IFI governance


Extractives report tables harsh criticism, many suggestions

2 February 2004

Three years ago World Bank President Wolfensohn agreed to commission an Extractive Industries Review (EIR) to examine its controversial support for the oil, gas and mining industries. In mid-January the report of the review was tabled, containing many strong criticisms of the Bank’s record in this sector and a series of detailed recommendations. The report was produced by a team led by Emil Salim, a former Indonesian government minister who was also involved in organising the World Summit on Sustainable Development in 2002. World Bank management has three months to recommend to the Board how the Bank should respond to the report.

Nur Hidayati of WALHI, an Indonesian environmental NGO, commented: “the review acknowledges that the benefits of oil, mining and gas projects are often questionable and that there is much evidence that the extractive industries violate indigenous peoples’ rights and are associated with loss of livelihoods and climate change”.

Oil, gas and mining are important for the economies of around 50 developing countries. The Bank has significant leverage over both the private sector and governments because of the finance it can provide and the policy clout it wields. However, the Review concludes that “project funding in the extractive industries has not had poverty reduction as its main goal or outcome”. It goes further: “the World Bank Group does not appear to be set up to effectively facilitate and promote poverty alleviation through sustainable development in extractive industries in the countries it assists. In terms of staff and budget allocation the institution does not appear to be as committed to the social and environmental aspects of sustainable development as it is to the economic aspects of development”.

the review acknowledges that the benefits of oil, mining and gas projects are often questionable

It finds that “incentives for Bank staff favour rapid project preparation over safeguard policy compliance” and argues that the Bank should only support projects where it guarantees that local standards of living will clearly improve. For this to happen pre-project livelihoods will have to be comprehensively assessed.

As “extractive industries have been linked to human rights abuses and civil conflict” the EIR “recommends that the World Bank Group (WBG) develop a system-wide policy that integrates and mainstreams human rights into all areas of WBG policy and practice and that WBG policies and operations must be, at a minimum, consistent with its obligations, as a subject of international law, in relation to international human rights law”.

It says that indigenous peoples and other affected parties do have the right to participate in decision making and to give their free prior and informed consent throughout each phase of a project cycle. The Bank should only support sector reforms which recognize and guarantee indigenous peoples’ rights to lands, territories, and resources traditionally owned or otherwise occupied and used by them. In order for local people to be genuinely engaged in all stages of project planning:

  • all relevant project documents should be translated into local languages;
  • an information ombudsman should be created, especially to oversee judgements on business confidentiality;
  • Effective local complaints and dispute resolution mechanisms are needed;
  • Monitoring and evaluation should be “locally driven and participatory”, not “gathered almost unilaterally by companies”.

Some countries and areas should not be eligible for Bank support. These are areas involved in or at high risk of armed conflict, as well as official protected areas and critical natural habitats. The report also says the Bank should not support oil, gas or mining projects in countries where there is weak governance. Relatedly it proposes revenue transparency and equitable revenue sharing and suggests that the Bank help governments create a database of agreements between governments and extractive industry companies to allow comparison between them. It points out an inconsistency in the Bank’s approach to core labour standards. Whilst it states a general commitment to them, a recent report Doing Business in 2004 called for weaker employment legislation, lower minimum wages and an end to collective bargaining.

The report condemns the IMF’s “aggressive privatization for short-term financing of the deficit” approach and says that the accelerated selling-off of state extractive industry assets has often involved contracts which lock in weak social and environmental standards for 10 years or more.

On climate change the review argues that the Bank should carry out shadow carbon value analysis on all relevant projects and argues for a reversal of its portfolio prioritisation. Currently fossil fuel projects comprise 94 per cent of the portfolio, with renewables at just 6 per cent. The EIR recommends increasing the latter by 20 per cent a year so that by 2008 it can phase out investments in oil production and devote its investments to renewable energy, clean energy technology etc.

Janneke Bruil of Friends of the Earth International, one of the main groups which pushed the Bank to establish this review, stated: “the recommendation to immediately end financing for coal and phase out investments in oil production by 2008 is a progressive and welcome step. It is important that the harmful and dangerous effects of such investment are acknowledged by influential public funders”. Friends of the Earth also noted that the report is likely to meet strong resistance from the Bank’s shareholder countries. Civil society groups are calling for full implementation of the report.