World Bank Review Finds Exractive Industries Rarely Alleviate Poverty

Vol. 7, No. 1

January, 2004

Calls for End to Support for Coal and Oil

by Steve Kretzmann
Sustainable Energy & Economy Network (SEEN) / Institute for Policy Studies

Capping a two-year-long evaluation of the development impacts of the World Bank Group's support for oil, mining, and gas projects worldwide, the Extractive Industries Review (EIR) has recommended that the World Bank adopt significant reforms, including doing more to reduce poverty, immediately ceasing funding for coal projects worldwide and phasing out its support for oil production by 2008. The World Bank-sponsored review also recommended enhanced human rights protections, prior informed consent for indigenous and project-affected peoples, and an end to support for destructive mining technologies.

Carlos Zorrilla of the Ecuadorian organization Defensa y Conservación Ecológica de Intag (DECOIN) expressed the hope of many that the EIR would facilitate a shift in priorities at the World Bank. "The World Bank's extractive industry projects have only worsened poverty, created enormous social conflicts, violated fundamental human rights, and contributed directly to the destruction of ancient cultures and to the devastation of our natural resources. They have benefited the countries of the North, their transnational corporations, and a handful of the elite and corrupt class of our countries. We who have had to live with the burden of World Bank development projects can only hope that the Bank will be forced into a different path by the findings and recommendations of the EIR."

The EIR was initiated at the World Bank Annual Meetings in Prague in 2000 by World Bank President James Wolfensohn, who pledged to evaluate how much (or whether) extractive industries contribute to poverty alleviation. Extractive industries refers to the non-renewable removal of natural resources; mining, oil, and gas were the activities examined by the EIR. The Bank appointed Dr. Emil Salim, the former Indonesian Environment Minister under Suharto and a director of Indonesia's largest coal company, to direct the review. Although Dr. Salim subsequently resigned from the Board of PT Kaltim Prima Coal, the EIR struggled to overcome the initial impression of a fundamental bias.

Many observers think the World Bank picked Salim as the report's director precisely because they expected he would do nothing radical, and probably tilt towards all his old friends. The EIR was not designed to be objective or analytical; it was heavily biased towards industry and the World Bank. Bank staff repeatedly insisted that they had to have access and control over the supposedly independent report in order to ensure Bank "buy-in." They pointed to the World Commission on Dams (WCD), which was created by the World Bank along with private sector actors, anti-dam organizations, and governments, but whose final recommendations, released in late 2000, were explicitly rejected by the Bank. In that case, said Bank staff working on the EIR, there was no buy-in, and therefore no implementation of its recommendations. This rationale justified the World Bank's initial control of the budget and the Secretariat of the EIR, and severely handicapped Salim's ability to chart an independent course, or to gain the confidence of civil society.

The review limped along in this way until February 2003, when everything changed. An initial version of the report, written before important research pieces were completed and before the scheduled consultation with groups in the Asia-Pacific region had even taken place, was leaked to civil society organizations. It was highly supportive of industry positions and sparked outrage among civil society groups, which saw their worst fears and suspicions confirmed. They immediately organized a powerful response calling Salim to task.

A global sign-on letter was quickly organized which demanded that the draft be scrapped and that an Advisory Group be created to ensure transparency and consideration of all perspectives; urgent meetings were held with Salim in Oxford and Washington, where it was made clear that this draft was completely unacceptable; and the Asia-Pacific groups boycotted the regional consultation in Bali, on Salim's home turf, at the last moment. Salim responded by disavowing the draft, creating the Advisory Group, and firing the World Bank-appointed head of the EIR secretariat (Bernard Salome). The tactical shift made a huge difference: once civil society had secured a level playing field with industry and Bank staff, its arguments and positions carried more weight - especially given that the evaluative lens was poverty alleviation and sustainable development.

Unlike project decisions and Board discussions at the World Bank, where industry and management priorities routinely crowd out concerns about human rights or poverty elimination, the usual protagonists were put in the position of having to defend their positions on their merits in the EIR. This tangible shift in power yielded a telling spectacle at the meeting to launch the final report in Lisbon, Portugal in December: industry representatives complained loudly about "unfair bias" in the report.

Reading the final report, one can see why those with interests in extractive industries might be scared. It is strongly critical of the industries' record in development, human rights, and environmental terms. The report will be supplemented by an appendix reporting the debates among the range of "stakeholders" who met in Lisbon. Salim will formally present the report to Wolfensohn in mid-January.

"One of the report's important recommendations is that the Bank should not fund oil or mining projects without the consent of indigenous communities," said Marcus Colchester of the Forest People's Programme. "The Bank should move promptly to adopt this principle in its new policy on indigenous peoples and should encourage its private sector clients to do so as well."

"I applaud the report's call to bar mining companies from dumping waste in rivers and oceans," said Payal Sampat, international program director at Mineral Policy Center. "The Bank can demonstrate leadership by refusing to lend to projects that employ these incredibly destructive methods."

The final report also importantly recognized the role that the World Bank Group's private sector arms, the International Finance Corporation (IFC) and the Multilateral Investment Guaranty Agency (MIGA) and their client corporations will have to take in promoting and protecting human rights. The EIR recommends that "adoption of and demonstrated compliance with human rights principles should be a prerequisite for companies seeking WBG support for extractive industries."

"Such a requirement would certainly pose a problem for companies like Shell, Anglo-American, ChevronTexaco, and ExxonMobil who face ongoing judicial investigations for their role in human rights abuses" asserted Oronto Douglas, a lawyer with the Nigeria-based Environmental Rights Action.

"The review has indeed demonstrated that the World Bank's support for the extractive industries and their structural adjustment programs have substantially undercut their goal of poverty alleviation" said Keith Slack of Oxfam America. "The EIR has put forward some strong recommendations to try to address the problems, but the responsibility now shifts to the Bank. We'll all be looking to James Wolfensohn and his staff now to implement these changes."

In October 2001, James Bond, then the head of the World Bank's mining department, pledged on behalf of James Wolfensohn that "if the review determines that certain policies or programs have detracted from our goal of poverty reduction, we are committed to implementing changes to redress those problems."

But the World Bank's response in Lisbon offers clear signals that the institution will try to squirm out of accepting and acting on the report's determinations, just as it did with the World Commission on Dams and the Structural Adjustment Participatory Review Intiative (see World Bank Shrinks from Challenge on SAPs, Economic Justice News, April 2002). World Bank representatives, in particular Rashad Kaldany, the Director of the Bank Group's Oil, Mining, Gas, and Chemicals Division, were quick to voice their rhetorical support for issues such as human rights and poverty alleviation, but are clearly aiming to divide civil society with half-hearted implementation measures and calls for "further study" on those recommendations they find particularly inconvenient. World Bank staff complained that recommendations such as a 2008 phaseout of support for the oil industry, incorporation of environmental and social considerations into structural adjustment, a requirement of free, prior, informed consent by indigenous peoples regarding projects that would affect them, and "no go" zones and technologies for projects, are "not implement-able."

"Sometimes when a square peg won't fit into a round hole the problem is the round hole" said one NGO representative after Lisbon. "For Bank staff to argue that these recommendations are not implementable completely misses the point - they need to rethink their whole approach to poverty alleviation and sustainable development in a way that puts people and the planet ahead of corporate profits and debt repayment. That is the lesson of the EIR."

The next two months will be critical in terms of generating enough pressure on the World Bank to ensure they implement the EIR's recommendations. Check www.seen.org and www.foei.org for frequent updates.

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