Oil and mining industry: Anti-corruption efforts too slow mandatory regulations needed

Voluntary approaches to increasing transparent and accountable management of natural resources wealth are making sluggish progress, says international aid agency Oxfam. On the eve of the fourth global conference of the Extractive Industry Transparency Initiative (EITI) in Doha, 16-18 February, EITI should be commended for putting in place a strong governance structure, but additional mandatory disclosure rules are needed to make oil, gas and mining industry transparency a true global standard for all countries and companies.

With more than half of the world's poorest people living in countries rich in natural resources, the problems associated with oil, gas and mining booms – increased corruption, conflict and environmental degradation – are pressing concerns for Oxfam and its partners around the world. "These industries generate billions of dollars per year in poor countries," said Bennett Freeman, Oxfam board member and civil society EITI board member. "The revenues amount to far more than official aid flows and could fund health, education and other essential services, but are often squandered or siphoned off by corrupt elites."

The EITI is a voluntary initiative designed to increase transparency of payments by companies to governments. Since October 2006, a strong governance structure has been put in place for EITI, including a multi-stakeholder board including company, government and civil society representatives; a clear process for implementation and for third party verification of performance ("validation"); and significant international assistance to countries willing to undertake the Initiative. Unfortunately, the EITI has had limited reach and, while some progress has been made in many countries, the EITI has yet to be truly tested. "The EITI board's main challenge now is to ensure that the validation process is followed through for signatory countries. This has to be a main goal going forward, and it can only be achieved by guaranteeing the highest level of transparency in the process," said Maria Dolores López Gómez from Oxfam's campaigns and policy department.

Twenty-four countries have become EITI "candidate" countries, but more than fifty developing countries are resource-rich. EITI does not require companies to act unless host governments decide to join the Initiative and the countries that need transparency, and EITI, are those least likely to join or to credibly implement the Initiative. Therefore, other mandatory measures need to be taken – and quickly. The Extractive Industry Transparency Disclosure (EITD) bill was introduced in the US House and Senate in 2008. This legislation, expected for reintroduction in 2009, would require all oil, gas and mining companies disclose their payments to host countries and extend transparency as a truly global standard for company operations. The EITD Act would apply not only to US companies, but to all companies registered with the US Securities Exchange Commission (SEC). This includes European companies, such as Shell and BP, as well as those in emerging markets like China, India and Brazil.

In addition to the US passage of the EITD, other financial jurisdictions in Europe and elsewhere should pass similar legislation. In tight credit markets, extractive industry companies are seeking financing from public sources, including regional development banks and export credit agencies. All international financial institutions – including regional development banks such as the African Development Bank, Asian Development Bank and Inter-American Development – should require the disclosure of payments as a pre-condition for finance. – The next year will be crucial for real progress in the global movement for extractive industries transparency. Faithful implementation of the EITI complemented by new mandatory disclosure requirements will create a new global standard for transparency and help citizens around direct money to poverty reduction efforts that need it the most.

Study: World Bank loans exacerbate climate change

The World Bank has a difficult task at hand; it must continually work to provide the impoverished with access to energy while at the same time, mindfully investing in technologies that do not further compound the effects of climate change. Heike Mainhardt-Gibbs, a consultant with the Bank Information Center (BIC), examines the World Bank’s approach to energy sector investments in her February 2009 study, World Bank Energy Sector Lending: Encouraging the World’s Addiction to Fossil Fuels. The assessment finds that even with important gains in renewable energy and energy efficiency in recent years, the World Bank Group’s overall lending approach to the energy sector does not support developing countries’ transition towards a low-carbon development path.

First, World Bank fossil fuel lending is on the rise. During its 2008 fiscal year, the World Bank and International Finance Corporation (IFC) increased funding for fossil fuels by 102% compared with only 11% for new renewable energy (solar, wind, biomass, geothermal energy, small hydropower). On average, fossil fuel financing by the Bank is still twice as much as new renewable energy and energy efficiency projects combined and five times as much as new renewable sources taken alone. During the last three years, the Bank spent 19% more on coal than on new renewable energy. Bank lending to coal projects will make a low-carbon transition difficult given that coal emits almost twice as much CO2 as natural gas per unit of energy.

Secondly, Bank fossil fuel projects have a clear impact on global CO2 emissions. “When the fossil fuels involved in the World Bank and IFC lending projects for the 2008 fiscal year are combusted, the project lifetime CO2 emissions from this one-year of financing will amount to approximately 7% of the world’s total annual CO2 emissions from the energy sector, or more than twice as much as all of Africa’s annual energy sector emissions,” emphasized Mainhardt-Gibbs. Clearly, the World Bank’s investments in fossil fuel-based energy are far-reaching and yet none of their current climate change initiatives adequately incentivize for a reduction in financing for fossil fuels.

