies led the Bank to suspend all new programmes in the DRC in late 2010. The Bank resumed lending in June last year when it judged the government to be in compliance with the economic governance matrix (EGM), a new transparency framework agreed by the government and the Bank.
However, only a month later it came to light that state-owned mining companies had again been secretly selling stakes in mining operations, in one case at a sixteenth of their market price. Some of these sales were to mysterious companies linked to a businessman allegedly close to the DRC president Joseph Kabila and based in the British Virgin Islands. The islands are ranked eleventh in international NGO the Tax Justice Network's financial secrecy index of jurisdictions that are most aggressive in providing secrecy in international finance.
NGO coalition the European Network for Central Africa (EURAC) wrote a letter to the Bank and EU in September contending that these deals constitute a breach of the EGM, and calling on “the World Bank to take a far more active role in monitoring these activities, and to push for the full implementation of the [EGM... Transparent management of these financial resources is vital if Congolese citizens are to benefit from the country's mining wealth.”
Daniel Balint-Kurti of UK NGO Global Witness said: “the IMF and World Bank have a responsibility to ensure that all financial support they give to the DRC government is contingent upon the government demonstrating that it is compliant with all its transparency commitments and that gross corruption is not taking place. The government must also comply with requirements that all ownership of companies given access to DRC's natural resources is made public. The risk of corruption here are so serious that the IFIs must take a hard line with this.”
The Bank has also faced consistent criticism for its restructuring program for state-owned mining company Gecamines (see Update 54, 50). The restructure of Gecamines resulted in the retrenchment of an estimated 10,000 workers, who have twice brought cases to the Inspection Panel, the Bank's grievance mechanism, arguing that the severance payments and social integration programmes required under Bank policy did not materialise. In September 2011 the Bank board endorsed the Panel’s decision not to investigate the case further, agreeing with their findings that substantial and effective programmes had been instigated by Bank staff and the DRC government to address the complainants’ grievances. However, the Panel did report that “the Bank's management of these risks could have been better, not least in its implementation support.”
In November 2011, NGO Gender Action released a report, The World Bank and gender-based violence case study: the Democratic Republic of Congo, arguing that the Bank’s extractive industries projects in the DRC demonstrate “a critical lack of gender sensitivity... which ignore potential negative gender impacts and increased risk of gender-based violence among female beneficiaries.” This underlines the “urgent need for IFIs to implement their own gender policies, explicitly address [gender based violence] against women and men, boys and girls, and promote sexual and reproductive rights in their investments.”
Outcry in South America
The IFC’s 1999 investment in mining company Minera Yanacocha, owned by mining giant Newmont, has again provoked controversy (see Update 53, 43). In November 2011, an estimated 20,000 people in the Peruvian state of Cajamarca demonstrated against Minera Yanacocha’s proposed Conga mine, which included over 8,000 farmers blockading a town. Amid concerns that government negotiating teams were pressurising local leaders to sign agreements without wider consultation and that police had opened fire on protestors, the government declared a state of emergency in Cajamarca, suspended construction of the mine, and in January announced that it will ask international consultants to review the environmental impact of the mine.
Meanwhile, Canadian mining company Goldcorp, which in 2004 received a $45 million IFC loan for its Marlin mine in Guatemala, is the subject of increasing scrutiny (see Update 72, 44). A November research report by the Global Development and Environment Institute finds that “local benefits are a tiny fraction of total mine revenues and earnings, the bulk of which flow overseas to the company and its shareholders”, and “direct and indirect economic benefits will cease abruptly when the mine closes because jobs, taxes and royalties will evaporate”. The project also poses “hazards related to cyanide and heavy metals contamination of water” which “will undermine agricultural livelihoods, impoverishing local communities.”
Of 20 projects with open cases at the Compliance Advisor/Ombudsman (CAO), the IFC’s accountability mechanism, nearly a third are from extractives projects. In October 2011, the IFC accepted a complaint from two indigenous communities in the Philippines over the IFC’s $9.5 million equity investment in Canadian mining company Mindoro Resources Ltd (see Update 74). Complainants had argued that the project will destroy culturally, socially and environmentally vital forest without their consent.
In December 2011, the CAO decided to transfer the Maple Energy case to its compliance function, which will assess whether IFC standards have been violated. The case follows a complaint by two indigenous communities in Peru alleging that Maple, which received $40 million in IFC support in 2007 for new oil drilling, has failed to adequately consult with them, and through oil spills from its existing sites has caused numerous health, social and environmental problems. They also allege that the company failed to compensate them for these damages, and forced them to clean up the spill. The CAO oversaw negotiations between the company and the communities, but the communities withdrew after another oil spill next to one of the complainants' villages in August 2011.
The highly controversial Chad-Cameroon pipeline (see Update 62, 60, 56), which the public-sector arm of the Bank withdrew from in 2008, also had a complaint deemed eligible for further assessment by the CAO in December. The complaint was brought by six NGOs, including the Chad-Cameroon Petroleum Development Project Monitoring and Alternatives Group, on behalf of over 25,000 local inhabitants of areas affected by the pipeline in Chad. It argues that local communities “are excluded from the economic and social trickle-down effects of the development of oil”, and face “the loss of a sustainable means of livelihood” and “irreversible environmental impacts.”
A November report by NGO Crude Accountability highlights three IFC oil and gas investments in the former Soviet Union, which between them have received 31 eligible CAO complaints. It concludes that “the CAO failed to pursue systemic concerns such as violations of national law or inappropriate project risk categorisation with IFC senior management or the president of the World Bank Group.” CAO staff insisted their role was to settle individuals’ complaints, despite the fact that “compliance with national law is a requirement of the IFC performance standards”. The report asks that the Bank must “determine whether the goal of CAO intervention is to encourage affected communities and IFC clients to settle for the lowest level of social and environmental compliance acceptable to both parties, or to push IFC to meet or set international environmental and social protection best standards.”
They also noted that complaints centred on the fact that “the IFC, and subsequently the CAO, assumed limited responsibility for projects after project loans were dispersed or repaid.” It also notes that complaints frequently question whether there is sufficient independence and impartiality within the CAO, and recommends that measures are taken to remedy this, including housing the CAO outside the IFC. Furthermore, it also recommends that the IFC must increase the visibility of the CAO as a potential resource for affected communities. Crude Accountability’s Sergey Solyanik said that “The question for the leadership of the IFC and the Bank in general is do they want the CAO to be a buffer zone to soften the hit from civil society and the public, or do they want a real mechanism to solve problems and answer questions?... If there is not a real mechanism, sooner or later there will be a social upheaval or a tragedy that will result in the loss of life, which will sit directly on the shoulders of IFC.”
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Published: 7 February 2012 , last edited: 7 February 2012
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