Getting its hands dirty

World Bank increases fossil fuel lending

12 February 2013

As the World Bank president becomes more vocal about climate change, concerns remain about the Bank’s involvement in fossil fuels, including projects in Mongolia and Central Asia, and questions have been raised about its accountability for hydro projects in India and Guatemala.

Following the November Bank report on the science of climate change (see Update 83), in a January article in the Washington Times Bank president Jim Yong Kim asked the world to “make climate change a priority”. Kim called for a “bold global approach to help avoid the climate catastrophe it faces today” where the Bank “is ready to work with others to meet this challenge … with every investment we make and every action we take”. Furthermore, Kim has repeatedly stressed that the Bank’s number of renewable energy projects has doubled in the last few years and that “there is an exciting future that can be based on renewable energy that provides all the energy that we need and also helps us to clean up the environment.”

Despite these promising words, the Bank remains committed to fossil fuels. In a December press conference Kim ruled out any major changes in “the next five or ten years”, stating that: “We know that fossil fuels will be part of our future for the foreseeable future”. According to a November working paper by US-based NGO World Resources Institute, the Bank “has actually increased lending for fossil fuel projects and coal plants in recent years”.  The paper estimates that the Bank is currently funding 29 coal plants worth $5.3 billion, making it the second largest public international financer of coal-fired power plants, after the Japan Bank for International Cooperation. Of this, the Bank’s private sector arm, the International Finance Corporation (IFC), finances 17 projects worth $2.5 billion; its middle-income arm, the International Bank for Reconstruction and Development, and its low-income arm, the International Development Association, jointly finance 8 projects worth $2.5 billion; and its political risk insurance agency, the Multilateral Investment Guarantee Agency, finances 4 projects worth $393 million.

further concentrated economic and political power in the hands of authoritarian elites

The Bank’s intentions were put into further doubt as it emerged that the IFC’s investment in the Mongolian Oyu Tolgoi mine (see Update 84 83, 82) includes a 750 megawatt coal-fired power plant to fuel the mining operations. A feasibility report found that coal is the cheapest and easiest source of energy to power the mine, which is currently run on energy from China. According to Josef Skoldeberg of the IFC: “The [Bank’s] coal guidelines don’t apply to this project, because it’s not a power investment per se … it’s a mining project that needs to get power from somewhere.” In addition, Skoldeberg argued that “the battle against climate change” will not be won by “foreclosing on energy options that mean access to basic electricity for the world’s poorest people”. There is no indication that the coal plant will power anything other than the mine.

The Bank and the IFC are also involved in facilitating the fossil fuel economy in other ways. A December report by US-based NGO Crude Accountability outlines IFI involvement in financing the construction of roads, ports and rail systems in the Caspian Sea region in Central Asia, to support growing oil and gas production and enable transport to Europe and Asia. This includes a potential $50 million IFC investment in the Eastcomtrans Railroad Project in Kazakhstan, which would increase the country’s oil freight railcar supply by roughly 30 per cent. According to the report it is unclear why IFIs are investing in the region, which traditionally does not rely on IFI assistance to fund projects. Moreover, the report raises concerns that IFIs “have further concentrated economic and political power in the hands of authoritarian elites”, which could ultimately “undermin[e] their own chief missions of reducing poverty and encouraging transition in Central Asia.”

No accountability for dams?

The Bank’s inclusion of large-scale hydroelectric projects in its renewable energy portfolio also continues to cause concern. In India, the Bank has rejected demands for it to abandon its investments in the Vishnugad Pipalkoti hydroelectric project (see Update 82, 77), despite approval of an investigation by its accountability mechanism, the Inspection Panel (IP), in mid December. After causing several initial delays to the IP assessment, a January press release by the Bank openly challenged the IP’s integrity, stating that “even if the Inspection Panel finds that the World Bank has not complied with any of its own operational policies, the Inspection Panel does not have jurisdiction to recommend a cancellation of the project”. One of the complainants, Dr Bharat Jhunjhunwala, asked that “no work or funds disbursements should happen til all issues are settled to the satisfaction of all concerned”, however, the Bank stated that the construction work will start once forest clearance has been granted by the government of India, regardless of the status of the IP investigation.

The Bank’s statement has enraged local activists organised as Matu Jansangthan: “We wonder why the Bank was in a hurry to approve the project before all clearance was in place. We wonder whether the Bank approval was again used as a pressure on the authorities to give all clearances.” The activists drew parallels to the Bank’s involvement in the highly controversial Sardar Sarovar dam on the Narmada river (see Update 20, 12), which ultimately led the Bank to set up the IP, where financing was granted two years before it received environmental clearance. Furthermore, according to Vimal Bhai, convenor of local organisation Matu Jansangthan, “blasting has already began for construction of tunnel for the power house, putting the people in Harsari villages under immense strain.” According to the IP, relevant documentation will be disclosed when the investigation commences in mid March.

Another Bank project in India came under criticism in January as 50 national groups and activists, including the National Alliance of People’s Movements, questioned the government’s environmental clearance for the Bank-funded Luhri hydropower project in Himachal Pradesh (see CIFs Monitor 5). They argued that the clearance had been done without first undertaking carrying capacity and cumulative impact assessments, despite that the project includes a headrace tunnel, diverting water to the hydroelectric plant, which “will bypass over 50 km length of the river, in addition to the 6.8 km long reservoir. So the project will destroy close to 60 km length of the mighty, already over-dammed Satluj river.” They claimed that the project will affect 2,337 land owners and 9,674 people belonging to over 100 villages, including 78 villages located along the tunnel.

Furthermore, in late 2012 the Bank came under renewed pressure over its accountability for the atrocities associated with the Chixoy dam in Guatemala during the civil war in the late 1970s and early 1980s (see Update 81, 54, 47, 43). According to a December report by the UK-based NGO the Jubilee Debt Campaign (JDC): “It is highly unlikely that the Chixoy Dam would have been able to go ahead without the backing of the World Bank and Inter-American Development Bank.” Additionally, the Bank “not only failed to halt their support, but they supported a second Chixoy Dam project”. US-based NGO International Rivers has estimated that more than 400 people that opposed the dam were massacred by armed forces. Moreover, the project forcibly displaced more than 3,500 Mayan community members, with another 6,000 families suffering loss of land and livelihoods. According to the JDC report “despite several processes and sets of negotiations, the communities affected by the dam have still not been properly compensated for the terrible experience they suffered.” The report’s recommendations include a call for audits of both current and previous large-scale projects, which should be “driven by the communities who are being or will be affected, to see whether and on what terms they should continue.” JDC and US-based NGO International Rivers are campaigning for the World Bank and Inter-American Development Bank to fund full reparations for the damages caused to communities by the dam construction. By early February no response had been received.