Extractive Industries and Sustainable Development - ISBN ......pendent review and analysis of mature projects, including those self-evaluated by operations staff. OEG assess-es results

Extractive Industriesand SustainableDevelopment

Extractive Industriesand SustainableDevelopmentAn Evaluation of World Bank Group Experience

THE WORLD BANK W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T

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ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION

The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reportsdirectly to the Bank’s Board of Executive Directors. OED assesses what works, and what does not; how a bor-rower plans to run and maintain a project; and the lasting contribution of the Bank to a country’s overall devel-opment. The goals of evaluation are to learn from experience, to provide an objective basis for assessing theresults of the Bank’s work, and to provide accountability in the achievement of its objectives. It also improvesBank work by identifying and disseminating the lessons learned from experience and by framing recommen-dations drawn from evaluation findings.

Operations Evaluation Group (IFC)Contributing to Sustainable Private Sector Development

through Excellence in Evaluation

The Operations Evaluation Group (OEG) was set up in 1995 as an independent evaluation unit to introducesystematic procedures, a broader evaluative framework, and improved instruments for corporate accountabilityand learning. It has a broad mandate to review IFC activities, strategies, and policies. Its reports provide inde-pendent review and analysis of mature projects, including those self-evaluated by operations staff. OEG assess-es results and identifies lessons learned. To ensure independence, OEG reports to IFC’s Board through the WorldBank’s Director-General, Operations Evaluation.

Operations Evaluation Unit (MIGA)

The Operations Evaluation Unit (OEU) was created in July 2002 as the independent evaluation function forthe Multilateral Investment Guarantee Agency (MIGA). OEU assesses the contributions of MIGA guarantee proj-ects and advisory and technical services to the development of host countries. The Unit also reviews MIGA’sstrategies, policies, and procedures. OEU’s objectives are to ensure accountability for results and to promoteorganizational learning, using lessons from past operations. OEU and its staff are independent from MIGA oper-ational departments and report directly to MIGA’s Board of Directors through the Director-General, OperationsEvaluation.

OPERATIONS EVALUATION DEPARTMENT

W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N TI F C O P E R A T I O N S E V A L U A T I O N G R O U PM I G A O P E R A T I O N S E V A L U A T I O N U N I T

ExtractiveIndustries and SustainableDevelopment An Evaluation of World Bank Group Experience

Andrés LiebenthalRoland Michelitsch

Ethel Tarazona

2005

The World BankWashington, D.C.

International Finance CorporationWashington, D.C.

Multilateral Investment Guarantee AgencyWashington, D.C.

http://www.worldbank.org/oedhttp://www.ifc.org/oeg

© 2005 The International Bank for Reconstruction and Development / The World Bank

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i i i

Contents

vii Acknowledgments

ix Foreword

x Definitions

xi Executive Summary

xiii Acronyms and Abbreviations

1 1 Background and Objective1 Main Issues for the Sector2 The World Bank Group’s Changing Role in the Extractive Industries

5 2 From Economic Benefits to Sustainable Development5 Project Outcomes6 Linking Project Benefits to Overall Country Assistance7 Mitigating Environmental and Social Impacts and Beyond

11 3 Addressing the Governance Challenge

13 4 Recommendations13 Recommendation 1: Formulate an Integrated Strategy14 Recommendation 2: Strengthen Project Implementation15 Recommendation 3: Engage the Stakeholders

17 Annex A: World Bank Group Final Management Response17 Introduction17 OED/OEG/OEU Findings18 Management Comments18 World Bank Group’s Strategy21 Project Implementation Issues22 Partnerships for Wider Reach23 Conclusions25 A. Recommendations of the Main Report

31 B. Recommendations of the OED Evaluation Report36 C. Recommendations of the OEG Evaluation Report43 D. Recommendations of the OEU Evaluation Report

51 Annex B: Chairman’s Summary: Committee on Development Effectiveness (CODE)51 Background51 Main Findings and Recommendations51 Conclusions and Next Steps52 Governance52 Revenue Generation from EI Projects52 Safeguards and Performance of the Portfolio52 Report of the External Advisory Panel53 Scope of the Final Management Response53 Communication

55 Operations Evaluation Department: Evaluation of World Bank Experience

57 Annex C: World Bank Experience

57 1 Introduction

59 2 The World Bank’s Extractive Industries Role and Portfolio

66 3 Economic Benefits from Bank Projects

70 4 Environmental and Social Impacts and Their Mitigation

80 5 From Resource Revenues to Sustainable Development

88 6 Addressing the Challenge of Governance

95 7 Recommendations

98 Attachment 1: Portfolio of Extractive Industries Projects: FY93–FY02

102 Attachment 2: Extractive Industries–Dependent Countries

105 Attachment 3: OED Evaluation Guidelines

107 Attachment 4: Background Papers

109 Attachment 5: References

111 Operations Evaluation Group: Evaluation of IFC’s Experience

112 IFC Approvals at a Glance

113 Annex D: IFC’s Experience

113 1 Introduction

114 2 From Economic Benefits to Sustainable Development

117 3 Private Sector Development and Benefits to Investors

118 4 Environmental and Social Issues—From “Do No Harm” to Sustainability

130 5 Disclosure and Consultation

132 6 Governance and Challenges of Managing Revenues from Extractive Industries

136 7 Issues Beyond the Control of IFC and Its Clients Require Effective Cooperationand Action Inside and Outside the World Bank Group

137 8 Conclusions and Recommendations

E X T R A C T I V E I N D U S T R I E S A N D S U S TA I N A B L E D E V E L O P M E N T

i v

141 Attachment 1: Evaluation Approach

143 Attachment 2: IFC’s Investment in Extractive Industries

145 Attachment 3A: Summary Results—All EI Projects

146 Attachment 3B: Performance Ratings for Evaluated EI Projects

148 Attachment 3C: Performance Ratings for Studied Oil and Gas Projects

149 Attachment 3D: Performance Ratings for Studied Mining Projects

150 Attachment 3E: Approved Projects Reviewed by OEG—Mining

152 Attachment 3F: Approved Projects Reviewed by OEG—Oil and Gas

154 Attachment 3G: Reasons for Not Rating Projects or Companies

155 Attachment 3H: Evaluation Framework and Rating Guidelines for Studied Projects

157 Attachment 4: IFC’s Technical Assistance Trust Fund Activities in EI Projects

159 Attachment 5A: Perceptions of Survey Participants at the EIR Planning Workshop

161 Attachment 5B: Perceptions of Survey Participants at the EIR Regional Workshops

163 Attachment 5C: Perceptions of WBG Staff Surveyed

167 Attachment 6: Relevant IFC Safeguard Policies, Guidelines, and Procedures

169 Attachment 7: Selected Sustainability Guidance Material—Consultation

173 Operations Evaluation Unit: Evaluation of MIGA’s Experience

175 Annex E: MIGA’s Experience

175 1 Introduction

179 2 Review of MIGA’s EI Projects for Consistency with Safeguard Policies

188 3 Development Impacts of MIGA EI Projects

191 4 MIGA’s Role in EI Projects: Contribution, Effectiveness, and Staff Perceptions

195 5 Findings and Recommendations

201 Attachment 1: MIGA Guarantee Projects in the Extractive Industries, FY1990–2003(as of December 31, 2002)

205 Attachment 2: MIGA Extractive Industries Projects Evaluated by OEU

207 Attachment 3A: MIGA Safeguard Policies—Criteria for Consistency at Approval

211 Attachment 3B: MIGA Safeguard Policies—Criteria for Projects under Guarantee

213 Attachment 4: MIGA Safeguard Policy Triggers

215 Attachment 5A: Safeguard Policy Consistency Ratings of MIGA EI Projects at Approval

217 Attachment 5B: Safeguard Policy Consistency Ratings of MIGA EI Projects under Guarantee

219 Endnotes

C O N T E N T S

v

v i i

Acknowledgments

Special thanks are due to the members ofthe advisory panel for the study, who pro-vided unique perspectives and advice:

• James Cooney, General Manager, StrategicIssues, Placer Dome, Inc.

• Cristina Echavarría, Director, Mining PolicyResearch Initiative, International Develop-ment Research Centre (IDRC)

• Arvind Ganesan, Director, Business andHuman Rights, Human Rights Watch

• Michael Rae, Program Leader—Resource Con-servation, WWF, Australia (formerly WorldWildlife Fund, now World Wide Fund forNature)

• David Rice, Group Policy Adviser, Develop-ment Issues, British Petroleum.

The report benefited immensely from theinsights of past and present operational staffwho kindly agreed to be interviewed and gen-erously shared their insights about their projects:Eleodoro Mayorga Alba, Natasha Beschorner,Mohammad Farhandi, Mansour Farsad, Nelsonde Franco, Hermann von Gersdorff, Alfred Gul-stone, Richard Hamilton, Marc Heitner, HeinzHendriks, Charles Husband, Salahuddin Khwaja,Paivi Koljonen, Marie Ange Le, Maria Lister,Charles McPherson, James Moose, William Porter,Emile Sawaya, Robert Taylor, and Chris Wardell.

A number of staff in the WBG’s global prod-uct groups for oil, gas, and mining; countrydepartments; network anchors; regions; andIFC’s environmental and social department pro-vided valuable comments, suggestions, and cor-rections during preparation of the report and

background papers: Ron Anderson, CraigAndrews, Henk Busz, Anis Dani, Poonam Gupta,Michael Haney, David Hanrahan, John John-son, Charles Di Leva, Stephen Lintner, Jean-Roger Mercier, Helga Muller, Kyle Peters, AnwarShah, John Strongman, Rodrigo Suescun, PeterThomson, and Monika Weber-Fahr. Our partic-ular thanks go to Clive Armstrong and PaulAndre-Rochon, who organized staff and man-agement feedback and put it in a coordinatedframework.

The authors also are grateful to the 102 stake-holder representatives and 66 World Bank Groupstaff members who responded to the study sur-veys, and to the many people they met in thefield who shared their views about the sector andits impacts. We also thank William Hurlbut, whoprovided editorial and document productionsupport for all parts of the report.

Annex C, on the IBRD and IDA experience,was written by Andres Liebenthal andRamachandra Jammi, with input from back-ground papers prepared by Roger Batstone(Safeguards Study), Melissa Thomas (Gover-nance Study), and Luis Ramirez Urrutia (Rev-enue Study), and from country case studiesprepared by Dominique Babelon and CharlesDahan (Ecuador and Equatorial Guinea),Richard Berney (Kazakhstan), and Sunil Math-rani (Ghana and Papua New Guinea). Soon-Won Pak provided administrative assistance.Maria Mar and Alex McKenzie helped set up theonline survey of WBG staff. Aracely Barahona-Strittmatter translated two country case studiesinto Spanish.

Annex D, on the IFC experience, was writtenby Roland Michelitsch under the general guid-ance of Bill Stevenson, director of IFC’s Opera-tions Evaluation Group (OEG). Other contributorsinclude Rex Bosson, Sid Edelmann, and DennisLong, who also completed project-level evalua-tions, conducted site visits, and helped preparethe report. Margaret Ghobadi assisted with theanalysis of trust fund activities. Linda Morra,Head of Special Studies in OEG, provided valu-able advice. Pelin Aldatmaz, Nicholas Burke,and Sanda Pesut assisted with data analysis andpresentation. Cesar Gordillo, Yvette Jarencio,and Elvira Sanchez-Bustamante provided essen-tial support as program assistants.

Annex E, on the MIGA experience, was writ-ten by Roger Batstone , Ethel Tarazona, andStephan Wegner, under the general guidance ofAysegul Akin-Karasapan, director of MIGA’sOperations Evaluation Unit (OEU). Richard

Berney, Alberto Pasco-Font, Felix Remy, andDale Weigel prepared background papers andcase studies for this evaluation. Photis Bour-loyannis-Tsangaridis and Brian McKenna pro-vided research assistance. Alima Ngoutano-Njoyaand Karalee Rocker helped to edit and formatthis report.

Director-General, Operations Evaluation:

Gregory K. Ingram

Director, Operations Evaluation Department:

Ajay Chhibber

Director, Operations Evaluation Group:

William Stevenson

Director, Operations Evaluation Unit:

Aysegul Akin-Karasapan

Manager, Sector & Thematic Evaluation, OED: Alain Barbu

Task Managers: Andres Liebenthal, Roland Michelitsch,

and Ethel Tarazona


v i i i

i x

Foreword

The extractive industries—oil, gas, andmining—produce essential inputs (energy,metals, and minerals) for the global econ-

omy. Demand for these inputs is likely toincrease, especially in developing countries, aspeople seek to improve their living standards.

The World Bank Group (WBG) finances onlya small fraction of the investment in the sector,but its reach—through its access to stakehold-ers and the influence of its environmental andsocial policies, guidelines and procedures, andthe demonstration effects of its projects—ispotentially greater. However, the WBG’s involve-ment in the extractive industries has come underincreased scrutiny in recent years from severalsections of civil society. At the Annual Meetingsin 2000, some nongovernmental organizations(NGOs) presented the WBG with a request tostop supporting extractive industries because, intheir view, the industry’s adverse environmen-tal, social, and governance impacts outweighwhatever economic and social benefits mayaccrue to the domestic economy and the poor.Climate change resulting from the use of fossilfuels is also an important concern.1

Following the 2000 Annual Meetings, WBGmanagement launched the Extractive IndustriesReview (EIR) to take an in-depth look at thepotential future role of the WBG in extractiveindustries. The EIR, headed by Professor EmilSalim, former Minister of Environment forIndonesia, focuses on consultations with con-

cerned stakeholders.2 Its findings and recom-mendations will be presented to WBG man-agement in December 2003.

Conducted in parallel with the EIR, this studyby the independent evaluation units of theWorld Bank, International Finance Corpora-tion (IFC), and Multilateral Investment Guar-antee Agency (MIGA) assesses how effective theWBG has been in enhancing the contributionof extractive industries to sustainable devel-opment. The purpose is to provide an objec-tive assessment of the results within the contextof the WBG’s overall mission of poverty reduc-tion and the promotion of sustainable devel-opment. Its findings and recommendationsprovide guidance for the WBG’s future strategyin the sector.3

The methodology of this evaluation is outlinedin the Approach Paper.4 This report highlightsthe main conclusions and recommendations,drawing from the experience of three agenciesof the WBG—World Bank (Annex C), IFC(Annex D), and MIGA (Annex E). They arebased on a review of the portfolio of extractiveenergy projects and EI-related advisory services;thematic reviews on revenue management, safe-guards compliance, and governance; field mis-sions to evaluate selected projects and preparecountry case studies; and surveys of stake-holders and WBG staff. Annexes C, D, and Econtain specific conclusions and recommenda-tions for the respective agencies of the WBG.

Extractive industries for this review includeoil, gas, and mining of minerals and metals.Mining for construction materials, includingcement production and quarries, is not included,nor are indirect investments through financialintermediaries.Sustainable development meets the needs ofthe present without compromising the ability offuture generations to meet their own needs.This requires sound environmental and socialperformance and economic efficiency. Giventhat fiscal revenues constitute a major source ofnet benefits (beyond those for the project fin-anciers or sponsors) obtained from the extrac-tion of mineral resources, the interests of futuregenerations can be protected through the effi-cient utilization of these revenues for people inthe host country.Revenue management refers to the collection,distribution, and utilization of government rev-enues.The World Bank Group includes IDA, IBRD,IFC, and MIGA. In this report, the combination

of IDA and IBRD is referred to as the World Bankor “the Bank.” The evaluation units of the WBGare the Operations Evaluation Department (OED)of the Bank, the Operations Evaluation Group(OEG) of IFC, and the Operations Evaluation Unit(OEU) of MIGA. These units are independent ofWBG management and report to the WBG’sBoard through the director-general, OperationsEvaluation.Resource-rich and EI-dependent are usedinterchangeably in this report to refer to devel-oping countries whose average annual exportvalue of oil, gas, or mineral products exceeds 15percent of total exports. This standard has beenchosen with reference to the WBG’s PovertyReduction Sourcebook, which states, “A country’smining sector can play an important role inpoverty reduction strategies if the approximateshare of the mining sector is…greater than 10–25percent of export earnings.…” For a list of coun-tries meeting this criterion, see Annex C, Attach-ment 2.

Definitions

x

x i

Executive Summary

How effectively has the World BankGroup assisted its clients in enhancingthe contribution of the extractive indus-

tries (EI) to sustainable development? On the one hand, with its global mandate and

experience, comprehensive country develop-ment focus, and overarching mission to fightpoverty, the WBG is well positioned to helpcountries overcome the policy, institutional, andtechnical challenges that prevent them fromtransforming resource endowments into sus-tainable benefits. Furthermore, the WBG’sachievements are many. On the whole, its EIprojects have produced positive economic andfinancial results, though compliance with itsenvironmental and social safeguards remains achallenge. Its research has broadened and deep-ened understanding of the causes for the dis-appointing performance of resource-richcountries. Its guidelines for the mitigation ofadverse environmental and social impacts havebeen used and appreciated widely. Morerecently, it has begun to address the challengeof country governance with a variety of instru-ments.

On the other hand, the WBG can do muchto improve its performance in enhancing the EIsector’s contribution to sustainable developmentand poverty reduction. There are three mainareas for improvement:

Formulate an integrated strategy: The WBGhas not devoted enough attention to the devel-opmental needs of the poorly performingresource-abundant countries, many of which

experienced negative growth during the 1990s.To address this gap, the WBG needs to formu-late and implement integrated strategies at thesector and country levels for transformingresource endowments into sustainable devel-opment. These strategies should start with thepresumption that successful EI projects—whetherfinanced by the WBG or not—should not onlyprovide adequate returns to investors but alsoprovide revenues to governments, mitigate neg-ative environmental and social effects, and ben-efit local communities. The strategies also willneed to address governance squarely and helpto ensure that EI revenues are used effectivelyto support development priorities. They willrequire, in addition, much better cooperationacross the WBG and with other stakeholders.

Strengthen project implementation: The WBGneeds to strengthen the implementation of itsexisting policy framework. Given the potentialenvironmental and social impacts of resourceextraction and the controversy surrounding thesector, rigorous implementation of safeguardpolicies is a minimum requirement for it to oper-ate in a world concerned with sustainable devel-opment. The safeguard policies and guidelinesalso need to be adapted in line with evolvinggood practice, especially where they are incon-sistent or incomplete. In addition, in light ofgrowing concerns about the sustainability of EIdevelopment, the WBG needs to define, moni-tor, document, and report on the economic,social, and environmental impacts of its projectsmore systematically. Specifically, the distribution

of benefits, identified as an important issue forthe sector by many stakeholders, needs to bemonitored and evaluated explicitly.

Engage the stakeholders: Often in collabora-tion with other organizations, the WBG hasbrought together diverse stakeholders in extrac-tive industries to address issues at the local,national, regional, and global levels. The WBG’sconvening role has been actively sought and hasbeen significant because of its access to allstakeholders, its private and public develop-ment experience, and its ongoing involvement

with project investment and technical assistancein the sector. But the WBG has inadequatelyaddressed some areas—notably governance andrevenue management. The WBG’s performancein these areas can be enhanced by improvingconsultation with stakeholders, including localcommunities, and by reporting on key sustain-ability indicators systematically and transpar-ently. The WBG also should vigorously pursuecountrywide and industrywide disclosure ofgovernment revenues from extractive industries.Such an approach is also likely to raise standardsand practices for the sector as a whole.


x i i

x i i i

AAA Analytical and advisory activitiesAFR Africa RegionAMR Annual Monitoring ReportASM Artisanal and small-scale miningASEAN Association of South East Asian Nations CAE Country Assistance EvaluationCAO Compliance Advisor/Ombudsman (for IFC and MIGA)CAS Country Assistance Strategy (World Bank Group)CDP Community Development ProgramCODE Committee on Development EffectivenessDGO Director General, Operations EvaluationEA Environmental assessmentEAP East Asia and the Pacific RegionEAP Environmental Action PlanEBRS Energy Business Renewal Strategy ECA Europe and Central Asia RegionEI Extractive industries (oil, gas, and mining) EIA Environmental Impact AssessmentEIR Extractive Industries ReviewEMP Environmental Management PlanEMS Environmental Management System ERL Emergency Rehabilitation LoanERR Economic rate of returnESW Economic and sector work E&S Extractive Industries and Sustainable DevelopmentFDI Foreign direct investment FMR Final Management ResponseFRR Financial rate of return FY Fiscal year (July 1 to June 30)GDP Gross domestic productGEF Global Environment FacilityGHG Greenhouse gasGOPNG Government of Papua New Guinea GPG Global Products GroupGRICS Governance Research Indicators Country SnapshotIBRD International Bank for Reconstruction and Development

Acronyms and Abbreviations


x i v

ICMM International Council of Mining and MetalsICR Implementation Completion ReportID Institutional developmentIDA International Development AssociationIDI Institutional development impactIFC International Finance CorporationIMF International Monetary FundIMR Interim Management ResponseIPAP Indigenous Peoples Action PlanIPDP Indigenous Peoples Development PlanIPIECA International Petroleum Industry Environmental Conservation AssociationIPP Indigenous Peoples PlansLAC Latin America and the Caribbean RegionMDF Mineral Development FundMIGA Multilateral Investment Guarantee AgencyMMSD Mining, Minerals and Sustainable Development ProjectMNA Middle East and North Africa RegionNGO Nongovernmental organizationNPV Net present valueOBA Output-based aidOD Operational Directive (World Bank)OED Operations Evaluation Department (World Bank)OEG Operations Evaluation Group (IFC)OEU Operations Evaluation Unit (MIGA)OGP International Association of Oil and Gas ProducersOP Operational Policy (World Bank)PNG Papua New GuineaPPAH Pollution Prevention and Abatement HandbookPPAR Project Performance Assessment ReportPSC Production-sharing contractPSD Private sector developmentPSR Project Supervision ReportQACU Quality Assurance and Compliance UnitQAG Quality Assurance GroupRAP Resettlement Action PlanRP Resettlement Plan SAL Structural Adjustment LoanSAR Staff Appraisal ReportSAS South Asia RegionSECAL Sectoral Adjustment LoanSIL Specific Investment LoanSME Small- and medium-size enterpriseSSM Small-scale miningTA Technical assistanceTAL Technical Assistance LoanTI Transparency InternationalUNDP United Nations Development ProgrammeUNEP United Nations Environment Programme WBG World Bank Group

1

Background and Objective

The objective of this study is to evaluate how effectively the WBG hasassisted its clients in enhancing the contribution of extractive indus-tries to sustainable development.5 The WBG’s activities in EI have

come under increased scrutiny and criticism from several sections of civilsociety. Some NGO groups have asked the WBG to stop supporting theextractive industries because, in their view, the adverse environmental,social, and governance impacts outweigh whatever economic and social ben-efits might accrue to the domestic economy and the poor. Others have beenconcerned with issues of poor governance and the failure to use resourcerents effectively in support of sustained economic development. This studyresponds to these concerns by evaluating the WBG’s relevant experienceand making recommendations to inform decisions about the WBG’s strat-egy in the sector.

Main Issues for the SectorExtractive industries can contribute significantlyto a country’s economic development and oftenoffer the first opportunities for foreign investmentand private sector development. They generategovernment revenues, foreign exchange earn-ings, and employment, often in depressed andremote areas. However, they also can aggravateor cause serious environmental, health, andsocial problems, including conflict and war.They provide scope for rent-seeking and oppor-tunities for distorting public expenditure policies.Many resource-rich countries perform worse

than resource-poor countries in key aspects ofdevelopment, including economic, social, andgovernance.6 The relationship7 between EIdependence and economic growth for all WBGborrower countries is shown in Figure 1.1.8

Much research, at the WBG and elsewhere,has been done to better understand and addressthis paradox.9 The emerging consensus is thatthe underperformance of resource-rich devel-oping countries is not inevitable, because mostof the factors that explain it result from institu-tional and policy failure.10 Overall, while the tech-nical requirements for managing volatile and

11


2

S l o w e r E c o n o m i c G r o w t h w i t hG r e a t e r E I - D e p e n d e n c e : 1 9 9 0 – 2 0 0 2

F i g u r e 1 . 1

-8-6-4-202468

10

0 20 40 60 80 100

Average Annual EI Exports/Total Exports (%) (1990-2002)

Ave

rage

Ann

ual G

DP

per

capi

ta G

row

th (%

)(1

990–

2002

)

Source: World Development Indicators; WHO, CONTRADE Database

exhaustible revenue flows and investing themfor sustainable development are well under-stood, they are difficult to implement becauseof poor governance. Thus, creating good gov-ernance is at the heart of the institutional andpolicy changes needed to sustain sound fiscalmanagement and maximize the benefits from theextraction of mineral resources.

The World Bank Group’s Changing Rolein the Extractive IndustriesThe WBG provides only a very small share ofthe financing for the sector, but its reach—through its access to all stakeholders; the influ-ence of its environmental and social policies,guidelines, and procedures; and the demon-stration effects of its projects—is potentiallymuch greater. The WBG’s advice on the enablingenvironment for extractive industries also has abroader effect on the sector than the financingvolume would indicate.

The World Bank: The Bank’s role has evolvedfrom mainly exploration and production activi-ties support (1960s to the early 1980s), to sectorpolicy reform and commercialization of state-owned enterprises (1980s), to a greater empha-sis on capacity-building and private sectordevelopment (1990s). Also in the 1990s, theBank began to help transition economies to

maintain production levels, rehabilitate or closeuneconomical facilities, and attract foreign invest-ment. Since the mid-1990s, the Bank’s approachhas evolved toward greater collaboration withcivil society, local governments, and private com-panies. The share of extractive industries in theBank’s overall lending declined from 4 percentin the 1980s to under 2 percent in the 1990s.

The International Finance Corporation: IFChas focused on countries where its value added—as a catalytic agent and neutral third partybetween governments and private investors—isgreatest. Since 1992, investments in oil and gas(but not mining) exploration were discontinued,mainly because of poor results and difficultiesassociated with assessing exploration risks. Theshare of EI investment in IFC’s total lending port-folio has decreased substantially, from 15 percentin 1990 to 6 percent today. Since the mid- to late1990s, IFC has focused increasingly on sustain-ability, especially environmental, health andsafety, and social issues, and, most recently, onrevenue management and distribution. Many ofIFC’s sustainability initiatives (such as small- andmedium-size enterprise [SME] linkages, IFCAgainst AIDS) have a particular relevance to,and focus on, the EI sector. IFC’s EI portfolio isconcentrated in oil and gas (half), gold, andcopper (over 10 percent each).

The Multilateral Investment GuaranteeAgency: MIGA has supported extractive indus-tries with political risk guarantees and, to alesser extent, technical assistance and advisoryservices. MIGA’s early involvement was con-centrated heavily in the mining sector. Between1990 and December 2002, MIGA provided guar-antees for 31 projects in EI, most of them in min-ing. Throughout the 1990s, there was highdemand for MIGA insurance, with large oper-ations in countries with higher political risk pro-files. Learning from its earlier experience, MIGAincreasingly has paid more attention to envi-ronmental and social aspects of EI projects(and adopted its own environmental assessmentand disclosure policies in 1999 and its owninterim safeguard policies in 2002). Because ofthe low volume of new guarantees in extrac-tive industries projects since 2001 and cancel-lation and expiration of MIGA coverage forsome projects, the sector’s share in MIGA’sportfolio has continued to decrease and is now11 percent.

Complementary and Coordinated Roles: Thedifferent parts of the WBG have coordinated andcomplementary roles in their approach to extrac-tive industries and resource-rich countries. TheBank has responsibility for country policy dialogueand tends to focus on broader structural andsocial issues, including sector policy reform andinstitutional capacity-building, with a focus onpoverty reduction. IFC has focused on attractingprivate sector investment, particularly in “high-risk”countries, where its projects were expected tohave a catalytic effect in attracting new investmentsand demonstrating sound management of envi-ronmental and social effects. MIGA specializes inproviding political risk guarantees, while at thesame time ensuring that the projects it supportscomply with applicable environmental and socialperformance standards. Since the late 1990s,WBG projects and policy work in the extractiveindustries have been coordinated through jointBank-IFC Global Product Groups in the oil andgas sector and the mining sector, and joint Bank-IFC-MIGA country assistance strategies (CASs).

B A C K G R O U N D A N D O B J E C T I V E

3

5

From Economic Benefits toSustainable Development

Project Outcomes

The World Bank: Overall, ex post evaluations show that about 80 per-cent of the Bank’s EI projects11 have had moderately satisfactory orbetter outcomes,12 above the Bank-wide average of 75 percent. The

benefits from investment projects included increased production, increasedprivate investment, and improved productivity. Adjustment and technical assis-tance projects, on the other hand, generated economic benefits through pri-vate sector development, improved production levels, institutionalcapacity-building and policy reform, rehabilitation or closure of uneconomicalmines, environmental cleanup, and the integration of artisanal and small-scale mines into the formal sector. However, the Bank’s documentation andreporting on the economic benefits of the projects, such as ex post economicanalyses and other quantitative indicators, has been limited.13 Given the ques-tions that have been raised about the justification for the Bank’s continuedinvolvement in the sector, improved reporting could inform stakeholdersand strengthen accountability.

The main finding that emerges from thereview of the Bank’s portfolio is that projects withsatisfactory outcome ratings tended to be asso-ciated with greater government commitment toproject objectives and adequate infrastructure,favorable commodity prices, and a high level ofstakeholder involvement. The less successfulprojects appeared to be affected by poor gov-ernment commitment and unfavorable economicconditions or commodity prices.

The International Finance Corporation:Overall development results in IFC’s EI projects14

were about the same as in other sectors, with60 percent success. It is noteworthy that IFC’sEI investments are concentrated in particularlydifficult countries, where many developmentagencies are struggling to achieve positiveresults,15 and are subject to substantial risks(commodity price fluctuations, geological risks,etc.). About three-quarters of EI projects had sat-

22

isfactory economic returns, with projects in oiland gas performing better than those in othersectors and mining projects performing about thesame as those in other sectors. IFC’s EI projectsoften were among the first investment oppor-tunities in the country, frequently followed byother investments, notably in SMEs. Several proj-ects involved privatization and demonstratedthat the private sector tends to operate more effi-ciently and in a more environmentally soundmanner than state-owned enterprises. Most proj-ects generated large government revenues, some-times even where investors lost money. Butwhen little or nothing flowed back to local com-munities, this created problems—for local peo-ple and investors. The distribution of benefits,considered one of the top issues in the sector,was not consistently and sufficiently addressedin IFC projects. Close cooperation within theWBG—in particular between IFC and the Bank’scountry departments—and between the WBGand the host government will be necessary toaddress this issue effectively.16

IFC’s EI projects typically created economicopportunities for people—notably direct andindirect jobs, often in remote areas. Many proj-ects improved local roads, water, and power sup-ply, and the best ones tried to maximizeeconomic opportunities for the local community.Recently, IFC has focused increasingly onenhancing benefits and opportunities for localcommunities. For example, IFC’s “SME linkage”program, which tries to increase supply linkagesto large projects, was particularly active in extrac-tive industries, and so was “IFC Against AIDS.”IFC also has focused on helping clients improvetheir community development programs, oftenusing trust funds. The most effective programs,identified through consultations, were commu-nity needs, priorities, and aspirations. Whileoverall positive economic effects dominated,there were adverse consequences. For example,economic opportunities often attract a largenumber of people, and companies and com-munities found it difficult to deal with this influx,particularly where government capacity wasweak. Local people did not always have the req-uisite skills to take advantage of the opportuni-ties. They sometimes lost agricultural lands, and,

in a few cases, compensation did not restorelivelihoods for everyone affected.

The Multilateral Investment GuaranteeAgency: All evaluated MIGA projects17 havebeen affected adversely by the drop in metalprices since the late 1990s, which reduced theirfinancial and economic returns and sustainabil-ity. In most projects, however, economic bene-fits were above financial rates of return, becauseof the benefits accruing from creation of jobs andprovision of training to the workforce, often inremote and depressed areas. In addition, theseprojects (several in low-income, resource-richcountries) generated sizable revenues to localand central governments, although governmentsholding equity shares in return for providing orereserves were disappointed by lower-than-expected equity returns. Most projects alsofunded community initiatives, including a fewthat established exemplary community devel-opment programs.

All evaluated MIGA projects were generallyconsistent with the private sector strategies oftheir host countries. Most were in countrieswhere international private investors had beenreluctant to make large investments because oflimited experience with new governments or dif-ficulties faced by previous investments in thatcountry or sector. In these instances, MIGA’spolitical risk insurance was significant in enablinginvestment flows into the mining sector and, insome cases, has led the way for other invest-ments in the host country.

Linking Project Benefits to OverallCountry AssistanceBeyond the generation of project benefits, theWBG’s involvement in the transformation ofresource riches into sustainable developmenthas been limited.18 A review of the latest CASs19

in poorly performing resource-rich countriesfound that 64 percent recognize the specialissues associated with the management ofresource rents, but in only a few instances is thediscussion linked to specific interventions. Theinadequacy of linkages between EI sector activ-ities and sustainable development also was high-lighted by 47 percent of the WBG’s EI sector staff


6

who responded to a survey; 50 percent attrib-uted it to inadequate support from the relevantcountry department/country management unit.20

In addition, the Bank’s overall lending toresource-rich countries experiencing negativegrowth has been lower than average, with noindication of compensating nonlending inter-ventions.21

A detailed review in a sample of five resource-rich countries indicates that Bank interventionswere only modestly relevant and efficacious inaddressing the challenge of improving fiscalpolicies and public expenditures, with the qual-ity of governance emerging as the key factor. Thissuggests that good governance is a prerequisitefor enhancing the positive linkage betweenincreased fiscal revenue flows and sustainabledevelopment.22 Good governance was alsoimportant for development results and IFC’sinvestment results—both were better wherecountry governance was good.23

Taken together, these findings suggest that,while the WBG is aware of the underlying causesfor the underperformance of many resource-rich countries—primarily unsound revenue man-agement and poor governance—it has yet toformulate and implement viable approaches toaddress them. If the WBG is to have a moreeffective role in poorly performing EI-depend-ent countries, it will require government com-mitment as well as use of the WBG’s fullinfluence to achieve sound fiscal managementand build a supportive governance framework.The linkages between resource rents and sus-tainable development can best be made explicitthrough CASs, to guide the design of specificprojects and the monitoring and evaluation ofresults.

Mitigating Environmental and SocialImpacts and BeyondExtractive industries tend to have a heavy “foot-print”—large, wide-ranging, and long-term envi-ronmental and social impacts. Effectiveimplementation of the WBG’s safeguard policiesis therefore particularly important in this sectorfor sustaining the rationale for continued WBGinvolvement in a world concerned with sus-tainable development.

The World Bank: The assessment of a sampleof Bank EI projects found the majority to be sub-stantially consistent with applicable safeguardpolicies, but the degree of consistency varieddepending on the environmental category ofthe project and the stage of the project cycle.24

Thus, about 74 percent of the ‘A’ and ‘B’ proj-ects were assessed to be substantially (or highly)consistent with safeguards at approval, with theshare declining to 67 percent during imple-mentation.25 The decline may be associated withthe finding that safeguards supervision inputs andreporting had been adequate in only 41 percentof the projects. Even so, these findings are morepositive than those obtained from the survey ofstakeholders, which points to their perceptionof a need for improved performance in the envi-ronmental and social areas.

Most significant shortcomings in the Bank’simplementation of safeguards can be traced toinadequacies at the initial project screening,especially for sectoral adjustment and technicalassistance projects, where the guidance has beensubject to varying interpretations.26 Inadequatesupervision and reporting were other importantsources of problems: environmental or socialspecialists supervised only about 30 percent ofthe projects in the sample, and fewer than aquarter of the project completion reports had ade-quate reporting and discussion of this subject.27

While the validity of these findings is limitedto the sample of 38 EI projects that was reviewed(half of all projects in the EI portfolio), the resultsmake a strong case for strengthening imple-mentation of the Bank’s safeguards framework,which is no different for extractive industriesthan for other types of projects. The findingspoint, in particular, to the need for clearer andmore consistent guidance for the environmentalassessment (EA) categorization of sectoral adjust-ment and technical assistance projects, the iden-tification of applicable safeguards at the initialproject screening, the appropriate scope andarrangements for monitoring of safeguards imple-mentation, and the reporting and evaluation ofresults at project completion. Improvement wouldbe particularly important for extractive industries,given the large share of sectoral adjustment andtechnical assistance projects, the inadequacies in

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monitoring and reporting, and the controversysurrounding the sector.

The International Finance Corporation: Theevaluation of IFC projects’ compliance with safe-guard policies and guidelines found oil and gasprojects performing significantly better and min-ing projects significantly worse than those inother sectors. Judging from the desk review ofportfolio projects, the performance of miningprojects appears to have improved and is nowin line with the IFC average.28 The main prob-lems in mining projects related to the handlingof hazardous materials—for which IFC has nowdeveloped guidelines—and difficulties in ensur-ing adequate mine closure. Oil and gas projectsfeatured almost no compliance issues per se, butgas flaring was a concern in many projects,downstream transportation in others.

IFC’s supervision of EI projects was signifi-cantly better than average better than that of theaverage IFC project, and IFC’s environmental andsocial specialists spent more time on extractiveindustries (one-third more in fiscal year 2002)than on any other sector. But gaps remain, in partattributable to insufficient management systems.For example, while project-level supervisionwas generally strong, no central database iden-tifies which safeguard policies and key issuesapply to which project. Clients expressed appre-ciation for IFC’s environmental and social spe-cialists, who helped improve the environmentaland social aspects of numerous projects. But theycannot replace local monitoring, particularlybecause IFC usually exits from projects beforeproject closure. Building local monitoring capac-ity—either that of local consultants or that of gov-ernment agencies (through the WorldBank)—could help address this issue. Disclosureof environmental monitoring data would likelyimprove trust and improve performance—pos-sibly even after IFC’s exit.

The Multilateral Investment GuaranteeAgency: The review of a sample of MIGA EI proj-ects29 found that 73 percent were consistent30

with MIGA’s (2002) issue-specific interim safe-guard policies at the time of MIGA Boardapproval. The consistency improved during proj-

ect implementation (while under MIGA guar-antee or at the time of cancellation of the MIGAguarantee). Although in at least two cases MIGAplayed a direct positive role, in other cases theseimprovements were not clearly attributable toMIGA. The level of consistency was not uniformacross all applicable safeguard policies. Theproject review noted systemic deficiencies inthe application of the social aspects of safe-guards. OEU found that, in addition to lower-ing perceived political risks as a guaranteeprovider, MIGA had the greatest potential toadd value with its support to environmentaland social aspects of EI projects.

The evaluated projects showed an overallimproving trend in the consistency of safeguardpolicies over time, implying institutional learn-ing from experience and strengthened policiesand implementation as MIGA expanded its oper-ations. However, the shortcomings identifiedpoint to a lack of a proactive approach with itsclients throughout its involvement with the proj-ects to add value by improving their environ-mental and social impacts.

Need for Continued Updating: The WBG’ssafeguard policies, guidelines, good practicemanuals, and notes have received wide accept-ance, even where the WBG is not involved—some other international financial institutionsuse them, and recently some of the largest pri-vate project finance banks have committed toadopt them. But some of them are inconsistent,incomplete, or lacking. For example, while lead-ers in extractive industries and some govern-ments subscribe to “voluntary principles onsecurity and human rights,” the WBG has nocomparable guidance. Given that human rightsviolations frequently have been alleged in con-nection with the site security of EI projects—including some WBG projects—this is one of thegaps that needs to be filled.31 Another area isHIV/AIDS, an important issue for the sector,but one not covered by guidelines.32 Given thewide use of the WBG’s guidelines, it is particu-larly important that they be comprehensive,practical, and updated regularly to reflect lessonsand evolving good practice standards. Theirstandard-setting character points to the poten-


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tial for the WBG to continue building on itsglobal mandate, public and private sector knowl-edge, and convening power for catalyzing goodpractice with respect to environmental, social,and other issues. Besides improving the resultsof WBG-supported projects, this would alsohelp to define a level playing field among inter-national financial institutions and among differ-ent companies.

Beyond Safeguards: The WBG’s efforts to “dogood” by addressing existing environmental

conditions and building capacity for the man-agement of environmental and social impactshave yielded mostly satisfactory results. As partof its sustainability initiative, IFC has started tofocus on improving the impacts of its projects“beyond compliance” (for example, by maxi-mizing linkages with local SMEs).33 These find-ings point to the continuing potential for theWBG to make a valuable contribution to thedevelopment of the host countries and theextractive industries sector, in an area that theprivate sector alone cannot address.34

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Addressing theGovernance Challenge

High dependence on revenues from extractive industries has beenassociated with corrosive effects on economic and political life inmany countries, including rent-seeking and government ineffec-

tiveness. Indeed, a review of the literature and feedback from NGOs sug-gests that good governance is central to creating an environment thatfosters sustainable and equitable development, and is an essential complementto sound revenue management and safeguard policies. Figure 3.1 shows thenegative association between the quality of governance and EI dependence.35

Countries such as Botswana and Chile36 haveleveraged their natural resource wealth into sus-tainable growth through investment-friendlypolicies, fiscal discipline, and long-term planning.While the highest quality of macro and sectoralgovernance37 may not be required for resourceextraction to be beneficial to a client country,some minimum conditions should exist to helpensure that the benefits from EI projects are notsquandered and the citizens left with costs thatcan include environmental damage, health risks,and conflict.

At least since the early 1990s, the WBG hasbeen aware of the importance of addressingthe governance challenge for ensuring the trans-formation of resource rents into sustainabledevelopment. But there is little discussion of sec-tor-specific governance issues in the countrystrategies of EI-dependent countries. There arealso few cases where a link can be discerned

between a diagnostic assessment of governance,a governance-informed strategic approach tothe EI sector set out in the country strategy, andthe design of EI projects.38 Where some links canbe observed, such as in Papua New Guineaand Kazakhstan, experience suggests that gov-ernance issues take a long time to address, andworking to establish good governance in parallelwith, or after, supporting increased investmentin EI, is a high-risk strategy in countries with poorgovernance.

This fact points to the need for the WBG totailor its support for resource extraction on thebasis of an assessment of the quality of gover-nance. Important indicators of macro gover-nance include the quality of public financialmanagement39 and rule of law,40 as measures ofthe government’s ability to address problemsthrough formal institutional reforms. At pres-ent, while the Bank’s economic and sector work

33

a. “Composite” GRICS ranks are a simple average of individual GRICS rankings for 2000/2001 for Voice and Accountability, Political Stability, Government Effec-

tiveness, Regulatory Quality, Rule of Law, and Control of Corruption.

Source: http://www.worldbank.org/sbi/governance/pdf/2001 kkzcharts.xls

W o r s e C o u n t r y G o v e r n a n c ew i t h G r e a t e r E I - D e p e n d e n c e

F i g u r e 3 . 1

0 20 40 60 80

100 120 140 160 180

0 20 40 60 80 100 Average EI Exports / Total Exports, 1990–99 (%)

“Com

posi

te”

GRI

CS In

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20

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frequently assesses the quality of public finan-cial management, it has no diagnostic instrumentto evaluate the rule of law or the quality of sec-toral governance. These gaps need to beaddressed. This governance analysis then has toinform the risk assessment, structuring, andinvestment or underwriting decision. Recogniz-ing that fiscal revenues may be misused in coun-tries with poor governance, IFC has developeda position paper outlining possible steps toaddress this risk.41 MIGA has not yet addressedthe issue of revenue management from extrac-tive industries in a similar way.

Promoting transparency is an essential tool forbuilding good governance, and the WBG haslong played a role, mainly in conjunction withits EA policy,42 but also through institution-

building and policy reform efforts aimed atimproving the enabling environment for thesector. About 15 percent of Bank EI projects haveprovisions for disclosure and dissemination ofproject information beyond the requirementsof the EA policy, but with the exception of therecent Bank/IFC Chad-Cameroon Pipeline proj-ects, the WBG has not required disclosure of fis-cal revenues from EI, even though it sometimesrecommends it. A few companies operating inthe sector have started disclosing governmentrevenues, and some global initiatives advocatedisclosure.43 While some governments makesuch disclosure illegal, and companies are con-cerned that unilateral disclosure could harmthem, industry overall appears to be in favor—if a level playing field can be ensured.


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Recommendations

With its global mandate and country development perspective, com-bined with public and private sector experience, the WBG is wellpositioned to help countries transform resource riches into sus-

tainable development. The Bank’s research has broadened and deepenedthe understanding of the “paradox of plenty,” and the WBG has led or par-ticipated in numerous initiatives to address EI issues. In most dimensions,the WBG’s EI projects appear to perform at least as well or better than proj-ects in other sectors, but much more needs to be done to improve imple-mentation and monitoring of compliance with existing policies and toaddress governance, transparency, and revenue management issues. Unlessthe WBG improves its performance in these areas, it will not be able to max-imize the sector’s contribution to sustainable development and will face con-tinued—and warranted—criticism. The key recommendations are summarizedbelow. Annexes C, D, and E contain additional specific recommendationsfor the Bank, IFC, and MIGA.44

Recommendation 1: Formulate anIntegrated StrategyThe WBG has not devoted enough attention tothe developmental needs of the poorly per-forming resource-abundant countries, many ofwhich experienced negative growth during the1990s. To address this gap, the WBG needs toformulate and implement integrated sector- andcountry-level strategies for transforming resourceendowments into sustainable development. Suchintegrated strategies will start with the pre-

sumption that successful EI projects—whetherfinanced by the WBG or not—have to providenot only adequate returns to investors but alsorevenues to governments and benefits to localcommunities, and mitigate negative environ-mental and social effects. They will also need toaddress governance squarely and help to ensurethat EI revenues are effectively used to supportdevelopment priorities. They will also requiremuch better cooperation within the WBG andwith other stakeholders.

44

Formulate a World Bank Group sector strat-egy: The WBG needs to design and implementa sectoral strategy that closely integrates resourceextraction with sustainable development throughthe effective management of EI revenues in sup-port of developmental priorities and the reliablemitigation of adverse environmental and socialimpacts. Where macro and sectoral governanceare weak, the WBG’s assistance should focus onstrengthening governance. In such cases, theWBG should carefully assess and report on therisks that EI fiscal revenues may not be used fordevelopment priorities. The WBG should notsupport significant sector expansion unless it canadequately mitigate these risks.45 Where macrogovernance is sound but sectoral governance isweak, the WBG should focus on improving sec-toral governance and should support the sectoronly in conjunction with adequate provisions toovercome sectoral governance weaknesses.46

Address extractive industries in CountryAssistance Strategies: For all resource-richcountries, the WBG should explicitly addressextractive industries in the CASs.47 The CASshould explicitly discuss the sector’s current andpotential economy-wide linkages (for example,the importance of government revenues, theirmanagement, distribution, and use for devel-opment priorities) and reference the underlyinggovernance assessment. This approach shouldguide future project design, facilitate monitoringand evaluation, and provide an agreed frame-work for WBG-wide coordination and collabo-ration in the EI sector. The different agencies ofthe WBG should work together routinely toenhance the development impacts of EI projects;for example, in the form of public-private part-nerships with respect to community developmentprograms.

Promote governance improvements: TheBank should compensate for the lower level oflending that may be appropriate for resource-richcountries with weak macro and sectoral gover-nance48 by devoting greater management atten-tion and an administrative budget for advisoryand analytical activities aimed at improving thepolicy, institutional, and governance framework

for EI. Doing so would enable the Bank toestablish and maintain continuity of engage-ment and facilitate responding quickly to oppor-tunities for assistance when they arise.49

Support private sector development andenvironmental sustainability: In all countries,the WBG should continue its support to closeuneconomical mines, reform and privatize state-owned enterprises, and mitigate pre-existingenvironmental and social problems. Whereappropriate, the WBG should help integrate arti-sanal and small-scale mining (ASM) with the for-mal sector and internalize their environmental andsocial impacts, while at the same time creatingalternative employment opportunities and sup-porting the consolidation of ASM activities forgreater efficiencies and economies of scale.

Recommendation 2: Strengthen ProjectImplementationThe WBG needs to strengthen the implementa-tion of projects within its existing policy frame-work. Given the potential impacts of resourceextraction and the controversy surrounding thesector, rigorous implementation of safeguardpolicies is a minimum requirement for the WBGto operate in a world concerned with sustain-able development. In addition, in light of grow-ing concerns about sustainable development, theWBG needs to define, monitor, document, andreport on the economic, social, and environ-mental impacts of its projects more systematically.Specifically, the distribution of benefits, identi-fied by many stakeholders as an important issuefor resource extraction, needs to be explicitlymonitored and evaluated.

Improve project screening and monitoring:The WBG should provide clearer and more con-sistent guidance for the categorization of proj-ects,50 the identification of applicable safeguardsat the initial project screening, the appropriatescope and nature of the EA instruments, and thereporting and evaluation of safeguards imple-mentation. This needs to be followed up throughthe entire implementation framework, from goodpractice guidelines to appropriate monitoring andtraining.


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Involve specialists throughout: The WBGshould provide adequate resources and incen-tives for the participation of qualified environ-mental and social specialists in the preparation,appraisal, and supervision of all projects that arelikely to have adverse impacts. This will ensurethat such impacts are addressed adequatelythrough the upstream design of appropriate mit-igation strategies or project alternatives, as wellas through the retrofit of timely remediationmeasures should unexpected impacts material-ize during project implementation.

Enhance reporting of results: The Bankshould strengthen reporting of its results byensuring that project completion reports includean ex post economic rate of return or net pres-ent value (NPV) or, where that is not feasible,a cost-effectiveness analysis to determinewhether the project represented the least-costsolution to attain its objectives. IFC shoulddevelop and use a reporting template for envi-ronmental and socioeconomic sustainability indi-cators, building on industry initiatives. MIGAneeds to adopt more standardized and timelyreporting mechanisms on environmental andsocial safeguards compliance and ex post devel-opment outcomes. The WBG should preparecompletion reports for every significant non-lending/guarantee issuance activity.51

Evaluate the sharing of benefits: At appraisaland during supervision,52 the WBG should sys-tematically estimate the distribution of projectbenefits among different stakeholder groups(government at different levels, private compa-nies, and local communities), evaluate its sen-sitivity to different scenarios, and discuss theacceptability of benefit-sharing with key stake-holder groups.

Recommendation 3: Engage theStakeholdersOften in collaboration with other organizations,the WBG has brought together diverse stake-holders in extractive industries to address issuesat the local, national, regional, and global levels.The WBG’s convening role has been activelysought and has been significant because of its

access to all stakeholders, private and publicdevelopment experience, and ongoing involve-ment with project investment and technical assis-tance in the sector. But the WBG has addressedsome areas inadequately—notably governanceand revenue management. The WBG’s perform-ance in these areas can be enhanced by improv-ing consultation with stakeholders, includinglocal communities, and by systematically andtransparently reporting on key sustainability indi-cators. Such an approach also is likely to raise stan-dards and practices of the sector as a whole.

Update policy framework: In consultationwith its stakeholders, the WBG should period-ically adjust its policy framework for extractiveindustries to ensure that it remains up-to-datewith evolving industry practice. It should resolveremaining inconsistencies, such as those betweenrequirements for different mine types (such asfunding for mine closure), onshore versus off-shore oil projects, dam safety, and involuntaryresettlement. It should address identified gaps,such as those related to consultation and dis-closure, community development, social issuesof mine closure, security, hazardous materialsmanagement, acid rock drainage, gas flaring, andtransportation of oil.53 It should also recognizethe expanding awareness of the human rightsdimension of WBG policies and projects andexplore possible avenues for addressing theissues, especially where it lags industry bestpractices, such as regarding site security.

Promote disclosure of fiscal revenues fromEI: The WBG should vigorously pursue coun-try- and industry-wide disclosure of governmentrevenues from EI and related contractual arrange-ments (such as production-sharing agreements,concession, and privatization terms).54 The Bankshould work toward and support disclosure ofEI revenues and their use in resource-rich coun-tries. IFC and MIGA also should strongly encour-age (and consider requiring) their private sectorclients to publish their payments to govern-ments.

Develop and monitor sustainability indica-tors: Together with other stakeholders, the

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WBG should develop indicators of economic,social, and environmental sustainability,55 estab-lish baseline data, provide for adequate moni-toring over the life of the project, and report andevaluate the results during supervision and inproject completion reports. The WBG also shouldencourage more independent outside monitor-ing, ideally using local capacity (which mayhave to be developed).

Increase local community participation:The WBG should support enhanced communityconsultation and participation throughout the lifecycle of EI projects. The WBG should help coun-tries to increase involvement by local commu-nities in EI decisionmaking processes andongoing consultation throughout the project lifecycle, including closure.


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IntroductionThis paper presents the response of the Man-agements of the World Bank, IFC, and MIGA toa four-volume evaluation of the World BankGroup’s (WBG’s) activities in the extractiveindustries (EI)—oil, gas, and mining—by theirrespective independent evaluation units, theOperations Evaluation Department, OperationsEvaluation Group, and Operations EvaluationUnit (OED, OEG, and OEU).56 The evaluationwas completed in June 2003, and was consid-ered at a meeting of the Committee on Devel-opment Effectiveness (CODE) on July 9, 2003.At that meeting, Executive Directors agreed thatManagement should delay its response to theevaluation pending the receipt of the report ofan independent Extractive Industries Review(EIR) consultation. The EIR report has now beenreceived and a draft Management Response toit has been prepared.

A Thorough and Timely Review. Manage-ment welcomes the joint evaluation report. It pro-vides a thoughtful and thorough review of theWBG’s activities in EI. A particular contributionof the evaluation was its careful assessment ofthe impact of WBG activities through a reviewof a wide range of IBRD/IDA, IFC, and MIGAprojects, which included country and projectvisits in many cases. The report makes an impor-tant contribution to understanding the devel-opment issues that are key for the WBG’sactivities in the sector, provides a valuable ref-erence source, and offers a comprehensive setof recommendations that can help guide futureWBG activities in EI. It is especially timelybecause attaining the Millennium DevelopmentGoals (MDGs) in the poorest countries is apressing challenge that will require a substan-

tial commitment of resources by the interna-tional community. In many developing countries,especially those in sub-Saharan Africa, well-managed development of natural resourceendowments can make a vital contributiontoward reducing poverty and attaining the MDGs.

OED/OEG/OEU FindingsThe joint evaluation report shows that, on bal-ance, WBG activities in the EI sector have addedvalue and have contributed to the developmentof the countries concerned. Indeed, EI projectshave performed at least as well as projects inother sectors: nearly 80 percent of IBRD/IDA’sEI projects have been at least moderately satis-factory. IFC’s and MIGA’s operations in supportof private sector activities in EI were as successfulas other operations in their development out-come and financial performance dimensions,despite the fact that EI investments were typi-cally in more difficult country environments.Against this background, OED/OEG/OEU’s inde-pendent evaluation lays out specific areas forattention and provides important perspectives onkey issues for each institution and for the WBGas a whole with regard to its support for EIdevelopment.

Summary of Key Messages. Management hasnoted the following key messages fromOED/OEG/OEU’s independent evaluation:• Extractive industries have contributed to sus-

tainable development when projects metappropriate economic and environmental cri-teria.

• The private sector is usually the most appro-priate vehicle for new investment.

• The WBG’s support for EI projects has gen-erally been effective.

ANNEX A: WORLD BANK GROUP FINAL MANAGEMENT RESPONSE

• The WBG has added value in the environ-mental and social aspects of its projects.

• The WBG social and environmental policiesand experience with their implementationhave been useful to others and have helpedset industry standards.

• The WBG should remain engaged across thewhole of the EI sector, in support both of gov-ernments and of private sector investment.

• In a number of important areas the WBGcan improve its performance and help ensurethat its EI activities make a more effective con-tribution to sustainable development.

Areas of Overlap with EIR. As was expected,the EIR covered many of the issues raised byOED/OEG/OEU, although with differentemphases. Notably, the EIR is more broad-rang-ing in its coverage of human rights and gover-nance issues and global environmental concerns.The Management Response to the EIR thus com-plements the Management comments presentedbelow and provides a wider context for theWBG’s strategy.

Management CommentsThis section sets out Management commentson the WBG’s strategy, project implementationissues, and approach to partnerships with sec-tor and project stakeholders—the three broad cat-egories of recommendations in theOED/OEG/OEU evaluation report. Managementbroadly accepts the recommendations of thereport in these areas and has already begunmoving to implement them. Complementing thecomments in this section, the Annex providesdetailed responses to the specific recommen-dations of the overall report and of the individ-ual OED, OEG, and OEU components.

Other Work Under Way. In some cases, theprecise nature of the ultimate WBG response willdepend on the outcomes of other processesnow under way, such as IFC’s revision of its safe-guard policies and guidelines, and its review ofits disclosure policy. In other areas, such as therecommendation that the WBG should giveincreased attention to the human rights dimen-sions of activities benefiting from its support,

Management proposes to wait for the outcomesof ongoing IBRD/IDA and IFC reviews of thisissue. However, in the case of EI-specific issuessuch as, for example, use of security forces toprotect private EI project sites, Managementproposes to move now to establish appropriateWBG requirements.

World Bank Group’s StrategyThe OED/OEG/OEU evaluation, the EIR con-sultation process and reports, and other recentdocuments,57 constitute a major body of workthat reviews trends, issues, and the role of theWBG in the EI sector and provides the founda-tion for the WBG’s strategy in the sector. TheOED/OEG/OEU evaluation, in particular, empha-sizes that the WBG should take a broader, moreintegrated approach to its activities in EI thatshould (a) address the ultimate impacts of proj-ects in terms of how the revenues from projectsare used for poverty reduction and economic andsocial development; (b) ensure that CountryAssistance Strategies (CASs) for resource-richcountries explicitly address the sector’s econo-mywide linkages and focus on policy and insti-tutional capacity development; and (c) continueto support private sector development and envi-ronmental sustainability. Across all of these activ-ities, OED/OEG/OEU recommends that WBGinvolvement should be guided by governancecapacity at the sector and national levels.

Sector Contribution to Development Goalsand WBG Role. For many developing countries,especially the poorest countries that risk failingto reach the MDGs, the EI are a valuable assetthat can and should generate some of theresources that are urgently needed to spurpoverty reduction and support economic andsocial development. Because of the importantpromise that EIs hold for the economic andsocial development of many poor countries andbecause each of the WBG’s constituent institu-tions (IBRD/IDA, IFC, and MIGA) can add sub-stantial value in this process, all of the WBGinstitutions will aim to remain engaged in EIdevelopment by providing financing, technicalassistance, and analytic and policy advice inline with their respective mandates and spe-


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cializations. As developing countries succeedin reducing poverty, their people will increasetheir consumption of goods and services that areproduced with EI inputs, enjoying greaterwarmth, light, and mobility because of theiraccess to modern sources of energy.

Sector Development Vision Based on Pri-vate Sector Financing. In most country cir-cumstances, the appropriate sector developmentmodel will continue to be one based mainly onprivate enterprises, in which all or most invest-ments are financed by private investors andprojects operate within an appropriate frame-work of government oversight to ensure maxi-mum contribution to the sustainabledevelopment of affected communities and thecountry. However, the WBG will support appro-priate public sector projects. Overall levels ofWBG financing are likely to be broadly in linewith those of recent years, that have accountedfor less than 5 percent of total WBG financingand 3 percent of investments in EI in develop-ing countries. The WBG can and should helpadvance improved industrywide approaches toenvironmental and social practice, making animpact well beyond the modest investmentsthat benefit from the WBG’s support. To enhanceits effectiveness in this regard, the WBG willleverage its impact by establishing partnershipswith stakeholders and supporting demonstrationprojects that test new standards and approaches.

Emphases in WBG Activities. Because in mostcountries much of the investment for EI devel-opment can be mobilized from the private sec-tor, IBRD/IDA’s emphasis will be on helpinggovernments create appropriate policy frame-works and build capacity for improved sectormanagement. Financing of public sector extrac-tive industry investments is likely to remain rare.In IFC and MIGA, support for private sectorinvestment will focus on local, regional, andsmaller companies (including service compa-nies), gas, and local energy supply projects.Support for larger projects will be concentratedwhere WBG involvement can make a significantcontribution to sustainability. In all of its oper-ations, the WBG will work with project sponsors

to help encourage and facilitate broader andmore sustainable development impacts at thecommunity level.

An Integrated Approach. Management agreesthat the WBG needs to take an integrated viewof its activities in EI. This will require as a start-ing point that, in all the projects that the WBGsupports, Management will always consider theirultimate impact on communities, the environ-ment, and the macro economy. Managementwill exercise selectivity in this regard: for eachproject for which WBG support is proposed,there should be a strong case for WBG involve-ment and a demonstrable value-added in termsof enhanced sustainable impact. In addition,whenever possible, the WBG will seek to activelyengage with countries to help them addresstheir EI issues, even when the WBG is notengaged in EI specifically. Management alsoagrees that for all its activities, governance issuesand risks need to be taken into account duringproject design and appraisal.

Criteria for Engagement. The overriding objec-tive of WBG engagement in EI is to promotepoverty reduction through sustainable devel-opment. IBRD/IDA, IFC, and MIGA will refocuson this objective in their work on project design,appraisal, supervision, and reporting. In select-ing and implementing projects, the WBG will beguided by its safeguard policies and guidelines,good practice approaches, and its best judg-ment. While limiting WBG support for EI devel-opment would not serve the interests of WBGclients, the design and implementation of proj-ects in EI need to be fully informed by thenational, local, and sector governance risks. Theassessments of these risks and, where appro-priate, measures to address them will be anintegral part of the criteria the WBG will use todetermine the extent and form of its involvement.

Focus on Governance at the Country Level.As detailed in the Annex, Management willsharpen its focus on governance issues and risksin countries that are heavily dependent on EI.In particular, CASs for such countries shouldidentify and consider how best to address key

A N N E X A — W O R L D B A N K G R O U P F I N A L M A N A G E M E N T R E S P O N S E

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EI issues, including related governance issues,and should also provide an overall frameworkfor any WBG activities in the EI sector. Man-agement’s proposed approach is to adopt a two-tier classification of countries to recognizedifferences in terms of resource dependencyand focus attention on the most resource-dependent countries where improvement ingovernance promises to have the largest devel-opment impact.58

Mitigation of Governance Risks. In largeprojects, the WBG will require that specificmeasures be put in place to address the risks thatrevenues will not be well used. For smaller proj-ects, WBG’s appraisal and decision processes willevaluate and report on the governance risks toprojects; if they are high and cannot be ade-quately mitigated, the WBG will not supportthe project. Governance risks are more likely tobe acceptable in EI projects that generate smallfiscal revenues. In some instances, WBG supportwill be warranted even in weak governanceenvironments, if projects are expected to gen-erate real benefits.

Sequencing of WBG Assistance. OED/OEG/OEU raised concerns about the sequencing ofgovernance capacity building and emphasizedthe importance of addressing capacity weak-nesses at the sector and national levels. WhileManagement agrees that governance capacitybuilding, which is a priority for the WBG, canbe an uncertain and lengthy process for whichthe risks need to be weighed and mitigated tothe extent possible, the WBG also needs to beable to make judgments based on the specificcircumstances of the country and the project, aswell as likely development outcomes with andwithout its engagement. This judgment will beguided by analysis of a country’s economic poli-cies and institutions, evaluation of quantitativeand qualitative indicators of governance capac-ity, and assessment of the performance of ongo-ing WBG and IMF-supported programs. Whenexpectations about project outcomes and deci-sions about WBG support depend on such ajudgment, Management will lay out clearly therationale for its proposed approach.

Resource Implications. As was stated above,the overall level of WBG activities in EI is notexpected to change materially from current lev-els; new financing commitments in support ofprojects should remain in line with recent expe-rience and will be concentrated in IFC andMIGA. However, the focus of activities will shiftin accordance with the priorities described inpara. 11 and in response to changes in countrydemands reflected in new CASs, which set outthe amount of financing commitments to a coun-try in view of competing alternatives and prior-ities for WBG engagement. As CASs forresource-dependent countries focus increasinglyon EI issues, WBG activities in EI couldincrease—especially analytic and advisory serv-ices, economic and sector work, and TA oper-ations to address, for example, management ofEI revenues and related governance issues. Suchactivities will be coordinated with (or oftendirectly integrated into) related initiatives in sup-port of improved economic policymaking andstrengthened public financial accountability andmanagement.

Shift Toward Environmental and SocialDevelopment Expertise. As IFC and MIGAhave increased their focus on environmentaland social issues in recent years, there has beena significant increase in staff with skills in thoseareas. In IBRD/IDA, the number of environ-mental and social staff working on policy andtechnical issues has also increased in recentyears. The major shifts have largely occurred, butstronger focus on ensuring sustainable impactswill require appropriate resources for the WBGproject teams in particular EI projects. Projectteams will often require earlier and moreextended involvement of environmental andsocial specialists to ensure implementation ofsafeguard policies; resources for enhanced dis-closure and community consultations; andresources for appraising and supervising value-added activities to increase local benefits and par-ticipation in projects. Whether some or all of theadditional costs can be recovered from clientswill depend on the institution and the project.Management will ensure that project budgets arebased on an evaluation of these factors and will


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make realistic allowances for the costs of staffinvolved in more detailed preparations andsupervision.

Project Implementation IssuesOED/OEG/OEU offer challenging recommen-dations to enhance the development impact ofWBG operations in support of EI development.Because the vast majority of recent and futureprojects are or will be supported by IFC andMIGA, in line with the WBG’s strategic empha-sis on supporting private sector development, thefollowing sections are concerned mostly withrecent developments and ongoing initiatives inIFC and MIGA.

Screening and Classification of Projects.Management is aware that the implementationof WBG projects could be improved by carry-ing out more effective screening and classifica-tion of projects, involving environmentalists andsocial specialists throughout the project life,enhancing the reporting of results from projects,and evaluating the sharing of benefits from proj-ects more explicitly. OED’s finding that someIBRD/IDA projects were incorrectly classified andconsequently inappropriately supervised reflects,in part, the process of significant change in theWBG’s adoption and implementation of safe-guard policies and guidelines over the periodcovered by the evaluation. With the lessons ofexperience and proposed revision of guidelines,these problems are being addressed. The closeinvolvement of environmental and social spe-cialists in EI projects through the project life cycleis a key part of WBG engagement in these proj-ects. Management’s clear objective will be toensure that the excellent levels of compliancenoted by OEG in some areas of the IFC’s EI activ-ities become the norm for all WBG activities inthe sector.

Growing Contribution from Environmentaland Social Specialists in IFC and MIGA. InIFC and MIGA, which account for most of thenew EI investment projects financed by theWBG, the resources devoted to environmentaland social due diligence and additional workwith clients have increased considerably over the

last 10 years. In both IFC and MIGA, Manage-ment is taking steps to ensure that environ-mental and social specialists are moreproductively integrated with investment staff.While maintaining an independent quality assur-ance function, IFC has also begun to main-stream environmental and social responsibilityso that investment departments see it as a corepart of their activities and responsibilities. In May2004, MIGA added environmental and socialstaff to its risk management staff, so that a moreholistic view will now be possible in assessingprojects.

Sustainability Initiatives in IFC. IFC’s over-all corporate sustainability initiative has increasedstaff’s focus on sustainability issues. Most EIsector staff have now taken part in specializedsustainability training to enhance their awarenessof issues and best practice. The contributionthat projects can make in the environmentaland social arenas, including through enhancedlocal development, has become a key compo-nent of IFC’s business in EI. Enhanced analysisof the benefit sharing, which will be part of proj-ect design, will further increase this focus andwill be applied in IBRD/IDA and MIGA as well.However, the WBG will need to carefully bal-ance attention to social and environmentaldimensions against the extra burden such atten-tion imposes on developing country clients andthe additional supervision and appraisal costs itentails. IFC’s EI activities already account for adisproportionate share of IFC’s budget for envi-ronmental and social specialists. EI operationsare also intensive users of resources for otherdevelopment impact-enhancing activities, suchas small and medium enterprise and corporategovernance initiatives.

Recent Changes in MIGA. Management under-scores the important changes that have takenplace in MIGA since May 1999, when the Boardapproved MIGA’s own specific environmentalassessment and disclosure policies and proce-dures, and May 2002, when MIGA adopted itsown interim issue-specific safeguard policies.Although MIGA’s clients have found these safe-guard policies to be helpful, Management rec-


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ognizes that further improvements can be madeas WBG views evolve.

Revision and Updating of MIGA SafeguardPolicies. Management has made a serious effortin the past five years to address a range ofwidely acknowledged difficulties in determininghow to apply safeguard policies to private sec-tor investors and what is meant by compliancewith safeguard policies (see, for example, recentCAO reports on the subject).59 Differences amongexperienced professionals in interpreting andimplementing safeguard policies can pose aserious challenge, one that is of particular con-cern to MIGA because of the unique legal andfinancial implications of denying a claim or can-celing a guarantee for noncompliance. MIGA staffwill work with IFC staff on updating IFC’s safe-guard policies, and will take the opportunity toclarify safeguard policy applicability and imple-mentation issues in MIGA-supported operations.Once IFC’s updating process is completed, MIGAwill revise and update its own safeguard poli-cies in an equivalent manner, in line with thecommitment MIGA Management made to theBoard in May 2002.

Partnerships for Wider ReachOED/OEG/OEU recommended a number ofways to enhance the impact of WBG activitieson industrywide practice, well beyond the smallnumber of operations that the WBG supportsdirectly. Management agrees withOED/OEG/OEU recommendations in this regard.The WBG will seek to use its international con-vening power more effectively by making itssafeguard policies and guidelines more relevantand accessible, promoting the disclosure of fis-cal revenues, developing and monitoring indi-cators of sustainable development with otherstakeholders, and increasing local communityparticipation in projects through meaningfulconsultation throughout project life.

Setting Industry Standards in Partnershipwith Others. A number of important initiativesare under way that will help enhance WBG’simpact on industry practice. First, IFC has begunthe two-year process of revising its safeguard

policies and guidelines, and is giving priority toEI-related issues. For example, revised PreciousMinerals Mining Guidelines were available indraft for public comment from July 2004. Theupdated safeguards will be key for sustaining thecatalytic role that IFC has assumed in its impor-tant partnership with the Equator Banks. Second,IBRD/IDA’s proposed revised policy coveringIndigenous Peoples (OP 4.10) is expected to beconsidered by its Board by end 2004, and willcontain provisions to help ensure that IndigenousPeoples benefit from development. Finally, theWBG will work in partnerships with govern-ments, industry and civil society to advance bestpractice and contribute to the sustainable impactof EI development more broadly in initiativessuch as the Global Gas Flaring Reduction Part-nership, which set voluntary global standards foraddressing gas flaring.

Growing Emphasis on Revenue Trans-parency. Transparency about government rev-enues and expenditures generally is an importantdimension of the macroeconomic policy dialoguebetween borrowing governments and IBRD/IDA;in this respect, a priority area for IBRD/IDAassistance is to help increase government capac-ity and accountability. In the area of trans-parency about EI revenue, the WBG has joinedwith the UK Department for International Devel-opment (DfID) and other partners to support theExtractive Industries Transparency Initiative(EITI), which aims to promote EI revenue trans-parency at the country level. At the project level,the WBG will now require disclosure of EI rev-enues and the key terms of relevant contracts forall large projects that benefit from its support;for smaller projects, in two years the WBG willrequire disclosure of material EI-related pay-ments to governments except when there is acompelling reason to not do so.

