World Bank and power

"fatally-dangerous schizophrenia"

1 February 2008

Calls for the Bank to end its lending for fossil fuels have increased in the aftermath of the 13th conference of the parties of the UN framework convention on climate change in Bali (see Update 58) but the Bank has continued to push oil, gas and coal operations.

NGO Oil Change International released a report, entitled Aiding oil, harming the climate, to present the scope of ‘oil aid’. The accompanying database compiles information on assistance for oil and gas projects from multilateral development banks, bilateral agencies, and export credit agencies. At a conservative estimate it finds that $61.3 billion has been given in ‘oil aid’ since 2000.

The report describes the role that the World Bank and other international financial institutions have played in reshaping oil sectors in developing countries: convincing them to develop regulatory frameworks to attract western oil companies and providing development assistance to finance their operations. The organisation calls for an end to oil aid on the basis of its contribution to climate change, the debt of oil-importing countries, civil conflict, human rights abuses, and ecosystem destruction.

Build your future now on clean power as rapidly as possible or you won't have a future

The report charts some recent national level actions to end oil aid. In the US, and oil aid act has been launched. In the UK, a parliamentary committee looked at the issue, as have policy papers from leading opposition parties (see Update 56). In November the European Parliament adopted a resolution to end taxpayer support for fossil fuel projects signed by a majority of 540 members. The resolution calls for: “the discontinuation of public support, via export credit agencies and public investment banks, for fossil fuel projects”, and for the redoubling of efforts to increase the transfer to renewable energy and energy efficient technologies.

David Wheeler of the Washington-based Center for Global Development describes as “crazy” the World Bank’s imminent support for Tata Power’s planned Mundra coal plant in Gujarat, India. This will be one of the largest coal-fired carbon emitters in the world with projected carbon dioxide emissions of 27.8 million tonnes per year. “Just as the UN secretary general declares an international emergency created by carbon emissions, a UN-affiliated agency (the IFC) announces that it will use scarce development lending resources to help finance an enormous coal-fired plant in India”, Wheeler said in exasperation. He questions the effectiveness of carbon capture and storage, and adds “there is no chance – let me repeat this: zero chance – of holding global carbon emissions within safe limits if the UN continues subsidising coal-fired power expansion on a massive scale”. He surmises that “this fatally-dangerous schizophrenia has to end” and demands that the World Bank, the Clean Development Mechanism (CDM) and other lending institutions to “stop this practice, now. Build your future on expanding clean power as rapidly as possible, or you won’t have a future”.

If only the IFIs would take his advice. In December the World Bank-supported West Africa Gas Pipeline (see Update 57) began operations, the Camisea liquid natural gas project in Peru (see Update 58) is due for approval at the beginning of February, whilst the IMF continues to press for the development of Iraq’s oil.

Iraq: IMF oil law stalled

Despite intense pressure from Washington, the IMF-supported petroleum law (see Update 54, 49) in Iraq shows no sign of being passed, having missed a total of five deadlines between July 2006 to September 2007. The law would create a legal framework for foreign investment in Iraq’s oil sector, facilitating a significant role for multinational oil companies under controversial contracts known as production sharing agreements which could last for up to 30 years.

During the eighteen month delay, public and parliamentary awareness of and opposition to the law in Iraq has grown significantly. A report by Canadian journalist Linda McQuaig charts the IMF’s involvement in recent political developments in the scramble for Iraq’s oil, and the creation of its hydrocarbons law. “PSAs are…reminiscent of the arrangements that existed between Big Oil and the oil-producing nations for many decades from the early 1900s through the 1960s, an era when a small consortium of multinational companies, dubbed the seven sisters, operated a worldwide oil cartel through which they controlled all aspects of the international oil market”.

In December the IMF approved a new fifteen month stand-by agreement under which Iraq could borrow up to $744 million, though the authorities have said that this is only “precautionary”. The oil law remains a significant feature in the agreement which states “we will continue our efforts to secure the passage of a comprehensive hydrocarbon law”. In January Iraq cleared its debts with the IMF with the early repayment of about $470 million. According to the IMF, the country’s ability to repay early was thanks to international reserves accumulated due to high oil prices.