OCTOBER 1997 · VOLUME 18 · NUMBER 10

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T H E    W O R L D    B A N K

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DHEN KANAL DISTRICT, INDIA -- As the sun rises on the eastern Indian state of Orissa, women balance brass pots on their heads, and make their way to the banks of the Nandira River. Rather than dip their pots in the river water, as they have for generations in this small fishing village, they dig with their bare hands several feet from the sandy shore until they can scoop water, handful by handful, into their pots. In front of them flows a gray, lifeless tributary, the banks coated with a thick coat of ash. Fish -- once plentiful -- no longer swim in these waters.

Upstream, in Talchar, stands the pride of the World Bank: a newly built coal-fired power plant, at 3,000 megawatts one of the largest in Asia. The World Bank loaned $375 million for this facility over a 10-year period, most of which went to multinational energy companies. In 1989, BBC of West Germany was awarded the turbine generator contracts, and Stein Industrie of France supplied two boilers. Hinudstan Brown Boveri, the Indian subsidiary of ABB, was responsible for the assembly and installation of the generators. Electricité de France also provided technical services. Among the foreign investors hoping to own and operate this plant is Genesis Energy Systems of Los Angeles.

The plant's coal washeries, the millions of gallons of water used by the cooling towers for coal burners and the water demands of heavy industry have combined to rob villagers of a once clean and abundant water supply. As coal ash ponds overflow, and as chromium, fertilizer, chemical and heavy water facilities dump a toxic stew of waste, the Nandira turns from blue to black. In a country where rivers are revered for their sacred qualities, the death of the Nandira, which flows into the mighty Brahmani, is particularly poignant.

The women of this village have protested the pollution of the Nandira, laying down on roads, refusing to move until police arrive and begin beating them with heavy canes. Today, their act of digging "chuas" -- small pits in the sandy soil -- is a last, desperate and very likely futile attempt to protect their families' health.

Though life is hard for these villagers, they are lucky not to number among the thousands of oustees, uprooted from villages and resettled on unproductive, small plots of land to make way for more strip mines. There, these oustees are participating in an experiment in "self-employment," financed by the Bank, which all indications suggest will be a dismal failure.

This is the human face of World Bank-financed coal mining in South Asia. Until 1995, India was the number-one recipient of World Bank loans in the world. India's government-owned power sector was the Bank's number one client in India.

At the behest of Bank economists, the mineral-rich state of Orissa was the first in India to privatize its power sector. The Bank considers Orissa to be a "model" for restructuring throughout the country. Orissa has agreed to drastically cut its coal mining workforce, the second-largest unionized workforce in the country, as it moves from underground to the more "efficient" -- but environmentally harmful -- open pit mining. Orissa government officials have looked the other way as environmental regulations are violated while basic human needs go unfulfilled.

With privatization, the price of power for industry has dropped by 26 percent. Orissa has become an irresistible magnet for the likes of AES, an Arlington, Virginia-based coal-fired power company, and Alcan, the Canadian aluminum manufacturer, which have set up operations in the state. Electric generating companies such as AES benefit from being able to sell electricity primarily to industry, without being burdened by providing power to and servicing residents. Industrial corporations are eager to benefit from the cheap Orissa electricity.

By contrast, for Orissan residents with access to power -- less than 20 percent of the state's population -- rates have risen by up to five times.

While increased power has actually hurt the local population through increased prices, lost jobs and environmental damage, the costs of the Bank-sponsored coal-mining frenzy are even higher when placed in a global context. By the year 2005, 1 percent of global greenhouse gas emissions will come from Orissa -- one third the share India now generates as a country of 937 million people.

This story of Orissa, unfortunately, is being repeated around the globe. Multinational energy corporations are expanding globally, investing in massive fossil-fuel burning projects in the South that promise to disrupt communities and threaten global catastrophe. And the World Bank is assisting them in this process.

THE BUSINESS CLIMATE

Since 1992 -- the year most of the world's leaders signed the Climate Convention to curb global warming -- the World Bank has approved $9.4 billion in loans, credit and guarantees to expand international investment in and ownership of coal mines, oil and gas fields and fossil fuel-fired power plants in developing countries and the former Soviet Union. The Bank is funding at least 51 coal, oil or gas-fired power plants (with a combined capacity of over 29,600 megawatts), 20 oil or gas developments, two proposed oil pipelines, 8 other gas or oil pipelines and 26 coal mines. Another $4.1 billion in World Bank fossil fuel loans are pending. Each year, the Bank finances climate-changing activity to the tune of $2 to $3 billion a year -- 20 to 30 times more than Bank financing of climate-friendly activity (renewable energy, energy efficiency and demand-side management options that are explored before expansion of existing energy supply).

