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Lessons from IEG's Cluster Review of IFC-supported Extractive Industries Projects

Minutes|Bretton Woods Project|21 April 2012|url
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Organiser: Independent Evaluation Group (IEG) / World Bank

Panelists: Cherian Samuel (Evaluation Officer, IEG), Rashad Kaldany (Vice President, IFC), Antoine Heuty (Deputy Director, Revenue Watch Institute), Javier Aguilar (Program Manager, EITI MDTF Global Program), Lance Crist (Global Head – Oil & Gas, IFC), Tom Butler (Global Head - Mining, IFC), Stoyan Tenev (Manager, Private Sector Evaluation, IEG)

Chair: Marvin Taylor-Dormond (Director, Private Sector Evaluation, IEG)

A presentation and discussion on the evaluation findings of the IEG review of extractive industries in IFC-supported projects, focusing on: (i) key findings from recent project evaluations; (ii) factors contributing to development results in the sector; and (iii) lessons of experience.

Marvin Taylor-Dormond, IEG:

  • The IEG reports directly to the Board on development effectiveness of WB activities, to promote accountability and promote learning

Cherian Samuel, IEG:

  • Evaluation looked at some extractives projects of the last 10 years
  • There is a need to broaden the impacts of the resources to the rest of the economy, to the countries benefit and to the lives of people – there need  to be synergies working with the World Bank, to support extractives industries with enhanced development outcomes
  • Social issues tends to be problematic in remote poor areas - where there is no government capacity to deliver services, companies becomes providers of services
  • Community support for projects is very critical, but can be fragile
  • IFC projects have promoted high level of transparency
  • IEG looked at evolving role of the WB group, 10 years after the extractive industries review
  • In the past 5 years most activities have been funded by private sector actors, through IFC MIGA, Bank technical assistance and support
  • Extractive industries performed best in terms of development outcome success, e.g. it outperformed all other sub sectors at the IFC
  • Country sustainable development: generated significant revenues, expenditure management has been critical, IFC projects have performed better in countries with good fiscal policies and institutions that enhance development impacts
  • Local economic development: played a critical role, IFC-supported local sourcing programmes had a mixed record, on a relative basis country development effects dominate local effects given the magnitude of resources
  • Env and social sustainability: high risk and often of interest to CSOs, satisfactorily environmental and social compliance in these projects, social programs provided a social licence to operate, sustainability of social programmes and issues
  • Private sector development: many were pioneering in nature though results were mixed. Projects took risks in supporting junior producers or exploration
  • Drivers: government influences development results through revenue and expenditure management; private sponsors through commitment to sustainable development and technical capacity; World Bank group through policy support, role in environmental and social compliance, revenue transparency, financial and non-financial support, and leveraging innovation
  • Third-party monitoring important for environmental and social outcomes transparency, eg CSO engagement
  • Macro environment has also played a part, e.g. favourable commodity prices
  • Lessons: local sourcing programmes can stimulate local development if based on sound economic rationale and linked to regional economic plans; give equal emphasis to environmental and social sustainability issues; and don’t underestimate the challenges of complementing projects in resource rich countries with activities that promote economic diversification

Rashad Kaldany, IFC:

  • IFC welcomes the IEG review, need to clarify that the 2010 figures represents project started five years earlier, so shortly after the extractives review – would be interesting to do this again in five years
  • There has been a unique generation of large revenues, in general far exceeding anticipations, but big challenges regarding social and environmental impacts
  • Can only be effective when working with partners, private sector, CSOs, governments and other financiers
  • Regarding revenue management, the government is the key player and this remains challenging. Disclosure has helped, e.g. extractives industries transparency initiative, so progress has been made. Capacity building is important and to build consensus. IFC is only a small player, it can’t control, can only work with others
  • IFC’s development outcome tracking system (DOTS) is increasingly looking at impacts, where it can have greatest development impacts - in extractives there is now a comprehensive approach to assessing effect

Antoine Heuty, Revenue Watch Institute:

