World Bank coal lending up amid energy furore

30 September 2010

World Bank energy policy remains controversial, with escalating lending for coal and a delay to the energy strategy review. Past Bank-financed energy projects in Ghana and Albania also are proving problematic.

In mid September the Bank released its lending figures for the fiscal year (FY) through June 2010, showing that it had lent a record amount to coal power projects, despite promising a more limited role. According to the Bank’s figures it lent $3.4 billion to coal projects, amounting to one-quarter of all its energy sector lending, with over $3 billion going to a giant power station in South Africa (see Update 70).

US NGO Bank Information Center (BIC) put the figure even higher, including a $1 billion electricity transmission project in India (see Update 68) designed to connect coal power stations to the national grid. BIC research found that combined World Bank Group fossil fuel funding for FY2010 “hit a new record high of $6.3 billion, a 138 per cent increase over the previous year.”

World Bank fossil fuel lending rose 138 per cent

“This new analysis reveals incoherence at the heart of the World Bank’s thinking about energy,” said Dr Alison Doig of UK NGO Christian Aid. “At the same time as it is seeking to gain control of the billions which will be channelled to developing countries to help them cope with global warming, the Bank is still lending staggeringly large and growing sums to finance coal-fired power.”

These figures are destined to anger the US Senate which in August passed a foreign operations funding bill including a proviso that they expect the Bank’s new energy strategy (see Update 71, 68) will "rapidly phas[e] out Bank support for fossil fuel-related projects," except those specifically to provide energy access to the poor.

The volume of criticism has forced the Bank to extend the schedule for its strategy review. It is now planning to prepare a second draft for more consultations in early 2011 before finalising it in the middle of the year.

Problem projects

Aside from the volume of fossil fuel loans, the Bank is facing criticism over the implementation of those projects. A high profile International Finance Corporation (IFC) investment in the company developing a new off-shore oil field in Ghana (see Update 65) has run into trouble. The IFC is the private sector lending arm of the Bank. Corruption allegations are linked to the supply of a floating platform by Japanese firm MODEC and $2 million in payments made by MODEC to Tsatsu Tsikata, former chief executive of the Ghana National Petroleum Corporation, and the company he half owns, Strategic Oil and Gas Resources Ltd. Tsikata’s company has denied all allegations of wrongdoing. The IFC’s existing partner, Tullow Oil, has not been implicated and MODEC has not yet been funded by the IFC. In late July the insurance arm of the Bank, the Multilateral Investment Guarantee Agency (MIGA, see Update 72), suspended its political risk contract with MODEC while it conducted due diligence on the allegations.

The controversial oil and gas-fired Vlora thermal power plant in Albania looks set to become a textbook example of an IFI-financed white elephant. The plant, which was funded by the World Bank in 2004, faced enormous local opposition and an Inspection Panel case. Critics have said right from the beginning that the electricity would not be economical, and after the plant was completed government sources started to confirm that the plant would be used only for reserve purposes. In June it emerged that even though testing of the facility was supposed to start last year, it has not happened yet because of problems with the water pipes. Fidanka McGrath, of NGO CEE Bankwatch Network, said: “The Bank, as the lead lender to this project, should be held responsible. Albania now has more debt to pay and is saddled with a power station that has diminished Vlora’s tourism potential and does not even produce any electricity.”

The June loan to Eskom for a coal plant in South Africa has already seen a case filed at the Bank’s Inspection Panel by affected communities. The Inspection Panel has agreed to investigate the environmental and social impacts and is scheduled to issue a report to the Bank’s board in January.

The consortium of companies behind the proposed Nabucco pipeline to take gas from Central Asia to Central Europe has also announced that it signed a mandate letter for financing by the IFC. The $10 billion pipeline is planned to cross a national park and 12 European Union protected reserves. NGO CEE Bankwatch “is calling for the international public banks to desist from financing this fossil fuel project and instead to ramp up their financing of energy efficiency projects in central and eastern Europe, a region still blighted with shocking levels of energy wastage.” Piotr Trzaskowski of Bankwatch said his chief concern was “the controversial supply issues. There is a high probability that so-called European energy security via Nabucco will be reliant upon major gas supplies from Turkmenistan, an oppressive regime state that ranks alongside North Korea in widely-recognised human rights rankings.”