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 responded with policy, programmatic, and institutional reforms to better ensure that projects contribute to sustainable development.
What were the key questions? The two key questions posed by the EIR were: 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, the World Bank President at the time, James 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 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.
In response to the review, the WBG has 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, It has been 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. All IFC clients now have to make their payments to governments public. The WBG also mandates 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 technical standards associated with EI industry operations.
Which were the controversial issues? There were 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 reservations. The World Bank’s oversight body, the Board of Executive Directors consisting of representatives for all member countries, asked the World Bank to continue investments in oil and coal as they are critical for many developing countries. World Bank Group also adopted the principle “free, prior informed consultations” to ensure that a minority does not derail a project for the greater good of many.
Did the WBG ignore its own advice? The WBG welcomed the EIR report and accepted most of its proposals. But Dr. Salim’s consultative process and its report was an independent set of recommendations to the World Bank Group; it was not a World Bank Group report. As with all advice and recommendations provided to institutions, the World Bank Group accepted most of them, but not their entirety.
As Mr. Wolfensohn wrote at the time 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.”
Did the WBG make a “good faith” effort to address the 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.