Reporting on Outcomes. Management recog-nizes the need for enhanced reporting on theoutcomes of WBG activities in EI and its ration-ale for engagement. In IFC’s ongoing review ofits disclosure policy, Management will establishnew requirements for investors to make moreinformation about projects available to com-


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munities, will enhance the reporting on IFCactivities in the sector, and provide for greaterdisclosure of its rationale for supporting new EIprojects. As a part of this process, IBRD/IDA andIFC will continue to work with other stake-holders to develop meaningful, consistent indi-cators of the contribution of EI to sustainabledevelopment.

Focus on Community Involvement. Appro-priate consultation with people who will beaffected by projects is a core WBG requirementfor sustainable development, especially for EIprojects that take place in remote areas andmay have relatively large effects on local com-munities. The WBG proposes to adopt use of aprocess of free, prior and informed consultationwith affected communities that leads to broadacceptance by the affected community of theproject as a condition for its involvement and willwork with investors to promote best practice inthis respect, and to generally enhance theinvolvement of and benefits to communities inthe context of EI developments that benefit fromWBG support.

ConclusionsAltogether, the WBG has embarked upon a fun-damental change in its approach to EI invest-ments. Its past mode of operation presumedthat expected overall potential benefits to coun-tries (energy resource development and rev-enue generation) justified new investments. Inits new mode of operation, concerns about theultimate developmental impacts, including themanagement of revenues generated by EI proj-ects and the specific, realizable benefits to com-munities, are regarded as the starting point fordiscussions of WBG involvement. In movingforward, Management will continue to encour-age coordination among activities in IBRD/IDA,IFC, and MIGA, with each institution serving itsrespective clients, pursuing objectives in linewith its mandate, and using its own businessmodels and processes. Coordination among thethree institutions has already benefited frompreparation of this joint Management Responseand will continue to be facilitated by the jointIBRD/IDA/IFC Oil, Gas, Mining and Chemicals

Department which ensures strong links betweenIBRD/IDA and IFC, and by the Energy and Min-ing Sector Board, which ensures links to Regionaland country programs and MIGA. At the coun-try level, enhanced attention to EI issues in theCAS will serve to strengthen coordination withthe WBG’s country assistance programs.

Tracking Progress in Implementation of theNew Approach. Management expects to meas-ure implementation of the comprehensive set ofreforms implied by the new approach as follows:

Short-Term Indicators – within one yeara. New guidance and processes that address

EI-specific safeguard issues such as mine clo-sure/decommissioning; use of security forces;monitoring and disclosure of environmental,social, and economic impacts; transparencyrequirements for new investments; gas flar-ing; acid rock drainage; and HIV/AIDS.

b. New guidelines and processes for disclosureof information about WBG-supported EI proj-ects and about activities in EI, including devel-opment of sustainability indicators.

c. Development of a database for all IFC proj-ects that indicates position regarding all keysustainability indicators (including mine clo-sure/decommissioning plans, safeguard com-pliance, gas flaring, and use of security forces).

d. Clearer guidelines for WBG environmental cat-egorization of projects.

e. CASs for resource-rich countries and countrieswith significant resources start to address rel-evant EI-related issues.

Three-Year Indicatorsf. The extent to which new CASs have dealt with

extractive industry issues in resource-richcountries and countries with significantresources.

g. Effective implementation of partnership ini-tiatives (including GGFR, CASM, and EITI)involving civil society, industry, and govern-ments, and outcomes of these partnerships interms of contributing to the development ofsector best practice.

h. Revenue transparency improvement througheffective implementation of programs in par-


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ticipating countries under the EITI.i. Support for sustainable new private sector EI

investment at average levels broadly compa-rable to those of the recent past.

j. Continuing levels of IBRD/IDA financing inline with recent average with a focus on:i. Oil and gas: environmental management,

TA (especially for transparency, revenuemanagement), and gas industry develop-ment.

ii. Mining: coal sector restructuring, TA, andmining sector policy reform.

iii. Capacity building for social and environ-mental monitoring in both sectors

Management proposes to report on progresson its activities in EI every year. It also proposesto set up a working level advisory group with rep-resentative of governments, industry, civil soci-ety, and other parts of the WBG to provide inputsand perspectives on the WBG’s activities in EI.


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R e c o m m e n d a t i o n s o f t h e J o i n tO E D / O E G / O E U E v a l u a t i o n a n d M a n a g e m e n t R e s p o n s e M a t r i x

A n n e x

The WBG needs to design and implementa sectoral strategy that closely integratesresource extraction with sustainable devel-opment through the effective managementof EI revenues in support of develop-mental priorities and the reliable mitigationof adverse environmental and socialimpacts. Where macro and sectoral gov-ernance are weak, the WBG’s assistanceshould focus on strengthening governance.In such cases, the WBG should carefullyassess and report on the risks that EI fis-cal revenues may not be used for devel-opment priorities. The WBG should notsupport significant sector expansion unlessit can adequately mitigate these risks.Where macro governance is sound butsectoral governance is weak, the WBGshould focus on improving sectoral gov-ernance, and should only support the sec-tor in conjunction with adequate provisionsto overcome sectoral governance weak-nesses.

Management accepts this recommendation. The overallapproach to EI activities, as set out in this ManagementResponse and in responses to individual recommendations,provides a framework for the WBG’s activities in EI thatgives a central place to promotion of good governance andincreased transparency. Management has identified indicatorsof implementation progress for its strategy, and it will mon-itor them. Management will strengthen its efforts to promoteuse of fiscal revenues for development priorities and to mit-igate risks due to poor governance. The ultimate objectivesare sustainable impacts at the local, national and global lev-els. The appraisal reports for new EI projects in countries withweak governance will clearly assess the risks that EI fiscalrevenues may not be used for development priorities. See alsoresponses to OED 1a and OEG 1b. Overall, the level ofactivities of the three institutions in EI is not expected toincrease materially and will not demand additional resources.Resources are expected to continue to be allocated to EI activ-ities through the country and regional resource allocationprocesses on the basis of country and regional priorities. Trustfunds and partnerships will continue to be an importantsource of additional resources for EI activities, especially forprograms outside the scope of single-country programs andspecific projects.

A. Recommendations of the Main Report

Recommendation of the Main Report of the Joint OED/OEG/OEU Evaluation Management Response

1 Formulate a Sector Strategy1a

Address EI Issues in CASs

For all resource-rich countries the WBGshould explicitly address extractive indus-tries in the CASs. The CAS should explic-itly discuss the sector’s current and potentialcontribution to sustainable development(for example, the importance of governmentrevenues, their management, distribution,and use for development priorities) andreference the underlying governance assess-ment. This should guide future projectdesign, facilitate monitoring and evalua-

Management accepts this recommendation and has devel-oped a two-tiered approach to improving the focus of CASson relevant EI issues. This approach uses a higher cut off forresource-rich countries (more than 50 percent of governmentrevenues derived from EI) than that used by the Evaluation(15% of exports) so as to exclude relatively less EI-dependentbut to include non-exporting countries. With limited staff andcountry resources and competing priorities, the WBG willthus focus on the most resource-dependent countries and oncountries where it can have the most impact. The proposedapproach already targets more than 50 countries (with sub-

1b


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(continued)Recommendation of the Main Report of the Joint OED/OEG/OEU Evaluation Management Responsetion, and provide an agreed framework forWBG-wide coordination and collaborationin the EI sector. The different agencies ofthe WBG should routinely work together toenhance the development impacts of EIprojects, for example in the form of pub-lic-private partnerships with respect to com-munity development programs.

stantial overlap with the evaluation list). CASs for resource-richcountries will be expected to address relevant EI issues andrelated governance issues. In countries with substantialresources (where 30-50 percent of government revenues orexports are from EI), the CAS will be expected to identify keyEI sector issues and whether and how IBRD/IDA will beinvolved in addressing them. This does not rule out CAS dis-cussion on EI issues in other countries where they are impor-tant, and the thresholds and guidelines will be reviewed in thelight of experience. Where possible, IBRD/IDA, IFC, andMIGA will work together as recommended by OED/OEG/OEU.Moreover, IBRD/IDA will encourage resource-rich countriesand countries with substantial resources to address relevant EIissues in their own overall development strategies, such asPRSPs. The WBG institutions will work pro-actively in the EIsector to identify opportunities for cooperation. COC will con-tinue effective implementation of major partnership initiativessuch as the Gas Flaring Reduction Partnership, CASM, and theEITI, and report on their progress.

GovernancePromote Governance Improvements: TheBank should compensate for the lowerlevel of lending that may be appropriatefor resource-rich countries with weakmacro and sectoral governance, by devot-ing greater management attention andadministrative budget for advisory andanalytical activities aimed at improving thepolicy, institutional, and governance frame-work for EI. This would enable the Bankto establish and maintain continuity ofengagement and facilitate respondingquickly to opportunities for assistancewhen they arise.

Management accepts this recommendation. Where the WBGis not involved in financing operations but where EI issuesare important and where governance is weak, the WBG willaim to devote greater resources to technical assistance andanalytic and advisory activities that can, for example, helpcountries manage their resource industries more effectively,including addressing relevant broader policy, institutional, andgovernance issues. The CAS for resource-rich countries withweak macro and sectoral performance will identify the needsfor TA in this area, and will discuss whether and howIBRD/IDA should be involved in meeting these needs. Imple-mentation of this recommendation may require additionalIBRD/IDA administrative budget resources for certain coun-tries. Including its activities relating to transparency, over thenext three years, Management will aim to increase the levelof nonlending activities aimed at policy improvements com-pared to the past three.

1c


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Support Private Sector Development and Environmental SustainabilityIn all countries, the World Bank Groupshould continue its support to close uneco-nomic mines, reform and privatize state-owned enterprises, and mitigate pre-existingenvironmental and social problems.

Management accepts this recommendation. There remains animportant role for IBRD/IDA to assist governments to restruc-ture their mining and coal industries, including helping to closeuneconomic coal mines and to mitigate social and environ-mental problems. Much of the world’s oil industry is gov-ernment-owned and, where appropriate, IBRD/IDA willconsider supporting government efforts to improve the effec-tiveness of these operations, where governments have ruledout privatization for the foreseeable future.

1d

Where appropriate, the World Bank Groupshould help integrate artisanal and small-scale mining (ASM) with the formal sectorand internalize their environmental andsocial impacts, while at the same time cre-ating alternative employment opportunitiesand supporting the consolidation of ASMactivities for greater efficiencies andeconomies of scale.

IBRD/IDA will continue to work with others, particularlythrough CASM, to develop effective approaches and best prac-tices. Given country differences, the CAS for countries whereASM is important will be expected to consider approachesthat are integrated effectively into overall country and povertyreduction strategies. Clearly an important component of anyoverall approach is to create better opportunities for thoseinvolved in other parts of the economy. COC will aim overa three-year period to develop three or more operations thataim to integrate ASM into the broader economy and/orimprove its social, environmental, or economic outcomes.

1e

2 Improve Project Screening and MonitoringThe World Bank Group should provideclearer and more consistent guidance forthe categorization of projects, the identifi-cation of applicable safeguards at the ini-tial project screening, the appropriate scopeand nature of the EA instruments, and thereporting and evaluation of safeguardsimplementation. This needs to be followedup through the entire implementationframework, from good practice guidelinesto appropriate monitoring and training.

WBG will provide updated guidance for the categorizationof projects concerned with EI. This guidance will address proj-ect screening and the use of appropriate assessment instru-ments. Sectoral approaches will be used for periodic reportingand evaluation of safeguard aspects of EI projects. This infor-mation will be disseminated through periodic training activ-ities for staff from the WBG, clients, and other parties.

2a


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(continued)Recommendation of the Main Report of the Joint OED/OEG/OEU Evaluation Management Response

Involve Specialists ThroughoutThe World Bank Group should provideadequate resources and incentives for theparticipation of qualified environmentaland social specialists at the preparation,appraisal and supervision of all projects thatare likely to have adverse impacts. This willensure that such impacts are adequatelyaddressed through the upstream designof appropriate mitigation strategies or proj-ect alternatives, as well as through theretrofit of timely remediation measuresshould unexpected impacts materializeduring project implementation.

This is agreed and is dealt with more specifically in theresponses to recommendations of OED (2b), OEG (2a, 2b)and OEU (1b, 2a, and 3c) below.

2b

Enhance Reporting of ResultsThe Bank should strengthen reporting of itsresults by ensuring that project completionreports include an ex post economic rate ofreturn or net present value or, where that isnot feasible, a cost effectiveness analysis todetermine whether the project representedthe least-cost solution to attain its objectives.IFC should develop and use a reporting tem-plate for environmental and socio-economicsustainability indicators, building on indus-try initiatives. MIGA needs to adopt morestandardized and timely reporting mecha-nisms on environmental and social safe-guards compliance and ex post developmentoutcomes. The WBG should prepare com-pletion reports for every significant non-lending/guarantee issuance activity.

Management accepts this recommendation, as is detailed inthe response to the recommendations of OED (2c) and OEG(2c). As noted in responses to the OEU recommendations (see1a, 2a, and 2d below), MIGA is taking steps to implement morestandardized and timely reporting mechanisms on safeguardcompliance and development outcomes, especially of Cate-gory A projects. Management will ensure that an “activity com-pletion summary” or equivalent for all significant nonlendingEI activities in IBRD/IDA, IFC, and MIGA is prepared.

2c

Evaluate the Sharing of BenefitsEvaluate the sharing of benefit: At appraisaland during supervision, the WBG shouldsystematically estimate the distribution ofproject benefits among different stake-holder groups (government at differentlevels, private companies, and local com-munities), evaluate its sensitivity to differ-ent scenarios, and discuss the acceptabilityof benefit-sharing with key stakeholdergroups.

Management agrees that an analysis of the distribution of thebenefits of extractive industries developments should be partof the WBG’s project evaluation and supervision work. Theappraisal report for EI projects will be expected to assess thesensitivity of distribution to different assumptions about keyproject variables. The extent of discussions of benefit-shar-ing with key stakeholder groups will need to be consideredcarefully in the project and country context, given the roleof governments (and sometimes constitutions) in setting thedistribution of EI revenues.

2d


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3 Update Policy FrameworkIn consultation with its stakeholders, theWBG should periodically adjust its policyframework for extractive industries toensure that it remains up-to-date with evolv-ing industry practice. It should resolveremaining inconsistencies such as thosebetween requirements for different minetypes (such as funding for mine closure),onshore versus offshore oil projects, safetyof dams, and involuntary resettlement. Itshould address identified gaps such asthose related to consultation and disclosure,community development, social issues ofmine closure, security, hazardous materialsmanagement, acid rock drainage, gas flar-ing, and transportation of oil. It shouldalso recognize the expanding awareness ofthe human rights dimension of WBG poli-cies and projects, and explore possibleavenues for addressing the issues, especiallywhere it lags industry best practice such as,for example, regarding site security.

Agreed. See responses to recommendations of OED (3a), OEG(3a), and OEU (3c) below.

3a

Promote Disclosure of Revenues from EIThe WBG should vigorously pursue coun-try- and industry wide disclosure of gov-ernment revenues from EI and relatedcontractual arrangements (such as pro-duction sharing agreements, concessionand privatization terms). The Bank shouldwork toward and support disclosure of EIrevenues and their use in resource-richcountries. IFC and MIGA should alsostrongly encourage (and consider requir-ing) their private sector clients to publishtheir payments to governments.

Management accepts this recommendation because increasedtransparency about resource revenues is an important steptoward better governance and the use of resources in resource-rich countries. IBRD/IDA is now actively supporting the EITIled by DfID, and in this context, is working in a number ofpilot countries. In addition, the WBG will support other ini-tiatives as appropriate, and will work for greater transparencyof revenues and expenditures within its country programs.In the context of new EI investment operations, WBG sup-port will be conditional on transparency commitments byinvestors. Disclosure of payments to governments will berequired effective immediately for major projects and will beexpected for all projects in two years, when appropriateimplementation modalities are expected to have been devel-oped and tested under the EITI and similar activities. Overthe next three years, IBRD/IDA will aim to complete five ormore EITI pilots with countries and will aim to mainstreamthe approach to revenue transparency more broadly in theWBG.

3b


3 0

(continued)Recommendation of the Main Report of the Joint OED/OEG/OEU Evaluation Management Response

Develop and Monitor Sustainability IndicatorsTogether with other stakeholders, theWorld Bank Group should develop indi-cators of economic, social and environ-mental sustainability, establish baselinedata, provide for adequate monitoring overthe life of the project, and report and eval-uate the results during supervision and inproject completion reports. The WorldBank Group should also encourage moreindependent outside monitoring, ideallyusing local capacity (that may have to bedeveloped).

Management accepts this recommendation. The WBG willwork with stakeholders to define appropriate sustainabilityindicators that can be used to monitor and report on outcomes.OP 4.01 requires the collection of baseline data. IFC hasrecently produced a good practice note (Addressing theSocial Dimensions of Private Sector Projects) that provides guid-ance on collection of baseline data; a similar exercise isplanned for environmental data. These notes can also serveto guide IBRD/IDA and MIGA. The development of inde-pendent local capacity for monitoring the impact of EI proj-ects is important. Capacity building within governments isalready a key objective of IBRD/IDA activities in the sector.Development of community/civil society capacity can helpwith project monitoring and can often be considered in theproject context. In the case of very large projects (such as inthe Chad-Cameroon pipeline or BTC pipeline projects), thecreation of independent monitoring groups may be practi-cal and effective, and will be considered. In some cases itmay be appropriate to develop local capacity to play a rolein such forms of oversight. In addition, see the responses tothe recommendations of OEG (2a) and (3c) below.

3c

Increase Local Community ParticipationThe WBG should support enhanced com-munity consultation and participationthroughout the life cycle of EI-projects.The WBG should assist countries toincrease involvement by local communitiesin EI decision-making processes, and ongo-ing consultation throughout the projectlife cycle, including closure.

Management agrees with this recommendation. Enhancedcommunity consultation and participation in EI projects is akey area of evolving best practice for the WBG. See theresponse to recommendation of OEG (3d) for details.

3d


3 1

B. Recommendations of the OED Evaluation Report

Recommendation of the OED Evaluation Management Response

1 Formulate a Sector StrategyThe Bank, together with other members ofthe WBG needs to design and implementa sector strategy that closely integratesresource extraction with sustainable devel-opment through the effective managementof EI revenues in support of developmen-tal priorities and the reliable mitigation ofadverse environmental and social impacts.Where macro and sectoral governance areweak, the Bank’s assistance should focuson strengthening macro and sectoral gov-ernance. In such cases, the Bank shouldcarefully assess and report on the risks thatfiscal revenues may not be used for devel-opment priorities. The Bank should notsupport significant sector expansion unlessit can adequately mitigate these risks. Wheremacro governance is sound but sectoralgovernance is weak, the Bank should focuson improving sectoral governance.

Management accepts this recommendation. The overallapproach to EI activities, as set out in this ManagementResponse and in responses to individual recommendations,provides a framework for the WBG’s activities in EI thatgives a central place to promotion of good governance andincreased transparency. Management has identified indicatorsof implementation progress for its strategy, and it will mon-itor them. Management will strengthen its efforts to promoteuse of fiscal revenues for development priorities and to mit-igate risks due to poor governance. The ultimate objectivesare sustainable impacts at the local, national, and global lev-els. The appraisal reports for new EI projects and relevantsector reforms in countries with weak governance will clearlyassess the risks that EI fiscal revenues may not be used fordevelopment priorities. See also OEG 1b.

1a

Address EI issues in CASsFor all resource-rich countries the Bankshould explicitly address extractive indus-tries in the CASs. The CAS should discussthe sector’s economy wide linkages (suchas the importance of government revenues,their management, and distribution) andreference the underlying governanceassessment. This should guide future proj-ect design, facilitate monitoring and eval-uation, and provide an agreed frameworkfor WBG-wide coordination and collabo-ration in the EI sector.

Management accepts this recommendation and has developeda two-tiered approach to improving the focus of CASs on rel-evant EI issues. This approach uses a higher cut off forresource-rich countries(more than 50 percent of governmentrevenues derived from EI) than that used by the evaluation(15% of exports) so as to exclude relatively less EI-depend-ent but to include non-exporting countries. With limited staffand country resources and competing priorities, the WBG willthus focus on the most resource-dependent countries and oncountries where it can have the most impact. The proposedapproach already targets more than 50 countries (with sub-stantial overlap with the evaluation list). CASs for resource-rich countries will be expected to address relevant EI issuesand related governance issues. In countries with substantialresources (where 30-50 percent of government revenues orexports are from EI), the CAS will be expected to identify keyEI sector issues and to discuss whether and how IBRD/IDAwill be involved in addressing them. This does not rule outCAS discussion of EI issues in other countries where they areimportant, and the thresholds and guidelines will be reviewedin the light of experience. Where possible, IBRD/IDA, IFC,and MIGA will work together as recommended by

1b


3 2

(continued)Recommendation of the OED Evaluation Management Response

OED/OEG/OEU. Moreover, IBRD/IDA will encourageresource-rich countries to address relevant EI issues in theirown overall development strategies, such as PRSPs. TheWBG institutions will work proactively in the EI sector to iden-tify opportunities for cooperation, and to develop private-pub-lic partnerships. A good-practice note on EI issues will beprepared and disseminated as part of the guidelines for CASsand engagement in LICUS.

Governance

Promote Governance Improvements: TheBank should compensate for the lowerlevel of lending that may be appropriatefor resource-rich countries with weakmacro and sectoral governance by devot-ing greater management attention andadministrative budget for advisory andanalytical activities aimed at improving thepolicy, institutional, and governance frame-work for EI. This would enable the Bankto establish and maintain continuity ofengagement and facilitate a quick responseto opportunities for assistance when theyarise.

Management accepts this recommendation. Where the WBGis not involved in financing operations but where EI issuesare important and where governance is weak, the WBG willaim to devote greater resources to technical assistance andanalytical and advisory activities that can, for example, helpcountries manage their resource industries more effectively,including addressing relevant broader policy, institutional, andgovernance issues. The CAS for resource-rich countries withweak macro and sectoral performance will identify the needsfor TA in this area, and will discuss whether and how the WBGshould be involved in meeting these needs. Implementationof this recommendation may require additional administra-tive budget resources for certain countries. Over the next threeyears, Management will aim to increase the level of nonlendingactivities aimed at policy improvements (including thoserelated to revenue transparency) compared to the past three.

1c

Support Private Sector Development and Environmental Sustainability

In all countries, the Bank should be readyto support the closure of uneconomicmines, privatization of state-owned enter-prises, and mitigation of pre-existing envi-ronmental and social problems.

Management accepts this recommendation, as there remainsan important role for IBRD/IDA to assist governments torestructure their mining and coal industries, including help-ing to close uneconomic coal mines, and mitigating social andenvironmental problems. Much of the world’s oil industry isin state hands and, where appropriate, the Management willconsider whether IBRD/IDA should become involved, forexample, to help governments improve the effectiveness ofthese operations, where governments have ruled out priva-tization for the foreseeable future.

1d


3 3


Where appropriate, the Bank should helpintegrate artisanal and small-scale mining(ASM) with the formal sector and inter-nalize their environmental and socialimpacts, while at the same time creatingalternative employment opportunities andsupporting the consolidation of ASM activ-ities for greater efficiencies and economiesof scale.

IBRD/IDA will continue to work with others, particularlythrough CASM, to develop effective approaches and best prac-tices. Given country differences, the CAS for countries whereASM is important will be expected to consider approachesthat are integrated effectively into overall country and povertyreduction strategies. Clearly an important component of anyoverall approach is to create better opportunities for thoseinvolved in other parts of the economy. COC will aim overa three-year period to develop three or more operations thataim to integrate ASM into the broader economy and/orimprove its social, environmental, or economic outcomes.

1e

2 Improve Upstream Project ScreeningThe Bank should provide clearer and moreconsistent guidance for the categorizationof sectoral adjustment and technical assis-tance projects, the identification of appli-cable safeguards at the initial projectscreening, the appropriate scope andnature of the EA instruments, and thereporting and evaluation of safeguardsimplementation. This needs to be followedup through the entire implementationframework, from good practice guidelinesto appropriate monitoring and training.

IBRD/IDA will provide updated guidance for the catego-rization of sectoral adjustment and technical assistance proj-ects concerned with EI. This guidance will address projectscreening and the use of appropriate assessment instruments.Sectoral approaches will be used for periodic reporting andevaluation of safeguard aspects of EI projects. This informa-tion will be disseminated through periodic training activitiesfor staff from the Bank, clients, and other parties.

2a

Provide for Adequate Specialist InvolvementThe Bank should strengthen the imple-mentation of its safeguard policies by pro-viding adequate resources for theparticipation of qualified environmentaland social specialists at the preparation,appraisal, and supervision of all projectsthat are likely to have adverse impacts. Thiswill ensure that such impacts are ade-quately addressed through the upstreamdesign of appropriate mitigation strategiesor project alternatives, as well as throughthe retrofit of timely remediation meas-ures should unexpected impacts material-ize during project implementation.

Is it agreed that project teams should have effective partici-pation of environmental and social specialists at all stages ofthe project process, particularly for projects likely to haveadverse impacts. Project budgets will need to be set adequatelyto ensure this.

2b


3 4


Enhance Reporting of ResultsThe Bank should strengthen the imple-mentation of its completion reportingrequirements by (i) ensuring that projectcompletion reports include the calculationof an ex-post economic rate of return ornet present value or, where that is not fea-sible, a cost-effectiveness analysis to deter-mine whether the project represented theleast-cost solution to attain its objectives;and (ii) preparing an activity completionsummary for every significant non-lendingactivity.

It is agreed that project completion reports should providethese quantitative estimates of impacts wherever possible, andshould state the reasons where this is not possible. An activ-ity completion summary should be prepared for every sig-nificant non-lending activity.

2c

Evaluate the Sharing of BenefitsAt appraisal and project completion, theBank should systematically estimate thedistribution of project benefits among dif-ferent stakeholder groups—governmentat different levels, private companies, andlocal communities—evaluate its sensitivityto different scenarios, and discuss itsacceptability with key stakeholder groups.

Management agrees that distribution of the benefits of extrac-tive industries developments is important. The appraisal andproject completion reports for EI projects will be expectedto assess the sensitivity of distribution to different project sce-narios. The extent of discussions of benefit-sharing with keystakeholder groups will need to be considered carefully inthe project and country context, given the role of governments(and sometimes constitutions) in setting the distribution ofEI revenues. See also the response to OEG recommendation2d below.

2d

3 Update Policy FrameworkIn consultation with its stakeholders, theBank should periodically adjust its policyframework for extractive industries toensure that they remain up-to-date withevolving industry practice. It should resolveremaining inconsistencies within the WBGand address identified gaps. It should alsorecognize the expanding awareness of thehuman rights dimension of Bank policiesand projects, and explore possible avenuesfor addressing the issues, especially whereit lags industry best practice.

In the context of the overall WBG approach to these issues,Management will evaluate and help develop best practiceapproaches to EI-specific issues. Current opportunities includethe ongoing review of IFC safeguard policies, the revision ofthe IBRD/IDA Indigenous Peoples policy, and the consider-ation of approaches to human rights by IFC and IBRD/IDA(where a Senior Adviser on human rights has been appointed).

3a


3 5


Promote Disclosure of Revenues from EIThe Bank should vigorously pursue coun-try- and industry wide disclosure of gov-ernment revenues from EI and relatedcontractual arrangements (such as produc-tion sharing agreements, concession andprivatization terms). It should work towardand support disclosure of EI revenues andtheir use in resource-rich countries.

Management accepts this recommendation because increasedtransparency about resource revenues is an important steptoward better governance and the use of resources in resource-rich countries. IBRD/IDA is now actively supporting the EITIled by DfID, and in this context, is working in a number ofpilot countries. In addition, the WBG will support other ini-tiatives as appropriate, and will work for greater transparencyof revenues, expenditures, and contracts (where feasible andappropriate), within its country and sector programs. Notably,AAA such as public expenditure reviews and country finan-cial accountability assessments, and related policy dialogue,will be the main vehicles for promoting transparency. In thecontext of new EI investment operations, WBG support willbe conditional on transparency commitments by investors. Dis-closure of payments to governments will be required effec-tive immediately for major projects and will be expected forall projects in two years, when appropriate implementationmodalities are expected to have been developed and testedunder the EITI and similar activities. Over the next threeyears, Management will aim to complete five or more EITIpilots with countries and will aim to mainstream the approachto revenue transparency more broadly in the WBG.

3b

Define and Monitor Sustainability IndicatorsTogether with other stakeholders, the Bankshould define indicators of economic,social, and environmental sustainability,establish baseline data, provide for ade-quate monitoring over the life of the proj-ect, and report and evaluate on the resultsduring supervision and in project com-pletion reports. The Bank should alsoencourage more independent outside mon-itoring, ideally using local capacity (thatmay have to be developed).

Management accepts this recommendation. The WBG willwork with stakeholders to define appropriate sustainabilityindicators that can be used to monitor and report on outcomes.OP 4.01 requires the collection of baseline data. IFC hasrecently produced a good practice note (Addressing theSocial Dimensions of Private Sector Projects) that provides guid-ance on collection of baseline data; a similar exercise isplanned for environmental data. These notes can also serveto guide IBRD/IDA and MIGA. The development of inde-pendent local capacity for monitoring the impact of EI proj-ects is important. Capacity building within governments isalready a key objective of IBRD/IDA activities in the sector.Development of community/civil society capacity can helpwith project monitoring and can often be considered in theproject context. In the case of very large projects (such as inthe Chad-Cameroon pipeline or BTC pipeline projects), thecreation of independent monitoring groups may be practi-cal and effective, and will be considered. In some cases itmay be appropriate to develop local capacity to play a rolein such forms of oversight. In addition, see the responses tothe recommendations of OEG (2a) and (3c) below.

3c


3 6


Increase local community participationThe Bank should support enhanced com-munity consultation and participationthroughout the life cycle of EI-projects.The Bank should assist countries toincrease involvement by local communitiesin EI decision-making processes, and ongo-ing consultation throughout the projectlife cycle, including closure.

Management agrees with this recommendation. Enhancedcommunity consultation and participation in EI projects is akey area of evolving best practice for IBRD/IDA, in line withevolving experience in IFC. See the response to recommen-dation of OEG (3d) for details.

3d

C. Recommendations of the OEG Evaluation Report

Recommendation of the OEG Evaluation Management Response

1 Formulate an Integrated Strategy See response to the Main Report, 1a above.IFC should work closely with other partsof the WBG to ensure that CASs forresource-rich countries explicitly discuss theEI sector’s contribution to sustainable devel-opment (e.g., importance of fiscal rev-enues, their management, distribution, anduse for development priorities) and obsta-cles for enhancing its contribution. TheCAS should provide an agreed frameworkfor WBG-wide cooperation, with a partic-ular focus on close interaction between IFCand the World Bank’s country departments.IFC and the World Bank should routinelywork together to enhance the develop-ment impacts of EI projects, for examplein the form of public-private partnershipswith respect to community developmentprograms. IFC and the WBG should buildon existing initiatives such as BusinessPartners for Development and the Com-prehensive Development Framework toenlist the help of other stakeholders, suchas the IMF, other bilateral and multilateralinstitutions, industry and civil society.

IFC Management supports this recommendation, and proposalsin this respect are set out in the detailed responses to rec-ommendations of the Main Report and OED reports and inthe overall Management Response. IFC will work proactivelyin the EI sector to identify opportunities for cooperation withIBRD/IDA and MIGA, and to develop private-public part-nerships as appropriate in the context of individual projects.

1a


3 7

Where country governance is weak,increase transparency and address theweaknesses: Together with the World Bankand other stakeholders, IFC should analyzeall aspects of country governance qualityand the risks that poor governance maydetract from sustainable development. Inparticular, IFC should encourage enhancedtransparency and disclosure concerningcontractual agreements between investorsand governments, the amount of fiscal rev-enues generated and their distribution. IFC— together with the World Bank and otherstakeholders — should encourage suchtransparency sector wide in the country.

Weak governance can lead to poor oversight of the EI sec-tor and poor management of, and use of revenues from,resource projects. The IFC approach to this issue will be towork with IBRD/IDA to ensure that EI issues are addressedin the CAS (see response to recommendation of the MainReport 1b above) and to generally support IBRD/IDA effortson transparency initiatives, such as the EITI.

1b


When financing projects whose majorexpected development contribution is thegeneration of revenues to governments, IFCshould carefully review and discuss thegovernance risk that these revenues willnot be used productively. Where such gov-ernance risk is high, and the project’s rev-enues are significant, IFC should workwith the government (in partnership withthe World Bank and IMF) to put in placemechanisms to reduce this risk, includingpossibly ring-fencing of project revenuemanagement. For all proposed EI invest-ments, IFC should address these issues inBoard Reports.

For significant new projects (typically, those large enough togenerate 10 percent or more of host government revenues),IFC will require adequate mitigation measures to be put inplace to reduce the risks that revenues will be wasted, andit will require transparency about EI-related payments togovernments and the terms of key contracts with governmentsthat are of public interest (such as Host Government Agree-ments, IGAs). For smaller projects, the IFC will evaluatecarefully the risks that revenues will not be used properly,and compare these and other risks against expected bene-fits, and evaluate the value of its involvement. Where risksare too high, it will not proceed. As a part of its Summary ofProject Information that is usually published 30 days beforea project goes to its Board for approval, IFC will summarizethis risk review. Within two years IFC will expect EI paymentsto governments to be disclosed for all EI projects with whichIFC is involved. In some areas that are not essential for thepublic interest, companies may need to maintain confiden-tiality to protect their legitimate commercial interests, and IFCwill work with them to ensure this.

1b(cont.)


3 8

(continued)Recommendation of the OEG Evaluation Management ResponseIFC should focus on projects that can serveas role models for environmental and socialperformance, transparency, and disclo-sure. Where laws and regulations—or theirenforcement—are weak, IFC should insiston special measures to ensure a project’ssound environmental and social perform-ance. Such measures could include build-ing local monitoring capacity, anddisclosure of independently audited andpublicly disclosed monitoring reports. Theycould also include an explicit assessmentof the risk of conflicts, and measures to dealwith them.

IFC will continue to support only projects that, at a minimum,meet the requirements of its evolving social and environmentalpolicies and guidelines. In addition, it will aim to make anadded contribution to the sustainable impact of such projectsand, where possible, help make the projects role models foractivities in the sector and country. Where local capacity out-side of the project is weak, IFC will work with sponsors tomitigate this with project design and operation/supervisionprocesses, etc. When appropriate, it will work with other stake-holders (including IBRD/IDA) to increase capacity outside ofthe project in local and national government and otherwise(see response to recommendation 2a below). Annual moni-toring reports are independently audited and disclosed nowin some large projects. Independent auditing is not feasiblefor small projects; but in the context of IFC’s review of its dis-closure policy (now under way), IFC plans to require for allnew EI projects regular disclosure to local communities byinvestors of appropriate information about the environmen-tal, social, and economic impacts of projects. When it isappropriate, IFC will assess the potential for conflict.

1c

2 Focus on ImplementationIFC should continue to require high-qual-ity environmental impact assessments thatestablish baseline data for relevant envi-ronmental and socio-economic impact indi-cators. These indicators—compared to thebaseline—should be consistently trackedand aggregated for IFC’s management.Appropriate requirements to allow IFC toadequately mitigate risks and monitor allits projects should be included for allinvestments, particularly equity. Where IFCfinds poor environmental and social sys-tems or performance, it should addressthem proactively and vigorously.

Management agrees with the need for high-quality environ-mental impact assessments that establish appropriate baselineindicators. OP 4.01, Environmental Assessment, the principalsafeguard policy for project environmental impact assessments,requires the establishment of baseline data. In Dec. 2003, thestaff of the IFC Environmental and Social Department (CES) pub-lished a good practice note to improve the social componentof the environmental impact assessment. Since 2000, IFC hasused an Environmental and Social Risk Rating (ESRR) systemto prioritize supervision, and rate project performance. A rat-ing of 4 (substandard) requires a site visit by CES staff/invest-ment officers. IFC has improved the effectiveness of itsenvironmental and social functions by mainstreaming the workwithin operational departments, as well as by adopting a pol-icy of active portfolio management. Management will work withCES and COC to develop an appropriate database for all proj-ects, including portfolio projects, to help monitor key indica-tors. When issues are discovered, corrective action plans toremedy problems are prepared and agreed with the sponsor.Ultimately IFC can use loan agreements to try to ensure coop-eration. Performance indicators are being developed in thereview of IFC’s safeguard policies and the sustainability frame-work. The issue of requirements for equity investments is onethat applies to all sectors; IFC will address this issue in the con-text of the current revision of safeguard policies and guidelines.

2a


3 9


IFC’s investment officers and nominees tocompany boards should be co-responsiblewith technical specialists for the environ-mental and social performance of theirprojects. Where possible, IFC should alsodevelop and use local monitoring capacity.

In the broadest sense, responsibility for project outcomes lieswith the Investment Department Management. However, thedifferent responsibilities of the investment officer, who is theoverall “task manager” for the project, and the environmentaland social specialists, who provide technical input and ensurecompliance with IFC guidelines (with reporting relationshipsto IFC CES), are important ones. The latter’s own reporting linesand budget provide a valuable degree of independence. IFCis now mainstreaming environmental and social responsibili-ties are “mainstreamed” to Investment Departments, but withCES retaining responsibility for quality assurance. The outcomeof this experience will guide future arrangements (see responseto recommendation 2b below). It is agreed that when possi-ble, IFC should promote the development and use of localcapacity to monitor projects. The IFC nominees to companyboards can support Investment Department Management inensuring IFC requirements are met and its views understood,and that company issues and concerns in this respect arebrought to Management’s attention.

2a(cont.)

IFC needs to ensure that its environmen-tal and social specialists are consultedthroughout the project life and as early aspossible and that investment officers fullyshare relevant information. To that end,investment officers need to be bettertrained to identify risks and opportunities.Also, changing the incentive structure bymaking the investment officer and depart-ment explicitly accountable for environ-mental performance would likely providebetter incentives for calling in the expertsas early as possible, not after a problem hasmaterialized.

It is agreed that the early involvement of environmental andsocial specialists is warranted. Beginning with its first envi-ronmental review procedure in March 1990 and continuingthrough subsequent procedures (1992-1993 and 1998), IFC hasdeveloped a culture of ensuring that its environmental and socialspecialists are involved as early as possible in the projectcycle and throughout appraisal and supervision. Following theadoption of the 1998 “Procedure for Environmental and SocialReview of Projects” a corporate-wide training program was con-ducted to apprise investment officers of project environmen-tal and social requirements, as well as risks and opportunities.Sustainability training began in the spring of 2002 on a depart-mental basis, and it covers issues of governance, environment,and social matters. For about two years, environmental andsocial specialists have been co-located in the Oil, Gas, Min-ing, and Chemical Department’s mining and oil and gas divi-sions; this has fostered coordination and early involvement inprojects. As mentioned in response to recommendation 2aabove, the environmental and social mainstreaming initiativeat IFC explicitly places accountability and responsibility for envi-ronmental and social inquiry, decision making, and perform-ance on line management. CES will retain an independentquality assurance role. IFC has also pioneered “DepartmentalScorecards” that set departmental targets across a range of indi-cators, including development impact and the volume ofinvestments. IFC also recognizes outstanding environmental andsocial work in its performance awards system.

2b


4 0

(continued)Recommendation of the OEG Evaluation Management Response

IFC should develop a reporting templatethat specifies for each portfolio projectwhich safeguard policies and guidelinesapply, whether the company is in com-pliance with them, and how it performswith respect to key sustainability indicatorsfor the industry. Where relevant, IFC shouldalso include “beyond the fence line” issues,such as transportation and project-relatedsecurity issues.

The recently introduced iDesk system for IFC project infor-mation includes such a provision for each new project onwhich safeguard policies and guidelines apply. Compliancewith these policies and guidelines for portfolio projects aretracked by the ESRRs (see response to recommendation 2aabove). IFC will supplement this with a consistent internalmanagement database for all IFC projects that indicates thestatus of all key sustainability indicators (including mine clo-sure/decommissioning plans, safeguard compliance, gas flar-ing, use of security forces, etc.). Work is underway to improvekey sustainability indicators and enhance their usefulness (seeresponses to recommendations 1c, 2a, and 3c). COC, in con-junction with CES, will also review iDesk to ensure that it canprovide Management with appropriate information and indi-cators for all projects (see response to recommendation 2a).IFC will review “beyond the fence” issues where it is appro-priate to do so and will make this explicit. All future IFC-sup-ported projects will require that investors meet a set ofrequirements relating to the use of security forces along thelines of the Voluntary Principles on Security and HumanRights that were developed through a process of dialoguebetween the Governments of the U.K and the U.S., EI com-panies, and NGOs.

2c

IFC should develop global comparatorsfor the distribution of benefits from EI—among investors, governments at differentlevels and local communities. For its proj-ects, IFC should analyze the distributionand compare it to other EI projects. Atappraisal, IFC should include the distribu-tion effects in its sensitivity and risk analy-sis (e.g., distribution of benefits at differentlevels of output and prices), track actualdistribution during the project life, andaggregate the data at the country and sec-tor level.

IFC already reviews the split of resource project net benefitsbetween investors and government. It also reviews the waysinvestors obtained access to resources. Management will fol-low the recommendation to review more explicitly and to testthe distribution of benefits to different stakeholders, includ-ing levels of government. Wherever feasible it will comparethe distribution of benefits to government and others withinternational comparators using established reference sources,evaluated against different assumptions about key variablessuch as oil prices and production. IFC’s annual project super-vision reports now track key development outcomes, andwhere revenue distributions are an important expected out-come, it will track these also.

2d


4 1


3 Engage StakeholdersIn consultation with stakeholders, IFC shouldcontinuously update its environmental andsocial safeguard policies, guidelines, andprocesses in line with evolving good prac-tice in the industry. The WBG should use itsconvening power and the help of its mem-ber governments to promote their use bygovernments, industry, and other financiers.IFC should develop, update or clarify poli-cies and guidelines on Indigenous Peoples(or “vulnerable people”), safety of dams,natural habitats (or biodiversity), securityand human rights, HIV/AIDS prevention,mining (closure—funding and social issues,acid rock drainage, precious metal mining),and oil and gas (gas flaring, downstreamtransportation of oil).

Management has taken its response to the recently completedCAO Safeguard Policies Review to CODE, and IFC hasembarked on a program to revise its safeguards. This revi-sion will take into account CAO and OEG views on EI andrecommendations such as those for safety of dams, mine clo-sure, acid rock drainage, etc. Within the WBG, there is agree-ment that IFC will take the lead in the updating of the 1998PPAH. One objective of the updating is to eliminate theinconsistencies in the PPAH. Ongoing collaborations betweenthe WBG and MFIs, as well as the adoption of the “EquatorPrinciples” by a growing number of commercial banks thatwill use IFC safeguards for their project finance lending indeveloping countries, demonstrate that other financiers findthe safeguards useful and relevant. Industry and govern-ments also often refer to the safeguard policies and guide-lines, and the updating of the safeguards and the PPAH willmake them more attractive to these stakeholders.

3a

IFC should encourage—and considerrequiring—its clients to publish informationin 3a above. Where client confidentialityundertakings initially restrict disclosure,IFC could report results on an aggregatecountry, regional or sectoral level and par-ticipate in initiatives advocating such dis-closure. IFC needs to balance clientconfidentiality with its own accountabilityas a public institution and the public’sdesire to know more. On balance, increasedcommunication and transparency is likelyto help IFC and its clients and reduce mis-conceptions, distrust, and criticism.

See responses to recommendation 1b above concerning trans-parency of EI revenue payments and recommendation 1c con-cerning regular publication of information about projects byinvestors. IFC is currently reviewing its disclosure policy; it islikely that this review will to lead to changes in its generalapproach. In the case of EI projects IFC proposes to require newinvestors to provide information on a regular basis concerningthe environmental, social, and economic impacts of IFC-financedprojects. This will include, for example, appropriate informa-tion that is now contained in Annual Monitoring Reports. IFCwill work with investors to agree on an effective and meaningfulapproach to such information provision. As a part of the reviewof its disclosure policy, IFC will consider how it can better pro-vide information about its aggregate activities in EI.

3b

In consultation with other stakeholders,IFC should develop and track key sus-tainability indicators and consider disclos-ing them to demonstrate the economic,social and environmental impacts of its EIprojects. Reporting on credible sustainabledevelopment indicators will help over-come the current inability to systemati-cally demonstrate results achieved.

See responses to recommendations 1b, 1c, 2a, 2c, and 3babove. IFC is developing an improved process to collect rele-vant baseline socioeconomic data for its projects, and it will col-laborate with IBRD/IDA in this work and with externalstakeholders. The size of projects (including their ability to bearthe cost of such analysis) and their range of potential impactswill inform the choice of indicators and baseline data. IFC alreadymonitors key development outcomes expected from projectsand reports on these in its internal annual project monitoringreports. It will discuss its approach with others and take noteof best practice in the sector, as appropriate, given the natureof IFC’s portfolio and its objectives. It will consider whether andin what form relevant information from these can be disclosed.

3c


4 2

(continued)Recommendation of the OEG Evaluation Management Response

This evaluation found strong evidence thatimproved community consultation is inthe best long-term interest of our clients.IFC should thus make community devel-opment programs with ongoing consulta-tions the norm for EI projects. Suchprograms should start with a participatoryassessment of the community’s situationand long-term development needs. Theyshould include ongoing consultations,focus on sustainable solutions to meetthese needs, and prepare communities forthe time after the extractive operationscease. Good communication is also likelyto improve results—by listening to peopleand being exposed to public scrutiny andchallenge.

It is agreed that good, ongoing consultation with communitiesis important and should be the norm, and this approach willbe applied to new EI projects within two years. In 2000, IFCprepared a community development resource guide for com-panies (“Investing in People: Sustaining Communities throughImproved Business Practice”). This guide provides IFC clientsand private investors with practical advice on establishing com-munity development programs. IFC will encourage existingclients to engage in ongoing consultations and will disseminateits community development resource guide to clients. In par-allel, the practice of CES for high impact EI projects is to focuson community development opportunities. For example, therequirement for resettlement action plans in OD 4.12 is nor-mally complemented with actions for broader communitydevelopment plans. Also, vulnerable groups under OD 4.20,Indigenous Peoples, and OD 4.30, etc., are now the focus ofcommunity development plans. IFC’s Corporate Citizenship Facil-ity works with IFC clients and other stakeholders to developcapacity at the community level. In cooperation with IBRD, asappropriate, IFC will aim to work with investors to develop asa pilot a “sustainable community development plan” that wouldinvolve all stakeholders, including communities, local govern-ments, and investors as envisaged in the MMSD report, Break-ing New Ground. COC is currently developing proposals fora sustainable EI development facility that will aim, through proj-ect interventions and partnerships with stakeholders, to broadenthe practical application of best practice to EI projects.

3d

IFC should routinely share best practiceamong clients and encourage them toapply it. IFC should communicate its infor-mation needs better to its clients, for exam-ple by tailoring reporting to their ownrequirements. Clients very much appreci-ated assistance they had received fromIFC staff, but were eager for more. IFCshould build on its various initiatives to addvalue and further facilitate exchange ofideas among its clients, for example byorganizing conferences and further devel-oping toolkits on how to best addressenvironmental and social issues.

IFC will institute a more systematic approach to advising clientsof updates/changing best practices and encourage them to applythese even when they are not obliged to. The new relationshipwith the “Equator Banks” provides an important additional wayfor IFC to communicate beyond its direct client base. IFC needsto ensure that client reports cover at least its minimum require-ments in terms of safeguards. It will work with sponsors to ensurereporting is as effective as possible for both IFC and the client,given specific project needs. As noted (see response to recom-mendation 3a above), IFC is now responding to the CAO reviewof its safeguards, and updating and revising safeguards may offerthe opportunity to make these more “customer friendly” with-out diluting their key objectives. Management agrees that it can(often as a WBG approach) use its convening power and rangeof clients to promote the exchange of ideas and best practicesand it will do this selectively. A schedule for best practice notes,lessons learned, and good practice notes is under preparationfor FY05; this will cover areas relevant to EI.

3e


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D. Recommendations of the OEU Evaluation Report

Recommendation of the OEU Evaluation Management Response

Strategy and Rules of Engagement:MIGA needs to recognize and promotethe potential benefits it brings to EI proj-ects through its internationally recognizedand comprehensive set of safeguard poli-cies and its environmental and socialimpact mitigation services. MIGA’s engage-ment with EI projects should move beyondcompliance with its environmental andsocial safeguard policies toward the pro-motion and achievement of the develop-ment effectiveness of these projects.

MIGA Management is committed to implement this recom-mendation and will look for such opportunities to promotethe potential benefits it brings to insured projects through itsinternationally recognized and comprehensive set of safeguardpolicies and its environmental and social impact mitigationservices. Management is committed to promoting projects withthe greatest development impact and that are economically,environmentally, and socially sustainable. MIGA’s new orga-nizational structure will facilitate this. Management reviewswill focus on development effectiveness, and these reviewsnow will be done early in the project process cycle. Seeresponses below concerning specific recommendations in thissubject area.

1

Recognizing that MIGA has the opportu-nity to add value to EI projects by adopt-ing an explicit business strategy focused onproviding proactive environmental andsocial advice to its guarantee clients thatbrings EI projects closer to best practicesin the industry, with the goal of achievingsustainable development. This requiresstrengthening the economic and socialcomponents in MIGA’s work in addition tothe environmental component. This callsfor a more proactive, forward lookingapproach to servicing clients that goesbeyond the current practice of interveningonly when events warrant it.

Management fully recognizes that MIGA should be moreproactively involved in the social and economic aspects ofEI projects. MIGA this year has hired a senior social specialistas part of MIGA’s Environment group. A senior manager,whose responsibilities include reviewing the economic, envi-ronmental, and social aspects of MIGA projects, has also joinedthe MIGA Management team as Director and Chief Econo-mist in the newly formed Economics and Policy Group. Thisexpansion of MIGA’s in-house capacity and additional eco-nomic, social, and development impact training of staff willenable MIGA to take a more proactive approach to EI clients.Moreover, MIGA has just undergone a major reorganizationof its functional groups, to better integrate environmental,social, and economic analysis, to offer a more holisticapproach to assessment of developmental impact of prospec-tive projects, and to integrate the guarantees program and tech-nical advisory services to better serve clients. MIGA willadopt a more proactive approach to offer advice and sup-port to EI projects, especially sensitive or complex projects.The budgetary implications of providing proactive supportsubsequent to issuing coverage will need to be analyzed fur-ther, and MIGA will seek to secure support of a Trust Fundto enable a more intensive focus on such work.

1a


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(continued)Recommendation of the OEU Evaluation Management Response

Strengthening the upstream involvement ofenvironmental and social issues in MIGA’sunderwriting decision-making process. Thisentails consistently identifying applicablesafeguard policies to clients as early aspossible in the underwriting process, andusing risk assessments early on to identifywhere failures in the safeguard systemmay occur to avoid adverse impacts on theenvironment and local communities.

Management concurs that it is advantageous to strengthen theupstream involvement and consideration of these issues.Management will notify clients as early as possible about appli-cable MIGA safeguard policies. Management notes that inrecent years experienced EI investors tend to be well awareof these policies before coming to MIGA. It should be notedthat a large majority of guarantee applications arrive at MIGAwith the environmental assessment process already com-pleted and the environmental impact assessment approvedin the host country.

1b

MIGA needs to make a greater effort towork with clients to ensure compliancewith its environmental and social safe-guard policies and guidelines at the timeof Board approval.

Management concurs with the thrust of this recommendation,and the recent hiring of a social specialist will facilitate this.Management notes that its business model (and the Opera-tional Regulations) provides scope for including as conditionsof guarantee, the completion of proposed or ongoing criti-cal safeguard tasks, subject to Board approval. As has beendone since MIGA adopted its own environmental policies andprocedures in 1999, Management’s commitment is to notifythe Board of any outstanding, significant concerns that willneed to be addressed as part of contractual requirements inthe guarantee(s) for the project. The expansion of MIGA’s in-house environmental and social expertise will lead to greatereffort in monitoring subsequent compliance for projects thathave high risk during implementation.

In addition, MIGA needs to consider howits work in assessing, underwriting, andsupervising its guarantee projects can gobeyond the monitoring of compliance withsafeguards toward promoting developmenteffectiveness in its projects.

Management will offer prospective clients advisory supportto enhance the developmental impacts of projects, to gobeyond compliance with safeguards and promote sustainabledevelopment. A model of this might be work done over thepast four years by MIGA’s environmental specialist in the con-text of the Antamina Mine in Peru. The budgetary implica-tions of this proactive support will need to be analyzedfurther as Management gains additional experience in thiseffort to add value to clients.

Associating with investors committed tosustainable development and avoidingthose who are unable to provide MIGAwith timely environmental and social mon-itoring reports during implementation.

Management associates with investors that are committed tosustainable development, but also notes that this recom-mendation poses some challenges for lenders or minority part-ners. The majority of MIGA guarantees that have been issuedhave been held by lenders or minority partners, clearlydemonstrating the value of MIGA’s products to this type ofinvestor. The implications for these investors will need to becarefully assessed in the context of how their investments con-tribute to outcomes of sustainable economic and social devel-opment. Proactive measures (e.g., working through the best

1c


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efforts of the investor or lender to implement best practices,distribution of best practices, etc.) can be taken. In thisrespect, MIGA will take comfort in those lenders that havecommitted to the “Equator Principles.” Management alsonotes that great care will be needed to ensure that “South-South” investments are not discriminated against.

MIGA should satisfy itself before engagingin new EI projects that the investor under-stands its environmental and social respon-sibilities and demonstrates ownership at thetop management level to community devel-opment and mitigating environmental andsocial impacts. The project enterprise’s orga-nizational structure, policies, and stated mis-sion should be consistent with these goals.

Management agrees with this recommendation and has putin place an upstream review process for all projects, toaddress this and other issues. Management takes into accountclient reputation, and assesses indicators of the likely risk fornoncompliance during implementation and the associatedrisks of faulty implementation.

2 Policies, Procedures, and Enforcement MechanismsMIGA should strengthen its internal poli-cies and support them by appropriate pro-cedures and guidelines to staff to ensureaccountability.

See responses 2a, 2b, 2c, and 2d below.

Establishing internal requirements forMIGA’s timely engagement and system-atic monitoring to maximize environmen-tal and social benefits.

See response to recommendation 4a. Management accepts thatit could do more in this area (see response to recommendation1a). In particular, MIGA will encourage investors in EI projectsto approach MIGA at a very early stage. Management has hadinternal guidance with respect to the selection and prioritizingof site monitoring over the past four-five years. In July 2003, Man-agement implemented a more standardized approach to mon-itoring compliance and performance of all new EI projects.

2a

This will entail avoiding projects whereMIGA can not address environmental orsocial issues to improve the outcome dueto its late participation.

Management will avoid projects whose net outcomes are notanticipated to be positive.

Site visits by MIGA’s environmental andsocial experts should be required as earlyas possible in its involvement in category‘A’ and other high-risk projects to assesswhich policies are applicable. MIGA shouldnot rely exclusively on assessments andreports of non-WBG institutions.

Under the newly reorganized structure of the Agency, projectteams will normally visit the project site prior to any decisionto recommend approval of the project to the Board. MIGA’s Envi-ronmental and Social Review Procedures call for a site visit aspart of the environmental and social review and due diligenceduring the underwriting of Category A projects; these also willbe carried out as early as possible. The procedures allow forthe site visit to be carried out by qualified MIGA or IFC expertsor by a qualified consultant (whose work will be reviewed byqualified staff).


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Incorporating standards recognizing therights of individuals relating to securityarrangements at EI projects into its policiesand Operational Regulations.

In the context of the overall WBG approach to these issues,Management will evaluate and help develop best practice

2b

Making better use of MIGA’s Contracts ofGuarantee to enable the Agency to facilitatecompliance with its policies and standards.In addition to the current requirement tocomply with safeguard policies and envi-ronmental and health and safety guidelines,for future projects MIGA should ensure thatthe contracts clearly and explicitly state whichenvironmental and social safeguard policiesand guidelines apply to the project underguarantee and establish thresholds and con-ditions for timely and effective compliance.

With respect to environmental guidelines, MIGA’s practice forthe past five years has been to attach the appropriate guide-lines to the contract as conditions of coverage. With respectto safeguard policies, see response to the next part of thisrecommendation.

2c

When applicable, contracts should alsospecify requirements for implementation ofEnvironmental Management Plans (EMPs),Resettlement Plans (RPs), CommunityDevelopment Programs (CDPs), andIndigenous Peoples Plans (IPPs).

Management agrees with this recommendation. Managementsees this approach as the mechanism by which project-spe-cific requirements of the safeguard policies can be addressedby binding and legally sound contract requirements. Man-agement takes care that any contractual requirements areclearly defined in a way that failure to comply can be rea-sonably assessed in the event of arbitration arising over thedecision by MIGA to deny a claim or unilaterally cancel cov-erage due to noncompliance.

As required by the involuntary resettle-ment and Indigenous Peoples policies,MIGA should ensure that investors prepareRPs, CDPs, and IPPs before projectapproval rather than leaving them to imple-mentation.

Management agrees that these plans should be preparedbefore project approval. However, these are not static plansand require adaptation to evolving circumstances. Also, Man-agement believes its business model provides scope forincluding, as conditions of guarantee, the completion of pro-posed or ongoing critical tasks, subject to Board approval.In such cases, MIGA conducts necessary follow-up and mon-itoring to ensure compliance.

Establishing necessary mechanisms toensure systematic, timely, and regular mon-itoring and supervision of safeguard com-pliance of MIGA EI guarantee projects(e.g., MIGA should require in its Contractsof Guarantee timely environmental andsocial monitoring reports from its guaran-tee holders during the project implemen-tation phase).

Management believes it is obtaining information in timely andcost-effective ways for sensitive projects (e.g., Category A),and not levying excessive demands on guarantee holders forCategory B projects. Management believes these judgmentsare important contributions to the Agency’s efficiency andeffectiveness, as noted in paras. 49-51 of the OEU report. Nev-ertheless, in response to this recommendation, Managementhas implemented a more standardized approach to monitoringcompliance and performance of all new EI projects.

2d


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MIGA should also require sponsors to setup environmental and social project man-agement systems at a sufficiently earlystage to effectively monitor impacts, includ-ing during the construction stage.

Management identified this matter in 2000 as a lesson learnedfrom its experience with Antamina project in Peru. Manage-ment now considers this in all prospective EI projects whereit has been identified as a potentially significant concern andrisk.

MIGA should update its business model byclearly assigning the locus of responsibil-ity for better integration of economic, envi-ronmental, and social issues in MIGAoperations. This is needed in order to sup-port other departments in the achievementof these objectives and to provide guidanceto operational staff, as well as, for theanalysis and monitoring of economic, envi-ronmental, and social issues in an inte-grated manner.

See responses below to specific recommendations in this sub-ject area. MIGA has just undergone a major reorganizationthat created a unit to integrate the assessment of economic,environmental, and social issues in MIGA operations, and toapproach developmental impact assessment in a more holis-tic fashion.

3 Internal Organization

Scaling up the analysis of developmentalimpacts of prospective projects integratingnew concepts in harmony with the rest ofthe WBG. In so doing, MIGA should closelycooperate with the other members of theWBG to benefit from synergies, comple-mentarities, and expert knowledge, withthe objective of promoting a holisticapproach to EI projects.

MIGA Management supports the recommendation and hasmade significant steps over the past few years to more closelycooperate with other members of the WBG (e.g., work onCASs, sector strategy papers, the Extractive Industries Review,etc.) to benefit from synergies, complementarities, experience,and expert knowledge. Efforts will continue to be made toscale up these actions.

3a

This will also require building internalcapacity by both recruiting needed eco-nomic skills and appropriate training to cur-rent staff.

MIGA Management has built and intends to further build itsinternal capacity in these areas. Initial training of underwrit-ers has already been conducted by an IFC economist, whohas subsequently joined MIGA’s staff as senior manager(Director and Chief Economist) for country assessment, pol-icy, economics and strategy (Economics and Policy Group).

Establishing an internal system that allowsa more integrated and timely monitoringof developmental impacts of guaranteedprojects.

The recent reorganization of functional groups, and theintent to increase site visits to prospective projects, will offeropportunities to increase timely monitoring of guaranteed proj-ects in MIGA’s portfolio. The planned closer collaboration withOEU will enhance this.

3b


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Upgrading and expanding the role of envi-ronmental and social specialists and, at thesame time, building internal social skillscapacity to effectively enable the applica-tion of social safeguards in MIGA projects.

As previously noted, an experienced social specialist has beenhired as part of MIGA’s Environment group (which has nowbeen incorporated into the newly formed Economics and Pol-icy Group) to augment and build internal capacity.

3c

Formalizing the practice of ensuring thatMIGA environmental staff are involved inprojects beyond the submission of clear-ance memos, and requiring that MIGAenvironmental and social staff to provideinputs to guarantee and legal documenta-tion to incorporate any environmental andsocial concerns. In addition, MIGA under-writing staff should be required to keepenvironmental and social specialistsappraised of all relevant changes beyondBoard approval and contract signing.

Management agrees with this recommendation and is mak-ing changes in its internal procedures to enhance the time-liness and extent of its environmental and social specialistsinvolvement in these and other operational areas.

3d

4 Active ProjectsMIGA needs to review its portfolio of activeEI projects to identify potential or actualdeficiencies in the application of safeguardpolicies and to swiftly take appropriateremedial actions.

See responses below to specific recommendations in this sub-ject area. MIGA has taken and will take appropriate reme-dial actions to address deficiencies that are identified.

Identifying projects that may not be con-sistent with safeguard policies. In particu-lar, where resettlement and land acquisitionhas taken place without follow-up auditsto determine compliance with WBG poli-cies regarding resettlement, third-partyaudits should be required. Similarly, whereIndigenous Peoples have been affectedwithout the provision for Indigenous Peo-ples Plans to mitigate the impacts, spon-sors should be asked to prepare andimplement such plans. Providing briefingson potential problems with sensitive proj-ects, a system currently used by MIGA, isuseful but not sufficient. MIGA should takeappropriate remedial actions to addressexisting safeguard deficiencies in extractiveindustry projects that are still active inMIGA’s portfolio.

Management notes that since late 1997 MIGA has exten-sively and regularly identified “higher risk” projects vis-à-vissafeguard policies. This identification has been used todevelop a monitoring program of site visits, which hasincluded eight EI projects in the course of a three-yearperiod. MIGA plans to expand this effort. Also, soon after theOffice of the CAO was established in 2000, MIGA provideda list of all projects in MIGA’s portfolio that involved invol-untary resettlement or Indigenous Peoples, discussed therisks of each project with the CAO, and described the mon-itoring that MIGA directly had been carrying out or hadbeen relying on to track the projects’ compliance issues.Briefings of the CAO on sensitive projects in the pipeline andthe portfolio have been regularly provided (approximatelyquarterly) since then, as have exchanges of information withthe IFC on common projects. MIGA continues to review reg-ularly the project portfolio and identify priority projects formonitoring visits, focusing particularly on projects with higherrisk. Management will consider on a case-by-case basis theneed for a third-party audit of compliance with MIGA’s poli-

4a


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cies. Management believes that it has taken care to ensurethat, when Indigenous Peoples are at risk for significantadverse impacts, plans have been established and imple-mented to effectively mitigate those impacts.

There are no longer any remaining active reinsurance con-tracts of this type. As noted by OEU, this matter has beenaddressed in new contracts.

Making every effort to encourage consis-tency with MIGA’s safeguard policies inactive extractive industries projects withreinsurance agreements pre-dating the newMIGA practice. New agreements requirethat environmental and social standardsapplied by partners are consistent withMIGA’s own safeguard policies and guide-lines.

4b

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BackgroundThis joint evaluation was one of the major sec-tor evaluations in OED’s FY03 work program. Itwas undertaken in parallel with the EIR, anindependent, multi-stakeholder consultative exer-cise, headed by Mr. Emil Salim, former Ministerof Environment of Indonesia. The EIR focuseson the future role of the WBG in extractiveindustries ( comprising oil, gas, and minerals andmetals mining). The EIR was launched by BankManagement following the 2000 Annual Meet-ings in Prague, where a group of NGOsapproached the Management of the World Bankwith a proposal that the WBG should cease itssupport for EI projects, on the grounds thatthese projects did more harm than good indeveloping countries. Management decided toundertake a review of the WBG’s involvementin this sector, and the EIR is its response to thiscommitment.

Main Findings and RecommendationsConducted in parallel with the EIR, the joint eval-uation by the three WBG-independent operationsevaluation units assesses the effectiveness ofWBG assistance to clients in enhancing the con-tribution of EI to sustainable development. Theevaluation report’s main message is that—whilethere are differences in performance betweenWB, IFC, and MIGA projects—EI projects haveproduced positive economic and financial resultsand have contributed to sustainable developmentwhere projects meet appropriate social, envi-ronmental, and economic criteria. While themajority of WBG projects were in compliancewith its environmental and social safeguards, thedegree of compliance has been uneven. TheWBG is well positioned to assist countries inovercoming the policy, institutional, and tech-

nical challenges to transforming resource endow-ments into sustainable benefits for their people.The OED/OEG/OEU evaluation reports includerecommendations directed at the Bank, IFC,and MIGA, respectively.

The key recommendations for the WBG arethat it remain engaged in EI and that it should(i) formulate integrated strategies for the sectorand resource-abundant countries that addressthe risk that EI contributions to fiscal revenuesmay not be used effectively for developmentpriorities; (ii) not support significant sector expan-sion where the risk that EI fiscal revenues maynot be used for development priorities cannot beadequately mitigated; (iii) strengthen the imple-mentation of the existing policy framework;adapt the safeguard policies and guidance to bein line with evolving best practice; rigorouslyapply safeguard policies; and monitor, docu-ment, and report on the social, economic, andenvironmental/safety impacts of its EI projects andspecifically monitor the distributional benefits; and(iv) proactively engage stakeholders with a focuson governance, revenue management, and com-munity development; define and report on keysustainability indicators; and work toward andsupport disclosure of fiscal revenues from EI. Inits comments on the joint evaluation, the Exter-nal Advisory Panel supports the recommendationsbut believes they should be made more com-prehensive and binding.

Conclusions and Next StepsThe Committee welcomed the report’s findings,including the positive performance of the WBGportfolio in EI. It was generally satisfied with thescope and analysis presented in the OED/OEG/OEU evaluation. The Committee believed that theInterim Management Response (IMR) was appro-

ANNEX B—CHAIRMAN’S SUMMARY: COMMITTEE ON DEVELOPMENT EFFECTIVENESS (CODE)

priate and also agreed with Management’s pro-posal to formulate a comprehensive Final Man-agement Response (FMR) following completionof the external EIR (expected in December 2003).The Committee will have a more extensive sec-ond-round discussion, focusing on the recom-mendations and their policy implications, at thetime it discusses the FMR and the findings of theEIR. The Committee agreed with OED’s recom-mendation that the joint evaluation, the IMR,CODE Chairman’s Report, and the report of theExternal Advisory Panel be disclosed followingthis first-round CODE discussion.

GovernanceThe Committee emphasized the importance ofthe Bank addressing governance and revenuemanagement issues both in resource-abundantand resource-poor countries in a proactive andtransparent way. Members supported the eval-uation’s recommendation to develop a WBGstrategy for sequencing its EI interventions tak-ing governance issues into account. They alsorecognized the difficulty of implementing this andcautioned against a one-size-fits-all approach.Members considered that there are questionsabout how issues of governance, includinghuman rights, should be addressed in EI proj-ects. These questions require further attention byall parties. The WBG’s involvement in suchissues should be consistent with its mandateand comparative advantage. At the same time,the approach adopted in each country needs tohave local ownership. Management noted theimportance of governance issues and agreed toaddress them, as well as the question of CAStreatment of EI issues, in its FMR.

Revenue Generation from EI ProjectsThe Committee noted that revenue generationfrom EI projects constitutes a particular chal-lenge. Some members noted that when assessingthe impact of EI, the focus on revenues was toonarrow, and some underlined the importance ofassessing the full impact of EI projects on poverty,employment, and the environment. The Com-mittee underlined the need for the WBG to beeven more forthright in its dialogue with clientsin addressing the issue of disclosure of revenues

and noted that good models existed from theBotswana and Chad-Cameroon projects. Somemembers noted that they were not convinced bythe “resource curse” arguments presented in thejoint review and cautioned that resource-poorcountries and non-EI sectors also have governanceissues. The performance of resource-rich coun-tries, however, could be adversely affected by theso-called Dutch-disease problem. They recom-mended including examples from successfulcountries to provide a more nuanced under-standing of the relationship between the EI sec-tor and macroeconomic performance and wereof the opinion that revenue management shouldbe addressed primarily within the context ofoverall public finance management. Managementagreed that it would be key to address trans-parency and distribution issues related to EI rev-enue management in its FMR.

Safeguards and Performance of thePortfolioMembers asked for clarification of the recom-mendation that safeguard policies in extractiveindustries projects be rigorously applied and, inparticular, whether there would be a differentstandard for EI projects. The DGO respondedthat the recommendation was that existing poli-cies be implemented and that this recommen-dation should apply to all sectors, not just EI.Some members noted that the report suggestedthat there were still gaps and overlaps in safe-guard policies, and that further considerationneeds to be given to human rights issues. Man-agement noted that considerable progress hadbeen made by public and private entities inimproving environmental management of EIresources.

Report of the External Advisory PanelMembers would have liked to have seen moresubstantiation of the conclusions of theOED/OEG/OEU’s external advisory panel report.They did not agree with the advisory panel’sassessment regarding the limited value of a“rear-view approach” and reemphasized theimportance of evaluation to the Bank’s opera-tions. The DGO clarified that the advisory panelhas been used for several major evaluations and


5 2

that the role of the panel was to advise OED/OEG/OEU in the development of the review butstressed that panel comments were conveyed toCODE as written by the panel.

Scope of the Final ManagementResponseCommittee members provided their expecta-tions regarding the scope of the FMR. Theyasked that it provide a framework for WBGinvolvement in the EI sector and a clear assess-ment of the recommendations in both the eval-uation and the EIR reports. Members also notedthat the WBG should forge partnerships toaddress recommendations that touched on areasoutside of the WBG’s mandate.

CommunicationThe Committee suggested that Management con-sider a communication to the public explainingthe background and process for the two-stageresponse by Management to the OED/OEU/OEGevaluation. It also suggested that WBG Man-agement consider a workshop on the results ofthe OED/OEG/OEU study, perhaps in connec-tion with the EIR process. It was agreed that theCommittee chair would inform the Board con-cerning the discussion of the OED/OEG/OEUreview and the two-stage process by whichManagement will respond to it.

