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World: Lenders Urge World Bank to Reject Oil, Mining Pullout

by Emad MekayInter Press Service News Agency
April 5th, 2004

International investment banks are lobbying the World Bank to rebuff the recommendations of an independent study that urged the global lender to bail out of gas, oil and mining projects.

According to a leaked letter sent to World Bank President James Wolfensohn and seen by IPS, several investment banks that lend for such projects want the World Bank to reject the findings of the Extractive Industries Review (EIR), an effort to assess the bank's heavily criticised support for mining and energy projects.

The EIR submitted its final report to the World Bank on Jan. 16, urging the world's largest public lender to stop funding extractive industries like coal and oil by 2008, and to shift its investments to cleaner renewable energy instead.

Among its many recommendations is a call for the bank to implement "much more effective social and environmental policies".

But in their undated letter, the banks argue the review ignores that extractive industries remain critical to global economic growth and poverty reduction and that, in some countries, the sectors generate important revenues that finance government programmes.

"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," says the letter.

The investment banks form what is called the Equator Principles group -- some 20 international investment banks that have adopted the World Bank Safeguard Policies and Sector Guidelines, created to help banks manage social and environmental issues related to the financing of development projects.

The guidelines make recommendations on how to deal with such issues as natural habitat, indigenous peoples, involuntary resettlement, dam safety and cultural sites.

The Equator Banks, which include world names like ABN AMRO Bank, Barclays, Citigroup, Crdit Lyonnais, Credit Suisse Group, Dresdner Bank and Royal Bank of Canada, sometimes co-finance projects with the World Bank in extractive industries and related sectors.

Collectively they were responsible for 54 billion dollars worth of financing for such projects in 2003.

The banks say they are worried that if the World Bank withdraws from extractive industries, the move could have a ripple effect on private capital. World Bank involvement in a development project has often been seen as a green light for other lenders to get on-board.

They also warn that the bank's pullout could result in lower standards of governance and operations by companies carrying out some of the more challenging projects.

The banks argue that projects like the 1,070-km Chad-Cameroon pipeline in Central Africa and the Baku-Tbilisi-Ceyhan (BTC) pipeline in the Caspian region are exemplary models for development.

The World Bank has provided loans for the two projects despite loud protests from civil society groups who say the pipelines harm the environment and have already displaced indigenous populations.

The letter also seeks to discredit renewable energy, such as wind and solar, as a possible alternative to non-renewables, arguing that many are not yet commercially viable and that economies of scale will not allow renewables to play a significant role in meeting current or expected future energy needs.

The banks' letter has infuriated environmentalists and other activists. They charge that the lenders are preventing the World Bank from possibly adopting even higher standards of corporate conduct.

"The Equator Banks are acting like wolves in sheep's' clothing," said Daphne Wysham, a fellow with the Institute for Policy Studies, in a press release.

"Though wearing the outer trappings of higher standards, this letter reveals the Equator Banks actually trying to impede the World Bank's attempt at implementing higher social and environmental standards."

"They are playing an obstructionist role in the recommendations that are for the World Bank not for them," added Michelle Chan-Fishel, programme manager of the green investments project of Friends of the Earth -- U.S.

She argued that the World Bank is obligated to heed the EIR's recommendations. "The World Bank has a development mission and is dedicated supposedly to alleviating poverty. (The investment banks) trying to get in the way of that is really inappropriate".

Support for the review has been gaining momentum. On Apr. 2, more than 100 parliamentarians worldwide, and the European Commission, called for the full implementation of the EIR recommendations.

In March, six Nobel Peace Prize laureates, including landmines activist Jody Williams and South African Archbishop Desmond Tutu, also wrote Wolfensohn to urge that the World Bank adopt the EIR recommendations.

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