What is the origin of the Extractive Industries Review?
The World Bank Group (WBG) announced in 2000 that it would conduct a comprehensive review of its activities in the extractive industries (EI) sector (oil, gas, and mining production), in response to concerns expressed by a variety of stakeholders, primarily environmental and human rights organizations. The review included an independent evaluation of WBG activities in EI, a CAO report, and a separate independent stakeholder consultation process headed by Dr. Emil Salim, concluded in January 2004.
The WBG Management has committed to respond with a proposal for policy, programmatic, and institutional changes.
What are the key questions?
The two key questions posed by the EIR are: How effective has the assistance and investment of the WBG been in helping advance sustainable development through the EI? What should be the future role of the WBG in this sector?
The WBG believes that EI can make a significant contribution to sustainable development and poverty reduction, especially if environmental, social, and corporate governance issues are properly managed. We are committed to helping promote sound policies and good investments that will give developing nations the opportunity to achieve sustainable growth and poverty reduction.
At the same time, the WBG recognizes that stakeholders have legitimate concerns about the impact of EI: at the global level, on issues such as climate change and biodiversity; at the country level, regarding the extent to which a heavy economic reliance on EI revenues creates a “resource curse”; and, at the local level, in terms of the impact on the environment and surrounding communities.
In a letter dated March 2, 2004 to Dr. Salim, Mr. Wolfensohn, wrote, “As we discussed when we met, we share the same principles in terms of protecting the environment, promoting human rights, alleviating poverty, and supporting equitable growth. This is why, since I have been heading the Bank over the past eight years, we have demonstrated leadership in areas such as education and health, gender, biodiversity, and inclusion of the world’s poorest peoples in the development process. The Bank’s concern—as I know is your concern also—is to do the right thing for those most in need on our planet.”
What did the various reviews conclude?
The reviews have found that WBG involvement in EI has resulted in contributions to sustainable development that have been positive, but not uniformly so, and that the WBG can continue to make positive contributions to sustainable development through various types of involvement in this sector.
There is wide support for WBG involvement in a number of EI-related activities: technical and advisory services for project design; lending for public sector reforms; environmental rehabilitation; gas-flaring reduction; mine-closure investments; investments that increase local ownership or ownership by previously-disadvantaged groups; “linkage” programs that help bring small and medium enterprises into the supply chains of EI projects; and investments in efficiency upgrades or projects that shift countries toward using cleaner fuels.
There is considerable momentum for reform, both within the WBG and among external stakeholders, on issues such as increased transparency of EI revenue figures, increased local stakeholder consultation, the disclosure of additional project and process information, guidelines for the use of security forces that protect EI project sites, and raising certain technical standards associated with EI industry operations.
Which are the controversial issues?
There have been conflicting reactions across various constituencies to a number of reform proposals from Dr. Salim’s stakeholder consultation report. For example, it recommends that the WBG phase out its support for new investments in the oil and coal sectors, adopt a rule requiring “prior informed consent” by local residents as a precondition for investments, and adopt a “rights-based” approach to development. There has been mixed reaction to these recommendations with many governments and industry representatives stating some reservations.
Hasn’t the WBG already declared its position? Isn’t that what the leaked draft of the Management Response indicates?
As President of the Bank Group, Mr. James D. Wolfensohn has made it clear that the early draft document that was leaked—which he and other senior managers had never seen—did not represent the views of Bank management. Staff-level working papers drafted months in advance of the Management’s formal response should not be regarded as indicative of the final WBG position. Management’s response will only be formulated after the WBG completes additional consultations with stakeholders in the weeks ahead. It should be noted that senior WBG management is continuing to solicit and review policy proposals both externally, from government, industry, and civil society, and internally, from staff, in the form of working papers.
Has the WBG made a “good faith” effort to address the real problems associated with extractive industries?
The EIR has been one of the most thorough reviews of any sector ever conducted by the WBG, encompassing two years, several million dollars in operational and staff costs, and four research reports by independent evaluation units. The stakeholder consultation process included a 10-person Advisory Group of experts, five regional stakeholder forums, and countless “bilateral” meetings between stakeholders and staff of Dr. Salim’s consultative process, and between stakeholders and WBG staff.
Still ahead is a review by the Executive Directors of all the Bank Group’s 184 shareholder nations. Moreover, during the period of the EIR, the WBG has proceeded – ahead of the final reports – to make many reforms suggested by stakeholders, including initiatives on gas-flaring reduction, carbon-emission trading, transparency of EI revenues, help for small-scale mining operations, supply-chain linkage programs, and increased support for renewable energy, energy efficiency, and biodiversity projects. It should also be noted that the WBG is the leading provider of external resources to developing countries for environmental protection, biodiversity, education, health, and other sectors that have linkages with work in EI.
The WBG has also placed major emphasis in recent years on battling fraud and corruption associated with EI development and has been a leader in developing new models of transparent revenue management, as in the case of the Chad-Cameroon pipeline, supporting initiatives such as the Extractive Industries Transparency Initiative, which seeks to work with both governments and industry to develop viable models of revenue disclosure, and in helping to provide training and capacity-building for public sector agencies so they are better able to monitor and regulate EI activities in a professional and accountable way.
Will the WBG accept or reject the findings of the EIR report?
The WBG welcomes the EIR report and aims to be creative and forward-looking in providing a carefully considered response to its recommendations. Based on the reforms and directions that the WBG is taking, it is already clear that we will be able to respond positively to a majority of the EIR report’s recommendations.
However, the WBG does not accept, as some advocacy groups suggest, that it will have failed its obligations unless the report’s recommendations are adopted in their entirety. As Mr. Wolfensohn wrote in his March 2 letter to Dr. Salim, “I do not necessarily accept, as some groups assert, that unless the report’s recommendations are adopted in their entirety, the WBG will somehow have failed in its response. Our obligation is always to take into account the legitimate views and interests of all stakeholders, as well as our own best judgment, and to do what is right for the world’s poor people.” He added, “we should make progress in those areas where there is consensus about how to proceed and try to pursue dialogue on others separately.”
What are the next steps?
The WBG’s Management will continue to study the report and welcome the views of a wide array of stakeholders. Once a draft Management Response is formulated, it will be submitted to the WBG’s shareholder nations for further refinement and revision in the next three months or so, first through a meeting of a sub-committee of the Board, the Committee on Development Effectiveness (CODE), and later through a meeting of the full Board of Executive Directors. It is anticipated that a draft Management Response to the EIR will be released following CODE review and discussion.
