World Bank announces renewed big infrastructure push

8 September 2003

World Bank president James Wolfensohn announced in July that “without slowing down in other important areas like education and HIV/AIDS, it is imperative that we place infrastructure front and center in our development agenda”. A new NGO report comments that “big is beautiful again, and megaprojects are back in style”, and points out that the Bank’s track record in funding such projects is very controversial on economic, social and environmental grounds. The report – by Environmental Defense, Friends of the Earth and International Rivers Network – says the Bank is “still not able to adequately identify, contain and mitigate the risks of the projects it finances”.

The difficulties of relying on private investment for infrastructure, the Bank’s favoured approach for some time, were made clear when corporate investors pulled out of the Nam Theun 2 and Bujagali Dams, two of the largest projects in the Bank’s project pipeline. Electricite de France withdrew from the Laos project and AES from the Ugandan one, following delays, difficult price negotiations and NGO campaigns over environmental and social impacts.

The Bank’s new infrastructure action plan recognises that the Bank cannot rely on finding private sector investment for services projects in developing countries and will need to be more flexible. It says targeted subsidies can be allowed and that, whilst cost recovery is critical, it should be at a “realistic pace”. Writing in the Wall Street Journal Michael Phillips commented: “World Bank officials have now decided it doesn’t matter so much whether infrastructure is in public or private hands. What matters is that it be run in a business-like manner, perhaps more frequently combining public ownership and private management. But above all, they now say, the World Bank must pay far greater attention to the fiery politics of privatization and especially to the effect of rising prices on the poor and disaffected.” The Bank plans to do more to mix analysis, loans and guarantees from all of its four funding arms. It has also introduced a new tool to assess the state of countries’ infrastructure and determine how the Bank might support it. These analyses are termed Recent Economic Developments in Infrastructure.

big is beautiful again, and megaprojects are back in style

The NGO report argues that: “the environmental destruction, social upheaval, corruption and repression that are associated with the World Bank’s high-risk projects have created tremendous public controversy since the 1980s. This is particularly true for large dams, for projects that affect tropical forests, and for investments in the oil, gas and mining sectors. World Bank documents that advocate a return to a high-risk strategy are vague or even silent on the issue of who will be affected by higher risks, and how these risks will be mitigated.” The report complains that alternative project options with low environmental and social risks and high development rewards are invisible to the Bank because “it is not equipped to recognize and support the often slow, decentralized, participatory and democratic processes that low-risk projects entail.” They point out that “the Bank has never made an empirical case that high-risk projects such as large dams indeed produce higher rewards than low-risk, community-based alternatives”. The NGOs argue for strengthening the Bank’s do-no-harm policies and mechanisms, the active investigation of alternative projects and reparations for the unresolved legacies of past projects.

One megaproject it is feared the Bank may consider supporting is an Indian government scheme to link 37 of the country’s major rivers. This would involve at least 32 large dams, cost an estimated $200 billion and involuntarily displace about 3 million people. This plan was denounced by scientists and civil society organizations, but was favourably received at a session on ‘high-risk/high-reward’ projects at the World Bank in March 2003. And both the main architect of the Bank’s ‘high-risk/high-reward’ strategy and the Bank’s senior water advisor recently took up new assignments with responsibility for South Asia.

If it is to respond to lobbying from the government of India and others on such projects the Bank will have to be prepared to weather a storm of controversy from civil society groups. Some of these groups are starting to raise these issues in an event on 22 September at the Bank’s Dubai annual meeting.