Memorandum submitted by Environmental
Defense
The Chad-Cameroon Oil and Pipeline Project,
which at a cost of $4.8 billion is the single largest investment
in Sub-Saharan Africa today, also raises questions about the larger
picture of World Bank Group support for extractive industries
in countries with dismal human rights records, little political
will and capacity to address the environmental and social risks
of such projects and where armed conflict is a latent problem.
Why should the World Bank Group be held responsible
for a project that has been built and is being operated by an
international consortium led by Exxon-Mobil with participation
of Chevron and the Malaysian national oil company Petronas? It
is because the project would not have been built without the World
Bank Group. Exxon Mobil stated from the beginning that it would
not move forward with the project without World Bank Group participation.
Not that Exxon Mobil needed a few hundred million dollars from
the World Bank Group (the WBG contributed only about 3% of project
costs). Exxon wanted two things: World Bank Group participation
would provide political risk insurance in a politically volatile
region and it would help attract other financial institutions
to the project. And indeed, when the World Bank approved financing
for the project in June 2000, the European Investment Bank, the
U.S Export-Import Bank, the French export-credit agency COFACE
and a whole host of private banks contributed financing to this
mega-project—which they would not have done without the
seal of approval provided by the World Bank Group and its main
shareholders, including the United Kingdom.
Largely in response to intense public scrutiny
of the project when it was first being considered, the World Bank
devoted unprecedented resources into the preparation of the project
to address the management of the oil revenues and environmental
protection. Never in its history, had the WBG carried out such
detailed project preparation for any project it considered financing.
The preparations included the design of a detailed
revenue management system for Chad which was meant to ensure that
income generated by oil exports would contribute to the overall
social development of one of Africa's poorest countries. Then
there was a stack of 19 volumes of environmental impact assessments
and the establishment of two project monitoring bodies to monitor
and prepare reports on the implementation of the project's environmental
and social management on-the-ground.
In addition, the World Bank approved the financing
for separate technical assistance loans to both Chad and Cameroon
with the goal of strengthening the capacity of the governments
to address the environmental and social consequences of a project
of this magnitude. In the case of Chad, this included technical
assistance to manage the oil revenues and in the case of Cameroon
to implement a plan to protect the indigenous peoples living in
the southern portion of the pipeline before it enters the Atlantic
Ocean.
Unfortunately, these technical assistance projects,
which were to be carried out simultaneously with the building
of the oil project, soon fell behind and in parts never got off
the ground—while construction of the project advanced faster
than expected. As a result, the capacity of the governments to
deal with the project is not in place as of today—even after
oil has been flowing for several years.
The WBG had justified the use of scarce development
aid funds for a major oil project on two grounds:
(i) that the income from oil would be used
to reduce the extreme poverty of ordinary Chadians; and
(ii) that the project would be carried out
in an environmentally and socially sound manner.
Yet despite the extra-ordinary measures taken
by the World Bank Group, the project has failed on both these
counts.
In Chad, people have become even more impoverished—especially
in the oil-producing region. In recent years Chad has further
slipped on the United Nation's Human Development Index which measures
basic indicators of human well-being such as health and education.
In addition there is ample evidence that Chad's oil money is further
fueling violence—especially on Chad's border with neighboring
Sudan's Darfur region.
The International Advisory Group (IAG), which
monitors the project on behalf of the World Bank, stated in its
latest report:
"With Chad entering its fourth year of
oil income, the IAG wanted to devote this mission to evaluating
the results that Chad had achieved using the oil revenues since
2004. However, the lack of hard data about most of the ministries'
accomplishments made this task difficult, if not impossible"
(IAG Mission Report of 18 July 2007).
A fact-finding mission to Chad and Cameroon
undertaken on behalf of the Parliamentary Committee for Economic
Cooperation of the German Bundestag concluded in its report:
"The construction of the Pipeline has
not solved the real problems in Chad, indeed it has even exacerbated
them; this can be seen, for instance, in the overuse of soil due
to increasing population pressure and the spread of AIDS. No improvement
in the situation of the people could be seen in either country.
Instead, there were concerns about a creeping deterioration in
their living standards. The civilian population is in some cases
very well organised, yet has only very limited opportunities to
demand participatory rights and grass roots democracy"
(Report of visit to Chad and Cameroon, 16-26 January 2007).
In Cameroon, in whose larger economy, the royalties
from oil matter much less than in Chad, people along the pipeline
have been impoverished—for example by contaminated water
wells, while the country's indigenous Pygmy people now see their
survival as a people under severe threat. The pipeline traverses
their ancestral homeland, Cameroon's Atlantic Tropical Forest
and has brought significant outside pressure on the forest resources
on which their livelihoods depend. A special trust fund of $600,000
for a period of the 28 year life of the project had been set aside
to benefit the indigenous peoples—I do like to compare it
to the generous retirement package of $400 million of former Exxon
Mobil CEO Lee Raymond—who headed the company at that time.
