World Bank Advised to Pull Out of Oil and Coal Financing

World Bank Advised to Pull Out of Oil and Coal Financing

By Alan Beattie, Financial Times

November 20, 2003

Washington - An independent review commissioned by the World Bank will recommend that the bank consider pulling out of financing all coal and oil projects in developing countries, a move likely to meet intense resistance from the bank's shareholder countries.

The Extractive Industries Review, commissioned by bank president James Wolfensohn and chaired by former Indonesian environment minister Emil Salim, will circulate its final recommendations this weekend.

But a draft has already been circulated to an expert panel advising Mr Salim. Officials familiar with its contents say it calls for the bank to phase out funding all oil projects by 2008, and fund no more coal mining projects. It says the bank should add on a "shadow price" of the damage caused by greenhouse gas emissions when assessing the costs and benefits of projects. It also calls on the bank to step up funding for renewable energy projects, citing damage from climate change.

Funding from the World Bank and particularly its private sector arm, the International Finance Corporation, is considered highly influential in giving the stamp of international approval to oil and gas projects, which are often opposed by environmentalists. Bank approval of such projects is frequently used by other government agencies such as export credit departments to assess their own involvement.

In theory the bank could stay involved in oil projects by giving advice rather than by funding. But Peter Woicke, the head of the IFC, recently told the FT that financial contributions were important in giving the bank leverage over a project.

Two of the most controversial bank projects of recent years - the Chad-Cameroon oil pipeline and the Caspian oil project - have been pushed through by the bank's management and its shareholder countries, particularly the US, against bitter opposition from environmentalist campaigners.

One bank official said the report's recommendations were unlikely to gain support within the bank's governing board, which will make the final decision on what proposals to adopt after receiving advice from management. "It doesn't seem to make much sense to me to concentrate on limiting small developing countries' oil production in order to try to achieve goals on climate change," the bank official said. "The report does not differentiate between production and demand."

While the bank has largely stopped funding coal mining projects already, he said he was doubtful that the board would want to rule it out for the future.

Such a rebuff will likely invite accusations from non-governmental organisations that the bank is repeatedly ignoring its own reviews.

The Extractive Industries Review, launched in 2001, has held consultative meetings with NGOs and business representatives around the globe.

It was intended to provide advice specifically to the World Bank on its involvement in oil, gas and mining projects. It placed a great deal of influence in the hands of Mr Salim in drafting the final report.

The consultation process was initially marked by accusations of bad faith from non-governmental organisations. NGOs such as Friends of the Earth and the Washington-based Institute for Policy Studies accused the World Bank of trying to exert undue influence over the process and of giving too large a voice to business representatives.

Bernard Salomé, a bank official who was appointed as secretary to the review, recently left after repeated complaints that the process was being hijacked by the bank. Mr Salomé did not return phone calls or e-mails relating to this story.

The review was designed to learn from the disappointment over the World Commission on Dams, which reported in 2000. The commission, following a similar consultative process, hammered out agreement on guidelines for building dams in the developing world. But many of its recommendations were not adopted by the World Bank or developing country governments.