The Honourable Ralph Goodale

Minister of Finance

House of Commons

Ottawa, Ontario, K1A 0A6

March 15, 2004

Dear Minister Goodale,

We are writing to urge you in your capacity as the Canadian Governor of the World Bank to ensure that Canada plays a strong role in moving toward the full adoption of the recommendations of the Extractive Industries Review (EIR) by the World Bank.

James Wolfensohn, World Bank President, launched the EIR in 2000, when international civil society organizations requested a phase-out of the Bank’s support for oil, gas and mining projects on the grounds that they exacerbated poverty and environmental crises rather than raising incomes and enhancing the environment. The mandate of the EIR was to identify how and under what conditions, World Bank past investments in oil, gas and mining have contributed to poverty reduction in a broad sense of contributing to sustainable livelihoods.  The EIR team, under the direction of Dr. Emil Salim, formerly the Minister of the Environment in Indonesia and former director of Indonesia’s largest coal company, studied and consulted widely for two years.

The report was released in January 2004 with four main sets of recommendations for the Bank:

• Assist in the creation of an enabling environment for pro-poor public and corporate governance prior to EI investments;
• Adopt and implement effective social and environmental policies;
• Adopt and implement policies to ensure greater respect for human rights;
• Re-set its institutional priorities so as to provide internal incentives for actions in support of the foregoing objectives.

The recommendations are mutually reinforcing. Failure to adopt recommendations in one area will undermine efforts in another. For this reason, the recommendations cannot be separated and must be adopted in their entirety.

Moreover, these conclusions are consistent with Canada’s support for the Kyoto Protocol on Climate Change and the government’s commitment in the recent throne speech to “leadership in green technologies” and “alleviate hunger, poverty, and disease and to raise the standards of living in developing countries”.

We would like to call your attention to specific EIR recommendations, which are in

danger of being rejected by the Bank, and to make a case for Canada’s strong support for them.

1. Respect for Human Rights -  Free Prior Informed Consent (FPIC)

“[T]he World Bank Group should ensure that indigenous peoples’ rights to give their free prior informed consent is incorporated and respected in its Safeguard Policies and project-related instruments….covenants in project agreements that provide for multi-party negotiated and enforceable agreements…[that] indigenous peoples and local communities consent to the project”.

FPIC is a principle enshrined in international human rights law. The EIR report authors recognize, as do we, that there are real issues that need to be worked out to make FPIC a clearer and more effective tool. The Bank needs to rise to this challenge and build on the work already underway by the UN Permanent Forum on Indigenous Issues, the UNDP and a variety of other organizations to further understanding of the issues underpinning FPIC and its implementation.

Bank management, in their first draft response to their report argues that “governments and industry do not support free prior informed consent, where this would represent a veto on development”. As the attached article by Viviane Weitzner, Senior Researcher of The North-South Institute indicates, FPIC is much more complex than a “go/no-go” decision, and should not be dismissed on false premises.

Canada has valuable experience in this area and should be actively involved in convening a way forward on operationalizing this recommendation.

2. Pro-poor governance

The report recommendations state that the World Bank Group should not increase its involvement in EI projects without addressing a series of prior conditions. The main governance criteria include, among others:

• the absence of armed conflict or a high risk of such conflict
• government’s recognition of and willingness to protect the internationally guaranteed rights of indigenous people
• government capacity and willingness to publish and manage revenue transparently
• the existence of effective frameworks for revenue sharing among local, regional and national authorities.

The Bank management, in their first draft response to the EIR report, explicitly rejected the recommendation on the needed “sequencing” of measures to improve governance before going ahead with major EI projects in countries with weak governance. The Bank argues that in most cases EI development will take place with or without Bank involvement. The Bank management argues that Bank engagement makes the project better.

However, the claim that the Bank improves the sustained poverty reduction record of EI investments was the very one that the EIR was created to examine. After two years, the EIR concluded that pre-conditions for governance were key to ensuring that EI investments contribute to sustained poverty reduction and environmental sustainability. The report argues that the financial support of the World Bank Group should be limited to supporting the major “building blocks of governance”. There is no evidence therefore that Bank’s involvement improves a project, unless the conditions for governance are already in place.

The evaluation departments of the World Bank Group in their joint report also came to this conclusion. The OED/OEG/OEU Findings and Recommendations for the EIR states that for countries with weak macro and sectoral governance, promotion of new investment should be avoided as increased government revenues will have little benefit. The findings add that the Bank should focus its efforts on the strengthening of governance and management of environmental and social risks.  The OED review elaborates that the Bank has had a very modest record with fiscal revenue management in EI dependent countries.