Finally, the Bank must carefully reassess its approach to financing the development of fossil fuels. They share the blame – and thus the shame – for the global climate change crisis. “The Bank’s continued lending focus on fossil fuels commits many developing countries to fossil-fuel based energy for the next 20 to 40 years,” Mainhardt-Gibbs noted. When developing countries eventually take on GHG emissions reduction targets of their own, the World Bank’s current approach to energy will make meeting these targets more difficult and costly for these countries.

Blind optimism on privatized health in poor countries

According to Oxfam International, rich country donors and the World Bank are wasting money and risking lives by continuing to push unproven and discredited private healthcare programs in poor countries. Oxfam’s warning comes in a new report, Blind Optimism: Challenging the myths about private health care in poor countries. The report gives considerable evidence of the poor performance of private sector-led health care initiatives globally. In China, for example, one third of drugs dispensed by private vendors are counterfeit, while in seven sub-Saharan African countries the WHO found that most anti-malarial drugs in private facilities failed quality tests. The World Bank itself has said that the private sector generally performs worse on technical quality than the public sector.

Anna Marriott, author of the report, said: “Donors’ romantic views of private sector health providers are completely divorced from the facts. In Malawi 70% of private providers are shops. For the most part, private health care in poor countries is made up of unqualified shopkeepers selling out-of-date medicines. Is that what you would want for your sick baby?” Oxfam has found that the World Bank uses its unmatched policy influence worldwide to promote privatized health despite lack of evidence. At the same time its private sector arm, the International Finance Corporation, recently announced it will mobilise $1bn to finance the growth of the private sector’s role in health care in Africa. Many other donors and influential organizations have also increased their efforts to encourage and fund more expansion of private-sector lead health care projects. The United States Agency for International Development (USAID), the Department for International Development in the UK (DFID), and the Asian Development Bank have followed the Bank’s example in spending millions of aid dollars funding large-scale programs to contract-out service delivery to the private sector.

Meanwhile, aid for primary health-care services in poor countries has almost halved in the last decade. Oxfam warns that cuts in public health services are condemning hundreds of millions of people to early preventable death or needless suffering – and a massive scale up in public health spending is required. After years of disinvestment, and with the allocation of aid for primary health-care services in poor countries dropping by almost half in the last decade, the public sector in many instances is weak and badly run. Oxfam’s research shows that scaling up government provided health services has been central to rapidly improving life chances in poor countries.

Development Ministers in Prague: British reluctance on tax havens

The consequences of the financial crisis for developing countries have been discussed at the Informal Meeting of EU Development Ministers held in Prague end of January, attended by European Commissioner for Development and Humanitarian Aid Louis Michel and representatives of the European Parliament Committee on Development. Although the effects of the financial crisis on developing countries are not yet fully visible, they are likely to be considerable, the Ministers declared. It was also observed that, therefore, it is all the more important that the European Union and other developed countries fulfill their obligations in the area of development aid, from the perspective of quantity as well as quality. During the debates on the reform of the international financial architecture, the ministers also evaluated possibilities of taking into consideration developmental aspects, including more influence for the developing countries themselves in the International Financial Institutions.

According to the CIDSE network, particularly disappointing was the reluctance of the British side and of some other member states to undertake any action in favour of combating tax evasion and better regulate and control tax havens. It was also surprising that a new round of debt cancellation has not been given more consideration, given that it could quickly release extra revenues to many developing countries facing serious fiscal pressures.

A major challenge for development (and environment) ministers will be to make sure that their concerns regarding the impact of the financial crisis on developing countries and climate change finance inform the debates of the EU finance ministers and the G20. A proposal for a “support plan for the developing world” is currently being developed by the European Commission, to be finalized together with Development Ministries in March as an input to the EU position for the G-20 summit.

New environmental finance architecture or inflation of climate funds?

A new website, www.climatefundsupdate.org, is online now. The Website, which will be improved and expanded over the next several months going forward, is a joint cooperation project by the Washington Office of the Heinrich Boell Foundation as well as the London-based Overseas Development Institute (ODI) and is a follow up to last Summer’s study on new climate financing instruments (done by the Boell Foundation with WWF US and ODI) and related shifts in the global environment finance architecture.

The site lists descriptions of some 18 multilateral and bilateral funds; some new fund proposal not yet off ground, as well as a database of some 800 projects funded by the new and existing climate funds. The idea for the website is to provide fairly neutral “one-stop” introductory information on some of the complexities of the new climate finance architecture leading up to the discussions at the COP in Copenhagen in December on a post-Kyoto Climate Architecture, of which an agreement on financial will be a crucial prerequisite.