  • The fiscal aspects are very important, the revenues are often high but the potential is often unrealised
  • Inability of the current fiscal system to capture high commodity prices is a problem, money is often left at the table
  • Can also be a problem of capacity to negotiate on an equal level
  • Governments are unable to collect the rents and the taxes, e.g. in Zambia less than half of the mining companies paid corporate income tax in 2008 - tax evasion/avoidance costs of MNCs are very high
  • There are asymmetric impact of extractives – there can be fiscal gain at the national level but social environmental damage at the local level, plus limited local content
  • There is a rise in mining related social conflicts, for example in Peru
  • There is a lack of capacity to enforce rules, with adverse revenue impacts and significant social and environmental impacts
  • Innovative multi-stakeholder partnerships drawing on stakeholders comparative advantage are needed
  • Transparency in producing countries is a condition for effective monitoring and enforcement, and provides incentives for all stakeholders to play by the rules
  • Transparency in home countries is also important
  • IFC has improved on revenue reporting but standards are not clear and in different formats, it would be more useful if there was an agreement on standards

Javier Aguilar, Extractives Industries Transparency Initiative (EITI):

  • Most of extractive industry benefits are on the fiscal side, providing a great opportunity for countries to fund the needed infrastructure and social programmes
  • Regarding benefit sharing and contribution to social and environmental development at the local level, IFC provides financing and social and environmental support, and sets standards
  • On the local level, some communities benefit a lot but others not very much which can create potential conflicts
  • Role of the WB challenge is to engage in a meaningful way with countries, and leverage how they are managing their own resources
  • Movement for transparency has grown a lot, but even so challenges remain in terms of improving accountability and performance
  • CSOs can point out what improvements are needed, more advanced engagement is required

Q&A:

  • How can macro problems be addressed with micro projects, the Bank is often very haphazard. Some sounds like false solutions, on transparency any European gets more revenue out of each barrel of oil than what the country that producers receive. Shouldn’t EITI have this type of information open and available – who gets most out of each barrel of oil?
  • Work with local NGOs in Chad affected by extractives. In 2000 was invited to speak at Spring Meetings, then came home the construction was completed. Have conducted research in three villages with at least 50 oil wells surrounding them. Agree with the question on local vs macro level. On the national level the government has a lot of revenue. But 25000 people are affected, people living on less than one dollar a day got their land taken away. They are suffering the consequences, they can no longer go freely into their fields, since this is claimed to be state land so they can’t go back and support their livelihoods. This is not about theory, this is real experiences - you need to go into the field to see what is actually happening. This is not a question of the revenues and the distribution of these, but of land that has been taken away from these communities, and with this their only way to make a living. One of WB promises, was that 5% of oil revenue would be used on development in the region - some large infrastructure was built but it never functioned properly. For example, we now have hospitals, but we don’t have doctors. Is it necessary to suppress people at the local level in order to support the national government? What do you do in an environment with generalised corruption? How do you explain that the WB was effective in launching a project, but when it didn’t work out it can’t do anything?

Marvin Taylor-Dormond:

  • Thanks for sharing, please share your documents with us. IEG did a study of the Chad-Cameroon pipeline programme a few years ago.

Cherian Samuel:

  • Regarding Chad-Cameroon, the Bank really tried to listen and facilitate, but it didn’t work – it’s mainly down to the government. WB can be involved in policy development, but a country is free to do what they want to do

Lance Crist, IFC:

  • Social and environmental issues raise tough questions.
  • In terms of the revenue and fiscal side having a partnering government is a key issue. Bank need to be able to engage on the government level.
  • IFC liaise directly with the counterpart in the country, and is highly selective on projects
  • IFC only proceeds where there is an active engagement between WB and government, this can be used to leverage the private sector. IFC tries to understand the level of dialogue, state of reform etc, but difficult as it’s an imperfect system – tough decisions when to disengage

Antoine Heuty

  • EITI has a working group looking at current parameters, fairly focused on revenue transparency -  the question is how to make EITI mainstream

Javier Aguilar

  • Lots of things that can be improved, lots of discussions in EITI on how to extend the scope, but need to emphasise its multi stakeholder, so may be some limits on how far it can go.

Tom Butler, IFC:

  • Regarding environmental and social impacts, IFC is very selective on who we work with, but at the end of the day it’s a judgement call and can get wrong. Since we’re already very selective, there is a question if we want to raise the standards higher, so that we don’t do business at all

Published: 21 April 2012 , last edited: 16 September 2013

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