Finn Jonck, Chairman

A N N E X B — C H A I R M A N ’ S S U M M A R Y: C O M M I T T E E O N D E V E L O P M E N T E F F E C T I V E N E S S ( C O D E )

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Operations Evaluation Department:Evaluation of World Bank Experience

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1. Introduction

Background and ContextIn resource-abundant countries, the extractiveindustries should be expected to play a majorrole in support of sustainable development.They can be an important source of governmentrevenues and foreign exchange and generateemployment in otherwise economically neg-lected areas. They can attract investment forlocal and national infrastructure, and providecountries with opportunities to strengthen theirinstitutional and administrative capacities. Butthese industries also provide opportunities forrent-seeking that can hinder the conversion ofEI revenues into sustainable development. Para-doxically, over the past three decades, resource-abundant developing countries have experiencedpoor economic performance in higher propor-tion than resource-poor developing countries.The factors that lead to underperformance havebeen studied extensively but are not fully under-stood, nor is the design of appropriate strategiesfor dealing with them (see Box C1).

The World Bank helps its client countriesdevelop their mineral resources through a vari-ety of lending and nonlending activities in theextractive industries. Lending assistance is pro-vided through specific investment loans, tech-nical assistance, and structural adjustment loans.Nonlending activities consist of a variety of advi-sory and analytical activities, including sector-related economic and other studies, workshopsand conferences, and training. The focus of theBank’s involvement has evolved over fourdecades, beginning with an emphasis on pro-duction and exploration in the 1960s and 1970s,proceeding to commercialization of state enter-prises in the 1980s and private sector develop-

ment in the 1990s, and to a more inclusiveapproach involving civil society, local govern-ments, and the private sector in recent years.

The involvement of the Bank and the WBGin the extractive industries has come underincreased scrutiny in recent years from severalsections of civil society. Some are concerned thatthe extractive industries exact a heavy toll on theenvironment, with the poorest citizens paying thehighest price, and they have put the spotlight onthe treatment of local populations, especiallywhere a project involves involuntary resettle-ment.60 Others have been concerned with issuesof poor governance and failure to use rentseffectively to support sustained economic devel-opment.61 At the Annual Meetings in 2000, someNGOs asked the WBG to stop supporting theextractive industries, because, in their view, theadverse environmental, social, and governanceimpacts outweigh whatever economic and socialbenefits may accrue to the domestic economyand the poor from the extractive industries.62

In response to these concerns, the inde-pendent evaluation units of the World BankGroup63 have prepared evaluations of the extrac-tive industries activities supported by the WBG.Concurrently, WBG management launched theExtractive Industries Review64 to better under-stand stakeholder views and advise the Bank onits role in the sector. While the evaluations haveconsulted with the EIR, they constitute a sepa-rate exercise that has been conducted inde-pendently. This annex reports on the OperationsEvaluation Department evaluation of the WorldBank’s experience.

Study Objective and ProcessThis evaluation assesses the effectiveness of theWorld Bank in enhancing the sustainable devel-

ANNEX C: WORLD BANK EXPERIENCE

opment contribution of the extractive industriesand distills lessons from experience to inform theBank’s future role in the sector. The evaluationdesign is based on the widely supported viewthat the main elements of a strategy to address

the underperformance of many resource-abun-dant countries will be sound fiscal policies, rig-orous mitigation of negative environmental andsocial impacts, and good governance.65 Thus, theevaluation focuses on assessing economic effects,


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In recent decades, many resource-abundant developing countries have experienced significantly lower ratesof growth than resource-poor developing economies.a This phenomenon is accompanied by poor governanceand lack of transparency in managing EI revenues, and significant negative environmental and social impacts.This phenomenon is referred to as the “paradox of plenty.”

Economists and social scientists (among them, Auty 2000, Gelb 1988, Isham 2002, and Sachs and Warner 1995)have proposed several explanations for the phenomenon and strategies to deal with it, but no single model yetsynthesizes the interplay of institutional, social, and political factors that is behind the observed paradox.b Theemerging consensus is that the underperformance of resource-abundant developing countries, to the extent thatit is the result of institutional and policy failure, is not inevitable. Overall, while the technical requirements formanaging volatile and exhaustible revenue flows and other impacts such as the so-called Dutch disease, anddevoting them to sustainable development are well understood, creating good governance appears to be at theheart of the institutional and policy changes needed to improve fiscal management, mitigate negative environ-mental and social impacts, and maximize benefits from the development of extractive industries.

Another perspective on this debate is that “the appropriate public policy question is not should we or shouldwe not promote mining in the developing countries, but rather where should we encourage it and how can weensure that it contributes as much as possible to economic development and poverty alleviation” (Davis andTilton 2001).

a. This relationship, which is statistically significant at the 95 percent confidence level (t-statistic = –2.39), illustrates a conclusion that is widely

accepted in the literature. No claim is made that EI dependence is the sole determinant of a country’s economic growth. When non-borrower

countries are included in the regression, the slope is statistically significant (t-statistic = –2.82) and steeper (–0.038 vs. –0.032).

b. Analysis in the 1960s focused on how to manage the macroeconomic impacts of resource export income, which raised domestic prices and

made other exports less competitive internationally (so-called Dutch disease). More recent analysis emphasizes poor use of fiscal revenues

from resources.

T h e “ P a r a d o x o f P l e n t y ”B o x C 1

-15.00

-10.00

-5.00

0.00

5.00

10.00

0 20 40 60 80 100(%) Average EI Exports / Total Exports: 1990–99

GDP

Grow

th 1

990–

99 (%

)Figure C1: Slower Economic Growth with Greater EI Dependencea

Source: World Bank, World Development Indicators.

environmental and social effects, and gover-nance issues associated with the Bank’s inter-ventions in the sector.

Economic Effects • Improving the generation of fiscal revenues

from the development of extractive industries• Promoting the distribution and expenditure

of the revenues in support of sustainabledevelopment and poverty reduction

• Strengthening the framework for managingthe volatility and exhaustibility of fiscal rev-enues from extractive industries

• Ensuring the adequacy of provisions for legalentitlements and compensation for negativeimpacts

Environmental and Social Effects• Mitigating the adverse environmental impacts

and enhancing positive impacts• Mitigating the adverse social impacts, includ-

ing those associated with resettlement and clo-sure of existing facilities, and contributing tosocial objectives

Governance• Improving the institutional and policy frame-

work• Strengthening governance processes

Evaluation CriteriaAt the project level, this study evaluates theeffectiveness of Bank-supported EI projectsbased on an assessment of their outcome, sus-tainability, and institutional developmentimpact.66 At the country level, the Bank’s effec-tiveness is evaluated based on an assessment ofthe overall coherence, level of effort, and resultsof its assistance to resource-abundant countriesfor enhancing the contribution of the extractiveindustries to sustainable development.

Evaluation ProcessThe evaluation has been carried out in twophases: Phase I consisted of a review of the port-folio of World Bank extractive industry projects(referred to as the Portfolio Review hereafter),supplemented by a review of CASs and a liter-ature survey.67 The Portfolio Review covered

all 76 Bank-supported projects in the EI sectorsthat were approved since fiscal year 1993—48“closed” or completed projects and 28 “active”or ongoing projects.68 The list of projectsreviewed is in Attachment 1.

Phase II built upon the findings from PhaseI and consisted of the following:69

• Three Thematic Studies of the Bank’s EI port-folio: (i) revenue management, (ii) safeguardsimplementation, and (iii) governance (referredto hereafter as the Revenue Study, SafeguardsStudy, and Governance Study, respectively)

• Five Country Case Studies for Ecuador, Equa-torial Guinea, Ghana, Kazakhstan, and PapuaNew Guinea (PNG)70

• Seven recent PPARs• Two Surveys: (i) of task managers of active

EI and EI-related projects and country econ-omists of resource-abundant countries71 and(ii) of participants of the EIR’s Regional Stake-holder Workshops.72

Structure of the ReportFollowing the Introduction, Chapter 2 outlinesthe evolution of Bank involvement in the EI sec-tors and characterizes the EI portfolio and its per-formance. Chapter 3 reviews the economicbenefits of Bank projects. Chapter 4 assesses theextent to which the Bank’s portfolio imple-mented its environmental and social safeguardpolicies and addressed issues of environmentalcapacity-building and mine closure. Chapter 5discusses the Bank’s efforts to improve the gen-eration, management, and utilization of fiscal rev-enues from resource extraction. Chapter 6reviews the Bank’s approach to governanceissues in EI-dependent countries. Chapter 7presents the recommendations.

2. The World Bank’s ExtractiveIndustries Role and Portfolio

The World Bank’s role in extractive industrieshas evolved from mainly supporting explo-ration and production activities (1960s to theearly 1980s), to sector policy reform and com-mercialization of state-owned enterprises(1980s), to a greater emphasis on capacity-building and private sector development (1990s).Also in the 1990s, the Bank began to help tran-

A N N E X C — W O R L D B A N K E X P E R I E N C E

5 9

sition economies maintain production levels,rehabilitate or close uneconomical facilities,and attract foreign equity to their extractiveindustries sectors. Since the mid-1990s, theBank’s approach to extractive industries hasbeen evolving toward addressing social, envi-ronmental, mine closure, revenue management,and sustainable development issues in a moreholistic manner. It also has increased its col-laboration with civil society, local governments,and the private sector.

The Bank’s EI portfolio from the 1980s to thepresent illustrates the most recent shifts in its role.Between the 1980s and the 1990s, the Bank’soverall lending to the EI sector decreased mar-ginally in absolute terms and significantly rela-tive to the Bank’s overall lending. Lending foroil and gas fell considerably, while lending formining rose sharply. Over the same period, thequality of EI project outcomes has been betterthan that of the Bank’s projects as a whole,while the mining sector improved over the oiland gas sector during the 1990s.

The Bank’s Evolving Policy and Role in theExtractive Industries

1960s to the early 1980s: The Bank assistedpublic sector investment efforts to enhance pro-ductive capacity in both the oil and gas sectorand the mining sector. This trend accelerated inthe oil and gas sector when the Bank establishedan Energy Department, in part to support lend-ing for oil and gas operations after the secondoil shock of 1979.The Bank established a pro-gram to attract private financing for oil and gasexploration in countries that lacked resources todevelop national petroleum industries.

1980s: The Bank shifted its focus toward sup-porting sector policy reform and the commer-cialization of state-owned enterprises. Later in thedecade, the Bank pursued sector reform and lib-eralization and developed a framework for pri-vate investment, leading to active promotion ofprivate investment, such as for developing explo-ration data. In 1984, the Bank issued policyguidelines for oil and gas (Operational ManualStatement 3.82).73

The guidelines under OMS 3.82 provided forthe Bank to assist borrower countries to (1)design and implement effective energy policies;(2) design and implement effective investmentplans and sound policies for exploration, devel-opment, and use of petroleum; (3) mobilize thedomestic and external financial resourcesrequired; and (4) develop local capacity to con-duct petroleum operations and to provide petro-leum service efficiently and competitively. Theguidelines also suggested that the Bank promoteexploration only where no significant explo-ration was taking place.

Early 1990s: In keeping with OMS 3.82, theBank supported private provision of services inthe extractive industries and encouraged newdirect private investment. This trend was strength-ened as Central and Eastern European countriesbegan their transition to a market economy in theearly 1990s. The Bank supported this shift by pro-viding technical assistance and advisory servicesfor the modification of legislative, institutional, andtaxation regimes to accommodate and attract for-eign equity investment in the extractive industries.The Bank’s attention shifted more explicitly to cre-ating an enabling environment for the private sec-tor (thus changing the role of the governmentfrom owner-operator to regulator), privatization,mine closure, and industry restructuring as out-lined in the 1992 Africa Technical DepartmentPaper, Strategy for African Mining.73 Thus, ascountries moved from public to private owner-ship and extractive resource exploitation, theBank moved from direct lending for production-related projects to supporting initiatives thatwould bolster private sector growth.

The late 1980s and early 1990s also witnessedrising public concern about environmental degra-dation and social inequity. A Bank OperationalDirective (OD) on environmental assessment(OD 4.01) was issued in 1989 and, revised as amore comprehensive policy for environmentaland social impacts, adopted in 1991. In 1999, itwas converted to Operational Policy (OP) 4.01,which covers all projects except for structuraladjustment loans.

OP 4.01 is particularly important for the EI sec-tors because of their potential for negative envi-


6 0

ronmental and social impacts. The objective ofthe policy is to ensure that projects are envi-ronmentally and socially sustainable by pre-venting, mitigating, or compensating for potentialadverse impacts. Under the policy, the envi-ronmental assessment of projects should take intoaccount the natural environment (air, water, andland), human health and safety, social aspects(involuntary settlement, indigenous peoples,and cultural property), and transboundary andglobal environmental impacts.

The formulation and implementation of safe-guard policies, which have been widely acceptedand emulated outside the Bank, illustrate howthe Bank can play a convening role and haveinfluence beyond the implementation of projects(see Box C2).

Mid- and Late 1990s: The mid-1990s saw theBank take a more inclusive approach to its devel-opmental operations and begin to emphasizethe need for external partnerships connectinggovernment, the private sector, and civil societyin the design and implementation of sociallyand environmentally sensitive projects. In the lat-ter part of the 1990s, there was an increased focuson reform and deregulation programs in an effortto further good governance as a central elementin the improvement of country economic per-formance. In 1998, growing management concernabout environmental and social impacts led tothe creation of the Bank’s safeguards policyframework, which combined the environmentalassessment policy with nine other “do no harm”policies.74 This was followed by the establishment


6 1

The Bank, often in collaboration with other organiza-tions, has helped bring together various stakeholdersin the extractive industries sectors to address issuesat the national, regional, and global levels. This con-vening power is prized because the Bank has accessto all stakeholders, broad development experience,and ongoing involvement with project investments andtechnical assistance in the sector.

In the oil and gas sector, the Bank has collabo-rated with the government of Norway in a major GlobalGas Flaring Reduction Initiative,a which was the sub-ject of a 2002 conference in Oslo that hosted repre-sentatives of industry, government, the researchcommunity, and NGOs. In September 2002, an interna-tional training program, Good Governance in a GlobalEconomy—Oil and Gas Policy and Regulation, held inCalgary, Canada, in collaboration with the CanadianPetroleum Institute and the IFC, again brought togethersenior government and industry representatives.

In the mining sector, the Bank and the governmentof Papua New Guinea co-sponsored the September2002 Conference on Mining and the Community forAsian and Pacific Nations in Madang. The event, inwhich other Asian mining countries took part, is widely

seen as having had an important impact on the aware-ness of social and community issues in Papua NewGuinea and in the region. A similar event, Mining andthe Community, was held for Latin American nations inQuito, Ecuador, in 1998. In May 1995, in Washington, D.C.,the Bank hosted an International Roundtable on Arti-sanal Mining that brought together representativesfrom different parts of the world. In March 2001, theBank, along with other multilateral institutions,launched the Communities and Small-Scale MiningInitiativeb to improve coordination among miners, com-munities, donors, governments, and other stakeholders.Another significant event was a roundtable focused onforeign investment and mining development in west-ern China. The October 2000 conference, AttractingPrivate Mining Investment, was held in Urumqi, China,and was organized jointly with the Association of SouthEast Asian Nations (ASEAN) Federation of Mining Asso-ciations, the Malaysian Chamber of Mines, and theMetal Mining Agency of Japan.

a. For details, see http://www.worldbank.org/ogmc/global_gas.htm.

b. For details, see www.casmsite.org.

Source: World Bank.

C h a n n e l i n g t h e B a n k ’ s C o n v e n i n gP o w e r f o r S u s t a i n a b l e D e v e l o p m e n t o f t h e E x t r a c t i v e I n d u s t r i e s S e c t o r s

B o x C 2

of an enhanced safeguards compliance systemin 1999, a concerted effort to implement thepolicies, which previously had been more flex-ibly interpreted as “guidelines.”

New priorities began to emerge for sustain-able mining and regional and local economicdevelopment through private investment in min-ing, and community development. The evolu-tion in the Bank’s mining strategy was presentedin two World Bank Technical Papers: WorldBank Group Assistance for Minerals Sector Devel-opment and Reform in Member Countries75 andA Mining Strategy for Latin America and theCaribbean.76 The new priorities were docu-mented in various partnerships, publications,conferences, and workshops on communityissues, mine closure, revenue management, andsustainable development supported by the WorldBank Mining Division between 1997 and 2002.

In the late 1990s, it became clear that despiteefforts to coordinate over the years, IFC and theBank had not capitalized enough on synergiesbetween transactions and policy work. To inte-grate WBG activities and advisory work in theextractive industries more closely, the oil and gasunit and the mining unit of the Bank and IFCwere reconstituted as joint Bank-IFC GlobalProduct Groups.

Energy Business Renewal Strategy, 2001:The most recent rethinking of the Bank’s rolein the energy sector is reflected in the EnergyBusiness Renewal Strategy (EBRS), which waspresented to the Board in 2001. The EBRS rec-ognizes a declining demand for traditionalIBRD/IDA products in the energy sector andshifts the focus to the WBG’s priorities—includ-ing poverty alleviation—and comparative advan-tages: addressing poverty, macro-governance,and the environment; supporting reform andregulation to help support competitive energymarkets; facilitating the transfer of knowledgeamong developing countries; and catalyzinginvestment in noninvestment-rated countries.The EBRS aims to facilitate access to modernfuels, create objective and transparent regula-tory mechanisms, and catalyze private invest-ments. It continues the Bank’s emphasis onclosing loss-making mines and oil refineries; pro-moting clean transport fuels and switching fromcoal to gas; and facilitating environmentallysustainable exploration, production, and distri-bution of oil, gas, and coal. Reducing gas flar-ing and facilitating carbon trading and jointinvestments to reduce greenhouse gas (GHG)emissions are also priorities under the newstrategy (see Box C3).


6 2

It is increasingly recognized that the adverse effectsof climate change, especially through burning of fos-sil fuels, can produce changes in precipitation pat-terns and rise in sea levels that can pose majordevelopmental challenges for developing nations.Hence, the WBG supports its client countries in (a)mitigating the adverse impacts of climate change, (b)reducing vulnerability and improving adaptation, and(c) building capacity for both a and b. Successful sup-port requires policy dialogue, integrated planning andgeneration, and dissemination of knowledge backed byinvestment lending.

The WBG’s approach to mitigating the effects ofand vulnerability to climate change is laid out in Fuel

for Thought (World Bank 2000), which highlights appro-priate policy for improving energy efficiency and theuse of clean technologies and fuels. Further, the WBGseeks to leverage external resources, particularly theGlobal Environment Facility (GEF), as well as newinstruments, such as the Prototype Carbon Fund, Com-munity Development Carbon Fund, Bio-Carbon Fund, andprivate sector resources within the framework of theKyoto Protocol. In terms of capacity-building, the WBGhelps clients through methodological, technical, andinvestment work to develop market mechanisms, sec-toral and national plans, and international cooperation.

Source: World Bank.

C l i m a t e C h a n g e : T h e W B G ’ s A p p r o a c h

B o x C 3

Overview of the 1980s and 1990s Projects

Lending for oil and gas decreased while min-ing increased: Between the 1980s and 1990s, theoverall amount of Bank lending to the EI sectorsdeclined by 6 percent (Figure C2). However, this

overall decline masks a difference between thetwo sectors: lending for the oil and gas sector fellby 34 percent, while for the mining sector it roseby 63 percent. During the same period, the EI sec-tors’ share of the Bank’s entire portfolio declinedfrom 4 percent of lending to 2 percent.


6 3

I n c r e a s e d L e n d i n g t o M i n i n g H a s B e e n M o r e T h a n O f f s e t b y D e c r e a s e d L e n d i n g t o O i l a n d G a s

F i g u r e C 2

0 2 4 6 8

Total EI Oil and Gas Mining

US$

billi

on 1980s

1990s

Q u a l i t y o f W B L e n d i n g f o r E I P r o j e c t s

F i g u r e C 3

0

20

40

60

80

100


1980s 1990s

Perc

enta

ge o

f pro

ject

s m

oder

atel

y sa

tisfa

ctor

y or

bet

ter

I n s t i t u t i o n a l D e v e l o p m e n t I m p a c to f E I P r o j e c t s

F i g u r e C 4

0

20

40

60

80

100


1980s 1990s

Perc

enta

ge o

f pro

ject

s s

ubst

antia

l or b

ette

r

Outcome: Overall EI project outcome77 ratingswere higher than the Bank-wide average duringthe 1980s and 1990s, though they fell somewhatfor oil and gas and rose sharply for mining proj-ects. EI projects with outcomes rated “moderatelysatisfactory” or better rose slightly (77 percentto 78 percent). The percentage dropped for oiland gas projects (84 percent to 71 percent) androse significantly for mining projects (55 percentto 86 percent). Taken together, these outcomesare better than for the Bank as a whole, for whichthe comparable ratios rose from 65 percent inthe 1980s to 75 percent in the 1990s.

Institutional Development Impact: The insti-tutional development impact78 for all EI projectsimproved between the 1980s and 1990s, declinedsomewhat for oil and gas, and rose appreciablyfor mining projects. The institutional develop-ment impact of all EI projects—in terms of per-centage of projects that were rated “substantial”or better—rose from 38 percent to 50 percentbetween the 1980s79 and 1990s. The oil and gassector saw moderate decline (43 percent to 38percent), while the mining sector showed con-siderable improvement (24 percent to 64 percent)over the same period. Taken together, theseratings are higher than the average for all Bankprojects, which rose from 30 percent in the1980s to 43 percent in the 1990s.

Sustainability: The sustainability80 of projectbenefits saw very large gains in both the oil andgas sector and the mining sector. The sustain-ability of outcomes—in terms of the percentage

of projects for which the rating was “likely” orbetter—improved from 39 percent to 72 percentfor all EI projects between the 1980s and 1990swith gains in both oil and gas (44 percent to 75percent) and mining (28 percent to 68 percent).Overall, these ratings improved much faster thanthe Bank-wide average, which rose from 44 per-cent in the 1980s to 56 percent in the 1990s.

Highlights of the Portfolio of Projects underReview: FY93–FY02The Portfolio Review covered all 76 EI proj-ects81 approved during the fiscal period1993–2002. This portfolio consists of 48 com-pleted projects (oil and gas: 24; mining: 24) and28 active projects (oil and gas: 15; mining: 13).This section describes the main characteristics ofthis portfolio.82

The transitional economies of the Europeand Central Asia Region accounted for thelargest share of lending: For completed proj-ects in both the oil and gas sector and the min-ing sector, the Europe and Central Asia (ECA)Region received the major share of lending(Figure C6). The East Asia and Pacific (EAP)Region accounted for the next largest share ofoil and gas lending, and Latin America and theCaribbean (LAC) had the next largest share ofmining lending.

The most common project objectivesreflected some of the similarities betweenthe two sectors: Analysis of the project objec-tives (each project could have more than one)


6 4

S u s t a i n a b i l i t y o f E I P r o j e c t O u t c o m e s

F i g u r e C 5

0 20 40 60 80

100


1980s 1990s

Perc

enta

ge o

f pro

ject

slik

ely

or b

ette

r

identified a few similarities and many differ-ences between the two sectors. Among the sim-ilarities, for both oil and gas projects and miningprojects, institutional development, private sec-tor development (PSD), and environmental man-agement were among the leading objectives.

But the remaining objectives tended to dif-fer across the two sectors and between com-pleted (older) and ongoing (more recent)projects. For completed oil and gas projects,the next most frequent objectives includedpipeline construction, policy reform, produc-tion, and social objectives, in descending order.For active projects, the other objectives were pro-duction, pipeline construction, and social issues,in descending order. For completed mining proj-ects, other objectives were rehabilitation/clo-sure of mines, social issues, production, andASM. For active mining projects, the other objec-tives were social issues and policy reform—production did not figure at all.

The importance of the environmental assess-ment policy is apparent in the high per-centage of projects in categories A and B:Among oil and gas projects, approximately 33percent of all active and completed projectscame under Category ‘A’83 of the Bank’s envi-ronmental assessment policy (OD/OP 4.01). ForCategory ‘B,’ the corresponding percentages

were 25 and 13. For mining projects, only 20 per-cent of the completed projects and none of theactive projects came under Category ‘A.’ In addi-tion, 50 percent of completed and 30 percent ofactive mining projects came under Category ‘B.’

Project performance ratings have been bet-ter than average: The Bank’s portfolio of com-pleted EI projects generally has performed wellin all three categories used by OED: outcome,sustainability, and institutional developmentimpact.84 Of the completed oil and gas projects,outcome was rated “moderately satisfactory” orbetter for 71 percent, sustainability was rated“likely” or better for 73 percent, and institu-tional development impact was rated “substan-tial” or better for 37 percent. Of the completedmining projects, outcome was rated “moder-ately satisfactory” or better for 86 percent, sus-tainability was rated “likely” or better for 68percent, and institutional development impactwas rated “substantial” or better for 64 percent.

The portfolio of active projects also has beenperforming well according to supervision reports.All active oil and gas projects had developmentoutcome ratings of “satisfactory” or better, andno adverse issues were reported regarding com-pliance with the Bank’s safeguard policies. Allactive mining projects had ongoing develop-ment outcome ratings of “satisfactory” or better,and only one project reported less than satis-


6 5

T h e E u r o p e a n d C e n t r a l A s i aR e g i o n A c c o u n t e d f o r t h e L a r g e s tS h a r e o f L e n d i n g i n B o t h S e c t o r s

F i g u r e C 6

Percentage of Actual Lending FY1993–02: Oil and Gas

5

24

53

0

145

0

10

20

30

40

50

60

AFR EAP ECA MNA LAC SAS

Percentage of Actual Lending FY1993–02: Mining

92

66

0

12 9

010203040506070

AFR EAP ECA MNA LAC SAS

factory compliance with a provision under theBank’s safeguards policies. It should be noted,however, that OED has not validated these self-assessments of active projects.

3. Economic Benefits from Bank ProjectsExtractive industries have the potential to makea major contribution to the development ofresource-abundant countries by transformingtheir mineral wealth into sustainable develop-ment. The rationale for Bank projects is basedon the expectation that they will support thecountry’s development goals, and this expecta-tion is underpinned by an economic appraisalintended to ensure that the objectives have beenchosen appropriately and that the project is theleast-cost way of attaining the stated objectives.85

The discounted present value (NPV)of the netbenefits, the economic rate of return (ERR), or,where the benefits cannot be measured in mon-etary terms, a cost-effectiveness criterion arethe indicators of choice for making this deter-mination. Following completion of the project,an ex-post recalculation of the economic rate ofreturn or the cost-effectiveness criterion is usedto determine whether the project produced theexpected benefits in an efficient manner.86 Thischapter discusses the available information onthe extent and sources of the economic bene-fits drawing from the Portfolio Review of theBank’s extractive industries projects.

Reporting of Economic BenefitsThe Implementation Completion Reports (ICRs)are an integral part of the Bank’s knowledgemanagement and accountability reporting sys-tem and are intended to document and evalu-ate the outcomes and impacts of the project,including their economic benefits. As summa-rized in Table C1, the Portfolio Review foundthat, out of the 44 completed projects, ICRs of17 (mostly investment loans) had re-estimates ofERRs and NPVs, and an additional 13 ICRs(mostly of technical assistance and sectoraladjustment loans) featured at least some ex-post quantification and valuation of the bene-fits.87 This finding is consistent with the relativesimplicity of attributing and quantifying the costsand benefits of investment projects comparedwith other types of projects. Nevertheless, giventhe issues that have been raised about the eco-nomic contribution of extractive industries proj-ects, a greater effort to document and analyzeeconomic benefits would be desirable, includ-ing a cost-effectiveness assessment where an ERRis not feasible, in line with the Guidelines forPreparing ICRs.88

For the Specific Investment Loans (SILs), thebenefits derived mainly from increased pro-duction, increased private investment, andimproved productivity. Out of 20 SILs89 in theportfolio, 18 had an ERR or NPV estimated atappraisal, of which 16 were re-estimated at com-


6 6

ERR/NPV/ ERR/NPV/least-cost least-cost Monetary Monetary analysis analysis Quantification value value

Instrument conducted reported of benefits Quantification of benefits provided (number)a at appraisal in ICR feasible? done in ICR? feasible? in ICR?

Yes/No/Partly Yes/No/Partly Yes/No/Partly Yes/No/Partly

SILs (20) 18 16 20/–/– 17/–/3 20/–/– 15/2/3

TALs (15) 3b 1 4/4/7 3/9/3 6/2/7 3/8/4

SECALs (9) – – 7/1/1 5/3/1 6/1/2 6/3/–

Total (44) 21 17 31/5/8 25/13/7 32/3/9 24/13/7a. SILs include one emergency rehabilitation loan (ERL); technical assistance loans (TALs) include one GEF project; Sectoral Adjustment Loans (SECALs) include

one rehabilitation investment loan.

b. The Equatorial Guinea Petroleum technical assistance (TA) project estimated a financial rate of return (FRR) and the Azerbaijan Petroleum TA.

E c o n o m i c E v a l u a t i o n i n I m p l e m e n t a t i o n C o m p l e t i o n R e p o r t s

T a b l e C 1

pletion. While it is comforting to note that, in 15out of these 16 cases, the returns were greaterthan 10 percent,90 it would have been feasibleto have reported ex-post analyses for three ofthe remaining SILs.91

The 15 Technical Assistance Loans (TALs)92 inthe portfolio were associated with quantifiableand valuable benefits, such as increased pri-vate investment, increased gas sales, increasedoil and minerals production, increased fiscalrevenues, improved environmental conditions,and improved sector efficiency, as well as ben-efits that are more difficult to quantify, such asimproved legal and regulatory frameworks andinstitutions, and preparatory studies for futureprojects. Of the 15 TALs, one had a re-estimatedERR93 and 7 ICRs provided at least some indi-cation of the monetary value of the benefits.Because some benefits were amenable to mon-etary valuation in 12 of these projects, morecould have been done to document their cost-effectiveness and highlight their economic con-tributions.

All nine completed Sectoral Adjustment Loans(SECALs)94 were in the mining sector and wereassociated with increased or decreased pro-duction of minerals (coal, in most cases), reducedgovernment subsidies, cleaner environment,increased operational efficiency, improved prof-itability, and increased private investment. Six ofthe ICRs provide some data on these achieve-ments, from which a judgment can be madeabout the efficiency of the projects. The otherthree ICRs did not provide any quantitativeinformation on results.

Economic Benefits from Private SectorDevelopmentWorld Bank efforts to promote privatization andboost private investment had largely positiveoutcomes. Eleven out of 16 completed projectswith PSD components yielded or promised toyield significant benefits by laying the ground-work for improving the efficiency of publicenterprises through commercialization and pri-vatization, and increasing EI activity by attract-ing private investment.

Privatization was politically complex in allcases. Wherever progress was made, it was

largely due to strong government commitment,supplemented by flexibility on part of the Bank.This is evident in Bolivia’s Regulatory Reform andCapitalization and Hydrocarbon Sector Reformprojects, as well as in Peru’s Privatization Adjust-ment Loan and Energy/Mining projects. Privati-zation of coal mines in Russia was a highlycomplex task carried out in a difficult politicaland industrial relations environment, and itmight not have been possible without strong gov-ernment commitment and efforts at consultingimportant stakeholders, together with Bank flex-ibility in the design and implementation of theprojects. On the other hand, inadequate gov-ernment commitment and political consensus,apart from issues of evolving sector strategyand commercial viability, appear to be behindthe limited progress of privatization in Poland’sHard Coal SECAL I and II projects. The slowprogress in privatizing Zambia ConsolidatedCopper Mines can be attributed largely to unfa-vorable market conditions for copper and polit-ical interference in the process.

A particularly effective form of PSD inter-vention was attracting increased private invest-ment—such as in the mining sectors of Guineaand Tanzania—through relatively low-cost TAinterventions (see Box C4).

Economic Benefits from Mine Closure orRehabilitationMore than 60 percent of completed mining proj-ects, including six completed SECALs in Poland,Russia, and Ukraine, involved large-scale reha-bilitation or closure of uneconomical coal mines.On a smaller scale, 15 small copper mines and66 chrome mines were closed or privatized inAlbania. The economic benefits from such proj-ects derive mainly from the reduced burden ongovernment budgets (see Box C5).

Rehabilitation and closure of coal mines inRussia were major tasks, as already noted, butgovernment commitment, stakeholder consul-tation, and Bank flexibility contributed to the pos-itive results. In Ukraine, favorable results wereobtained under less difficult conditions. Thestrategy of approaching Ukraine’s rehabilita-tion/closure process cautiously, starting withthe smaller-scale Ukraine Coal Pilot project and


6 7

leveraging its success for the larger UkraineSECAL, appears to have worked well. A notablefeature of Poland’s Hard Coal SECALs I and IIwas that they succeeded in reducing uneco-nomical production levels and excess employ-ment while keeping a tense situation fromexploding.

However, in all three countries, attempts togenerate alternative employment in other sec-

tors for laid-off workers remained an impor-tant issue, although there was progress inresolving the employment problem in Russiaas the economy began to recover from thecrisis of 1998. This may imply that adequateattention to the demanding task of generatingalternative employment should be the focus ofprojects outside of the extractive industriessectors.


6 8

The Bank’s efforts at commercialization and privatiza-tion and at improving the climate for private investmentyielded largely positive returns in terms of increasedinvestments and exports and reduced burden on statebudgets. These efforts generally involved TALs thatwere smaller than investment and adjustment loans.The positive results were associated with strong gov-ernment commitment, the prior establishment of anappropriate legal and regulatory framework, and flex-ibility on the part of the Bank. However, even whereearnest efforts were made, volatile commodity pricesand macroeconomic crises affected some of the out-comes adversely.

Armed with a strong mandate for privatization,Bolivia moved ahead quickly with the sale of threestate-owned hydrocarbon enterprises that yieldedUS$828 million and improved prospects for investmentof up to US$2 billion during 1998–2000. Strong govern-ment commitment also was evident in Peru, where thehydrocarbon sector was opened to private investment.Despite strong political and labor opposition, Russiaachieved a major feat by privatizing 77 percent of coalassets by 2001, helping decrease subsidies by 40 per-cent.

Tanzania’s and Guinea’s success in attracting highlevels of private investment to their mining sectorswas aided by a relatively integrated approach to devel-oping an enabling legal, regulatory, and fiscal frame-work. Tanzania’s mineral exports grew from US$15million to US$312 million during 1992–2001, while inGuinea, mineral exports rose from US$400 million toUS$500 during 1996–2001.

Argentina’s Mining Development TALs made a goodbeginning in improving the institutional framework for

privatization, but the economic crisis in 2002 has dimin-ished their immediate impact. Little headway wasmade in Zambia on privatizing the dominant ZambiaConsolidated Copper Mines because of a volatile mar-ket for copper and stakeholder disagreements. Theoverall efficacy of the World Bank’s interventions inGhana’s mining sector during the 1990s is judged to besubstantial because of the success in attracting privatecapital and strengthening sector management capa-bilities, particularly of the Minerals Commission.

In Ecuador, a new Mining Law passed in 1991 andamended in 2000 included much-improved provisionsto attract private sector investment and helped developa regulatory framework close to best practice. But thecountry’s political instability and unreliable judicial sys-tem acted as disincentives, which were compoundedby the negative effect of falling international com-modity prices.

Finally, Kazakhstan’s Petroleum TA project wassuccessful in improving the capacity of key petroleumsector agencies to attract foreign investment. Itfinanced the continuation of technical, financial, andlegal advisory services that were critical to the con-clusion of two major Caspian Sea projects. On the neg-ative side, the effort to privatize Uzenmunaigas, thecountry’s largest state-owned petroleum enterpriseand a centerpiece of the Bank-funded TA program, didnot make much headway. On the other hand, the Bankalso helped reform in a broad range of sector policyissues covering petroleum legislation and taxation,pricing, and privatization of retail petroleum trade.

Source: World Bank.

E x p e r i e n c e w i t h P r i v a t e S e c t o rD e v e l o p m e n t i n t h e E x t r a c t i v eI n d u s t r i e s S e c t o r s

B o x C 4

Economic Benefits from EnvironmentalCleanup and MitigationMost of the projects in the EI portfolio had envi-ronmental components of varying magnitudeand importance. Some dealt with cleanup ofexisting environmental conditions, and otherswere concerned with mitigating the environ-mental effects of new operations under the proj-ect or related projects. Only a few projects—fivecompleted and three active—focused mainlyon dealing with existing or ongoing environ-mental problems. These projects were expectedto yield economic benefits through healthierliving conditions, greater resources for produc-tive activities, and improved productivity ofresources, through reclamation of land andimprovement to air, water, and soil quality.

Five completed projects, in Brazil, Ecuador,India, Russia, and Thailand, focused on techni-cal assistance for addressing environmentalimpacts of past or ongoing extractive industriesactivities. While the outcome was broadly sat-isfactory in India (strategy for managing coalmine fires in Jharia coalfields), Brazil (reclaim-ing degraded mining areas and constructing tail-

ings ponds through the Environmental Conser-vation and Rehabilitation project), and Thailand(converting to unleaded fuel production in aBangchak refinery), in the case of the recentlycompleted Coal Sector Environmental and SocialMitigation project in India, an Inspection Panelinvestigation found it to be out of compliancewith some safeguards provisions.

Notwithstanding the lack of compliance, theproject resulted in considerable improvement inCoal India’s approach to social and environ-mental mitigation. The Oil Spill Contingencyproject for the western Indian Ocean islands ofComoros, Madagascar, Mauritius, and Seychellesseeks to build their capacity to comply withrelated international conventions and protocols.

Among the projects that were not focusedexclusively on environmental issues but con-tained significant environmental components,the Bolivia-Brazil Gas Pipeline project containedprovisions for stakeholder consultation and com-munity participation that gave credibility to envi-ronmental initiatives and improved their chancesof success. Bolivia-Brazil’s experience stood incontrast to the Ecuador and India projects in this


6 9

The economic benefits of closing uneconomical minesderive mainly from reducing the burden on govern-ment budgets through lowered or eliminated subsi-dies, reduced waste of resources, the freeing up oflabor that can be used more productively elsewhere,and improved climate for privatization and competitioncontributing to overall efficiency.

The experience was positive in Poland, Russia,and Ukraine. The Poland Hard Coal SECAL I and II proj-ects reduced excess coal production capacity by 23percent to 105 million tons per year and employment by36 percent to 155,000 between 1997/98 and year-end2001. In Poland, the coal industry’s financial perform-ance improved from a loss of US$1.0 billion in 1998 toa profit of US$43.3 million by 2001 (at an exchange rateof US$1 = 0.2545 PLN). Under Ukraine’s Coal Pilot andCoal SECAL projects, more than 25 percent of Ukraine’scoal mines were closed, and the efficiency of the

remaining mines was increased 85 percent between1998 and 2000. The coal production workforce wasreduced by 24 percent between 1995 and 1999, whileproduction dropped by only 3 percent. Subsidies forloss-making coal mines were halved, from US$500 mil-lion in 1996 to US$250 million in 1999.

As of 2001, Russia’s Coal SECAL I and II led to theclosure of the 183 most uneconomical mines, of which158 completed substantive closure works. As a resultof these projects, budgetary subsidies for the coal sec-tor were reduced from 1.05 percent of gross domesticproduct (GDP) in 1993 to 0.07 percent of GDP by 2001.

In both Russia and Ukraine, Bank support not onlyhelped reduce subsidies, but also shifted the compo-sition of subsidies away from operating expensestoward social mitigation, mine closure, and environ-mental cleanup.Source: World Bank.

E c o n o m i c B e n e f i t s o f R e h a b i l i t a t i o n o r C l o s u r e o f U n e c o n o m i c a l M i n e s

B o x C 5

respect. Another feature worth noting is thatwhile many projects in the portfolio containedsignificant environmental components, almostnone of them explicitly factored the environ-mental benefits into their economic cost-bene-fit analysis. A notable exception wasBolivia-Brazil’s pipeline project, which appliedan environmental premium for the displace-ment of more polluting fuels by natural gas inits economic analysis.

Economic Benefits of Artisanal and Small-Scale MiningThe rationale for promoting ASM needs to reston its potential for alleviating poverty by creat-ing and maintaining employment in a sociallyand environmentally acceptable manner. Amongthe Bank projects reviewed in this study, ASMissues were a significant component in threecompleted projects in Ecuador, Ghana, and Tan-zania and four active projects in Burkina Faso,Madagascar, Mozambique, and Zambia. Themain approaches involve improving the legalframework/formalization of ASM activities,increasing tax revenues (Ecuador, Madagascar,Mozambique, Tanzania), improving productionmethods and technology and providing exten-sion services (Burkina Faso, Ecuador, Ghana,Mozambique, Tanzania), improving environ-mental awareness and management (BurkinaFaso, Ecuador, Ghana, Madagascar, Tanzania),and improving the capacity of government todeal with ASM (Burkina Faso, Ecuador, Ghana,Madagascar, Tanzania, Zambia). Based on resultsto date, the main lesson is to recognize ASM asa poverty-driven issue and to move from usinga narrow technical approach to a more integratedapproach—ensuring an appropriate legal and fis-cal framework, involving ASM communities indecisionmaking, and considering environmen-tal and social aspects of ASM at the projectdesign stage (see Box C6).

ConclusionsOverall, 73 percent of the ICRs of completedextractive industries projects contained at leastsome ex-post quantification and valuation ofthe benefits, but only 39 percent had a re-esti-mated ERR or NPV, and the rest do not discuss

the cost effectiveness of achieving the objec-tives.95 Based on an evaluation of the feasibil-ity of additional economic analysis, this sharecould have been raised to about 89 percent.While the project’s economic returns constituteonly an intermediate outcome in the transfor-mation of mineral wealth into sustainable devel-opment, adequate reporting and validation ofproject benefits, in line with Bank policy, con-stitutes the basis for most further evaluation andshould be an essential component in the Bank’saccountability reporting. Some improvement inthis area also would help the Bank address theperception that the economic benefits of the proj-ects may have been outweighed by adverseenvironmental and social impacts.

Aside from the reporting issue, the main les-son that emerges is that projects with satisfac-tory outcome ratings tended to be associated withgreater government commitment to project objec-tives and adequate infrastructure (India CoalSector Rehabilitation, Russia I and II Oil SectorRehabilitation, and Thailand Gas TransmissionI and II), favorable commodity prices (Russia Iand II Oil Sector Rehabilitation), and a highlevel of stakeholder involvement (Bolivia-Brazilpipeline and Bosnia-Herzegovina’s Natural GasSystem Reconstruction projects). The less suc-cessful projects appeared to be affected by poorgovernment commitment (Ethiopia’s Calub GasDevelopment project) and unfavorable eco-nomic conditions or commodity prices (Korea’sPetroleum Distribution and Sector Improvementproject and Mongolia’s Coal project). These les-sons are broadly consistent with the Bank’sexperience in other sectors.

4. Environmental and Social Impacts andTheir Mitigation

Addressing Environmental and Social ImpactsThe potential benefits from the extractive indus-tries often have been undermined by adverseenvironmental and social impacts. Negative envi-ronmental impacts from oil and gas activities canresult from leakages and spills, flaring of excessgas, and the opening of access to new areaswhere settlement and deforestation can occur.Mining activities can be associated with defor-


7 0

estation, soil erosion, contamination of surfaceand groundwater from toxic wastes, and minetailings and coal mine fires. In addition to thedamage from ongoing projects, closed and aban-doned projects have often left a legacy of cleanupcosts that no one may be willing or able topay.96

Negative social impacts can arise from reset-tling local populations, including indigenouspeoples, or from disrupting traditional lifestylesto make way for extractive industries. Othersocial impacts can follow after resources areexhausted or have become uneconomical toextract, resulting in unemployment and scaled-down or abandoned infrastructure. On thewhole, social impacts tend to be more promi-nent for mining than oil and gas activities, giventhe higher employment generated at the locallevel and greater exposure to environmental,health, and safety hazards.

To mitigate the adverse environmental andsocial impacts of the projects it supports, theWorld Bank, over the past two decades, hasdeveloped a comprehensive framework of safe-guard policies (see Chapter 2). Its main objec-tive is to ensure that projects “do no harm”; thatis, that they are environmentally and socially sus-tainable by ensuring that potentially adverseimpacts on the natural environment (air, water,and land), human health and safety, and socialaspects (involuntary settlement, indigenous peo-ples, and cultural property), and transboundaryand global environmental impacts are prevented,mitigated, or compensated. These policies defineexplicit requirements for the Bank to follow. Inlight of the potential adverse impacts associatedwith oil, gas, and mining activities, the evalua-tion included a review of the degree to whichthe Bank’s appraisal and implementation ofextractive industries projects have been consis-


7 1

Nearly 13 million people are involved in ASM world-wide, with a high proportion of women (10 to 45 per-cent) and children (5 to 30 percent) in several countries.ASM production accounts for 15 to 20 percent of thevalue of the world’s nonfuel mineral production—andas much as 90 to 100 percent in some countries. Themajority of earnings from ASM, especially artisanalmining, are used for subsistence. Being largely in theinformal sector (50 percent), artisanal and small-scaleminers often have no legal rights to mine, do not paytaxes, and are prone to exploitation by middlemen. Ingeneral, ASM is characterized by poor standards ofsafety and health and greater environmental cost perunit of output than large-scale mining activities.

Developmental priorities for ASM are improvingthe legal and regulatory framework, investing rev-enues for sustained benefits, avoiding or mitigatingnegative environmental and social impacts, encour-aging alternative economic activities, adopting a gen-der-sensitive approach, ending child labor, and ensuringgood relationships between miners and other stake-holders.

In Ghana, upon advice from the Bank, gold produc-tion by small-scale artisanal miners was legalized in

1989 by passage of the Small-Scale Mining Law. Theestablishment of a legal purchasing arrangement, ini-tially by a public and later by private buying agentsoffering world prices for gold and diamonds to artisanalminers, was the result of active policy dialogue withthe Bank.

Ecuador’s Mining Development and EnvironmentalControl project helped to formalize most of the coun-try’s ASM activities by granting title to 166 of 169 ASMassociations that existed before 1995. This may havecontributed to the absence of land invasions by infor-mal miners in the country in recent years. Currently, 99percent of ASM enterprises in the country have pre-sented environmental impact assessments (EIAs) orenvironmental management plans (EMPs) either indi-vidually or through associations. The project helpeddemonstrate the feasibility of reducing ASM-relatedcontamination, succeeded in promoting change to lesspolluting processing technologies, and increased envi-ronmental health and safety awareness among minersand other stakeholders.

Sources: Mines and Minerals for Sustainable Development (MMSD)

2002; Country Case Studies; World Bank.

A r t i s a n a l a n d S m a l l - S c a l e M i n i n gB o x C 6

tent with these requirements (the SafeguardsReview), whose findings are summarized in thefirst section of this chapter.

Beyond achieving the objectives of the safe-guards, an important aspect of the Bank’sapproach to development assistance involvesthe pursuit of positive environmental and socialgoods, such as the remediation of pre-existingconditions resulting from past mining and petro-leum activities (legacy issues), and the strength-ening of the policy and institutional frameworkto promote the implementation of safeguardsacross the entire economy. Many extractive indus-tries projects have such components to “dogood,” and their experience is also discussed.

Consistency with Objectives of the Safeguards:“Do No Harm”The Safeguards Review focused on assessing theprojects’ consistency with the objectives of thesafeguard policies in three areas: at approval,during implementation, and in the adequacy ofBank supervision inputs and reporting. Deskreviews were carried out on a sample of 38projects drawn from the portfolio of 76 closedand active extractive industries projects approvedduring or after fiscal year 1993.97 The sample waspurposely chosen to include projects that werelikely to have adverse environmental or socialimpacts and included 19 oil and gas and 19mining projects.98 In terms of the categorizationof projects under the Bank’s EnvironmentalAssessment Policy, the sample included 15 ‘A’projects, 17 ‘B’ projects, 5 ‘C’ projects, and 1uncategorized project.99

The Bank’s safeguard policies contain a longlist of requirements that have been subject to dif-fering interpretation, and no independent andgenerally agreed criteria have been establishedto determine if a project is in substantial com-pliance.100 In the absence of an establishedapproach, the Safeguards Review has synthesizedthe policy requirements into a set of basic cri-teria and applied them for sample projects.While there have been minor changes in someof the policies since 1993, each project wasevaluated based on the specific version of thepolicy in force at the time the project wasapproved.101

Overall, most projects were found to be sub-stantially consistent with the applicable safe-guards at approval and during implementation.About 74 percent of the sample of ‘A’ and ‘B’projects were substantially consistent with safe-guards at approval, 67 percent during imple-mentation, and only 41 percent were rated tohave had adequate supervision inputs and report-ing. The ‘A’ projects’ performance was higherthan the ‘B’ projects’ performance in all threeareas, but the difference was greatest at theapproval stage. While the degree of consistencywas lower than the WBG aims to achieve, thereis no implication that the performance patternof these projects is different from that in othersectors, as they are all subject to the same poli-cies, procedures, and constraints.102

The degree of consistency appears to haveimproved modestly over time. A comparison ofthe findings for the ‘A’ and ‘B’ projects in the sam-ple approved before and after year-end 1995indicates that, at the approval stage, there hasbeen no overall trend. At the implementationstage, however, there has been some improve-ment in the more recent projects.103

The findings of the Safeguards Review fallbetween those of the external and internal sur-veys. The survey of participants of the EIR’sRegional Stakeholder Workshops104 found that,with regard to the promotion of sustainableenvironmental performance and mitigation ofnegative environmental effects, the WBG’s effortwas rated “mostly effective” or better by 60 per-cent of respondents and its success as “mostlyeffective” or better by 46 percent. With regardto the promotion of sound social developmentand the identification and mitigation of negativesocial impacts on local communities and indige-nous peoples, the WBG’s effort was rated “mostlyeffective” or better by 40 percent of respon-dents and its success as “mostly effective” by 28percent. Bank staff involved in EI projects feelmore positive about the adequacy with whichEI projects have mitigated negative environ-mental impacts (83 percent) and social impacts(75 percent). While the survey findings corrob-orate that the EI portfolio faces a gap in fullyachieving the objectives of the safeguards, thedifference from the Safeguards Review points to


7 2

the possibility of both internal and external per-ception gaps.

The review also identified a number of prom-ising practices that have established new bench-marks for safeguard policy implementationperformance and “value added.” Such practiceswere found in the Bolivia-Brazil Gas Pipelineproject, Chad-Cameroon Petroleum Develop-ment and Pipeline project, Poland Coal SECALII, and Thailand Clean Fuels and Environmen-tal Improvement project. These projects haveachieved international recognition for the com-prehensiveness of their environmental and socialmitigation measures and stand as examples ofwhat compliance with safeguards can achieve.

Issues During Safeguards ImplementationThe most important inadequacies in the imple-mentation of safeguards are associated withshortcomings at the initial project screening.Another important source of problems, and apossible explanation for the decline in safe-guards implementation from approval to imple-mentation, is inadequacies in supervision andreporting.105

Initial Project ScreeningA major finding of the Safeguards Review is thatthe initial screening of projects106 has importantimplications for the subsequent preparation,appraisal, and supervision of the project. In somecases, screening decisions resulted in assign-ment of a lower environmental category than mayhave been warranted.107 This is important becauseless attention and fewer resources tend to bedevoted to the assessment and mitigation ofenvironmental impacts in lower EA categories.

On the other hand, not all difficulties inachieving the objectives of the safeguards canbe traced to shortcomings in the initial projectscreening process. In fact, while 69 percent ofthe projects that were not substantially consis-tent with safeguards had been incorrectlyscreened, over half of the projects that had beenincorrectly screened were substantially consis-tent with policy requirements at the approvalstage in terms of the adequacy of provisions formitigation of potential adverse impacts (seeFigure C7). These findings suggest that, whileshortcomings at the initial project screening arean important source of concern, these upstream


7 3

I n i t i a l P r o j e c t S c r e e n i n g a n d C o n s i s t e n c y w i t h S a f e g u a r d sF i g u r e C 7

Substantial orHigh Modest or

Negligible

Adequate

Inadequate

05

101520

2530

35

40

Percentage of projects

(no. of projects)

Degree of consistency at approval

Adequacy of initial project screening

(15)

(10) (9)

39

26

11

24

(4)

errors often can be overcome by appropriateefforts during subsequent project preparation andappraisal.

EA Categorization The Safeguards Study concluded that, of thesample of 38 projects, 6 out of the 17 Category‘B’ projects should have been classified as Cat-egory ‘A,’ and all 5 of the ‘C’ projects should havebeen ‘B.’ The definitions of EA categories weredeveloped mainly for application to “invest-ment” projects and before the social and legalsafeguard policies assumed as much importanceas they have in the past decade. Since the late1980s, the Bank has been diversifying andexpanding its array of lending instruments,108

while EA categorization definitions and guidanceon application of appropriate EA instruments109

have not kept pace. The study found two majorareas where greater clarity is needed:

Sectoral Adjustment Projects: Five of the six‘B’ projects that should have been categorizedas ‘A’s were SECALs involving the closure ofmines.110 While the OP 4.01 can be interpretedto allow categorizing them as ‘B’s, it would havebeen more appropriate to categorize them as ‘A’s,given the significant, diverse, and unprecedentedcumulative impact of the mining sector on theenvironment and communities in the miningareas and to ensure a level of attention, normallyassociated with a full EA, commensurate with thedegree of environmental and social impacts andrisks.111 Thus, the guidance set out in the 1993EA Source Book Update on Environmental Screen-ing recommends that Sectoral EAs be carried outfor SECALs, and the 1991 EA Source Book112 rec-ommends that EIAs be carried out on each indi-vidual mine closure plan.113 While theseguidelines are not mandatory, they support theobjectives of the safeguards policies, and OEDhas used them to underpin its assessment.

Among mining SECALs, the Poland CoalSECAL II illustrates the potential usefulness of aSectoral EA, which, for this project, found thatthe damage costs of saline water discharge werenot as serious as previously estimated114 andidentified land subsidence as a potential prob-lem. It also found several shortcomings in clar-

ity and prioritization of recommended actions inthe mine-specific EIAs. Other mine-restructuringSECALs did not follow this model and thereforemay have missed the opportunity for consider-ably more appropriate and cost-effective actionsfor mitigating negative environmental and socialimpacts.

Technical Assistance Projects: While six of theTechnical Assistance projects in the sample werecorrectly categorized as ‘A’ or ‘B’ projects, fivewere incorrectly categorized as ‘C.’ As noted inthe 1993 EA Source Book Update on Environ-mental Screening, “while most technical assis-tance (TA) projects should fall into Category‘C’… certain TA operations are designed to pavethe way for major investments or privatization.…In such cases, it is appropriate to undertake a lim-ited review of the environmental institutionaland regulatory framework for the sector andrecommend improvements (as needed). Cate-gory ‘B’ is normally the correct classification forsuch projects.”115

The Colombia Energy TA project, a ‘B,’ illus-trates the importance of early attention to theenvironmental and institutional and regulatoryframework, which allowed for the preparationof a well-designed set of components to oper-ationalize the application of the Bank’s safe-guard policies. On the other hand, in line withthe objectives of the safeguard policies, TA proj-ects in Cameroon, Kazakhstan, Papua NewGuinea, Russia, and Zambia all should havebeen categorized as ‘B’s rather than ‘C’s, whichresulted in less attention being given to review-ing substantial issues of environmental and socialimpacts that can emerge in the process of attract-ing major investments and preparing for priva-tization.

Identification of Applicable Safeguards An important function of the initial projectscreening is to identify the safeguard policies thatshould apply to a particular project. Aside fromthe EA policy, the most frequently triggeredsafeguards in the sample of extractive industriesprojects relate to involuntary resettlement, indige-nous peoples, natural habitats, dam safety, andcultural properties. There is a natural inclination


7 4

to downplay the relevance of individual safe-guards in order to simplify processing of proj-ects. Moreover, in the case of TA projects, suchissues as protection of natural habitats, culturalproperty, and indigenous peoples, and so forth,while possibly relevant to the sector, had notbeen triggered when needed, as the policies havebeen worded to apply when “investment” proj-ects are undertaken. This is unfortunate, as oftenthe TA projects are helping governments toimprove the regulatory system for private invest-ments in extractive industries, for which suchissues are highly relevant.

Involuntary Resettlement: Of the seven proj-ects that should have triggered the InvoluntaryResettlement policy, four had prepared com-prehensive Resettlement Action Plans (RAPs),while for three of the projects the RAPs wereeither not prepared or inadequate. The risksassociated with inadequate safeguard identifi-cation at the screening stage are illustrated bythe Second Gas Transmission project in Thai-land,116 where the issue of resettlement arosevery late in project preparation—so late, in fact,that it had to be dealt with at loan negotiations.At this stage it was not even certain how manypeople had to be relocated and how many hadto be compensated for loss of income duringpipeline construction or for loss of structures.While the completion document reports thatthe resettlement of the few families was in linewith the guidelines and carried out without aproblem, it also reports that problems with landacquisition were compounded by difficulties inpurchasing the right-of way because oflandowner lock-outs. There were also problemswith squatters moving onto the pipeline routein an attempt to obtain compensation.117 It isquite possible that problems, which happenedbefore in earlier projects, could have beenreduced through earlier identification of reset-tlement issues and the earlier involvement ofresettlement specialists in planning for their mit-igation, as would have been appropriate.

Indigenous Peoples: Three out of the sevenprojects for which the indigenous peoples pol-icy applied met the requirement for preparation

of an Indigenous Peoples Development Plan(IPDP). A good example of an IPDP was pre-pared for the Bolivian section of the Bolivia-BrazilGas Pipeline project. Under this plan, indigenouspeoples’ land rights were established throughland titling, and communities were supported indeveloping sustainable resource managementpractices. A trust fund of US$1 million was alsoestablished for protection and management ofthe Kaa-Iya National Park, which is co-man-aged by an indigenous NGO and Bolivia’sNational Protected Areas Agency.

Natural Habitats: Three of the five projects inwhich the Natural Habitats policy applied metthe requirements of this policy. For the Chad-Cameroon Pipeline project,118 alternative corri-dors for the pipeline were assessed andalignment of the pipeline within the preferredcorridor was optimized from cost, technical,safety, environment, and social perspectives. Inaddition to aligning the pipeline to follow exist-ing infrastructure and/or traverse degraded landto the extent possible, because of the proxim-ity of the right-of-way to areas of important nat-ural habitat in Cameroon, biodiversity impactmitigation measures included two environmen-tal offsets—one for the semi-deciduous forest andone for the Atlantic Littoral forest.

Supervision, Monitoring, and ConsultationOther issues that emerged from the SafeguardsReview relate to the (a) adequacy of supervisioninputs and reporting, (b) management and/oraction plans that were prepared, (c) adequacyof provisions for monitoring and evaluatingenvironmental and social impacts, and (d) pro-visions for disclosure and stakeholder consul-tation.

Supervision Inputs and Reporting: The studyfound that in only 41 percent of the sampleprojects, the task teams had adequately super-vised and reported the implementation of safe-guard policies. About 30 percent of the projects(all of which were likely to have adverse impacts)included environmental or social specialists inat least one supervision mission, which is abouthalf the level projected in the supervision plans


7 5

prepared at appraisal.119 Frequent changes in taskteams, especially task leaders, and the lowermanagerial attention and resources devoted tosafeguards supervision in incorrectly screenedand categorized projects also contributed to themodest intensity of safeguards supervision, asreflected in infrequent and inadequate reportingon safeguard policy matters in aide-memoires,supervision reports, and completion reports.

These issues are important because theyaccount for the entire slippage in the projects’consistency with safeguards from the approvalto the implementation stage. Thus, for about aquarter of the 23 projects for which supervisioninputs and reporting were inadequate, the con-sistency with safeguards deteriorated duringimplementation. On the other hand, of the 14projects that were supervised adequately, not asingle one failed to meet the safeguard objec-tives, and two previously inconsistent projects(14 percent) became substantially consistentwith safeguards during implementation (seeFigure C8).

The oversight and reporting of safeguardscompliance and EMP implementation can beonly as effective as the environmental and socialmonitoring reporting system provided for underthe projects. Since these were found to be defi-cient in nearly half of the projects reviewed, the

same can be said for the oversight system. Super-vision reports generally record safeguards com-pliance positively without any discussion orevidence provided in the text, and only a sin-gle reported violation of safeguard policies wasreported.120 Finally, less than a quarter of the ICRsreviewed discuss the implementation of safe-guards, even though the Bank’s ICR policyrequires such a discussion for all Category ‘A’projects and those that triggered any other safe-guards and could reasonably be expected for allCategory ‘B’ projects. The paucity of monitoring,documentation, and reporting of the projects’implementation of safeguards is a serious weak-ness in the oversight system

Environmental and Social Management andAction Plans: The basic instruments that theBank safeguard policies rely on for implemen-tation of environmental and social mitigationmeasures are the EMPs, RAPs, and IndigenousPeoples Action Plans (IPAPs). The review foundthat EMPs are being prepared to an appropriatestandard for 93 percent of the ‘A’ projects butonly 60 percent of the ‘B’ projects. Because theEA policy leaves the decision on the scope ofEMPs to the judgment of Bank staff, this wouldlikely have been less of a compliance problemif the projects had been assigned to their proper


7 6

A d e q u a c y o f P r o j e c t S u p e r v i s i o na n d C h a n g e i n C o n s i s t e n c y w i t h S a f e g u a r d O b j e c t i v e s

F i g u r e C 8

BetterSame

Worse

Adequate

Inadequate05

1015202530354045

Percentage of projects

(no. of projects)

Change in consistency with safeguards objectives from approval to implementation

Quality of project supervision

32

35

(2)

(1)

(12)

(16)

43

16

(6)

0

(0)

(1)

EA category at the screening stage, with atten-dant availability of more resources for special-ist staff to help define and supervise the EMP.Similarly, about half of the sample projects thatinvolved involuntary resettlement and affectedindigenous peoples did not have comprehensiveand implementable RAPs and IPAPs, largelybecause the relevant safeguards had not beentriggered at the initial project screening.

Monitoring and Baseline Surveys: An impor-tant requirement, often overlooked, is that ofmonitoring and evaluating safeguard compli-ance “on-site,” which was implemented effec-tively in only about 33 percent of the projectsreviewed. This weakness in the complianceoversight and supervision system, if allowed topersist, can lead to substantial and costly failuresfor the borrower as well as the Bank. Moreover,it is rare that a monitoring plan, no matter howwell prepared, will cover all the potential envi-ronmental and social impacts in any new proj-ect completely. Some impacts become evidentonly during implementation. Such impacts canbe documented most quickly and effectively ifcomprehensive environmental and social base-line surveys have been prepared before projectimplementation, as was done for about half ofthe ‘A’ projects in the sample.121

Public Disclosure, Consultation, and Par-ticipation: Bank policy expects the borrowerto consult affected groups and local NGOs forall Category ‘A’ and ‘B’ projects, to disclose rel-evant EA materials, and to incorporate theirlegitimate concerns into project designs. Therequirements are somewhat more rigorous for‘A’ than for ‘B’ projects. The Safeguards Reviewfound that public consultation in the EA prepa-ration process had been substantially addressedin 73 percent of the ‘A’ projects in the sampleand 38 percent of the ‘B’ projects. Stakeholderparticipation, in terms of opportunities to influ-ence and share control over development ini-tiatives, decisions, and resources, is not requiredunder Bank policy and has been attempted inonly a few projects.

Here again, the ‘B’ projects appear to have hadfewer resources than necessary to devote to

this area. The ICRs of several ‘B’ projects whereconsultation took place noted the importance ofstakeholder consultation. OED’s assessment ofa ‘B’ project in Ecuador, in which full public con-sultation only started five years into implemen-tation, concludes that the projects and programsinvolving natural resources extraction need to bemanaged carefully and proactively. Effectivecommunication, consultation, and stakeholderparticipation strategies need to be designedearly during preparation and maintained through-out implementation.

Beyond consultation, the Bolivia-Brazil GasPipeline project offers an excellent model forestablishing a participatory safeguards compli-ance monitoring, evaluation, and reportingframework. The completion report notes thatcontinuous dialogue and exchange of informa-tion between the local communities and civilsociety representatives and the environmentalinspectors, environmental auditor, andombudsperson was an important feature of theon-site supervision of environmental and socialconcerns. This process allowed a growing under-standing of the concerns of each of the stake-holders, the identification of new issues, bettermonitoring of the performance of social com-pensation programs in the field, and, moreimportant, an improvement of the environmen-tal inspection/monitoring system, which resultedin a better definition of roles and functions forthe contractor environmental field inspectors, theenvironmental inspection team and manage-ment unit independent from the contractor, andthe independent environmental auditor andombudsperson.

Beyond Safeguards: “Doing Good”An important aspect of the Bank’s approach todevelopment assistance involves the pursuit ofpositive environmental and social impactsbeyond strict compliance with safeguards, suchas the remediation of pre-existing conditionsresulting from past mining and petroleum activ-ities and the strengthening of the policy and insti-tutional framework to promote theimplementation of safeguards across the entireeconomy. Many extractive industries projectshave such objectives and components.


7 7

Addressing Pre-existing EnvironmentalConditions

Environmental Rehabilitation: Nine com-pleted projects (oil and gas: 5; mining: 4) pro-vided assistance for addressing environmentalimpacts from past or ongoing extractive indus-tries activities, while other completed projectsapproached them as part of larger efforts ineconomic transition. Based on the generallylimited information provided in the ICRs, pre-existing environmental conditions appear tohave been addressed in a moderately satisfac-tory or better manner, in all but two cases (seeBox C7).

Pre-existing environmental impacts tendedto be given less priority in countries where thesector faced poor economic and financial con-ditions, where the priority was to restore pro-duction levels and earn import revenues, andwhere the mitigation components were a rela-tively small part of the project. All these factorswere evident in Russia’s Oil Sector Rehabilita-tion I and II projects as well as in Coal SECAL Iand II projects. In countries where the eco-

nomic and financial situation was better (Poland’sHard Coal SECAL I and II) and in cases whereenvironmental components were larger relativeto the entire project (Mongolia Coal project)and where stakeholder participation was higher(Tanzania Mineral Sector Development TA),there was greater progress indealing with pre-existing environmental impacts.

Social Rehabilitation: Important coal minerehabilitation projects in Poland, Russia, andUkraine substantially achieved their mine closureobjectives, but the results on the social front havebeen mixed. The greatest difficulties were in gen-erating alternative employment for workers wholost their jobs in the rehabilitation and mineclosure process. The difficult economic transi-tion in Russia and Ukraine made it very hard togenerate alternative employment, and it is notclear if these issues were addressed throughprojects in sectors other than the extractiveindustries. Another area of concern was findingalternative funding sources for social services thatpreviously had been provided by the state min-ing enterprises. These issues are important


7 8

In the oil and gas sector, the efforts included control-ling drilling wastes and reducing environmentalimpacts from oil and gas operations (Russia); control-ling and mitigating pollution from refinery activities(Thailand); controlling pollution from leaking pipesand storage facilities (Tanzania); and addressing theimpact of petroleum development in an area of extremeenvironmental sensitivity near the Caspian Sea (Azer-baijan).

In the mining subsector, pre-existing pollutionissues included water and air pollution from mine tail-ings and airborne particles (Guinea, Peru, Poland, andMongolia); environmental impacts on surrounding com-munities (Ghana, Russia); contamination from activitiesof artisanal and informal miners (Ecuador, Peru); astrategy to control widespread mine fires that wereaffecting local infrastructure, farmland, and habita-tion and could potentially dislocate hundreds of thou-

sands of people in the Jharia coalfields (India); and pas-sage of a new environmental code for mining to ensurecleanup of existing pollution and rigorous guidelinesfor new foreign investors (Peru).

The efforts in Tanzania and Thailand yielded posi-tive results, and good progress was made in Peru,where contamination levels were reduced by 15 to 20percent, and in Poland, where saline water and soliddischarge from coal mines were reduced by 21 percentand 29 percent, respectively. Under the Mongolia Coalproject, a beginning was made by establishing an Envi-ronmental Management Unit. In Guinea, environmen-tal audits of all mining operations were carried out.Ghana’s project made some headway in reclaimingthree pilot areas reclaimed and launched a “greencommunities” plan.

Source: Portfolio Review.

W o r l d B a n k P r o j e c t s a n d P r e - e x i s t i n g E n v i r o n m e n t a l I m p a c t s

B o x C 7

because the process by which employmentreduction is handled is crucial for the acceptanceby the mining communities of economicallynecessary mine closure programs.

Capacity-Building and Reform forEnvironmental and Social ManagementComponents in support of capacity-building,institutional development, and policy reformfor environmental management were part of 16completed and 9 active projects. Most of theactivities were completed satisfactorily. For manyof these efforts the impacts are not evident fromthe ICRs, perhaps because results may be real-ized only in the long term. Projects in threecountries—Burkina Faso, Madagascar, and Mau-ritania—aim to improve capacity for environ-mental management in their mining sectors.Burkina Faso’s Mining Capacity-Building projectseeks to establish capacity for environmentalmanagement. The Madagascar Mining SectorReform project will establish capacity in thecountry by means of pilot projects to identify andaddress environmental as well as social impactsfrom mining. The Mauritania Mining SectorCapacity project has an Environmental Man-agement System to include capacity-building atthe Ministry of Mining and Industry, for moni-toring and enforcing environmental regulations.

Capacity-building for environmental and socialmanagement represents a valuable contributionby the Bank to client countries at a relatively lowcost. While it is too early to judge the impactsof these project components in many cases,indications are that most of the changes aresustainable, especially in countries that alreadyhad a reasonable level of institutions and humanresources in these areas. The Bank’s cross-coun-try experience also helped client countries tolearn from other countries facing similar envi-ronmental situations. The number of efforts tobuild capacity for environmental management inextractive industries projects appears to beincreasing.

Other Environmental Benefits from ExtractiveIndustries ProjectsIn the portfolio of 48 completed projects, 5 proj-ects produced other miscellaneous environ-

mental benefits. Under Brazil’s Gas Sector Devel-opment project, the creation or improvement of13 national parks was initiated. This project, aswell as Thailand’s Gas Transmission I and II proj-ects, made available larger amounts of envi-ronmentally acceptable fuel—natural gas—and,along with Thailand’s Clean Fuels and Environ-mental Improvement, had consequent benefitsfor air quality and health. Bosnia-Herzegovina’sNatural Gas System Reconstruction projecthelped reduce environmental pollution throughrehabilitating war-damaged gas distribution sys-tems.

Missed Opportunities in Addressing Adverse Impacts The survey of Bank staff followed up on a recentQuality Assurance Group (QAG) Quality-at-Entry Assessment, which noted, “in numerousinterviews with task teams, panelists detected anaversion to including project components thatmay trigger safeguard policies, …[and]…that itwas too risky to design operations with signifi-cant social safeguard issues.”122 Thus, the surveyasked if the WBG has avoided good projects inthe EI sectors due to concerns related to safe-guards policies. The majority of respondentsagreed that this has been the case, particularlyin response to concerns originating from WBGmanagement (86 percent) and WBG task man-agers (56 percent), rather than client countries(22 percent) or private investors (40 percent).This response suggests that the WBG is missingopportunities to help its clients address adverseimpacts in the sector mainly because of an inter-nally generated aversion based on the significantcosts and risks associated with its safeguardpolicies.