The claim that “the Bank makes it better” is therefore unsubstantiated.  The EIR report does not argue that the World Bank has no role at all in countries’ with poor governance: it recommends that extractive industry investment follow governance reform, to achieve adequacy before investment, not perfection.

The EIR report also calls for the Bank to improve its own internal governance to orient itself to be pro-poor.  The call for ‘more world and less bank’ has been made repeatedly about the Bank, notably in the 1992 Wapenhans report. The EIR points out that in terms of staff and budget allocations, the institution does not appear to be as committed to the social and environmental aspects of sustainable development as it is to the economic aspects of development. “...[T]he institution itself needs to implement a number of serious reforms – changes in the composition of its portfolio, improvements and reinforced implementation of its Safeguard Policies, increased coordination across the arms of the WBG, and changes in WBG staff incentives”.

The report also calls for the development of a system-wide policy that integrates and mainstreams human rights into all areas of WBG policy.

3. Phase-out of oil investment by 2008, balanced by gradually increasing support for renewables.

Over the course of two years of examination, the World Bank Group was unable to provide a single instance where an oil project reduced poverty. Many examples were provided of oil projects that exacerbated poverty. Although the EIR made important recommendations as preconditions for lending in EI, it goes farther in the case of oil (and coal), partly because these investments are even less effective than most others in reducing poverty (oil production is among the least labour-intensive investments) and partly because they contribute so strongly to growing environmental concerns about global climate change.  Support for renewable energy follows logically, as most technologies are more labour intensive than oil and few of them contribute significantly to climate change. 

Besides the EIR, numerous other reports support the conclusion that Bank-backed oil investments fail to reduce poverty[1].

The question the EIR forces us to ask is this: At what point does one decide that investment in oil is not the best use of aid dollars, given the poor poverty reduction record and climate change?  Corporations looking for and producing oil from those areas with minimal political and commercial risk do not desire or need public support. Corporations operating in those areas where political and commercial risk is high – and typically where regimes have questionable human rights policies, do want public support, but those are precisely the areas where poverty reduction is the least likely outcome.

The World Bank draft management response argues that adopting the phase-out would not be consistent with the mission of helping to fight poverty and improving the living standards of people in the developing world. First, over 80% of WBG’s support for oil in the last decade has been for export-oriented projects. The revenue generated has not been used to fight poverty, as discussed.

A phase-out of oil would signal that its financing is best used elsewhere, such as financing renewables.

The Bank Management goes on to argue that if WBG financing for renewables is constrained, it is because of an absence of projects that meet WBG criteria for economic and financial return, as well as continuing market distortions and energy policy failure in client countries.

The response ignores the WBG’s own significant role in distorting markets, because of its own criteria for economic and financial return. It is a predictable response from managers familiar with EI and not renewable energy financing. Yet the WBG, staffed with renewable energy experts, is the perfect institution to shift energy markets towards renewables. The “Brasilia Platform on Renewable Energies sets a goal for Latin American countries of 10% of total energy consumption to be derived from renewables by the year 2010.  There have been similar demands from client countries, a demand the Bank should be prepared to fill.

We look forward to further discussions with you on all the points raised in this letter and beyond and encourage you to enable a face-to-face discussion with Dr. Salim, the Eminent Chairperson of the EIR.  We urge you to play a strong role in brokering support for the conclusions of this important report. 

Sincerely,

Chair of the Halifax Initiative Coalition

On behalf of: 

Social Affairs Office, Canadian Conference of Catholic Bishops

Canadian Council for International Cooperation

Co-Development Canada

CUSO

Development and Peace

Friends of the Earth Canada

Kairos: Canadian Ecumenical Justice Initiatives

MiningWatch Canada

North-South Institute

Oxfam Canada

RESULTS Canada

Rights & Democracy

The Social Justice Committee

Toronto Environmental Alliance

World Inter-Action Mondiale

and

John Bennett

Executive Director

Climate Action Network

(100 member organizations)

Morag Carter

Director, Climate Change Program

David Suzuki Foundation

Rob Milling

Interim Executive Director

Greenpeace Canada

Bonnie Campbell (Dr.)

Director

Groupe de recherche sur les activités minières en Afrique,

Centre Études Internationales et Mondialisation,

Faculté de Science Politique et de Droit,

Université du Québec à Montréal

Marlo Raynolds

Executive Director

Pembina Institute of Appropriate Development

Elizabeth May

Executive Director

Sierra Club of Canada