The World Bank's energy strategy is undermining the Climate Convention by catalyzing the rapid expansion of large-scale fossil fuel projects in the global South and East. These World Bank-financed fossil fuel projects will have a significant impact on the world's climate: According to detailed calculations made in a recent report by the Institute for Policy Studies and the International Trade Information Service, the total projects approved by the World Bank since the Earth Summit in 1992 will eventually contribute 9.5 gigatons (9.5 billion tons) of carbon -- or about 36 billion tons of carbon dioxide -- to the Earth's atmosphere. This amount is equivalent to about one and a half times all current annual global carbon emissions from the burning of fossil fuels.

The 9.5 gigaton figure does not take into account the inevitable release of methane, another potent greenhouse gas, from coal, oil and gas production, piping and burning funded by the Bank. Nor does it reflect all of the gases that will be generated as a result of Bank support for roads that will increase gas-guzzling vehicle use, or as a result of loans for energy-intensive industries like steel, aluminum and cement. The 9.5 gigaton figure also excludes a likely increase in coal production due to pending Bank investments in the Russian coal-mining sector, where the Bank is advising the government as it slashes the workforce and prepares for privatization and later expansion.

The Bank plays a catalytic role in the fossil fuel industry that goes far beyond its direct support for individual projects. While the Bank funnels $3 billion to $4 billion into energy projects in the global South per year, it leverages an additional $20 billion in private finance. The World Bank facilitates private foreign investment in the Third World by providing political risk insurance and coordinating business transactions between government and multinational corporations, especially through procurement contracts for World Bank projects.

CLIMATE CHANGE: WHO LOSES?

Climate change will induce a spectrum of rapid changes in temperature and weather patterns that will have unprecedented and unpredictable impacts on ecological systems. Scientists forecast an increase in mean global surface temperature of 1 to 3.5 degrees Celsius (2 to 7 degrees Fahrenheit) over the next 50 to 100 years. The resulting thawing of the polar caps is expected to raise sea levels by about 20 inches, wiping out small-island states and inundating large stretches of what are now coastal regions. Coral reefs and boreal forests are predicted to suffer significant losses in coming decades, with rapid extinctions of the plant and animal species they harbor. The intensity and frequency of storms, floods, droughts and erratic weather will grow, with serious economic consequences, particularly for the poorest, who are generally unable to insure themselves or build dwellings to resist severe weather. Diseases like malaria and dengue fever are expected to blossom in northern latitudes where they have never been seen before. The region of the world that has thus far played the smallest role in creating the current climate imbalance -- the global South -- is predicted to pay the highest price, in the form of growing drought, crop failure, desertification, disease, malnutrition and starvation. The poorest people in the South, living on the most marginal land, will be the most vulnerable.

Yet, ironically, fossil fuel emissions are accelerating in these same Southern countries, with massive profits accruing to Northern investors and fossil fuel industries. And the World Bank -- whose self-proclaimed task it is to alleviate poverty and promote sustainable development -- is the linchpin holding it all together.

Although Bank officials routinely justify energy investments with claims that the poorest are in desperate need of power, the vast majority of the loans are not directed at the energy needs of the poor. Between 1992 and 1997, less than 5 percent of the World Bank's energy budget was devoted to rural electrification; less than 3 percent of the Bank's energy lending budget was devoted to renewable energy; and about 2 percent was spent on fuelwood lending. Together, less than 9 percent of the World Bank's overall energy lending has gone to service the 2 billion of the world's poorest people living largely in rural areas and dependent on fuelwood, crop waste and animal dung for their basic cooking and heating needs.

CLIMATE CHANGE: WHO WINS?

About 78 percent of the Bank's energy lending portfolio is devoted to fossil fuels -- oil, coal and gas -- which provides energy primarily for heavy industry, much of which is export-oriented. About nine out of every 10 fossil fuel projects financed by the World Bank benefits at least one corporation headquartered in the wealthy Group of Seven nations (the United States, the United Kingdom, Germany, Japan, Canada, Italy and France). These G-7-based corporations own, invest in, provide equipment for and/or use fossil fuels from the Bank projects. Not coincidentally, the World Bank's executive directors representing G-7 countries hold almost half -- 47 percent -- of the Bank's voting power.

Among the many G-7-based beneficiaries are corporations whose annual sales are larger than most developing countries. Take the case of Enron. This little-known U.S.-based corporation had annual sales of $13.2 billion in 1996 -- far more than the gross domestic product for four countries in which it has benefited from World Bank fossil fuel investments: Bolivia, the Dominican Republic, Guatemala and Mozambique. Enron, which Amnesty International recently criticized for its role in human rights violations surrounding a gas plant in Dhabol, India [see "Enron's Abuse of Power," Multinational Monitor, September 1997] owns part or all of two gas fields, two gas pipelines and two gas or diesel power plants that are connected to World Bank projects.