ConclusionsThe Safeguards Review of a sample of extrac-tive industries projects most likely to face envi-ronmental and social challenges found themajority to be substantially consistent with appli-cable safeguard policies, but the degree of con-sistency is below the expectation thatBoard-approved policies will be implemented asa matter of routine.123 The degree of consis-tency varied greatly depending on the phase of


7 9

project cycle and the environmental category ofthe projects. The degree of consistency appearsto have improved modestly over time. Thereview also found that supervision inputs for andreporting of safeguards compliance had beenadequate for less than half of the projects.

The most important shortcomings with regardto the implementation of safeguards can betraced to inadequacies in the initial projectscreening. Another important source of problemswas inadequacies in supervision inputs andreporting. Inadequate attention to complianceduring project implementation also is reflectedin the fact that environmental and social spe-cialists were involved in supervision in onlyabout 30 percent of the sample and that fewerthan a quarter of the project completion reportsdiscuss this subject.

While the validity of these findings is limitedto the sample of projects that was reviewed,some of them may be helpful for strengtheningthe Bank’s safeguards framework, which is nodifferent for extractive industries than for othertypes of projects.124 In particular, the findingspoint to the need for clearer and more consis-tent guidance for the categorization of sectoraladjustment and technical assistance projects;the identification of applicable safeguards at theinitial project screening; the appropriate scopeand arrangements for monitoring of safeguardscompliance during project implementation,including the preparation of comprehensivebaseline surveys at the start of the project; andthe reporting and evaluation of results at proj-ect completion. Improvement would be of par-ticular importance to the extractive industriesportfolio, given its large share of sectoral adjust-ment and technical assistance projects, the inad-equacies in monitoring and reporting, and thecontroversy surrounding the sector’s environ-mental and social impacts.

On the other hand, the Bank’s safeguardspolicies have received wide acceptance, even forprojects where the Bank is not involved, whichpoints to the potential for the Bank to continuebuilding on its global mandate and conveningpower for catalyzing good practice in respect tosafeguards and other issues. Beyond compli-ance with safeguards, the Bank’s efforts at “doing

good” by addressing environmental legacy issuesand building capacity for the management ofenvironmental and social impacts have yieldedmostly satisfactory results. These appear to beareas where the Bank should continue to makea valuable contribution to the development ofresource-abundant countries.

5. From Resource Revenues toSustainable Development

From a country development perspective, themost important component of the economicbenefits from extractive industries is usuallythe flow of revenues that can be used forgrowth-promoting public expenditures.125 Thischapter assesses the Bank’s efforts to integratethe incremental revenues from resource extrac-tion into the countries’ overall developmentstrategy through improved fiscal managementand expenditure policies.126 While the potentialfor major fiscal revenues is generally greaterfrom the petroleum than the mining sector, it isuseful to discuss them together in light of theirshared characteristics of volatility andexhaustibility.

Linking Extractive Industries SectorDevelopment to Overall Country Assistance

The management of EI revenues cannot beisolated from the larger context of economicmanagement. In a resource-rich country, EI rev-enues deserve special attention because of theirimportance to the economy and their concen-tration in a few sources, which affords greaterscope for rent-seeking. Hence, an assistancestrategy for a resource-abundant country mustnot only recognize the specific issues involvedin managing EI revenues but also chart their link-ages with the broader management of the coun-try’s development.

A review of the World Bank’s most recentCASs127 found that 64 percent of those for poorlyperforming EI-dependent countries128 recognizedone or more issues related to the managementof EI revenues (see Figure C9).129 The issuesspanned a wide range, including managing ofvolatility and exhaustibility of EI revenues (Azer-baijan, Mongolia), achieving macroeconomic sta-bility (Gabon, Trinidad, and Tobago), public


8 0

expenditure policies for EI revenues (Bolivia,Chad), transparency in handling EI revenues(Kazakhstan, Papua New Guinea), diversifyingof economic activity (Nigeria, Zambia), andreducing subsidies to the EI sectors (Russia).

In general, the mention of EI revenue issuesin a CAS does not appear to translate readilyinto developmental interventions by the Bank.The dearth of follow-up interventions could berelated to the relatively low level of Bank

involvement in poorly performing EI-depend-ent countries. World Bank lending per capitaover 1990–99 was significantly lower (at US$47)for poorly performing EI-dependent countriesthan for better-performing EI-dependent coun-tries (US$80) or poorly performing non-EI-dependent countries (US$61; see Figure C10).While this is a consequence of the Bank’s coun-try policy and institutional performance-basedallocation of IDA credits, there is no indication


8 1

P e r c e n t a g e o f C o u n t r i e s W h o s e C A S R e f e r s t o E I I s s u e sF i g u r e C 9

<15% >15%

Negative

Positive0

1020304050607080

Percentage of CASs with

references to EI

EI dependence (average EI exports/total

exports, 1990–99)

Average GDP per capita

growth, 1990–99

Number of countries in parentheses

53.0

(25)

64.0

(15)

18.0(12)

80.0

(11)

I B R D / I D A L e n d i n g p e r C a p i t a( n u m b e r o f c o u n t r i e s )F i g u r e C 1 0

<15% >15%

Negative

Positive0

102030405060708090

Average IBRD/IDA

lending per capita, 1990–99 (current US$)

EI dependence (average EI exports/total

exports, 1990–99)

Average GDP per capita

growth

Number of countries in parentheses

60.8

(26)

71.5

(45)

46.8

(21)

80.2

(23)

that the shortfall in lending has been mitigatedby nonlending interventions, such as economicand sector work, as would seem desirable inlight of these countries’ needs130 (see Box C8).

For a more in-depth assessment of the Bank’sinvolvement in the revenue management issuesof EI-dependent countries, the Revenue Studyreviewed CASs, Country Assistance Evaluations(CAEs), project documents for EI and other sec-tors, and adjustment lending and Public Expen-diture Reviews and other documents for fiveEI-dependent countries: Bolivia, Ecuador, Ghana,Kazakhstan, and Papua New Guinea.131

The study found that in all five countries, gov-ernance was the key to successful managementof EI revenues and fed into the quality of rev-

enue distribution and utilization, as well asattempts at economic stabilization and diversi-fication. Ecuador and Ghana lacked the politi-cal will and the fiscal discipline to maintainmacroeconomic stability, putting other reformsin jeopardy. Kazakhstan and Papua New Guineashowed little institutional development or com-mitment to governing openly or fairly. Only inBolivia did the government show a commit-ment to managing its revenues within the con-text of overall public finance management, buteven Bolivia is having difficulty maintaining fis-cal discipline. The Revenue Study also found thatdesirable structural reforms were slowed in theface of large resource flows from resource extrac-tion (see Box C9).


8 2

The Bank has engaged in a variety of analytical and ad-visory activities (AAA) in the EI sectors, including eco-nomic and sector work (ESW), as well as sponsoringmeetings, conferences, and workshops for stakehold-ers.

None of the AAA in the EI sectors has been evalu-ated through either self-evaluative Activity Comple-tion Summariesa or the annual reviews of ESW by theQAG from 1998 to 2001. However, some reporting in theICRs, as well as in country case studies prepared forthis evaluation, gives an idea of the integration of rep-resentative AAA with project preparation.b

In Papua New Guinea, the Bank has provided arange of ESW on many occasions since the 1980s in themining sector, and it undertook reviews of environ-mental issues in 1992 and again in 2000 that providedinput into the mining TA project. The Argentina MiningSector Review (1993) helped improve the quality ofproject preparation for the country’s Mining TA andMining Sector Development TA projects. In Ecuador, theBank assisted the government in the preparation of aMining Sector Policy and Strategy Paper in 1990(updated in 1993) stressing the need for legal and insti-tutional reform to attract private sector investment inthe sector and to address environmental impacts ofartisanal and small-scale mining.

Other illustrative publications from the oil and gassector on institutional development and policy issues

include Legislative Frameworks Used to Foster Petro-leum Development (1995), Management of Oil Windfallsin Mexico: Historical Experience and Policy Optionsfor the Future (2001), and Does Mother Nature Cor-rupt?—Natural Resources, Corruption and EconomicGrowth (1999).

In the mining sector, several country-level sectoralreviews have been prepared, among them the KyrgyzRepublic: Mining Sector Review (World Bank 1994a),Russian Federation: Restructuring the Coal Industry:Putting the People First (World Bank 1994b), Kaza-khstan: National Gas Investment Strategy Study (ESMAP1997), and Ecuador—Public Sector Reforms for Growthin the Era of Declining Oil Output (1991). A MiningStrategy for Latin America and the Caribbean (Van deVeen et al. 1996) and Strategy for African Mining (WorldBank 1992) spell out strategies for boosting privateinvestment in the regions.

a. At least since 1998, the Bank has required Activity Completion

Summaries to be prepared for all ESW with a budget of $50,000 or

above, within six months after “delivery to client.” In AFR, there is no

threshold, and in ECA it is $15,000.

b. A detailed list of ESW by the Bank in both the oil and gas sector

and the mining sector is included in the Bibliography annexed to the

Portfolio Review.

Sources: Country Case Studies; World Bank.

A n a l y t i c a l a n d A d v i s o r y A c t i v i t i e si n t h e E I S e c t o r s

B o x C 8

The Revenue Study also found that whileeconomic diversification through directing pub-lic expenditure toward socially profitable invest-ments is necessary for the sustainabledevelopment of EI-dependent countries, thisapproach is difficult to promote in the face ofpoor governance. Bolivia successfully devel-oped agriculture in the lowlands but at the costof additional environmental damages that are dif-ficult to control. The Bank and the governmentshowed clear commitment to develop agricul-ture in Papua New Guinea, but after 10 years ofassistance the strategic options for stimulatingagriculture have yet to be developed. Ghana haddifficulties in developing agriculture and stream-

lining cocoa production management, and com-petition between mining and agriculture forarable land continues to be an important issue.The Bank advised Kazakhstan that efficient man-agement of the National Oil Stabilization Fundand better management of public finances in gen-eral were preconditions for promoting economicgrowth in the nonextractive industries sectors,but governance of the oil fund and of publicfinance continue to be difficult problems.Ecuador’s poor management of public expen-ditures is the core cause of the continuous finan-cial crises the country faced in the 1990s, and itis still excessively dependent on oil exports. Ingeneral, while the World Bank supported diver-


8 3

The World Bank has assisted several EI-dependentcountries in reconciling EI revenue management withbroader macroeconomic management. In most casesthe outcomes have been less than satisfactory.

In Ecuador, in the 1990s, the Bank identified con-straints to macroeconomic performance as the majornegative effect of the decline in oil revenues and theirmismanagement, but it failed to develop a more com-prehensive strategy to isolate the economy from volatil-ity and exhaustibility of the resources and to share oilbenefits. Though the Bank provided financial assis-tance to sectoral rehabilitation and macroeconomic sta-bilization, the expected reforms were not implemented,and export and fiscal revenues went to finance highlyinefficient public expenditures. Overall, the Bank hada very limited influence on how oil revenues weremanaged to promote macroeconomic stability andsocial equity.

In Ghana, during the 1990s, the Bank supportedefforts for better financial management and civil serv-ice reform, but OED’s CAE of 2000 found these effortswere only partly successful. Many shortcomings remainin the overall quality of Ghana’s public governance, asillustrated by politically motivated spending on publicsector wage increases and consumer subsidies beforeeach election in 1992, 1996, and 2000. These increasesled to persistent macroeconomic instability with neg-ative consequences for investment and growth.

In Kazakhstan, an inflow of petroleum revenuescreated prosperity that began to produce symptoms ofthe Dutch disease and reduced commitment to overallreform, to the point that the country has forgone soundadvice from the World Bank regarding the managementof EI revenues.

In Papua New Guinea, private investment in the EIsectors created some prosperity in the early 1990s, afterwhich the government discontinued reforms, whichprecipitated a financial crisis. Subsequently, the WBGsupported a new government effort to restore macro-economic stability and initiate structural reform, withemphasis on governance and economic diversifica-tion. But macroeconomic mismanagement continued,compounded by political uncertainty and poor trans-parency and accountability, forcing the Bank to suspendthe second tranche of a structural adjustment loan.

In Bolivia, WBG strategy in both hydrocarbons andminerals had great success in generating revenues,helped in large measure by the country’s own “capi-talization” program. However, public expenditure man-agement in the country is still weak, and Bolivia has notresponded well to several WBG technical assistanceand structural adjustment operations targeted at pub-lic finance management, civil service reform, customsadministration, and judicial reform.

Sources: Revenue Study; Country Case Studies.

E I R e v e n u e M a n a g e m e n t a n d M a c r o e c o n o m i c P e r f o r m a n c e : S o m eW o r l d B a n k C o u n t r y E x p e r i e n c e s

B o x C 9

sification in all these countries, it has not beenable to address these diversification issues withany clarity, and the efficacy of its interventionshas been low.

Overall, the Revenue Study concluded that therelevance of the World Bank’s interventions forrevenue management in the EI sectors had beenmodest for Ecuador and Kazakhstan, substantialfor Papua New Guinea, and high for Bolivia andGhana. The study rated the efficacy of inter-ventions as negligible for Ecuador, Kazakhstan,and Papua New Guinea, modest for Ghana, andsubstantial for Bolivia.

Managing Volatility and Exhaustibility ofRevenuesFewer than half the CASs for EI-dependent coun-tries (12 out of 26) recognized the importanceof dealing with volatility and exhaustibility of rev-enues from the EI sectors. These CASs identifiedbroad approaches to dealing with the issues: cre-ating a windfall fund and encouraging growthoutside the oil sector (Gabon); offshore funds(Kazakhstan); longer-term strategy of fiscal man-agement of copper revenues and diversifying

exports (Mongolia); developing a strong privatesector in industries other than oil (Azerbaijan);creating an oil stabilization fund (Colombia);and keeping a sizable reserve cushion (Chile).

In two CASs a clear link was found amongissues relating to volatility and exhaustibility ofEI revenues, appropriate policy dialogue, and alending/nonlending program to address them:The Papua New Guinea CAS addresses the coun-try’s vulnerability to external shocks and suggestsenhancing macroeconomic stability throughappropriate policy dialogue and a structuraladjustment loan. The Kazakhstan CAS addressesthe volatility inherent in commodity-led growthby proposing careful management of oil rev-enues, reflected in lending for public sectorresource management and structural adjustment,as well as nonlending initiatives.

A general review of experiences with savingsand stabilization funds, with or without Bankintervention, as well as recent analytical work,suggests that the experience with such funds hasbeen mixed, with the few important successescoming from countries with a strong history offiscal prudence (Botswana, Chile). Without such


8 4

A number of EI-dependent countries have responded tothe prospect of volatility and exhaustibility of EI rev-enues by setting up petroleum, resource, or future gen-erations funds, with the objectives of maintaining fiscaldiscipline, achieving overall macroeconomic stabi-lization, or saving for future generations. These attemptshave been mostly unsatisfactory.

Papua New Guinea’s Mineral Resource Stabiliza-tion Fund of the 1970s was depleted by withdrawals andexcessive public spending and was finally used up in1999 to retire debt that had then reached 25 percent ofGDP. Ghana’s Mineral Fund is a source of controversybecause its recipients, both mining communities andthe Ministry of Finance, have mishandled its system ofresource-rent sharing. Kazakhstan’s National Oil Sta-bilization Fund, created in 2001 to reduce the negativeimpact of oil revenues on the domestic economy andprovide for the welfare of future generations, has yet

to evolve rules for transfer of funds and establish spend-ing priorities and has already been criticized for mis-use of funds. The Petroleum Stabilization Fundestablished by Ecuador in 1990 turned into an addi-tional source of revenue to finance regular budgetaryexpenditures. In Equatorial Guinea, the governmenthas established a Future Generations Fund in its over-all scheme for the use of anticipated petroleum rev-enues, but no significant amounts have been deposited.

In general, the same elements of disciplined eco-nomic management are needed to make a success ofa resource fund as are needed to run an economy effec-tively. Thus, recourse to resource funds is unlikely toyield better results than pursuing equitable distributionand effective utilization of EI revenues through soundfiscal policies.

Sources: Country Case Studies; Davis et al. 2001; World Bank.

H o w E f f e c t i v e A r e R e s o u r c e F u n d s ?B o x C 1 0

a history, the integration of resource funds withoverall fiscal policy has proved problematic,and the stabilization of expenditure has remainedelusive (see Box C10).

Revenue GenerationProject components designed to help resource-dependent countries improve the generationand accounting of fiscal revenues from resourceextraction were included in 10 of the completedprojects in the portfolio. These componentsfocused on improving the capacity of govern-ments to negotiate with investors and on upgrad-ing accounting procedures to internationalstandards.

Six of the completed Technical AssistanceLoans helped to improve negotiating capacityand four others helped upgrade accounting pro-cedures. Three projects, in Georgia (Oil Institu-tion Building TA), Papua New Guinea (PetroleumExploration TA), and Peru (Peru’s Energy/Min-ing TA), helped build negotiating capacitythrough improved data collection and economicanalysis for exploration and development. Capac-ity was developed in Russia for working with for-eign suppliers and organizing bidding (Oil SectorRehabilitation I and II projects) and in Equato-rial Guinea (Petroleum TA project) for main-taining a dialogue on long-term developmentplans with oil companies.

Four completed projects supported the adop-tion of international accounting practices bystate enterprises for improving transparency andcompatibility with foreign investors: Azerbai-jan’s Petroleum TA with respect to the State OilCompany of Azerbaijan, the Mongolia EconomicTransition Support project for the planning andrestructuring of operations of the ERDENETcopper mine, and Thailand’s Gas TransmissionI and II projects with respect to the PetroleumAuthority of Thailand. The results are reportedto have been satisfactory.

Efforts to improve capacity for negotiatingwith private investors and for adopting interna-tional accounting practices have yielded gener-ally favorable results, mainly because the clientgovernments and implementing agencies rec-ognized the immediate benefits of attractinghigher private investment and gaining more

favorable contractual terms. The lesson is thatwhere such conditions are stipulated, these proj-ect initiatives seem to be straightforward andeffective.

Revenue DistributionA distribution of EI revenues among federal,state, and local governments that is broadlyacceptable and sustainable to key stakeholdersis critical for converting the revenues into sus-tainable development and poverty reduction.In general terms, an acceptable distribution ofrevenues is one that is consistent with nationaldevelopmental priorities, subject to (i) entitle-ments of legal, customary, and traditional own-ers of resource rights, and subnational units ofthe government, as recognized under nationallaws and (ii) compensation for negative envi-ronmental and social impacts. An additionalnegotiated premium to local communities andgovernments also may be appropriate, depend-ing on national priorities. While the perceptionof equity will vary, the experience of severalcountries shows that it is important that none ofthe claimants gets an excessive share, poor gov-ernance does not constrain the actual transfer offunds, and there are clear regulatory provisionsfor using the funds in the intended manner (seeBox C11).

Issues relating to distribution of revenuesamong owners of resource rights and differentlevels of government figured in six of the com-pleted projects in the portfolio—with largelysatisfactory outcomes—and two active projectsrelating to the Chad-Cameroon pipeline. The sixcompleted projects—in Bolivia, Papua NewGuinea, and Russia—contained provisions fordistribution of revenues from resource extractionto meet entitlements, compensation, and othernational priorities. Of the six projects, four hadsatisfactory outcomes in terms of achieving theirdistributional objectives.

Revenue UtilizationDevelopmentally efficient use of EI revenue canstimulate broad-based and sustainable economicdevelopment that goes beyond the EI sectors.Approaches to better use of EI revenues arediscussed in CASs for 6 out of 26 EI-dependent


8 5

countries. The approaches include improvingcapacity for public finance management anddeveloping a strategy for poverty-oriented useof revenues (Chad), resisting the unwise expen-diture of oil revenues (Azerbaijan), managingresource rents effectively (Mongolia), and direct-

ing revenues toward sustainable use (Kaza-khstan). Once again, there is little evidence inthe CASs of lending or nonlending activitiesthat follow directly from these discussions. Onlythree active projects relating to the Chad-Cameroon pipeline contain explicit provisions


8 6

Striking the right balance in distribution of EI revenuesinvolves many complex issues and needs firm institu-tional arrangements and provisions for consultationsamong stakeholders to arrive at equitable and sus-tainable arrangements.

The government of Papua New Guinea (GOPNG)has handed over a greater share of the resource rentto the provincial governments and landowners sincepioneering an innovative Development Forum in 1989to represent their interests. In a recent project, GOPNGceded 30 percent of its equity to the landowners, thoughthe 1998 Oil and Gas Act had established a cap of 20 per-cent. Neither side has demonstrated effective use ofthese resources, and the distribution of revenues hasnot yet been settled to everyone’s satisfaction.

In Equatorial Guinea, all oil revenues accrue to thecentral government, which exclusively decides theirallocation, though local municipalities are deeplyaffected by the oil economy. In Chad, just under 5 per-cent of anticipated oil revenues are allocated to thelocal authorities in the oil-producing region and 70percent to poverty sectors throughout the country(including the oil-producing region).

The experiences of Nigeria and Peru illustrate howrevenue distribution can go awry for lack of properimplementation and proper regulatory mechanisms. InNigeria, federal revenues, predominantly from oil,appear to be reasonably shared among the federalgovernment (49 percent), state government (24 per-cent), and local government (20 percent). In practice,these shares are not realized because of prior appro-priations, which are taken off the top, effectively reduc-ing the share of state and local governments, makingthe issue one of actual implementation and quality ofgovernance rather than a lack of appropriate consti-tutional provisions. In Peru, since 2001, the law requires

a 50 percent of mining profits taxes to be plowed backinto local communities. Yet few of these funds appearto reach the communities, primarily because the fed-eral government retains them to pay ancient debts.

In Ghana, the constitution explicitly reserves allmineral rights for the state. Nevertheless, public sen-timent has favored local communities receiving a directshare in royalties paid to the government of Ghana bymining companies. As a result, the government set upa Mineral Development Fund (MDF), which restored atraditional practice of payments to custodians of themining land. The MDF receives 20 percent of all min-ing royalties, of which 9 percent goes to mining com-munities, which in turn is subdivided between localauthorities. The other 11 percent goes to mining sec-tor institutions and mineral-related investment projects.In practice, however, the discretion given to the Min-istry of Finance in handling the MDF together with thelack of clear expenditure guidelines for the localauthorities has resulted in little benefit to the localcommunities.

The distribution of oil rents in Ecuador is consid-ered the most centralized and least transparent of thefour Andean countries (ESMAP 2000). Over 1995–2000,an average of 90 percent of available oil rents wasassigned to the central government and its institu-tions, 62 percent to the central budget, 7 percent to thearmed forces, and 23 percent to the universities. Pro-ducing provinces and municipalities averaged 1.2 and2.4 percent, much below the Andean countries’ aver-age of 18.9 percent and 9.5 percent. Although a largeshare of local government resources come from othercentral government transfers, they account for lessthan 1 percent of central government expenditures.

Sources: Country Case Studies; World Bank.

D i s t r i b u t i o n o f E x t r a c t i v e I n d u s t r i e s R e v e n u e s —S t r i k i n g t h e R i g h t B a l a n c e

B o x C 1 1

for allocating fiscal revenues from extractiveindustries (see Box C12).

Coordination across the World Bank GroupAside from serving as an instrument for inte-grating activities within the Bank, the CAS isexpected to strengthen coordination and coop-eration between the Bank and IFC/MIGA. How-ever, the review of CASs of EI-dependentcountries found that, while the discussion of link-ages with the Bank’s EI activities has been verymodest, the EI activities of IFC and MIGA are notalways mentioned, even in joint CASs.132 Inresponse to a survey question about the coor-

dination across the WBG on important issuesaffecting the EI sectors, 52 percent of Bank staffand 100 percent of MIGA, but only 48 percentof IFC staff, responded that it was adequate. Inresponse to a question about factors that con-strain the WBG’s ability to help client countriesenhance the contribution of the EI sectors to sus-tainable development, Bank and MIGA stafftended to point to the inadequate linkagebetween EI activities and sustainable develop-ment (50 percent and 56 percent, respectively,versus 42 percent of IFC staff), while IFC staffpointed to the inadequate level of support fromthe Bank’s Country Departments and Country


8 7

Issues related to use of EI revenues are intertwined withthose of public expenditure policies. However, depend-ing on the relative importance of EI revenues and thenature of developmental and macroeconomic priorities,sector-specific strategies need to be devised.

In Papua New Guinea, a large proportion of EI rev-enues went toward nonproductive uses in the 1990s, aperiod of poor economic growth for the country. Thiswas due to inadequate institutional capacity as wellas government preoccupation with macroeconomicimbalances, which distracted it from the scope andquality of public expenditure. Since 2000 the govern-ment of PNG has been consciously redirecting recur-rent expenditure toward development projects.

In Equatorial Guinea, after a long period of poor eco-nomic growth, there have been visible signs of infra-structure improvements since 1995 that support the oiland the associated service industry and access roadsin agricultural areas. The investment budget—whichreflects a 1997 commitment to give priority to essentialinfrastructure and to alleviate poverty through invest-ments in social services and agricultural diversifica-tion—is allocated among administration (20 percent), theproductive sectors (13 percent), health (10 percent), edu-cation (15 percent), and infrastructure (32 percent). Whilethe allocation appears appropriate for EquatorialGuinea’s development needs, much needs to be done todevelop the capacity of the sector ministries to imple-ment such a large investment program efficiently.

In Bolivia and in Ghana, EI revenue enabled thegovernment to increase spending on social programsand begin to alleviate poverty, but poverty remainsentrenched in both countries. In Ecuador and PNG,poverty alleviation is an even more distant hope. InKazakhstan, poverty assessments were undertakenonly in the late 1990s, and their conclusions have beenincorporated into World Bank strategy, but the Bank haslittle leverage after abundant oil revenue reduced thegovernment’s commitment to reform.

Chad’s ongoing Petroleum Revenue Managementproject contains a detailed Revenue Management Planthat allocates prospective revenue from petroleumprojects to poverty-related sectors such as education,health, rural development, and infrastructure (70 per-cent), civil sector operation expenditure (15 percent),a future generations account (10 percent), and a sup-plement to the producing region (5 percent). Capacity-building and institutional arrangements for transparentallocation and utilization are in process.

In Ecuador, a Bank review concluded that most ofthe country’s oil capital was being used to financegovernment consumption, including widespread over-staffing in the public sector, growth in inefficient pub-lic enterprises and low levels of non-oil taxation, andhigh levels of subsidies for petroleum.

Source: Country Case Studies.

A p p l y i n g E x t r a c t i v e I n d u s t r i e sR e v e n u e s t o t h e R i g h t D e v e l o p m e n t a l P r i o r i t i e s

B o x C 1 2

Management Units (55 percent versus 52 percentof Bank staff and 29 percent of MIGA staff).These findings also point to a need for greaterintegration of EI sectoral and macro interventionsin the Bank’s assistance strategies, especiallyfor IFC activities.

ConclusionsAt the country level, the majority of CASs in EI-dependent countries recognized one or moreissues related to the management of fiscal rev-enues from resource extraction, but in only a fewinstances was the discussion linked to specificinterventions to address them. Also, the Bank’soverall lending to EI-dependent countries expe-riencing negative growth has been substantiallylower than average, with no indications of com-pensating non-lending interventions133 and noevaluative evidence on the results of such inter-ventions. A desk review of Bank interventionsin five EI-dependent countries found that gov-ernance was the key to the successful manage-ment of EI revenues and fed into the quality ofrevenue distribution and the efficiency of itsuse in support of broad-based and sustainabledevelopment.

The CAS review and the staff survey findingspoint to a need for greater integration of EI sec-toral and macro interventions in the assistancestrategies. The evidence suggests that only halfof WBG staff believed the actual level of coor-dination to be adequate , with inadequate link-ages between EI activities and sustainabledevelopment and inadequate support from theBank’s country units emerging as the main areasfor improvement. The joint CAS process, whichhas not been much used in EI-dependent coun-tries, would appear to be an important instru-ment to achieve integration.

Taken together, these findings suggest that,while the Bank has been reasonably effective inthe few cases when it addressed revenue gen-eration and distribution issues at the projectlevel, it has yet to formulate and implement astrategy to consistently transform resource rentsinto sustainable development, particularly inthe most poorly performing EI-dependent coun-tries where the need is greatest. If the Bank isto have a more effective role in such countries,

it will likely require government commitment aswell as the full leverage of the Bank to achieveboth sound fiscal management and a support-ive governance framework. The best place toclarify the linkages between resource rents andsustainable development is the CAS, which canthen be used to guide the design of specific proj-ects and the monitoring and evaluation of results.

The strategic approach needs to ensure thatproject-specific interventions are effectively inte-grated with a macro-level effort to manage therevenues for sustainable development. Projectsand analytical and advisory activities tostrengthen policies and institutions to ensurethat the management and use of EI revenues isefficient and transparent should play a major role.Projects to close uneconomical mines and mit-igate pre-existing environmental and social con-ditions, including the integration of artisanaland small-scale mining within the formal sector,also will be important where such problemsexist. Projects to establish a legal and regulatoryframework that is appropriate, stable, and con-sistently enforced and that will facilitate the pri-vatization of ongoing activities also should beexpected to make a major contribution. Wherethe Bank can be confident that the incrementalrevenues will support sustainable development,it should continue to promote private investmentfor sector expansion.

6. Addressing the Challenge ofGovernance

High dependence on revenues from extractiveindustries has been associated with corrosiveeffects on economic and political life, includingrent-seeking and government ineffectiveness,in many countries. Indeed, a review of the lit-erature and feedback from NGOs suggest thatgood governance is central to creating an envi-ronment that fosters sustainable and equitabledevelopment and is an essential complement tosound revenue management and safeguard poli-cies. Figure C11 shows the association betweenthe quality of governance and EI dependence.134

Countries such as Botswana and Chile135 havesuccessfully leveraged their wealth into sus-tainable growth through investment-friendlypolicies, fiscal discipline, and long-term planning.


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While the highest quality of overall and sectoralgovernance may not be required for an EI proj-ect to be beneficial to a client country, some min-imum conditions should exist to help ensure thatthe benefits of EI projects are not squanderedand the citizens left with costs that can includeenvironmental damage, health risks, and war.

Governance, defined as how power is exer-cised in the management of a country’s eco-nomic and social resources for development, hasbeen an explicit concern for the World Bank atleast since 1990, when the Bank’s General Coun-sel articulated the legal basis for its work in thisarea. This was followed by a Board Paper on“Governance and Development”136 that outlinedthe Bank’s general approach to improving gov-ernance. Before this time, the Bank had under-taken many initiatives that addressed institutionaland policy aspects related to governance. Theyincluded projects to reform public sector policiesand institutions and to create an enabling envi-ronment for private sector development. Since theearly 1990s, much effort has been devoted tostrengthening complementary process-orientedaspects of governance, including public partici-pation, information disclosure, transparency pro-motion, and corruption reduction.

Project Components Relating to Governanceand TransparencyThe Portfolio Review found that about 41 per-cent of extractive industry projects had at leastone component that bears directly or indirectlyon improving governance and transparency.The relevant project components address sectoralgovernance issues such as (i) the institutional andpolicy framework and related capacity-buildingfor clarification of property rights and improvedaccounting and auditing standards and prac-tices and (ii) strengthening governanceprocesses, including public consultation andparticipation, information disclosure and dis-semination, transparency promotion, and cor-ruption reduction.

Institutional and Policy Framework: Prop-erty rights issues relating mainly to clarificationand administration of exploration rights andaccess to pipelines were addressed in ninecompleted and five active projects and hadgenerally satisfactory outcomes. Cadastre andregistry systems were formulated or upgraded(Argentina, Ecuador, Peru), and institutionalcapacity was improved for enforcement of lawsand regulations, as well as for administering


8 9

W o r s e C o u n t r y G o v e r n a n c e w i t hG r e a t e r E I - D e p e n d e n c eF i g u r e C 1 1

0 20 40 60 80

100 120 140 160 180

0 20 40 60 8 0 100 Average EI Exports / Total Exports, 1990–99 (%)

“Com

posi

te”

GRI

CS In

dica

tor R

ank

20

00/2

001

a

a “Composite” GRICS ranks are a simple average of individual GRICS rankings for 2000/2001 for Voice and Accountability, Political Stability, Government Effec-

tiveness, Regulatory Quality, Rule of Law, and Control of Corruption.

Source: http://www.worldbank.org/sbi/governance/pdf/2001 kkzcharts.xls

mine titles (Albania, Bolivia, Guinea, Peru, Rus-sia, Zambia). Ongoing efforts among activeprojects included strengthening mining cadas-tral systems and related institutional capacity(Madagascar, Mozambique, Romania). In addi-tion, components addressing the managementof fiscal revenues were included in 10 projects(see Chapter 5).

Public Consultation and Participation: Con-sultative and participative decisionmakingprocesses involving all important stakeholders—local community, government, and industry—recently have emerged as important in a strategyto strengthen governance processes. In the port-folio of completed projects, public consulta-tions of varying levels and in different forms,beyond the minimum requirements of the Bank’sEA policy, were undertaken in only four proj-ects. The Bolivia-Brazil Gas Pipeline projectinvolved creating community-based organiza-tions and committees and consulting the pub-lic on draft regulations and the project’senvironmental assessment. The Georgia Oil Insti-tution Building project provided for training instakeholder analysis and public consultation tomaximize public participation in environmentaldecisionmaking. During the India Jharia MineFire Control project, effective public consultationprocesses included concerned state government,union leaders, tribal communities, and NGOs.The Russia Coal Implementation TA project sup-ported stakeholders’ participatory activities, espe-cially local trade unions and the Association ofMining Cities.

Among the active projects, the Chad-Cameroon Pipeline project has involved publicconsultations in the preparation of the project’sEnvironmental Assessment and EnvironmentalManagement Plan. Extensive and frequent pub-lic consultation also has taken place on thesubject of likely project impacts and compen-sation measures. Compensation rates for allcrops, trees, and other assets have been wellresearched and discussed with affected peoplein all categories of land tenure. The privatesponsors will pay compensation at real marketvalues, which are over and above governmentschedules.

Overall, while public consultation and par-ticipation has helped project implementationwhere it was carried out, it was quite rare acrossthe portfolio of EI projects. This is an importantgap in a sector where production and rehabili-tation activities directly affect the livelihood andenvironmental and social well-being of largenumbers of people and where benefits need tobe shared in a cooperative and transparent man-ner to prevent rent-seeking behavior. The promi-nent examples of public consultation haveoccurred in countries with relatively higher lev-els of education and per capita incomes. In lightof this finding, it is important to develop suit-able mechanisms to ensure that affected peoplewho are less literate and economically weakare given appropriate and fair means to regis-ter their feedback on issues that effect them. Theprovisions established for the Chad-Cameroonprojects represent a particularly important pilotexperience in this area.

Disclosure and Information Dissemination:Public disclosure and information dissemina-tion, including conducting opinion surveys, fig-ured in only six completed projects. Opinionsurveys of project beneficiaries were conductedin six projects in Albania, Peru, Poland, andUkraine. Public information and communica-tions campaigns were mounted in six completedprojects in Albania, Bolivia, Peru, Poland, andZambia, with mixed results. Among active proj-ects, the four projects associated with the Chad-Cameroon pipeline contain exemplary provisionsfor public disclosure and information dissemi-nation.137

In Albania, as part of the Structural AdjustmentCredit project (in which mining was only onecomponent), the government conducted a sur-vey of citizens’ satisfaction with services, gov-ernance, and institutional reform strategy andreceived generally favorable feedback. A surveyof beneficiaries and stakeholders was madeunder Poland’s Coal SECAL I and II projects,while Poland’s government also initiated anintensive dialogue with representatives of localgovernment, labor unions, and NGOs. In theUkraine Coal Pilot and Coal SECAL projects, anindependent institute was involved in monitor-


9 0

ing social rehabilitation efforts with affectedparties and obtained generally positive feed-back from project beneficiaries. A public opin-ion survey was conducted following thePrivatization Adjustment project in Peru.

A public information campaign was mountedin Poland’s Hard Coal SECAL I, and Albaniabegan a program to survey citizen’s satisfactionwith key public services and publicized reviewsof the impact of each element of its governanceand institutional reform strategy (Albania Struc-tural Adjustment Credit project). Following acontroversy over its mapping work, the EcuadorMining/Environment TA project began a dis-semination effort to present scientific factsthrough various public forums. Bolivia’s publicinformation campaign on the benefits of thereform was not sufficient or effective enough toanswer public criticism of the Regulatory Reformand Capitalization projects regarding benefitsof newly capitalized firms. Zambia’s efforts toproduce an NGO policy paper proved insuffi-cient to bridge the gap between the complexgroups of NGOs and the government. Ukrainefailed to respond adequately with appropriateinformation or disclosure to damaging reportsin the media on the conduct of coal sectorreform and may have invited political opposi-tion to the reform process.

Promoting Transparency and Reducing Cor-ruption: Promoting transparency and reducingcorruption did not figure as explicit objectivesin any of the completed projects that werereviewed, with the exception of the Russia CoalSECAL I and II projects. However, some tech-nical assistance components, such as those relat-ing to accounting standards, bidding processes,and better management practices, had the effectof improving transparency, some of which mayhave lasting effects. There was one instance ofmisuse of project funds that was addressedeventually. Overall, 16 projects had componentsrelated to transparency or corruption, some ofwhich were minor in scope.

An important objective of Russia’s Coal SECALI and II projects was the establishment of atransparent mechanism for the allocation andeffective monitoring of subsidies. During these

projects, the government of Russia took a seriesof radical and far-reaching steps that enhancedtransparency and accountability through trans-fer of subsidy administration to governmentministries and created mechanisms for directpayment of entitlements to individuals and jobcreation programs to local administrations.

The Bank’s funding for Peru’s Committee forPromotion of Private Investment helped it func-tion with greater independence during the saleof state-owned enterprises (Peru’s PrivatizationAdjustment project). Open and transparent bid-ding was used for the first time for petroleumimports, which helped to reduce costs of petro-leum purchases (Petroleum Sector Reform proj-ect). Transparency was improved throughupgrading accounting and auditing proceduresduring Azerbaijan’s Petroleum TA and Thailand’sGas Transmission project, as well as under Mada-gascar’s Petroleum Sector Reform project.

A notable achievement of the PeruEnergy/Mining TA was that the government andpublic have accepted the concept of autonomousregulatory operators with stable and nondis-criminatory rules. The funds for the Miners’ Sep-aration Package scheme under Poland’s HardCoal SECAL were properly accounted for throughaudits, and accountability of mining companieswas improved through more transparent com-pany business plans and operating plans.

In the Ukraine Coal SECAL, the small businesscomponent saw some fraud in applications formicro-credit and employment subsidies, but fol-low-up measures to prevent recurrence wereeffective. Some administrative problems wereencountered during audits of the employmentrestructuring funds and mine liquidation fundsin Poland’s Coal SECAL I and were satisfactorilyresolved, and it was confirmed that the funds hadbeen used properly.

There were some less successful experiences,as in Zambia’s Second Economic and SocialAdjustment project, where bilateral donors sus-pended program lending because of their con-cerns about governance issues. The Bank’s sectorpolicy initiatives in Russia helped underline theimportance of institutional regulations surround-ing transparent allocation of quotas and access toexport pipeline facilities (Oil Sector Rehabilitation


9 1

I and II projects), though a draft law for this pur-pose fell short of expectations. Albania’s Anti-Cor-ruption Plan supported an array of measures toincrease transparency, such as deregulation, moretransparent privatization and licensing proce-dures, public administration reform, and judicialreform, which had an impact on all sectors,including hydrocarbon and mining.

In Bolivia’s Regulatory Reform and Capital-ization Assistance projects, detailed asset valu-ation helped set a benchmark to ensure that afair bidding process and the privatization processwere considered most transparent by investors.However, the government’s scheme for sharingthe proceeds of capitalization with specifiedsections of the population was marred by casesof fraud by claimants who falsified their ages toclaim benefits. During the Guinea Mining Sec-tor Investment project, the Ministry of Minesnegotiated mining rights with potential privateinvestors in a nontransparent way with respectto bauxite and alumina concessions, especiallyfor the Dian Dian deposits. Though outside thescope of the project, these actions could wellhave affected the interest of potential investorsin project activities. However, on another count,budgetary transparency was improved by theelimination of the Agency for the Managementof Mines Infrastructure. Under the MongoliaCoal project, modern financial accounting, budg-eting, and cost accounting have been intro-duced and adopted.

Overall, the scope of the project componentsrelating to governance and transparency tendedto be narrow, relating to specific steps in thesequence of project-related activities. In mostcases, the link with better governance and trans-parency was incidental and did not follow froma stated objective of the project. None of the proj-ects have any stated objectives dealing withlarger governance or transparency issues, thoughthese issues are recognized in many CASs. Onereason for this could be the political sensitivityof this subject, making it difficult to convinceclient countries to adopt specific objectives in thisregard. Another possibility is that these issues,being common to many sectors, may need to bedealt with at the macro level rather than throughsectoral interventions.

Addressing Governance at the Country LevelSince major governance issues are most likelyto be addressed through interventions that arenot tied directly to EI projects, the GovernanceStudy was undertaken to review the WorldBank’s assistance to six EI-dependent coun-tries138—Chile, Ecuador, Ghana, Kazakhstan,Papua New Guinea, and Tanzania—in light ofmacro and sectoral governance problems. Thestudy sought to understand the degree to whichthe Bank is factoring governance into its sectoralapproach through governance-focused ESW, agovernance-informed sectoral assistance strategy,and the design of projects. The study also makesan important distinction between macro andsectoral governance.

Macro Governance: Governance at the macrolevel covers all aspects of exercising authoritythrough formal and informal institutions in man-aging a state’s resources for sustainable devel-opment. Thus, the elements of macrogovernance include the creation of a favorableclimate for economic growth, transparent budg-etary and financial management, transparency inthe political process, and a voice for all citizens,while providing them with effective social andenvironmental services. Many indicators havebeen developed for measuring the quality ofmacro governance in terms of its performanceand process. Each indicator tends to cover oneor two aspects of macro governance and theviewpoint of one or more important stakehold-ers—the government, civil society, or the busi-ness community. The World Bank Institute’sGovernance Research Indicators Country Snap-shot (GRICS) estimates six dimensions—voiceand accountability, political stability, govern-ment effectiveness, regulatory quality, rule of law,and control of corruption.139

Sectoral Governance: In contrast to macrogovernance, sectoral governance in the contextof the EI sector is more closely concerned witha satisfactory legal, regulatory, and institutionalframework to manage environmental and socialrisks; involving and protecting local communi-ties against negative impacts of EI activities,including abuse of individual rights;140 ensuring


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investor compliance with the law; and protect-ing investor contractual rights. This requires thatappropriate environmental, financial, and com-pensation regulations exist and are enforced,with the effective participation of the local com-munities, while the rights of investors arerespected. The structure and process of good sec-toral governance can be ensured through gov-ernment capacity-building and appropriatepolicy, legal, and institutional reforms, preferablyin the overall context of good macro gover-nance. In the absence of indicators specific tosectoral governance, they may need to bederived from those for macro governance, butextra efforts may be needed to tailor them to thespecific situations and for data collection.

From Governance Awareness to Project Design The Governance Study found that most of theBank’s EI projects are not the result of a gover-nance-informed sector strategy. There is no indi-cation that the decision to support increasedinvestment or structural adjustment loans waspreceded by an analysis that considered thelikely governance benefits and risks of suchinvestments. It is recognized that most of the EIprojects under review predate the Bank’s sharp-ened focus on governance in the later 1990s.141

The Bank’s apparent lack of integration of gov-ernance concerns into the lending program isreflected in recent OED CAEs covering the 1990sthat found fault with the Bank for a belated, indi-rect, or muffled response to obvious gover-nance issues in Ecuador, Ghana, Kazakhstan, andPapua New Guinea.

PNG presents a rare case where a link can bediscerned between governance ESW, a gover-nance-informed strategic approach to the EIsectors set out in the CAS, and the design of EIprojects in the period under review. Both ofPNG’s Petroleum TA projects predated the Bank’sincreased focus on governance. But despite thesuccess of these projects in building Papua NewGuinea’s petroleum sector, OED’s CAE found that“progress in managing the growth of the oiland gas industry has not led to sustained eco-nomic benefits to the country because of macro-economic mismanagement of oil revenues” andrecommended that “the Bank should intensify

its non-lending assistance, but restrain its lend-ing services.” Although both later operations, the2000 Mining Sector Institutional TA Project andthe 2000 Gas Development TA project, are pri-marily intended to increase private investmentin their respective sectors, they also includecomponents to address macro and sectoral gov-ernance issues.142 The Governance Study, how-ever, found no indication that the Bankconsidered the likely benefits of such increasedinvestment in light of governance risks.

In Kazakhstan, while a public sector reformloan achieved the technocratic reforms it sought,it did not achieve its stated purpose of improv-ing the effectiveness of resource mobilization andthe efficiency of the use of resources becauseof the absence of system-wide checks and bal-ances.143 Papua New Guinea and Kazakhstan arenot isolated cases.

The findings of the Governance Study arebroadly similar to those of the Stakeholders’Survey, but WBG staff involved in EI projects andcountries tend to be more sanguine. The surveyof participants in the EIR’s Stakeholder Work-shops found that, while 83 percent of respon-dents expressed the need for the WBG tobecome involved in improving governance andtransparency, only 41 percent felt that the levelof effort and 26 percent that the level of successhad been adequate. The survey of WBG stafffound that 90 percent of respondents felt thatimproving governance and transparency in EI-dependent countries was important, and 64 per-cent said that these issues had been adequatelyaddressed in projects. Here again, the surveyfindings confirm that there is room for signifi-cant improvement in strengthening the linkagebetween EI activities and governance issues.

Sequencing EI Lending with Regard toImproved Macro and Sectoral GovernanceIn pursuing lending interventions in EI withoutpaying sufficient attention to governance, theWorld Bank risks a situation where a country isunable to capture the benefits or control the risks.Historically, the Bank’s approach to the EI sec-tors has promoted private investment for sectorexpansion as a major objective on the basis thatstate enterprises in the sector had not been


9 3

managed to maximize productivity and weresubject to corruption and political interference.The rationale was that private sector develop-ment was desirable because it would be bettermanaged and produce more fiscal revenue, butno explicit linkage was made to the efficient useof these revenues. This focus on expandingproduction through PSD predates the institutionalchanges in the late 1990s that allowed gover-nance to be diagnosed, analyzed, and consid-ered, and it may predate much of the debate onthe development impact of EI sectors.

The Bank has no strategy for sequencinggovernance interventions in the EI sectors orcoordinating them with work done in other sec-tors. Instead, the sequence of Bank actions hasbeen shaped by the evolution of its under-standing of the issues and its mandate. As a con-sequence, where the Bank sought to increaseinvestment in the EI sectors, it pursued thisobjective either before supporting better riskmanagement, or simultaneously. But as theexperiences in Papua New Guinea and Kaza-khstan illustrate, working to establish the pre-requisites for good development outcomes fromEI investments in parallel with, or after sup-porting expansion of the sector, poses a majorchallenge and is a high-risk strategy in countrieswith poor macro and sectoral governance.

Finally, countries are likely to be less recep-tive to improving governance in revenue andsafeguards after the major investments havebeen made and incremental revenues are flow-ing. Yet no awareness of such logic is evidentin the portfolio under review, nor is there anyindication from ESW that the World Bank con-sidered a sequencing of its interventions to mit-igate the attendant risks. The decision to focusthe policy dialogue with Equatorial Guinea,Kazakhstan, and Papua New Guinea on gover-nance issues came after private investments inresource development had made the Bank unim-portant as a source of finance. In hindsight, theexperience in these countries points to the needfor the Bank to develop a more selective andsequenced approach that takes macro and sec-toral governance issues into account and givespriority to improving management of existingsectoral revenue flows and environmental and

social risk ahead of promoting new investmentsin expanding the EI sector. Alternatively, effec-tive measures need to be taken to ensure thatrevenues from new production are used to pro-mote development and reduce poverty.

ConclusionsWhile the Bank has long been aware of theimportance of addressing the governance chal-lenge for ensuring the transformation of resourcerents into sustainable development, there is lit-tle evidence of sector-specific governance strate-gies in CASs of EI-dependent countries. TheBank’s project-level interventions tend to besporadic and narrow in scope, with few caseswhere a link can be discerned between theseinterventions and governance ESW or a gover-nance-informed strategic approach to the EIsectors set out in the CAS. Where some links canbe observed, as in Papua New Guinea and Kaza-khstan, their experience suggests that gover-nance issues take a long time to address, andworking to establish good governance in parallelwith, or after supporting increased investmentin EI, is a high-risk strategy in countries with poormacro and sectoral governance.

The priority of supporting increased invest-ment in the EI sectors needs to be based on anassessment of the quality of macro and sectoralgovernance. Where sectoral governance is poor,the Bank may focus its efforts on helping theborrower better capture the benefits and con-trol the risks of EI projects in preparation forgreater investment. Where macro governance isalso weak, however, the Bank’s decision tosupport sectoral reforms must be undertakenstrategically with an understanding of theirlikely impact.

To assess the quality of macro and sectoralgovernance, the Bank needs to develop appro-priate diagnostic instruments that take key indi-cators into account, supplemented by additionalanalysis. Key indicators of macro governancerelate to the quality of public financial man-agement and rule of law144 as a measure of thegovernment’s ability to address problemsthrough institutional reforms. At present, whilethere is substantial Bank ESW focused on thequality of public financial management, there


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is no diagnostic instrument to evaluate the ruleof law or the quality of sectoral governance.Both of these gaps would need to be addressedfor the Bank to be able to take macro and sec-toral governance into account, at least in EI-dependent countries.

Given an assessment of the quality of macroand sectoral governance, a three-tiered approachwould seem appropriate:• For countries with sound macro and sectoral

governance, the Bank should support thecountry as needed to attract investment toexpand the sector or further improve man-agement of resource revenue flows and envi-ronmental and social risks.

• For countries with sound macro governanceand weak sectoral governance, the Bankshould focus its support on strengtheningsectoral governance, including managementof environmental and social risks, and supportsignificant sector expansion only in con-junction with adequate provisions to com-pensate for sectoral governance weaknesses.

• For countries with weak macro and sectoralgovernance, where the government lacks theability to manage revenues well, increasedinvestment designed to augment governmentrevenues will have little benefit, and the Bankshould focus its support on strengtheninggovernance and managing of environmentaland social risks.145 The promotion of invest-ments for significant sector expansion shouldbe avoided, except where the Bank can ade-quately mitigate the risk that fiscal revenuesfrom new investment may not be used for thecountry’s development priorities. The Chad-Cameroon model represents an importanttest case for such a holistic approach.146

7. RecommendationsHow effectively has the World Bank assisted itsclient countries in improving the contribution ofthe extractive industries to sustainable devel-opment? On the one hand, with its global man-date and experience, comprehensive countrydevelopment focus, and overarching mission tofight poverty, the Bank is well positioned to helpcountries overcome the policy, institutional, andtechnical challenges to transforming resource

riches into sustainable benefits, and its achieve-ments are many. Overall, nearly 80 percent ofthe Bank’s EI projects had at least moderatelysatisfactory outcomes, and the performance ofthis portfolio has been consistently and signifi-cantly above Bank-wide averages in terms of out-come, institutional development impact, andsustainability. The Bank’s research made majorcontributions to broadening and deepeningunderstanding of the disappointing perform-ance of resource-abundant countries. It hashelped set standards in the formulation andimplementation of guidelines for the mitigationof environmental and social impacts. Morerecently, it has begun to address the challengeof governance with a variety of innovative tools.

On the other hand, the Bank can do muchmore to improve its performance in enhancingthe EI sector’s contribution to development andpoverty reduction by (i) formulating and imple-menting integrated corporate- and country-levelstrategies for addressing the broader develop-mental issues that lie at the heart of manyresource-rich countries’ inability to achieve sus-tainable development; (ii) strengthening theimplementation of the Bank’s projects based onits policies for mitigating environmental andsocial impacts and for monitoring and reportingeconomic, environmental, and social results;and (iii) engaging stakeholders to developstronger and widely accepted governance frame-works to assist the transformation of resourceendowments into sustainable development.

Given the size and complexity of the WorldBank Group and the diversity of issues thatneed to be addressed, the responsibility for fol-lowing up on these recommendations is notexpected to rest exclusively with the sector spe-cialists in the Energy and Mining Sector Boardand the Oil, Gas, Mining, and Chemicals GlobalProducts Group.147

Recommendation 1: Formulate an IntegratedStrategyThe Bank has not devoted enough attention tothe developmental needs of the poorly per-forming resource-abundant countries, many ofwhich experienced negative growth during the1990s. To address this gap, the Bank Group


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needs to formulate and implement integratedstrategies, at both the corporate and countrylevels, for transforming resource endowmentsinto sustainable development. Such an inte-grated strategy will start with the presumptionthat successful EI projects—whether financed bythe Bank or not—have to provide revenues togovernments, mitigate negative environmentaland social effects, and benefit local communi-ties. It also will need to address governancesquarely and help to ensure that EI revenues areused effectively to support development prior-ities. It also will require much better coopera-tion within the WBG and with other stakeholders.

(a) Formulate a sector strategy: The Bank,together with other members of the World BankGroup, needs to design and implement a sec-tor strategy that closely integrates resource extrac-tion with sustainable development through theeffective management of EI revenues in supportof developmental priorities and the reliable mit-igation of adverse environmental and socialimpacts.148 Where macro and sectoral gover-nance are weak, the Bank’s assistance shouldfocus on strengthening macro and sectoral gov-ernance. In such cases, the Bank should care-fully assess and report on the risks that EI fiscalrevenues may not be used for development pri-orities.149 The Bank should not support signifi-cant sector expansion unless it can adequatelymitigate these risks.150 Where macro governanceis sound but sectoral governance is weak, theBank should focus on improving sectoral gov-ernance.

(b) Address extractive industries in CASs: Forall resource-rich countries, the Bank shouldexplicitly address extractive industries in theCASs.151 The CAS should discuss the sector’seconomy-wide linkages (such as the impor-tance of government revenues, their manage-ment, and distribution) and reference theunderlying governance assessment. This shouldguide future project design, facilitate monitor-ing and evaluation, and provide a frameworkfor WBG-wide coordination and collaborationin the EI sector.

(c) Promote improved governance where gov-ernance is weak: The Bank should compensatefor the lower level of lending that may be appro-

priate for resource-rich countries with weakmacro and sectoral governance152 by devotinggreater management attention and an adminis-trative budget for advisory and analytical activ-ities aimed at improving the policy, institutional,and governance framework for EI. This wouldenable the Bank to establish and maintain con-tinuity of engagement and facilitate a quickresponse to opportunities for assistance whenthey arise.153

(d) Support private sector development andenvironmental sustainability: In all countries, theBank should be ready to support the closure ofuneconomical mines, reform and privatization ofstate-owned enterprises, and mitigation of pre-existing environmental and social problems.Where appropriate, the Bank should help inte-grate ASM with the formal sector and internal-ize its environmental and social impacts, whileat the same time creating alternative employmentopportunities and supporting the consolidationof ASM activities for greater efficiencies andeconomies of scale.

Recommendation 2: Strengthen ProjectImplementationThe Bank needs to strengthen the implementa-tion of its existing policy framework and ensurethat it remains up-to-date with evolving needs.Given the potential impacts of resource extrac-tion and the controversy surrounding the sector,rigorous implementation of safeguard policies isa minimum requirement for the Bank to oper-ate in a world concerned with sustainable devel-opment. In addition, in light of growing concernsabout the sustainability of EI-based develop-ment, the Bank needs to define, monitor, doc-ument, and report on the economic, social, andenvironmental impacts of its projects more sys-tematically. Specifically, the sharing of benefits,identified by many stakeholders as a very impor-tant issue for resource extraction, needs to beexplicitly monitored and evaluated.

(a) Improve upstream project screening: TheBank should provide clearer and more consis-tent guidance for the categorization of sectoraladjustment and technical assistance projects,the identification of applicable safeguards atthe initial project screening, the appropriate


9 6

scope and nature of the EA instruments, and thereporting and evaluation of safeguards imple-mentation. This needs to be followed up throughthe entire implementation framework, fromgood practice guidelines to appropriate moni-toring and training.

(b) Provide for adequate specialist involvementat every stage: The Bank should strengthen theimplementation of its safeguard policies by pro-viding adequate resources for the participation ofqualified environmental and social specialists inthe preparation, appraisal, and supervision of allprojects that are likely to have adverse impacts.This will ensure that such impacts are addressedadequately through the upstream design of appro-priate mitigation strategies or project alternatives,as well as through the retrofit of timely remedia-tion measures should unexpected impacts mate-rialize during project implementation.

(c) Enhance reporting of results: The Bankshould strengthen the implementation of itscompletion reporting requirements by (i) ensur-ing that project completion reports include thecalculation of an ex-post economic rate of returnor net present value or, where that is not feasi-ble, a cost-effectiveness analysis to determinewhether the project represented the least-costsolution to attain its objectives and (ii) prepar-ing an activity completion summary for every sig-nificant nonlending activity.

(d) Evaluate the sharing of benefits: Atappraisal and project completion, the Bankshould systematically estimate the distribution ofproject benefits among different stakeholdergroups—government at different levels, privatecompanies, and local communities—evaluateits sensitivity to different scenarios and discussits acceptability with key stakeholder groups.

Recommendation 3: Engage the StakeholdersOften in collaboration with other organizations,the Bank has brought together diverse stake-holders in extractive industries to address issuesat the local, national, regional, and global levels.The Bank’s convening role has been activelysought and has been significant because of itsaccess to all stakeholders, private and publicdevelopment experience, and ongoing involve-

ment with project investment and technical assis-tance in the sector. But the Bank has addressedsome areas inadequately—notably governanceand revenue management. The Bank’s perform-ance in these areas can be enhanced by improv-ing consultation with stakeholders, includinglocal communities, and by systematically andtransparently reporting on key sustainability indi-cators. Such an approach also is likely to raise stan-dards and practices of the sector as a whole.

(a) Update policy framework: In consultationwith its stakeholders, the Bank should adjust itspolicy framework for extractive industries peri-odically to ensure that they remain up-to-datewith evolving industry practice. It should resolveremaining inconsistencies within the WBG154 andaddress identified gaps.155 It also should recognizethe expanding awareness of the human rightsdimension of Bank policies and projects andexplore possible avenues for addressing the issues,especially where it lags industry best practice.

(b) Promote disclosure of fiscal revenues fromEI: The Bank should vigorously pursue country-and industrywide disclosure of government rev-enues from EI and related contractual arrange-ments (such as production-sharing agreements,concession, and privatization terms).156 It shouldwork toward and support disclosure of EI rev-enues and their use in resource-rich countries.

(c) Define and monitor sustainability indi-cators: Together with other stakeholders, theBank should define indicators of economic,social, and environmental sustainability,157 estab-lish baseline data, provide for adequate moni-toring over the life of the project, and report andevaluate on the results during supervision andin project completion reports. The Bank alsoshould encourage more independent outsidemonitoring, ideally using local capacity (whichmay have to be developed).

(d) Increase local community participation:The Bank should support enhanced communityconsultation and participation throughout the lifecycle of EI-projects. The Bank should assistcountries to increase involvement by local com-munities in EI decisionmaking processes andongoing consultation throughout the project lifecycle, including closure.


9 7

EX

TR

AC

TIV

E IN

DU

ST

RIE

S A

ND

SU

ST

AIN

AB

LE

DE

VE

LO

PM

EN

T

98

Total Number of Projects: 76Oil and Gas (Completed 24; Active 15); Mining (Completed 24; Active 13)

Oil and Gas: Completed Projects

FY FY EA ProjectProject title Region Country Lending instrument approval completed category cost WB loanPetroleum Technical Assistance II AFR Equatorial Guinea Technical Assistance 1993 1998 C 3 3Calub Energy Development AFR Ethiopia Specific Investment 1994 2001 A 14 14Petroleum Sector Reform AFR Madagascar Sector Investment and 1993 1999 B 6 5

Maintenance LoanPetroleum Sector Rehabilitation AFR Tanzania Specific Investment 1991 2001 B 0 0Petroleum Rehabilitation AFR Zambia Specific Investment 1994 2000 B 19 4Petroleum Exploration & EAP Papua New Guinea Technical Assistance 1994 2001 C 13 11Development Technical AssistancePetroleum Distribution & EAP Republic of Korea Specific Investment 1993 1999 A 653 112Sector ManagementBongkot Gas Transmission EAP Thailand Specific Investment 1993 1996 A 334 92Second Gas Transmission EAP Thailand Specific Investment 1995 1998 A 482 111Clean Fuels and Environment Improvement EAP Thailand Specific Investment 1995 2000 A 41 38Petroleum Technical Assistance ECA Azerbaijan Technical Assistance 1995 2001 C 10 20Natural Gas System Reconstruction ECA Bosnia-Herzegovina Emergency Rehab. 1997 2000 B 44 10Oil Institution Building Technical Assistance ECA Georgia Technical Assistance 1997 2001 C 1 1Petroleum Technical Assistance ECA Kazakhstan Specific Investment 1994 2000 C 14 13GHG Reduction in Natural Gas (GEF) ECA Russian Federation Global Environment Facility 1996 1999 C 1 1Oil Rehabilitation Project ECA Russian Federation Specific Investment 1993 2000 A 1035 414Second Oil Rehabilitation Project ECA Russian Federation Specific Investment 1994 2000 A 678 346Third Structural Adjustment Loan ECA Russian Federation Structural Adjustment 1999 2001 U 1500 1500Oil Pipeline Engineering Project ECA Turkey Technical Assistance 1997 1999 C 3 3Hydrocarbon Sector Reform & LAC Bolivia Technical Assistance 1996 1999 B 9 11Capitalization Technical AssistanceGas Sector Development Project LAC Brazil Specific Investment 1997 2001 A 1594 130Energy Technical Assistance LAC Colombia Technical Assistance 1995 2002 B 12 11Energy and Mining Technical Assistance LAC Peru Technical Assistance 1993 1999 B 16 11Gas Infrastructure Development SAS Bangladesh Specific Investment 1995 2000 A 135 68

P o r t f o l i o o f E x t r a c t i v e I n d u s t r i e s P r o j e c t s : F Y 9 3 – F Y 0 2A t t a c h m e n t 1

AN

NE

X C

— W

OR

LD

BA

NK

EX

PE

RIE

NC

E99

Oil and Gas: Active Projects

FY EA ProjectProject title Region Country Lending instrument approval category cost WB loanOil Spill Contingency AFR Africa Global Environment Facility 1999 C 5 3Petroleum Environment Capacity Enhancement Project AFR Cameroon Technical Assistance 2000 C 11 6Chad/Cameroon Pipeline AFR Cameroon Specific Investment 2000 A 3500 90Chad Petroleum Power Engineering AFR Chad Specific Investment 1991 C 14 22Petroleum Development & Pipeline Project AFR Chad Specific Investment 2000 A 3724 93Petroleum Sector Capacity-Building AFR Chad Specific Investment 2000 C 26 24Management of the Petroleum Economy Project AFR Chad Specific Investment 1999 C 19 18Gas Engineering AFR Mozambique Specific Investment 1994 B 49 30Songo Songo Gas Development and Power Generation Project AFR Tanzania Specific Investment 2001 A 313 183GEF Sichuan Gas Development & Conservation EAP China Specific Investment 1994 A 945 265Gas Development Technical Assistance EAP Papua New Guinea Technical Assistance 2000 C 8 7Energy Transit Institutional Building ECA Georgia Technical Assistance 2001 C 12 10Uzen Oil Field Rehabilitation ECA Kazakhstan Specific Investment 1997 A 136 109Petroleum Sector Rehabilitation ECA Romania Specific Investment 1994 B 346 176Emergency Oil Spill Mitigation ECA Russian Federation Emergency Rehabilitation 1995 C 140 99

EX

TR

AC

TIV

E IN

DU

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RIE

S A

ND

SU

ST

AIN

AB

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PM

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T

10

0 (continued)

Mining: Completed Projects

FY FY EA ProjectProject title Region Country Lending instrument approval completed category cost WB loanMining Sector Development & Environment AFR Ghana Specific Investment 1995 2002 B 13 9Mining Sector Investment Promotion AFR Guinea Technical Assistance 1996 2001 C 16.8 23Mining Sector Development AFR Tanzania Technical Assistance 1995 2002 B 13 12Second Economic and Social Adjustment Credit AFR Zambia Structural Adjustment 1996 1998 U 90 90Econ. Recovery and Inv. Promotion Credit AFR Zambia Sectoral Adjustment 1996 1998 C 140 140Public Sector Reform and Export Promotion AFR Zambia Structural Adjustment 1999 2001 U 170 170Credit ProjectEconomic Transition Support EAP Mongolia Rehabilitation Investment 1994 1997 U 26 23Mongolia Coal Project EAP Mongolia Specific Investment 1996 2002 B 61.9 0Structural Adjustment Credit ECA Albania Structural Adjustment 1999 2001 U 45 45Hard Coal Sectoral Adjustment ECA Poland Sectoral Adjustment 1999 2001 B 300 300Hard Coal Sectoral Adjustment II ECA Poland Sectoral Adjustment 2002 2002 B 100 100Coal Sectoral Adjustment ECA Russian Federation Sectoral Adjustment 1996 1997 B 500 500Coal Sector Restructuring Implementation ECA Russian Federation Technical Assistance 1996 2003 C 31 17Assistance ProjectCoal Sectoral Adjustment II ECA Russian Federation Sectoral Adjustment 1998 2002 B 800 800Priv. Impl. Assistance & Social Safety Net ECA Turkey Technical Assistance 1994 2000 C 129 30Coal Pilot ECA Ukraine Specific Investment 1996 2001 B 28 13Coal Sectoral Adjustment ECA Ukraine Sectoral Adjustment 1996 2000 B 300 300Capitalization Program Adjustment Credit LAC Bolivia Sectoral Adjustment 1996 1999 B 147 65Reg. Reform and Cap. TA LAC Bolivia Specific Investment 1994 1999 C 30 15Env Conservation and Rehabilitation LAC Brazil Specific Investment 1996 2000 B 87 36Mining Dev and Env Control TA LAC Ecuador Technical Assistance 1994 2001 A 24 11Privatization Adjustment Loan LAC Peru Sectoral Adjustment 1993 1998 C 280 280Coal Sector Rehab SAS India Specific Investment 1998 2001 A 1697 263Jharia Mine Fire Control TA SAS India Technical Assistance 1993 1999 B 11 8

AN

NE

X C

— W

OR

LD

BA

NK

EX

PE

RIE

NC

E

10

1

Mining: Active Projects

FY EA ProjectProject title Region Country Lending instrument approval category cost WB loanMining Capacity-Building AFR Burkina Faso Specific Investment 1997 C 22 21Mining Sector Reform Project AFR Madagascar Learning and Innovation Loan 1998 C 22 21Mining Sector Capacity AFR Mauritania Technical Assistance 1999 C 16 15Mineral Resources Project AFR Mozambique Technical Assistance 2001 C 33 18Economic Recovery and Investment Promotion TA AFR Zambia Technical Assistance 1996 C 27 23Mine Township Services Project AFR Zambia Specific Investment 2000 B 38 38Mining Sector Institutional Strengthening TA EAP Papua New Guinea Technical Assistance 2000 B 12 10Mine Closure ECA Romania Specific Investment 2000 B 62 44Privatization Social Support ECA Turkey Specific Investment 2001 C 355 250Mining Sector Development LAC Argentina Technical Assistance 1996 B 40 30Mining Technical Assistance LAC Argentina Technical Assistance 1998 B 46 40Energy & Mining TA Loan MNA Algeria Technical Assistance 2001 C 22 18Coal Environment & Social Mitigation SAS India Specific Investment 1996 C 84 63

E x t r a c t i v e I n d u s t r i e s – D e p e n d e n t C o u n t r i e s


1 0 2

A t t a c h m e n t 2

Oil and Gas

Average oil Averageand gas share Population Population Gross national GDP/capita

of total exports1 20022 below poverty income capita2 growth,2

Country 1990–99 (%) (millions) line3 (%) (US$: 1999) 1990–99 (%)

Yemen 89.0 17.5 19 390 1.46

Congo, Rep. 88.1 50.9 .. 560 –3.27

Nigeria 86.8 126.9 34 250 0.2

Oman 86.4 10.8 .. n/a 0.95

Angola / Cabinda 83.5 1.6 .. 410 –2.03

Iran 82.0 63.7 .. 1,600 3.01

Turkmenistan 74.5 5.2 .. 640 –7.11

Gabon 73.8 1.2 .. 3,300 –0.07

Venezuela 56.9 24.2 31 3,730 0.16

Syria 48.9 16.2 .. 930 3.19

Cameroon 33.5 14.9 40 600 –2.11

Ecuador 30.4 12.6 35 1,330 –0.27

Algeria 28.7 30.4 23 1,540 –0.49

Kazakhstan 23.1 14.9 35 1,290 –4.36

Papua New Guinea 20.0 4.8 .. 770 2.26

Trinidad / Tobago 16.3 1.3 .. 4,660 2.01

Russian Federation 16.2 145.6 31 1,750 –4.9

Azerbaijan 15.8 8.0 68 570 –2.18

Vietnam 15.8 78.5 51 370 5.51

Colombia 14.7 42.3 18 2,150 0.92

Note: “..” = not available.

Sources: World Bank and International Finance Corporation (2002)1; World Development Indicators, Central Database, World Bank2; World Development Indicators,

World Development Report 2003.3


1 0 3

Mining

Average Averagemining share Population Population Gross national GDP/capita

of total exports1 20022 below poverty income capita2 growth,2

Country 1990–99 (%) (millions) line3 (%) (US$: 1999) 1990–99 (%)

Guinea 84.7 7.4 40 490 1.42

Congo (Dem. Rep.) 80.0 51.4 .. 100 –6

Zambia 74.8 10.1 86 320 –2.3

Niger 70.6 10.8 63 190 –1.5

Botswana 70.0 1.6 .. 3,040 2.53

Namibia 55.4 1.7 .. 2,100 1.6

Jamaica 51.3 2.6 19 2,400 –0.13

Sierra Leone 50.0 5.0 68 130 –6.31

Suriname 48.3 0.4 .. 1,350 2.71

Chile 46.6 15.2 21 4,600 4.86

Mauritania 46.0 2.7 57 390 0.55

Papua New Guinea 44.8 4.8 .. 770 2.11

Peru 43.7 25.7 49 2,130 1.5

Mongolia 43.0 2.4 36 390 –1.64

Central Afr. Republic 42.1 3.6 .. 290 –0.82

Ukraine 40.0 49.6 32 770 –8.63

Mali 40.0 10.8 .. 240 0.69

Togo 37.7 4.7 32 310 –1.27

Bolivia 35.6 8.3 .. 990 1.63

Guyana 35.0 0.9 .. 760 4

Ghana 34.0 19.2 31 400 1.55

South Africa 30.0 42.8 .. 3,160 –0.67

Jordan 28.9 4.9 12 1,630 0.4

Kazakhstan 23.2 14.9 35 1,290 –4.36

Kyrgyz Republic 21.2 4.9 51 300 –4.58

Morocco 20.0 28.7 19 1,190 0.73

Armenia 20.0 3.8 .. 490 –2.6

Uzbekistan 18.4 24.7 .. 640 –2.46

Cuba 17.8 11.2 .. 500 5.6

Tanzania 15.8 33.7 42 260 0.36

Note: “..” = not available.

