Dialogue with NGOs and Lars Thunell, Executive Vice President and CEO, IFC

13 April 2008 | Minutes

Questions from the floor and ensuing discussion at this session included the relationship and cooperation between IFC and the International Development Association (the concessional lending arm of the World Bank, IDA) in light of IFC’s increased contribution to it; IFC’s development impact, particularly in relation to IDA; the IFC’s ‘additionality’ role in terms of funding projects “when no one else will”; and ‘extractive industry projects.

On IFC-IDA co-operation

  • A representative from a Nigerian NGO asked what role is there for civil society organisations when the IFC provides a loan to set up a water project for instance. Can NGOs can intervene when the loan is approved? In addition how will the alliance between IDA-IFC and involved private companies work? Lastly now that the IFC is increasing its contribution to IDA, will it increase its control over it, if it wasn’t already?
  • Thunell response: There have been evolutions in a number of areas of IFC and IDA co-operation including governanc. The Compliance Advisor Ombudsman (CAO) reviews what we do and tell us about any complaints. We try to meet regularly with civil society to hear their concerns. The Internal Evaluations Group (IEG) also evaluates IFC projects. NGOs in recipient countries should contact their local Bank offices if they have concerns with IFC’s impact.
  • IFC committed an addition $1.8 billion to IDA last year, but has no say over its governance. There are questions over how IFC should co-operate in that we are linking private and public funds. The Bujagali dam project was an example of how we did this successfully as well as the Philipinnes water project
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  • IFC is also pushing for higher standards in extractive industries, and working with firms such as GAP and H&M. We have also been involved in a soya roundtable in Brazil and have established a moratorium on new plantations in the Amazon. The more we put ratings on companies the better.
  • A representative from the American Friends Service Committee ask how IFC will deploy its additional reserves given that its annual income has gone up 15 per cent in 5 years. They emphasises the importance of strengthening institutions for a good public sector, especially in fragile states.
  • IFC responded that it is self-financed. It is paid for its loans and this year loan losses have been low. 20 per cent of IFC’s investments are equity related. The finance ministries represented on IFC’s board decided to keep the money in IFC for further growth and advisory work and early stage project development. Last year’s profits were unusually large. The board discusses how to deploy them every year. IDA has its own governance structure.

On corruption and social and environmental standards

  • Kate Watters from Crude Acountability raised concerns relating to the IFC-funded Karachaganak oil and gas field, and the fact that many local communities have been intimidated and threatened for speaking out against the project. The CAO has done what it can and the Department of Institutional Integrity (INT) is fighting corruption but in only a very technical sense. How can IFC protect local communties who speak out against projects?
  • Lars Thunell evasively responded that corruption is an important and tough issue, that IFC has a policy of not investing in politically exposed people and that they try to do checks using independent researchers. However they can’t force a country to change its laws. IFC’s role sometimes becomes one of withdrawing or asking the Bank to take forward the issue.
  • Doug Norlen from Pacific Environment asked for clarification relating to an article in the UK newspaper The Times on 3 April, which details how the IFC is investing $20 million in a $125 million South African environmental fund backed by profits from the arms industry together which is apparently in line with the World Bank Group’s strategy to support technologies that address climate change. Lars Thunell responded that he had been assured that weapons were not involved, though he was unable to categorically deny this when put on the spot and pledged to check again to see if defense contractors were involved or not.

On additionality and extractive industries

  • In relation to IFC’s mandate to provide investment when “no one else will”, Lars Thunell clarified that this is a grey area, and relates to where IFC has ‘additionality’. This could be financial political risk insurance, environmental services for instance.
  • Lucy Baker from Bretton Woods Project asked for clarification on the recent approval of the Tata ultra-mega coal-fired power plant in India, given that substantial public and private funds are available for super-critical coal technology in India so IFC finance should not have been necessary in this instance. Lars Thunell responded that approval of the project was one of the toughest he had been involved with. Though it will emit 25 million tonnes of carbon dioxide, but the technology is more efficient. IFC would prefer to fund renewables and aim to triple their investment over the next 3 years. The IFC’s contribution was to ensure that the project got financed. Baker asked for further clarification that there were no other public or private sources available. Thunell responded “I don’t think so” and that all board members voted in favour.
  • Elena Gerebizza from CRBM (Campaign for Reform of the World Bank) in Italy pointed out that private banks are releasing data on their project emissions and asked if IFC would do the same. She also asked about the IFC’s additionality in financing the extractive sector, given that huge amounts are available from private banks. She questioned the IFC’s approval for the Camisea II gas project in Peru despite the serious and on-going violations associated with Camisea I and issues of energy sovereignty given that all the gas from this project will be exported.
  • Lars Thunell responded that IFC is trying to work on climate change and energy efficiency even though they would prefer to work on renewables. They are also looking at adaptation issues. He met the President of the Maldives recently.
  • In funding Camisea II, IFC was seeking to help solve the problems of the first project and that IFC staff crossed ‘T’s and dotted ‘I’s in relation to this project. On the question of using the gas locally, he pointed out that this is a question of timing. An IFC staff member added that Peru has more energy reserves than it can use at present, hence the export of gas. When the private sector builds downstream industries (for refining and processing) in Peru then IFC would fund them.

On IFC and Middle East

  • A representative from an NGO based in Yemen highlighted that the Middle East region is one of the Zoellick’s six strategic criteria and provided a word of encouragement to IFC to keep providing investment in countries where it is badly needed.