6 October, 2015, 4:00 PM – 5:30 PM.
Civil Society Policy Forum: Annual Meetings of the IMF and World Bank, Lima; Peru
Peru faces many challenges from climate change – including increasing water scarcity, deforestation and glacier melt. At the same time, the country is undertaking an unprecedented cycle of reforms aimed to facilitate more investments on the oil and gas sector, expanding agribusiness and the construction of hydropower projects supported in part by World Bank Group (WBG) investments both directly and through financial intermediaries.
This session explored the WBG’s climate portfolio in Peru and debate its relevance in supporting Peru’s approach to the upcoming climate negotiations in Paris. New data will be presented on the WBG’s lending portfolio to climate-relevant projects in Peru, including through financial intermediaries. A debate with audience participants on the challenges and opportunities ahead for more effective climate action in Peru concluded the event.
Presenters:
- Christian Donaldson (Latin America Program Manager, Bank Information Center (BIC)),
- Suyana Huamani (Climate Change Coordinator, Derecho, Ambiente y Recurosos Naturales (DAR)),
- Kate Geary (Land Rights Policy Lead, Oxfam International), John Roome (World Bank).
Chair: Franciscus Godts (Belgian Executive Director, World Bank)
Mr. Godts:
Merely facilitating and not taking positions on issues.
Ms. Huamani – DAR:
Peru is very vulnerable with great variety of climates, therefore susceptible to significant impact of temperature change.
UNDP 2013 study highlighted potential impact of climate change on Peru’s human development.
Peru has five principal vulnerabilities:
- Access to water:
Peru has substantial water resources but not in the most populated areas.
Agricultural activity is concentrated near populated areas that lack water.
- Loss of bio-diversity;
- Climate change will have a negative impact on small agriculturalists;
- Food security; and
- Health
Country has made significant efforts on green house gases (GHGs) despite low-level contribution. Major contributor to Peru’s challenges is land used, however the country’s policy is focused on reducing GHG.
Peru is very active in UNFCCC and has established national commission led by the Ministry of Environment.
While the government developed a climate change policy in 2013, only 40% of goals have been achieved. This is partially the result of a lack of resources and support from other ministries.
In presentation in Copenhagen in 2010 the government set an overly ambitious goal of no net deforestation.
In preparation for the 2015 Conference of Parties (COP) 21 in Paris, the government has committed to 30% fewer emissions than ‘business as usual’, with the focus still largely on deforestation. The good news is that there is a new focus on mitigation – however few details are available.
While the country has expressed its commitment, there is a need to go beyond declarations – major pressure on forests from economic activity.
New laws last year eroded progress. At international level Peru is seen as a leader in terms of its policies and commitments, however policies and actions are incoherent. Incentives to agriculture for example, result in lack of progress.
There is a lack of institutional capacity and resources. Peru must adapt policies to varied climates. There is a lack of financing, especially compared to funds spent on incentivising economic activities that negatively impact its ability to meet objectives.
Mr. Donaldson – BIC
Mr. Donaldson conducted an assessment of the Bank’s Peru portfolio on climate change.
Focused on agriculture, mining and energy sectors.
Bank’s activities don’t always result in climate resilient development. The report was produced in light of Bank’s growing focus on climate change (CG).
Believe that Bank can play a positive role.
BIC’s findings agree with those of DAR, Peru is very vulnerable.
The country’s primary vulnerabilities lie in the water and forests. Sectors. Peru has faced many water shortage problems in last ten years.
The report finds that during the last 10 years the Bank’s development model has exacerbated vulnerability due to its focus on export-led growth in the agriculture, mining and oil and gas sectors that take place in sensitive areas. No improvement in domestic capacity to manage water in the country and no technical support from the Bank to that end.
Instead the Bank has focused on extensive development policy loans (DPLs) and technical support to an expansion of agriculture, mining and energy activities followed by investments in large –scale agriculture in water sensitive areas. That is, the Bank has been supporting a detrimental approach through its policy support and investment. The International Financial Corporation (IFC) has investments in big water intensive activities, including agriculture and mining.
The Bank has supported reforms that advantages exporters by changing property rights to allow for ownership of larger plots of land. This supports asparagus production, for example.
In 1990s the country had approximately 800 wells, in 2007 the number had increased to 2,000.
In the mining sector DPL and technical assistance has supported changes in tax and royalty structures and special environmental regulations that advantage mining. Mining activity increased 2,700 per cent from 2003 to 2007.
This expansion has been coupled with low administrative capacity, giving rise to social conflict over water.
Reforms have resulted in concentration of water resources ownership.
The Bank has realised this and has begun in the past several years to prioritise water management, but only in agriculture not mining. However no policies have been developed to replenishing aquifers.
Bank support has suffered from inappropriate sequencing. Technical assistance and investment have resulted in improved investment climate for high impact activities. There is a need to limit on expansion of agriculture and mining sectors.
In 2014 64 per cent of conflicts were related to social and environmental issues – specially land and water access.
Since 2000 there have been 16 IFC complaints regarding water scarcity. However these concerns have not been resolved.
Recommendations:
- Need for robust climate change assessment safeguard applicable to DPLs and technical assistance, as these have much greater impact than investments.
- Appropriate sequencing of operations – reforms to address adequate climate risks must come prior to investment.
