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An African Oil Tragedy – What Are the Lessons for the World Bank and Its Shareholders?

By Korinna Horta, Ph.D., Urgewald e.V./Working Group Chad

While the horrific oil catastrophe in the Gulf of Mexico is making headlines, another kind of oil tragedy is marking its 10th anniversary with no end in sight.

In June 2000, the World Bank approved financing for a highly controversial oil project promoted by an international oil consortium led by Exxon Mobil. It involved drilling oil wells in landlocked southern Chad and building a 1046 kilometer-long pipeline through neighbouring Cameroon to the Atlantic coast, from where the oil is shipped to Europe and the United States. At an estimated total cost of $6.5 billion, the Chad-Cameroon Oil & Pipeline project is the single largest investment on the African continent and far larger than the World Bank’s pre-financial crisis annual aid budget for all of sub-Saharan Africa, which amounts to roughly $4 – 5 billion.

Although the World Bank Group, through its public sector lending and private sector investment branches, contributed only a fraction of the total project costs, it served as the catalyst for the project. Exxon Mobil made World Bank participation a precondition for investing in this politically volatile region.  The oil consortium wanted political risk insurance and access to additional financing on favourable terms, and with the World Bank’s seal of approval, it got both. The U.S. Export-Import Bank and the European Investment Bank, as well as a host of private lenders, provided financing following World Bank approval of the project.

Before the World Bank's decision, Chadian and Cameroonian civil society organizations pleaded with the World Bank to postpone funding of the project until there was evidence that the governments in both countries were committed to reducing poverty and had the capacity to address the environmental and social consequences of a project of this magnitude. They were supported by several donor-government agencies and environmental and human rights organizations from around the world, all of whom warned about the legacy of impoverishment, human rights abuses, poisoned landscapes and violent conflict left in the wake of oil and mining projects across Africa.

Brushing aside these concerns, the World Bank touted the project as an unprecedented opportunity to translate oil wealth into benefits for the poor and as a model for investment elsewhere. And, indeed, largely in response to public protests, the Bank requested voluminous environmental studies and promoted innovative measures, such as requiring a law in Chad to ensure transparency in the use of oil revenue and establishing a committee to monitor implementation of the law.

Predictably, the World Bank’s measures were largely ineffective in a political context known for its lack of democratic rights and access to justice, entrenched corruption and human rights violations.

So what has become of the oil income intended to lift poor Chadians out of poverty?  Much, if not most of it, is getting diverted to weapons purchases and to finance both the second largest rebel group operating in Darfur and patronage networks within Chad’s army. It is a cruel irony that the World Bank’s model project, meant to show how the income from extractive industries can be harnessed for poverty reduction, contributed to the forced displacement of several hundred thousand people in Eastern Chad and to untold suffering in Sudan’s neighbouring Darfur province.

Then there are the direct impacts, such as pollution and expropriation without fair compensation for the poor rural communities in the oil-producing region and along the pipeline route.  They bear the brunt of the ecological footprint and social disruption created by the physical infrastructure of the project.  In addition, increasing loss of farmland, polluted water wells and smaller fish catch have severely disrupted local subsistence communities. As usual, women and children suffer the greatest hardships in such situations.  Measures meant to protect the vulnerable Bagyeli Pygmy population living in the rainforest traversed by the southern section of the pipeline were never implemented. There is virtually no possibility of legal recourse. Courageous human rights defenders taking up the cause of affected people do so at high risk to their personal safety.  Death threats are common.

At the request of the U.S. and German governments, the World Bank’s largest and third largest shareholders respectively, the institution’s own Independent Evaluation Group carried out an evaluation of the project which was made public in November 2009. The report – which only exists in English and is therefore not accessible to the vast majority of people in both Chad and Cameroon – confirms that the project’s primary objective of poverty reduction was not met.  Worse, it found that the project was associated with violent conflict, worsening governance and corruption. It also concluded that oil development had led to deterioration in other vital sectors of the economy. In clear text this statement concedes that the vast majority of the population, who depend on agriculture and livestock for their livelihoods, have seen their already precarious situation further eroded. 