Sources: World Bank and International Finance Corporation (2002)1; World Development Indicators, Central Database, World Bank2; World Development Indicators,

World Development Report 2003.3

OED’s guidelines for evaluating the outcome,sustainability, and institutional developmentimpact (IDI) of projects are summarized below:

OutcomeDefinition: The extent to which the project’smajor relevant objectives were achieved, or areexpected to be achieved, efficiently.

The outcome criterion is assessed on a six-point scale—highly satisfactory, satisfactory,moderately satisfactory, moderately unsatisfac-tory, unsatisfactory, and highly unsatisfactory.These differentiations reflect the large amountof information contained in the assessments ofthe three criteria supporting the outcome assess-ment (relevance, efficacy, and efficiency). Theguiding principles provided below cover a highproportion of likely project evaluation scenar-ios.

RatingsHighly Satisfactory: Project achieved orexceeded, or is expected to achieve or exceed,all its major relevant objectives efficiently with-out major shortcomings.

Satisfactory: Project achieved, or is expectedto achieve, most of its major relevant objectivesefficiently with only minor shortcomings.

Moderately Satisfactory: Project achieved, oris expected to achieve, most of its major rele-vant objectives efficiently but with either sig-nificant shortcomings or modest overallrelevance.

Moderately Unsatisfactory: Project is expectedto achieve its major relevant objectives withmajor shortcomings or is expected to achieveonly some of its major relevant objectives, butit is expected to achieve positive efficiency.

Unsatisfactory: Project has failed to achieve,and is not expected to achieve, most of its major

relevant objectives with only minor develop-ment benefits.

Highly Unsatisfactory: Project has failed toachieve, and is not expected to achieve, any ofits major relevant objectives with no worthwhiledevelopment benefits.

Institutional Development ImpactDefinition: The extent to which a project improvesthe ability of a country or region to make moreefficient, equitable, and sustainable use of itshuman, financial, and natural resources through(a) better definition, stability, transparency,enforceability, and predictability of institutionalarrangements and/or (b) better alignment of themission and capacity of an organization with itsmandate, which derives from these institutionalarrangements. IDI includes both intended andunintended effects of a project.

Development can be defined as a process ofinstitutional transformation through which scarceresources are used to enhance human welfareover the long term. This transformation involveschanges in values, customs, laws and regulations,and formal and informal rules, as well as peri-odic realignments of organizational mandates,objectives, competencies, and resources. A devel-opment intervention has a positive institutionaldevelopment impact if it effects such a trans-formation and thereby enhances the ability of acountry or region to make more efficient, equi-table, and sustainable use of the human, finan-cial, and natural resources at its disposal.Accountability, good governance, the rule oflaw, and the participation of civil society and theprivate sector are prominent characteristics of aneffective institutional environment.

Ratings High: Project as a whole made, or is expectedto make, a critical contribution to the coun-try’s/region’s ability to use human, financial,and natural resources effectively, either through


1 0 5

O E D E v a l u a t i o n G u i d e l i n e sA t t a c h m e n t 3

the achievement of the project’s stated institu-tional development (ID) objectives or throughunintended effects.

Substantial: Project as a whole made, or isexpected to make, a significant contribution tothe country’s/region’s ability to use human,financial, and natural resources effectively, eitherthrough the achievement of the project’s statedID objectives or through unintended effects.

Modest: Project as a whole increased, or isexpected to increase, to a limited extent thecountry’s/region’s ability to use human, finan-cial, and natural resources effectively, eitherthrough the achievement of the project’s statedID objectives or through unintended effects.

Negligible: Project as a whole made, or isexpected to make, little or no contribution to thecountry’s/region’s ability to use human, finan-cial, and natural resources effectively, eitherthrough the achievement of the project’s statedID objectives or through unintended effects.

SustainabilityDefinition: The resilience to risk of net benefitsflows over time.

Sustainability is evaluated by assessing therisks and uncertainties faced by a project and byascertaining whether adequate arrangementsare in place to help avoid known operationalrisks or mitigate their impact. The rating helps

to identify projects that require close attentionby the borrower, the Bank, and other partnersin managing risks that may affect the flow of netbenefits. Sustainability says nothing about theabsolute level of the net benefits in relation toeconomic justification thresholds. It focuses onthe features that contribute to the maintenanceof operational achievements over the long termand the adaptability of operational designs andimplementation arrangements to deal withshocks and changing circumstances.

RatingsHighly Likely: Project net benefits flow meetsmost of the relevant factors determining over-all resilience at the “high level,” with all othersrated at the “substantial” level.

Likely: Project net benefits flow meets all rele-vant factors determining overall resilience at the“substantial” level.

Unlikely: Project net benefits flow meets somebut not all relevant factors determining overallresilience at the “substantial” level.

Highly Unlikely: Project net benefits flow meetsfew of the relevant factors determining overallresilience at the “substantial” level.

Not Evaluable: Insufficient information availableto make a judgment.


1 0 6

Thematic Studies

1. World Bank. 2002. Evaluation of the WorldBank Group’s Activities in the Extractive Indus-tries: Review of the Portfolio of World BankExtractive Industries Projects. OED Back-ground Paper, World Bank.

2. Luis A. Ramirez. 2002. Review of the WorldBank’s Assistance on Revenue ManagementIssues in Resource Abundant Countries. OEDBackground Paper, World Bank.

3. Melissa A. Thomas. 2003. Factoring in Gov-ernance: The World Bank and ExtractiveIndustry Projects. OED Background Paper,World Bank.

4. Roger J. Batstone. 2003. Review of Imple-mentation of Safeguard Policies of WorldBank Extractive Industries Projects. OEDBackground Paper, World Bank.

Country Case Studies

1. World Bank. 2003. World Bank Group’s Activ-ities in the Extractive Industries: EcuadorCountry Case Study. OED Background Paper,World Bank.

2. World Bank. 2003. World Bank Group’s Activ-ities in the Extractive Industries: EquatorialGuinea Country Case Study. OED BackgroundPaper, World Bank.

3. World Bank. 2003. World Bank Group’s Activ-ities in the Extractive Industries: Ghana Coun-try Case Study. OED Background Paper, WorldBank.

4. World Bank. 2003. World Bank Group’s Activ-ities in the Extractive Industries: Papua NewGuinea Country Case Study. OED BackgroundPaper, World Bank.

5. World Bank. 2003. World Bank Group’s Activ-ities in the Extractive Industries: KazakhstanCountry Case Study. OED Background Paper,World Bank.

Project Performance AssessmentReports

1. World Bank. 2003. Project Performance Assess-ment Report: Brazil Gas Sector DevelopmentProject (L4265), Brazil Hydrocarbon Trans-port/Processing Project (L3376), and BrazilNatural Gas Distribution Project—Sao Paulo(L3043). Draft Report. Operations Evalua-tion Department, World Bank.

2. World Bank. 2003. Project Performance Assess-ment Report: Ecuador Mining Developmentand Environmental Control Technical Assis-tance Project (L3655). Draft Report. Opera-tions Evaluation Department, World Bank.

3. World Bank. 2003. Project Performance Assess-ment Report: Equatorial Guinea Second Petro-leum Technical Assistance Project (Credit2408). Report No. 24430. Operations Evalu-ation Department, World Bank.

4. World Bank. 2003. Project Performance Assess-ment Report: Ghana Mining Sector Rehabili-tation Project (C1921) and (L3927). DraftReport. Operations Evaluation Department,World Bank.

5. World Bank. 2003. Project Performance Assess-ment Report: Kazakhstan Petroleum Techni-cal Assistance Project (Loan 3744). DraftReport. Operations Evaluation Department,World Bank.

5. World Bank. 2003. Project Performance Assess-ment Report: Papua New Guinea PetroleumExploration Technical Assistance Project(Credit 1279) and Petroleum Exploration and


1 0 7

B a c k g r o u n d P a p e r sA t t a c h m e n t 4

Development Technical Assistance Project(Loan 3670). Report No. 24405. OperationsEvaluation Department, World Bank.

6. World Bank. 2003. Project Performance Assess-ment Report: Ukraine Coal Pilot Project andCoal Sector Adjustment Loan (Credit 4016 &4118). Report No. 24928. Operations Evalu-ation Department, World Bank.


1 0 8

Auty, R. 2000. “How Natural Resources AffectEconomic Development.” DevelopmentPolicy Review 18(4):347–64.

Davis, Graham A., and John E. Tilton. 2001.Should Developing Countries RenounceMining? A Perspective on the Debate. Col-orado School of Mines.

Davis, Jeffrey, Rolando Ossowski, James Daniel,and Steven Barnett. 2001. Stabilizationand Savings Funds for NonrenewableResources: Experience and Fiscal PolicyImplications. International Monetary Fund,Washington D.C.

ESMAP (Energy Sector Management AssistanceProgram). 1997. Kazakhstan Natural GasInvestment Strategy Study. ESMAP ReportNo. 199.

Friends of the Earth. 2001. “Phasing out Inter-national Financial Institution Financing forFossil Fuel and Mining Projects, Demand-ing Local Community Self-Determination.”Position paper.

Gelb, A. 1984. The Oil Syndrome: Adjustment toWindfall Gains in Oil Exporting Countries.Development Research Department. TheWorld Bank.

_______. 1988. Oil Windfalls: Blessing or Curse?World Bank research publication (0-19-520774-2). Oxford University Press.. TheWorld Bank.

Isham, J., M. Woodcock, L. Pritchett, and G.Busby. 2002. The Varieties of Rentier Expe-rience: How Natural Resource EndowmentsAffect the Political Economy of EconomicGrowth. Draft. The World Bank. <http://www.worldbank.org/research/growth/pdfiles/rentier.pdf> Accessed July 9, 2003.

MMSD (Mining Minerals and Sustainable Devel-opment). 2003. Breaking New Ground:The Report of the MMSD Project. EarthscanPublications.

Onorato, W., P. Fox, and J. Strongman. 1998.World Bank Group Assistance for MineralsSector: Development and Reform in Mem-

ber Countries. World Bank Technical PaperNo. 405. The World Bank.

Ross, M. 2001. Extractive Sectors and the Poor.Oxfam of America.

Sachs, Jeffrey D., and Andrew M. Warner. 1995.Natural Resource Abundance and Eco-nomic Growth. NBER Working Paper No.5398, 1–48.

van der Veen, Peter et al. 1996. A Mining Strat-egy for Latin America and the Caribbean.World Bank Technical Paper No. 345. TheWorld Bank.

Weber-Fahr, M. et al. 2000. “Mining.” Chapter 4.5in Poverty Reduction Strategy Sourcebook.World Bank Group Mining. <www.world-bank.org/poverty/strategies/chapters/min-ing/mining.htm> Accessed July 9, 2003.

World Bank and International Finance Corpo-ration. 2002. Global Mining: Treasure orTrouble? Mining in Developing Countries.Mining Department, The World BankGroup.

World Bank. 2002a. World Development Indi-cators. The World Bank.

__________. 2002b. World Bank Group Work inLow-Income Countries under Stress: A TaskForce Report. The World Bank.

__________. 2001a. Poverty Reduction StrategySourcebook: A Resource to Assist Countriesin Developing Poverty Reduction Strate-gies. The World Bank.

__________. 2001b. Republic of Kazakhstan:Strategic Review of the Mining and Metal-lurgy Sector. Europe and Central AsiaRegion. Unpublished. The World Bank.

__________. 2001c. Fourth Quality-at-EntryAssessment. Quality Assurance Group. TheWorld Bank.

__________. 2000. Fuel for Thought: An Envi-ronmental Strategy for the Energy Sector.The World Bank.

__________. 1994a. Kyrgyzstan: Mining SectorReview. Agriculture, Mining, and FinanceDivision. Country Department III. Europe


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and Central Asia Department. The WorldBank.

__________. 1994b. Russian Federation: Restruc-turing the Coal Industry—Putting PeopleFirst. Vols I & II. Infrastructure, Energy, andEnvironment Division. The World Bank.

__________. 1992. Strategy for African Mining.Technical Paper No. 181. The World Bank.

__________. 1991. Environmental AssessmentSource Book. Technical Papers 139, 140,

and 154 (including update). EnvironmentDepartment. The World Bank.

__________. 1984. “Guidelines for PetroleumLending.” Operations Manual Statement(OMS) 3.82. November 1984. The WorldBank.

World Commission on Environment and Devel-opment. 1987. Our Common Future.Oxford University Press. New York.


1 1 0

Operations Evaluation Group:Evaluation of IFC’s Experience

• Following a peak in 1991 ($400 million), IFCapproved investments of about $250 annuallyin EI.

• The share of EI has declined from over 20 per-cent in 1991 to around 5 percent in the lastthree years.

• Approvals were concentrated in oil and gas(54 percent), gold (14 percent), and copper(10 percent).

• Approvals were concentrated in Latin Amer-ica (34 percent) and Sub-Saharan Africa (30percent).

• Approvals were concentrated in countrieswith high country risk, much more so thanIFC’s overall approvals; these countries alsopredominantly feature poor governance.

• IFC’s portfolio in EI (as of June 2002) was $628million, or 6 percent of IFC’s total portfolio.

• Just over 60 percent of the EI portfolio wasin mining, and just under 40 percent was inoil and gas.

• Just over half was loans, just under half wasequity.

I F C A p p r o v a l s a t a G l a n c e

Declining share since 1992

0

50

100

150

200

250

300

350

400

IFC

Net

App

rova

ls (U

S$M

, bar

)

0

5

10

15

20

25

Percentage of IFC's approvals (line)

C a l e n d a r year

Gold14%

Copper10%

Coal3%

Oil and gas

54%

Other Mining

4%

Other Metal

8%Iron3%

Nickel4%

Concentrated in oil and gas, gold and copper

IFC approvals since inception ($4.3 billion)

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

0

5

10

15

20

25

30

35

40

IFC Overall Extractive Industries

C a l e n d a r y e a r

Low

er R

isk

High

er R

isk

Concentrated in countries with poor investment climates

Central and Eastern Europe

4%

East Asia and Pacific

6%

South Asia3%

Middle East and North

Africa10%

Sub-Saharan

Africa30%

Latin America

and Caribbean

34%

Southern Europe and

Central Asia13%

Concentrated in Latin America and Sub-Saharan Africa

IFC approvals since inception ($4.3 billion)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

1 1 2

1 1 3

1. Introduction

Summary: Overall, IFC support for EI has beeneffective, but implementation can be improved,broader sustainability issues better addressed,and results better tracked and reported. Projectsusually generated large revenues for govern-ments and opportunities for people. IFC gener-ally has added value, particularly in improvingthe environmental158 and social aspects of proj-ects, but given the sector’s high-impact potential,it needs to prevent or mitigate negative impactsbetter and more systematically. IFC also needsto ensure that its environmental and social guide-lines and procedures continue to set standardsand adapt to rapidly improving industry stan-dards, and that its projects adapt with them. Inpursuit of its sustainability agenda, IFC needs todo more to address the risks that government rev-enues may not be used effectively for develop-ment and poverty reduction, that benefits maynot be distributed transparently, and that localcommunities may not benefit tangibly from EIprojects. To enhance the contribution of IFC’sprojects and the sector to sustainable develop-ment requires further improvements in projectimplementation, effective cooperation within theWBG, and full engagement of all stakeholders.

OEG’s evaluation is based on the premisethat IFC should support EI projects only if it canhelp improve the sector’s contribution to sus-tainable private sector development. Promotingsustainable private sector development, and ulti-mately reducing poverty and improving peo-ple’s lives, is IFC’s mission. Some people feel thatthe exploitation of nonrenewable naturalresources and sustainable development are aninherent contradiction. But most realize that,over the next decades and probably centuries,

we will all need oil, gas, minerals, and metals,and that exploration, development, and use willcontinue with or without IFC and the WBG. Thequestion is whether the WBG and IFC canimprove the sector’s development potential byenhancing positive and mitigating negativeaspects. While IFC and the WBG finance only asmall share of the sector’s investment, their actualand potential influence is often much larger.

Sustainable development defined for thisevaluation. Sustainable development “meetsthe needs of the present without compromisingthe ability of future generations to meet their ownneeds.” An individual mine or oil field will even-tually be exhausted, but EI projects can stillcontribute to sustainable development and thusprovide a role model for other private investmentif they are—• economically sound, providing adequate rev-

enues for host countries, which in turn areused for the benefit of current and futuregenerations;

• financially sound, providing sufficient returnsto reward investors for risk;

• environmentally sound, adequately mitigatingnegative environmental effects159—and, wherepossible, improving the environment; and

• socially sound, adequately mitigating negativesocial effects and providing tangible and sus-tainable benefits for local people.

The focus on sustainability in IFC’s EI activ-ities has increased over the past decade.IFC’s sector strategy160 has consistently empha-sized the sector’s contribution to government rev-enues and has focused on countries and projectswhere the value added by IFC is greatest. Ini-tially, IFC mainly saw its role as funding proj-

ANNEX D: IFC’S EXPERIENCE

ects without access to commercial finance andacting as a neutral party between governmentand investors. In the mid-1990s, the strategywas expanded to highlight environmental issues,later to social issues, and later still to governanceand revenue management—how host countriesdistribute and manage the revenues from EI. Inrecent years, IFC’s environmental and socialspecialists have devoted more time to the sec-tor than to any other and have frequentlyimproved EI projects beyond the requirementsof IFC’s policies and guidelines.

This increased focus on sustainability reflectsthe evolution in IFC and the industry. Over thepast decade, environmental, social, and sustain-ability concerns have become more prominent inthe sector. Industry has responded by develop-ing and implementing better standards and tech-niques to reduce the environmental impacts of itsoperations.161 Leading industry players now reporton sustainability indicators—health, safety, envi-ronmental, and most recently social indicators—of their operations and are working onstandardizing the reporting.162 Industry also rec-ognizes that it must do more to retain its “sociallicense to operate,” particularly to broaden thebenefits of wealth creation and thereby con-tribute to poverty reduction.163 Similarly, IFC’ssustainability initiative, started in the past fewyears, has heightened the focus on sustainabledevelopment results within IFC and beyond. IFC’sEI operations were often among the first todevelop or implement new programs, such asSME linkages or IFC and AIDS. Under the sus-tainability initiative, IFC developed a positionpaper on revenue management in 2002, whichrecognized that large government revenues, asthey typically occur in EI projects, require spe-cial attention—particularly where country gov-ernance is poor. Indeed, this is an area deservingspecial attention from IFC and the WBG.

2. From Economic Benefits toSustainable Development

Development results in EI were the same asin other sectors. IFC synthesizes developmentresults of four indicators—economic sustain-

ability, private sector development, businesssuccess, and environmental and social effects—into one “development outcome,” which meas-ures a project’s overall impact on a country’sdevelopment. Fifty-nine percent of the 22 eval-uated EI projects achieved positive results, com-pared with 60 percent for all other IFC projects.164

The development success rate for all 45 studiedprojects (65 percent) is slightly higher.165 The“win-win” outcomes—positive developmentresults and good investment results for IFC—areabout the same when only evaluated projects areconsidered and slightly better for all studiedprojects (Figure D1). While there is room forimprovement, it is important to note that this suc-cess rate has been achieved in very difficultcountry environments, where many develop-ment institutions are struggling to achieve pos-itive results.166

About three-quarters of IFC’s EI projects wereeconomically attractive; results in mining werethe same as in other sectors, those in oil and gassignificantly better. Seventy-three percent of theevaluated EI projects had adequate economicreturns—real economic rates of return over 10percent—compared with 57 percent for otherprojects. The success rate for oil and gas (83 per-cent) was significantly167 higher than that for min-ing (60 percent) and other sectors. Again, theseresults were achieved in difficult countries, butit is also important to note several limitations ofthe economic rate of return:• It does not take into account the distribution

of benefits—a dollar for the investor istreated the same as a dollar for governmentor a dollar spent on a social program for thepoorest.

• It does not address how government rev-enues are used.

• Accounting for the depletion of naturalresources in economic rate of return calcu-lations is difficult. IFC uses a depletion pre-mium to account for the non-renewablenature of the resource.168

• Compliance with IFC’s environmental andsocial requirements was interpreted as anindication that negative externalities had beenadequately mitigated; where appropriate, weimputed costs of cleanup as economic costs;


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however, it is difficult to quantify environ-mental and social externalities, and data arescarce.

Financial and economic project successwere closely linked. All 12 projects that werefinancially successful also provided adequateeconomic returns.169 In addition, 4 out of 10 proj-ects that were not successful for investors stillhad adequate economic rates of return (greaterthan 10 percent). In three of them, the govern-ment retroactively changed earlier agreements,making otherwise viable projects financiallyunattractive.

Most projects generated large revenues forgovernments, sometimes even when privateinvestors did not do well. These revenuescome in many different forms170 but usually asincome taxes and royalties.171 Governmentssometimes get revenues even when investors donot do well. For example, IFC has funded proj-ects that failed or ran into financial difficulties.Often, but not always, these companies continueto pay all taxes, including royalties, duties, andtransit fees, while investors lose money. In othercases, governments faced with the potential lossof jobs and community livelihood agreed to

forgo some taxes until a project turned around.In Eastern Europe, some IFC clients facedincreasing tax demands that led to financiallosses from otherwise viable projects. A LatinAmerican oil company failed, but its assets werebought and rehabilitated, and the new com-pany contributed more than $30 million in roy-alties in 2000. A mining company lost morethan $30 million in four years, but was expectedto pay about US$5.5 million in taxes.

All stakeholder groups recognize that thedistribution of benefits and costs is the cru-cial issue in EI. We surveyed stakeholdersfrom many backgrounds—government, industry,NGOs, and the WBG.172 Among a wide range ofquestions covering economic, environmental,social, and governance aspects (Attachment 6A),equitable distribution of benefits was perceivedto be the most important overall; it was alsoamong the top two issues in every stakeholdergroup.

But IFC—and the WBG—has not adequatelyaddressed distribution. In several projects,people outside and even inside the WBG ques-tioned ex-post whether benefits of EI projectswere distributed fairly.173 For example, where

A N N E X D — I F C ’ S E X P E R I E N C E

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E I v e r s u s n o n - E I P r o j e c t s : S i m i l a r D e v e l o p m e n t , B e t t e r I n v e s t m e n t R e s u l t s

F i g u r e D 1

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

56%1

High developmentoutcome

High return

11%3

Low developmentoutcome

High return

24%4


Low return

9%2


Low return

LOW

LOW

(a) 45 studied EI projects

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

56%1


High return

11%3


High return

24%4


Low return

9%2


Low return

LOW

LOW

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

56%1


High return

11%3


High return

24%4


Low return

9%2


Low return

LOW

LOW

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

56%1


High return

56%11


High return

11%3


High return

11%33


High return

24%4


Low return

24%44


Low return

9%2


Low return

9%22


Low return

LOW

LOW

(a) 45 studied EI projectsVarious approval years

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

41%1


High return

23%3


High return

18%4


Low return

18%2


Low return

LOW

LOW

(b) 22 evaluated EI projects

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

41%1


High return

23%3


High return

18%4


Low return

18%2


Low return

LOW

LOW

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

41%1


High return

23%3


High return

18%4


Low return

18%2


Low return

LOW

LOW

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

41%1


High return

41%11


High return

23%3


High return

23%33


High return

18%4


Low return

18%44


Low return

18%2


Low return

18%22


Low return

LOW

LOW

(b) 22 evaluated EI projectsApproved 1991–96

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

43 %1


High return

10%3


High return

30%4


Low return

17%2


Low return

LOW

LOW

(c) 286 evaluated non-EI projectsApproved 1991–96

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

43 %1


High return

10%3


High return

30%4


Low return

17%2


Low return

LOW

LOW

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

43 %1


High return

10%3


High return

30%4


Low return

17%2


Low return

LOW

LOW

Dev

elop

men

t Out

com

e

HIG

H

Investment Outcome

HIGH

43 %1


High return

43 %11


High return

10%3


High return

10%33


High return

30%4


Low return

30%44


Low return

17%2


Low return

17%22


Low return

LOW

LOW

(c) 286 evaluated n

governments had taken a large equity share, butcommodity prices—and fiscal revenues—dropped below expectations, they were later dis-appointed, or where they had granted incometax exemptions for the first years—often themost profitable for a gold project. We surveyed33 IFC staff—all EI sector investment staff andall regional economists or strategists. Only halfof the respondents indicated that distributionwas adequately addressed in IFC’s EI projects—or in CASs. Responses by World Bank staff weresimilar (Attachment 6C). Recognizing the impor-tance of distribution in EI, IFC usually identifiesthe share of net benefits that accrues to gov-ernment. But IFC typically has not compared thebenefits with other EI projects or stated whetherit perceives the distribution of benefits to be rea-sonable—and has been criticized for this in thecase of the Chad-Cameroon pipeline.174 IFCalso has not systematically tracked actual gov-ernment revenues during supervision.175 Rec-ognizing the uncertainty about commodityprices, resource quality, and many other factors,IFC typically addresses downside risks forinvestors in a sensitivity analysis, but IFC did notaddress how such risk factors affect the distri-bution of benefits.

Transparency and improved analysis ofthe distribution may help prevent later con-flicts. Because of variations in country and proj-ect characteristics (e.g., resource quality, taxationregimes, legal entitlements, country risk), somepeople question the reliability and relevance ofdistributional comparisons. But given the impor-tance of rent distribution—and the history of con-flicts over it176—more comparative analysis iswarranted. Attempts have been made to com-pare distributions across countries, both in theWBG and elsewhere.177 World Bank staff weinterviewed stated that they could and shouldbe cited to provide a frame of reference whenpresenting IFC projects for approval. More trans-parency on how the distribution was arrived at,comparing it with other projects, and testing itsrobustness under different scenarios would helpreduce potential conflicts and disputes.178

“Insufficient” benefits for local communitiesare an important development issue—and a

commercial risk—that has not always receivedenough attention. IFC typically has not calculatedshares accruing to different levels of governmentor accruing directly to local communities. It isdifficult to define “sufficient” benefits. At the least,they should compensate local communities fornegative impacts and maintain or improve theirliving standards. Where local people opposeprojects, businesses risk costly interruption andproperty damage. In EI, environmental problemsoften trigger the opposition. However, suchopposition often can be traced to deeper socialissues; for example, a long-standing perceptionof insufficient benefits. In such situations, com-panies sometimes spend a lot to build trust ordefend themselves—money that could be bet-ter spent on community development. Where IFCclient companies proactively engage the com-munity and provide benefits for local people—for example, increased employment or sales,better infrastructure, schools, and housing—they reduce risk for their operations. But privatecompanies cannot be expected to take overgovernment responsibilities—for financial rea-sons, and because such a solution is not sus-tainable.

Benefits from government revenues do notalways reach local communities. In manycountries where IFC operates, government rev-enues are not being used effectively for thebenefit of local communities. In some coun-tries, communities received only a very smallshare of fiscal revenues—which led to problems.For example, in one case, the “legal” distribu-tion to the provincial authorities was only asmall share of royalties; even that was not con-sistently distributed, and communities accusedlocal leaders of embezzlement. In another case,the “legal” distribution to the region was quitehigh but usually not forthcoming. Even wheremoney was distributed to the provincial gov-ernments, people affected by EI did not neces-sarily benefit, because of mismanagement, lackof transparency and possible corruption, allo-cation of the money to other parts of theprovince, or its being used for recurrent admin-istrative expenditures instead of invested to pro-vide sustainable benefits.


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Volatility of revenues is also a problem butmay be easier to fix. The discussion during tax-ation conferences179 tends to focus on manag-ing the volatility of revenues from EI, caused bychanging commodity prices and the exhaustibil-ity of the resource. Several “technical” solu-tions—for example, funds for stabilization or forfuture generations—are well understood, butthe record of such solutions is poor, owing inpart to the secular decline in commodity pricesand in part to poor governance.

3. Private Sector Development andBenefits to Investors

EI investments were often among the first attrac-tive investment opportunities for private investorsand IFC. In at least a dozen countries,180 IFC’s firstinvestment was in EI. IFC’s EI investment also wasoften the first private investment in the sector, pro-viding important demonstration effects. Invest-ments in other sectors—by IFC and others—oftenfollowed. In recent years, IFC has focused increas-ingly on enhancing SME linkages in connectionwith its EI investments (Box D1) and on sup-porting EI-related projects with trust funds.

Financial returns—for IFC and otherinvestors—were better than for other sec-tors ... OEG evaluates both business success—whether projects were attractive for allinvestors181—and IFC’s own investment results.Business success was better in EI (55 percentpositive) than in other sectors (44 percent).While this result is not significantly different, itwas achieved in very difficult country circum-stances. Controlling for country risk, the businesssuccess of EI projects was significantly better thanfor other projects, indicating that EI projects canbe among the few attractive investment oppor-tunities in difficult countries. IFC’s investmentresults on a portfolio basis also are substantiallybetter than in other sectors, enhancing IFC’soverall profitability and helping to support IFC’sactivities in other sectors.

... but financial risks also were higher. Forinvestors, the sector is riskier than others. Forexample, while EI projects featured moreextremely positive financial results (financial

rates of return > 20 percent), they also featuredmore financial losses (Figure D2). IFC’s equityinvestments in EI are as likely to succeed as thosein other sectors—about one-third of the time—but successful investments are more likely toresult in large returns. IFC’s strong portfolioresults are carried by a handful of very big win-ners. In all of the projects, IFC invested early inthe project’s development, taking considerablerisk. Overall, such winners tended to be con-centrated in Latin America, in countries with atleast reasonable governance, and in oil, gold, andcopper—the largest exposures by subsector.182

The main drivers of project business successwere quality of management and the resource,commodity prices, and the country’s governanceand investment climate. Among the studied proj-ects, the following tended to be the main busi-ness success drivers:• Quality of management: Strong management

and a financially committed sponsor are cru-cial to deal appropriately with productionchallenges and market downturns—but weresometimes missing.

• Quality of the resource: Only resources thatare globally cost-competitive are likely toresult in attractive financial returns. IFC andthe sponsors sometimes have overestimatedthe quality of the resource or—put differ-ently—underestimated the difficulties andcosts to extract and process it.

• Commodity prices: The 1990s were a decadeof falling prices for many commodities. Forexample, from 1990 to 1998, oil pricesdropped in real terms by over 40 percent, goldby over 20 percent, and copper by almost 40percent. This has had negative effects on theprojects IFC supported and shows the impor-tance of investing in the lowest-cost produc-ers. Several commodity prices have sincerecovered, so the current outlook is proba-bly brighter than at the evaluation stage.

• The host country environment: Taxation regimesare an important determinant of returns toinvestors, as are other features of the enablingenvironment. In several cases, viable projectshad poor returns to investors because of gov-ernment actions, such as retroactively increasedtaxation or transit fees. Better regulatory qual-


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ity was significantly correlated with better finan-cial results, as was political stability, whichalso was significantly correlated with betterdevelopment results and environmental effects.

4. Environmental and Social Issues—From “Do No Harm” to Sustainability

IFC has continually expanded the scope ofits environmental and social assessment. In

1988–89, IFC began its own reviews andappointed its first environmental advisor.183 Ini-tially, IFC followed the World Bank’s safeguardpolicies, guidelines, and procedures, but grad-ually IFC developed its own, better adapted forthe private sector. From 1993, IFC developedsector-specific guidelines for areas not cov-ered by the World Bank’s existing guidelinesand adopted specific procedures for environ-mental review in 1992–93. In 1998, after exten-


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IFC’s environmental and SME departments increasinglywork with project sponsors, aid agencies, and NGOs todevelop programs promoting sustainable economicdevelopment in areas affected by EI projects. Examplesof programs to set up or strengthen micro-finance organ-izations, training programs, and technical advice forlocal businesses include the following:

Mozal Aluminum Smelter, Mozambique• IFC worked with Mozal to develop local business

capacity to compete for product and service con-tracts—transport, catering, cleaning, and security.For these, Mozal broke its contracts down into smallercomponents (to attract local competition) and nowspends about US$35 million annually with privatelocal companies. As part of Mozal’s Community Devel-opment Trust, which tries to maximize positive impactsfor the local community, farm extension services havebeen provided to 1,200 farmers.

• An ongoing linkage supply program developed by theIFC-managed Africa Project Development Facilityhelps small businesses win and deliver Mozal phaseII construction contracts.

Chad-Cameroon Petroleum Developmentand Pipeline Project• The WBG worked closely with the sponsors to put in

place features to ensure economic benefits for localbusinesses—to date more than $340 million has beenspent, more than $139 million in Chad alone. Ongoingtraining enables SMEs to win pipeline-related con-tracts. IFC launched The Support and Training Entre-preneurial Program in Chad to train universitygraduates to consult, train, and develop small and

micro-enterprises. Already 14 field officers are work-ing with more than 150 enterprises.

• IFC is working with the U.S. organization Africare toimplement a project to provide food to petroleumworkers in the short term and to the general popula-tion in the long term. Eight enterprises have been cre-ated and more than 120 people have received trainingand financing.

Yanacocha Gold Mine, Peru• IFC is working with Yanacocha to implement a Rural

and an Urban Development program. Many programcomponents have been implemented with NGOs, ruralcommunities, and the city of Cajamarca. Yanacochaand external donors have provided more than $15 mil-lion and $7.3 million respectively, for this program.

• Local SMEs supplying goods and services participatein quality management training focused on interna-tional business practices and environmental and safetystandards to improve productivity and win Yanacochacontracts. A training program equips tradesmen toparticipate in the construction of a housing complexthat will be developed over the next five years. Also,SME suppliers of components, such as window frames,are being assisted.

• Another program has been established to build localfarmers’ capacity to supply the mine’s canteen andhotels. Similarly, local artisans in ceramics and tex-tiles have been identified for training in design, pro-duction, and marketing and are supported at localand international trade fairs.

Note: Data provided by the WBG’s SME department and summarized

by OEG.

V a l u e - A d d e d S M E L i n k a g e sB o x D 1

sive consultation, IFC revised its review pro-cedures and adapted several safeguard policiesfor the private sector. It also developed a pol-icy statement on harmful child and forced labor(the World Bank lacks such a policy).184 Also in1998, the World Bank updated its PollutionPrevention and Abatement Handbook185

(PPAH), providing industry-specific guidelinesthat apply to WBG projects. IFC continues tomodify its operating procedures and to developadditional industry-specific guidelines.186

Lessons from experience lead to changesin policies, guidelines, procedures, andpractices. Based on past evaluation findings,OEG has made numerous recommendationswith respect to environmental and social safe-guard policies, guidelines, and procedures,many of which have been implemented. IFC’sEnvironmental and Social Development Depart-ment also feeds lessons from practical experi-ence and research into upgrading procedureswithin the department. For example, IFC intro-duced a guideline on hazardous materials han-dling, in part motivated by the Yanacochamercury spill and the Kumtor cyanide spill. IFCproduced a guideline for offshore oil and gasprojects before investing in Early Oil, Azerbai-jan. Thus, the body of policies, documents, andprocedures that codifies IFC’s environmentaland social operating procedures and practices

is adapting constantly. The recently completedsafeguard policy review by the CAO is likely toresult in changes also.

IFC increased staffing in support of theincreased focus on environmental and socialissues. Starting with one staff member, IFChired additional environmental, and later social,experts between 1990 and 2002 and currentlyemploys almost 40 specialists. Their role is toappraise and supervise projects to ensure thatprojects financed by IFC meet the applicableenvironmental and social safeguard policies andguidelines and improve projects “beyond com-pliance.” In recent years, IFC’s environmental andsocial experts have spent more time on EI thanon any other sector, highlighting the sector’shigh-impact potential in this area.

IFC categorizes projects on the basis oftheir potential environmental and socialimpact. When a project is first presented to IFC,the environmental and social specialists cate-gorize it according to its potential negativeimpact. The categorization determines how IFCappraises and supervises a project and whichactions will be sought from the clients. A Cat-egory ‘A’187 project—considered likely to havesignificant adverse environmental and socialimpacts, unless prevented or mitigated—requirespeer review and triggers a detailed and dis-


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E x t r a c t i v e I n d u s t r i e s : R i s k i e r t h a n O t h e r sF i g u r e D 2

0 10 20 30 40 50 60 70 80

Negative 0% to 20% 20% and Above

Perc

enta

ge o

f all

resu

lts EI Projects Non-EI Projects

Financial rate of return

22 EI projects compared with 165 other projects

evaluated 1996–2001

closable assessment document (environmentalimpact assessment), a public consultationprocess, and frequent supervision throughoutthe life of the project. A Category ‘B’ project—with lesser potential impact than Category ‘A’—has a narrower environmental assessment,requires only submission of an environmentalsummary, and, in practice, receives less directsupervision. Some NGOs have criticized IFCfor “under-categorizing” projects and haveargued that all EI projects should be Category‘A.’ Management—and the CAO—maintains thatprojects should be categorized to reflect theirimpact potential. OEG usually found projects tobe appropriately categorized, but given unclearguidance and lacking documentary explana-tion it is sometimes difficult to understand therationale for categorizations.188 Even so, IFCsometimes goes beyond the requirements forCategory ‘B’ projects; for example, subjectingthem to independent audits.

EI projects have high potential for negativeenvironmental and social impact. About 40percent of IFC’s EI investments are Category ‘A’(most others are ‘B’), compared with 3 percentof IFC’s non-EI investments. More than 40 per-cent of IFC’s total Category ‘A’ investments arethus in EI. This indicates the high environmen-tal sensitivity of the sector and IFC’s commitmentto thorough environmental review and moni-toring of the sector. In support of this commit-ment, IFC’s environmental and social specialistsspent one-third of their time on the EI portfolioin fiscal year 2002.

Resource-rich countries are more likely tohave problems achieving important devel-opment goals. The WBG has assessed the like-lihood that countries will achieve importantMillennium Development Goals.189 OEG thenanalyzed whether EI-dependent countries weremore or less likely to achieve the MillenniumDevelopment Goals than other developing coun-tries. Only the goal of reduced child malnutri-tion was much more likely to be achieved inEI-dependent countries (likely or possible in 67percent of countries) than in others (51 percent).EI-dependent countries were less likely to

achieve almost all other goals, most notablyincreasing access to clean water (58 percentversus 72 percent) and reducing child mortality(46 percent versus 65 percent), maternal mor-tality (45 percent versus 59 percent), andHIV/AIDS (50 percent versus 63 percent). IFCrecently has started an initiative againstHIV/AIDS, with 6 of 14 engagements with clientcompanies working in the EI sector (Box D2).

IFC’s Results in Mitigating Negative andEnhancing Positive Impacts

Mixed environmental and social results forEI projects. Using only the random sample ofdetailed evaluations,190 the results for mining (4of 10 projects, or 40 percent rated positive) aresignificantly worse and those for oil and gas (11of 12, or 92 percent positive191) are significantlybetter than those for other projects (65 percent).Using the broader, but less in-depth analysis ofthe entire portfolio,192 the positive results for oiland gas (94 percent positive) are confirmed,and mining projects (62 percent positive) are notdifferent from the IFC average (65 percent). Formining, the better performance of the broaderportfolio of studied projects, compared with theevaluated sample, indicates that performance hasimproved.193 To validate results from the eval-uations and desk reviews, OEG staff visited 13EI projects (Box D3). Each field visit includedan environmental specialist with EI experienceor a mining engineer. For the most part, the fieldvisits confirmed the information in IFC’s files.

IFC’s oil and gas projects performed well,but there are issues beyond compliance.The oil and gas sector is dominated by multi-nationals that in recent years have stated theircommitments to improve performance andenhance sustainability and are also disclosingresults achieved. OEG’s analysis also found thatthe performance of projects sponsored by majormultinationals was much better than that ofprojects sponsored by smaller companies. IFCcould transfer knowledge and disclosure stan-dards from these companies to less progressivecompanies to improve overall sector perform-ance.194 While oil and gas projects have an


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The majority of the private sector, including most of IFC’s clients, still is not meaningfully involved in counter-acting HIV/AIDS, a disease that affects communities, workers, and managers. Businesses will feel the impactof HIV/AIDS most clearly through their workforce, with direct consequences for profitability. Some sectors aremore risky than others regarding HIV transmission. Extractive industries tend to be particularly at risk, becausethey usually pay salaries that are significantly higher than those of the general population and their operationsalso rely on a workforce separated from their families for long periods of time. Such conditions have contributedsystematically to high-risk behavior, in extractive industries and in related activities, such as infrastructure con-struction and transportation. The rural settings of EI operations, which—unlike more urbanized areas—oftenlack government health, education, and prevention programs, further increase the risk. Thus, the communitiesin which extractive industries operate have a heightened AIDS risk. The figure below also illustrates thatresource-rich countries are less likely to achieve the Millennium Development Goal of halting or reversing AIDSby 2015.

HIV/AIDS: Worse in resource-rich countriesLikelihood of achieving the Millennium Development Goal of halting or reversing AIDS by 2015

The program IFC Against AIDS guides its clients in designing and implementing education, prevention, and careprograms in support of employees and the communities in which they work and live. Under this initiative, IFChas to date worked with 10 clients (4 in EI) on HIV/AIDS programs and is starting to engage with 4 more (2 in EI).With the help of trust funds, IFC also is working on putting together an HIV/AIDS toolkit that would help miningcompanies become effective partners in the prevention and treatment of HIV/AIDS, both for the mining work-force and the communities dependent on the mines. The assignment is to identify, evaluate, and disseminateselected examples of public-private partnership approaches to HIV/AIDS prevention and treatment in the min-ing sector that have proved to be workable and cost-effective. Among the clients with which IFC has workedis Mozal, an aluminum producer in Mozambique, which has a strong HIV/AIDS program that includes educat-ing and raising awareness, voluntary testing and counseling, and supplementing medication available at localhospitals. For more information on the program, see Mozal’s Health, Safety, Environment and Community Report(www.mozal.com).Note: For more information on IFC’s initiative, see www.ifc.org/test/sustainability/docs/IFC_against_AIDS.pdf.

E x t r a c t i v e I n d u s t r i e s a n d H I V / A I D SB o x D 2

32 resource-rich countries(Excludes 17 countries without data)

34%

16%16%

34%

Likely Possible Unlikely Very Unlikely

52 resource-poor countries(Excludes 54 countries without data)

52%

12%

15%

21%

Likely Possible Unlikely Very Unlikely

almost spotless compliance record, OEGobserved one instance of noncompliance withrespect to wastewater discharges, which was

later corrected. In another case, an oil pipeline(replacing truck traffic) in an area later designatedas a national park raised complex environmen-


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OEG staff visited 13 projects in 6 countries.a Evaluatorsanalyzed the overall country and sector context,reviewed firsthand the impact of IFC’s projects (and, toa lesser extent, other projects), and asked represen-tatives from government, civil society, industry, andthe WBG about their perceptions. The main observa-tions were as follows:• EI projects, their relations with communities, and

their impacts are extremely complex.• For the most part, the field visits confirmed infor-

mation in IFC’s files, but they also found surprises—good and bad—demonstrating that, even withdiligent supervision from Washington and occa-sional field visits, IFC will always be struggling toremain fully informed.

• IFC projects usually brought direct jobs and otheropportunities; most projects improved access toinfrastructure and services for many people, often inremote areas.

• Some client companies were especially proactivein trying to increase opportunities for local peopleby providing training for potential employees andsuppliers—sometimes with IFC’s help.

• Opportunities attracted people from outside the proj-ect area; their influx sometimes caused environ-mental and social problems for the existingcommunity. In particular, where the capacity of localgovernments was weak, companies found it difficultto cope.

• Not everyone benefited, and negative environmen-tal and social impacts were not always adequatelymitigated.

• IFC-supported projects appeared to operate to higherstandards than others; nevertheless, NGOs focusedtheir criticism on projects supported by IFC, otherinternational financial institutions, and multinationalcompanies, perhaps because they felt they had moreleverage there than at the national level.

• NGO criticism alerted IFC to problems on severaloccasions, but some criticism was unwarranted,and views expressed by different NGOs—for exam-

ple, local versus international—sometimes differedsubstantially.

• The very strong contribution by IFC’s environmentaland social development specialists in several proj-ects was acknowledged by clients and communitieswith whom they interacted.

• But these interactions often came late, respondingto problems rather than preventing them proac-tively—which would have been more effective andcheaper; more systematic tracking of key risk fac-tors could have prevented some problems.

• Companies that consulted early and continuouslywith the local community had more effective supportprograms that did not necessarily cost a lot butestablished trust and support.

• Once the trust of the local community is lost—forexample, following an accident—companies findit very costly to regain it.

• Affected communities usually saw few benefits fromthe taxes and royalties companies paid to govern-ments—either little money flowed back or it was noteffectively used.

• Companies were expected to make up for the lackof government services, and many of them did a lot:providing roads, water, or power, or supporting edu-cation and health services for the community. Butcompanies are wary of taking on too much: not onlycan it be costly and create further expectations, italso creates an unsustainable dependency on a lim-ited-life EI project.

• Several clients asked OEG about best practices withrespect to social, environmental, health, and safetyissues. There is much potential to share best practicesamong IFC’s client companies; for example, one min-ing company gave sewing machines to village womenwho, once they had developed skills making uni-forms for the mine, began to export clothing.

a. Argentina, Brazil, Ghana, Kazakhstan, Kyrgyz Republic, Peru. In one

country (Kyrgyz Republic), the focus was mainly on the environmen-

tal and social performance of the project.

O b s e r v a t i o n s f r o m O E G ’ s S i t eV i s i t s a n d C o u n t r y S t u d i e s

B o x D 3

tal and social issues. When IFC exited two yearsafter disbursement, the project was not in fullcompliance with IFC’s requirements, but thesponsor was working toward it. Other projectsraise issues beyond IFC’s requirements: • First, several projects feature routine gas flar-

ing. When the projects were approved, thiswas not covered by a specific guideline. Eventoday, the WBG guidelines for onshore oil andgas projects are not very specific on thisissue, particularly compared with more recentIFC offshore guidelines.195 In any event, it wasdifficult to establish the extent of the prob-lem, because IFC management does not sys-tematically track gas flaring—or GHGemissions—for all portfolio projects. IFC willcalculate GHG emissions for future projects(see Box D4 on climate change), but it isunclear whether they will be tracked duringsupervision. Also, the WBG is leading a globalgas flaring reduction initiative, whichincludes—as a first step—tracking gas flaring,followed by a number of possible steps toreduce the problem.196

• Second, transportation of oil could have beenaddressed more thoroughly in some cases. For

example, NGOs raised concerns about spillsfrom pipelines used by, but not part of, IFCprojects. In another project, OEG discoveredthat environmental staff were unaware that aproject had started to transport oil using trucksand rail rather than the originally anticipatedpipeline, and environmental management ofthis transport mode appeared insufficient. Theenvironmental impact of the transportationinfrastructure for IFC’s oil and gas projects hasnot always been a focus in the past, but IFChas begun to pay more attention to this issue.However, it can be a difficult issue to address,as it is often “beyond the fence line” of con-trol by the project sponsors.

Mining projects, particularly gold, had someenvironmental problems. The broad range ofenvironmental and social issues facing miningprojects requires a strong focus by the sponsoringcompany just to achieve compliance with IFC’sguidelines. Gold mining projects—the largestshare of IFC’s mining projects—had a higher inci-dence of reported problems. Gold productionusually involves toxic materials (e.g., cyanide,mercury, arsenic), and weaknesses in their han-


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IFC recognizes the long-term risk from climate change.While the Kyoto Protocol puts the main responsibilityfor reducing GHG emissions on developed countries,IFC believes it can have a role in reducing the GHGintensity of economic activity in developing countries.IFC requires that environmental assessments for eachproject consider global environmental aspects, includ-ing climate change. GHG emissions are quantified anddisclosed for projects with potentially significant emis-sions. IFC actively promotes market-based solutions.In particular, IFC• Seeks to reduce methane and carbon dioxide emis-

sions in hydrocarbon extraction projects;• Will invest in cleaner coal projects that demon-

strate best practice in addressing environmentaland social issues;

• Will support low-cost energy solutions for devel-oping countries (in parallel with WB policy reform);

• Pursues projects generating GHG emission reductioncredits and establishes relationships with poten-tial buyers;

• Uses concessional funding (Global EnvironmentFacility) to promote renewable energy and energyefficiency where appropriate;

• Devotes substantial resources to find, develop, andfund projects for renewable energy;

• Will support funds to purchase GHG emissions cred-its when the market is ready; and

• Pursues projects that reduce losses in power trans-mission and distribution.

Source: http://www.ifc.org/test/sustainability/docs/

Climate_Change_IFC.pdf

I F C ’ s P o s i t i o n o n C l i m a t e C h a n g e( e x c e r p t s )

B o x D 4

dling were the most frequent problem. Inresponse, IFC has developed a hazardous mate-rials management guide but has not yet urgedall its existing client companies to follow it. IFCalso participated in the steering committee devel-oping the Cyanide Management Code.197

For a positive rating, projects need to be,over their lifetime, in material compliancewith IFC’s at-approval requirements, whichare a proxy for what IFC considered acceptableenvironmental performance. Projects are thus notmeasured against current requirements, unlessat-approval requirements were clearly out ofline with sound environmental practice in placeat the time.198 Thus, some projects rated satis-factory would not comply with current stan-dards. Given the rapid evolution of industrystandards, IFC may consider• Continuously updating guidelines and poli-

cies as industry standards evolve,• Routinely advising clients when IFC updates

guidelines,• Identifying and documenting any shortfalls

against the latest guidelines during supervi-sion and urging clients to comply voluntar-ily, and

• Contractually requiring clients on future proj-ects to achieve compliance with updatedguidelines; however, this may be difficult tonegotiate, as clients are unlikely to subscribeto a “moving target.”

IFC Helping to Generate Sustainable Benefits

Community Development—the shift from“do no harm” to “doing good.” IFC’s previousfocus on mitigating negative impacts to ensurecompliance with safeguard policies is movingincreasingly toward a focus on enhancing pos-itive socioeconomic impacts in its EI projects aspart of a broader sustainability initiative. Forexample, in 2000, IFC issued guidance on com-munity development.199 The WBG’s Small andMedium Enterprise (SME) Department hasworked with several communities to assist in thedevelopment of small businesses in connectionwith high-profile projects, with a particular focuson EI.200 IFC policy encourages communitydevelopment plans but has not made themmandatory for EI projects.201

IFC often goes beyond the guidelines andpolicies. OEG has observed that in many cases,IFC establishes internal procedures for appraisaland supervision of projects that go beyond theminimum standards of the published guidelines.For example, even where they were not required,IFC has• Helped clients implement community devel-

opment plans, sometimes using trust funds(see Box D5 and Attachment 5);

• Helped clients with HIV/AIDS initiatives (seeBox D2);

• Requested cumulative EIAs; and


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Since 1994, through IFC’s Trust Fund Unit, donors havespent $3.5 million to support technical assistance for22 EI-related projects—mostly in the past three years(Attachment 5). Increasingly, technical assistance sup-ports sustainable development, including a confer-ence in China to improve the investment climate forsustainable mining and a global initiative to dissemi-nate examples of successful approaches to HIV/AIDSprevention. So far, the projects appear to have been

broadly successful. However, because Project Com-pletion Reports have often not been prepared, OEGwas unable to assign project ratings. Technical assis-tance demand by the EI sector—focusing on socialand environmental development—is likely to grow.Through better tracking, IFC would be in a better posi-tion to understand and communicate the impacts ofits technical assistance program to its donors and thepublic.

D o n o r - S u p p o r t e d T r u s t F u n d s C o n t r i b u t e t o I F C ’ s S u s t a i n a b i l i t y I n i t i a t i v e

B o x D 5

• Encouraged some clients to adopt the newhazardous materials management guidelines.

The WBG has developed policies, guide-lines, practices, and procedures that are set-ting standards and helping to improve thesector’s contribution to sustainable devel-opment. Many observers—international organ-izations, government, industry, and NGOs—concur that the World Bank Group’s require-ments and guidelines set a high standard.202 A2001 United Nations Environment Program(UNEP) study observed that the participation ofmultilateral financial institutions significantlyraises a project’s environmental and social stan-dards. Other multilateral (e.g., European Bankfor Reconstruction and Development, Inter-American Development Bank) and bilateral insti-tutions reference and some use IFC and WorldBank guidelines. Several government officialshave commented that WBG guidelines are animportant benchmark when setting local stan-dards. Industry also sees value: 95 percent ofclients in EI saw IFC’s requirements as primarilyhelpful to their long-term interest, comparedwith only two-thirds of all clients.203 Some clientsand even other companies list in their annualreports that they comply with IFC guidelines,204

and several industry representatives commented

that IFC’s and the WBG’s guidance materials—particularly on social issues—are very helpful.For example, IFC has published good practicemanuals on public consultation, resettlement,HIV/AIDS, child labor, and community devel-opment.205 By publishing guidance206 on topicssuch as mine closure and community develop-ment and by hosting workshops and partici-pating in or leading sector initiatives, the WBGis highly visible, taking a leadership role inimproving environmental and social impacts.In 2003, some of the largest private projectfinance banks have committed to adopting IFCsafeguard policies and guidelines, thus broad-ening their reach.207 Nevertheless, many otherfinancial institutions and export credit agenciesstill lack such standards (Box D6).

Nevertheless, some guidelines are incon-sistent, incomplete, or missing. Given theWBG’s high visibility, it is particularly importantthat its guidelines be updated regularly and con-form to at least good practice standards in theindustry and among financial institutions. IFC didnot update its safeguard policies for severalyears, and some are now inconsistent with WorldBank guidelines.208 For example, staff told OEGthat IFC projects now must comply with a draft,nonpublic version of the 1999 policy on safety


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Many businesses recognize that “addressing sustain-able development is critical to their long-term sur-vival, and to delivery of enhanced shareholder value.”a

But there is also much concern that similar standardsdo not apply to everyone. NGOs use WBG guidelinesto point out weaknesses in other financial institutions’requirements and are concerned about a “race to thebottom.”b UNEP noted in 2001 that, despite someprogress since 1999, most export credit agencies werelacking adequate environmental and social require-ments—all the more worrisome because their invest-ment volume in the sector is much larger than that ofthe multilateral institutions. Some IFC investment staffexpressed concerns about losing business to financial

institutions with lower standards when IFC cannotconvince potential clients that IFC’s guidelines are intheir own long-term interest. OEG found that NGOs areoften vocal critics of projects supported by internationalfinancial institutions and multinational corporations butdo not necessarily raise similar concerns about localor state-owned companies with worse performance.

a. Mining & Minerals Sustainability Survey 2001: A PriceWaterhouse

Coopers survey of 32 world-class mining and minerals organizations.

b. Numerous examples include ECA-Watch (www.eca-watch.org/

problems/impacts.html) demanding to “stipulate World Bank and

OECD DAC [Development Assistance Committee] standards as the

minimum acceptable” for export credit agencies.

L a c k o f S i m i l a r S t a n d a r d s i n O t h e r F i n a n c i a l I n s t i t u t i o n s

B o x D 6

of dams, not with the 1996 version on IFC’s Website, nor with the 2001 World Bank policy. Sim-ilarly, IFC does not use the “new” World Bank2001 involuntary resettlement policy but the“old” 1990 policy, combined with a resettle-ment handbook, which is appreciated by prac-titioners but not mandatory. While OEG was toldthat what applies is clear to IFC’s specialists, toany outsider it must appear extremely confus-ing. There are also numerous examples of incon-sistent or incomplete IFC guidelines. Forexample, requirements for closure plan fundingdiffer for different types of mines (coal, open pitmining, base metal mining). IFC promised spe-cific guidelines for cyanide leaching in goldmining in 1998, but they have yet to be pub-lished. Ongoing consultations are seen as criti-cal for enhanced community development butare not required. Social issues are recognized ascrucial for mine closure but are not addressedin the requirements. IFC’s 2001 guidelines for off-shore oilfields place much more emphasis onreducing gas flaring and other sources of green-house gas emissions than the applicable 1998WBG guidelines for onshore oilfields. IFC’srequirements for identifying and controllingimpacts of downstream transportation of oil andgas projects are generally adequate but mayneed to be more specific on road and rail trans-port of oil, oil products, and gas. Some areas,such as human rights, are not covered by IFC’sguidelines but are being addressed by the indus-try or other bilateral or multilateral institutions.209

Leading EI companies have signed on to“Voluntary Principles on Security andHuman Rights,” but IFC has no such require-ments. Human rights organizations have repeat-edly noted violations of the rights of individualsin connection with EI projects, particularly in theoil sector.210 EI projects involve large invest-ments, often in countries where security, includ-ing the threat of war or terrorist attack, is aconcern. IFC has approved projects in severalsuch countries, where sponsors were workingwith the army or private security forces to pro-tect their property. Because IFC usually leavessecurity issues up to client companies, there ispotential for problems to develop. A few IFC

clients have been accused of human rights vio-lations, and IFC has been criticized for support-ing projects that could lead to such violations.Following an initiative led by several countries,many industry leaders and NGOs have signed onto “Voluntary Principles on Security and HumanRights.”211 However, IFC currently has no policyor guidance on country-internal conflicts212 orpotential human rights abuses and does not usu-ally specify how its client companies shouldprotect staff and assets. Given the potential risksfor people in the host country and for IFC’s ownreputation, this appears to be a significant gapand an area where WBG standards and guide-lines do not reflect corporate best practice.

Policies, guidelines, and best practice mustproduce results in the field. Operational poli-cies and guidelines provide direction to IFCstaff and clients. But the ultimate test of their use-fulness is whether they improve results in thefield. Safeguards are useful, but identification ofpotential problems by investment officers isequally important so that these issues are notoverlooked. Therefore, additional training ofinvestment staff to recognize social and envi-ronmental issues in EI projects throughout theproject cycle would be useful. Investment offi-cers need not have the expertise to replaceenvironmental and social development special-ists, but they should have sufficient skills to rec-ognize problems and the benefits of gettingspecialists involved in internal and external proj-ect preparation as early as possible. Particu-larly, investment staff intervention to bringspecialists into early contact with sponsors andto encourage sponsors to retain skilled andexperienced social specialists in relevant situa-tions is of prime importance. Strong managementsupport and recognition of investment officerswho proactively engage with sponsors to addresssocial and environmental issues are essentialfor improved sustainability of IFC projects.

Problems can arise when IFC’s environ-mental and development specialists are notinvolved early enough. Several projects hadproblems that could have been prevented ormore easily mitigated had there been early inter-


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action between IFC’s social specialists and theproject sponsor. For example, in one Latin Amer-ican project, IFC became involved in the early1990s, but the first social development special-ist input from IFC came many years later, becauseIFC did not hire social specialists until the mid-1990s. IFC’s specialist recommended that thesponsor employ more social specialists to ade-quately address community issues, includingconflict resolution. But this recommendationwas taken seriously only after the social and envi-ronmental impacts of a subsequent spill becameapparent. The sponsor now has a very proac-tive social department of 15 people who con-sult with both rural and urban stakeholdersabout the project.

Supervision for EI projects is better thanfor the overall IFC portfolio, but gaps remain.IFC’s supervision for EI projects was significantlybetter overall than for other sectors, with 82 per-cent (versus 59 percent) rated satisfactory. Inpart, this reflects the necessity of closer supervi-sion of environmental and social aspects, as manyEI projects face complex environmental and socialissues. Nevertheless, there are important gaps:• IFC had insufficient information to assess the

environmental performance of several EIportfolio projects, often where IFC had onlyan equity investment or in older projects pre-ceding the introduction of IFC’s 1998 proce-dures.213

• IFC was caught unaware because of weakmonitoring, or less than full disclosure bycompanies, of problems relating to handlingof hazardous materials, mine closure plans,acid rock drainage, tailings impoundments,IFC’s resettlement policy, gas flaring, andtransportation of oil.

• While project-level supervision overall wasstrong, IFC’s management and informationsystems do not provide adequate centralizeddata on environmental and social issues forthe portfolio. For example, management isonly now starting to develop overview report-ing templates specifying which safeguardpolicies and guidelines apply to specific proj-ects and whether projects comply with them,which mining projects have appropriate mine

closure plans and funding in place, and whichoil and gas projects involve routine flaring.IFC’s new management information systemwill address some, but not all, of these issues.

Many of IFC’s EI projects are in countries withinadequate environmental and social gover-nance; this strongly challenges IFC in terms ofresource allocation, reputation risk, and respon-sibility. Many host countries lack adequate envi-ronmental laws, regulations, and enforcement.Previous OEG studies214 have found significantlyworse performance in such countries. EI proj-ects are particularly concentrated there, andIFC’s potential added value is thus also greatest.But substantial resources are required for IFC toensure compliance. It is unclear whether IFC willever—or should—be in a position to replace hostcountry enforcement. In addition, even if IFC canensure compliance while it is an investor, it typ-ically cannot influence performance after exit-ing its investment.215 Also, some issues (e.g.,new settlement in areas of resource develop-ment) are difficult for IFC and its clients to dealwith in the absence of government support. YetIFC does not consistently assess the institutionalcapacity of national government agencies. Insome cases there was a preceding or concurrentWorld Bank involvement to upgrade governmentcapacity, but this is not the norm.216 This raisesthe question whether IFC ought to seek WorldBank assistance more routinely to upgrade gov-ernment’s environmental review capacity whereit is found lacking. A complementary action thatwould reduce the burden on IFC would be torequire that clients subscribe to internationalstandards of independent monitoring.217 In allnew Category ‘A’ projects (and for some Cate-gory ‘B’ projects), IFC requires independentaudits or at least independent verification ofthe Annual Monitoring Reports (AMRs). Suchrequirements could reduce the supervision loadand reputation risk for IFC, but this has to bebalanced against the higher cost for the client—who also benefits from improved performance.

Baseline data are important but were notalways established or tracked sufficiently.EIAs prepared for Category ‘A’ projects are


1 2 7

required to include a comprehensive baselinesurvey of environmental and social conditions.Yet for several past projects either this had notbeen completed or it did not provide enoughinformation.218 A detailed inventory of the envi-ronmental and social conditions before break-ing ground for exploration is crucial to trackdevelopment results, and it is also in the self-interest of the company. Local communities—understandably—highlight areas where theywant improvements and do not necessarily givecredit for past improvements achieved. It iscommon for the EI industry to be charged withpolluting air and water, degrading land, destroy-ing structures, and, in general, worsening liveli-hoods. While many claims are real, some cannotbe substantiated.219 Extensive baseline data, latertracked in ongoing monitoring programs, wouldhelp distinguish real from false claims and makeit possible to appropriately compensate for neg-ative impacts. They also would help the com-pany—and IFC—to demonstrate positivedevelopments.220 On the other hand, monitor-ing and baseline surveys are costly. It is there-fore important to establish the most importantenvironmental and socioeconomic indicators inthe EIA and identify how they should be trackedlater. IFC has started to track development resultsmore systematically in its supervision, and well-designed EIAs and AMRs could help in thisrespect.

Challenges in Meeting IFC’s Environmental andSocial Development Objectives

Funding mine closure—difficult to imple-ment. Mine closure is a major environmental andsocial issue. Abandoned mines represent anenvironmental hazard to the country and poten-tially significant cumulative cleanup costs asso-ciated with long-term environmental and socialdamage. Since 1982, the WBG has thereforerequired concrete and detailed plans for recla-mation and funding, with the goal of returningland to conditions supporting prior land use(or better uses). Since 1998, IFC’s guidelineshave required that money be reserved over thelife of the mine to cover closure cost.221 How-ever, IFC’s experience has shown in several

cases that this approach can be problematic—when commodity prices declined, the ore bodywas less valuable and the mine life thus shorterthan anticipated. While IFC eventually securedfunding for mine closure in several such cases,this clearly represented a risk, and mine closureissues have not been resolved for all portfolioprojects.222 Another difficulty for implementingsustainable solutions for mine closure is thatIFC generally exits from its investments when itsrole is completed—often well before the minecloses—and therefore loses any influence overthe mine operator. The WBG has developedgood practice guidance, covering differentoptions for securing funding that may offer solu-tions,223 but this guidance is not mandatory.There is clearly an urgent need to identify solu-tions (e.g., financial instruments) to ensure thatmines will be closed properly, even if a companybecomes insolvent.

Social issues related to mine closure—notcovered and even more complex. The socialissues surrounding mine closure are not coveredin IFC’s guidelines. They revolve around com-munities being able to deal with loss of jobs, eco-nomic activity, revenues, and services associatedwith mine closure. To address them requires thecooperation of multiple stakeholders, includinglocal communities, mining companies, and dif-ferent levels of government. The WBG has devel-oped guidance on this issue, including therespective roles of different stakeholders and“checklists” on handling social and environ-mental mine closure issues. Like all guidancenotes, they are not mandatory for IFC projects.224

Longer mine life—more potential for sus-tainable development? IFC has funded mineswith estimated lives exceeding 30 years wherethe mining company becomes a part of thecommunity and can justify expenditures forimproved infrastructure to support its opera-tions. This allows more time to contribute to sus-tainable development and prepare for mineclosure but may increase the community’sdependence. IFC also funds mines with relativelyshort lives. The compressed life can exaggeratesome of the social and environmental issues


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associated with mining, including mine closureand reclamation risk. One African company toldOEG that it wished it had invested in local com-munity development earlier. It did not, in partbecause it had expected to close down withina decade, but it will now continue to operate fol-lowing the acquisition of an adjacent mine.

Tailings dams—the Achilles’ heel of miningprojects but few problems in IFC’s portfo-lio. In 1996, Comsur, an IFC client, experienceda tailings dam break. In the same year, IFC alsodiscovered through an evaluation that the clientof one of its older investments was dischargingtailings straight into a river—without a tailingsdam.225 Following this, a 1999 draft Policy onSafety of Dams (OP4.37) was prepared thatincludes tailings dams. The environmental assess-ment must now provide information on the tail-ings dam. IFC’s mining engineers andenvironmental staff are expected to review tail-ings dam safety at appraisal and during super-vision. While there were no problems untilrecently, IFC just discovered a problem with aleaky tailings impoundment.226 Tailings damsoften remain following closure, posing a poten-tial threat to the community. It is thus importantto assess the public risks from potential tailingsdam failure, starting from the EIA.

Private ownership can improve environ-mental performance, but this often meansaddressing the environmental legacy of pastpractices—a challenge. Several IFC invest-ments have been in newly privatized but exist-ing operations. The past practices of the formergovernment managers had left a legacy of envi-ronmental problems (oil pits, leaking pipelines,contaminated waterways, leaking tailings dams),often passed on to the new owners charged withthe cleanup. Environmental performance invari-ably improved under the new ownership, revers-ing most of the negative impacts, but in somecases bringing the operation into complianceproved difficult and prolonged.

Going beyond the fence line. Current industrypractice places an imaginary fence line aroundthe project, with activities outside the fence line

not considered part of the project’s impact.While there has to be a cut-off, defining the fenceline is difficult. For example, a country’s abilityor lack thereof to clean up a spill can haveeffects well beyond what may be considered theconfines of the project, particularly with respectto transport—by rail, road, pipelines, and sea.Transport often is contracted to or is the fullresponsibility of third parties. Two IFC projectsexperienced high-profile hazardous materialsspills, Minera Yanacocha, Peru, and KumtorGold, Kyrgyz Republic. Both featured road trans-port mishaps outside what had been defined asthe fence line. On the basis of these experiences,IFC has extended its appraisal and supervisionreach to cover some of the operations of sup-pliers and shippers, applying environmentalguidelines to these activities. Nevertheless, thedebate will remain over the point of transfer ofresponsibility.

Challenges when IFC enters late in theprocess. IFC can have a major influence ifinvolved in the project from inception. In sev-eral cases, however, IFC was not approacheduntil after the sponsors had advanced the proj-ect, not always in accordance with IFC’s guide-lines, particularly in relation to publicconsultation. In such cases, IFC faces a choicebetween turning down a project and losing theopportunity to add value, or imposing whatmay be costly conditions on the client for pro-ceeding. Current guidance on what to do insuch circumstances is unclear.

Ensuring sound environmental and socialperformance equity investments. IFC hasseveral equity-only investments, with little legalleverage to influence the project and no legalright to obtain Annual Monitoring Reports. IFCcould use “moral suasion” but has not alwaysdone so. In some cases, the appropriate envi-ronmental and social terms and conditions werein the loan documents, but they expired uponrepayment of the loan. If the company is delin-quent in its environmental or social responsi-bilities, IFC will bear some reputation risk,whether it remains an investor or exits. Eventoday, IFC does not always include contractual


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environmental and social requirements for equity.OEG pointed out this problem in its first AnnualReview in 1997. IFC management respondedthat it would look into this issue, but that therewere complex commercial and other consider-ations. But IFC’s 1998 environmental and socialreview procedures do not distinguish betweeninvestment instruments and do not address thisissue. It is difficult to negotiate appropriaterequirements for equity investments (e.g., share-holders’ agreement, put option in case of envi-ronmental default), but lack thereof makes itdifficult, if not impossible, for IFC to comply withits own procedures. Also, there are no guidelinesestablishing how active IFC should be as a share-holder; for example, whether IFC should rou-tinely ask for information about a client’senvironmental practices and raise this issue atshareholder meetings.227

New approvals—similar difficulties. Since2001, IFC has approved funding for five projectsto help the EI sector with services, loans, or seedcapital. These projects could create jobs, estab-lish new ventures, and improve services. As yet,there have been few disbursements under theseprojects, but when they or similar projects aredisbursed, they could present unique challengesfor monitoring and enforcing compliance underIFC’s safeguards policies and guidelines, becauseof IFC’s indirect relation to the underlying proj-ects and lack of contractual leverage. Similarissues apply to EI projects approved throughfinancial markets operations, which were notcovered in this evaluation.

ASM can give rise to major environmentaland social problems and sometimes pose a rep-utation risk for IFC’s clients. ASM features promi-nently in a number of countries where IFC hasEI investments. Authorities sometimes considerASM a stopgap measure for poverty preventionand leave it untouched, even if they oppose itspractices. ASM is often illegal and involves veryunhealthy and unsafe working conditions, includ-ing child labor. ASM can cause major environ-mental damage, degrade land beyondrehabilitation, and pollute waterways with heavysediment, heavy metals, hazardous materials(mercury), and acid rock drainage. Sometimes

ASM precedes large mines, and government reg-ulation often requires eviction of miners; at othertimes, ASM is attracted by large-scale miningactivity. In either case, large mining companiesface a dilemma—evicting ASM operators is dif-ficult and results in poor community relations,while letting them operate results in reputationrisk—being blamed for the poor environmentaland safety record of ASM.228 In one case, an IFCclient wanted to help artisanal miners with bet-ter equipment and guidance but realized thateven improved conditions would still constitutetoo great a reputation risk. Dealing with ASMoften has proved beyond the capability of indus-try. But governments also are struggling with it.Observers suggest a twofold solution: one, cre-ate alternative employment opportunities; two,help “upgrade” this subsector: provide assistanceto transform artisanal miners into safer, small-scaleminers who are regulated and abide by improvedenvironmental standards. Experience beyondIFC’s portfolio suggests that private companiescan engage constructively with ASM operators(Box D7), as does other WBG work.229

5. Disclosure and Consultation

IFC’s disclosure requirements haveincreased. IFC adopted its first disclosure pol-icy in July 1994 and revised it in 1996 and1998.230 Under the policy, IFC balances account-ability as a public institution—favoring disclo-sure—with the need to protect commerciallysensitive information. EI projects are particu-larly sensitive, and IFC frequently signs confi-dentiality agreements. Disclosure in IFC hasincreased substantially since the early 1990s,when almost none was required. Recognizing thefundamental importance of accountability andtransparency in the development process, IFCrequires disclosure of the following:• Summary of Project Information—a brief

factual summary of the evolving project. • Environment-Related Documents—Cate-

gory ‘A’ projects: environmental impact assess-ment, released at least 60 days before theBoard date; Category ‘B’ projects: summaryof the key findings of the environmentalreview, released at least 30 days before.


