The Extractive Industries Review

The Extractive Industries Review, written by former Environment Minister Prof. Emil Salim, states that the World Bank Group has failed to encourage the extractive industries to contribute to poverty reduction efforts. Thus far the World Bank has always justified its involvement in the extractive industries, stating its conviction that the mining and oil and gas sector is able to make a positive contribution to poverty reduction in its member states. The World Bank Group has ignored the fact that the extractive industries have been the cause of poverty, inflamed civil wars, marginalized indigenous and local communities as well as damaged ecosystems and biodiversity.

In response to this, the Extractive Industries Review makes a number of recommendations in order to effect changes in policy, institutions and specific activities that will guarantee the development of a pro-poor extractive industry compatible with sustainable development. The review also outlines a number of measures, limitations and definitions that could contribute towards creating a more pro-poor extractive industry. The recommendations themselves cover a number of related issues: governance, human rights, policy and the environment.

Governance

Good governance is an institutional pre-condition that must be implemented so that countries where extractive industries operate are ready to respond to the various risks present in the extractive industries sector. Criteria adopted in order to guarantee good governance include transparent institutions and guaranteed civil society participation. One recommendation calls for transparent company profits and mechanisms that guarantee free prior informed consent from local/indigenous communities that suffer the impact of extractive industries. All countries must fulfil these governance criteria for investment in the extractive industries to be given approval.

Pro-Poor Policy

The World Bank must guarantee that countries where extractive industries operate have the capacity to carry out comprehensive assessments of the impact of the extractive industries, including the capacity to carry out their own profit and loss assessments in the gas, oil and mining industries.

Assessments should use the following measures/indicators:

• The project in question must be of guaranteed benefit to all the groups that will be affected, including ethnic minorities, women and other poor and marginalized groups.

• Guarantee fair distribution of profits to affected communities.

• Guarantee a fair and appropriate relocation process for those communities that have to be relocated as a result of the project in question. Relocation must not in any way endanger the community and must not be forced.

• Carry out an impact assessment on the health of the community and guarantee provision of appropriate health facilities.

Human Rights and Indigenous Peoples

Any extractive industry operation must be based on respect for human rights.

1. The World Bank must set up a Human Rights unit.
2. In considering a financing agreement, the IFC and MIGA (see IFI Factsheet Nos. 14, 15, 16 must base its decision on the human rights record of its client industry.
3. Every project must guarantee the implementation of free, prior and informed consent (FPIC) and all negotiations carried out with local communities and indigenous peoples must be recorded in the contract in order that they have legal authority.
4. The World Bank Group must not support extractive industries that are located in conflict areas or potential conflict areas.

• Provide support to renewable energy development projects by increasing loans by 20% per annum and reducing support to industries that produce and use toxic materials such as cyanide.
• Prohibit the funding of extractive industries in conservation areas, including National Parks, species management areas and other areas protected by central or local government.
• No funding should be given to mining industries that discharge their waste into rivers, seas, lakes etc.
• Develop guidelines for mine closure.

• The government and company in question must make information relating to all financing of the project, contracts and agreements, feasibility studies, environmental impact assessments, conditions concerning the environment and local communities and other documents available to the public.
• All these documents must be provided in local languages and written in a way that may be understood by local communities.
• There should be an Information Ombudsman who ensures that all information disclosure policies and transparency are properly implemented. The Information Ombudsman should be tasked with monitoring state implementation and guarantee the protection of community rights, normally by putting together a list of complaints and submitting them to the relevant institutions.

• Revoke support for the coal mining industry immediately and the oil industry before 2008.
• Fulfil all social and environmental assessment requirements, including impact on health, on all Bank loans in the extractive industry.
• All extractive industries must classified as category A. According to World Bank classification, category A projects are projects with the greatest environmental risks. Thus, agreement to a category A project must follow a more stringent environmental assessment and more intensive consultation with civil society.
• Increase the number of human rights, social and environment specialists working at the World Bank.

There have been a number of reactions to this report, some that support it and some that do not.

