World Bank backs dirty energy despite objections

5 April 2012

Continued controversy over a coal power project in Kosovo, partly funded by the World Bank, and a catalogue of complaints over its projects highlight the impact of extractives and the lack of alternatives in the Bank’s energy lending portfolio.

In early March, Daniel Kammen, the Bank’s former chief specialist in renewable energy and energy efficiency, and professor in the energy and resources group at the University of Berkeley, sent a letter to US Treasury officials saying that he would be “bitterly disappointed” if Bank finances were used to fund a 600 mega-watt coal power station in Kosovo (see Update 78, 77) and urged them not to “fumble a chance to usher in a new secure and sustainable energy economy”.

The letter proposes cleaner alternatives to the plant that Kammen argues were not considered by the Bank, including the upgrade of a wasteful electricity grid and wind power. He believes that such a path would deliver 38 per cent of the energy demand through renewable resources and 30 per cent more jobs at a 50 per cent cost saving, compared to the proposed coal power station. Additionally, the prospect of carbon debt (if Kosovo joins the European Union and thus has to meet its target of reducing its emissions by 20 per cent by 2020) could increase the cost of coal-fired electricity by as much as 400 per cent.

Nezir Sinani of Kosovan NGO Institute for Development Policy said: “Kammen’s letter emphasises once again and enforces further the Kosovar civil society calls for the very same thing. It is encouraging to see the former World Bank energy efficiency and renewable czar confront the Bank and US State Department publicly on this.”

On 30 March, locals and civil society organisations protested over allegations of corruption connected to the project and a lack of consultation over the plans. On the same day, the Bank agreed in “principle” to support the power plant, again without consultation. A coalition of 13 local and international civil society organisations responded by issuing a statement requesting that the Bank withdraw support for the project until these issues are resolved: “we would have thought that public allegations of corruption on this project would have caused the Bank to withhold its support pending investigation. Instead, it appears only to have inspired the Bank to accelerate its commitment.” They also criticised the Bank’s failure to make public the relevant poverty reduction strategy and country partnership strategy papers.

Kosovo’s case has echoes of the Bank’s support for the controversial Eskom coal power plant in South Africa (see Update 72, 70). A leading news program in Kosovo even went as far as to brand it the “European Eskom”. In February, South African NGOs groundWork and Earthlife Africa sent a letter to the Bank management about a report submitted to the board in November 2011 by the Inspection Panel (IP). The letter said: “it is evident from the limited response by the management – focusing only on air pollution and water – that management has failed to come to grips with the reality on the ground as presented by the Inspection Panel report, or that you choose to purposefully ignore it.” In particular they saw the Bank lacking in its response to water and air pollution issues.

In March the management response to the IP case concerning potential adverse impacts on the environment, health and livelihoods, was leaked. The response attempts to answer the IP examples of non-compliance such as “shortcomings in the assessment of air quality issues for the project and in development of responsive mitigation measures”, and “inadequate consideration of the project’s direct, indirect and cumulative impacts on availability and quality of surface and ground water resources,” but argues ultimately that “no actual direct harm resulting from the project was found by the panel”. Whilst the Bank believes “that the necessary capacity and systems are in place in South Africa to address issues that may arise during construction of the project”, the complainants question the Banks reliance on South Africa’s the Department of Water Affairs, which has “failed society” by not managing the water availability issue in the area.

Problem projects

The Compliance Advisor/Ombudsman’s (CAO, the International Finance Coporations’ accountability mechanism) energy related caseload shows no sign of abating (see Update 79). In February, members of Machimar Adhikar Sangharsh Sangathan, a fishworkers association in India, branded January’s CAO assessment of their case against the Tata Ultra mega coal power project “disappointing”. The CAO cited the breakdown of the collaborative resolution process to settle the complaint relating to the project’s impact on water sources and fishermen’s livelihoods. However, the fishermen believed the CAO to be susceptible to the PR of the mining company, that they were “profoundly silent” and “purposefully ignored” violations raised. In a statement released in February they said “we do not think CAO fully understands the issues brought to their attention.” The $450 million investment has left the ombudsman stage of the process without a settlement being reached and is now under appraisal with the compliance arm. The appraisal will see the CAO look into the project for any “adverse environmental and social outcomes”, and if any are found, carry out a full audit.

The Bujagali energy project, involving the construction and maintenance of a run-of-the-river hydro power plant which harnesses the flow of water on the river Nile in Uganda and has already been the target of two CAO cases (see Update 69, 64), has two further cases pending. The first concerns insufficient compensation for injuries sustained in the course of work, transparency and worker intimidation, while the second raises issues regarding compensation for damaged land and houses, and impacts on health. The CAO is overseeing “a collaborative process to address issues in the complaint”.

Meanwhile, two recent projects funded by the IFC, the Bank’s private sector arm, in India raise questions over the issuing of carbon credits to polluting and environmentally destructive programmes. In February, the Indian NGO Centre for Science and Environment (CSE) wrote of failings in the IFC’s environmental review process relating to the Usha Matin steel mill in the state of Jharkhand, registered to produce carbon credits as a result of emissions reductions. In 2002 the IFC bought a 14.5 per cent equity stake in the mill, labelling it a category B project, i.e. of limited adverse social and environmental impact. However, CSE reported that pollution has made agricultural land unproductive and that red dust from the mill is affecting more than 80 households, leaving locals with respiratory problems. In addition, the Sitarampur dam, a main water source, has been contaminated by untreated water discharged by the mill.

Also in India is the controversial Rampur hydro power project. Part of the Umbrella Carbon Facility Tranche 2, one of the Bank’s carbon finance bodies (see briefing and Update 78), the project is set to generate 14 million carbon credits over the next ten years at a value of $100 million. Yet there are a number of environmental concerns with this dam, primarily the building of a tunnel that will redirect the normal flow of the river leaving approximately 15 km of the river basin dry. The local community has opposed the project, since many families are yet to be resettled and no compensation has been offered. NGO South Asia Network on Dams, River and People (SANDRP) said “this mega project has very little to do with climate but will have a detrimental effect on the local environment and people living in the area. [Carbon credits] was only a means to generate additional profit for the constructors long after the investment decision had been taken.”