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Disclosure is only required before approval;public information is thus often outdated,but this aspect has improved recently. In sev-eral projects reviewed by OEG, project scope ordesign had substantially changed, but the pub-licly available information had not beenupdated.231 Publicly available project documentsusually addressed planned measures to addressenvironmental effects, not whether these meas-ures have been effectively implemented. Suchissues usually would be covered in an AMRsupplied by the client to IFC, but AMRs are notpublicly available.232 While disclosure has to bebalanced against commercial confidentiality,lack of disclosure diminishes trust.233 For somerecent IFC projects, updated environmental andsocial information has been disclosed.234

IFC protects its clients by keeping projectinformation confidential—but is that intheir best interest? Leading industry players seevalue in disclosure. IFC, at EIR workshops andother consultations, has been criticized—some-times based on misconceptions about specific EIprojects. More information could diminish suchmisconceptions, but IFC does not disclose, evenin aggregate form, noncompliance by itsclients.235 There are no guidelines on whether,or under what circumstances, IFC should notifylocal authorities or the public of known com-pliance shortfalls. Many IFC clients have started

to voluntarily disclose detailed social, environ-mental, and financial reports, recognizing thatopenness and transparency increases trust andis in their long-term interest. Others, such as oneclient who asked OEG’s advice about best prac-tice in sustainability reporting, are consideringit,. Leading industry players publish independ-ently verified, detailed sustainability reports,including, for example, sites with independentaudits and mine closure plans; injury rates; land,water, and energy use; spill incidents, gas flar-ing, carbon dioxide, and greenhouse gas emis-sions; and environmental and noncomplianceincidents. IFC has begun to insist on disclosureof ongoing environmental and social informa-tion in a few high-profile projects, but this is notthe norm.

In several cases, IFC clients have gonebeyond the disclosure requirements.236 Oneclient is now the only company in the countrythat audits and discloses environmental per-formance reports. In a few recent cases, IFC hasagreed with the client on independent moni-toring and disclosure of the AMR. In severalcases, IFC has gone beyond the minimumrequirements; one example being the Chad-Cameroon Pipeline project, with a 19-volumeenvironmental management plan and ongoingindependent review. Some other IFC clients alsodisclose substantial amounts of information


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Irrespective of the legality of their presence, the sig-nificance of small-scale mining activity on conces-sions (or potential incursions by small miners fromelsewhere) should not be underestimated, either bygovernment authorities or private companies. In par-ticular, where small-scale mining is the main eco-nomic activity of “established” communities, anyexternal threats to miners’ livelihoods will be resistedstrongly.

The “problem” of small miners can be addressedonly by looking beyond the threat they present to theproject. This involves developing an understanding of

the reasons for their presence and the extent to whichmining meets their basic needs (as a primary or sup-plemental economic activity) and identifying viablealternative livelihoods or opportunities to continue tomine.

The emerging policy of encouraging an intimateassociation between small- and large-scale miningprojects has merits but should not be used as a sub-stitute for a comprehensive government strategytowards small-scale mining.

Source: Case study on the Las Cristinas Project (Venezuela)—Lessons

from the Evaluation, by Aidan Davy and Auristela Perez, May 1999.

A r t i s a n a l a n d S m a l l - S c a l e M i n i n g —C o n s t r u c t i v e E n g a g e m e n t b y aP r i v a t e C o m p a n y

B o x D 7

about their environmental and social activities.237

Such information often can be found on IFC’sor the clients’ Web sites.

Build community trust through open, hon-est, respectful, and ongoing consultation.But IFC’s requirements fall short of its own goodpractice guidance on public consultation and dis-closure plans.238 The guidance defines consul-tation as “a wider continuous process ofparticipation of all stakeholders in the decisionsthroughout the formulation and execution of aproject.” IFC’s preapproval disclosure and con-sultation requirements may not be enough toachieve trust in the community. In particular,ongoing consultations are not required (unlessa project involves resettlement or indigenouspeoples),239 nor is disclosure.

Good communication can improve the effec-tiveness of assistance programs and reduceanxiety if problems occur. Unilateral com-pany decisions on what is best for the com-munity are likely to be misguided and expensiveand cause discontent. For example, when amining company used tanks to temporarilyrestore water supply to villagers without con-sulting them, they accused it of treating them“like refugees.” But another mining companyconsulted extensively with the community and,for a few hundred dollars, developed a projectthat recycles engine oil for coastal fishermen,reduces coastal pollution, and has strong com-munity support. Companies that communicatepoorly can face the high costs of project inter-ruptions and community relations turned sour.240

From field visits, desk reviews, and the litera-ture, it is clear that IFC clients that consult, dis-close, and communicate well are better off thanthose that do it poorly.

Public consultation can be complex, con-fusing, and difficult for both the companyand the stakeholders. Some multinationalshave geared up for this important part of doingbusiness, but others are struggling and evenwith the best of intentions are finding them-selves running into difficulties. Some haverequested assistance from IFC.241 To consult

with the companies on an equal footing, thecommunities and other stakeholders may needassistance and training to understand the busi-ness and technology. Independent experts canhelp, but who pays for them? If the sponsor pro-vides the funding, the expert may be perceivedas compromised, but alternative funding sourcesare scarce. IFC has worked with a number ofclients and communities to facilitate the con-sultative process, sometimes using trust funds(Attachment 5), sometimes with the help ofthe CAO—and OEG has witnessed positiveeffects in several projects.

6. Governance and Challenges ofManaging Revenues from ExtractiveIndustries

Extractive industries—large revenues forcountries with poor governance. The eco-nomic sustainability section of this report indi-cated that most of IFC’s EI investments createdlarge revenues for host countries, particularly inoil and gas, sometimes even when investorsdid not achieve satisfactory returns.242 There isabundant evidence that such large revenues,which, tend to be volatile and finite, create par-ticular challenges for resource-rich countries.While IFC usually analyzed the financial, social,and environmental aspects of a project thor-oughly, it has, in the past, not approached rev-enue management and distribution with thesame rigor. Because IFC’s EI projects are highlyconcentrated in risky countries that tend to suf-fer from weak governance, the issue becomesparticularly important. Since fiscal year 1993,half of IFC’s EI approvals were in countries inthe worst governance quartile, compared withonly one-quarter of all non-EI approvals.243 Torecommend not investing in countries with poorgovernance sounds tempting, but the WBG’smission is to reduce poverty and improve peo-ple’s lives—and hundreds of millions of peoplelive in resource-rich countries with poor gover-nance. While the WBG alone may not be ableto improve governance, by using its uniqueposition as global player with the conveningpower to engage both public and private stake-holders, it can effect change.


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Challenges of investing in countries withthe poorest governance. Countries with poorgovernance often lack transparency, adequatelaws, financial capacity, and regulations to allowregulators and judiciary systems to cope ade-quately with large EI projects. If corruption is anissue, customs agents, transport companies, reg-ulators, and government officials could exertsignificant pressure on projects, causing delaysand additional costs. From a development per-spective, corruption is bad for growth and tendsto reduce economic growth and private sectorinvestment.244 Resource-rich developing coun-tries that are often cited among the best exam-ples for the positive contribution of the EIsector—such as Botswana and Chile—are allconsidered to have relatively little corruption.245

Results—for development, IFC’s bottom lineand the environment were closely corre-lated with governance quality. OEG ana-lyzed the results of the 45 studied projects usingdifferent governance indicators.246 Develop-ment results were significantly better in coun-tries with good government effectiveness,political stability, and regulatory quality (Figure

D3). It is also worth noting that investing incountries with poor governance is not neces-sarily financially attractive for IFC. In fact, noneof IFC’s 10 most successful EI investments werein a country with the highest corruption.247

IFC’s equity returns were worst in countrieswith the poorest control of corruption and thebest in countries with the highest control (Fig-ure D4).248 Environmental results were signifi-cantly better with better political stability.

Bribes are common in EI, particularly in oiland gas. According to Transparency Interna-tional,249 the oil and gas sector is perceived asthird most likely to involve bribes, following onlypublic works contracts and arms deals. Miningranks seventh. The Organisation for EconomicCo-operation and Development (OECD) Con-vention on Combating Bribery of Foreign Pub-lic Officials in International BusinessTransactions250 entered into force in February1999. Thirty-five countries have ratified the con-vention, and most have already enacted legis-lation to make it a crime for businesses to bribeforeign public officials. Quite a few countriesalready had laws outlawing corruption abroad.251


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B e t t e r D e v e l o p m e n t R e s u l t s w i t h B e t t e r G o v e r n a n c e( 4 5 s t u d i e d E I p r o j e c t s )

F i g u r e D 3

0%

20%

40%

60%

80%

100%

Government effectiveness

Political stability Regulatory quality

Dev

elop

men

t out

com

e su

cces

s

Poor governance Good governance

Source: WBI Grics-II

Nevertheless, paying bribes still appears to becommon.

IFC takes precautions against corruption,but it is clearly a risk. IFC projects provide ademonstration effect for others, and it is there-fore imperative that the projects are implementedtransparently and honestly. IFC usually explicitlyrequires sponsors to abide by host country lawsand regulations, which often outlaw corruption.During appraisal, IFC typically checks the back-ground and reputation of its sponsors and howlicenses were awarded. To that end, IFC has, onseveral occasions, hired private investigators.IFC also typically requires that its clients’ finan-cial statements be audited, which may reduce butnot eliminate the scope for irregularities. OEGreviewed project files and had informal discus-sions with IFC staff, project sponsors, and thirdparties knowledgeable about the sector. OEGfound no evidence that IFC clients were payingbribes but did not conduct an audit. However,particularly because IFC projects are taking placein countries with high perceived levels of cor-

ruption, there is clearly a risk. OEG’s field visitsand other research showed substantial differ-ences with respect to the transparency and han-dling of EI sector revenues among differentcountries with IFC EI investments.

Corruption is linked to revenue manage-ment but is difficult to prove. InternationalMonetary Fund (IMF) research has found thatcorruption distorts allocation of resources bygovernments. It is associated with higher pub-lic spending but poorer quality infrastructure.In countries with poor governance, it is there-fore particularly important to address howgovernments manage fiscal revenues from EI.OEG visited several countries where little of thegovernment revenues was flowing back tobenefit communities next to EI projects. Insome countries, there was a strong suspicionthat government officials at different levelswere corrupt. Without transparency about theresource flows, such allegations are difficult toprove or disprove. About 70 percent of gov-ernment officials surveyed (Attachment 6B)


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B e t t e r C o u n t r y G o v e r n a n c e — B e t t e r I F C E q u i t y R e t u r n s f o r E I a n d f o r O t h e r S e c t o r s

F i g u r e D 4

-80% -60% -40% -20%

0% 20% 40% 60% 80%

100%

Rela

tive

real

retu

rns

on e

quity

(sin

ce in

cept

ion)

EI equity returns

Non-EI equity returns

Governance quartiles Worst Best

2 10 32 431 40 579 3 43 Number of projects

Note: 175 countries were sorted based on the average of their respective GRICS indicators (Voice and Accountability, Political Stability, Government Effective-

ness, Regulatory Quality, Rule of Law, and Control of Corruption) and divided into quartiles.

Source: World Bank Institute. Governance Research Indicators Country Snapshot (GRICS) Dataset, 2001.

saw a need for the IFC to help improve gov-ernance and transparency (the correspondingfigure for the World Bank is 83 percent). Onemining minister advocated disclosure of mon-eys provided to local authorities to betterensure local communities benefit from it.

IFC’s recent efforts with respect to revenuemanagement. The Chad-Cameroon pipeline isthe first IFC project to proactively tackle revenuemanagement.252 This effort followed IFC’s recog-nition that projects that devolve little or no ben-efit to local communities present bothdevelopment and commercial risks. A recentIFC position paper on revenue distribution andmanagement253 (Box D8) states that, in high-impact projects in countries with poor gover-nance and weak institutions, IFC willsystematically assess the risks that governmentswould misuse payments or that intended ben-efits may not reach local communities. IFC wouldalso, together with the Bank, IMF, and sponsors,consider mitigating measures. At this point, theposition paper applies only to “high-impact”projects (substantial in relation to the nation’sincome), and none of the mitigating measuresare mandatory.

Key issues in revenue management. A jointworking group consisting of industry, civil soci-ety, and WBG staff considered the following

policies critical with respect to revenue manage-ment and utilization:254 (i) the establishment oftransparency and accountability with respect torevenues earned and their disposition, (ii) con-sultation with principal stakeholders in develop-ing plans for the use of resource revenues,(iii) credible oversight and audit of the imple-mentation of these plans, and (iv) serious atten-tion to building local institutional capacity.

Disclosure of government revenues—astep toward better management? To date,neither the IMF nor the World Bank necessar-ily require that resource-rich countries dis-close the revenues generated by EI, eventhough they sometimes recommend it. IFC’s EIclients are also not required to disclose the rev-enues they generate for governments. However,several public campaigns have started to advo-cate disclosure of EI revenues.255 But disclosureof government revenues can raise difficultissues. Governments in some countries evenmake it illegal, through confidentialitycovenants in production-sharing agreements,for example. Industry is concerned that uni-lateral disclosure could create a competitive dis-advantage. However, almost all industryrepresentatives whom OEG interviewed in thecourse of this study would support industry-wide disclosure of government revenues. Mostof them, however, emphasized that these were


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Revenue distribution and management in extractiveindustry projects are important development issuesand have emerged as major risk factors for both theoperation and the reputation of investors. Large rev-enues generated by these projects and accruing togovernment may be misused. Benefits from these rev-enues may not reach local communities. While revenuedistribution and management are not issues in every IFCproject, they can become problematic in high-impactprojects; that is, where revenues are substantial inrelation to the nation’s fiscal income.

To deal with the problem, IFC proposes a number ofsteps that it may undertake for high-impact projects thatwill generate substantial revenues for host governments:• Engage with the World Bank or IMF to coordinate

issues beyond IFC’s mandate. • Consider other mitigation measures, such as spon-

sor’s community development programs, when coor-dination may not achieve the necessary level ofmanagement.

• Seek funds or partners to assist a sponsor withcapacity-building.

I F C ’ s P o s i t i o n R e g a r d i n g R e v e n u eD i s t r i b u t i o n a n d M a n a g e m e n t —H i g h l i g h t s

B o x D 8

their personal, not necessarily corporate, views.Some companies operating in the EI sectorhave started disclosing government revenueseven against host government concerns.

7. Issues Beyond the Control of IFC andIts Clients Require EffectiveCooperation and Action Inside andOutside the World Bank Group

Issues beyond IFC’s control require bettercooperation among financiers and devel-opment partners. IFC has been more effectivein EI projects than in other sectors in address-ing most issues within its own control. Moreneeds to be done to ensure that the sector andthe projects IFC supports contribute to sustain-able development. IFC can address some issueswith its clients; for example, helping them toimprove their environmental performance, com-munity development activities, and consultationand disclosure—to serve as role models for sus-tainable development. IFC has done much256

and can probably do even more to convince itsclients that better environmental and social per-formance, while potentially entailing short-termcosts, will ultimately be in their long-term inter-est. But to have even greater impact, IFC alsoneeds to work on further improving its own envi-ronmental and social policies and guidelinesand their implementation and—together with itsmember countries—help improve those of otherinternational financial institutions. Little wouldbe gained if IFC alone adds requirements andits potential clients seek financing elsewhere. Butmany of the issues discussed in this evaluationare beyond even the control of IFC’s client com-panies. To resolve them will require close coop-eration within the World Bank Group and withother stakeholders and partners—the IMF, IFC’smember governments, and other internationalfinancial institutions. The recent adoption ofIFC’s policies and guidelines on environmentaland social issues by several internationally activebanks is an important step in that direction.

Merging World Bank and IFC units hasimproved sectoral cooperation, but cooperationwith country departments and attention to rev-enue distribution and utilization, governance, and

transparency are still inadequate. To validatethe findings of this evaluation, we surveyed allof IFC’s sectoral investment staff and regionaleconomists.257 Almost 90 percent respondedthat merging IFC’s and the World Bank’s sectordepartments into one Global Product Grouphad improved coordination of sectoral issues. Atthe same time, less than half said that overallcooperation within the WBG was adequate; intheir view, lack of support by the World Bank’scountry departments was the biggest internalconstraint.258 One likely explanation for theinsufficient coordination is that the country direc-tors lack the incentive to address EI issues: inthe countries where IFC operates, the WBG’s EIlending volume tends to be small, EI projects areconsidered environmentally risky,259 and gov-ernments may not be receptive to WBG activ-ity in this area. Of 24 IFC staff who responded,63 percent considered host country govern-ments’ lack of support to be the biggest constraintto enhancing the contribution of the EI sectorto sustainable development. Only about half ofthe IFC respondents said that revenue distribu-tion and utilization, governance, and trans-parency were adequately addressed in EIoperations. This response confirmed an analy-sis of CASs showing that weak country gover-nance and revenue management in resource-richcountries often were not adequately addressedin CASs and subsequent WBG interventions;IFC’s EI activities often were not even men-tioned in CASs (see Annex C). This points to aneed to address EI issues in country strategiesmore thoroughly, ideally in a ComprehensiveDevelopment Framework mode, also engagingother stakeholders beyond the WBG.

Perceptions of environmental and socialperformance differ. Well over 90 percent ofIFC staff responded that environmental andsocial issues were adequately addressed in IFC’sEI projects. This perception is better than ourevaluation results suggest, but staff may haveconsidered IFC’s performance on current proj-ects, whereas we evaluated past results. Certainlythe perception of IFC staff is different from thatof outside observers. Among the participants atthe EIR workshops, only 44 percent (of 52)


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responded that IFC successfully addressed envi-ronmental impacts; 33 percent (of 48) respondedpositively for social impacts. Views among NGOswere the worst—15 percent and 7 percent pos-itive, respectively. Responses from governmentand industry were around 50 percent positive,slightly better for environmental issues. Thispoints to a need for improved performancecompared with past results and also for muchgreater disclosure and engagement of stake-holders to address the poor perceptions wherethey are not warranted.

Even a concerted WBG effort is probably notenough. About two-thirds of IFC staff respondedthat the biggest factor keeping EI from con-tributing to sustainable development is the lackof support from the host country government.One respondent explained, “[The] main problemis governments in client countries don’t want theBank or IFC messing with their only independ-ent source of revenues. Even when the Bankdoes intervene, it often does not have the lever-age to engineer change.” Some respondentscommented that the IMF also needs to beinvolved and that continued engagement in thesector was important to maintain the country dia-logue. An OED study also found that governancewas key to successful management of fiscal rev-enues from EI but that government commit-ment or political will to address it was lackingin four out of five country cases (Annex C,Chapter 5).

The results confirm that closer coopera-tion is needed—within the WBG andbeyond. The survey results confirm the eval-uation findings—that important issues, such asrevenue distribution, utilization, governance,and transparency, need to be better addressed.This will require closer cooperation within theWBG. But the WBG will also need to use itsconvening power and the help from its mem-ber governments, the IMF, industry, financiers,and civil society to break the resource curseand ensure that extractive industries contributeto sustainable development. Greater trans-parency about the resources generated forgovernments is likely to increase pressure ongovernments to account for the flow and effec-

tive use of those resources. Our evaluationresults suggest that better country governanceis not only likely to improve the developmentresults of IFC’s operations but also IFC’s finan-cial results.

IFC needs to better tackle transparency,government revenue distribution, and, moregenerally, sustainable development. Otherstakeholders echoed the perceptions of IFC staff.NGOs, industry, and governments expressed aneed for IFC to address these issues (Attachment6B). But no group responded that there wasenough IFC effort or success. NGOs were mostcritical (less than 10 percent said IFC success-fully addressed these areas), but the percep-tions of industry (about 20 percent) andgovernment (about 40 percent) also indicatesubstantial room for improvement.

8. Conclusions and RecommendationsOverall, IFC has effectively supported EI oper-ations, but it needs to further improve theirimplementation, better address broader sus-tainability issues, and, with its clients, bettertrack and report on results achieved. Projects usu-ally generated large revenues for governmentsand opportunities for people. IFC has generallyadded value, particularly in improving the envi-ronmental and social aspects of projects, butgiven the sector’s high impact potential, IFCneeds to help client companies prevent or mit-igate negative impacts more effectively and sys-tematically. IFC also needs to ensure that itsenvironmental and social guidelines and pro-cedures continue to set standards and adapt torapidly improving industry standards and that itsprojects adapt with them. In pursuit of its sus-tainability agenda, IFC needs to do more toaddress the risks that government revenues maynot be effectively used for development, thatbenefits may not be distributed transparently, andthat local communities may not tangibly bene-fit from EI projects. To enhance the contributionof IFC’s projects and the sector to sustainabledevelopment requires further improvements inproject implementation, effective cooperationwithin the World Bank Group, and the fullengagement of all stakeholders.


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This evaluation found gaps in three areas:strategic gaps, resulting from inadequatelyaddressing issues such as country governanceand revenue management through effectiveaction, both within the WBG and with other part-ners, and clearer project selection criteria; imple-mentation gaps, which, if addressed, couldenhance the performance of IFC’s EI projectsand, through the demonstration effects of IFC’sprojects and requirements, that of EI more gen-erally; and gaps in engaging stakeholders, which,if addressed, would allow IFC and its clients toimprove performance and better demonstratecontribution to sustainable development.

Recommendation 1: Formulate an integratedstrategy

Address extractive industries in CASs. IFCshould work closely with other parts of theWBG to ensure that CASs for resource-rich coun-tries260 explicitly discuss the EI sector’s contri-bution to sustainable development (e.g., theimportance of fiscal revenues and their man-agement, distribution, and use for developmentpriorities) and obstacles for enhancing its con-tribution. The CAS should provide an agreedframework for WBG-wide cooperation, with aparticular focus on close interaction between IFCand the World Bank’s country departments. IFCand the World Bank should routinely worktogether to enhance the development impactsof EI projects; for example, in the form of pub-lic-private partnerships with respect to commu-nity development programs.261 IFC and the WBGshould build on existing initiatives, such as Busi-ness Partners for Development and the Com-prehensive Development Framework, to enlistthe help of other stakeholders, such as the IMF,other bilateral and multilateral institutions, indus-try, and civil society.

Where country governance is weak, increasetransparency and address the weaknesses.Together with the World Bank and other stake-holders, IFC should analyze all aspects of coun-try governance quality and the risks that poorgovernance may detract from sustainable devel-opment. In particular, IFC should encourage

enhanced transparency and disclosure con-cerning contractual agreements betweeninvestors and governments, the amount of fis-cal revenues generated, and their distribution.262

IFC—together with the World Bank and otherstakeholders—should encourage such trans-parency sectorwide in the country. When financ-ing projects whose major expected developmentcontribution is the generation of revenues to gov-ernments, IFC should carefully review and dis-cuss the governance risk that these revenues willnot be used productively. Where such gover-nance risk is high and the project’s revenues aresignificant,263 IFC should work with the gov-ernment (in partnership with the World Bank andIMF) to put in place mechanisms to reduce thisrisk, including possibly ring-fencing of projectrevenue management. For all proposed EI invest-ments, IFC should address these issues in BoardReports.

Support environmental and social sus-tainability. IFC should focus on projects thatcan serve as models for environmental andsocial performance, transparency, and disclo-sure. Where laws and regulations—or theirenforcement—are weak, IFC should insist onspecial measures to ensure a project’s soundenvironmental and social performance. Suchmeasures could include building local moni-toring capacity and disclosing independentlyaudited and publicly disclosed monitoringreports. They could also include an explicitassessment of the risk of conflicts and measuresto deal with them.

Recommendation 2: Focus on implementation

Improve project appraisal264 and supervi-sion.265 IFC should continue to require high-qual-ity environmental impact assessments thatestablish baseline data for relevant environ-mental and socioeconomic impact indicators.These indicators—compared with the baseline—should be consistently tracked266 and aggre-gated for IFC’s management. Appropriaterequirements allowing IFC to adequately mitigaterisks and monitor all its projects should beincluded for all investments, particularly equity.267


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Where IFC finds poor environmental and socialsystems or performance, it should address themproactively and vigorously.268 IFC’s investmentofficers and nominees to company boards shouldbe co-responsible with technical specialists forthe environmental and social performance oftheir projects. Where possible, IFC should alsodevelop and use local monitoring capacity.

Adequately involve specialists throughout.IFC needs to ensure that its environmental andsocial specialists are consulted as early as pos-sible and throughout the project life and thatinvestment officers fully share relevant infor-mation. To that end, investment officers need tobe better trained to identify risks and opportu-nities. Making the investment officer and depart-ment explicitly accountable for environmentalperformance would likely provide a strongincentive for calling in the experts as early as pos-sible, not after a problem has materialized.

Enhance reporting of results. IFC shoulddevelop a reporting template that specifies foreach portfolio project which safeguard policiesand guidelines apply, whether the company isin compliance with them, and how it performswith respect to key sustainability indicators forthe industry. Where relevant, IFC should alsoinclude “beyond the fenceline” issues, such astransportation and project-related security issues.

Evaluate distribution of benefits. IFC shoulddevelop269 global comparators for the distribu-tion of benefits from EI—among investors, gov-ernments at different levels, and localcommunities. For its projects, IFC should ana-lyze the distribution and compare it with otherEI projects. At appraisal, IFC should include thedistribution effects in its sensitivity and riskanalysis (e.g., distribution of benefits at differ-ent levels of output and prices), track actual dis-tribution during the project life, and aggregatethe data at the country and sector level.

Recommendation 3: Engage the stakeholders

Update policies and guidelines. In consulta-tion with stakeholders, IFC should continuously

update its environmental and social safeguardpolicies, guidelines, and processes in line withevolving good practice in the industry.270 TheWBG should use its convening power and thehelp of its member governments to promotetheir use by governments, industry, and other fin-anciers. IFC should develop, update, or clarifypolicies and guidelines on indigenous peoples(or “vulnerable people”), safety of dams, natu-ral habitats (or biodiversity), security and humanrights, HIV/AIDS prevention, mining (closure—funding and social issues, acid rock drainage,precious metal mining), and oil and gas (gas flar-ing, downstream transportation of oil).

Promote disclosure of fiscal revenues fromEI. IFC should encourage—and consider requir-ing—its clients to publish such information.Where client confidentiality undertakings ini-tially restrict disclosure, IFC could report resultson an aggregate country, regional, or sectorallevel and participate in initiatives advocatingsuch disclosure. IFC needs to balance clientconfidentiality with its own accountability as apublic institution and the public’s desire to knowmore. On balance, increased communicationand transparency are likely to help IFC and itsclients and reduce misconceptions, distrust, andcriticism.

Develop, monitor, and report on sustain-ability indicators. In consultation with otherstakeholders, IFC should develop and track keysustainability indicators and consider disclosingthem to demonstrate the economic, social, andenvironmental impacts of its EI projects.271

Reporting on credible sustainable developmentindicators will help overcome the current inabil-ity to systematically demonstrate resultsachieved.

Increase local community participation. Thisevaluation found strong evidence that improvedcommunity consultation is in the best long-terminterest of our clients. IFC should make com-munity development programs with ongoingconsultations the norm for EI projects. Such pro-grams should start with a participatory assessmentof the community’s situation272 and long-term


1 3 9

development needs. They should include ongo-ing consultations, focus on sustainable solutionsto meet these needs, and prepare communitiesfor the time after the extractive operations cease.Good communication is also likely to improveresults, as will listening to people and beingexposed to public scrutiny and challenge.

Improve communications with clients. IFCshould routinely share best practice amongclients and encourage them to apply it. IFC

should communicate its information needs bet-ter to its clients; for example, by tailoring report-ing to their own requirements. Clients very muchappreciated assistance they had received fromIFC staff but were eager for more. IFC shouldbuild on its various initiatives to add value andfurther facilitate exchange of ideas among itsclients, by organizing conferences and furtherdeveloping toolkits on how to best address envi-ronmental and social issues, for example.273


1 4 0


1 4 1

For this study, OEG analyzed a random sampleof IFC projects approved between 1991 and1996 and evaluated at early operating maturitybetween 1996 and 2001. The performance ofthese 22 evaluated EI projects was comparedwith others evaluated in the same time period,using IFC’s established evaluation framework(see www.ifc.org/oeg/xpsrs/xpsrs.html) underthree performance dimensions: developmentoutcome, IFC’s investment outcome, and IFC’seffectiveness (Attachment 4B). To validate thefindings, OEG also conducted a desk review ofall EI projects approved since fiscal year 1993and older projects still in IFC’s portfolio. Theresults of these 45 studied EI projects are sum-marized in Attachments 4C and 4D. OEG alsoreviewed IFC’s strategy in the sector, technicalassistance trust fund activities (Attachment 5),internal documents, and relevant literature.

OEG presented an analysis of IFC’s invest-ments in the sector in its approach paper for thisstudy. More information can also be found in the

WBG’s background paper to the EIR. Both areavailable online. A brief summary of the analy-sis is in Attachment 3, and highlights are inAttachment 1.

Evaluators visited more than a dozen projectsites in six countries to assess developmentresults and to talk to representatives from indus-try, government, and civil society (see Box D3).We surveyed participants at the EIR workshopsabout their perceptions: initially, about the mostimportant sectoral issues, to help guide the eval-uation (Attachment 6A); then, at the regionalworkshops, about the need for, and effort andsuccess of, IFC and the WBG in the sector(Attachment 6B). OEG also asked IFC staff towhat extent the WBG was appropriately address-ing key issues in the sector (Attachment 6C) andwhether coordination in the WBG was ade-quate. OEG also sought feedback from numer-ous stakeholders knowledgeable about thesector, inside and outside the WBG.

E v a l u a t i o n A p p r o a c hA t t a c h m e n t 1

Approvals. In the 1960s and 1970s, few devel-oping countries considered private sector devel-opment of their EI resources. IFC funded itsfirst EI project, a Chilean copper mine, in 1958and only five EI projects in the subsequent 12years, three of them in the Chilean copper sec-tor. As countries loosened control of their nat-ural resources and permitted private sectorinvestment, IFC became more active in the sec-tor. Growth was initially slow. Prior to FY1980,IFC had approved only 17 projects for US$137million. Growth then accelerated through 1991,when IFC’s net approvals reached almost US$400million. Approvals have, since 1991, fluctuatedat around US$250 million annually, with a sim-ilar amount funded through the IFC B-loan syn-dication program. Compared with IFC’s totalapprovals, the importance of EI projects declinedsubstantially from around 15 percent in the1980s to about 6 percent today. Since 1990, IFChas approved more than 140 extractive indus-tries projects, predominantly in Latin Americanand Sub-Saharan African countries (about 30percent each).

Products and funding instruments. IFC’s EIapprovals—about US$3.1 billion from 1990 to theend of 2002—were particularly concentrated inoil and gas production and development (61 per-cent).274 Gold (16 percent) and copper (6 per-cent) were also important. IFC has providedloans, equity, quasi-equity, and syndicated invest-ments (mostly loans) to EI projects. IFC approvedrelatively fewer equity investments in EI (12percent) than in other projects (16 percent)since 1990. In IFC’s outstanding portfolio, how-ever, EI had a larger share of equity (34 percent)

than other projects (26 percent). IFC has beensuccessful in attracting participant funding to EI—participants approved funding for about as muchas IFC approved for its own account.

Frontier countries. IFC’s overall strategy doesnot emphasize EI as a sector. However, it doesemphasize investments in “frontier countries,”defined as countries with poor country credit rat-ings.275 Investments in EI depend on the loca-


1 4 3

I F C ’ s I n v e s t m e n t i n E x t r a c t i v e I n d u s t r i e s


Extractive Industries: Declining Importance in IFC since 1991

0

50

100

150

200

250

300

350

400

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002 Calendar

year

IFC

Net

App

rova

ls (U

S$M

, bar

)0

5

10

15

20

25

Percentage of IFC's approvals (line)

Gold 16%

Copper 6%

Coal 2%

Oil and gas 61%

Other Mining 4%

Other Metal 5%

Iron 3%

Nickel 3%

Concentrated in oil and gas and gold IFC approvals 1990–2002 ($3.1 billion)

tion of the natural resources. IFC’s investmentsalso depend on where IFC has a role to play.IFC’s role and contribution in EI projects was sig-nificantly better (95 percent satisfactory or bet-ter) than in other projects (79 percent). Onaverage, IFC’s approvals in EI have been incountries 10 points riskier (on a scale of 0 to 100)than IFC’s average approvals. Thus, operating inEI allows IFC to invest in risky countries, whereit is often difficult to find other opportunities. Forexample, in at least a dozen countries, IFC’s firstapproval was in EI,276 and during the pastdecade, Sub-Saharan Africa received the largest

share of IFC’s EI approvals. In Sub-SaharanAfrica, where foreign direct investment is scarce,IFC’s extractive industries approvals haveaccounted for more than 40 percent of IFC’s totalapprovals since 1956. IFC’s outstanding EI port-folio on June 30, 2002, was concentrated inLatin America and Sub-Saharan Africa.

More analysis of IFC’s approvals can be foundin the WBG background paper for the EIR(www.eireview.org) and in OEG’s approachpaper (www.ifc.org/oeg). Further details onIFC’s EI portfolio performance are included inthe main report and in Attachment 4.


1 4 4

US$ millions %

Loan 214 56%Equity/Quasi-Equity 170 44%

sub-total 384 4%-6%


sub-total 245 2%5%


sub-total 628 6%-2%

Loan 6,511 65%Equity/Quasi-Equity 3,581 35%

sub-total 10,092 94%-1%

Grand Total 10,720 100%Change from previous year

Extractive Industries - Outstanding PortfolioJune 30, 2002

Non-EI

All EI

Oil and Gas

Mining

Change from previous year



South Asia3%

Southern Europe and Central Asia

18% Sub-Saharan Africa31%

Central and Eastern Europe

6%East Asia and Pacific

5%

Latin America & Caribbean

30%

Middle East and North

Africa

Concentrated in Latin America and Sub-Saharan Africa

IFC approvals 1990 - 2002 (US$3.1 billion)

This attachment combines all EI projects thatOEG reviewed: evaluated projects (Attachment4B) using IFC’s established evaluation framework(www.ifc.org/oeg/xpsrs) and studied projects(Attachments 4C and 4D) using desk reviews andthe simplified binary evaluation framework(Attachment 4H). Ratings in some cases refer tomultiple investments in the same company.

Note that the comparator—IFC average andnon-oil, gas, and mining projects—refers toprojects approved 1991–1996 and evaluated1996–2001, whereas studied extractive indus-tries projects include both older and newerprojects.


1 4 5

S u m m a r y R e s u l t s — A l l E I P r o j e c t sA t t a c h m e n t 3 A

Pro

ject

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Studied projects(Various approval years)

Oil and Gas Number rated 23 23 23 17 23 23 16 19 23 23 23 23Success Rate 70% 61% 78% 94% 65% 65% 50% 58% 78% 57% 83% 87%

Mining Number rated 22 22 22 21 22 22 13 22 22 22 22 22Success Rate 59% 59% 59% 62% 77% 68% 46% 73% 73% 64% 86% 91%

All EI Number rated 45 45 45 38 45 45 29 41 45 45 45 45Success Rate 64% 60% 69% 76% 71% 67% 48% 66% 76% 60% 84% 89%

Evaluated projects(Approved 1991–96, Evaluated 1996–2001)

Oil and Gas (12) 67% 50% 83% 100% 58% 58% 25% 80% 92% 50% 92% 100%Mining (10) 50% 60% 60% 40% 90% 70% 60% 78% 70% 70% 70% 90%All EI (22) 59% 55% 73% 71% 73% 64% 44% 79% 82% 59% 82% 95%

IFC average(Approved 1991–96, Evaluated 1996–2001)

1996–2001 evaluations (308) Success Rate 60% 44% 58% 65% 72% 54% 28% 73% 62% 55% 60% 80%...of which: non-EI (286) Success Rate 60% 44% 57% 65% 72% 53% 28% 73% 60% 54% 59% 79%

Development outcome IFC's investment outcome IFC's effectiveness

The 22 EI projects were part of a random rep-resentative sample of 308 IFC projects approved1991–1996 and evaluated 1996–2001. An eval-uated project’s development outcome wasrated as one of the following: highly success-ful, successful, mostly successful, mostly unsuc-cessful, unsuccessful, or highly unsuccessful;indicators were rated excellent, satisfactory,

partly satisfactory, or unsatisfactory. For a sim-plified presentation, the top half of the ratingscale appears in the table as ‘S’ (satisfactory orbetter, also referred to as “positive” in themain text); the bottom half as ‘LS’ (less than sat-isfactory).

In 2002, OEG updated the evaluation frame-work to better align it with other IFC initiatives


1 4 6

P e r f o r m a n c e R a t i n g s f o r E v a l u a t e d E I P r o j e c t s

A t t a c h m e n t 3 B

1 Min S S S S S S S S S S S S S

2 Min S S S S S S S S S S S S S

3 Min S S S S S S S N/A S S S S S

4 Min S S S S LS S S N/A S LS S LS S

5 Min S S S S LS S LS N/A LS S LS S S

6 Min LS LS LS S S S S N/A S S S S S

7 Min LS LS LS S LS S S S S S S S S

8 Min LS S S S LS S S N/A S LS LS LS LS

9 Min LS LS LS S LS S LS LS N/A S S LS S

10 Min LS LS LS S LS LS LS LS LS LS LS S S

11 OG S S S S S S S N/A S S S S S

12 OG S S S S S S S S S S S S S



15 OG S S S S S LS S N/A S S S S S

16 OG S S S S NOP S LS N/A LS S S S S

17 OG S LS S S S S LS N/A LS S LS S S

18 OG S LS S LS S S LS LS S S LS S S

19 OG LS LS S S S LS S N/A S S LS S S

20 OG LS LS LS S S LS S N/A S LS LS LS S

21 OG LS LS LS LS S LS LS LS N/A S LS S S

22 OG LS LS S S S LS LS LS N/A S LS S S

Type

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1 4 7

(e.g., corporate and departmental scorecards, sus-tainability initiative). The major change was toreduce the development outcome indicatorsfrom six to four:• “Economic growth” and “Living standards”

were merged into one indicator—“economicsustainability”

• “Enabling environment” was merged into“Private sector development”

OEG’s current evaluation framework is availableat: http://www.ifc.org/oeg/xpsrs/NonfinMarkets/nonfinmktsinsts.html.

Type: Min = Mining; OG = Oil and gasOutcomes/indicators: S = Satisfactory or better;LS = Less than satisfactory NOP = No opinionpossible; N/A = Not applicable, as this opera-tion featured none

Outcomes/indicators: S = Satisfactory or better;LS = Less than satisfactory; NOP = No opinion

possible; N/A = Not applicable, as this opera-tion featured none


1 4 8

P e r f o r m a n c e R a t i n g s f o r S t u d i e dO i l a n d G a s P r o j e c t s

A t t a c h m e n t 3 C

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1 S S S S LS S S S S S S S

2 S S S S S S S S S S S S

3 S S S S S S N/A S S S S S

4 S S S S S S S LS S LS S S

5 S S S LS S S S LS S LS S S



8 S S S S S S S LS S S S S



11 S S S NOP S S S LS S S S S

12 S S S S S S S LS S S S S

13 S LS S S S S N/A S S LS S S

14 S S S NOP S LS LS LS S S LS S

15 S S S NOP LS LS LS N/A LS LS S LS

16 S LS S S S LS LS LS LS LS S S

17 LS LS S S LS S N/A S S LS S S

18 LS LS LS S LS S N/A S LS LS LS S

19 LS LS LS NOP LS LS LS N/A S S S S

20 LS LS LS S LS LS LS N/A S S S LS

21 LS LS S S LS LS LS LS S LS S S

22 LS LS LS NOP LS LS LS N/A LS LS LS LS

23 LS LS LS NOP S LS LS S LS LS LS S


1 4 9

Outcomes/indicators: S = Satisfactory or better;LS = Less than satisfactory; NOP = No opinion

possible; N/A = Not applicable, as this opera-tion featured none

P e r f o r m a n c e R a t i n g s f o r S t u d i e dM i n i n g P r o j e c t s

A t t a c h m e n t 3 DD

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3 S S S LS S S N/A S S S S S



6 S S S LS S S S S S LS S S

7 S S S S S S NOP S S S S S


9 S S S S S S N/A S S S LS S



12 S S S LS S S S S S S LS S

13 S S S LS S LS N/A LS S LS S S

14 LS LS LS S LS S S S S S S S

15 LS LS LS NOP LS S LS S LS LS S LS

16 LS LS LS LS LS S N/A S LS LS S LS

17 LS LS LS S S LS LS LS S S S S

18 LS LS LS S S LS LS S S S S S

19 LS LS LS LS S LS LS LS LS LS LS S

20 LS LS LS S LS LS LS LS LS LS S S

21 LS LS LS LS S LS LS LS LS LS S S

22 LS LS LS LS LS LS LS LS LS LS S S


1 5 0

A p p r o v e d P r o j e c t s R e v i e w e d b y O E G — M i n i n gA t t a c h m e n t 3 E

Evaluated (in bold italics) and studied projects Approved amounts may differ from disbursed amounts (US$ millions)

Country Project Name ID App

rova

l Dat

e

Stat

us

Proj

ect S

ize

IFC

Gro

ss

IFC

Net

Loan

Equi

ty

Qua

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quit

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Part

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Bolivia ComsurCOMSUR (II) 3956 Sep-93 Active 55.5 12.3 12.3 11.0 0.0 1.3 0.0 0.0 Investment B Zinc

COMSUR III 4799 Aug-95 Active 22.0 13.3 8.3 7.5 0.0 0.8 0.0 5.0 Investment A GoldCOMSUR V 9670 Dec-99 Active 22.7 10.0 10.0 10.0 0.0 0.0 0.0 0.0 Investment B Zinc

Brazil CodeminCODEMIN SA III 420 May-78 Active 98.4 62.9 8.9 5.0 3.9 0.0 0.0 54.0 Investment N Nickel

CODEMIN III 658 Feb-83 Active 4.0 0.4 0.4 0.0 0.4 0.0 0.0 0.0 Rights Issue N NickelBrazil MBR

MBR (II) 2649 Jun-92 Active 266.1 60.0 35.0 25.0 0.0 10.0 0.0 25.0 Investment A IronMBR LTDP 9343 Jun-99 Active 342.0 140.0 25.0 20.0 0.0 5.0 0.0 115.0 Investment A Iron

Brazil Para PigmentosPARA PIGMENTOS 4494 Jun-94 Active 183.0 74.0 34.0 25.0 0.0 9.0 0.0 40.0 Investment A Misc. Ores

Brazil SamarcoSamarco 5036 Jan-97 Active 44.8 39.0 23.0 23.0 0.0 0.0 0.0 16.0 Investment A Iron

Chile EscondidaESCONDIDA COPPER 1081 Jul-88 Active 1,143.2 85.0 85.0 70.0 15.0 0.0 0.0 0.0 Investment N Copper

Escondida RI 9209 Nov-98 Active 25.0 25.0 25.0 0.0 0.0 25.0 0.0 0.0 Rights Issue C CopperChile Refimet

REFIMET SMELTER 4802 Feb-95 Closed 91.2 79.0 20.0 10.0 0.0 10.0 0.0 59.0 Investment B CopperRefimet (Rev) 7346 Nov-95 Closed 6.0 5.0 5.0 5.0 0.0 0.0 0.0 0.0 Investment C Copper

Gabon COMILOG IICOMILOG II 2772 Jun-91 Closed 35.4 9.0 9.0 9.0 0.0 0.0 0.0 0.0 Investment U Other Metals

Ghana BogosuBOGOSU GOLD 973 Jul-87 Active 6.0 0.6 0.6 0.0 0.0 0.6 0.0 0.0 Investment N GoldBOGOSU (V)-RESTR 4102 Jun-93 Active 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Rescheduling B Gold

Ghana GAGLIDUAPRIEM GOLD 1231 Feb-90 Active 13.5 3.0 3.0 0.0 3.0 0.0 0.0 0.0 Investment N GoldIDUAPRIEM II 2386 Jun-91 Active 55.4 48.0 18.0 8.4 0.0 8.5 1.1 30.0 Investment B GoldGAGL III 4896 Jul-95 Active 11.5 10.1 10.1 0.0 0.0 2.6 7.5 0.0 Investment B GoldGAGL IV 7261 Mar-96 Active 13.5 4.5 4.5 4.5 0.0 0.0 0.0 0.0 Investment B GoldGAGL IV-Restr 10327 Jun-00 Active 13.5 0.5 0.5 0.0 0.0 0.5 0.0 0.0 Restructuring C Gold

Kyrgyz Republic KumtorKUMTOR GOLD 3966 Mar-95 Active 335.0 40.0 40.0 30.0 0.0 10.0 0.0 0.0 Investment A Gold

Mali SOMISYSOMISY 2429 Dec-91 Active 122.6 23.2 23.2 0.0 1.5 21.7 0.0 0.0 Investment B GoldSomisy Capex 7975 Jun-97 Active 63.8 35.0 10.0 10.0 0.0 0.0 0.0 25.0 Investment B Gold

Randgold RI 9342 Nov-98 Active 34.8 2.3 2.3 0.0 2.3 0.0 0.0 0.0 Rights Issue C GoldMali Sadiola Gold

SADIOLA GOLD 4360 Dec-94 Active 246.2 64.8 39.8 35.0 4.8 0.0 0.0 25.0 Investment A GoldMozambique Mozal

MOZAL 7764 Jun-97 Active 1,365.0 120.0 120.0 55.0 0.0 65.0 0.0 0.0 Investment A AluminumMozal II 10323 Apr-01 Active 1,024.0 25.0 25.0 25.0 0.0 0.0 0.0 0.0 Investment A Aluminum

Peru BuenaventuraBUENAVENTURA 1 446 Dec-78 Active 10.0 3.5 3.5 2.0 1.5 0.0 0.0 0.0 Investment N SilverBUENAVENTURA III 1232 Mar-90 Active 6.0 0.6 0.6 0.0 0.6 0.0 0.0 0.0 Rights Issue U Silver

BUENAVENTURA IV 4070 May-93 Active 105.8 0.7 0.7 0.0 0.7 0.0 0.0 0.0 Rights Issue B SilverPeru Minera Regina

MINERA LA REGINA 737 Jun-84 Active 21.4 5.2 5.2 5.0 0.2 0.0 0.0 0.0 Investment N Other MetalsRegina Restr II 8888 Dec-97 Active 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Restructuring A Other Metals

Peru YanacochaYANACOCHA 2983 May-93 Active 45.0 24.7 12.7 12.0 0.3 0.3 0.0 12.0 Investment A Gold

MAQUI MAQUI 4449 May-94 Active 53.8 15.9 10.9 10.0 0.0 0.0 0.9 5.0 Investment A GoldYanacocha III 9502 Jun-99 Active 121.0 110.0 30.0 30.0 0.0 0.0 0.0 80.0 Investment A Gold

Tajikistan ZeravshanZeravshan Gold 7192 Oct-96 Active 127.0 7.5 7.5 0.0 1.2 6.3 0.0 0.0 Investment B Gold

Nelson Gold 7911 Oct-96 Active 0.0 2.1 2.1 0.0 0.0 0.0 2.1 0.0 Investment B GoldZeravshan-Jilau 8579 Feb-98 Active 14.7 3.0 3.0 3.0 0.0 0.0 0.0 0.0 Investment B GoldZeravshan-NGC 8823 Feb-98 Active 9.0 3.0 3.0 0.0 3.0 0.0 0.0 0.0 Investment B Gold

Turkey Cayeli BakirCAYELI BAKIR 2448 Jun-92 Active 144.5 75.0 30.0 30.0 0.0 0.0 0.0 45.0 Investment B Copper

Uganda KaseseKasese Cobalt 4895 Jun-96 Active 110.0 24.6 19.6 16.0 3.6 0.0 0.0 5.0 Investment A Other Metals

Venezuela Minera LomaLoma de Niquel 7343 Apr-97 Active 430.0 124.5 74.5 65.0 2.4 7.1 0.0 50.0 Investment A NickelMinera Loma RI 10398 Jun-00 Active 98.4 0.3 0.3 0.0 0.0 0.3 0.0 0.0 Rights Issue C Nickel

Zambia KCMKCM 8570 Feb-00 Active 334.8 30.0 30.0 0.0 7.2 22.8 0.0 0.0 Investment A Copper

Zimbabwe WankieWANKIE COLLIERY2 3485 Oct-92 Closed 28.0 10.0 10.0 10.0 0.0 0.0 0.0 0.0 Investment B Coal Mining


1 5 1

Unrated projects, reviewed for issues and lessons Approved amounts may differ from disbursed amounts (US$ millions)

Country Project Name

ID App

rova

l Dat

e

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ize

IFC

Gro

ss IF

C N

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ecto

r

Africa Region MACS MACS 9345 Apr -01 Active 100 74.0 34.0 30.0 4.0 - - 40.0 Investment B Mining Services Burkina Faso AEF FasoMine AEF FasoMine 9024 Sep -98 Active 5 1.5 1.5 1.0 0.5 - - - Investment B Iron China Daning Coal Daning Coal 10015 May -01 Active 75 30.0 15.0 13.0 2.0 - - 15.0 Investment A Coal Mining India Sarshatali Coal Sarshatali Coal 7984 Feb -99 Active 149 35.0 35.0 30.0 5.0 - - - Investment A Coal Mining Indonesia Dianlia Dianlia 9987 Feb -01 Active 10 5.0 5.0 4.0 - 1.0 - - Investment B Coal Mining Mexico Mexcobre MEXCOBRE SX/EW 4313 May -94 Closed 75 60.0 25.0 25.0 - - - 35.0 Investment B Copper Pan American Pan American 9800 Jul-99 Active 13 12.5 12.5 - 12.5 - - - Investment A Silver La Colorada 10326 Feb -01 Active 51 28.6 10.3 4.0 - 6.0 0.3 18.3 Investment A Silver PanAme - La Colora 10856 Feb -01 Active 1 1.2 1.2 - 1.2 - - - Investment A Silver Peru Quellaveco QUELLAVECO 3823 Apr -93 Active 31 6.2 6.2 - - 6.2 - - Investment A Copper QUELLAVECO - RI 7447 Mar -96 Active 27 5.3 5.3 - - 5.3 - - Rights Issue C Copper Minera Q RI 10170 Jan-00 Active 3 0.6 0.6 - 0.6 - - - Rights Issue A Copper Russian Federation Julietta Julietta 10020 Sep -00 Active 77 10.0 10.0 8.5 - 1.5 - - Investment A Gold Bema Gold Bema Gold 10655 Sep -00 Active 1 1.0 1.0 - 1.0 - - - Investment A Gold Sierra Leone Sierra Rutile SIERRA RUTILE 1 2609 Apr -92 Closed 71 20.0 20.0 20.0 - - - - Investment A Nickel SIEROMCO 3999 Jun-93 Closed 27 10.0 10.0 10.0 - - - - Investment B Other Sierra Restr 9148 May -98 Closed 0 0.0 0.0 - - - - - Restructur ing N Misc. Ores Tunisia Miniere Bougrine MINIERE BGRN - RI 4677 May -94 Closed 8 0.9 0.9 - - 0.9 - - Rights Issue U Zinc Uzbekistan Amantytau Gold

AMANTAYTAU GOLD 4323 Mar -94 Closed 6 1.2 1.2 - - 1.2 - - Investment C Gold


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A p p r o v e d P r o j e c t s R e v i e w e d b y O E G —O i l a n d G a s

A t t a c h m e n t 3 F

Evaluated (in bold italics) and studied projects Approved amounts may differ from disbursed amounts (US$ millions)

Country Project Name ID App

rova

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IFC

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Albania Patos MarinzaPatos Marinza 7429 Mar-98 Active 275.2 108.5 58.5 30.0 28.5 0.0 0.0 50.0 Investment A O & G ProductionPatos Marinza In 10885 Jun-01 Active 197.5 10.0 10.0 10.0 0.0 0.0 0.0 0.0 Investment A O & G Production

Argentina Bridas/PAEBRIDAS 2 3078 Jun-92 Active 238.0 130.0 50.0 35.0 0.0 15.0 0.0 80.0 Investment B O & G ProductionBRIDAS III 5093 Jun-95 Active 221.3 70.0 30.0 20.0 10.0 0.0 0.0 40.0 Investment B O & G Production

Cadipsa(SOP) CADIPSA 2979 Oct-92 Closed 83.0 40.0 20.0 10.0 5.0 5.0 0.0 20.0 Restructuring B O & G Production

Capsa DiademaDiadema Field 7418 Jun-96 Active 70.0 60.0 20.0 15.0 0.0 5.0 0.0 40.0 Investment B O & G Production

Cia.CombustibleCIA. COMBUSTIBLE 4067 Dec-93 Closed 251.6 80.0 40.0 25.0 15.0 0.0 0.0 40.0 Restructuring B O & G Production

Huantraico / NeuquenHuantraico 2764 Oct-91 Active 60.0 17.0 17.0 0.0 17.0 0.0 0.0 0.0 Restructuring A O & G ProductionHUANTRAICO (II) 3262 Jun-92 Active 180.4 60.0 25.0 15.0 10.0 0.0 0.0 35.0 Investment U O & G ProductionNeuquen 7182 Mar-96 Active 186.0 26.4 26.4 0.0 26.4 0.0 0.0 0.0 Investment B O & G ProductionNeuquen Basin RI 9537 Jan-99 Active 5.0 5.0 5.0 0.0 5.0 0.0 0.0 0.0 Rights Issue C O & G Production

Azerbaijan Early OilEarly Oil:Amoco 7271 Jul-98 Active 650.0 65.7 32.8 32.8 0.0 0.0 0.0 32.8 Investment A O & G ProductionEarly Oil: Exxon 9440 Jul-98 Active 305.4 30.9 15.4 15.4 0.0 0.0 0.0 15.4 Investment A O & G ProductionEarly Oil:LUKOil 9441 Jul-98 Active 382.7 38.6 19.3 19.3 0.0 0.0 0.0 19.3 Investment A O & G ProductionEarly Oil:TPAO 9442 Jul-98 Active 259.8 26.1 13.0 13.0 0.0 0.0 0.0 13.0 Investment A O & G ProductionEarly Oil:Unocal 9443 Jul-98 Active 384.7 38.8 19.4 19.4 0.0 0.0 0.0 19.4 Investment A O & G Production

Cameroon PectenPECTEN (II) 3815 Feb-94 Active 135.0 105.0 40.0 40.0 0.0 0.0 0.0 65.0 Investment B O & G ProductionPecten Itindi 7621 Feb-97 Active 115.0 95.0 20.0 20.0 0.0 0.0 0.0 75.0 Investment B O & G ProductionPecten - Mokoko 8498 Mar-98 Active 265.0 265.0 75.0 75.0 0.0 0.0 0.0 190.0 Investment B O & G Production

Congo EngenENGEN/ENGEN CONG 4981 May-95 Closed 99.8 91.4 46.4 15.0 2.9 28.5 0.0 45.0 Investment B O & G Production

Cote d'Ivoire CI-11BLOCK CI-11 3448 Mar-93 Active 45.5 11.4 11.4 0.0 11.4 0.0 0.0 0.0 Investment A O & G ProductionBLOCK CI-11 OIL 4603 Nov-94 Active 66.0 27.3 27.3 0.0 27.3 0.0 0.0 0.0 Investment A O & G ProductionBLOCK CI-11-UMIC 4975 May-95 Closed 45.0 35.0 15.0 15.0 0.0 0.0 0.0 20.0 Investment A O & G ProductionBlock CI-II-GNR 7018 May-95 Closed 25.0 17.5 7.5 7.5 0.0 0.0 0.0 10.0 Investment A O & G ProductionCI-II-Pluspetrol 7019 May-95 Closed 25.0 17.5 7.5 7.5 0.0 0.0 0.0 10.0 Investment A O & G ProductionBlockCI-11/12 RI 8233 Mar-97 Active 5.0 5.0 5.0 0.0 5.0 0.0 0.0 0.0 Rights Issue C O & G ProductionBlock CI-11 RI 2 9171 May-98 Active 5.0 5.0 5.0 0.0 5.0 0.0 0.0 0.0 Rights Issue FI O & G Production

Ecuador TripetrolTRIPETROL EXPLOR 3251 Jul-92 Closed 32.0 10.0 10.0 6.0 0.0 4.0 0.0 0.0 Investment B O & G Production

Egypt Apache Qarun ConcessionMELEIHA OIL EXPL 873 Jun-86 Active 180.0 79.5 49.5 30.0 19.5 0.0 0.0 30.0 Investment N O & G ProductionMELEIHA II 995 Sep-87 Active 36.0 9.2 9.2 0.0 9.2 0.0 0.0 0.0 Investment N O & G ProductionMELEIHA & AGHAR 2975 Jun-92 Active 36.4 13.0 13.0 0.0 13.0 0.0 0.0 0.0 Investment B O & G Production

MeleihaPhoenix Resource 5127 Oct-95 Closed 10.0 10.0 10.0 0.0 10.0 0.0 0.0 0.0 Investment A O & G ProductionApache Qarun 7211 Oct-95 Closed 51.6 27.5 12.5 12.5 0.0 0.0 0.0 15.0 Investment A O & G ProductionPRC Qarun 7422 Oct-95 Closed 93.3 55.0 25.0 25.0 0.0 0.0 0.0 30.0 Investment A O & G Production

Guatemala BasicBASIC 3888 Jun-94 Closed 33.0 20.0 14.0 10.0 4.0 0.0 0.0 6.0 Investment A O & G ProductionBASIC II 7407 Jul-96 Closed 73.0 25.8 13.8 12.0 1.8 0.0 0.0 12.0 Investment A O & G Production

India TriveniTRIVENI 2202 Dec-90 Closed 20.6 0.6 0.6 0.0 0.6 0.0 0.0 0.0 Investment U Oilfield Services

Kazakhstan Akshabulak/KazgermunaiAkshabulak 7416 Mar-96 Active 266.9 65.7 65.7 0.0 0.1 65.6 0.0 0.0 Investment A O & G Production

Pakistan MariGasMARI GAS II 2837 Dec-91 Closed 47.9 19.5 19.5 19.5 0.0 0.0 0.0 0.0 Investment B O & G Production

PPLPPL 655 Nov-82 Active 176.6 163.4 17.0 15.5 1.6 0.0 0.0 146.4 Investment N O & G ProductionPPL-SUI LIME 3911 Jun-94 Active 72.5 52.1 31.1 31.1 0.0 0.0 0.0 21.0 Investment B O & G ProductionPPL-SUI LIME INC 4907 Oct-94 Active 2.0 2.0 0.0 0.0 0.0 0.0 0.0 2.0 Investment C O & G Production

Poland Amoco PolandCOALBED METHANE 3471 Mar-94 Closed 86.5 8.7 8.7 0.0 0.0 8.7 0.0 0.0 Investment B O & G Production

Russian Federation Aminex (Russia/Tunisia) Oct-96Aminex: Tunisia 7610 Oct-96 Closed 7.2 3.1 3.1 0.0 3.1 0.0 0.0 0.0 Investment B O & G ProductionAminex: Kirtayel 7624 Oct-96 Active 85.2 20.1 20.1 17.0 3.1 0.0 0.0 0.0 Investment B O & G ProductionAminex RI 9623 Mar-99 Active 1.1 0.1 0.1 0.0 0.1 0.0 0.0 0.0 Rights Issue C O & G Production

BitechBitech-Silur 8902 Mar-99 Closed 65.0 25.0 25.0 17.5 7.5 0.0 0.0 0.0 Investment B O & G Production

PolarPOLAR LIGHTS 4040 Jun-93 Closed 340.0 60.0 60.0 60.0 0.0 0.0 0.0 0.0 Investment A O & G Production

VasyuganVASYUGAN 3532 Jun-93 Closed 37.1 11.5 11.5 10.0 0.0 1.5 0.0 0.0 Investment B O & G Production


1 5 3

Africa Region SAPTFF SAPT FF 10145 Jun-00 Active 200 80 80.0 - - - 80.0 - Investment FI -2 Trade Finance Bangladesh Jalalabad II Jalalabad II 9354 Mar-00 Active 163 70 40.0 30.0 - 10.0 - 30.0 Investment A O&G Production Cameroon ChadOil -COTCO ChadOil-COTCO 11124 Jun-00 Active - - - - - - - - Investment A O&G Production Chad ChadOil ChadOil 4338 Jun-00 Active 400 10 - - - 30 Investment A O&G Production ChadOil -TOTCO 11125 Jun-00 Active - - - - - - - - Investment A O&G Production Colombia Harken Harken 9484 Jun-99 Closed 158 55 30.0 20.0 - 10.0 - 25.0 Investment B O&G Production Kazakhstan Sazankurak Sazankurak 10056 Jun-00 Active 45 20 20.0 15.0 - 5.0 - - Investment B O&G Production Kazakhstan FIOC FIOC 10411 Jun-00 Active - 0 0.0 - 0.0 - - - Investment B O&G Production Nigeria Delta Contractor Delta Contractor 10683 Jun-01 Active 30 15 15.0 15.0 - - - - Investment FI -2 Finance CompaniesPakistan Lasmo Paki stan Lasmo Pakistan 10408 Jun-01 Active 120 40 40.0 40.0 - - - - Investment B O&G Production

Country Project Name

ID App

rova

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ize

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3,274 100.0

Unrated projects, reviewed for issues and lessons Approved amounts may differ from disbursed amounts (US$ millions)

ry


1 5 4

R e a s o n s f o r N o t R a t i n g P r o j e c t so r C o m p a n i e s

A t t a c h m e n t 3 G

Country Project name Reason

Mining Africa Region MACS No disbursement yet.

Burkina Faso AEF FasoMine No disbursement yet.

China Daning Coal No disbursement yet.

India Sarshatali Coal No disbursement yet.

Indonesia Dianlia No disbursement yet.

Mexico Mexcobre Exited, loan prepaid in 1996.

Mexico La Colorada Too early to evaluate. The Russian project did not

proceed; Mexican project in early start-up.

Peru Quellaveco No commercial activity.

Russian Federation Julietta Gold / OMGC Too early to evaluate; commenced operations in

late 2000.

Russian Federation Bema Gold Too early to evaluate; disbursed in late 2001.

Sierra Leone Sierra Rutile Original project ceased operations due to civil war.

Expansion not yet disbursed.

Tunisia Miniere Bougrine Project closed; no information available.

Uzbekistan Amantaytau Exited original project;—a feasibility study—was

closed. Follow-on project was dropped.

Oil and Gas Africa Region SAPTFF No disbursement yet.

Bangladesh Jalalabad No disbursement yet.

Chad/Cameroon ChadOil Too early to evaluate; no first oil yet

Colombia Harken Exited; no current information available.

Kazakhstan FIOC Sazankurak Too early to evaluate; disbursed in late 2001.

Nigeria Niger Delta No disbursement yet.

Pakistan Lasmo No disbursement yet.

The companies and projects above were reviewed by OEG. They were considered inappropriate for rating purposes (i.e., too early, cancelled, insufficient informa-

tion, etc.). They did provide valuable issues and lessons that have been used in this report.

I. Development Outcome Rating The development outcome rating is a bottom-line, synthesis assessment of the operation’sresults, based on the following four developmentindicators: • Project Business Success considers the

narrow objectives supported by IFC’s financ-ing. The best measure of a project’s businesssuccess is its FRR. Lacking the data to calcu-late an FRR, we based this rating on assess-ments of the inputs to an FRR—capitalexpenditures, cost overruns, capacity utiliza-tion, sales volumes, pricing, revenues, mar-gins, profits, taxes, subsidies, and so forth. — Rates satisfactory when the inputs to anFRR suggest a satisfactory FRR.

• Economic Sustainability considers the pro-ject’s net economic benefits to all members ofsociety, which is best measured by an ERR.Lacking the data to calculate an ERR, we basedthis rating on assessments of the inputs to anERR—the social benefits and costs, includingtaxes paid, benefits to suppliers, effects on com-petitors, consumer surplus, effects on input andoutput markets, and how competitive pricesand quantities are determined in relevant mar-kets. It also should capture non-quantified ben-efits. In particular, whether the project had adirect impact—positive or negative—on thepoor or on living standards in the local com-munity.

— Rates satisfactory when the net economicbenefits are positive and near expectationsand, in marginal cases, where a project alsohas a demonstrably positive effect on societyin the host country.

• Project’s Environmental Effects are basedon the project’s compliance with WBG envi-ronmental requirements.

— Rates satisfactory if the project is—andwas over its lifetime—in material compliancewith either IFC’s current or at-approvalrequirements.

• Private Sector Development considers, as rel-evant, the upstream and downstream linkages toprivate firms, new technology, management skillsand training, degree of local entrepreneurshipand competition, demonstration effects, enhancedprivate ownership, capital markets development,and business practices as positive corporate rolemodels. It also includes regulatory improvements,such as changes in government policy and legal,tax, and accounting frameworks and possiblyproject-related technical assistance or project activ-ities that have changed the enabling environmentto create conditions conducive to the flow of pri-vate capital, domestic and foreign, into produc-tive investment.

— Rates satisfactory when the project providesdistinctly positive net contributions.

II. IFC Investment Outcome— Rates satisfactory when no loss reservesexist, loans are not in arrears, equity invest-ments achieve a 5 percent real return, anyloan rescheduling still provides the full mar-gin originally expected, and any loan pre-payment provides greater than 65 percent ofthe originally expected loan income.

III. IFC’s Effectiveness • Screening, Appraisal, and Structuring

— Rates satisfactory if it met IFC’s proce-dures and good practice standards.

• Supervision and Administration — Rates satisfactory if IFC was sufficientlyinformed to react in a timely manner to anymaterial change in the project’s and com-pany’s performance.

• Role and Contribution — Rates satisfactory if IFC’s role and contribu-tion were in line with its operating principles.

• IFC’s Effectiveness (Synthesis) Rating— Rates satisfactory if IFC’s performance wasup to a high professional standard.


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E v a l u a t i o n F r a m e w o r k a n d R a t i n gG u i d e l i n e s f o r S t u d i e d P r o j e c t s

A t t a c h m e n t 3 H

Trust Funds: IFC Donor-Supported TA Pro-grams, through IFC’s Trust Fund Unit, hasapproved TA of US$3.5 million for 22 EI proj-ects since 1994. The majority (84 percent) of thefunding was approved in the last three years andhas increasingly supported sustainable devel-opment initiatives. Examples include funding fora conference to improve the investment cli-mate for sustainable mining (China), support tobring a coal company into environmental andsocial compliance (Russia), dissemination ofexamples of successful approaches to HIV/AIDSprevention (global), and a range of programsfor a gold and copper mining investment (Laos).In 2002, oil- and gas-related projects wereapproved to support an investment forum in

Mongolia and privatization assistance in Mozam-bique. EI project approvals reached 12 percentof total approvals in 2002 but have accountedfor only 3 percent of total approvals since 1994.It is likely, as EI projects include more social andenvironmental development, that demand forthe Technical Assistance Trust Fund to supportEI projects will grow. Because Project Com-pletion Reports were generally not completedon the above projects, OEG did a desk reviewand some one-on-one consultations to betterunderstand project results. Overall, the proj-ects have been broadly successful, but based onthe information received, OEG was unable toassign project ratings.


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I F C ’ s T e c h n i c a l A s s i s t a n c e T r u s tF u n d A c t i v i t i e s i n E I P r o j e c t s


Amount AverageYear US$ % Projects % US$ Country region

1994 100,000 3 1 5 100,000 Brazil1995 225,000 7 1 5 225,000 Kazakhstan1996 115,000 3 2 9 57,500 Albania, Tajikistan1997 43,460 1 1 5 43,460 Mongolia (2)1998 — 0 0 0 —1999 60,000 2 1 5 60,000 Africa Region2000 318,000 9 3 14 106,000 Tajikistan, Albania, Kyrgyz Republic2001 800,000 23 5 23 160,000 China (2), Kazakhstan, World Region/Global, Zambia, Lao

People’s Democratic Republic2002 1,795,400 52 8 36 224,425 Mongolia, Mozambique (2), Lao People’s Democratic

Republic (2), World Region/Global, China (2) Russia

3,456,860 100 22 100 157,130

More than 50 stakeholders participated in the EIRPlanning Workshop in Brussels (28–30 Octo-ber, 2001): government entities (9), the privatesector (15), nongovernmental organizations (21),and the World Bank Group (8). Over the courseof the workshop, OED/OEG asked participantsto rank the evaluative questions suggested in theapproach paper by importance.

About half of the participants responded. Thequestions, and the final rankings based on thevotes cast, are shown below:1. Distribution of costs and benefits was

ranked first overall and first or second by eachgroup.

2. Environmental and social effects, includ-ing effects on local communities, indigenous

peoples, biodiversity, and potential humanrights abuses, were ranked second overall andamong the top six questions by each groupof respondents.

3. Appropriate mitigation mechanisms forenvironmental and social effects through-out the project cycle was ranked third, withsome differences of opinion by the respon-dents.

4. The WBG’s role in improving develop-ment impacts and minimizing risks wasranked fourth overall, with roughly equalimportance across all groups.

