Memorandum submitted by Environmental
Defense
Inquiry into the World Bank
and the U.K's. Department for International Development relationship with it.
The Chad-Cameroon Oil & 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:
1) that the income from oil would be used to reduce
the extreme poverty of ordinary Chadians;
2) 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