While the evaluation confirms the stark and undeniable realities created by this mega-investment, its conclusion argues that the World Bank Group should remain engaged in extractive industries "…however risky it may be" (p.viiii). Unfortunately, it did not take the trouble to consider to whose risks it was referring. The risk was placed squarely on some of the world’s most wretchedly poor people, while World Bank repayment of its loans was assured via an off-shore escrow account that received payments directly from the oil consortium. World Bank staff who worked on the project advanced in their careers or retired in maximum comfort. No one is being held to account.

Nothing will change in an institutional culture that is fully geared toward moving money irrespective of results unless the institution’s shareholders--our governments--decide to become serious about reforms.  What we need is a system of holding World Bank management accountable for delivering on its promises of poverty reduction and sustainable development. What we also need is a new energy policy at the institution that translates its stated concerns about climate change into practical action by phasing out support for fossil fuels and supporting decentralized renewable energy systems that provide energy services directly to the poor, the institution’s intended beneficiaries.

The report of the World Bank Independent Evaluation Group, "The World Bank Group Program of Support for the Chad-Cameroon Petroleum Development and Pipeline Construction" is available at
http://siteresources.worldbank.org/INTOED/Resources/ChadCamReport.pdf

The study of the Working Group Chad "The World Bank Group and the Chad-Cameroon Oil & Pipeline Project – 'The logic was sound, but reality interfered'” is available at (also in French) http://erdoel-tschad.de/index.php?option=com_content&task=view&id=119&Itemid=34

The Management Statement of the World Bank Group is available here.

The impacts of the World Bank project on the violent conflicts in Chad have been analyzed by the Working Group Chad and the Bonn International Center for Conversion in a BICC Brief "'We were promised development and all we got is misery': The Influence of Petroleum on Conflict Dynamics in Chad" by Lena Guesnet and Claudia Frank, available at http://www.bicc.de/index.php/publications/briefs/brief-41


Published in: ECC-Newsletter, June 2010

An African Oil Tragedy – What Are the Lessons for the World Bank and Its Shareholders?

By Korinna Horta, Ph.D., Urgewald e.V./Group Chad

 

While the horrific oil catastrophe in the Gulf of Mexico is making headlines, another kind of oil tragedy is marking its 10th anniversary with no end in sight.

 

In June 2000, the World Bank approved financing for a highly controversial oil project promoted by an international oil consortium led by Exxon Mobil. It involved drilling oil wells in landlocked southern Chad and building a 1046 kilometer-long pipeline through neighbouring Cameroon to the Atlantic coast, from where the oil is shipped to Europe and the United States. At an estimated total cost of $6.5 billion, the Chad-Cameroon Oil & Pipeline project is the single largest investment on the African continent and far larger than the World Bank’s pre-financial crisis annual aid budget for all of sub-Saharan Africa, which amounts to roughly $4 – 5 billion.

 

Although the World Bank Group, through its public sector lending and private sector investment branches, contributed only a fraction of the total project costs, it served as the catalyst for the project. Exxon Mobil made World Bank participation a precondition for investing in this politically volatile region.  The oil consortium wanted political risk insurance and access to additional financing on favourable terms, and with the World Bank’s seal of approval, it got both. The U.S. Export-Import Bank and the European Investment Bank, as well as a host of private lenders, provided financing following World Bank approval of the project.

 

Before the World Bank's decision, Chadian and Cameroonian civil society organizations pleaded with the World Bank to postpone funding of the project until there was evidence that the governments in both countries were committed to reducing poverty and had the capacity to address the environmental and social consequences of a project of this magnitude. They were supported by several donor-government agencies and environmental and human rights organizations from around the world, all of whom warned about the legacy of impoverishment, human rights abuses, poisoned landscapes and violent conflict left in the wake of oil and mining projects across Africa.

 

Brushing aside these concerns, the World Bank touted the project as an unprecedented opportunity to translate oil wealth into benefits for the poor and as a model for investment elsewhere. And, indeed, largely in response to public protests, the Bank requested voluminous environmental studies and promoted innovative measures, such as requiring a law in Chad to ensure transparency in the use of oil revenue and establishing a committee to monitor implementation of the law.

