Why the World Bank snubbed the EIR
Published by MAC on 2004-08-28Source: Nostromo Research
Why the World Bank snubbed the EIR
Nostromo Research, Special Paper
August 28 2004
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The World Bank’s commercial arm, the International Finance Corporation (IFC) recently produced figures for its activities during the first nine months of Financial Year (FY) 2004. Its overall commitment was nearly thirty per cent larger than during the same period of 2003.
On scrutinising these figures, it seems obvious why the Bank recently rejected the findings of its own Extractive Industries Review (EIR). Forget oil, gas and mining as an "engine for development". It's this sector which is reaping biggest dividends for the IFC and to which the Corporation has committed such a major part of its portfolio that there's no going back, unless the IFC itself is disbanded.
Worldwide, 219 companies are now being supported in some way by the IFC. Although there was a net decrease of 10 projects to loans, equity income has increased extravagantly - from US$124 million in the first nine months of FY 2003 to US$486 million for the same period of FY 2004.
The IFC’s total commitments, disbursements, and approvals in the first nine months of FY 2003 were highest for LATIN AMERICA, followed by EUROPE AND CENTRAL ASIA, then ASIA, with AFRICA lagging behind in fourth position.
Extractive Projects
Out of a total of 1,242 projects around the world supported by the IFC as of March 31 2004, by far the largest were in finance and insurance (just under a quarter), followed by vehicles for collective investment.
Fifty six (56) OIL GAS AND MINING PROJECTS were backed by the IFC – putting this sector in seventh place numerically.
However, in terms of actual dollar disbursement, the three extractive industries have attracted US$840 million – 7% of the total portfolio - placing oil, gas and mining third in importance. And if we add in disbursements for primary metals production, the metals-extractive industry sector as a whole ranks second only to finance and insurance.
Regional Priorities
IFC’s commitments are greatest by far in LATIN AMERICA (nearly two fifths of the global total of just over fifteen billion dollars). Indeed, commitments to the subcontinent were almost double those made to Asia, Europe and Central Asia combined, and five times those made to Africa.
Among the TEN LARGEST COUNTRY EXPOSURES for the IFC, the most important is to BRAZIL (9.1% of the total portfolio) followed by INDIA (7.2% of the total).
What’s perhaps surprising is the priority thereafter – with Mexico coming third, Turkey fifth (above China) and Argentina ahead of Colombia, itself vying with the Philippines at the bottom of the Top Ten. But we must remember that the IFC is a commercial enterprise, out to make profit and nothing less. Its investments are targeted at "middle income" developing nations, not the poorest countries.
Top Ten IFC Exposures - by Country
Brazil 9.1 % of total portfolio
India 7.2
Mexico 6.7
Russian Fed 6.3
Turkey 6.0
Argentina 5.6
China 4.2
Thailand 3.9
Colombia 2.6
Philippines 2.6
Top Ten Corporate Exposures
Equally significant are the IFC’s largest “company exposures” – those corporate enterprises it has decided are worthy of its largest lump investments and likely to be successful in spinning profit.
The IFC’s biggest single exposure is to the Commercial Bank of Romania.
Next comes the BTC (Baku-Tblisi-Ceyhan) oil pipeline – probably the most widely criticised project recently backed by the World Bank - being constructed by an internaitional consortium headed by British Petroleum (BP).
Third comes the MOZAL aluminium smelter complex in Mozambique – operated by BHPBILLITON and currently under expansion.
Between them these two extractive industry projects comprise 1.5% of the IFC’s total commitments across the globe, with a combined IFC investment of US$239 million. This is a significant one fifth of IFC commitments to the top ten companies from all sectors.
Cash on the Nail
Let’s look briefly at the equity income (share dividends and capital gains) obtained by the IFC during the first nine months of FY 2004. These have quadrupled since FY 2003 - to just under half a billion dollars (US$486 million).
Now it seems abundantly clear why the World Bank threw back, in such a cavalier fashion, the core recommendation recently made by its own Extractive Industries Review (EIR) that it should eventually withdraw from most Oil, Gas and Mining projects.
For just SIX OIL GAS AND MINING INVESTMENTS accounted for well over half (56%) of all the IFC’s dividend returns in the first nine months of FY 2004. (These figures, it should be noted, were released by the IFC just before the EIR recommendations were presented to the board of the World Bank).
Capital Base
One last point: if we group together the most important extractive industry projects recently funded by the bank, along with those under consideration for new support, there is a clear bias in the IFC towards backing BRITISH BASED companies, notably BP, BHPBilliton, LNM and Rio Tinto. (The IFC has committed itself, as an advisor, to a fifteen fold expansion of Rio Tinto’s Corumba iron ore mine and associated infrastructure in the Brazilian Amazonian state of Matto Gross do sul).
It’s clearly not just Mines and Communities that’s London calling...
[The main source for this paper is official, restricted, data from within the IFC. For recent information on the consequences of constructing the Baku-Tbilisi-Ceyhan oil pipeline see The Independent, London, 26/6/3004]