United Kindom position on the World Bank response to the Extractive Industries Review (EIR)

The UK Government has been actively involved throughout the process of the Extractive Industries Review and made a number of submissions to it. Now that the World Bank Group’s management response has been published this paper sets out our position on the main conclusions.

We accept the overall conclusion that the World Bank has an important, continuing role in the sector. However, in responding to the Review, World Bank management should focus more on poverty reduction through sustainable development. Good governance and transparency must receive close attention.

By implementing the approaches set out in the management response and the proposals made in this paper, and by being involved appropriate projects, the World Bank can raise standards in the extractive industries by setting benchmarks for the sector and establishing industry best practice. Initiatives such as the promotion of the Equator Principles have demonstrated how the World Bank can help develop the reference standards in the private sector for responsible environmental stewardship and socially responsible development.

Maximising poverty reduction

Many countries with a high dependence on natural resources have failed to achieve sustained economic growth and development. In our view these economic distortions, known as the "resource curse", are not inevitable. The World Bank’s involvement in extractive industries must therefore effectively contribute to sustainable development and poverty reduction.

The UK believes that Strategic Environment Assessments (SEA) and Poverty and Social Impact Assessments (PSIA) should be applied to all proposed extractive industry investments, to put poverty reduction at the centre of the World Bank’s considerations. We welcome the World Bank’s efforts to review and update their safeguards policies. The World Bank must ensure that investments enhance positive opportunities as well as mitigate negative impacts. Building on existing experience with PSIAs and on the DAC work on SEAs, the World Bank should identify the most sustainable policy options and measure their success in contributing to poverty reduction and achieving the Millennium Development Goals.

Good governance and transparency are critical to avoid revenues from extractive industries fuelling conflict and corruption, and undermining progress to sustainable development. We strongly support the EIR recommendation that the World Bank should vigorously pursue revenue transparency in resource rich countries. This needs to be applied to governments as well as to the companies and across the whole sector - not just to specific World Bank supported investments. The World Bank’s support for the Extractive Industries Transparency Initiative is a welcome move in this direction, but the Bank must go further. A firm commitment to transparency of payments and revenues should be a condition of lending to all resource rich developing countries.

The UK recognises the difficulties faced by the World Bank in taking decisions on lending to countries with difficult governance. The World Bank should clearly set out the criteria it will use to decide if support is to be provided, and in each case there should be an action plan on how the World Bank will support countries to turn intentions into practice.

Mitigating environmental and social risk

The UK agrees with the Review and with World Bank management that oil, gas or mining projects in areas judged internationally or nationally to have high biodiversity sensitivity or cultural value (so called "no go" areas) need particular consideration on a case by case basis. But the impact on biodiversity and protection of cultural sites are important aspects to be examined when appraising all projects, whether in no go areas or not. The World Bank should assess the full impact of all proposed investments as part of routine project appraisal.

The Review highlights the impact of extractive industries on indigenous people, who have often been under-represented or excluded from decisions that directly affect them. The UK believes that all communities and particularly poor and marginalised groups within those communities (including indigenous people) should benefit from projects undertaken where they live. The idea of giving indigenous people or local communities a veto over projects is not, however, one that we would support. We therefore agree with the Management proposal to free prior informed consultation with affected communities leading to acceptance, before a project is approved. The World Bank should also include a project specific local poverty reduction goal in extractive projects, as recommended by the Review.

Addressing climate change

We share the Review’s concern about the impact of fossil fuels on climate change. The UK Government, itself, is committed to a gradual transition away from fossil fuels towards renewable energy sources, combined with greater energy efficiency. We recognise the potential value of gas as a transition option towards cleaner energy. The World Bank’s support for new coal development has been minimal in recent years and we would expect future investments only where there is a particularly strong developmental case and where there is scope for efficient energy use, such as modern, clean coal technologies.

Nevertheless, we agree that a blanket prescription to phase out engagement in fossil fuels by 2008 is not helpful. The priority must be the provision of reliable and affordable energy from diverse and secure sources.

The UK believes that the current World Bank investment portfolio is disproportionately skewed towards fossil fuels. We welcome the World Bank’s commitment to increase renewable energy and energy efficiency investments over the next five years. However present commitments are very low and the target of increasing this to US$400 million by 2010 is insufficient. The World Bank needs to make a greater and more urgent commitment to renewable energy, cleaner energy technologies, natural gas and improved energy efficiency.