 

Predictably, the World Bank’s measures were largely ineffective in a political context known for its lack of democratic rights and access to justice, entrenched corruption and human rights violations.

 

So what has become of the oil income intended to lift poor Chadians out of poverty?  Much, if not most of it, is getting diverted to weapons purchases and to finance both the second largest rebel group operating in Darfur and patronage networks within Chad’s army. It is a cruel irony that the World Bank’s model project, meant to show how the income from extractive industries can be harnessed for poverty reduction, contributed to the forced displacement of several hundred thousand people in Eastern Chad and to untold suffering in Sudan’s neighbouring Darfur province.

 

Then there are the direct impacts, such as pollution and expropriation without fair compensation for the poor rural communities in the oil-producing region and along the pipeline route.  They bear the brunt of the ecological footprint and social disruption created by the physical infrastructure of the project.  In addition, increasing loss of farmland, polluted water wells and smaller fish catch have severely disrupted local subsistence communities. As usual, women and children suffer the greatest hardships in such situations.  Measures meant to protect the vulnerable Bagyeli Pygmy population living in the rainforest traversed by the southern section of the pipeline were never implemented. There is virtually no possibility of legal recourse. Courageous human rights defenders taking up the cause of affected people do so at high risk to their personal safety.  Death threats are common.

 

At the request of the U.S. and German governments, the World Bank’s largest and third largest shareholders respectively, the institution’s own Independent Evaluation Group carried out an evaluation of the project which was made public in November 2009. The report – which only exists in English and is therefore not accessible to the vast majority of people in both Chad and Cameroon – confirms that the project’s primary objective of poverty reduction was not met.  Worse, it found that the project was associated with violent conflict, worsening governance and corruption. It also concluded that oil development had led to deterioration in other vital sectors of the economy. In clear text this statement concedes that the vast majority of the population, who depend on agriculture and livestock for their livelihoods, have seen their already precarious situation further eroded. 

 

While the evaluation confirms the stark and undeniable realities created by this mega-investment, its conclusion argues that the World Bank Group should remain engaged in extractive industries "…however risky it may be" (p.viiii). Unfortunately, it did not take the trouble to consider to whose risks it was referring. The risk was placed squarely on some of the world’s most wretchedly poor people, while World Bank repayment of its loans was assured via an off-shore escrow account that received payments directly from the oil consortium. World Bank staff who worked on the project advanced in their careers or retired in maximum comfort. No one is being held to account.

 

Nothing will change in an institutional culture that is fully geared toward moving money irrespective of results unless the institution’s shareholders--our governments--decide to become serious about reforms.  What we need is a system of holding World Bank management accountable for delivering on its promises of poverty reduction and sustainable development. What we also need is a new energy policy at the institution that translates its stated concerns about climate change into practical action by phasing out support for fossil fuels and supporting decentralized renewable energy systems that provide energy services directly to the poor, the institution’s intended beneficiaries.

 

The report of the World Bank Independent Evaluation Group, "The World Bank Group Program of Support for the Chad-Cameroon Petroleum Development and Pipeline Construction" is available at

http://siteresources.worldbank.org/INTOED/Resources/ChadCamReport.pdf

The study of the Working Group Chad "The World Bank Group and the Chad-Cameroon Oil & Pipeline Project – 'The logic was sound, but reality interfered'” is available at (also in French) www.erdoel-tschad.de

 

The Management Statement of the World Bank Group is available here [http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/EXTREGINI/EXTCHADCAMPIPELINE/0,,contentMDK:22398488~pagePK:64168445~piPK:64168309~theSitePK:843238,00.html]

 

The impacts of the World Bank project on the violent conflicts in Chad have been analyzed by the Working Group Chad and the Bonn International Center for Conversion in a BICC Brief "'We were promised development and all we got is misery': The Influence of Petroleum on Conflict Dynamics in Chad" by Lena Guesnet and Claudia Frank, available at http://www.bicc.de/index.php/publications/briefs/brief-41