Banks contest ban proposed for coal and oil extractionPublished by MAC on 2004-04-05
Banks contest ban proposed for coal and oil extraction
Financial Times, by Demetri Sevastopulo in Washington
April 5 2004
Leading international banks are expected to urge the World Bank to reject proposals to stop financing oil and coal projects in developing countries.
Citigroup, ABN Amro, WestLB, Barclays and 16 other banks involved in project finance last year signed the so-called Equator principles - an agreement to adhere to social and environment safeguards of the World Bank group.
The "Equator banks" want the World Bank to reject recommendations contained in the Extractive Industries Review - an independent study of oil, gas and mining project financing commissioned by the bank - according to a draft letter to James Wolfensohn, World Bank president, obtained by the Financial Times.
The EIR urged the bank to phase out funding of oil projects by 2008 and to stop financing coal-mining projects. The World Bank has signalled that it will reject some of the more radical proposals.
"We believe that the EIR has not given sufficient consideration to the fact that the extractive industries are essential to global economic growth and poverty reduction, and that for some countries the extractive industries represent a very important means of creating revenues for government programs," says the letter, which is unsigned and being circulated among the banks.
Citibank, one of the drivers behind the push to sign the Equator principles declined to comment on the letter.
Environmental groups and other non-governmental organisations that welcomed the agreement last year are critical of the banks desire for the World Bank to reject the EIR proposals.
"It's outrageous that the Equator banks are lobbying against proposals that would make emerging market investments better benefit the poor," said Michelle Chan-Fishel of Friends of the Earth. "We and other NGOs are calling on the Equator banks, particularly Citigroup and the leaders of this initiative, to honour the spirit of the Equator principles and to publicly support the EIR recommendations."
But the International Finance Corporation, the private-sector lending arm of the World Bank that spearheaded the effort to get the banks to sign the Equator agreement, said the letter represented a welcome increased participation in the consultative process.
"Whatever you think of the EIR everybody is now engaged in the debate about how the World Bank's leadership can be best used," said Rachel Kyte, IFC director of environmental and social development.
"I don't think there is anything negative at all about having Wall Street and London and Frankfurt engaged in [the debate about] how you finance extractive industries." The banks welcomed the EIR recommendation for increased transparency regarding oil revenues paid to governments. But they warned against making countries having "robust governance criteria" a precondition for World Bank financing.
The letter says: "A country's current inability to meet robust WBG governance criteria should not prevent that country from gaining access to the support, both financial and structural, that is required in order to develop such government mechanisms."
Separately, 126 European parliament members, affiliated with Green parties, wrote to Mr Wolfensohn on Friday urging the bank to implement all of the EIR recommendations.