Support: There has been support in the form of statements from various institutions, calling for the president of the World Bank to implement all the recommendations without delay. Amongst others, this support has come form:

• 126 legislative members from a number of European countries and others such as Uruguay, Peru, Brazil, Bolivia, the U.S, Canada, Israel as well as 30 political parties.
• GLOBE International, the association of non-partisan parliamentarians from a number of states.
• The parliament of the European Union.
• A letter of support was written by 6 winners of the Nobel Prize for Peace, including Jody Williams and Desmond Tutu, signed by more than 300 NGOs.
• More than 100 Jewish and Christian leaders associated with religious organisations that support the work of the World Bank and the IMF.
• Business for Sustainable Development groups from Europe, the U.S, Australia and the U.K.
• A number of renewable energy trade associations from all over the world.
• CERES, the coalition of businesses that represents more than US$ 300 billion investment capital.
• Letters from Oxfam International, Mines Minerals and People (MMP), Indigenous Peoples organizations.

There has been little written reaction to the report by Indonesian NGOs. However, most of them refused to be involved in the EIR investigation process from the outset because they believed that the TOR and working methodology of the EIR were flawed.

Reject: On the other hand, 20 large banks, including Barclays Bank, have written a letter to the president of the World Bank stating their disagreement with all aspects of the recommendations made by the EIR report. These banks primarily reject the call for the immediate revocation of all support for the coal mining industry and the oil industry before 2008. In their view, the World Bank must continue to support the financing of these extractive industries. International environmental NGOs have criticized this letter that was written in the name of the "Equator Banks." These international NGOs have questioned the commitment of the "Equator Banks" to the Equator Principles.

The Equator Banks are a number of banks that have signed the Equator Principles. These principles, published in June 2003, aim to increase social and environmental responsibility of large-scale businesses. The signatories state that private financial institutions must implement the Safeguard Policies of the World Bank and IFC groups.

Prof. Emil Salim in his position as Eminent Person of the EIR has already made various efforts to obtain support for the EIR recommendations.

Upon sending the final EIR report to the president of the World Bank on 14 January 2004, Prof. Emil Salim and the EIR team met with James Wolfensohn in Washington DC from 26 to 30 January 2004. The World Bank management promised to make a public response to the report after 25 February 2004.

On the invitation of a number of European states and European NGOs, Prof. Salim was invited to make a two-week trip to Europe to discuss the report, starting out in Rome on 26 February and ending in Oslo.

A few weeks later, Prof. Salim attended the UNDP International Conference on the Millennium Development Goals, in Beijing from 24-28 March. At this meeting, Prof. Salim talked about a number of issues related to the EIR recommendations. Prof. Salim then travelled to Australia where he was one of the speakers at the Australian national "Sustainable Energy 2004" conference held in Sydney. Meanwhile the president of the World Bank did not fulfil his promise to respond to the report, promising instead to meet with Prof. Salim in April.

Prof. Salim agreed to the meeting with Wolfensohn which was held on 19 April. In a joint-statement issued by the President of the World Bank, James Wolfensohn and Emil Salim, the importance of the implementation of the recommendations was acknowledged, however Wolfensohn asked for more time to discuss the recommendations in greater detail internally at the World Bank. Both parties agreed to meet again in June.

Prof. Salim was invited to present the EIR's findings at the Second World Renewable Energy Forum dari 29-31 May, 2004 in Bonn. The Chair of the World Council for Renewable Energy (WCRE), Dr. Hermann Scheer, has written a report, "Renewable Energy for Poverty Alleviation" to support the recommendations made by the EIR for the renewable energy sector. The report may be accessed in full at http://www.wcre.org/.

The World Bank management has already rejected the recommendations made by the EIR to immediately end support for the coal mining industry and for the oil industry by 2008. This fact is clearly recorded in the World Bank Group report of 17 June which states the importance of the oil, gas and coal industries for developing countries in order to attain the Millennium Development Goals. Thus, the World Bank continues to invest in the extractive industries, although this must be done more selectively and with more focus on the needs of the poor, good governance and social and environmental sustainability. Other recommendations include the postponement of all decisions until such point that the IFC has finished its review of social and environment safeguard policies and pollution standards. The complete revision of the Bank's safeguard policies is estimated to take two years. The Bank has also stated that it will review its involvement in the extractive industries and report on progress every two years.

There is a period of 30 days for making comments on the World Bank Management Response which is open to all. Following this the Bank's Board will meet to consider the inputs and authorise the official Bank response.

References:
EIR Website: www.eireview.org
www.bicusa.org
http://brettonwoodsproject.org
http://www.wcre.org/
http://www.pelangi.or.id