Forum shows that international monetary funds are investing in ‘unsustainable’ development in oil projects worldwide

World Bank

Publish date: October 23, 2008

Written by: Vera Ponomareva

Translated by: Charles Digges

WASHINGTON - Despite their adherence to principles of sustainable development, international banks have continued to invest in oil projects that often become unable to guarantee ecological safety or to observe international standards environmental security.

In the current conditions of world financial crisis, the world public is renewing its call to the giant lending institutions to review their investment policies, a recent gathering of heavyweight renewal fanciers and civil society organizations in Washington revealed.  

Several hundred representatives of civil society and non-governmental organizations too part in a Civil Society Forum in Washington earlier this month that took place in parallel with a meeting of the directors of the World Bank and the International Monetary Fund (IMF). Civil society organizations and financiers discussed the environmental and social impact of project being financed by the enormous institutions.

Stating their goals as being the support of sustainable development and the reduction of poverty, the banks continue to invest in enormous projects that worsen the social and environmental climate, and which are accompanied by vociferous protests from local populations.  

Last year, the International Finance Corporation (IFC), a member of the World Bank Group, received for the first time an official complaint from Russia filed by Environmental Watch of
Northern Caucasus and Saving Taman. The groups challenged the process of project confirmation for an oil terminal on the Taman Peninsula. The complaint is currently being reviewed by the IFC’s independent
recourse mechanism – Office of the Compliance Advisor Ombudsman (CAO).

The Russky Mir project is being pursued by the Tamanneftgaz (Taman Oil and Gas) company, which has received a $115 million loan from the IFC. The overall cost of the project was in 2005 estimated to be $264 million.

The construction of the terminal threatens local residents and their fishing waters with air, water and soil pollution, as well as undermining the economic underpinnings of their lifestyle – fishing, tourism and agriculture.  Despite these serious ecological dangers and the risk of oil spills, IFC specialists assigned the project a category “B,” allowing the simplification of environmental impact studies, and to skip public consultations.

“The IFC has ascertained that identified ecological and social impact carries a primarily reversible character and that this problem can be solved without hindrance by means of measures aimed at softening the impact in conditions suitable to the realisation of such measures,” IFC investment advisor Richard Eckrich and IFC Senior Environmental Advisor Stephen Bentley wrote in relation to the categorization of the project.

Ecologists insist that the environmental and social risks were unjustifiably minimised, and IFC officials are defending the interests of Russky Mir and wanted to see this project financed at any price.

Bank specialists have said that most often more scrupulous analysis of projects are carried out only after they have been carried out when serious problems arise.

“Sometimes we conduct an analysis of the social structure of a local community (to define the social results of a project) only after, for example, an oil spill occurs, Diana Baird, a senior social development advisor with the IFC.

“We have long insisted that all projects connected to oil must automatically receive the highest category of danger,” Kate Waters, executive director of the international nongovernmental Crude Accountability organization, said.

Where the oil money flows
Of the 88 nations in which the World Bank work, 55 of them are countries that are rich in natural resources.  Banks are motivated to participate in extraction projects in that the sale of natural resources – in conditions of a fair profit division – can enable development and prosperity of any given nation.

“It is necessary for drilling companies to open up their information about taxes and earnings paid in the budget in order that local residents additionally know what profits the state is getting from a concrete project,” Heike Mainhardt Gibbs, a consultant with the Europe and Central Asia programme of the Washington-based nonprofit Bank Information Centre (BIC), said at the forum.

One of the biggest scandals to erupt in recent years, which shattered illusions relative to the use of oil money for the development of a country, was the production and transport of oil from the biggest field in South Africa. The project included 300 oil wells in Chad and the construction of an oil pipeline through Cameroon to the Atlantic Coast.

Despite high expectations – the profits from the oil pipeline were estimated at $2.5 billion – the World Bank was forced to cease financing in September after tense arguments with the government of Chad, which spent the proceeds of the project on armaments.

The World Bank admitted that it was also not able to guarantee ecological and social safety for the project or control its execution. In the process of construction, fertile lands were destroyed, thousands of people were illegally stripped of their lands without any kind of compensation, and water sources were contaminated.

Oil Transparency in Russia
According to research conducted by the BIC in conjunction with the Global Witness organisation, the World Bank has no systematic approach to guaranteeing transparency in crude deals. The question of revenue transparencyis frequently referred to in bank documents, but is not listed among benchmarks for extending a company credit.  

Of four oil recovery project financed by the World Bank in Russia, only one has so far provided information on its takes and earnings – and that is the Vostok project for infrastructure development of a gas fields in the Barents Sea. For the first quarter of 2008, the projects contractor, Diall Alliance, paid into all levels of the budget 13,5 million rubles ($500,000). The World Bank has promised that two other projects – Aricom and Kupol – will also soon make public their reports.

Another recommendation of the World Bank – public disclosure of agreements between private oil extraction companies and the state, in which profit divisions are also discussed – is still not being observed. The World Bank’s IFC demands publication of contracts only for “significant” projects – the profits from which constitute more than 10 percent from the state budget.

“Of 25 projects approved for financing in 2006, not a single one of them has crossed that threshold, which shows how senseless this demand is,” said BIC’s Mainhardt Gibbs.