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World Bank chiefs reject proposal to quit oil and coal finance

Published by MAC on 2004-02-03

World Bank chiefs reject proposal to quit oil and coal finance

By Alan Beattie, Financial Times

3 February 2004

The World Bank's management has rejected the key proposals of an independent review it commissioned that recommended the bank pull out of financing all oil and coal projects in the developing world.

A draft copy, seen by the FT, of the bank's response to the Extractive Industries Review (EIR) - a two-year review of the bank's role in financing oil, gas and mining - shows the management declining to propose several of its key recommendations to the bank's executive board for adoption.

Environmental campaigners reacted angrily to the management response, saying it showed the bank was not serious enough about protecting the environment.

The management response, prepared on behalf of James Wolfensohn, the bank's president, flatly rejects the ambitious proposal that the bank and its private sector arm, the International Finance Corporation, should phase out its involvement in oil projects within five years and shift its financing to renewable energy.

"Adopting this policy would not be consistent with the World Bank Group mission of helping to fight poverty and improve the living standards of people in the developing world," the management report said. Attempting to use the bank as a lever to achieve reduction in fossil fuel emissions, as the review proposed, was counter-productive, it said. Such a strategy would contradict the proposals of the Kyoto initiative, which stressed the importance of sharing the burden of reduced carbon emissions, the report added.

Ending the financing of oil projects "would unfairly penalise small and poor countries that need the revenues from their oil resources to stimulate economic growth and alleviate poverty". The report cited as an example Chad, where the bank has financed an oil pipeline against the vociferous complaints of environmentalists.

The EIR, led by Emil Salim, a former Indonesian environment minister, also proposed that local indigenous peoples should be required to give "free prior informed consent" before an oil, gas or mining project went ahead. The bank said this could violate local laws.

Though the management did accept that the bank should work to increase the transparency of oil revenues, environmental campaigners said they were disappointed with its response.

They said they would continue to press their case when the proposals went to the bank's executive board, though admitted that the management proposals were very likely to be accepted.

"The World Wildlife Fund feels very strongly that all the recommendations from the EIR should be adopted," said Francis Grant-Suttie, director of private sector initiatives for WWF. "We are disappointed that the draft World Bank management response seems to reject out of hand some of the most critical recommendations in the report. However, we look forward to working with Mr Wolfensohn and the World Bank Group in making the case why these reforms need to be instituted."

The EIR involved consultation with industry, government and pressure group representatives around the world but drafting of the recommendations was left entirely to Mr Salim.

(c) 2004 The Financial Times Limited. All rights reserved

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