5. Compliance with the WBG’s safeguardpolicies was ranked fifth, with wider varia-tion among the respondents.


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P e r c e p t i o n s o f S u r v e y P a r t i c i p a n t s a t t h e E I R P l a n n i n g W o r k s h o p

A t t a c h m e n t 5 A

EVALUATIVE QUESTIONSRank

(percentage of votes)

1. Project Context and Economic Effects 1.1 What was the share of EI of export earnings, GDP, and government revenues in the respective country of WBG

operation? 221.2 To what extent has there been an association between EI’s share of GDP and the country’s economic growth

and income distribution? 12 (3%)1.3 To what extent were the project’s objectives consistent with the country’s current development priorities? 6 (6%)1.4 What were the net benefits generated by a specific WBG investment operation? 11 (3%)1.5 How are benefits and costs distributed among central government, local government, local communities, and

private shareholders? Is the distribution perceived to be fair by different stakeholder groups? Are there conflict resolution mechanisms in place, and, if so, have they worked? Are there lessons to be learned about the consequences of different types of distributions? 1 (13%)

1.6 Did the operation have impacts on private sector development in the host country beyond the operation itself (e.g., demonstration effects, linkages, infrastructure development, etc.)? 17

1.7 Are royalties effectively channeled for developmental purposes? Are independent arrangements for auditing, monitoring, and evaluation in place? 9 (5%)

2. Environmental and Social Effects2.1 What have been the environmental and social effects — positive and negative — of WBG activities in the

sector? In particular, what were the effects on biodiversity, local communities (including indigenous peoples)? Have there been human rights abuses associated with WBG projects? 2 (11%)

2.2 Have WBG operations complied with relevant safeguard policies and adequate labor safety standards? How adequate are the measures taken to mitigate the most important negative environmental and social aspects, such as involuntary resettlement? How do WBG safeguard policies compare with local requirements? 5 (7%)

(continued)

2.3 Have expected environmental and social effects at each stage of the project cycle (construction, operation, closure and restoration) been adequately assessed and addressed at appraisal (e.g., through environmental assessments, public consultations, and project design and implementation arrangements)? 17

2.4 Have actual effects been adequately monitored during supervision? 202.5 Have appropriate mechanisms been put in place to handle environmental and social effects throughout the

life cycle of oil, gas and mining operations (e.g., for compensation to adversely affected communities and for mine or field closure even beyond WBG involvement)? 3 (9%)

2.6 Was the operation affected by — or did it even contribute to — civil war? 26

3. Governance and Transparency3.1 Did the operation contribute to capacity-building at the government (central or local), corporate, or voluntary

agency level? 7 (6%)3.2 Did corruption increase or decrease over the life of the project? Is this change attributable to the project? 173.3 Did the operation improve the framework for property rights in EI (e.g., is it clear who owns the resource

and is it possible to transfer the rights)? 213.4 Were exploration and development rights awarded in a fair and transparent manner? 153.5 Disclosure: Were the benefits from development of the resource, and their distribution, disclosed? Was the

use of the generated benefits transparently disclosed? What are the issues related to public disclosure? 8 (5%)

4. Role of the World Bank Group4.1 Was WBG financing necessary for a particular project or activity to proceed? 12 (3%)4.2 Did the WBG help improve the development impacts and minimize the risk associated with oil, gas, and

mining activities? How and to what extent did the WBG affect the impacts from the point of view of government (central and local), civil society, and the companies? In particular, has the WBG helped improve positive environmental and social aspects and reduced potential negative aspects in the operations it supported? Has the WBG helped the country address macroeconomic consequences resulting from the volatility of commodities markets? 4 (7%)

4.3a Did the WBG help improve the efficiency of the oil, gas, and mining sector and the investment climate in the sector, … 15

4.3b … and has this resulted in subsequent private investment without WBG support? 244.4 Did the WBG contribute to improved governance and increased transparency in the sector? 10 (4%)4.5 Did the WBG assess whether the economic benefits from EI, which are retained in the host economy,

are adequate compared with the value of the resources and, if so, how? 12 (3%)4.6 Did the WBG address and influence the distribution of benefits and costs? Can one establish what impact

this had on poverty reduction? 244.7 Has there been a trade-off between IFC profitability and development outcomes achieved in these sectors? 23

CONTACTS:

Andres Liebenthal, Operations Evaluation Department Roland Michelitsch, Operations Evaluation Group

World Bank International Finance CorporationPhone/Fax: 1 (202) 458-2507 / 1 (202) 522-3123 Phone/Fax: 1 (202) 458-0768 / 1 (202) 974-4302e-mail: [email protected] e-mail: [email protected]


1 6 0

The survey was conducted at the various EIRRegional Workshops. To date, the Latin Amer-ica and the Caribbean, Eastern Europe and Cen-tral Asia, and Africa Workshops have been heldin Rio de Janeiro, Brazil (April 15–19, 2002);Budapest, Hungary (June 18–22, 2002); andMaputo, Mozambique (January 13–17, 2003),respectively. Feedback from the Asia Workshop(March 2003) was not received in time to be

included in this report. The purpose of theregional workshops is to engage the variousregional stakeholders in the EIR. OED/OEGasked the participants to provide their impres-sions on the need, effort, and success of WorldBank and IFC involvement in the EI in theregion. The response rate for the survey wasabout 26 percent, as indicated in the table below.


1 6 1

Venue

% of allRespondent category Rio Budapest Maputo Total respondents

Local NGO 3 5 3 11 14

Global NGO 1 6 1 8 11

Industry 3 8 5 16 21

Government 11 1 19 31 41

World Bank Group 2 0 1 3 4

Other 1 4 2 7 9

No. of respondents 21 24 31 76 100

No. of workshop participants 85 80 127 292

% of respondents to participants 25 30 24 26

P e r c e p t i o n s o f S u r v e y P a r t i c i p a n t s a t t h e E I R R e g i o n a l W o r k s h o p s


TABLE 1. STAKEHOLDER SURVEY: RESPONDENT PROFILE

Responses pertaining to IFC

QUESTIONS

Responses primarily based on:(1) General knowledge of WBG activities(2) Specific knowledge of one or more IFC projects(3) Specific knowledge of one or more IDA or IBRD projects

%+ # %+ # %+ # %+ # %+ # %+ #1. EXTRACTIVE INDUSTRIES DEVELOPMENT

Need 67% 15 87% 15 76% 21 100% 2 50% 6 75% 59Effort 21% 14 64% 14 56% 18 100% 2 33% 6 48% 54Success 14% 14 47% 15 42% 19 50% 2 0% 5 33% 55

2. DISTRIBUTION OF PUBLIC REVENUESNeed 80% 15 67% 15 82% 17 100% 3 60% 5 76% 55Effort 17% 12 33% 12 41% 17 67% 3 25% 4 33% 48Success 0% 10 27% 11 38% 13 33% 3 0% 5 21% 42

3. SUSTAINABLE DEVELOPMENTNeed 86% 14 71% 14 74% 19 100% 3 80% 5 78% 55Effort 8% 12 36% 11 50% 18 67% 3 60% 5 39% 49Success 0% 12 13% 8 44% 16 33% 3 25% 4 23% 43

4. ENVIRONMENTAL IMPACTSNeed 88% 17 93% 14 90% 21 100% 3 80% 5 90% 60Effort 38% 13 83% 12 50% 20 67% 3 80% 5 58% 53Success 15% 13 58% 12 53% 19 67% 3 40% 5 44% 52

5. SOCIAL IMPACTSNeed 88% 17 86% 14 86% 21 100% 3 60% 5 85% 60Effort 14% 14 60% 10 55% 20 33% 3 60% 5 44% 52Success 7% 15 44% 9 50% 16 33% 3 40% 5 33% 48

6. GOVERNANCE AND TRANSPARENCYNeed 94% 17 86% 14 68% 19 100% 3 80% 5 83% 58Effort 21% 14 64% 11 44% 18 33% 3 33% 3 41% 49Success 8% 13 22% 9 44% 18 33% 3 0% 4 26% 47

7. INVESTMENT CLIMATE AND ECONOMIC LINKAGESNeed 71% 14 100% 12 83% 18 100% 3 80% 5 85% 52Effort 30% 10 82% 11 61% 18 100% 3 67% 3 62% 45Success 22% 9 33% 9 40% 15 100% 3 33% 3 38% 39

Response is greater than 60%

Perception Survey Results - All Workshops by Participant Type

All NGO Industry Government WBG Other Total

12 13 22 1 5 586 4 2 0 2 16

12 1 12 2 4 35


1 6 2

QUESTIONS

Responses primarily based on:(1) General knowledge of WBG activities(2) Specific knowledge of one or more IFC projects(3) Specific knowledge of one or more IDA or IBRD projects

%+ # %+ # %+ # %+ #

1. EXTRACTIVE INDUSTRIES DEVELOPMENTNeed 74% 19 68% 19 81% 21 75% 59Effort 60% 15 53% 19 35% 20 48% 54Success 69% 16 32% 19 5% 20 33% 55

2. DISTRIBUTION OF PUBLIC REVENUESNeed 87% 15 67% 21 79% 19 76% 55Effort 33% 12 24% 17 42% 19 33% 48Success 33% 9 13% 16 24% 17 21% 42

3. SUSTAINABLE DEVELOPMENTNeed 88% 16 79% 19 70% 20 78% 55Effort 67% 12 29% 17 30% 20 39% 49Success 45% 11 13% 15 18% 17 23% 43

4. ENVIRONMENTAL IMPACTSNeed 94% 18 80% 20 95% 22 90% 60Effort 62% 13 67% 18 50% 22 58% 53Success 57% 14 53% 17 29% 21 44% 52

5. SOCIAL IMPACTSNeed 95% 19 75% 20 86% 21 85% 60Effort 46% 13 31% 16 52% 23 44% 52Success 46% 13 25% 16 32% 19 33% 48

6. GOVERNANCE AND TRANSPARENCYNeed 78% 18 80% 20 90% 20 83% 58Effort 47% 15 44% 16 33% 18 41% 49Success 46% 13 19% 16 17% 18 26% 47

7. INVESTMENT CLIMATE AND ECONOMIC LINKAGESNeed 100% 16 71% 17 84% 19 85% 52Effort 73% 15 64% 14 50% 16 62% 45Success 62% 13 38% 13 15% 13 38% 39

Response is greater than 60%

1612 13 10 352 13 1

13 20 25 58

Rio de Janeiro Budapest Mozambique Total

Responses pertaining to IFC Perception Survey Results - By Workshop

(continued)

The survey of WBG staff included 66 questionsand room for comments. The questions weredesigned to get the views of staff on the rela-tive importance of issues for EI-dependent coun-tries and to determine if they feel that the WBGaddresses them adequately.

• Revenue Generation—generating higherfiscal revenues from EI production activities

• Revenue Distribution—fair allocation offiscal revenues among central/federal gov-ernments, subnational (provincial/district/municipal) governments, and local commu-nities (villages, indigenous)

• Revenue Utilization—allocation of fiscalrevenues from EI for developmental priori-ties

• Mitigating Negative EnvironmentalImpacts—from past EI activities or newones

• Mitigating Negative Social Impacts—frompast EI activities or new ones

• Capacity-Building for EI Sector Man-agement—including policy/legal/techni-cal/business issues

• Improving the Investment Climate—legal/regulatory framework, property rights

• Improving Transparency and Gover-nance—more public disclosure, less rent-seeking

The survey also asked staff to provide viewson the level of coordination among IFC, MIGA,and the World Bank; on risk aversion towardEI; and on the constraints on the WBG’sinvolvement in EI. Questionnaires were sentout by e-mail, and respondents were givenabout a month, until February 24, 2003, torespond. The 66 persons (69 percent) whoresponded have, on average, worked for WBGfor about eight years (10 years for World Bankrespondents and about 6 years for IFC andMIGA) and indicated familiarity with 48 EI-dependent countries.

P e r c e p t i o n s o f W B G S t a f f S u r v e y e d

A t t a c h m e n t 5 C

JOINT OPERATIONS EVALUATION DEPARTMENT/GROUP/UNITSTAFF SURVEY RESULTS

IFC Staff IBRD Staff MIGA Staff Total

Questions Positive High Total Positive High Total Positive High Total Positive High Total

1. Importance

Revenue Generation 86% 62% 29 87% 83% 23 90% 70% 10 87% 71% 62

Revenue Distribution 86% 54% 28 77% 55% 22 88% 50% 8 83% 53% 58

Revenue Utilization 83% 59% 29 83% 57% 23 89% 67% 9 84% 59% 61

Mitigating Negative Environmental

Impacts 86% 41% 29 77% 32% 22 100% 67% 9 85% 42% 60

Mitigating Negative Social Impacts 86% 45% 29 78% 39% 23 89% 56% 9 84% 44% 61

Capacity-Building for EI Sector

Management 83% 38% 29 87% 39% 23 89% 56% 9 85% 41% 61

Improving the Investment Climate 93% 54% 28 88% 63% 24 90% 30% 10 90% 53% 62

Improving Transparency

and Governance 93% 57% 28 88% 71% 24 90% 30% 10 90% 58% 62


1 6 3


1 6 4

2. CAS—adequately addresses EI issues





Impacts 77% 27% 22 80% 20% 20 80% 60% 5 79% 28% 47


Capacity-Building for

EI Sector Management 68% 11% 19 76% 0% 21 80% 0% 5 73% 4% 45



and Governance 80% 25% 20 70% 35% 23 100% 60% 5 77% 33% 48

3. EI projects/operations—adequately address EI issues





Impacts 100% 62% 29 89% 50% 18 100% 67% 9 96% 59% 56






and Governance 54% 8% 26 80% 35% 20 56% 11% 9 64% 18% 55

4. Interventions outside the EI sector—adequately address EI issues




Mitigating Negative

Environmental Impacts 89% 33% 18 63% 26% 19 100% 44% 9 80% 33% 46






and Governance 76% 6% 17 60% 20% 20 89% 0% 9 72% 11% 46

5. Non-lending interventions—adequately address EI issues





Impacts 84% 32% 19 43% 22% 23 100% 0% 4 65% 24% 46




(continued)


1 6 5



and Governance 68% 16% 19 68% 41% 22 80% 0% 5 70% 26% 46

6. Coordination across WBG is adequate

48% 46% 25 52% 13% 23 100% 50% 8 57% 18% 56

7. The Global Product Group for Oil, Gas, and Mining has helped to improve the following:

Coordination between IFC and

WB on sectoral issues 88% 46% 24 71% 29% 14 88% 0% 8 83% 33% 46

Strategic integration of sectoral

and macro interventions 58% 11% 19 58% 8% 12 100% 0% 7 66% 8% 38

Quality of sectoral ESW and

non-lending interventions 55% 0% 11 67% 8% 12 100% 0% 4 67% 4% 27

Sectoral knowledge-sharing

across regions 90% 40% 20 67% 25% 12 83% 0% 6 82% 29% 38

Overall quality of service to clients 76% 19% 21 67% 0% 12 80% 0% 5 74% 11% 38

Other 100% 100% 1 67% 0% 3 100% 0% 1 80% 20% 5

8. WBG avoided good projects in EI due to safeguards concerns from the following:

WBG management 86% 14% 14 86% 21% 14 100% 50% 6 88% 24% 34

WBG task managers 70% 0% 10 38% 23% 13 60% 40% 5 54% 18% 28

Client country government 30% 20% 10 29% 14% 14 0% 0% 5 24% 14% 29

EI public agencies/enterprises 56% 11% 9 21% 7% 14 75% 25% 4 41% 11% 27

Private investors 54% 15% 13 29% 7% 14 40% 20% 5 41% 13% 32

9. Factors that constrain WBG’s ability to assist client countries in enhancing EI’s contribution to sustainable

development:

Inadequate linkage between

EI sector activities and

sustainable development 42% 4% 24 50% 23% 22 56% 0% 9 47% 11% 55

Inadequate availability of staff

with appropriate skills 32% 0% 25 59% 27% 22 22% 0% 9 41% 11% 56

Pressure for rapid processing of

credits/funding/guarantees 38% 5% 21 38% 24% 21 44% 22% 9 39% 16% 51

Inadequate level of support from

the Bank’s Country Department/

Country Management Unit 52% 10% 21 55% 20% 20 29% 0% 7 50% 13% 48


the Global Product Group

for Oil, Gas, and Mining 8% 4% 24 33% 20% 15 0% 0% 6 16% 9% 45


the client government 63% 17% 24 38% 19% 21 17% 0% 6 47% 16% 51


project implementor (sectoral

agency or private sponsor) 24% 0% 21 25% 6% 16 50% 13% 8 29% 4% 45

Other 100% 0% 3 100% 100% 2 100% 100% 1 100% 50% 6

(continued)

Rating Scale—Question 1:

1 = Not at all Important

2 = Moderately Important

3 = Important

4 = Highly Important

High = % responding 4. Positive = % responding 3 or 4

Rating Scale—Questions 2–9:

1 = Strongly disagree

2 = Disagree

3 = Agree

4 = Strongly agree

High = % responding 4. Positive = % responding 3 or 4

Italics = Response is less than 40%

Bold = Response is less than 60% and 40% or more


1 6 6

Organization

% of allWorld Bank IFC MIGA Total respondents

Task Managers 12 12 18

Investment Officers 24 24 36

Regional Economists 14 6 20 30

Underwriters 1 5 5 8

Other 4 5 5 89

Number of respondents 26 30 10 66 100

Number of surveys

distributed 51 33 12 96

Response rate (%) 51% 91% 83% 69%

TABLE 2. STAFF SURVEY: RESPONDENT PROFILE

Source: http://www.ifc.org/enviro

The following social and environmental safe-guards policies apply to extractive industriesprojects, as appropriate:

Environmental Safeguards Policies:• OP 4.01 Environmental Assessment—October

1998• OP 4.04 Natural Habitats—November 1998• OP 4.36 Forestry—November 1998• OP 4.37 Dam Safety—September 1996 (IFC

now reportedly uses a 1999 draft policy, butit is not in the public domain)

• OP 7.50 International Waterways—November1998

• OP 7.60 Disputed Territories—June 2001

Social Safeguards Policies:• OD 4.20 Indigenous Peoples—September

1991• OD 4.30 Involuntary Resettlement—June 1990 • OPN 11.03 Cultural Property—September

1986• IFC’s Statement on Child and Forced Labor—

March 1998

OP 7.60, OD 4.20, OD 4.30, and OPN 11.03remain as World Bank policies, while the oth-ers have been modified and updated to bettercorrespond with the IFC business model.

Guidelines contained in the PPAH or updatedhttp://www.ifc.org/enviro/enviro/pollution/guidelines.htm:• General Environmental Guidelines (1993 and

1998)• General Health and Safety Guidelines (1998)• Base Metal and Iron Ore Mining (1998)• Coal Mining and Production (1998)• Oil and Gas Development—Onshore (1998)• Oil and Gas Development—Offshore (2000)• Mining and Milling—Underground (1995)• Mining and Milling—Open Pit (1995)• Hazardous Materials Management Guidelines

(2001)

The PPAH also includes other guidelines onenvironmental management, fire safety, wasteminimization, pollution prevention, air pollutioncontrol and wastewater management, cleanerproduction, risk assessment, trans-boundaryissues (GHG), and pollution management ofvarious chemicals—all of which may also be rel-evant in a specific project. A “precious metals”guideline is still pending.

IFC has specific requirements for Public Dis-closure and Public Consultation, dependingupon the categorization of the project.277


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R e l e v a n t I F C S a f e g u a r d P o l i c i e s ,G u i d e l i n e s , a n d P r o c e d u r e s


Consultation could be defined as a wider con-tinuous process of participation of all stake-holders in the decisions throughout theformulation and execution of a project leadingto a sustainable development for the populationin the area. Consultation, formally, is part of theenvironmental impact assessment of the project.In practice, it is a tool for managing two-waycommunication between the developer and thepublic, in general, and the local community, inparticular.

Consultation should be understood as a meansto achieve certain goals and not as a goal in itself.Its basic purpose is to improve decisionmakingand build understanding by actively involvingindividuals and organizations with a stake in theproject. This involvement will increase the pro-ject’s long-term viability and will enhance its ben-efits to 10 ally-impacted people and otherstakeholders.

The process of consultation and participationshould include precise agreements that could beadapted and monitored throughout the life of theproject. Consultation should have an impact onthe project design and implementation. It shouldbe started by the appropriate government agencyprior to licensing or contracting of the area andshould be continued by an oil company thatassumes the operation from the early seismicworks through drilling operations, developmentand exploitation, and formal abandonment.When possible, the consultation process shouldbe witnessed by a third party (i.e., the ombuds-man office and/or an association of environ-mental NGOs).

Emerging Best Practices on ConsultationA list of best practices comprises the followingpoints: Consultation requires exchange of infor-mation, collaboration, and mutual understand-ing of the parties involved. It often proceedsthrough cultural barriers, drops bad past lega-cies, and ends up creating confidence and trust.

It is essential to identify the representatives

of key stakeholders and local authorities, includ-ing existing alliances, social structures, and pos-sibly prevailing conflicts among local groupsand/or external groups and NGOs. Whereindigenous peoples have their own representa-tive organizations, such organizations shouldbe the channels for communicating their pref-erences.

Governments have an important role in estab-lishing first contact with the indigenous popu-lation, gathering adequate social and culturalinformation, and introducing the new contrac-tor. This kind of information is usually in thehands of academia and NGOs rather than thegovernment’s alone. Governments and the con-cerned private companies should make an effortto gather and review this information as early aspossible.

Consultation should include the provision ofinformation on the project in a timely, com-plete, and culturally appropriate fashion. Itshould lead to a meaningful dialogue and pro-vide recorded results, including the views andrecommendations of the indigenous peoplesfor the protection of the environment and themechanisms put in place for their participation.

Mechanisms should be devised for direct par-ticipation by indigenous peoples in decision-making on aspects of the project that affectthem. Such participation shall take place through-out project design, implementation, monitor-ing, and evaluation.

Proper consultation requires developing localcapacity to interpret the technicalities of envi-ronmental studies, understanding the impact ofinternational markets, developing long-termsolutions, and being able to effectively com-municate complex issues across cultural barri-ers. It requires time to obtain consensus on anadequate community relations program. Result-ing delays could create conflicts if contract termsare not properly established.

Consultation—by the government prior tothe contract or by the company as part of the


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S e l e c t e d S u s t a i n a b i l i t y G u i d a n c eM a t e r i a l — C o n s u l t a t i o n


environmental impact assessment of any impor-tant operation—requires the preparation of typ-ical business plans, including identification ofobjectives, responsibilities, and inputs to beaccomplished by each stakeholder.

Some Practical Recommendations

To organize a consultation: Designing mean-ingful consultations with indigenous peoplesdepends upon several factors, including thenational, legal, and political context; the lin-guistic and cultural characteristics of the indige-nous groups; and the degree of interaction andrelationships with the regional and national soci-eties and external social actors (that is, mis-sionaries, school systems, local traders, andloggers). It also depends on the nature of theirtraditional social organizations and leadershippatterns and the groups organized to representthe interests of indigenous peoples. Despitethese differences, there are some general prin-ciples for organizing and conducting meaning-ful consultations with indigenous peoples. Theseinclude the following: 1. Using facilitators who know the indigenous

languages and the indigenous cultures; 2. Creating appropriate settings and locations

for the consultations, preferably in the ter-ritories and settlements where indigenouspeoples live;

3. Providing background information on theproposed project in a language and formatthat the population understands (e.g., sim-ple diagrams and charts in the native lan-guages, maps, videos, 3D models);

4. Recognizing the time frames of indigenouspeoples, especially in terms of decision-making, that are often different from thoseof outsiders;

5. Respecting indigenous leadership patternsand religious beliefs and ensuring that eld-ers and other traditional authorities havethe opportunity to express their points ofview;

6. Recognizing that in some cases there maybe different factions within a communitywith contrasting views on national devel-opment projects and establishment of

methodologies for the peaceful resolution ofconflicts and differences;

7. Providing resources (e.g., food, shelter, travelfunds) so persons can attend the consulta-tions from distant villages or their repre-sentatives can attend consultations in district,provincial, or national capitals;

8. Ensuring that interpreters are provided forindigenous participants when consultationsare held in district, provincial, and nationalcapitals;

9. Supporting the local and regional indigenousleadership to improve communications withtheir communities and to be able to followup the consultation process; and

10. Dealing with gender issues.

To manage a consultation process: At anypoint of the project life, the project developershould take into consideration the followingsteps: 1. Plan ahead—to identify the project risks, the

parties to be involved, and the stakehold-ers’ interests and institutional goals; to under-stand past experiences, if any; and toeffectively fulfill regulations.

2. Test your proposals—to ensure that the keystakeholders understand the project impactsand benefits and would be able to voice theirconcerns and input alternative approaches.Prepare good responses to obvious ques-tions.

3. Invest time and money—the schedule andbudget of the project should properlyinclude the consultation effort. Involve con-sultants and permanent staff with appro-priate qualifications.

4. Involve senior and local managers—theirdirect participation will make the entirecompany understand the importance of inte-grating the stakeholders concerns.

5. Hire and train the right personnel—a com-munity liaison advisor with direct access tomanagement and certain negotiation capac-ity should be appointed and would beresponsible for hearing the local concerns.The advisor could also work with commu-nity liaison officers, depending on the sizeof the project.


1 7 0

6. Maintain overall responsibility—manageconsultants and subcontractors carefully toavoid bad feelings from affected peoplewho will not differentiate contracted per-sonnel from the company itself.

7. Coordinate all related activities—to provideconsistency in the information conveyedby all company staff to all outside stake-holders.

8. Build dialogue and trust—develop twochannels of communication, preferably inthe local language. Particular attentionshould be given to women and less pow-erful groups, and actively include them ina culturally appropriate way into the dia-logue. It is important to maintain the per-sonnel who interact with the stakeholders.As in personal relationships, continuity andfamiliarity build trust.

9. Manage expectations—avoid unrealisticexpectations. Be clear in describing the proj-ect impact and what it could deliver, tryingnot to overstate the benefits.

10. Work with governments—inform and consultwith relevant government departmentsregarding the activities, risks, and opportu-nities of the project and the required per-mits. Work closely with local authoritieswho often have long-established relationswith the local communities and who coulddelineate responsibilities between the localmunicipalities, the community leaders, andthe project sponsor.

11. Work with NGOs and community-basedorganizations—identify and liaise, particu-larly with those who represent the affectedpeople. NGOs have vital expertise and local

knowledge and could be sounding boardsfor project design and mitigation efforts.Initial research is important to understandlocal power dynamics and to ensure thatNGOs truly represent and convey the com-munity interests.

12. Prepare an action plan—consolidate in anaction plan the agreed projects, includingtiming and indicators for monitoring.

Government responsibilities: Within theprocess of consultation, government responsi-bilities could be grouped in the following list: 1. To set adequate regulations2. To provide land tenure rights3. To keep a database with sociocultural infor-

mation available to interested companies4. To carry out the first consultation5. To contract areas allowing enough time for

preparing adequate environmental impactassessments involving effective public con-sultations

6. To facilitate the process of consultationbetween industry and indigenous peoples,ensuring due representation of the partiesand providing validity to the agreementsreached

7. To establish proper links between the com-panies’ community relations program, thecommunities’ Planes de Vidal, and theregional development plans with respect toeducation, health, infrastructure, defense,and the activities of other productive sectorsin the region

8. To supervise the execution of agreed plansand audit accounts

9. To mediate in case of conflicts


1 7 1

Operations Evaluation Unit:Evaluation of MIGA’s Experience

1 7 5

1. IntroductionMIGA has supported investments in EI projectssince its inception in 1988 by providing guar-antees to foreign investors against political risks278

and, to a lesser extent, by offering technicalassistance and advisory services. The involve-ment of foreign investors in EI projects has thepotential for great benefits to the host countriesand can significantly contribute to the private sec-tor development agenda of resource-rich devel-oping countries. At the same time, suchinvestments have given rise, in some instances,to concerns about potential negative impacts onenvironment and affected communities, as wellas about the sustainability of positive impacts.In that regard, MIGA, like the rest of the WBG,has come under increased scrutiny by its stake-holders.

In order to review the WBG’s past experienceand to inform its future strategy for the sector,the WBG’s three evaluation units279 have con-ducted a joint evaluation of Bank Group activ-ities in EI. This independent evaluation reviewsthe WBG assistance to the development of EI andits contribution to economic, social, and envi-ronmental outcomes. The objective is to evalu-ate the development effectiveness of WBGactivities in the EI sector and to draw lessonsfrom the WBG experience to inform its futurerole in the sector. The study covers the processof extracting oil, gas, coal, minerals, and metalsfrom the earth and their initial processing or con-centration. The downstream utilization of theseresources or issues related to the global impactof the consumption of EI products were notexamined.280 In parallel to this joint evaluation,WBG management commissioned an externalEIR to advise the Bank Group on its future rolein EI, in response to stakeholder concerns.

This report by MIGA’s OEU presents the find-ings of an evaluation of MIGA guarantee proj-ects in the EI sector. Section 1 describes theevaluation process and criteria for evaluation andmethodologies used. It also presents an overviewof the characteristics and evolution of MIGA’s EIportfolio. Section 2 assesses the consistency ofMIGA EI projects with environmental and socialsafeguard policies. Section 3 assesses the devel-opment impacts of a sample of evaluated EI proj-ects. Section 4 reviews MIGA’s role andeffectiveness in the EI sector. Section 5 presentsconclusions of the evaluation and makes rec-ommendations for MIGA’s future involvement inEI projects.

Evaluation Methodology and ApproachOEU’s evaluation activities for this joint evalua-tion consisted of the following:• An overview of MIGA’s EI portfolio,• A review of safeguard policy consistency for

a sample of MIGA EI projects,281

• An update and validation of previously eval-uated projects,

• Two case studies of mining sector projects,and

• A staff survey of underwriters involved in EIprojects.

The overview of MIGA’s EI portfolio covered 100percent of projects guaranteed in the EI sector(with active and inactive guarantees) from FY90through the first half of FY03 (December 31,2002). These 31 projects (corresponding to 61guarantee contracts) were used to describe theevolution and salient features of MIGA’s EI port-folio.282

The objective of the safeguards review wasto assess the consistency of MIGA guarantees in

ANNEX E: MIGA’S EXPERIENCE

the EI sector since inception of operations inFY90 with current relevant environmental andsocial safeguard policies and the adequacy ofmeasures to mitigate adverse environmental andsocial impacts. OEU evaluated the consistencyof projects with MIGA’s interim safeguard poli-cies and procedures at two points for each proj-ect: at approval and during implementation(under guarantee or, if the guarantee had beencancelled, at the time of cancellation).

For the safeguards review, OEU selected asample of 12 MIGA projects283 in the EI sector(or 39 percent of EI sector projects with a totalof 26 guarantees) with characteristics represen-tative of MIGA’s EI portfolio. Thus, OEUreviewed both early and more recent projectsunderwritten by MIGA, spanning a period of 12years (FY90–01). The sample consisted of ninemining sector projects, of which four were gold,one cobalt, three copper (/zinc), and one coal,as well as three oil and gas projects. Projects inenvironmental categories ‘A’ (nine) and ‘B’(three) were reviewed. The sample includedprojects in which other development institu-tions or insurers were involved (such as theIFC, European Investment Bank, Overseas Pri-vate Investment Corporation, Export Develop-ment Canada, and Export Finance and InsuranceCorporation) and some in which MIGA was thesole participant. The review covered projectswhere MIGA guaranteed majority owners aswell as minority owners or lenders. Finally, thesample was balanced in terms of projects withactive guarantees (five) and those cancelled bythe investor or lender (seven).

In addition to the safeguards review, OEU car-ried out a desk review to update and validateevaluations of six mining projects undertaken byMIGA’s former evaluation unit. These six proj-ects, five gold mines and a facility extractingcobalt from tailings, had been visited inFY90–FY00. These relatively mature projectswere underwritten by MIGA in the early to mid-1990s (FY92–FY96). This desk review, using themost recent information available, sought toaddress four evaluation criteria: (i) the project’sfinancial sustainability, (ii) the project’s eco-nomic sustainability, (iii) the project’s contribu-tions to private sector development, and (iv)

MIGA’s role and effectiveness. The update andvalidation consisted of a review of MIGA under-writing and evaluation files and informationavailable in the public domain relating to vari-ous aspects of the projects.

OEU also undertook two evaluation casestudies, both in Latin America, that involvedsite visits. The first case applied OEU’s newguarantee project evaluation methodology,including a cost-benefit analysis, whereas the sec-ond case study focused on environmental, social,and community aspects.

Finally, OEU conducted a survey of a groupof MIGA staff involved in underwriting EI proj-ects, soliciting staff’s perceptions on importantissues in EI and obstacles to more MIGA involve-ment in the EI sector to compare those percep-tions with OEU’s findings from projectevaluations. (OED and OEG have used the samesurvey to obtain views from World Bank and IFCstaff.)

Altogether, OEU covered 15 out of 31 MIGAEI projects through the safeguards review, val-idation and update, or case studies. This isequivalent to 48 percent of MIGA’s EI portfolio.Attachment 2 provides an overview of the proj-ects reviewed by OEU.

Portfolio Overview: MIGA Activities in theMining and Oil and Gas SectorsMIGA began supporting mining projects in 1990,at the start of its operations. In fact, the first twoprojects ever to receive MIGA coverage were inthe mining sector, and in its first year of opera-tions, mining accounted for 76 percent of MIGA’saggregate liability.

As of December 31, 2002, MIGA had insured24 mining and 7 oil and gas projects, for a totalof 31 EI projects.284 (A complete list of MIGA EIprojects since its inception are in Attachment 1.)MIGA was relatively active in mining in the 1990sbut has not insured mining projects since FY01.By contrast, MIGA began insuring oil and gasinvestments relatively late, in the mid-1990s (seeFigure E1). In terms of MIGA’s cumulative aggre-gate liability, mining has overshadowed oil andgas (of the total liability issued in EI of almost$1.5 billion, mining accounts for 74 percent andoil and gas for 26 percent). Overall, 13 percent


1 7 6

of MIGA’s cumulative issued liabilities were in EI.As MIGA operations grew and it diversified itsportfolio into other sectors, fewer EI projectswere underwritten, and as existing coverageexpired or was cancelled, the share of EI inMIGA’s outstanding portfolio gradually decreased

(see Figure E2). As of December 31, 2002, thisfigure dropped to approximately 11 percent (6.6percent for mining and 4.3 percent for oil andgas), or $552 million, in absolute terms.

MIGA coverage corresponded to an estimatedforeign direct investment (FDI) of $10.2 billion

A N N E X E — M I G A’ S E X P E R I E N C E

1 7 7

M I G A G u a r a n t e e s I s s u a n c e i n M i n i n g a n d O i l a n d G a sF i g u r e E 1

0

50

100

150

200

250

300

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002* 2003**

Fiscal Year

US

$ M

illio

ns

Mining (U.S.$M) Oil and Gas (U.S.$M)

* No guarantees issued in EI**As of 12/31/2002

M I G A E x p o s u r e i n M i n i n g D e c l i n i n gF i g u r e E 2

MIGA Guarantees — Mining Projects as a Percentage of MIGA Total Gross Exposure

0

10

20

30

40

50

60

70

80

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Fiscal Year

Perc

enta

ge o

f Tot

al

for mining projects and an estimated $5.1 billionfor oil and gas. The total FDI facilitated in EIaccounts for 32 percent of the overall estimatedFDI facilitated by MIGA since its inception.

Extractive industries projects, especially green-field projects, often entail large capital invest-ments. Even privatizations and modernizations,which represent about half of the mining proj-ects that MIGA has insured, required significantinvestments. This tends to produce a higherlevel of MIGA exposure per project, $47 millionon average, compared with the MIGA average($28 million). MIGA’s exposure ratio, measuredas the share of its gross exposure to the FDI facil-itated by MIGA projects, is about 10 percent forEI (mining: 11 percent, oil and gas: 7 percent),whereas the overall ratio for MIGA is 23 percent.MIGA has extensively used opportunities forreinsurance and coinsurance with public or pri-vate political risk insurers for its projects in theEI sector, thereby limiting MIGA’s net exposure.

Half of MIGA’s mining projects have beengold mines (12 projects), and another 8 havebeen copper mines. In terms of coverage issued,MIGA mining projects have been concentratedin Latin America and the Caribbean (45 per-cent) and Africa (27 percent), followed by thetransition economies in the former Soviet Union(16 percent). About half of the mining projectsin Latin America have been privatizations orexpansions, whereas almost all other projects inother regions have been greenfield operations.All mining projects in Africa have been locatedin IDA-eligible countries. Two more miningoperations were located in IDA-eligible countriesin Europe and Central Asia and Latin Americaand the Caribbean.

The majority of oil and gas projects insuredby MIGA were new investments in existing pro-duction fields. Regionally, oil and gas projectshave been fairly evenly distributed, in terms ofMIGA’s liability, between Latin America, Europeand Central Asia, Middle East and North Africa,and Africa, and have been evenly distributedbetween onshore and offshore fields.

MIGA’s EI portfolio was concentrated in coun-tries with a higher risk profile because demandfor MIGA coverage originates from investors’unfavorable perception of political risk in host

countries. There is often a correlation betweenthe perceived risk in a country and governance;that is, political risks are likely to be more promi-nent in weaker governance environments. Thisin turn means that the need for MIGA guaran-tees is higher in countries where governancetends to be weaker. While there are no gener-ally accepted governance ratings, TransparencyInternational’s (TI) corruption perception indexprovides a proxy for one dimension of gover-nance in countries where MIGA had EI projectguarantees. The 2002 TI rankings include 20countries in which MIGA has had EI projects. Theunweighted average score for countries withMIGA EI involvement is 3.58 (on a scale of 0 to10, with MIGA EI scoring from 1.9 to 7.5), whichis identical to the average score of all develop-ing countries (79) covered by the corruption per-ception index. This means that MIGA EI projects,on average, were in countries where perceivedgovernance levels were similar to the averagelevel in its developing member countries. Gov-ernance issues are important for EI-dependentcountries and are addressed by the joint evalu-ation at both the sectoral and country levels inthe OED/OEG/OEU Main report.

Since FY00,285 MIGA has not supported anynew mining projects, and it has insured onlythree new oil and gas projects. While the rea-sons for this slowdown were not systematicallyassessed by this evaluation, it is likely due to (i)a decline in the number of applications receivedby MIGA (signaling either a lack of privateinvestor interest or investment opportunities inthese sectors given the fall in metal prices andother adverse global developments, or politicalrisk insurance not being critical for their invest-ment, or lack of attractiveness of MIGA instru-ments to investors) and (ii) a need for morerigorous project assessments during underwrit-ing and, thus, delayed decisionmaking. MIGAmay have been more careful and selective aswell, given that EI sector projects often meanhigh underwriting costs, increased scrutiny, com-plex environmental and social issues, and somecriticism by stakeholders or nongovernmentalorganizations with potential risks and implica-tions for MIGA’s reputation.286

A MIGA Contract of Guarantee, the agency’s


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key legal instrument, is issued for a period of 3to 15 years, subject to the needs of the investor.Most contracts have a minimum duration ofthree years, after which the investor may can-cel the guarantee on the premium anniversarydate, with 30 days’ advance notice to MIGA.

Cancellations of MIGA EI ProjectsAs of December 31, 2002, 299 of the cumulativetotal of 619 contracts issued by MIGA (i.e., 48percent) remained active. In the extractive indus-tries, 21 of the 61 contracts (i.e., 34 percent) werestill active. These correspond to 11 projects outof a total of 31 extractive industries projects thatobtained MIGA guarantees since 1990, implyinga high cancellation rate of 66 percent for MIGAEI projects. This is most likely due to the rela-tive seniority of extractive industries projects(especially mining projects) in MIGA’s portfolio(most contracts have outlasted the three-yearminimum contract period).

Those contracts in extractive industries, asso-ciated with 20 projects in all, that were cancelledby investors or expired, remained active for amedian time of 4.0 years, with a range of 0.66to 7.25 years.287 As of December 2002, the old-est EI project in MIGA’s portfolio, a mining proj-ect, had been insured for 11 years.

Reasons for observed cancellations of guar-antee contracts for EI projects include, in decreas-ing order of occurrence, the following: (i)self-insurance (investors become comfortablewith the host country political risk level, whichmeans that the MIGA guarantee has served itsuseful purpose), (ii) replacement of MIGA insur-ance with private or national insurers, (iii) repay-ment of loans, (iv) commercial failure of theproject enterprise, (v) transfer of shares by theguarantee holder to investors who have notrequested a guarantee from MIGA, and (vi)financial restructuring, leading to replacementsof existing contracts.

Technical Assistance, Advisory and MediationServices, and ClaimsMIGA’s technical assistance and advisory serv-ices have focused on mining and in the past haveaimed at assisting countries in formulating strate-gies and techniques to attract FDI in the sector.

The program consisted of three core activities.The objective of the first, capacity-building, wasto improve the effectiveness of the host coun-try’s mining promotion agencies through strat-egy workshops and policy seminars forgovernment officials. Second, investment facil-itation activities, including six conferences onAfrican Mining Investment, brought togetherpotential investors and government leaders tocatalyze projects in Africa. Finally, in informa-tion dissemination, using a predominantly Inter-net-based approach (such as the InvestmentPromotion Agency Network288), MIGA providedinformation on mineral potential, policy andlegislation, infrastructure, financial services, basiccountry information, investment opportunities“who’s who,” new developments, and geologi-cal maps. Because MIGA’s technical assistanceand advisory services have not been evaluated,OEU is not able to report on the effectivenessof these activities.289

MIGA has not received or paid any claimrelated to an EI project. It has mediated twoinvestment disputes involving mines, in Angolaand Ukraine, for investors without MIGA guar-antees.

2. Review of MIGA’s EI Projects forConsistency with Safeguard PoliciesThis section summarizes the findings of a reviewto assess the consistency290 of MIGA’s extractiveindustry projects with current applicable envi-ronmental and social safeguard policies and theadequacy of measures to mitigate adverse envi-ronmental and social impacts.291 This evaluationhas focused on safeguard policies because theproject’s environmental and social performanceis one of the most critical aspects of EI projects,and a failure to comply with applicable safe-guards may have negative impacts on commu-nities and the environment, thus underminingMIGA’s development mandate. The section iden-tifies specific issues emerging from the sampleof projects reviewed in relation to (i) the appli-cation of the safeguards to the private sector, (ii)MIGA’s unique mandate (within the WBG) as aninsurer of political risks, and (iii) the adequacyof the safeguard oversight framework that hasbeen adopted by MIGA management. The review


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is based on a comprehensive evaluation method-ology that was developed and tested in a par-allel OED study. It covers a sample of 12 MIGAEI projects in the mining and oil and gas sec-tors292 approved between FY90 and FY01.

MIGA’s framework for assessing the compli-ance of its guarantee projects with environ-mental policies and guidelines has evolvedsignificantly over time. Prior to adopting its ownpolicies and guidelines, MIGA applied WorldBank environmental and social policies293 andguidelines to its projects. An internal documentindicated that MIGA had committed to “ensurethat [its projects] conform to the environmentalstandards adopted by other members of theWorld Bank Group” since 1991 and initially didso using specialized IFC staff. The creation of anin-house environmental unit by MIGA in late1997 was an important milestone for improvingthe Agency’s capacity to address environmentalissues. This unit has been responsible for settingup in-house procedures, formulating and revis-ing policies, undertaking project assessments,and selective monitoring.294 In May 1999, theBoard approved MIGA’s own specific EA and dis-closure policies and procedures that reflect itsbusiness as an investment insurer for the privatesector. They took effect with all new definitiveapplications received after July 1, 2000. In May2002, MIGA’s Board approved the adoption ofits own interim issue-specific Safeguard Poli-cies. MIGA’s Web site295 notes, “In carrying outits review and evaluation, MIGA considers:• the project’s ability to comply with the appro-

priate guidelines found in the World BankGroup’s Pollution Prevention and AbatementHandbook;

• compliance of the project with host countryenvironmental requirements; and

• consistency of the project with MIGA’s safe-guard policies regarding the following specificissues: natural habitats; forestry; pest man-agement; dam safety; projects on interna-tional waterways; involuntary resettlement;indigenous peoples; and physical culturalresources.”

Until late 1997, IFC environmental and social spe-cialists were used to review MIGA projects for

WBG safeguard policy consistency, as MIGA didnot have its own in-house capacity due to its smallsize.296 Even after MIGA’s environmental unitwas created, IFC experts continued to be calledupon for their advice on certain projects. Insome mining projects that were reviewed, IFCwas also an investor and/or lender, and MIGAdeferred to IFC experts on safeguard compliancematters in such cases. From an evaluation per-spective, including projects for which IFC expertscarried out MIGA’s due diligence, and has pro-vided valuable insights into the functioning of thisearlier arrangement and its efficacy for MIGA,which could also be useful for future MIGA proj-ects in which IFC may be involved.

The WBG safeguard policies contain a longlist of requirements. For the purposes of thisindependent evaluation of consistency of MIGAprojects with safeguard policies and guidelines,a set of basic criteria was developed reflectingkey policy requirements and the necessary stepsinvolved in meeting them. These criteria aresummarized in Attachments 3a and 3b. Thisapproach is similar to the one developed andused for a sample of World Bank EI projects byOED297 in evaluating the compliance with WBGsafeguards policies. They are based on MIGA’sspecific environmental assessment and disclosurepolicies and procedures, as well as the interimissue-specific safeguards,298 as approved byMIGA’s Board in 1999 and 2002, respectively,which differ somewhat from those of the WorldBank to reflect MIGA’s business model. MIGA’s2002 safeguards have adapted World Bank safe-guards to the private sector. This has involvedsome simplifications and clarifications and in nocase a tightening of World Bank safeguards.

This review was the first of its kind for MIGAprojects and was undertaken to determine thestatus of a representative sample of EI projectson environmental and social fronts, using cur-rent standards. Using the most recent MIGApolicies as criteria for consistency, rather thanWBG policies and guidelines in effect at the timeof approval of guarantees, enabled OEU toreview the entire sample using the same crite-ria. OEU recognizes that the application of thesafeguard policy framework has evolved con-siderably in MIGA since issuing the first guar-


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antee in 1990 and that not all of the policies hadthe same degree of specificity. Furthermore, theBank’s and MIGA’s procedures evolved overtime as well. MIGA, as a member of the WBG,had subjected itself to WB policies and guide-lines since the inception of the Agency andmore explicitly since 1991, prior to adopting itsown policies. Therefore, all projects covered bythis review were subject to the WB policies atthe time of their Board approval. MIGA’s Boardhad the expectation that the projects it con-curred with were fundamentally consistent withapplicable WB policies and guidelines. For rea-sons of methodological soundness, this reportdoes not refer to compliance (in its strict orlegal meaning) across a period of 12 years(MIGA’s operational history), but rather itassesses projects’ consistency. The intention ofthis study was to learn about the extent to whichMIGA EI projects were (and are) consistent withcurrent applicable MIGA safeguard policies andguidelines. This approach also reflects the for-ward-looking nature of this evaluation and caninform decisions about possible future EI proj-ects MIGA may be involved in.

The review focused on consistency with safe-guards at two phases in the guaranteed invest-ment cycle:• Consistency with Safeguards at Board

Approval: To what extent did the guaranteedinvestment comply or agree with the require-ments of the current MIGA safeguard policiesand guidelines at the time of Board approval?

• Consistency with Safeguards under Guaran-tee: To what extent did the project fulfill oragree with the conditions and requirementsof the safeguard policies and guidelines (cur-rently in force) during investment imple-mentation and adequately implement thesafeguard management/action plans that hadbeen identified at approval?

The review found that 73 percent of the EI proj-ects in the sample were substantially299 consis-tent with current MIGA safeguard policies atthe time of MIGA Board approval. This ratioincreased to 88 percent during implementation,while the project was still under guarantee or atthe time of cancellation of the guarantee. More-

over, safeguard policy consistency showed animproving trend over the period of 1990–2001for the sampled projects, for both stages—atapproval and during project implementation(see Figure E3).

Safeguard Issues Prior to Board ApprovalFor 82 percent of the projects, the EAs, includ-ing analysis of alternatives and baseline studies,were well prepared by the time of Boardapproval.301 However, this has not always trans-lated into well-prepared EMPs or Environmen-tal Management System (EMS) provisions in thesponsor’s project organization and contractingarrangements during construction, which arethe principal means for operationalizing theprotective measures proposed under the EAs.The main problems of safeguard consistencyidentified at approval (see Table E1 and Attach-ment 5a) are (i) poor public consultation and dis-closure in approximately half of the projects, (ii)inadequate provisions for safeguard compliancein Contracts of Guarantee in more than two-thirdsof the projects, and (iii) deficiencies in applica-tion of issue-specific safeguards, where rele-vant, such as involuntary resettlement (two-thirdsof the projects), indigenous peoples (in all proj-ects), natural habitats (in two-thirds of the proj-ects), and dam safety (one-quarter of theprojects).302

The projects reviewed included cases where(i) specific safeguards were not explicitly iden-tified in the documents in the files, or wereidentified late in project processing (sometimeseven after Board approval); (ii) instructionsgiven to clients regarding specific safeguardrequirements were not clear; (iii) requirementswere not adequately communicated to consult-ants preparing EAs; and (iv) internal documentsand clearances for Board approval were notsufficiently clear about which safeguard policiesor environmental guidelines were applicable. Themore common reasons for these problems iden-tified by the review were (i) MIGA gettinginvolved too late into the process; (ii) lack ofsocial sector expertise in identifying applicablesafeguards; (iii) underwriters not having theexperience or necessary background, leading topoor initial communications with clients before


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environmental staff got involved; (iv) institu-tional pressures to meet guarantee volume objec-tives for the fiscal year, which may haveprevented some critical environmental verifica-tion (e.g., updating previous clearances if timeelapsed was significant, additional site visitswhen needed); and (v) changes in project scopeand design between Board approval andissuance of Contracts of Guarantee without fur-ther safeguard evaluation. The potential valueadded MIGA could provide tends to be down-played at the underwriting and marketing stagesof a prospective guarantee. It is unclear why insome of the projects reviewed safeguard poli-cies were not triggered early enough—or not atall—in the underwriting process. Reviewed proj-ects also provide some positive examples, sug-gesting that when safeguard policy issues arehandled expeditiously and efficiently with clients,MIGA’s intervention provides value added anda level of comfort.

The EAs that were reviewed varied in qualityfrom relatively mediocre to the highest interna-tional standard. The scope and comprehensive-ness of 82 percent of the EAs reviewed metbasic MIGA requirements, as outlined in Attach-ment 3a. Some were developed over severalyears with many refinements and improvementsadded in the process and included extensiveinputs from a variety of independent expertsand reviews by competent regulatory authorities,as well as project-affected communities andNGOs. Cases were noted where MIGA (or IFC)experts provided important inputs during theprocess of EA review, which considerablyimproved their quality. There were other exam-ples where their inputs were too late and had tobe addressed after project approval. In one case,independent consultants hired by the majorlenders identified a long list of deficiencies in theEA, which was initially prepared by one of theinvestors.


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S a f e g u a r d C o n s i s t e n c y R a t i n g s f o r M I G A P r o j e c t s S h o w a n I m p r o v i n g T r e n d 3 0 0

F i g u r e E 3

1989* 1992* 1994* 1995* 1996* 1996* 1997 1997* 1998 1999 2001

Safe

guar

d Co

nsis

tenc

y Ra

tings

Approval Implementation Linear (Implementation) Linear (Approval)

1999 — Adoption of MIGA’s Environmental Policies and Procedures

Negligible

Modest

Substantial

High

Board Date

* Guarantees for projects noted with an asterisk (*) are no longer active.

Addressing Mine Closure. The main issue inthe application of the 1995 Mining and MillingGuidelines—Open Pit noted during the reviewwas the requirement for preparation of a MineClosure and Restoration Plan. It was not clear inthe guideline when such a plan had to be pre-pared, at what level of detail, and when theinvestor needed to start accumulating funds formine closure (as required in the 1998 version ofthis guideline). In some of the cases reviewed,the plan was required at the time the EA was pre-pared, but in others it was not until later, dur-

ing project implementation, that MIGA (or IFC)made it clear that the plan was needed. Someclients argued that it was too early for them toprepare such plans at the final feasibility stageand include them in the EA, while others rec-ognized that mine reclamation should be a pro-gressive process and incorporated into the minedevelopment plans (and financial plans) to min-imize costs and reduce environmental (andsocial) impacts. In these cases, the plans wererevised and adjusted during the operationalphase as more experience was gained.

Criterion

Applicable to (no. of projects)

Addressed substantially or higher (percent of projects)a

Cultural property protection proposed7 100%

Comprehensive environmental assessment

11 82%

Comprehensive environmental and social baseline survey

11 82%

Comprehensive dam safety measures proposed

4 75%

Adequate environmental action plan proposed

11 73%

Adequate analysis of feasible alternatives

11 73%

Project sponsor's environmental management system adequate

11 64%

Public disclosure/consultation addressed

9 56%

Comprehensive and implementable resettlement plan/community development program prepared

9 33%

Natural habitats protected or offsets provided

6 33%

Contract of guarantee for implementation of safeguard Policies/guidelines adequate

11 27%

comprehensive and implementable indigenous peoples plan prepared 3 0%

Overall safeguard consistency 11 73%


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S a f e g u a r d C o n s i s t e n c y S u m m a r y f o rM I G A E I P r o j e c t s a t B o a r d A p p r o v a l( B a s e d o n a R e v i e w o f 1 1 M I G A E I P r o j e c t s )

T a b l e E 1

Note: Four projects could not be reviewed as no monitoring reports were on file.

a. Four rating categories were used: negligible, modest, substantial, and high. See Attachment 3a for more details.

Public consultation and disclosure of environ-mental and social impacts was one of the weak-est areas of safeguard consistency for the reviewedprojects, with only about half substantially meet-ing MIGA’s requirements.303 In some projects,MIGA and IFC experts took great care to ensurethat the clients were aware of their EA public dis-closure obligations. In other cases, insufficientguidance was provided, and, as a result, too lit-tle attention was given to this matter. Some EAswere deficient in describing the public consulta-tion process, while others were forthcoming andnoted improvements that resulted from theprocess. Cases were noted where project decisionshad already been made and the public disclosureprocess was seen as a pro-forma exercise, defeat-ing the purpose of the MIGA policy. There wereno cases where the MIGA disclosure policydelayed guarantee processing.

The review found that only one-third of theprojects had adequate provisions for safeguardenforcement in the Contracts of Guarantee,304

although even these did not refer to the individualsafeguards that applied. In three more recentcases, the specific applicable EnvironmentalGuidelines were indicated and attached to thecontracts. The review of clearance memos alsoindicated a lack of clarity on the specific safeguardpolicies that applied to projects prior to approval.In only a few cases has MIGA included any spe-cific environmental and social reporting require-ments by its clients in its contracts.

OEU did not include ratings for one projectselected for the safeguard review because of alack of relevant information verifying the ade-quacy of the project’s environmental classifica-tion. MIGA Management has taken action toprovide the documentation, and OEU will com-plete the review of this project upon receipt ofthe relevant documents.

Safeguard Issues During ProjectImplementationAs noted above, there was notable improve-ment in the safeguard performance of the sam-ple of extractive industry projects during theirimplementation (see Table E2 and Attachment5b). Of particular note is the high level of per-formance in (i) implementing Environmental

Action Plans (EAP)/EMPs, (ii) carrying out envi-ronmental and social monitoring,305 (iii) operat-ing Environmental and Health and SafetyManagement Systems, and (iv) generallyimproved consistency with specific safeguardpolicies, with the exception of the natural habi-tats policy. Public consultation and disclosure, akey area, continued to fall short of good prac-tice in one-third of the projects reviewed, in par-ticular in three Category ‘A’ projects underwrittenbefore FY00, when MIGA’s EnvironmentalReview Procedures and Disclosure Policies wentinto effect. Reporting on safeguard policy con-sistency by clients and monitoring and evalua-tion by MIGA could also be improved.

The most important factor in ensuring safe-guard compliance is a committed investor withthe capacity to implement the environmental,health and safety, and social mitigation andmonitoring programs that are required under theproject and spelled out in the EAs.

One case illustrated what can go wrong ifmanagement and organizational structure set upfor project management during the constructionphase become too autonomous and disconnectedfrom the environmentally and socially responsi-ble policies and procedures of the individualinvestors. The case also showed that a companycan learn from experience. It was only afterreceiving public complaints against the project thatMIGA came to realize the seriousness of the sit-uation and fielded a mission to assist the investorin restoring its public image and helping it to actas a responsible corporate citizen. This case alsoclearly illustrates both MIGA’s positive contribu-tion in this process and the need for MIGA to takea more proactive approach in evaluating clients’organizational and management arrangementsto satisfy itself that they are adequate for imple-menting responsible environmental and socialpolicies from the very start of project construc-tion. Risks and costs associated with consequencesfor inadequately addressed social and environ-mental issues, for both MIGA and the investors,are high and increase throughout the life of theproject (see Box E1).

Environmental Management Plans/Envi-ronmental Action Plans. Environmental and


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social action plans are the key outputs from thepreparation and approval stages of MIGA proj-ects. There are good examples among MIGAprojects reviewed where these action plans havebeen taken seriously by investors—usually thosein which the investors were directly involved intheir preparation and finalization. There wereother cases where the action plans were pre-pared by independent consultants without fullendorsement by investors. EMP/EAPs were sub-stantially implemented by all of the investors for

the projects reviewed, in some cases with per-sistent prodding by MIGA’s (or IFC’s) environ-mental and social experts. Some investorsincorporated the EMPs into their EMS monitor-ing and auditing programs to ensure that theywere fully implemented. In such cases, vari-ances from the plan were noted, as were actionplans drawn up to fulfill these requirements.

Land acquisition and resettlement was sub-stantially accomplished according to the require-ments of MIGA’s involuntary resettlement policy


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Criterion

Applicable to (no. of projects)

Addressed substantially or higher (percent of projects)a

Environmental action plan/environmental management plan fully implemented by sponsor

8 100%

Environmental and social monitoring fully implemented by sponsor 8 88%

Sponsor's project implementation environmental management system effective

8 88%

Resettlement plan/community development program fully implemented

7 86%

Full compensation of project affected people

6 83%

Cultural property protected 6 83%

Dam safety measures implemented 4 75%

Indigenous peoples plan fully implemented

3 67%

Continuing public disclosure and consultation

8 63%

Reporting on safeguard policies by sponsor adequate

10 60%

Monitoring and evaluation of safeguard policies by MIGA adequate 10 60%

Natural habitats protected or offsets provided

6 50%

Overall safeguard consistency 8 88%

S a f e g u a r d C o n s i s t e n c y S u m m a r y f o rM I G A E I P r o j e c t s U n d e r G u a r a n t e e( B a s e d o n a R e v i e w o f 1 1 M I G A E I P r o j e c t s )

T a b l e E 2

Note: Four projects could not be reviewed as no monitoring reports were on file.

a. Four rating categories were used: negligible, modest, substantial, and high. See Attachment 3b for more details.

in 86 percent of the projects reviewed. This wasa great improvement over the situation at proj-ect approval, when only 33 percent of the proj-ects had adequately prepared resettlement plans.It reflects a conscientious effort by MIGA (andIFC) to bring these projects into conformance withthe social safeguard policies during the imple-mentation phase. However, there were defi-ciencies in applying the policies, which shouldbe noted for future reference and attention. Inregard to those projects where land acquisitionand resettlement occurred before MIGA involve-ment, the policy requires monitoring and eval-uation of its implementation and then, uponcompletion, an assessment of the outcomes to see

if the objectives of the policy have been met inthe process. This was not carried out.

In two-thirds of the projects, investors wereactive in implementing community develop-ment activities to mitigate the impacts of theiroperations on local communities. In projectswhere IFC was also involved, it promoted theseactivities to investors, while MIGA played acritical catalytic role in one project. The com-munity development programs have focusedon improving services such as health, education,and water supply and sanitation services inproject-affected communities, and they havepromoted economic development, includingjob creation, training, and credit for small-scale


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The evolution of this project’s handling of social andenvironmental issues, and MIGA’s role in the process,provides important lessons. During the early con-struction phase of 1998–99, priority was given to ear-liest possible project completion and cost efficiency.The contractor coordinated only with the project man-agement side and had no line of communication withthe company’s operations side, which was responsi-ble for the eventual operation of the mining facility,including environmental protection and communityrelations. As a result, concerns and messages comingfrom the company’s operations side during the con-struction phase were not addressed by the projectmanagement, resulting in a gap between expectationsof the local community and actions of the project. It alsogenerated several social and environmental problems: • An accelerated resettlement program of more than

40 indigenous families carried out inadequately dur-ing March and April 1999, which led to social dis-content, was a clear indication that a culture ofsocial responsibility had not yet permeated projectmanagement and organization.

• In terms of governance, not much effort was devotedto strengthening local organizations.

• Economic linkages to the local economy were notactivated, as no initiatives were taken to implementprograms of local employment, training, or pro-curement.

• No appropriate mechanism was implemented toensure timely advice to those communities and per-sons who received substantial amounts of money fortheir land in a noncash economy. This situation led to complaint letters to MIGA,

which sent a mission to the field to investigate thematter in May 2000. Reacting to the widespread dis-satisfaction in neighboring communities, the companybegan working on community relations and took cor-rective action in early 2000. MIGA’s involvement at thisprecise time appears to have had a positive effect,changing the priorities and attitude of project man-agement with respect to community and environmen-tal issues. However, the management structure wasmodified only after project construction was com-pleted in mid-2001. In mid-2002, one year after pro-duction start-up, the company implemented a neworganizational structure more consistent with the socialand environmental concerns of a modern mining com-pany. Under the new structure, the chief executiveofficer is responsible for the operational, financial,and environmental aspects, as well as community rela-tions. This new unified structure facilitates coordina-tion and teamwork among different departments and thearticulation of a common objective for operational andsocial and environmental areas. It should enable thecompany to address environmental and social issuesmore proactively in the future.

A C o m p a n y L e a r n s H o w t o H a n d l eS o c i a l a n d E n v i r o n m e n t a l I s s u e s

B o x E 1

business activities and improved agriculturalpractices.

With regard to other specific safeguards,closer attention by investors to indigenous peo-ples’ issues during implementation resulted insubstantial consistency in two of the three proj-ects with the requirements of this safeguardpolicy. Tailings dam safety has been a concernthat has been highlighted by well-publicizedfailures, so it is not surprising that most miningcompanies are sensitive to this issue and take itseriously. Seventy-five percent of the projectsreviewed with dam heights in excess of 10 to 15meters were substantially consistent with thissafeguard policy at Board approval, as well asduring implementation. The most serious con-cerns during implementation were leaking damsand sealing problems at abutments, whichrequired pump-back of the leaked tailings water;failure in one case to remove trees and treeroots from the tailings impoundment, whichcompromised the integrity of the dam founda-tions; poor construction practices without ade-quate supervision; and poor operating practicesthat allowed ponding in front of dam walls.One of the mining projects previously evaluatedby MIGA experienced a tailings dam failurewhile under MIGA guarantee, releasing largequantities of cyanide-contaminated water into adownstream river system. In this case, MIGA wasa reinsurer, and it lacked the legal ability toapply and monitor its safeguard policies.306 Inanother instance, crates of cyanide fell into a riverin a traffic accident while being transported tothe mine site. Since these incidents, MIGA haspaid closer attention to safety matters in thetransportation of hazardous substances for EIprojects.

The only safeguard for which the consis-tency outcomes were not appreciably improvedduring implementation was the natural habitatspolicy. Only half of the projects substantially con-formed with this policy during implementation,although one project was taking steps to meetthe requirements when it was prematurely shutdown and put on a care and maintenance basis.

The review also found that three MIGA-guar-anteed projects were vulnerable to social unrest,which may have been exacerbated by security-

related incidents leading to claims of violationsof individual rights. In those three projects,MIGA did not separately consider issues relatedto conflict in the context of the projects as partof its underwriting. However, MIGA’s develop-ment mandate encompasses a concern for suchpotential negative impacts on individuals in hostcountries. This is also a political risk issue withthe potential to affect both the project (increasedconflict) and MIGA (claims brought under warand civil disturbance coverage, as well as rep-utational risk). Another MIGA project entailed adispute with a neighboring country regardingownership of the resource. MIGA treated thisissue thoroughly in its political risk assessment.307

The variety of reporting mechanisms thatwere noted in the projects provide good lessonson the quality and usefulness of the informationprovided for assessing environmental and socialrisks and safeguard consistency of projects underguarantee. Examples of good reporting wereprovided by (i) independent experts hired bysenior lenders, (ii) independent auditing expertshired by the investor, (iii) investor head-officeauditing teams, (iv) monthly or quarterly report-ing by clients to lenders and MIGA, and (v)MIGA and IFC environmental and social spe-cialists in mission reports and internal memos.MIGA does not require AMRs from its clients.Reporting on social impacts and compliancewith social safeguards continues to be weak inMIGA’s reporting system, although there weresome good examples in the case studies of inde-pendent auditing of involuntary resettlementand indigenous peoples plans.

There was a frequent and steady flow ofmonitoring reports from clients or independentconsultants hired by senior lenders or bilateralinvestment insurers in 60 percent of projectsreviewed. In about half of the projects, MIGAbenefited from an independent review of theproject EA by consultants hired by senior lendersor bilateral investment insurers. The independ-ent review requirements of the senior lenders andbilateral investment insurers focused only on theenvironmental and health and safety aspects ofthe proposed investments, except in one casein which social issues were also addressed. Innone of the cases did MIGA hire outside inde-


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pendent expertise to carry out its due diligencework on the projects reviewed, relying on theinvestor, or other external agencies, to financethis work. The downside to this arrangement isthat MIGA does not have any control of thescope of the consultants’ work, the quality of theconsultants hired, or the frequency and timeli-ness of their reporting. The main deficiencies inthe independent assessments have been on thesocial issues, except in a few cases where suchexpertise has been specifically hired by investorsto evaluate their resettlement and social pro-grams. There were no monitoring reports inMIGA files for one Category ‘A’ project and oneCategory ‘B’ project, even though they had beenunder implementation for more than three years.

MIGA has limited in-house capacity to ade-quately monitor and influence social safeguardoutcomes. For the sampled projects where IFCwas involved in the financing arrangements,MIGA delegated monitoring of environmentaland social aspects to IFC, which carried out asystematic supervision of the projects, includingsite visits (on behalf of both MIGA and IFC).Social specialists have been involved in field vis-its from the beginning of project processing inonly one case. The observed pattern has beena delayed involvement (including field visits),often after Board approval, resulting in increasedproject cost and delays and generating dissatis-faction among project stakeholders. Investorshave benefited considerably from environmen-tal and social specialists’ site visits and advice inIFC/MIGA projects. Investors have expressedtheir appreciation for these inputs, in particularfor dealing with land acquisition, resettlement,and community development issues, where theWBG has substantial experience and competi-tive advantage.

3. Development Impacts of MIGA EIProjectsThe findings on the development impacts ofMIGA EI projects presented in this section aredrawn from six MIGA projects in the EI sectorevaluated between FY99 and FY00 and onecase study conducted in FY02–03. The six havebeen updated and validated through a deskreview to arrive at rating categories consistent

with OEU’s new evaluation methodology,whereas the case study applied this new method-ology for the first time to a project evaluation.308

All projects, most of them gold mines (andone copper and one cobalt extraction/process-ing), were approved in the early to mid-1990s,when gold prices were higher than $350 perounce. Metals prices, including gold, fell pre-cipitously in the second half of the 1990s. Theprice of gold fell to below $300 per ouncetoward the end of the 1990s, greatly reducing,and in some cases totally eliminating, returns toequity investors.

Quality of underwriting and risk assess-ment: An analysis of the underwriting of theseven projects found that MIGA’s assessment ofthe projects’ financial viability was generallythorough and based on the best informationavailable from the clients at that time, althoughassumptions on metals prices, volume, and qual-ity proved to be optimistic. All seven projectassessments also provided an estimated ERR, butnone of the cases explained the underlyingassumptions of the ERR calculation, so that it wasnot possible to judge their validity (or calculatea comparable ex-post ERR). Some instanceswere noted where backward linkages appearedsomewhat overestimated (e.g., in the purchasesof fuel or electric power, where value added isextremely low), as was the case for infrastruc-ture improvements (some deterioration in infra-structure was neglected, whereas otherimprovements had very little impact due to theremoteness of the location). In another case,credit was claimed for health and educationalservices available only to employees, which isconsidered a standard compensation package.On risk assessments, all project analyses wentinto substantial detail on the three major polit-ical risks MIGA insured, and most of the prob-lems related to these risks were fully identifiedand appraised. However, there was no discus-sion of the potential risk from a low financialreturn if the government owned a significantshare of the company (one project).

In general, during the underwriting of thereviewed projects, there was a compartmental-ized approach defined by the source of the


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information. For example, financial analysisand projections, as well as anticipated eco-nomic data, were provided by investors; partialdevelopment analysis was carried out by MIGAunderwriters; environmental and social issueswere addressed by investors with MIGA inputs;and risk analysis was undertaken by MIGAunderwriters. EI projects reviewed were com-plex, involved large investments and revenuesfor the host governments, and had importantenvironmental and social implications, subject-ing them to close public and internationalscrutiny. Thus, they required a more up-frontand in-depth analysis and a holistic under-standing of financial, economic, social, andenvironmental aspects from a developmentalperspective.

The Risk Management Committee, establishedas a result of the Guarantees Business ProcessReview undertaken in 1998, brings togetherguarantees, legal, environmental, financial, andrisk aspects during the decision-making stage forpotential guarantees. While it has provided aforum for the discussion of many aspects of thenewer EI projects covered in this evaluation,these discussions are not adequately informedby full assessments of the social issues anddevelopmental impacts frequently encounteredin complex projects in the EI sector.309

Business Performance and FinancialSustainability: Low Metals Prices SuppressedProfitability of EI Projects

Financial returns in all seven projects wereaffected by the fall in metals prices. In assess-ing financial benefits, all projects had assumedthat metals prices would remain stable over theproject lifetime. The commodity price marginswithin which the projects were expected to beprofitable widely varied. Only one of the proj-ects was still financially profitable at the goldprices that prevailed during the latter part of the1990s and through mid-2002. The evaluatedcobalt project was hit hardest and placed on careand maintenance in late 2002 until such time asthe metal’s price returned to near its pre-proj-ect level. Two of the evaluated projects hadmoderately satisfactory ratings for financial sus-

tainability, two were rated moderately unsatis-factory, and three had an unsatisfactory rating.

Revenues to host governments from equityholdings have been disappointing, and lit-tle is known about their use. Low metalsprices, coupled with significant cost overrunsand/or lower-than-anticipated ore quality insome projects, resulted in low financial returnsto equity holders. In cases where governmentsheld equity in compensation for providing aproven gold reserve, this has had a profoundimpact on their return to equity and expectationsof significant revenues were not fulfilled. In atleast some cases, governments have beenaggrieved that they have received little or no ben-efits from the valuable natural resources that theyhave allowed foreign companies to exploit.Clearly, the more a government relies on pro-ceeds from equity ownership rather than taxesand royalties, the greater its dependency ongood financial outcomes of the mine. Analysesof the developmental impacts of EI projects byMIGA underwriters, in general, have made noattempt to assess the use of EI revenues by gov-ernments, focusing mainly on the private invest-ment project itself. (The Main Report of thisjoint OED/OEG/OEU evaluation addresses theissue of the use of EI revenues by governmentsfor the World Bank Group.)

Economic Sustainability: FinancialPerformance Limits Economic BenefitsOverall, economic sustainability was marginallybetter than financial sustainability for these proj-ects, with two projects rated moderately satis-factory, three others rated moderatelyunsatisfactory, and two rated unsatisfactory foreconomic sustainability.

Economic sustainability of these projects alsolargely depended on the price of the mineralresource, moving in parallel with financial sus-tainability and profitability. This is because theprofitability of the project not only influences theamount of resources the project has available forsupporting local community initiatives, but, moreimportantly, it is a major determinant of themine life. The volume of economically mineableresources (and therefore the number of years that


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the mine will operate and provide jobs andother benefits to the country/community) ishighly dependent on the price of these resources.