- Comprehensive end to fossil fuel subsidies, which benefit producers – infrastructure, PPPs and government guarantees.
- Bank must use its equity stake pro-actively.
- Bank must actively support renewables, as investments in oil and gas dwarf investments in renewables.
Mr. Godts:
It must be recognised that Bank’s investments are risky. Agrees that focus on DPLs is required, as investments are somewhat protected, given environmental and social safeguards.
It is important to recognise also that ‘conditionalities’ are a things of the past, they are not desired and the Bank does not have the leverage it once had.
Ms. Geary, Oxfam:
Presentation titled: Things we cannot know: The true impact of IFC’s lending in Peru.
Shame that WB is not present. Only informed last minute that the Bank would not attend.
Investments are causing harm to communities. There are 16 complaints in Peru, largely focused on water.
Negative impacts impoverish communities and make them more vulnerable to climate change. Communities must have access to complaints mechanisms. Also would contribute to learning by the Bank.
Speak about parts of the Bank’s investments that are not public. Will focus on IFC, the Bank’s private sector arm.
IFC lending has grown from 13 to 35 per cent of World Bank Group (WBG) lending from in 2013. Now 62 per cent of IFC of lending goes to financial intermediaries (FIs).
IFC argue that FI investment broaden its reaches, however CSOs argue that these investments in high risk projects have potentially significant consequences, as demonstrated by the Suffering of Others report. There is only transparency on 10% of IFC’s portfolio (through private equity – PE – funds). The IFC otherwise does not know the final destination of its investments through FI.
The case of Peru:
During the last 18 years the IFC has invested $2.2 billion in the country, 42 per cent through FIs.
During Humala presidency 10 of 14 IFC investments made by IFC have been made through commercial banks.
From 2009 to 2013 IFC invested $180 million in FIs – 3 times what the Bank Group invested in health, and 2.5 times its investment in education in the country.
The IFC portfolio includes many projects in hydropower, agribusiness expansion and mining.
There is no transparency regarding 90 per cent of the funds invested by the IFC through FIs.
Specific cases in Peru:
Banco Interamericano Financeiro and Banco Continental – 5th and 2nd largest banks in Peru respectively. Oxfam has not been able to identify the final destination of funds.
Oxfam bought rights to proprietary database to follow money from IFC. It has linked IFC’s investments in Banco Continental to the Tia Maria Mine. IFC denies any connection, but have however have not provided evidence to contradict Oxfam’s findings, which come from the database.
Tia Maria is an open pit cooper mine in southern Peru. It is owned by Southern Copper and likely to become the second largest copper mine in the world. The project has been strongly opposed by the local communities. In 2009 the project was reportedly opposed by 90% of population during a poll.
Protest against the mine have been met with strong government reaction. 7 people have died as a result.
Communities have the right to know that they have access to redress mechanism.
These are high-risk projects and the IFC has committed to applying its standards to high-risk projects. How can they, if they don’t know the final destination of its funds?
Civil society cannot continue to use its resources to purchase subscriptions to expensive proprietary database.
CSO’s demand:
When IFC enters into an agreement with client it should require that client discloses high-risk investments.
Mr. Godts:
FIs are indeed a challenge, as FIs have many sub-projects. IFC rely on the primary institution to meet IFC standards. Agreed that the Board can likely do something about it.
Q&As:
Q1:
Would like more information about the private database. Specifically, wheere do databases get the information? Is it not against the law as the IFC argues?
Answer:
Thompson Reuters – Bank’s disclose information to proprietary databases. Brings into question IFC’s arguments that they are constrained by laws to reveal ‘confidential’ contractual information.
Mr. Godts:
The main challenge around disclosure is the lending to SMEs, as it is difficult to follow the flow of this money, given the number of final recipients. IFC have significantly increased its resources and must therefore increase lending. Local banks know the country better and IFC cannot duplicate this knowledge. Must ask for seat on the board of companies.
Q2: What it the origin of the expansion in FI investments?
Q3:
CAO has stated that IFC cannot determine the development impact of its investments through FIs. It is a public development institution that must be able to control its development impact, whether negative or positive. In new WBG’s energy policy the IFC will be an important player.
Mr. Godts:
IFC is investing to have a positive impact. IFC is under pressure to ‘turn billions to trillions’, to leverage private sector investment. It is not true that development impact cannot be quantified, there are many instruments to do so.
Mr. Donaldson:
However where it the proof of its positive development? Or the evidence that environment and social standard efforts have been successful?
Q4:
Former ADB staff:
IFC’s aim is to increase private sector lending. It therefore follows private sector model and seeks to increase profit. Private sector loves IFC and MDBs, syndicated loan, Private sector can use IFC and Bank to manage government relations. Development impact is a very ill-defined concept.
Q5:
Panama CSO representative:
Has been involved with opposition to expansion of Panama Canal. Affected communities have tried to use grievances mechanisms such as the CAO, however have felt as if CAO was involved in mere box ticking.
Very disillusioned, as the complaint was lodged in 2011. Project is near completion and in deep trouble. Were CAO pushed to ignore complaints given the importance of project?
Mr. Godts:
Noted that he was previously involved in Panama Canal investment and the project is very complex. At any rate, investments are insured.