But even the paltry funds in the trust fund do not reach the indigenous
peoples and its capital is being exhausted by the bureaucratic
structures set up to manage it.
But these results are not reflected in the World
Bank's Project Completion Report—this report is produced
at the end of the Bank's active involvement in a project and is
meant not only to evaluate the Bank's accomplishments in a project
but also as a learning tool for similar Bank projects in the future.
According to the ratings in the Project Completion Report, the
outcome of the project is satisfactory, as is Bank's and the Borrower's
performance.
How little sense this rating makes, become obvious
even in the Bank's own documents. A recent new technical assistance
loan for Chad states clearly that Chad's situation has become
even more precarious with the arrival of oil revenues: "As
security and defense spending grow, poverty reduction and lasting
economic and institutional reforms are losing ground to an unsustainable
deficit and mounting budgetary arrears." (Project Appraisal
Document—US $ 10 million approved on April 27, 2007)
There had been early warnings that this was
likely to occur. Chadian civil society organizations had pleaded
with the World Bank to postpone financing of the project until
there were some guarantees in place concerning the protection
of human rights and the capacity to address the environmental
consequences of the project. It is noteworthy that NGOs did not
oppose the project—but called for a minimum set of conditions
to be in place before launching such a massive investment.
Interestingly, the World Bank commissioned Extractive
Industries Review of 2004, a study on the contribution to sustainable
development of World Bank Group-financed projects in oil, gas
and mining led by Emil Salim, a former minister for Population
and Environment of the Suharto government in Indonesia, reached
a very similar conclusion. One of its central recommendations
was that the World Bank Group should sequence its support for
extractive industries by first ensuring that a minimum of good
governance conditions concerning respect for human rights and
the environment be in place before investing in these sectors
if such investments are to have positive development impacts.
QUESTIONS
Follow-up Extractive Industries Review
Based on the experience of this project, will
the WBG revisit the Extractive Industries Review recommendation
about proper sequencing of investments and adopt such an approach
to ensure that extractive industry investments contribute to poverty
reduction and sustainable development, the two twin goals of WBG
activities? An answer to this question has become even more relevant
now that the International Finance Corporation, the private sector
lending branch of the World Bank Group, has increased its investments
in African mining projects six fold over the past year ($50 million
in FY 2006 and $300 million in FY 2007) and hopes to be investing
$1 billion annually in Africa—much of it for oil and mining
projects—driven by high commodity prices. All too often
the environmental and social consequences of large capital-intensive
projects far outweigh the potential development benefits.
Governance indicadors
What kind of governance indicators is the Bank
taking into consideration when deciding on investments in extractive
industries?
SPECIFICALLY ON
THE CHAD-CAMEROON
PROJECT
Livelihood Restoration
The oil project is taking much more land from
local peasant communities than the project's Environmental Management
Plan predicted. This is largely due to the fact that many more
oil wells are being drilled and connected to crude oil processing
facilities—a process known as infilling. In addition, new
satellite oil fields (Nya and Moundouli) have been created. Yet
although the land is taken from largely subsistence farming communities
who risk being driven into utter destitution, there is no monitoring
in place to ensure that they can restore their livelihoods.
What measures are being taken to ensure the
restoration of livelihoods of the affected communities and households
in the oil-producing region and what will be the participation
of the affected people themselves in designing these measures?
Why is the regional development plan promised in 2000 still not
in place 7 years later?
Indigenous peoples
Seven years after approval of Chad-Cameroon
project by the WBG, it has been clear that the Cameroonian foundation
set up to implement the Bank's Indigenous Peoples Policy is dysfunctional
and that, moreover, there are insufficient funds to support the
promised programs in health, education, etc. What actions will
the WBG undertake to ensure that Bakola/Bagyeli communities are
protected and receive recognition of their ancestral rights to
the forest lands they have occupied since time immemorial?
New Technical Assistance Project
What evaluation has been carried out on the
first technical assistance projects to Chad that has helped shape
the new technical assistance grant approved in April 2007?
New Oil
When the World Bank approved financing for the
Chad-Cameroon project, the loan agreements signed included a clause
stating that all additional oil—outside of the original
project—and eventually passing through the pipeline would
have to comply with World Bank environmental and social safeguards.
The Bank's Project Completion Report now admits that enforcing
this clause will be problematic. It does not seem to be a healthy
precedent that governments and the private sector can simply ignore
legal agreements when convenient. How will the Bank address this
problem?
3 October 2007
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