Slow progress on World Bank’s oil, gas and mining commitments

13 June 2005

The World Bank has made slow progress in implementing the commitments made in its management response to the Extractive Industries Review (EIR) in September 2004 (see Update 42). Management had proposed reforms on: the explicit tracking of poverty reduction associated with extractive industry projects; the consideration of governance indicators for host countries; broader inclusion of local stakeholders; the development of a more systematic approach to revenue transparency; and increased lending for renewable energy projects. In a letter to Rashad Kaldany, director of the Bank’s oil, gas, mining and chemicals department, 73 NGOs raised a number of serious concerns:

  • the inadequacy of the Bank’s draft poverty indicators to capture and measure the risks and costs of extractive industry projects, which rely too heavily on the client’s assessment of poverty reduction benefits and project impacts;
  • the failure of the Bank’s extractive industry-specific governance indicators to include the rule of law and respect for human rights. A project-specific governance assessment based on these indicators should be made public before an extractive industry project goes to the Bank’s board;
  • despite an indication from Bank staff that the issue of environmental management and no-go zones would be addressed in the context of the IFC’s safeguard policy review (see below), no-go zones have not been included in the IFC’s latest drafts;
  • CSOs requested information on the Bank’s strategy to proactively identify potential renewable energy investments to meet its target of a 20% annual increase in its renewable and energy efficiency portfolio and promote access to sustainable energy sources for the world’s poor. The Bank has been criticised over its choice of a baseline period in which investments in renewables were especially weak; and
  • the draft terms of reference for the extractive industries advisory group, states that the group will consist of 15 individuals from government, industry, civil society, academia and finance. However, NGO signatories to the letter had not been made aware of the Bank’s selection process.

Civil unrest and state violence as BTC pipeline opened

The need for a fundamental reform of Bank support for extractive industry projects is illustrated in the case of the IFC-funded Baku-Tbilisi-Ceyhan (BTC) oil pipeline, officially inaugurated 25 May in Baku, Azerbaijan. Days before, riot police in Baku intervened to prevent would-be protestors from reaching the inauguration venue. A rally had been planned to demand amendments to Azerbaijan’s election laws to prevent the authorities falsifying this year’s election outcome. The controversial project has been strongly opposed on social and environmental grounds, amidst fears that it will exacerbate conflict and human rights abuses in Kurdish areas of eastern Turkey, which have already seen the arrest and torture of human rights defenders.

Two recent reports, based on fact-finding missions to Azerbaijan and Georgia in October 2004, by a consortium of NGOs, released days before the pipeline’s inauguration illustrate a lack of due diligence demonstrated by the IFC. They reveal a catalogue of unresolved problems with the project such as: non-compliance with Georgian state environmental permit conditions; failure to adequately address environmental risks and compensation; drinking water pollution; uncompensated expropriated land, and damage to property. A resident from Tsemi village in the Borjomi region in Georgia said “BTC brought benefits for the government but local people have nothing. They have destroyed our road, the tourist season has been totally lost…The only opportunity we had to earn a living was taken”.

The Georgian report contains leaked documents detailing disputes between the Georgian government, BP and international financial institutions regarding safety concerns.

Mining, communities and political risk insurance

Investment in extractive industries comes under further scrutiny in Roger Moody’s new book ‘The risks we run’, which examines the “dangerous and damaging role” of political risk insurance in providing support to huge mining projects which have critical social and environmental consequences for thousands of people. It examines a system which protects investors but not people or environments affected by these projects. A significant number of damaging mines would not have been constructed had it not been for the Bank, which in many instances has been the single most important provider of political risk insurance, through its Multilateral Investment Guarantee Agency (MIGA), for which mining is now the sixth most important sector in its portfolio, and through IFC investments.

The book describes the history of the Bank’s role in ‘reforming’ rules of entry to mineral-rich countries on behalf of hundreds of external private minerals companies and investors. This is done either through mining projects supported by IFC/MIGA, or IBRD/IDA structural adjustment programmes. It gives case studies of Bank-supported goldmine projects, all of which had devastating impacts, including Yanacocha in Peru; Lihir island off the coast of Papua New Guinea; Kumtor in Kyrgyzstan; Bulyanhulu in Tanzania; and the Freeport Grasberg mine in West Papua.

The risks we run: Mining, communities and political risk insurance is available from Roger Moody tel: + 44 (0) 20 7700 6189, e-mail: partizans@gn.apc.org