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The World Bank's Oily Failure in Chad

Article no: EN20081002-Article-5.7-2008

The World Bank's Oily Failure in Chad

It had been touted as a model project that would reduce poverty in a country that is wretchedly poor even by African standards. But last month the World Bank pulled out of the Chad oil project belatedly admitting that its agreement with the government to use a substantial part of oil income for poverty reduction lay in shambles. Korinna Horta comments from Washington, DC.

Sub-Saharan Africa has a history of oil projects that have poisoned landscapes, led to massive corruption, human rights abuses and sometimes violent conflict. But in Chad, the World Bank promised, the situation would be different. Here World Bank support for a $4.3bn oil project would ensure that the environment be protected and success be measured in reduced poverty and not by the number of barrels of oil exported.

* Chad is different?

Amidst international controversy, the World Bank approved financing for the project in 2000 teaming up with an international oil consortium led by Exxon Mobil to develop the oil fields in southern Chad and build a pipeline to transport the oil through neighbouring Cameroon to the Atlantic. The consortium had made World Bank participation a pre-condition for building the project. Having the World Bank as a partner provided political risk insurance in a volatile region. It also helped secure additional financing on favourable terms from the European Investment Bank (EIB) as well as from export credit agencies and commercial banks.

When critics wanted to know why the world?s largest development agency was funding a big oil project rather than more direct anti-poverty measures, the Bank justified its support for the project by citing its success in getting the government of Chad ? notorious for its human rights abuses and corruption ? to adopt a law intended to ensure that oil income would go towards social spending and a special fund to benefit future generations. The Bank claimed that it had established an unprecedented framework to transform oil wealth into direct benefits for the poor.

But from the beginning the government of Chad demonstrated that it regarded the agreement as little else but a public relations ploy to obtain the financial backing to build the project. Early on, it used part of the signing bonus paid by ExxonMobile for weapons purchases and ever since little or no revenue from the oil project has been invested in desperately needed social development. Chad?s government is using the new-found oil wealth to foment armed conflict both at home and in Sudan?s neighbouring Darfur province. At the same time, the country?s already battered population is slipping into increasingly abject poverty. Among the hardest hit are rural communities in the oil-producing region which have seen more land expropriated for the drilling of oil wells than had initially been anticipated. Yet no system is in place to ensure that affected people can restore lost livelihoods and there is no access to any kind of legal recourse. Human-rights defenders taking up their cause can only do so by risking their own lives.

* No surprise

This outcome comes as no surprise to citizens organizations in Chad. They had pleaded with the Bank to postpone funding for the project until legal frameworks to protect human rights and the environment were in place and the government had demonstrated a commitment to reducing poverty. Over the past years, the World Bank-commissioned International Advisory Group, which was in charge of monitoring the implementation of the agreements between the World Bank and the Chadian and Cameroonian governments, documented how the ?soft? components of the project, i.e. measures intended to improve social conditions and environmental protection, were very much delayed or did not get off the ground at all. While construction proceeded at a rapid pace, bringing large temporary work forces into remote regions. As a result, HIV/Aids and other infectious diseases are spreading in the oil producing region and along the pipeline route. Yet, there is no government monitoring or a public health infrastructure in place to address the problems.

Despite the overwhelming evidence that things were not going well, the World Bank?s Project Completion Implementation Report published in 2007 ranks the project outcome as well as the performance of the Bank and the borrower as satisfactory.

* No risk for the Bank

Now that the World Bank has pulled out of the project and implicitly admitted failure, it claims that risks must be taken in the tough business of poverty reduction. Yet, the Bank took no risks ? its loans were repaid through an off-shore bank account into which Exxon Mobile deposited oil royalties. Neither have the careers of World Bank officials been negatively affected. Instead the Bank has gambled recklessly with the lives of some of the world?s poorest people. It is open to question if the Bank will react at all to the request launched by Chadian civil society organizations which are calling on the Bank to launch an independent investigation into the damage caused by the project and to establish a fund to compensate affected people.

* Lessons beyond Chad

Beyond Chad, lessons need to be drawn from this experience. The Bank should begin by revisiting its own the Extractive Industries Review which it set up in 2001 to provide guidance on how support for oil, gas and mining can contribute to sustainable development. One of its key recommendations was that legal frameworks to protect human rights and the environment must be in place prior to launching projects. The World Bank rejected this in 2004, stating once again that the poor cannot afford to wait and that export revenues would help countries meet the UN?s goals of halving poverty by 2015. If proof was needed, the fiasco in Chad has shown the EIR?s recommendations to be correct.

The EIR also recommended that the World Bank phase out its investments in fossil fuels and focus instead on supporting the transition to renewable energy in developing countries. Now that the World Bank prepares to administer as much as $12bn in new funds to address climate change, it must reconsider this recommendation as well. Last but not least, the World Bank?s government shareholders need to become thoroughly engaged to ensure that long-overdue reforms to ensure both the social and environmental sustainability of World Bank operations are finally taking place.

Korinna Horta is a policy officer at the Environmental Defense Fund in Washington, DC.

Posted: 2 Oct 2008

Recommended citation: Horta, Korinna (2008) ?The World Bank's Oily Failure in Chad?, World Economy & Development In Brief (WDEV), Luxembourg, 2 Oct (