New figures in the World Bank’s extractive industries portfolio show increased financing for small and local investors, renewable and natural gas industry lending, and transparency initiatives to reduce corruption, according to leaders of the multilateral lending institution’s oil, gas, mining, and chemicals department.
“The oil and gas industry attracts a lot of funding. In countries that are stable, we are not needed,” noted Rashad Kaldany, director of the department at the World Bank and its affiliate, the International Finance Corp.
“But in small to medium-sized countries, we feel we can help, particularly in addressing social and environmental issues that may emerge as projects are developed,” he told reporters during a briefing at the IFC’s headquarters on Dec. 9.
As part of a review of the department’s operations, officials made several commitments to implement reforms, he said while presenting a progress report. Among the highlights:
• The World Bank substantially increased its support for clean energy, such as natural gas, in the fiscal year ended June 30, 2005. Gas investments accounted for 62% of the bank’s total oil and gas projects. Oil and gas investments also represented 81% of the total private sector extractive industry financing by the IFC and the Multilateral Guarantee Agency (MIGA), with gas projects representing 53% of that amount.
• About 56% of IFC’s and MIGA’s investments are with local companies or small multinational firms. In some cases, there is a particularly strong role for the World Bank in helping develop capacity among companies and at all levels of government to ensure sustainable development outcomes.
• The World Bank, in partnership with the UK’s Department for International Development, made progress this past fiscal year in strengthening the Extractive Industries Transparency Initiative. The bank is working with more than 20 countries on implementation.
The report said World Bank financing for natural resource projects is expected to grow as investors in developing countries gain interest in energy projects as prices rise. The bank’s energy portfolio has grown to $2 billion from $400 million 6 years ago.
Gas, coal interest
Kaldany noted increasing interest among developing countries in developing gas and coal resources.
That includes China, which he described as “a huge coal user where nearly 10,000 people per annum perish in mines that are poorly run.” Since coal remains the country’s chief energy source, Kaldany said, the World Bank and IFC are examining a proposal to convert coal into liquefied petroleum gas and other cleaner-burning alternatives.
“If you look at China’s energy needs, everything is being sped up-oil, gas, coal, and nuclear,” observed Jamal Saghir, energy and water director at the World Bank. “As China’s economy grows, there’s more pressure on energy.”
As the country develops long-term energy strategies, it’s also embracing short-term solutions that are more polluting. “I’m confident they’re looking at the problem,” said Saghir. “This country achieved 98% access to electricity in 20 years. Africa still has only 8% access.”
The issue of energy security isn’t nebulous, he maintained. “It is who you are, and where you live. Unfortunately, we don’t hear enough about the impact of high oil prices on the poorest countries,” he said.
The World Bank and the IFC also help energy-producing countries manage their finances. This began in 1973 with help to exporters in the recycling of oil revenues, according to Saghir.
“We’re now seeing more interest among energy exporting countries in hedging this money,” said Kaldany. “They also are seeking longer-term solutions, such as the petroleum revenue savings accounts that Norway has used so successfully.”
Ten Eastern European countries have moved from the bank into the European Union, Saghir pointed out. Fifteen years ago, they had highly subsidized, centrally planned energy operations that have become market-oriented, he said.
The group also is committed to not simply providing money and walking away from projects it finances. “There are some people who believe we should have more of a social and environmental impact,” said Kaldany.
Saghir said, “The bank also has a role in countries where it has to deal with problems of transparency and corruption.” He noted that it insisted on transparency when it worked with Azerbaijan to establish a fund for construction of its huge export pipeline but did not specify how the money was to be used.
Kaldany said the report also noted progress in working with local communities but added, “Working with communities, investors, and governments to ensure that communities benefit in the long run is a complex challenge.” ✦