World Bank pushing dirty coal and massive hydro

13 September 2011

The Bank’s energy projects in Kosovo and India are being lambasted by critics for threatening livelihoods and the environment.

The Bank’s energy strategy, which is supposed to be an input into the broader infrastructure review (see Update 77), is still stalled because of deadlock at the Bank board (see Update 76, 75). The Australian executive director at the Bank tried to broker a compromise over the controversial paragraph about whether it should continue funding coal-fired power plants in middle-income countries, but his tenure at the board ended before he was able to negotiate a solution.

In early September three Kosovar NGOs – KIPRED, FIQ and the GAP Institute – published a report on Energy Projects in Kosovo, which said the national energy strategy, “drafted by the government in cooperation with the World Bank, USAID, the European Commission, and others, fails to address quality-of-life issues. The whole process of developing new generation and distribution capacities has been marred by lack of transparency, discordance between international agencies and powers, and a failure to consult with civil society organisations.”

What happened to public consultation?

The Bank is considering three coal-power related projects for Kosovo, including more financing for technical assistance, support to a private company to run a lignite (brown coal) mine and power plant, and a partial risk guarantee for the privatisation of electricity distribution to facilitate the new lignite plant’s operations.

The NGOs fault the Bank for ignoring its own criteria for screening coal projects under the Strategic framework for development and climate change (see Update 71, 69). Instead “the Bank, in cooperation with the Kosovo government, is pushing for the privatisation of energy generation without carrying out other necessary studies and before addressing the issue of energy accountability. There are, as of now, no Bank studies on alternative energy sources, technical and commercial losses have not yet been tackled, energy efficiency is not a priority, and very little is being done in terms of developing projects that aim to address issues related to this field.”

A mid July investigation published by newspaper The New York Times suggests the Bank is merely doing the bidding of the US, its major shareholder. It notes that while the US is opposing coal project finance from the Bank (see Update 69) it is supporting the lignite project because of “a complicated mix of geopolitics … and entrenched bureaucratic interests”. This has made the Bank very nervous about the project and Bank officials insisted on speaking anonymously to the reporter writing the story.

In their report, the Kosovar NGOs recommend that prior to the lignite plant going forward the Bank should insist on “energy efficiency, reduction of technical and commercial losses of energy, and investment in transmission lines with neighbouring countries”, as well as “studies on solar energy capacity, wind energy capacity, and energy capacity from geothermal sources.”

Indian controversies

The International Finance Corporation (IFC), the Bank’s private sector arm, investment in the Tata Mundra coal power plant (see Update 73, 59) is now stuck in limbo. It is being investigated by the Compliance Advisor Ombudsman, the adjudicator for disputes on IFC projects. Lodged by fishing and farming villagers, the complaint was accepted as eligible in July. It claims that due to flawed design and execution, including breaches of mandatory client obligations, the mammoth coal-fired power plant is destroying the livelihoods of thousands of families and will cause irreparable damage to fragile marine resources and agriculture.

However, increases in the cost of coal mean the plant may never be completed, suggesting that the IFC backed a project that was never commercially viable without implicit fossil fuel subsidies. Tata had planned to import coal from its affiliated mine in Indonesia at below-market prices, but thanks to a G20 commitment to phase out all fossil fuel subsidies, Indonesia will now require all overseas sales of coal to be benchmarked to prevailing international market prices. In early August the Indian government confirmed that it would not modify the power purchase contract to raise the tariff paid for power from the plant, putting into doubt the ability of the project to turn a profit. On top of that, in mid August the government of the Indian state of Gujarat, where the plant is located, appointed a retired supreme court judge to investigate accusations of corruption and abuse of power in the granting of land for the port where the coal would unloaded before being sent to the power plant.

Coal is not the only controversial energy source in India, as the Bank also announced in early August a $648 million loan for the 444 megawatt Vishnugad Pipalkoti hydro-power project in the northern state of Uttarakhand. In July 2010, project-affected villagers complained to the Bank about lack of consultation and improperly prepared Environmental Impact Assessments. Despite government assurances about consultation, in July 2011 the Matu Peoples’ Organisation, which is representing affected villagers, wrote to the minister of environment complaining that “for the second time a very important study is going to be discussed in the [Expert Appraisal Committee on River Valley and Hydroelectric Projects] without putting it in the public domain. … Here the question arises what happened to public consultation? When did it happen? Without any public consultation and putting the report in public domain, the report has been given a green signal.” The organisation is now demanding the cancellation of logging permits given to make way for the dam.

‘Green’ bonds?

In May the IFC announced that it has raised $135 million by issuing green bonds, the proceeds of which are reserved for “investing exclusively in renewable energy, energy efficient, and other climate-friendly projects in developing countries”. However, it has transpired that these bonds are already being used to finance projects which fall under the Bank’s definition of ‘low-carbon’, rather than ‘renewable’, a category that includes controversial energy projects whose climate and environmental impacts have been questioned (see briefing). The IFC admits that projects will include the “rehabilitation of power plants and transmission facilities”, and already medium sized hydro-power projects are being financed.

Karen Orenstein of NGO Friends of the Earth US doubts the credibility of this initiative: “The jury is still out as to whether the IFC’s green bonds are truly green or merely green-washing. In addition to funding climate friendly technologies like wind and solar, green bonds can also fund fossil fuel-based technologies and potentially large hydropower and industrial scale biomass. These are hardly ‘green’ initiatives.”

Where to next?

A June report by Indian NGO Vasudha Foundation with Oil Change International and ActionAid International noted that “only 9 per cent of the World Bank Group’s energy portfolio in [fiscal year] 2009 and 2010 targeted increasing energy access for the world’s poorest”, and called for the Bank to “increas[e] energy access for the poor through clean, decentralised energy sources.”

A July letter from 48 US-based organisations to US legislators called on them to “make provision of funds for the general capital increase contingent on the World Bank Group adopting an energy sector strategy – with clear guidelines, metrics, and timetables – that: . finances only non-fossil-fuel-based clean energy technologies.”

Despite the pressure from civil society groups, the politics of approving a final version of the new energy strategy will only get more complicated as the climate change negotiations scheduled for December in Durban, South Africa approach.