Allocation of Bank largesse roughly follows this formula: The larger a nation's contribution to the World Bank's coffers, the greater the voting power on the Bank's board of directors, and the larger the number of procurement contracts awarded to contractors based in its borders.

For example, fossil fuel-related procurement contracts (that is, sales of equipment, services, etc., using Bank loans) awarded in 1994 and 1995 went to contractors from the following G-7 countries: the United States ($779 million), France ($500 million), the United Kingdom ($428.5 million), Germany ($296 million), Japan ($209 million), Canada ($128 million) and Italy ($124.5 million). These figures substantially underestimate the total because they fail to include some contracts awarded to subsidiaries of G-7 corporations and because they only include prior review contracts (contracts worth more than $100,000 to $5 million), which comprise only 60 to 80 percent of all Bank contracts.

It is also standard practice for G-7 based corporations to ultimately take over Bank-financed oil fields, power plants and coal mines. Any Third World country that seeks to transfer a Bank-sponsored project outside of the grip of the G-7 can expect to face substantial pressure from G-7 governments. Late last year, for example, Zimbabwe's President Robert Mugabe decided to award a privatized Bank-financed coal-fired power plant to a Malaysian company. Companies from France, the United Kingdom and the United States were among those rejected by Mugabe. The reaction from Western governments was furious. Zimbabwean ambassadors in Western capitals were summoned to explain the decision. "I told them to go to hell," said the strong-willed Mugabe, "because Hwange thermal plant is ours and we do what we want with it."

A FEAR OF COMMITMENT?

Shortly after the Institute for Policy Studies (IPS)/International Trade Information Service (ITIS) report, "The World Bank and the G-7: Changing the Earth's Climate for Business," was released, and in response to widespread European press coverage of the report's findings, World Bank President James Wolfensohn made the following unprepared remarks at the Earth Summit II in New York: "We will monitor greenhouse gas emissions from future World Bank-funded projects and, where there is cause for concern, explore other options." Despite letters from activists requesting clarification on this statement, however, Wolfensohn has yet to commit himself to any formal mechanism for monitoring greenhouse gases from Bank projects.

The World Bank's PR response to the findings of the IPS/ITIS report, issued by the Bank's industry and energy department, was far more defensive. The press statement claims that Bank-financed energy projects would be "1.4 to 1.8 billion tons" over the next 20 years, or about one-fifth the IPS/ITIS estimate. Yet the press statement does not refer to any methodology or source for this figure; the IPS/ITIS numbers were based on the Bank's own annual reports and on state-of-the-art greenhouse gas emissions calculations for fossil fuels.

The Bank claimed that it spends $400 million per year -- not the $110 million figured used in the IPS/ITIS report -- on "climate change abatement." But three-fourths of these so-called "climate change abatement projects" actually finance natural gas facilities and energy efficiency programs for fossil fuel projects. While it is true that natural gas, when burned, releases less carbon dioxide per unit burned than oil or coal, it is nevertheless a significant source of greenhouse gases; methane released in gas exploration, rarely calculated in the emissions from gas, is one of the most potent greenhouse gases. And energy efficiency programs, when implemented in conjunction with energy development projects, do not lead to net reductions in greenhouse gas emissions, and therefore should not be considered climate change-abating.

The Bank's PR statement also finds fault with the report's claim that the Bank's strategy undermines the Climate Convention: "World Bank lending to energy is a response to the funding requests from its client countries, who will develop their lowest cost energy resources with or without the Bank's involvement. Bank involvement helps to reduce the overall environmental impact through the introduction of cleaner, more efficient technologies through competitive international bidding."

This defense allows the Bank to shirk its self-proclaimed duty as a tax-free, publicly accountable multilateral institution to act as a transformative source of financing -- one which can operate with more diverse motives than private banks and effectively promote sustainable development and poverty alleviation. It ignores altogether the issue of why the Bank fails to invest substantial resources in energy conservation and renewable energy projects, or emphasize the provision of electricity to the rural and urban poor. And it suggests the World Bank can do nothing more than gently prod intractable market forces (which the Bank incidentally helps set in motion with structural adjustment programs).

These defenses by the Bank are ultimately part of a greater ideological defense: Most Bank economists firmly believe, despite considerable Bank-generated evidence to the contrary, that freer trade, opening up markets to multinational investors and corporations, privatization and deregulation will spur economic growth -- the "tide that will lift all boats." This "tide" has already transformed the once vibrant Nandira River into an industrial dead zone. It has destroyed traditional, sustainable ways of life for good. And in the coming years, a literal tide will rise, devouring small island states as the coup de grace of this unsustainable development path -- global warming -- takes effect.