The World Bank has told an Exxon Mobil-led consortium to take corrective action to fully compensate farmers in southern Chad who lost land and their livelihoods as the U.S. company expands its search for oil in the Doba basin.
The bank's private-sector lender, the International Finance Corp., has insisted Exxon (XOM.N: Quote, Profile, Research) reassess its compensation plans after an independent survey found that expanded drilling is destroying already-scarce land that families live off.
Exxon operates the Chad-Cameroon oil pipeline development project, including Chevron Corp. (CVX.N: Quote, Profile, Research) and Malaysia's state-run Petronas (PETR.UL: Quote, Profile, Research), which the IFC agreed to help finance on condition profits from the oil benefited the poor.
In an interview, Rashad Kaldany, the IFC's director for oil, gas and mining, said despite cash compensation by an Exxon affiliate, Esso Chad, families would be worse off in the long term if their livelihoods were not properly restored.
"We have had extensive discussions with Esso and really urged them to take this very seriously and we have agreed on the principles," Kaldany told Reuters.
"They are committed to doing things right, but getting to finalizing an action plan and disclosing it is something we are still working on with them."
Kaldany said the consortium had agreed to issue a plan within the next few weeks.
"It will build on what they have done before, including cash compensation, but may include new approaches to either restore their livelihoods, or help them develop new livelihoods with training," he said.
The report, commissioned by Esso at the IFC's request, found that Esso miscalculated its land requirements and through incremental acquisitions have exceeded original estimates by 65 percent.
It said exploration and drilling had fragmented cultivated land and left some areas unfit for farming, while villagers had abandoned growing cotton, a vital cash crop.
EXXON: AFFECTED PEOPLE BETTER OFF
Of the 1,640 families, or about 12,000 people, affected, most had lost between 20 percent to all of the use of their land, the report said, adding that Exxon significantly underestimated the number of people that would be affected, especially those who would be suffer due to the loss of land.
Families who received cash for land used the money to improve homes, pay debts and buy cattle and farm equipment, but they also wasted it on alcohol, bride purchases and prostitution, the study found.
"Our aim is to ensure long-term positive impacts and this is why we have been urging Esso to reassess compensation, which they are willing to do," Kaldany said.
In an e-mailed response, Exxon-Mobil said it had been "developing and implementing mitigation plans to address issues identified" in the report.
"The project believes that the compensation and resettlement plan has generally worked well," it said, adding the study "shows in clear and quantifiable terms that the people affected are better off."
Ian Gary, a policy advisor for development group Oxfam who closely follows the pipeline project, praised the IFC for stepping in but said it had acted too slowly.
"I don't think the IFC pushed hard enough on Exxon and pushed as early as they should of," said Gary, whose organization was among the aid and environmental groups briefed by the IFC this week.
The pipeline project has long been a thorn in the side of the World Bank, which was criticized from the start for getting involved in oil projects that had done more harm than good in impoverished African countries.
World Bank President Paul Wolfowitz halted loans to Chad in 2005 after the government made a grab for the oil revenues.
Since then, the bank has renegotiated the deal with the government, which promised to allocate 70 percent of budgetary spending in 2007 for programs to help the poor.
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