World Bank ‘Fighting Poverty’ Financing Billionaires’ Luxury Hotels

World Bank Oil And Gas Investments

A thousand miles east of Ghana are Cameroon and Chad, which exemplify a major and highly controversial domain of IFC investment, one where the stakes are often higher than with hotels and shopping malls. That domain is energy.

As of the end of 2011, the IFC reported a $2 billion oil-and-gas portfolio, investing with 30 companies in 23 countries and, the IFC boasted, achieving “Award Winning Recognition from the Market.”

But critics, including environmentalists and nonprofit groups such as the Bretton Woods Project and Christian Aid, contend that the projects often exacerbate the poverty they are supposed to alleviate. The projects, they say, frequently escalate local conflict and corruption, displace communities, disrupt livelihoods, and contribute to the emission of greenhouse gases and other pollutants.

In 2003, an independent review panel within the World Bank even recommended that the bank, including the IFC, pull out of all oil, natural gas, and coal-mining projects by 2008, saying such loans do not benefit the poor who live where the natural resources are found. But the World Bank’s board overruled these recommendations.

The bank ultimately agreed to an approach that is “business as usual with marginal changes,” Emil Salim, the Indonesian officialwho led the bank’s review, told Bloomberg News in 2004. In a conference call with reporters at the time, IFC executive Kaldany said, “There was very broad consensus that we should remain engaged; we do add value.”

The example of Chad and Cameroon, however, offers a more complicated picture. In 2000, the IFC invested roughly $200 million with ExxonMobil, Chevron, and others, along with the governments of Chad and Cameroon, to support the construction of a nearly $4 billion oil-pipeline project that experts estimate will generate more than $5 billion in revenue over the 25-year life of the project from wells mainly in landlocked Chad to a port in Cameroon.

The two countries are even poorer than Ghana to the west. Per capita income in Chad ranks 193rd in the world, compared with 185th place for Cameroon and 172nd for Ghana. Life expectancy at birth in Chad, at 48.7 years, is the world’s absolute worst, and the country has been ruled for the last two decades by heavy-handed dictator Idriss Déby.

“Conditions were and are a hardship and horrible,” says Peter Rosenblum, co-director of the Human Rights Institute at Columbia University, who argued that the pipeline project should demand protections for the civilian population.

The bulk of the oil revenue was supposed to be set aside for food, education, health care, and infrastructure. But in the face of attacks from rebel groups supported by neighboring Sudan, and asserting a need to defend the pipeline, Déby instead channeled substantial chunks into arms purchases, bringing criticism not only from human rights groups but from the World Bank. As critics of the project had warned, the oil bonanza increased the stakes for control of the country and added to the civil strife.

What happened with Chad is not an isolated incident.

Despite perennial controversies over energy and mining projects, often the subject of fierce disputes related to everything from their environmental impacts to the extent they boost authoritarian regimes, the IFC continues to invest in them extensively. Just in 2012, the IFC announced investments in mining projects for gold, copper, and diamonds in places like Mongolia, Liberia, and South Africa, as well as investments in oil and gas projects in Colombia, Ivory Coast, the Middle East, and North Africa.

Moreover, as with Chad’s Déby, the IFC continues to lend and invest in countries with heavy-handed rulers such as Syria (Bashar al-Assad) and Venezuela (Hugo Chávez). Kaldany told me there were about a dozen dictatorships, which he wouldn’t name, where the IFC would simply not do business. But then there is a second tier, where he is inclined to work.

“It is a tradeoff. We can have a positive influence,” he said, referring to a recent IFC deal in now civil war-torn Syria to fund microfinance.

He said the IFC is insisting on increasingly tight financial controls in such countries to ensure that the proceeds from the projects are targeted directly to the poor rather than to sustaining the dictators’ hold on power. He acknowledged that the controls in the Chad case were not nearly tight enough and that the IFC ultimately had to pull out.

The IFC’s critics see two obvious ways to fix it: dramatically overhaul its priorities or sharply reduce its funding and channel those resources toward the type of World Bank projects that more closely align with its anti-poverty mission.

Kaldany said that the IFC is seeking to increase its number of small projects, of under $5 million and tightly targeted on the poor, and to devote more attention to the poorest of the poor countries. In the most recent fiscal year, it generated 105 of the smaller projects, 20% of its total deals, although a much smaller percentage of its total dollar outlays. (IFC officials couldn’t immediately provide that number.)

But don’t count on a new direction. Although its new leadership has remained publicly mum, the IFC’s new chief, Cai, has told people he strongly supports its current strategy.

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