World Bank infrastucture support: “finance as extraction”

23 January 2014

Protestors calling for free prior and informed consent (FPIC) during a September 2013 protest in Sindhuli Bazar, Nepal. Photo: Shankar Limbu

Indian media has reported widely on the Indian government’s push for the Bank’s Global Infrastructure Facility (GIF),  to move forward (see see Observer Autumn 2013, Update 86). According to an October article in the newspaper Indian Express, India’s push is linked to its exhausted credit lines with the World Bank and the Asian Development Bank, and a dropped proposal to float a sovereign bond due to anticipated low ratings. Furthermore: “To prod the Bank, which is reluctant to expand the scope of GIF fast, the government is propping up the BRICS [Brazil, Russia, India, China, South Africa] Bank concept” (see Update 85, 80). In early December a senior finance ministry official told Indian newspaper The Economic Times that the design will be discussed at the Bank’s spring meetings in April, with an aim to prepare the final proposal for the October annual meetings.

While the Bank has not confirmed this timeline, it continues to drum up support for GIF behind the scenes. In mid December, the Bank’s chief financial officer Bertrand Badré promoted the facility at a sovereign wealth fund conference in Singapore, arguing that the Bank is in a good position “to define standards and attract funds because we guarantee the soundness of their use.” Earlier in an October Huffington Post blog, Justin Lin, former chief economist of the Bank, together with Kevin Lu, the Bank’s Asia Pacific regional director, called for infrastructure to become a new asset class (see Update 81), “to find a home for the trillions of dollars of patient capital that is currently hunting for yield”. Furthermore, they argued: “A sizeable, global infrastructure platform like GIF … that could make use of public and private capital and that has the ability to combine funding, knowledge, advisory services and credibility would play a catalytic role for this new asset class to emerge and to be further defined.”  Nick Hildyard of UK-based NGO Corner House said: “Transforming infrastructure into an asset class is about more than attracting investment, it is about finance as extraction with a goal of turbo-charged profits, made possible in part by state-backed guarantees. It sets infrastructure on a trajectory that favours the rich at the expense of the poor.”

Infrastructure projects on the line

Meanwhile, the Bank’s engagement in infrastructure-related projects continues to raise concerns. In a rare move, the US voted in December against an International Finance Corporation (IFC, the Bank’s private sector arm) proposed $100 million equity investment in Saudi Arabian corporation ACWA Power International. The project, rated category A (with likely “significant adverse environmental impacts”), aims “to support [ACWA’s] growth plan”, including “increasing the share of renewable energy projects to 5-10 per cent of the company’s power generation portfolio.” Amongst other issues and in line with the US October announcement to fund conventional coal plants overseas only in “very rare” cases (see Bulletin Dec 2013). The US argued that it is “troubled by the greenfield coal projects that make up part of the company’s portfolio and proposed pipeline. Despite IFC’s efforts to ring-fence its financing, the United States is not convinced that an equity investment can preclude support for specific projects within the company’s portfolio because money is fungible”, cautioning that the IFC’s seat on the ACWA board “will not allow IFC to prevent or discourage ACWA from pursuing additional coal projects in the future.” Furthermore, the US asked “to be on record as discouraging equity investments when a company’s investment pipeline includes high risk projects such as coal.” Despite the concerns raised, the project was approved two days later.

"deferring the investigation ... is highly disappointing and ignores the grievances of the affected people"Shankar Limbu, Lawyers Association for Human Rights of Nepalese Indigenous Peoples

Other infrastructure projects recently criticised include a power transmission line in Nepal. A July submission to the Bank’s accountability mechanism, the Inspection Panel (IP), on behalf of 103 families from three villages, referred to the 220 kV Khimti-Dhalkebar transmission line. The request claimed that the project “was designed without informing or consulting with affected communities in Sindhuli District; its planned route over schools, homes, and historical sites … is likely to result in involuntary displacement and damage to cultural property; and its 30-meter right of way … threatens to make the already poverty-stricken communities more vulnerable by harming agricultural production and dividing communities.” It referred to failed attempts to negotiate with the Bank, and asked for the Bank to “immediately stop disbursement of the loan and project construction until such time that all affected people have been fully informed and consulted”, including a call for “an independent analysis of alternative designs and routes through areas without human settlement”.

While the Bank in a mid September response admitted to “some weaknesses concerning disclosure and consultations”, it argued that it “has followed the policies and procedures applicable to the matters raised in the request in a very challenging country context”. A late October report from the IP deemed the request eligible for investigation, referring to “conflicting assertions and differing views between the claims in the request and the management response”. It recommended that an investigation be carried out, but not until after end of April 2014 in order to take into account the implementation of proposed actions from an action plan devised by the Bank and the Nepal Electricity Authority. However, it noted that the plan is unlikely to address all issues in the complaint. Shankar Limbu of the Lawyers’ Association for Human Rights of Nepalese Indigenous Peoples said: “The decision of deferring the investigation until April is highly disappointing and ignores the grievances of the affected people. In this status quo the perpetrators can complete the work, allowing for the continued violation of rights.”

Spotlight on transport infrastructure

A 2013 survey by Simpreet Singh of the Tate Institute of Social Sciences (TISS), India, assessed the impact on children resettled by the Bank-funded Mumbai Urban Transport Project (MUTP), which was also subject to a 2004 IP complaint (see Update 50). The research revealed that over half of the surveyed children faced problems commuting to school, including crossing dangerous highways and railway tracks. Most children also reported deterioration in health and sanitation, including an absence of health facilities near home. While the Bank has called the project “a worldwide example of urban resettlement on a mega scale”, Amita Bhide of TISS told the newspaper Times of India in November: “Rehabilitation sites are just buildings with no schools, health centres or access to livelihood. They are concentrated in areas poor in infrastructure. The process of rehabilitation often fragments communities and families.”

A Bank-backed project in Vietnam, the country’s first public-private partnership (PPP), was criticised in November for choosing Vietnamese conglomerate Bitexco to build a $757 million highway without a competitive bidding process and despite the company’s lack of experience in road building. The Bank claimed that there would be a bidding process for the second investor, but an anonymous Vietnam-based head of a foreign business chamber quoted by news agency Reuters, called the PPP a “donor-crony partnership”.

Costly power for Burma

After the World Bank’s much criticised return to Burma (also known as Myanmar) in 2012 (see Update 84, 82), in mid September it signed off a $140 million loan aimed to boost the country’s power supply, by modernising a gas turbine plant. Kanthan Shankar, the Bank’s country manager, told the newspaper Wall Street Journal: “From the investors’ side, there is a wait and see attitude, but having this first operation … could create the necessary comfort they need to invest”. Two months later and a week after the government was forced to shelve a proposal that would raise household electricity prices by 43 per cent, the Bank together with the Asian Development Bank urged the government to push ahead with the price rises, despite the proposal leading to widespread protests.