The most important benefits of these projectsto their host countries were in the areas ofemployment creation, often in remote anddepressed areas; training; and government rev-enues. The seven projects created, on average,710 jobs, with a range of 0310 to 1,375. Exceptfor two projects, local employment at the timeof evaluation was higher than initially antici-pated. One of the exceptions is an operation thatwas put on care and maintenance due to itsunprofitability under current metal prices. Allevaluated projects allocated resources to train-ing (an average of US$1,200 per employee peryear). Although aggregated annual governmentrevenues fell short of initial expectations bymore than 50 percent, the contributions to localand central government budgets were still sig-nificant (averaging between US$5 and US$10million per year) for most projects. Within thescope of this evaluation, OEU did not assess theeffectiveness of the use of EI revenues by thehost country governments (nor was there abaseline analysis of these issues in MIGA under-writing documents), as it is beyond the reachof private sector projects that MIGA guaran-tees. All evaluated projects have supported localgovernment financing and local initiatives tovarying degrees. In more general terms, proj-ects with a nearby labor pool and communitieswere more successful in generating direct eco-nomic benefits for those communities. There isevidence that projects that allocated more fundsto local authorities and affected populationswere more favorably viewed and had fewersocial problems than those where most of thefunds went to central government activities.

Private Sector Development: SupportingCountries’ Private Sector DevelopmentAgendasThe majority of the evaluated projects madepositive contributions to private sector devel-opment in their host countries. Five projectswere rated moderately satisfactory, and twowere rated moderately unsatisfactory.

All of the projects were consistent with andsupported the private sector strategies of theirhost countries. Most projects under reviewwere in countries where private investors hadbeen hesitant to make large investments, eitherbecause there had been only limited experienceworking with new governments, or becauseinvestors’ experience in previous projects withearlier governments had led to significantdifficulties. In another case (see Box E2), theproject was the first and largest miningdevelopment in the country, following acomprehensive sector reform, with an impor-tant demonstration effect for other projects.Each investment was expected to generate asubstantial increase in private investment inthe country’s mining sector.

Government relations with project entitiesremained good in all the projects reviewed,and, other things being equal, the experience ofthe projects would have supported further invest-ment in the sector. However, this expectation hasnot been fulfilled, probably because of the fallof metals prices through most of the late 1990sand the more recent global slowdown, whichcurbed investor interest in this complex sector.However, there was evidence that some mininginvestments guaranteed by MIGA in a particu-lar country were viewed as pioneer investments,thereby changing foreign investors’ perceptionsabout its investment climate and leading toincreased foreign investments in other sectors inthe country.

In addition to demonstration effects and fol-low-up investments in some cases, the projectsall enhanced private ownership in the hostcountries and contributed, to varying degrees,to the development of downstream linkages.Some projects had local business developmentprograms in place to increase the amount oflocal purchases, as significant backward link-ages were rarely automatic, and specific pro-grams appeared to be needed to maximizesuch linkages. In addition, evaluated projectssupported some infrastructure improvements,some of which benefited adjacent communitiesand regions.


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4. MIGA’s Role in EI Projects:Contribution, Effectiveness, and Staff PerceptionsOne of the objectives of this evaluation was toassess MIGA’s role in EI projects. The safeguardreview, update and validation of previouslyevaluated projects, and case studies all looked

at MIGA’s contribution and effectiveness. MIGA’sbusiness is distinct from that of the Bank and IFC.“MIGA neither invests, grants nor lends moneyto investors, nor does it propose or design proj-ects. Like any other form of insurance, investorsand lenders who want this coverage pay pre-miums.”311 Clearly, because MIGA offers politi-


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This project, underwritten in the second half of the1990s, is the largest mining project in the host countryinvolving mining and copper/gold ore processing at themine site to recover copper and gold in concentrate, aswell as gold doré. It was the first mining project followinga major change in government policy designed to encour-age development of a mining industry and to diversify theeconomy and exports. MIGA provided coverage againstlosses due to transfer restriction, expropriation, andwar and civil disturbance for a minority equity investorand a shareholder loan. The MIGA coverage was partof a much larger political risk insurance package pro-vided by national insurance agencies, covering com-mercial risks. MIGA’s political risk insurance coveragesupported a loan package on highly favorable terms,which encouraged the equity investors to make largeinvestments in a new mining country. MIGA’s role infacilitating this investment was thus rated satisfactory.

The project’s objectives were consistent with theWorld Bank’s strategy and support for mining sectorreform, which helped set up a legal and fiscal frame-work—considered best practice—to encourage thedevelopment of the mining industry. Development of thesector, however, was hampered by the economic down-turn and declining metals prices, leading to a drop ininvestment in the sector. However, the ability of the proj-ect to establish and operate a large-scale mine, albeitat relatively modest financial and economic returns, hasgiven confidence to other potential investors in theindustry. This has encouraged additional explorationand investment in other mining projects. Overall, thePSD impact of the project was rated moderately sat-isfactory.

The project’s financial rate of return is expected tobe below the rate initially estimated by the investors.This difference is due to (1) cost overruns in con-structing the mine and processing facilities, (2) lower

ore content, and (3) lower-than-expected metals prices.The estimate for the economic rate of return was sim-ilarly revised downward, but it is somewhat higherthan the financial rate of return because of taxes paid(although these were lower than anticipated) and isenhanced by wage payments to previously unemployedworkers and by the training provided. The project’seconomic sustainability was rated moderately unsat-isfactory. A number of additional benefits arose fromthe mine: an electrical connection for a nearby city,making electricity available at lower prices; rehabil-itation of transport infrastructure linking the regionwith a port, which is usable by others; and socialexpenditures for education and community programs.

The main environmental concerns were related to theselection of the right-of-way for support infrastructure,where it was necessary to avoid sensitive and impor-tant natural habitats, as well as cultural heritage sites.The mining operations are well designed for total cap-ture and evaporation in the tailings reservoir of processtailings water and all-site run-off water. The tailingsdam has been designed and is being operated andinspected to conform to MIGA dam safety standards. Theenvironmental performance of this project was ratedmoderately satisfactory.

Although the social impact of the mine has been rel-atively benign, the expectations of the local populationfor employment opportunities and backward linkagesto local businesses have remained unfulfilled. Thisreflects, in part, a failure of national and regional gov-ernments to prepare the local population to take advan-tage of opportunities created by the development andoperation of the mine and the failure of the companyto initiate a dialogue with adjacent communities andthe government to build stakeholder support and toreach a consensus on human and regional developmentthe project could foster.

D e m o n s t r a t i n g t h e V i a b i l i t y o f M i n i n g

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cal risk insurance, a primary dimension of its con-tribution is expected to be the facilitation orenabling of FDI in countries and sectors whereperceptions of political risk are high. However,as a member of the WBG, MIGA’s potential toadd value is broader than that of a traditionalinsurer and encompasses environmental, social,and developmental impacts of the projects itinsures. In reference to this role, MIGA has alsonoted that “in order for investments to providedevelopment opportunities for local communi-ties, the projects must be environmentally andsocially sound. Therefore, in carrying out itsmission, it is MIGA’s policy that all the foreigninvestments that it insures are carried out in anenvironmentally and socially responsible man-ner.”312 Against this background, defining thevalue MIGA adds, as a member of the WBG, iseven more important.

With respect to the environmental and socialdimensions of EI projects, MIGA’s role hasevolved over the period covered by this evalu-ation, with a clearly improving trend. Morerecently, the concept of MIGA’s role has beenmore appropriately articulated as its “valueadded” to the projects it guarantees. The find-ings of this evaluation indicate that there are areaswhere MIGA has added substantial value forsome projects, while for others, MIGA’s rolehas been more that of a traditional insurer (i.e.,limited to providing political risk coverage). Thelatter is more likely when guarantee holders arelenders or minority partners and less so if theyare majority owners or operators.

MIGA’s Contribution and EffectivenessThis subsection draws on findings from the

evaluated projects to assess to what extent andin which ways MIGA had contributed to theirimprovement or success. These findings showthat MIGA’s role and the degree and nature ofits contributions varied widely, as the agencychanged its approach over the period coveredby this evaluation.

Where Was MIGA’s Value Added Lowest?

Business performance of projects. Asexpected from its Operational Regulations and

role as an insurer, this review has found thatMIGA plays no direct role in the financial per-formance of EI projects, although the agencyprovides a potential safety net against the impactof political risks. (While a reduction in politicalrisks may have the potential to lower the costof capital and enhance financial performanceindirectly, an analysis of this relationship wasnot carried out in the scope of this evaluation.)As an insurer with the primary mandate to facil-itate investment, MIGA does not participate inthe operational or financial management of theproject, and, thus, its room for action is very lim-ited. Nevertheless, the financial viability of itsguarantee projects is highly relevant for MIGA’slong-term financial sustainability, as poor finan-cial performance can lead to early cancellationof guarantees.

Project development impact/outcome. Thedevelopment impacts of evaluated projects, aspresented in previous sections, have varied.Once a guarantee is issued, MIGA does not nor-mally influence the development impact of theproject and has not done so in any of the proj-ects reviewed. (In one project, MIGA had a pos-itive role in community and environmental issues.See Box E1.) Moreover, no follow-up develop-ment information about the reviewed projectsexisted in MIGA’s files, except if it had an ex-post evaluation (i.e., the six validated projects).The key role is therefore for MIGA to select proj-ects with high potential development impactthrough the underwriting process.

Where Was MIGA’s Value Added Highest?

Facilitating foreign investments. The pro-vision of political risk insurance is a core toolfor MIGA to facilitate FDI and the basis for theagency’s most important value added. Evalu-ated EI investments were primarily in countriesin which private foreign investors had beenreluctant to make large investments because ofeither limited experience with new govern-ments or difficulties faced by previous invest-ments in that country or sector. In these cases,MIGA’s political risk insurance was importantfor enabling investment flows into the mining


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and oil and gas sectors and in some cases hasled the way for other investments in the hostcountries. MIGA has acted as a facilitator ofinvestments, often with other partners, thatotherwise would have been delayed oravoided. MIGA insurance was essential formost projects evaluated, given their location incountries with high political risks and lowgovernance scores, and large sunk costs asso-ciated with investments in EI projects. In somecases, investments would not have gone for-ward without MIGA’s involvement.

Environmental and Social Safeguards. Apartfrom reducing political risk for investors, theother area where MIGA has added value was inthe incorporation, and/or enforcement of safe-guards in EI projects and the advice MIGAexperts (or those performing this function onMIGA’s behalf) have provided to clients. All EIprojects reviewed have to some degree benefitedfrom the incorporation of environmental andsocial safeguards, even though not all of the proj-ects have attained a level of full consistencywith MIGA safeguard policies. The associationwith the World Bank Group has been perceivedby most investors both as an umbrella for theirprojects and as a source of knowledge and bestpractice on environmental and social aspects. Insome cases, international investors have appliedtheir own high standards consistent with inter-national best practice.

In one case (a high-profile project with envi-ronmental and social ramifications), becausethe sponsor requested that MIGA provide cov-erage that would address land rights disputes,MIGA (with advice from IFC) followed the landnegotiations process in great detail and obligedthe sponsor to provide detailed information onboth the consultation process and the results ofthe land usage agreement. MIGA then verifiedthe validity of the process and results with gov-ernment and civil society organizations atnational, regional, and local levels. In anothercase, MIGA’s value added came during projectimplementation rather than at the design stage(see Box E1).

In some projects, MIGA delegated environ-mental and social safeguards aspects to its part-

ners, who took the responsibility for due dili-gence. These arrangements worked reasonablywell (and were cost-effective) for MIGA whenthe partner adhered to similar environmental andsocial policies and guidelines (e.g., IFC). How-ever, when a partner carrying out due diligenceon MIGA’s behalf had lower standards thanMIGA, it led to unsatisfactory results. This wasthe case in one project reviewed, where MIGA’sreinsurance agreement predated the new MIGApractice by which the reinsured project mustadhere to MIGA’s environmental standards.

The results from several projects alsodemonstrate that well-designed plans for min-imizing social impacts can greatly reduce socialconflicts, thereby reducing the occurrence ofsome of the risks MIGA guarantees. Thus,there is a strong business case for MIGA to addvalue by remaining engaged and providingmore proactive social and environmental adviceto its clients involved in extractive industriesprojects.

Staff Perceptions

WBG EI staff survey results: Divergence ofOperations Evaluation Unit findings fromMIGA staff perceptions. The WBG EI surveywas administered to relevant Bank, IFC, andMIGA staff. In MIGA, all current MIGA staffwho have been directly involved with EI proj-ects (either as underwriters or project man-agers) were asked to respond to the survey(the same set of questions was given to WorldBank and IFC staff involved in EI sector proj-ects).313 MIGA responses to the survey (BoxE3) show some important differences from OEUevaluation findings of EI projects. One notabledivergence is in the area of addressing envi-ronmental and social aspects of EI projects: all(9 out of 9) MIGA staff who responded felt thatthe issue of mitigating environmental and socialimpacts was highly important and, at the sametime, all (9 out of 9 who responded) also feltthat these issues had been adequately addressedin MIGA-guaranteed EI projects. However,OEU’s safeguards review indicated that about27 percent of EI projects had substantial gapsand were not fully consistent with environ-


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mental and social safeguards.314 One possibleexplanation for this divergence is the relativelyshort tenure of the respondents in MIGA. Thiscould have influenced their views in focusingon the current, rather than historical, perspec-tive. However, 7 out of 10 MIGA respondentswere also directly involved in five projects cov-ered in this review, increasing the relevance oftheir answers.

The joint WBG evaluation (as reflected in theMain Report) identified the lack of adequatecoordination among the three WBG organiza-tions as a problem that constrains the delivery

of better results in EI projects. However, all (8out of 8) MIGA respondents indicated that, intheir view, the level of coordination was ade-quate, which may suggest a desire to preserveMIGA’s operational “autonomy” (i.e., not gettingtoo involved with WBG operations/processes).These results are also likely to be a reflectionof the differences in products, clientele, and pro-cedures between the Bank and MIGA, wherestaff see opportunities for coordination as inher-ently limited to policy and strategy matters.Similarly, very few (2 out of 7) MIGA staff feltthat there was a need for better support from


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The survey was administered to all MIGA staff (12)previously involved in EI projects, with a response rateof 83 percent (10 out of 12). While the absolute numbersare small (as MIGA itself is small, with a total of 78 Inter-national staff), it represents the statistical populationof MIGA staff who have worked on the EI sector proj-ects. In parallel, the same survey was sent to 51 WorldBank staff, with 26 responding (51 percent of EI staff),and to 33 IFC staff, with 30 responding (91 percent).(Because not all respondents provided answers to allquestions, the total number of respondents to specificquestions are noted below.)

Importance of EI-related issues for EI-dependentcountries: Almost all MIGA and WBG respondentsagreed with the importance of all EI issues the surveyquestionnaire had identified. In particular, all (9 out of9) MIGA respondents agreed with the importance of mit-igating negative environmental and social impacts.On the other hand, the investment climate and gover-nance and transparency were considered highly impor-tant by only one-third (3 out of 9) of MIGA respondents,whereas a higher share (two-thirds) of IFC and WorldBank respondents felt these were highly important inEI projects.

Extent to which EI projects address EI-relatedissues: The majority of MIGA respondents and abouttwo-thirds or more of all WBG respondents felt thatWBG projects collectively and adequately addressedall major issues, except the improvement of trans-parency and governance. Moreover, all (9 out of 9)

MIGA respondents felt that the mitigation of negativeenvironmental impacts (same proportion for IFC) andrevenue generation had been adequately addressed inpast EI projects.

Coordination across WBG for the EI sector: All (8 of8) MIGA respondents considered the coordination acrossthe WBG as adequate, while only 48 percent of IFCrespondents and 52 percent of World Bank respondentsconsidered the level of coordination as sufficient.

Avoidance of EI projects due to safeguards con-cerns: Among the possible sources of avoidance ofpotential EI projects due to safeguard concerns, MIGArespondents identified WBG management (6 out of 6)and EI public agencies/enterprises (3 out of 4) as thetop two leading causes. While all WBG respondentsalso cited WBG management as a primary cause, only21 percent of World Bank respondents and 56 percentof IFC respondents considered EI public agencies/enter-prises an important factor.

Factors constraining the ability of WBG staff to assistclient countries in EI sector: More than half of MIGArespondents (5 out of 9) cited the inadequate linkagebetween EI sector activities and sustainable develop-ment as the major factor constraining their ability toassist host countries in the EI sector. In addition, less thanone-third of MIGA respondents cited inadequate avail-ability of staff with appropriate skills, inadequate levelof support from the Bank’s Country Department/CountryManagement Unit, and inadequate level of support fromthe client government.

M a i n M e s s a g e s f r o m R e s p o n s e s b y M I G A S t a f f i n W B G E I S u r v e y

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World Bank country units, in contrast to IFC’sstaff perceptions.

MIGA respondents (6 out of 6) also feltthat WBG (World Bank, IFC, and MIGA) man-agement is the most likely cause for avoidinggood EI projects due to perceived risks and thetime needed to address safeguard concerns.These responses indicate that staff find WBGmanagement is overly cautious and also some(4) believe that public agencies interfere with,rather than facilitate, MIGA’s work. On theother hand, none of the respondents felt thatconcerns from host countries about safeguardswere a source for avoiding good EI projects.

5. Findings and Recommendations MIGA’s activities in the extractive industry sec-tors have evolved significantly in the periodunder review (in particular since 1997), improv-ing its operations at approval and during imple-mentation and learning from its experience inunderwriting 31 projects. Noteworthy milestonesare its Business Process Review, the creation ofan in-house environmental unit, the environ-mental assessment and disclosure polices, theapproval of interim issue-specific safeguard poli-cies, and the updating of its guarantee contractlanguage and reinsurance practice.

MIGA’s approach over the years has fol-lowed the guidance of its Convention, Article2 of which states that “the objective of theAgency shall be to encourage the flow of invest-ments for productive purposes.” Article 12requires the Agency to satisfy itself as to “theeconomic soundness of the investment and itscontribution to the development of the hostcountry” and to the “consistency of the invest-ment with the declared development objectivesand priorities of the host country.” These objec-tives also underpin MIGA’s need to use envi-ronmental and social standards for the projectsit insures. As standards for successful develop-ment have become more complex and sophis-ticated, MIGA has adapted its safeguard policiesand its analyses of the development impact ofprojects. MIGA continues to refine and aug-ment the scope of its selection criteria. Thefindings and recommendations listed in thissection are intended to contribute to this process.

Findings

Portfolio

Extractive industry projects and guaranteesconstitute a declining share of MIGA’s port-folio. Mining was originally the largest share ofMIGA’s guarantees, making up more than halfof its portfolio. Extractive industries now con-stitute about 11 percent (6.6 percent miningand 4.3 percent oil and gas), and MIGA contin-ues to be engaged in the sector.

Application of Environmental and SocialSafeguards

Consistency of project performance withsafeguards has generally been greater dur-ing implementation than at approval, andthe trend in safeguard performance hasbeen improving over time. On average, the rateof substantial consistency with MIGA’s safe-guard policies of EI projects improved from 73percent (at Board approval) to 88 percent (dur-ing implementation or at guarantee cancella-tion). This likely reflects the expansion of MIGA’sefforts and of its capacity in safeguard areassince 1997.• At Board approval, the greatest areas of

weakness in safeguard performance havebeen in consultation and disclosure, inade-quate incorporation of safeguard issues incontracts of guarantee, and in specific ele-ments, including resettlement, indigenouspeoples, natural habitats, dam safety, andlack of clarity on mine closure provisions.

• During implementation, the greatest areasof weakness in safeguard performancehave been in consultation and disclosure,final assessment of resettlement implemen-tation, and natural habitats. Reporting onsocial impacts and social safeguard compli-ance has also been weak.

Insufficient attention paid to consistencywith social safeguards is the most sensitiveand critical issue in extractive industriesprojects. Only one-third of the sampled proj-ects that involved indigenous peoples and reset-


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tlement and community development issues hadprepared a comprehensive and implementableResettlement Plan (RP) or Community Devel-opment Program (CDP). Not a single reviewedproject (where these safeguards were applica-ble) had a comprehensive and implementableIPP at Board approval.

None of the contracts issued for the proj-ects under review specified the safeguardpolicies that applied, and only a few indi-cated the WBG’s environmental, health, andsafety guidelines that applied. Although allrecent MIGA contracts allow MIGA to terminatethe contract if the project does not complywith MIGA’s environmental polices and guide-lines and there has been a more consistenteffort in reference to this requirement since1999, this may not be sufficient to ensureinvestors’ awareness of specific applicable poli-cies and guidelines.

MIGA has not consistently required envi-ronmental and social monitoring reportsfrom its guarantee holders in its contractof guarantee. In two-thirds of the reviewedprojects, senior lenders, bilateral agencies, orthe major investors provided regular monitor-ing reports on environmental (and sometimessocial) issues that allowed MIGA to monitorsafeguard compliance. However, in four proj-ects there were no follow-up monitoringreports from investors, leaving MIGA in a vul-nerable position regarding safeguards imple-mentation.

Committed investors with the capacity toimplement mitigation and monitoring pro-grams have been an important factor inensuring better safeguard compliance.

Internal Capacity

Environmental performance was treatedmore thoroughly by MIGA in the secondhalf of the 1990s than in the first half, espe-cially after the creation of an environmentalunit. MIGA relied on environmental and socialexperts of IFC or of other parties in the project

before establishing its own unit. In 6 of 12 proj-ects reviewed, independent monitoring andreporting initiatives were taken by either seniorlenders or other insurers and not by MIGA. Insome earlier projects, there was no explicit con-tractual obligation and no recourse to MIGA forthe project to comply with safeguard policies.MIGA environmental specialists visited 5 of the12 projects reviewed, following the establishmentof the in-house environmental unit. MIGA couldhave had greater impact on improving projectperformance had it taken a more proactiveapproach earlier in its history.

MIGA’s due diligence model (and currentcapacity) is not sufficient to adequatelyaddress social aspects of extractive indus-tries projects. The current MIGA approach ofgearing the processes of monitoring and super-vision, directing its resources and staff selectivelyto projects after problems emerge, is not appro-priate for dealing with complex social issuesoften associated with EI sector projects. Sys-tematic and proactive monitoring, including sitevisits by MIGA experts, to identify the nature ofpossible gaps in safeguards and potential prob-lems is a critical element of the due diligenceprocess. It is particularly important to assess thesocial risks at critical project cycle milestones,which cannot be adequately done through deskreviews.

MIGA’s delayed involvement in extractiveindustries projects has meant missedopportunities to add value or to improveprojects’ environmental and social per-formance. One consequence is that projects’environmental and social management systemsare not in place at the start of project construc-tion; this can lead to adverse social and envi-ronmental impacts due to the lack of control overthe work of contractors. This is the most criti-cal period for investors in their relationship withproject-affected communities, and any good willthat has been generated during their previousdealings (and promises) with the community canquickly sour, leaving investors with a difficultlegacy to overcome when the project becomesoperational.


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Development Impacts and Underwriting

The evaluated extractive industries sectorprojects generally have produced positiveeconomic impacts in host countries, butinvestor returns have been disappointing.Actual financial returns to investors were lowerthan originally anticipated, due to decreasingmetals prices in the late 1990s, as well as costoverruns and lower ore quality than expected.The projects provided jobs, training, revenues tothe government, and funds to community ini-tiatives and had demonstration effects for privatesector development. Host governments havereceived less revenue than they expected becauseof the poorer-than-expected economic and finan-cial performance of extractive industry projects.

MIGA’s underwriting for extractive indus-tries projects reviewed was generally thor-ough, and project assessments were basedon the information available from theclients at that time, although their compo-nents could have been better integrated.Analysis was compartmentalized by the sourcesof the information (e.g., investors, MIGA under-writers, and environmental specialists). Whilemost elements are combined when projects areassessed, economic and social analyses andimpacts have not been well integrated. EI proj-ects reviewed were complex, involved largeinvestments and revenues for the host govern-ments, and had important environmental andsocial implications, subjecting them to closepublic and international scrutiny. Thus, theyrequired a more holistic understanding of finan-cial, economic, social, and environmentalaspects from a developmental perspective.

Security-related incidents in MIGA-guar-anteed extractive industries projectsinvolving allegations of violations of indi-vidual rights can pose particularly highrisks for MIGA. Some reviewed MIGA proj-ects experienced incidents where alleged vio-lations of individual rights occurred inconnection with site security. Such violationscan increase risks to MIGA-guaranteed projects(increasing conflict and affecting operations)

and to MIGA itself (reputational risk, as well asclaims brought under civil war and disturbanceand expropriation coverages). Even thoughissues related to human rights are part of MIGA’sdue diligence process when they have animpact on covered risks, greater awarenessduring underwriting by MIGA staff and ensur-ing that they are adequately dealt with byinvestors would better address such risks.

Lack of a systematic and post-contract fol-low-up of developmental impacts in extrac-tive industry projects. MIGA does not havea system that monitors developmental impactsto identify shortcomings after contract signingand to manage risks from the developmentalperspective.

MIGA’s Role in Extractive Industries Projects

Most of the evaluated projects were in dif-ficult countries with weak governance, aswell as high perceived political risks, whereMIGA’s political risk insurance was deemedessential for investments to go forward. Thus,MIGA added value as an insurer by facilitatingand enabling foreign direct investment in theselarge and complex projects.

Surveyed MIGA staff who have been involvedin underwriting extractive industry projectsare supportive of MIGA’s environmentaland social standards and feel that MIGA isdoing a sound job in applying these stan-dards to its projects. These staff see no needfor increased coordination with the Bank and IFCon extractive industries projects.

In some projects, MIGA delegated environ-mental and social safeguard due diligenceto its partners. These arrangements workedwell when the partners adhered to similar poli-cies and guidelines. But if a partner had lowerstandards than MIGA (such as in an older rein-sured project), it led to unsatisfactory resultsand left MIGA vulnerable.

MIGA’s particular value added as aninsurer of extractive industries projects is


1 9 7

in the environmental and social standardsit brings with its guarantees. This aspect ofits insurance is appealing to many investors, asit helps them manage their own nonfinancialproject risks. Hands-on assistance and advice ispossible and desirable in extractive industriesprojects, and it is appreciated by clients.

There is a strong business case for MIGA toadd value by providing substantive andcontinued social and environmental adviceto extractive industries clients after contractsigning. The results from several projectsdemonstrate that well-designed plans for mini-mizing social impacts can greatly reduce socialconflicts, thereby mitigating the political risksMIGA guarantees, whereas their absence canlead to serious problems.

RecommendationsMIGA’s support to EI sector projects has thepotential to generate positive developmentresults. MIGA should continue underwriting EIprojects while strengthening its value added tomeet stakeholders’ expectations. MIGA’s safe-guard policies provide the basis, and an oppor-tunity, for contributing to the developmenteffectiveness of EI projects it guarantees.

Recommendation 1: Strategy and Rules ofEngagement MIGA needs to recognize and promote the poten-tial benefits it brings to EI projects through itsinternationally recognized and comprehensiveset of safeguard policies and its environmentaland social impact mitigation services. MIGA’sengagement with EI projects should move beyondcompliance with its environmental and socialsafeguard policies toward the promotion andachievement of the development effectiveness ofthese projects. This requires the following:

Recognizing that MIGA has the opportunityto add value to EI projects by adopting anexplicit business strategy focused on providingproactive environmental and social advice to itsguarantee clients that brings EI projects closerto best practices in the industry, with the goalof achieving sustainable development. Thisrequires strengthening the economic and social

components in MIGA’s work in addition to theenvironmental component. This calls for a moreproactive, forward-looking approach to servic-ing clients that goes beyond the current practiceof intervening only when events warrant it.

Strengthening the upstream involvement ofenvironmental and social issues in MIGA’s under-writing decisionmaking process. This entailsconsistently identifying applicable safeguardpolicies to clients as early as possible in theunderwriting process and using risk assessmentsearly on to identify where failures in the safe-guard system may occur to avoid adverse impactson the environment and local communities.MIGA needs to make a greater effort to workwith clients to ensure compliance with its envi-ronmental and social safeguard policies andguidelines at the time of Board approval. Inaddition, MIGA needs to consider how its workin assessing, underwriting, and supervising itsguarantee projects can go beyond the monitor-ing of compliance with safeguards toward pro-moting development effectiveness in its projects.

Associating with investors committed to sus-tainable development and avoiding those whoare unable to provide MIGA with timely envi-ronmental and social monitoring reports duringimplementation. MIGA should satisfy itself beforeengaging in new EI projects that the investorunderstands its environmental and social respon-sibilities and demonstrates ownership at the topmanagement level to community developmentand mitigating environmental and social impacts.The project enterprise’s organizational structure,policies, and stated mission should be consistentwith these goals.

Recommendation 2: Policies, Procedures, andEnforcement MechanismsMIGA should strengthen its internal policies andsupport them with appropriate procedures andguidelines for staff to ensure accountability. Thisrequires the following:

Establishing internal requirements for MIGA’stimely engagement and systematic monitoring tomaximize environmental and social benefits.This will entail avoiding projects where MIGAcannot address environmental or social issues toimprove the outcome due to its late participa-


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tion. Site visits by MIGA’s environmental andsocial experts should be required as early as pos-sible in its involvement in Category ‘A’ and otherhigh-risk projects to assess which policies areapplicable. MIGA should not rely exclusively onassessments and reports of non-WBG institutions.

Incorporating standards recognizing the rightsof individuals relating to security arrangementsat EI projects into its policies and operational reg-ulations.

Making better use of MIGA’s Contracts ofGuarantee to enable the Agency to facilitatecompliance with its policies and standards. Inaddition to the current requirement to complywith safeguard policies and environmental andhealth and safety guidelines, for future projectsMIGA should ensure that the contracts clearlyand explicitly state which environmental andsocial safeguard policies and guidelines apply tothe project under guarantee and establish thresh-olds and conditions for timely and effectivecompliance. When applicable, contracts shouldalso specify requirements for implementation ofEnvironmental Management Plans, RPs, CDPs,and IPPs. As required by the involuntary reset-tlement and indigenous peoples policies, MIGAshould ensure that investors prepare RPs, CDPs,and IPPs before project approval rather than leav-ing them to implementation.

Establishing necessary mechanisms to ensuresystematic, timely, and regular monitoring andsupervision of safeguard compliance of MIGA EIguarantee projects (e.g., MIGA should require inits Contracts of Guarantee timely environmen-tal and social monitoring reports from its guar-antee holders during the project implementationphase). MIGA should also require sponsors toset up environmental and social project man-agement systems at a sufficiently early stage toeffectively monitor impacts, including duringthe construction stage.

Recommendation 3: Internal OrganizationMIGA should update its business model by clearlyassigning the locus of responsibility for betterintegration of economic, environmental, andsocial issues in MIGA operations. This is neededin order to support other departments in theachievement of these objectives and to provide

guidance to operational staff, as well as for theanalysis and monitoring of economic, environ-mental, and social issues in an integrated man-ner. This requires the following:

Scaling up the analysis of developmentalimpacts of prospective projects and integratingnew concepts in harmony with the rest of theWorld Bank Group. In so doing, MIGA shouldclosely cooperate with the other members of theWBG to benefit from synergies, complementar-ities, and expert knowledge, with the objectiveof promoting a holistic approach to EI projects.This will also require building internal capacityby both recruiting needed economic skills andproviding appropriate training to current staff.

Establishing an internal system that allows amore integrated and timely monitoring of devel-opmental impacts of guaranteed projects.

Upgrading and expanding the role of envi-ronmental and social specialists and, at the sametime, building internal social skills capacity toeffectively enable the application of social safe-guards in MIGA projects.

Formalizing the practice of ensuring thatMIGA environmental staff are involved in proj-ects beyond the submission of clearance memos,and requiring that MIGA environmental andsocial staff provide inputs to guarantee and legaldocumentation to incorporate any environmentaland social concerns. In addition, MIGA under-writing staff should be required to keep envi-ronmental and social specialists appraised ofall relevant changes beyond Board approvaland contract signing.

Recommendation 4: Legacy of Active EIProjectsMIGA needs to review its portfolio of active EI proj-ects to identify potential or actual deficiencies inthe application of safeguard policies and toswiftly take appropriate remedial actions. Thisshould involve the following:

Identifying projects that may not be consistentwith safeguard policies. In particular, whereresettlement and land acquisition has taken placewithout follow-up audits to determine compliancewith WBG policies regarding resettlement, third-party audits should be required. Similarly, whereindigenous peoples have been affected without


1 9 9

the provision for Indigenous Peoples Plans to mit-igate the impacts, sponsors should be asked toprepare and implement such plans. Providingbriefings on potential problems with sensitiveprojects, a system currently used by MIGA, is use-ful but not sufficient. MIGA should take appro-priate remedial actions to address existingsafeguard deficiencies in extractive industry proj-ects that are still active in MIGA’s portfolio.

Making every effort to encourage consis-tency with MIGA’s safeguard policies in activeextractive industries projects with reinsuranceagreements predating the new MIGA practice.New agreements require that environmentaland social standards applied by partners are con-sistent with MIGA’s own safeguard policies andguidelines.


2 0 0

Maximum

Host Fiscal aggregate

Project enterprise Guarantee holder country Sector year liability (US$) Status FDI (US$)

1. Freeport Indonesia, Inc. Freeport-McMoRan Copper Indonesia Mining 90 50,000,000 Cancelled 499,813,000

& Gold, Inc.

2. Compania Minera Mantos Placer Dome, Inc. (Export Chile Mining 90 49,770,000 Cancelled 335,000,000

de Oro Development Corporation [EDC])

3. Compania Minera Cerro Rio Algom Limited Chile Mining 91 5,000,000 Cancelled 310,000,000

Colorado S.A. OPIC (Citibank/Credit Suisse) 92 22,500,000

4. Omai Gold Mines Ltd. Cambior Inc. (EDC) Guyana Mining 92 36,720,000 Active 162,000,000

Cambior Inc. (EDC) 92 13,158,000

5. Alumina Partners of Jamaica Hydro Aluminum Jamaica a.s. Jamaica Mining 93 20,223,000 Cancelled 336,974,000

6. Kasese Cobalt Company Limited La Source Compagnie Uganda Mining 93 5,000,000 Cancelled 95,400,000

Minière SAS.

La Source/Mine Or S.A./ 93 5,000,000

Barclays Metals Ltd.

La Source 96 3,600,000

Banff Resources Ltd. 98 1,908,020

Banff Resources Ltd. & 98 47,480,000

La Source SAS

7. Ghanaian-Australian Mines GSM Gold Limited Ghana Mining 93 9,850,000 Cancelled 71,600,000

Limited

8. Minera Yanacocha Compagnie Minière Peru Mining 94 1,404,000 Cancelled 82,081,387

Internationale Or

Newmont Mining Corporation 94 2,160,000


Compagnie Minière 94 5,040,000

Internationale Or 94 18,961,000

Union Bank of Switzerland

Union Bank of Switzerland 95 5,700,000


Mine Or S.A. 95 6,404,000

9. Compania Contractual Sumitomo Corporation Chile Mining 94 19,800,000 Cancelled 527,400,000

Minera Candelaria

10. Newmont-Zarafshan Newmont Gold Company Uzbekistan Mining 94 40,000,000 Cancelled 110,000,000

Joint Venture Newmont Gold Company 95 10,000,000


2 0 1

M I G A G u a r a n t e e P r o j e c t s i n t h eE x t r a c t i v e I n d u s t r i e s ,F Y 1 9 9 0 – 2 0 0 3 ( a s o f D e c e m b e r 3 1 , 2 0 0 2 )


(continued)Maximum



11. Sociedad Minera Cyprus Climax Metals Peru Mining 95 50,000,000 Cancelled 141,000,000

Cerro Verde, S.A. Company

12. British Gas Overseas Holdings British Gas plc Tunisia Oil & Gas 95 65,000,000 Cancelled 627,000,000

(British Gas Tunisia)

13. Magma Tintaya S.A. BHP Copper Inc. Peru Mining 95 24,000,000 Cancelled 328,000,000

14. Southern Gold (Bahamas) R.T.Z. Overseas Holdings Papua New Mining 96 10,000,000 Cancelled 892,000,000

Limited, Lihir Gold Limited Limited (Rio Tinto Zinc—RTZ) Guinea

Union Bank of Switzerland 96 66,600,000

15. Kumtor Gold Company Cameco Corporation (EDC) Kyrgyzstan Mining 96 45,000,000 Active 335,000,000

Cameco Corporation (EDC) 2001 39,330,000

16. Societe d’Exploitation des AngloGold Mali Mining 96 50,000,000 Cancelled 267,000,000

Mines d’Or de Sadiola S.A.

17. Drummond Limited Drummond Company, Inc. Colombia Mining 97 35,000,000 Cancelled 235,000,000

18. Minera Alumbrera Limited Minera Alumbrera Ltd. (Export Argentina Mining 97 12,000,000 Active 1,033,000,000

Finance Insurance Corporation

[EFIC])

Rio Algom Limited 97 2,000,000

19. Hydrocarbon Research Block Compañia Española de Seguros Algeria Oil & Gas 97 10,000,000 Cancelled 240,000,000

Rhourde Yacoub de Crédito a la Exportación S.A.

20. Zafiro Offshore Field UMC Equatorial Guinea Equatorial Oil & Gas 98 24,000,000 Cancelled 995,500,000

Corporation Guinea

21. Cerro Vanguardia S.A. Minorco S.A. Argentina Mining 98 5,000,000 Cancelled 202,600,000

22. Minera Los Pelambres Marubeni LP Holding B.V. Chile Mining 98 31,263,750 Cancelled 1,114,000,000

23. Companias Asociadas El Paso Energy International Argentina Oil & Gas 98 22,580,000 Active 538,000,000

Petroleras S.A. Company

El Paso Energy International 98 17,617,500

Company

24. ICV-Inertes de Cabo Verde, Ltda. Secil-Companhia Geral De Cal Cape Verde Mining 98 540,000 Active 1,709,000

e Cimento, S.A

Secil-Companhia Geral De Cal 98 660,000

e Cimento, S.A

Sociedade de Empreitadas 98 540,000

Adriano S.A.

Sociedade de Empreitadas 98 660,000

Adriano S.A.

25. Compania Minera Citicorp Peru Mining 99 60,702,000 Active 2,106,000,000

Antamina S.A. Noranda Inc. 99 2,550,000

Rio Algom Limited 99 2,550,000

Teck Corporation 99 1,700,000

Mitsubishi Corporation 2000 16,250,047

Mitsubishi Corporation 2000 23,709,953


2 0 2

Maximum



26. Omolon Gold Mining Inc. Kinam Gold, Inc. Russia Mining 2000 27,420,000 Cancelled 226,900,000

27. Kahama Mining Societe Generale Tanzania Mining 2000 115,830,000 Active 505,300,000

Corporation Limited Barrick Gold Corporation 2001 56,250,000

28. Omsukchansk Mining & New Arian Resources Russia Mining 2000 2,250,000 Active 96,000,000

Geological Company Corporation

New Arian Resources Russia Mining 2000 2,250,000 Active 96,000,000

Corporation

Standard Bank London

Limited 2000 14,900,000

29. Barracuda & Caratinga Itochu Corporation, Brazil Oil & Gas 2001 12,000,000 Active 1,740,000,000

Leasing Company, B.V. Mitsubishi Corporation

Deutsche Bank AG 2001 60,000,000

New York Branch

30. ZAO Stimul Victory Oil B.V. Russia Oil & Gas 2001 100,000,000 Active 71,201,160

31. ROMPCO Sasol Gas Holdings

(Pty) Ltd. Mozambique Oil & Gas 2003 45,000,000 Active 857,000,000

Sasol Petroleum

International (Pty) Ltd. 2003 27,000,000

Total 1,479,605,657 15,082,478,547

Extractive industries projects:

Active projects: 11

Cancelled projects: 20

Oil & gas projects:

Oil & gas projects: 7

Active oil & gas projects: 4

Mining projects:

Mining projects: 24

Active mining projects: 7


2 0 3

Evaluation of

Environmental Safeguards developmental

FY category review impact Case study

1. 1990 A �

2. 1992 A �

3. 1993, 1996,

1998 A � �

4. 1993 (A)a �

5. 1994 A �

6. 1996 A � �

7. 1996 A �

8. 1996 A � �

9. 1997 A �

10. 1997 A � �

11. 1998 B �

12. 1999 A � �

13. 2000 A �

14. 2001 B �

15. 2001 B �

a. No formal category was assigned. The project was assumed to have been Category ‘A.’

Number of active projects: 7

Number of cancelled projects: 8


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M I G A E x t r a c t i v e I n d u s t r i e s P r o j e c t s E v a l u a t e d b y O E U


Criterion Requirements

Comprehensive Applies to both majority and minority owners and lenders (designated herein as “sponsors”)Environmental Assessment —required for all ‘As’ and for ‘Bs’ if host country legislation require or any of the

environmental issues identified in the screening process warrant special attention.Comprehensive EA includes: (i) natural environment, social aspects, human health and safety,major hazards, transboundary/global and cumulative/induced impacts; (ii) prevent, minimize,mitigate or compensate for adverse environmental and social impacts and enhance positiveimpacts; (iii) potential for independent environmental advisory panel in case of highly risky orcontentious project; (iv) properly defined area(s) of project impact; (v) for expansion ormodernization projects the entire plant is subject to an EA (usually including anenvironmental audit); (vi) privatization projects require environmental audits; (vii) EAs(including environmental audits) to be carried out or reviewed by independent consultants;and (viii) compliance with more stringent of host country or MIGA environmental and healthand safety standards or guidelines.

Adequate analysis of feasible Proper analysis of project alternatives including: (i) without project alternative; (ii) where alternatives appropriate other sector alternatives; (iii) alternative sitings for facilities and routings of

infrastructure corridors; (iv) alternative technologies and mitigation arrangements; and(v) analysis of feasible alternatives.

Comprehensive Environmental Full description (with adequate support data) of the climatic, geological, topographical, and Social (E&S) baseline physical, chemical, biological and socio-cultural-economic environment of the area of project survey impact as a basis for an adequate analysis of project impacts and future monitoring of the

efficacy of the mitigation measures incorporated into the project.

Adequate EAP or A detailed plan of the set of mitigation, monitoring and reporting measures proposed to be EMP proposed taken during project implementation to eliminate adverse environmental or social impacts,

offset them, or reduce them to acceptable levels—required for all ‘As’ and ‘Bs.’

Project sponsor’s EMS adequate Comprehensiveness of environmental, social and safety management system proposed bythe sponsor (including contractors) to fully implement the EAP or EMP, as well asappropriateness of proposed measures to strengthen these arrangements.

Public disclosure/consultation (i) consultation with local affected parties and local interest groups during EA process; addressed (ii) disclosure of information in a timely manner and in a language and form understandable

and accessible to local groups; (iii) for ‘A’ projects final EA reports disclosed locally andthrough the World Bank Info-shop at least 60 days before MIGA Board approval.

Comprehensive and (i) avoid or minimize involuntary physical resettlement or economic displacement; (ii) directly implementable RP/CDP affected and displaced persons should be: (a) informed of their options and rights regarding prepared land acquisition and resettlement as well as alternatives that are available; (b) compensated

for their losses at full replacement cost prior to the actual move; (c) assisted with the moveand supported during the transition period in the resettlement site; and (d) assisted in theirefforts to improve their former living standards, income earning capacity, and productionlevels, or at least to restore them. Particular attention should be paid to the needs of thepoorest groups to be resettled; (iii) Land, housing, infrastructure, and other compensationshould be provided to the adversely affected population, indigenous groups, ethnicminorities, and pastoralists who may have usufruct or customary rights to the land or other


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M I G A S a f e g u a r d P o l i c i e s — C r i t e r i af o r C o n s i s t e n c y a t A p p r o v a l


resources taken for the project. The absence of legal title to land by such groups should notbe a bar to compensation; (iv) alternative or similar resources provided to compensate for theloss of access to community resources; (v) in new resettlement sites or host communitiesimprove, restore or maintain accessibility and levels of service for the displaced persons andhost communities; (vi) minimize impacts on host communities including consultation withthese communities; (vii) consult and involve affected people in planning, and implementation;(viii) community level impacts require preparation of community development programs toimprove the economic and social well-being of the affected communities as well as theaffected households; (ix) preparation of a resettlement plan (RP), or other resettlementinstrument (e.g., resettlement framework) as agreed with MIGA; and (x) disclosure of RPsinvolving more than 50 households or 250 people.

Comprehensive and Appropriate identification of indigenous groups in project area, namely those having: implementable IPP prepared (a) close attachment to ancestral territories and the natural resources in them; (b) self-

identification and identification by others as members of a distinct cultural group; (c)presence of customary social and political institutions; (d) economic systems primarilyorientated to subsistence production; and (e) indigenous language. Ensure: (i) avoidance andmitigation of adverse impacts; (ii) informed participation of the indigenous peoplesthemselves; (iii) culturally appropriate compensatory measures or social and economicbenefits; and (iv) in consultation with indigenous peoples preparation of an IndigenousPeoples Plan.

Natural habitats protected or (i) Project does not significantly convert/degrade a critical habitat; (ii) natural habitats are offsets provided correctly identified; (iii) alternative analysis examines alternatives to significant conversion;

(iv) if conversion cannot be avoided, impact are minimized, mitigated and offsetrequirements are examined.

Comprehensive dam safety New Dams:measures proposed Safety measures from design to operation for dam and associated works, including for: (i)

dams >15 meters in final height; (ii) for special case (flood prone, seismic area, difficultfoundations, toxic materials, etc.) dams between 10 and 15 m; and (iii) for dams initiallyunder 10 m if expected to become large dams during construction, require the following: (a)reviews by independent expertise throughout design and construction of dam and for start ofoperations; (b) plan for construction, supervision and quality assurance, plan forinstrumentation, an Operation and Maintenance (O&M) plan, and an emergencypreparedness plan; (c) construction by fully qualified companies under proper supervision; (d)periodic safety inspections after completion of construction;

Existing Dams:(i) independent dam specialist(s) to evaluate safety status, performance history and owner’soperation/maintenance procedures; and (ii) specify remedial works or safety-relatedmeasures to upgrade dam to an acceptable standard of safety.

Tailings Dams and Ash Lagoons:(i) this policy applies to such dams in excess of 10 m if: (a) the impoundment is cross-valleystructure; or (b) after construction of a starter dam, the impoundment structure is made ofwhole tailings; or (c) standard testing methods indicate net acid generating potential oftailings or ash. However generic safety measures designed by qualified engineers areadequate for such dams less than 10 m in height, if tailings or ash have no net acidgenerating potential and impoundment is: (a) located in relatively flat terrain, highly aridareas or in permafrost zones; and (b) not subject to inflow from streams or rivers: (ii) stream


2 0 8

(continued)


diversions and spillways to be designed for 100 yr. flood; and (iii) preparation of closure andabandonment plans.

Cultural Property protection (i) avoid harm to significant, non-replicable cultural property or with the help of qualified proposed experts mitigate such impacts if loss is judged to be minor or otherwise acceptable; (ii)

sponsor addresses protection/management of cultural property in project area including“chance finds”; (iii) sponsor meets host country regulations/laws (or adheres to best practicein the absence of host country laws); and (iv) sponsor consults with relevant stakeholders indocumenting presence and significance of physical cultural resources.

The set of requirements for each criterion of safeguard policy compliance were rated according to the following scale:• High: the set of requirements were fully met, or expected to be fully met, with no shortcomings• Substantial: the set of requirements generally were met, or expected to be met, with only minor shortcomings• Modest: the set of requirements were met, or expected to be met, but with significant shortcomings• Negligible: the set of requirements were not met, or expected not to be met, due to major shortcomings


2 0 9



EAP or EMP fully implemented Assess how effectively the EAP or EMP has been implemented by the sponsor and note anygaps and deficiencies. Note how well EAP or EMP implementation progress has beendocumented and reported in a timely manner. Note any deviations from the original plan andif these were appropriate considering the circumstances.

E&S monitoring implemented Assess if the EAP’s or EMP’s E&S monitoring plan has been implemented according to thetiming proposed. Assess if the monitoring results are substantiating the effectiveness of theE&S mitigation measures or not. Note if the results are being used to take correctivemeasures if needed.

Sponsor’s project Determine if the sponsor has implemented the environmental, social and safety management implementation EMS effective system proposed in the EAP or EMP. Assess the effectiveness of the proposed institutional

strengthening measures to improve this system and whether the system has active sponsormanagement support. Assess its sustainability in the longer term.

Continuing public disclosure Determine the extent to which project affected groups and other stakeholders continue to be and consultation consulted and involved during the implementation phase of the project. Assess if there have

been any complaints by project affected people and how these complaints were dealt withby the Borrower.

Full compensation of project Assess if displaced persons have been: (a) compensated for their losses at full replacement affected people (PAPs) cost prior to the actual move; (b) assisted with the move and supported during the transition

period in the resettlement site; and (c) assisted in their efforts to improve their former livingstandards, income earning capacity, and production levels, or at least to restore them.

RP/CDP fully implemented Determine if the RP/CDP has been fully implemented by the sponsor. Assess if the sponsorhas adequately monitored and evaluated the activities set forth in the RP/CDP. If upontermination of the contract of guarantee the RP/CDP has not been fully implemented assesswhat follow-up actions the sponsor proposes to meet the objectives of the plan and if theseare adequate.

IPP fully implemented Determine if the IPP has been fully implemented by the sponsor. Assess if the sponsor hasadequately monitored and evaluated the activities set forth in the IPAP. If upon termination ofthe contract of guarantee the IPAP has not been fully implemented, assess what follow-upactions the sponsor proposes to meet the objectives of the plan and if these are adequate.

Natural habitats protected or Assess if sponsor has taken all necessary measures to limit any significant conversion/offsets provided degradation of critical natural habitat and/or provide offset requirements as proposed in the

EA. Assess the sustainability of these measures once the project has been implemented.

Dam safety measures For new dams covered by the policy, assess if the safety measures recommended by the implemented independent dam expert(s) throughout investigation, design and construction of dam and

start-up of operations were implemented. Evaluate effectiveness of plans for construction,supervision and quality assurance, as well as for instrumentation, O&M and emergencypreparedness. Assess the results of periodic safety inspections after completion ofconstruction. For existing dams, assess if the safety measures proposed by the independentdam specialist(s) have been implemented as proposed and note any deviations.


2 1 1

M I G A S a f e g u a r d P o l i c i e s — C r i t e r i af o r P r o j e c t s u n d e r G u a r a n t e e


(continued)


Cultural property protected Assess if appropriate measures were taken by the sponsor to avoid harm to significant, non-replicable cultural property and provide protection/management of cultural property inproject area including “chance finds” according to best practice or host countryregulations/laws.

Reporting on safeguard Determine if MIGA has specified a comprehensive set of safeguard policy performance policies by sponsor adequate indicators that are appropriate for the project under implementation. Assess the timeliness

and effectiveness of the reporting of indicators and their evaluation by the sponsor andMIGA, noting any deficiencies. Assess if the following requirements have been met: (i) MIGAensures that contract of guarantee includes an obligation to carry out the EAP/EMP andincludes as additional conditions specific measures under the EAP/EMP, as appropriate forfacilitating effective monitoring on EMP implementation; and (ii) the sponsor’s obligations tocarry out the RP/CDP and/or IPP (or other instrument agreed with MIGA) and to keep MIGAinformed of implementation progress are provided for in the contract of guarantee.

Monitoring and evaluation MIGA reviews regular monitoring reports on safeguard compliance provided by the sponsor (M&E) of safeguard policies and notes any areas of concern for follow-up with sponsor. MIGA bases supervision of the by MIGA adequate projects environmental/social/safety aspects on the findings and recommendations of the

EA, including measures set out in the legal agreements, any EMP and other projectdocuments, and ensures that supervision missions contain adequate environmental andsocial expertise. During supervision MIGA reviews sponsor’s implementation progress (incl.progress reports) and assesses Borrower’s compliance with agreed environmental actions,particularly the implementation of environmental and social mitigation, monitoring andmanagement measures. If compliance is unsatisfactory, MIGA discusses with sponsoractions necessary to correct non-compliance and follows-up on the implementation of suchactions.

The set of requirements for each criterion of safeguard policy compliance were rated according to the following scale:• High: the set of requirements were fully met, or expected to be fully met, with no shortcomings• Substantial: the set of requirements generally were met, or expected to be met, with only minor shortcomings• Modest: the set of requirements were met, or expected to be met, but with significant shortcomings• Negligible: the set of requirements were not met, or expected not to be met, due to major shortcomings


2 1 2

Safeguard Policy Trigger

Environmental Assessment— Adverse environmental and social impacts that are sensitive, diverse or unprecedented and Category ‘A’ (May 1999) likely to be significant beyond the project fenceline.

Environmental Assessment— Projects whose impacts are limited in number, less adverse than those of Category ‘A,’ and Category ‘B’ (May 1999) can be addressed by compliance with MIGA’s environmental guidelines or through

application of recognized pollution prevention and abatement measures (or recognized bestmanagement practices).

Natural Habitats Significant conversion or degradation of natural habitats, or loss or modification of habitat (Interim 2002 policy) in protected areas.

Involuntary Resettlement Involuntary taking of land resulting in (i) relocation or loss of shelter; (ii) loss of assets or (Interim 2002 policy) access to assets; or (iii) loss of income source or means of livelihood.

Indigenous Peoples Conflicts with or adverse impacts on indigenous peoples, tribes or ethnic minorities whose (Interim 2002 policy) social and economic state restricts their capacity to assert their interests and rights in land

and other productive resources.

Dam Safety Safety of new or existing dams, including tailings dams > 10 meters in height.(Interim 2002 policy)

Forestry (Interim 2002 policy) Sustainable forestry practices.

Cultural Property Adverse, irreversible impacts on cultural or natural sites having archeological, (Interim 2002 policy) paleontological, historical, religious or unique natural aesthetic value.

Pest Management Significant use of pesticides.(Interim 2002 policy)

Projects on International Notification of projects with significant and adverse impacts on international waterways in Waterways (Interim 2002 policy) respect to the quantity and quality of water flows to other riparian states, or will significantly

and adversely affect present or likely future water use by other riparian states.


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M I G A S a f e g u a r d P o l i c y T r i g g e r sA t t a c h m e n t 4

Project Name

Description M O A F J D H L C I K

EA Category1 A B A A A A A A A A B

MIGA Client Category Maj Maj Maj Maj Min Maj Maj Maj Maj Maj Min

Comprehensive environmental assessment2 S S M H H S S H M S S

Adequate analysis of feasible alternatives H H N H S M S H M S H

Comprehensive E&S baseline survey S S N H S S S S M S S

Adequate EAP proposed H S N H H M S H M S S

Project investor’s EMS adequate S M M H S M S H H M S

Public disclosure/consultation addressed S M S M M S H M S

Contract of guarantee for implementation

of safeguard policies/guidelines adequate H S N M M M M S M M M

Comprehensive and implementable

RP/CDP prepared S M S M M M M N H

Comprehensive and implementable

IPP prepared M M N

Natural habitats protected or offsets provided M S M M H M

Comprehensive dam safety measures proposed H S H N

Cultural property protection proposed H S H H S H H

Average score3 3.4 2.9 1.7 3.3 3.1 2.3 2.9 3.4 2.0 2.9 3.0

Overall rating S S M S S M S S M S S

High (H); Substantial (S); Modest (M); and Negligible (N)

1. An EA may include an environmental impact assessment, environmental audit, and hazard or environmental risk assessment

or a combination of these instruments.

2. MIGA’s guarantee holders identified as Maj = Major project investor; Min = Minor project investor.

3. Scoring system used: H=4; S=3; M=2; N=1. If average score is > or = 2.5, then “S”; if < 2.5, then “M.”


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S a f e g u a r d P o l i c y C o n s i s t e n c yR a t i n g s o f M I G A E I P r o j e c t s a t A p p r o v a l



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S a f e g u a r d P o l i c y C o n s i s t e n c yR a t i n g s o f M I G A E I P r o j e c t su n d e r G u a r a n t e e


Project Name

Description M O A F J D H L C I K

EA Category A B A A A A A A A A B

MIGA Client Categorya Maj Maj Maj Maj Min Maj Maj Maj Maj Maj Min

EAP/EMP fully implemented by investor S S H H S S S S

E&S monitoring fully implemented by investor H S H H M S H S

Investor’s project implementation

EMS effective S S H S M S H H

Continuing public disclosure and consultation H M H M M S S S

Full compensation of PAPs S H M S S S

RP/CDP fully implemented H H H M S S S

IPP fully implemented M S S

Natural habitats protected or

offsets provided M H S M H M

Dam safety measures implemented H S H M

Cultural property protected H H H M S H

Reporting on safeguard policies

by investor adequate H M S M S S H S N N

M&E of safeguard policies by

MIGA adequate S M S S M H S S N N

Average score 3.6 2.6 3.7 3.2 2.2 3.1 3.5 2.9

Overall rating S S S S M S S S

a. MIGA’s guarantee holders identified as Maj = Major project investor; Min = Minor project investor.

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Foreword1. Climate change has been covered in other

WBG publications and evaluations. Seewww.worldbank.org/climate change andwww.ifc.org/test/sustainability/docs/Climate_Change_IFC.pdf. The WBG’s environmental strat-egy for the energy sector—Fuel for Thought(www.worldbank.org/html/fpd/energy/eee/FuelforThought.htm)—aims to mitigate theeffects of and vulnerability to climate change.

2. For more information on the EIR, seewww.eireview.org.

3. Concurrently, the CAO has been examin-ing the extent to which IFC and MIGA haveaddressed sustainability concerns in recentextractive industries projects. See www.cao-ombudsman.org.

4. The Approach Paper and other supportingdocuments for this evaluation study are availableon the Internet (www.ifc.org/oeg/EIEvalua-tion/eievaluation.html).

Chapter 15. This evaluation focuses on the impacts of

extractive industries on developing countries. Itdoes not address issues of downstream con-sumption, including important global impactssuch as climate change, except for climatechange impacts related to production, such asgas flaring.

6. This phenomenon—resource-rich coun-tries falling far short of their developmentalpotential and even being worse off thanresource-poor countries—has been termed “theparadox of plenty.”

7. This relationship, which is statistically sig-nificant at the 95 percent confidence level (t-sta-tistic = –2.39), illustrates a conclusion that iswidely accepted in the literature. No claim ismade that EI dependence is the sole determinantof a country’s economic growth.

8. “Borrower” includes all countries eligible forborrowing from the WBG with a populationgreater than one million as of 2000, for which datais available. When nonborrower countries areincluded, the slope is also statistically significant(t-statistic = –2.82), and steeper (–0.038 vs. –0.032).

9. Seminal papers by Richard Auty (ed., 2001),Gelb (1988), Isham (2002), Sachs and Warner(1997), have discussed the evolution of think-ing on the subject in recent years. See Referencesin Annex C, Attachment 5.

10. Analysis in the 1960s focused on how tomanage the macroeconomic impacts of resourceexport income, which raised domestic pricesand made other exports less competitive inter-nationally (the so-called Dutch disease). Morerecent analysis emphasizes poor use of fiscal rev-enues from resources.

Chapter 211. The portfolio of projects chosen for review

consists of all EI projects approved during or afterfiscal year1993, the first full financial year afterthe WBG adopted revised safeguard policies.OED reviewed 76 Bank projects, comprising 48closed (24 oil and gas, 24 mining) and 28 activeprojects (15 oil and gas, 13 mining).

12. The Bank’s project completion reportsare usually expected to assess economic bene-fits by calculating an economic rate of return orusing a cost-effectiveness criterion to determinewhether the project represented the expectedleast-cost solution to attain the identified bene-fits, but only 35 percent of the completionreports did so. Another 27 percent containedsome quantification and valuation of benefits butno analysis of their cost effectiveness.

13. See Annex C, Chapter 3. 14. OEG’s review is based on in-depth eval-

uations of a random, representative sample of22 projects approved in calendar years 1991–96(12 oil and gas, 10 mining), supplemented by“mini” desk-evaluations of all other projectseither approved after fiscal year1993 or still inIFC’s portfolio. In total, OEG studied 45 projectsor companies (23 oil and gas, 22 mining). Imma-ture projects and projects with insufficient infor-mation (usually where IFC had exited early) arenot included in these numbers, but OEG usedthem also to draw lessons and highlight issues.

15. See, for example, WBG Work in Low-Income Countries Under Stress: A Task ForceReport, World Bank (2002).

ENDNOTES

16. See also Annex D, Attachment 4 for theperceptions of stakeholders outside and insidethe WBG.

17. OEU reviewed six previously evaluatedprojects, all in mining (five gold, one cobalt) andconducted two additional in-field case studies ofmining projects. Most of the projects were under-written by MIGA in the early to mid-1990s. OEUalso reviewed the consistency with safeguardpolicies of 12 projects (3 oil and gas, 9 mining).In total, OEU reviews covered 15 MIGA projectswith active or cancelled contracts of guarantee (outof a total of 31 that MIGA guaranteed since 1990).

18. See Annex C, Chapter 5. 19. The CAS is the central vehicle for Board

review of the WBG’s assistance strategy for itsborrower countries. The CAS is expected to (a)describe the WBG’s strategy based on an assess-ment of the priorities in the country, and (b) indi-cate the level and composition of assistancebased on the strategy and the performance ofthe country’s project portfolio.

20. See Annex D, Attachment 4c for completeresults of the staff survey.

21. See Annex C, Figure C10. However, fol-lowing the launch of the WBG’s Low-IncomeCountries Under Stress (LICUS) program in 2002,additional budget for activities designed toimprove the policy and institutional frameworkhas been allocated to many of these countries.

22. See Annex C, Chapter 5.23. See Annex D, Chapter 6.24. The sample of 38 projects was purposely

chosen from the EI portfolio of 76 projects toinclude projects that were likely to have adverseenvironmental or social impacts and included 19oil and gas and 19 mining projects. See AnnexC, Chapter 4.

25. The policy on Environmental Assessment(OP 4.01) defines project categories as follows:‘A’: likely to have significant adverse environ-mental impacts that are sensitive, diverse, orunprecedented‘B’: potential environmental impacts are lessadverse than for ‘A’‘C’: likely to have minimal or no adverse envi-ronmental impacts

26 In the absence of an established approachfor assessing a project’s degree of consistency

with safeguards policy requirements, the eval-uation has synthesized the policy requirementsinto a set of basic criteria and used it for the sub-ject review. The criteria for consistency havebeen benchmarked against those used by theInspection Panel reports on EI projects and dis-cussed with the Quality Assurance and Com-pliance Unit (QACU) and the Legal Department.See Annex C, Chapter 4.

27. See Annex C, Chapter 4.28. See Annex D, Chapter 4, “IFC’s Results in

Mitigating Negative and Enhancing PositiveImpacts,” which also explains the difficultiescomparing the two data sets.

29. The review of safeguard policy compli-ance for MIGA EI projects covered 12 out of 30MIGA projects with active and cancelled guar-antees issued since MIGA’s inception. The reviewwas commissioned from an external expert andis the first of its kind for MIGA.

30. The project was rated “consistent” whenthe policy requirements were generally met, orexpected to be met, with only minor short-comings.

31. See Annex D, Chapter 4, “IFC Helping toGenerate Sustainable Benefits.”

32. Halting or reversing the spread of AIDSis one of the Millennium Development Goals. Ini-tiatives in the WBG address HIV/AIDS, but ad-dressing the issue in specific EI-projects is notmandatory. See also Annex D, Chapter 4 and BoxD2.

33. See Annex C, Chapter 4, and Annex D,Chapter 3 and Box D1.

34. For example, the May 15, 2002, TorontoDeclaration of the International Council of Mining and Metals (ICMM) states (on behalfof the mining industry): “orphan site legacyissues are important and complex. However,they are beyond the capacity of ICMM toresolve. Governments and international agen-cies should assume the lead role in address-ing them.”

Chapter 335. Here again, this relationship is statisti-

cally significant at the 95 percent confidence level(t-statistic = 2.44) and illustrates a conclusion thatis widely accepted in the literature. No claim is


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made that EI dependence is the sole determinantof a country’s quality of governance.

36. In Figure 2, Chile and Botswana areshown at the top of the graph, near the centerand toward the right, respectively.

37. For a definition of macro and sectoral gov-ernance, see Annex C, Chapter 6.

38. See Annex C, Chapter 6.39. Corruption, one particular public financial

management shortcoming, is a possible proxymeasure.

40. That is, the use of public power in accor-dance with the law.

41. At this point, the position paper (www.-ifc.org/test/sustainability/docs/Revenue_Distri_Mgmt.pdf) focuses only on projects generatingsubstantial revenues compared with the country’soverall fiscal revenues, and the suggested stepsare optional, not mandatory.

42. For all EA Category ‘A’ projects, the bor-rower is expected to consult project-affectedgroups, local NGOs, and so forth and discloserelevant material in a timely and culturally appro-priate manner. The requirements are somewhatmore rigorous for ‘A’ than for ‘B’ projects, andIFC requires public consultation only for someCategory ‘B’ projects.

43. The “Extractive Industries TransparencyInitiative” and an NGO campaign—“PublishWhat You Pay”—advocate disclosure.

Chapter 444. Given the size and complexity of the

WBG, and the diversity of issues that needs tobe addressed, it is expected that the responsi-bility for following up on these recommenda-tions will not rest exclusively with the sectorspecialists; that is, the Energy and Mining Sec-tor Board and the Oil, Gas, Mining and Chem-icals Global Product Group. The ManagementResponse is expected to identify the unit(s)responsible for following up each recommen-dation.

45. “Significant” should be considered bothin absolute terms and in relation to total sectorproduction, based on analysis of past experience,and may vary by country. Supporting increasedinvestment could be either through investmentsby IFC, guarantees by MIGA, or assistance from

the World Bank, in making the investment codemore attractive, for example. A possible miti-gating measure could be “ring-fencing” of fiscalrevenues from EI projects for development pur-poses. MIGA should consider adopting a posi-tion on revenue management and distributionsimilar to IFC’s.

46. For example, the Bank should helpcountries establish appropriate laws and reg-ulations to mitigate negative environmentaland social effects and build capacity to enforcethem. Private sector projects supported by IFCand MIGA could serve as role models for envi-ronmental and social performance, trans-parency, and disclosure, and thus raise sectorperformance.

47. This recommendation also applies tocountries that are expected to become resource-rich, through a large, WBG-supported project,for example. In all resource-rich countries, theWBG should also encourage client countries toinclude EI in their Poverty Reduction StrategyPapers.

48. In line with the Bank’s performance-based allocation of IDA credits.

49. This recommendation is consistent with theLICUS approach mentioned in notes 11 and 17.

50. For example, for sectoral adjustment andtechnical assistance.

51. Such as, for example, advisory workfunded by trust funds.

52. For example, in project completion reportsfor the Bank and in project supervision reportsfor IFC.

53. See Annex D, Chapter 4, “IFC Helping toGeneral Sustainable Benefits” for more details.

54. Several stakeholders have already soughtIMF and WBG assistance in advocating or requir-ing disclosure and in developing a reportingframework.

55. Such indicators could include, for exam-ple, health and safety statistics, gas flaring (orgreenhouse gas emissions), adequacy of mineclosure preparations (including funding) andoil transportation arrangements, hazardous mate-rials management and emergency responseplans, availability of infrastructure and services(e.g., health and education), and revenues gen-erated for governments.

E N D N O T E S

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Annex A56. Volume I is the overall summary of a joint

OED/OEG/OEU sector review of the WorldBank Group’s activities; Volume II is OED’sreview of the Bank’s activities; Volume III isOEG’s review of IFC’s activities; and Volume IVis OEU’s review of MIGA’s activities.

57. See Background Paper—World BankGroup Activities in Extractive Industries, Oil,Gas, Mining and Chemicals Department, WorldBank/IFC, August 2001. This paper and otherdocuments relevant to the WBG strategy areavailable at www.worldbank.org/ogmc.

58. Resource-rich countries are those in whichEIs account for, or are expected soon to accountfor, more than 50 percent of government rev-enues and potentially include, for example:Algeria, Angola, Azerbaijan, Botswana, Chad,Congo (R), Congo (DRC), Equatorial Guinea,Gabon, Iran, Iraq, Kazakhstan, Libya, Nigeria,Oman, Syria, Sao Tome, Sudan, Timor-Leste,Turkmenistan, Venezuela, and Yemen. Coun-tries with substantial resources are those inwhich extractive industries account for, or areexpected soon to account for, 30 to 50 percentof fiscal revenues or exports and include poten-tially, for example: Bolivia, Cameroon, CentralAfrican Republic, Chile, Colombia, Ecuador,Egypt, Ghana, Guinea, Guyana, Indonesia,Jamaica, Jordan, Kyrgyz Republic, Mali, Malaysia,Mauritania, Mexico, Mongolia, Mozambique,Namibia, Niger, Papua New Guinea, Peru, Rus-sia, Sierra Leone, South Africa, Suriname, Tan-zania, Togo, Trinidad and Tobago, Ukraine,Uzbekistan, and Zambia. The usefulness of thetwo-tier approach and relevance of the specificthresholds will be reviewed in light of imple-mentation experience; the corresponding coun-try groupings will be periodically updated asnecessary.

59. See A Review of IFC’s Safeguard Policies,CAO, January 2003, Insuring Responsible Invest-ment?, CAO, December 2002, and other reportsaccessible at: www.cao-ombudsman.org

Annex C60. Ross (2001). However, it is important to

note that while the issue of “whether or not min-ing usually promotes economic development

remains unresolved, there is widespread agree-ment that rich mineral deposits provide devel-oping countries with opportunities, which insome instances have been used wisely to pro-mote development, and in other instances havebeen misused, hurting development.” Davis andTilton (2001).

61. Letter from Friends of the Earth Interna-tional to Mr. James D. Wolfensohn, President ofthe World Bank Group (October 30, 2000).

62. The OED of the World Bank (IBRD andIDA), the OEG of the IFC, and the OEU of MIGA.

63. The EIR is headed by Dr. Emil Salim, for-mer Minister of Environment for Indonesia.Additional information on the EIR can be foundat www.eireview.org.

64. Seminal papers by Auty (2000), Gelb(1988), Isham (2002), and Sachs and Warner(1995), have discussed the evolution of think-ing on the subject in recent years.

65. See Attachment 3 for an explanation ofOED’s project ratings scale.

66. The Approach Paper and other support-ing documents for this evaluation study areavailable on the Internet (www.ifc.org/oeg/EIEvaluation/eievaluation.html).

67. The portfolio of projects chosen for reviewby this study consists of all extractive industriesprojects approved during or after FY93, the firstfull financial year after the WBG adopted revisedsafeguard policies. A total of 76 projects werereviewed, comprising 48 completed (24 oil andgas, 24 mining) and 28 active projects (15 oil andgas, 13 mining). Detailed discussion and statis-tical tables on the main characteristics of the proj-ect portfolio are provided in the backgroundpaper “Review of the Portfolio of World BankExtractive Industry Projects.”

68. See Attachment 4 for the complete list ofbackground papers.

69. The five countries were chosen based onthe relative importance of extractive industriesin their economies, the intensity of Bank assis-tance they received, and for regional diversity.

70. The staff survey questionnaire was sentto 95 WBG staff involved in extractive industriesprojects and countries (WB: 51, IFC: 33, MIGA:12) and responses were received from 69 per-cent (WB: 51%, IFC: 91%, MIGA: 83%).


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71. The stakeholder survey questionnairewas distributed to 292 participants of the EIR’sLAC, ECA, and AFR regional stakeholder work-shops, and the response rate has been 26 per-cent (Rio: 25%, Budapest: 30%, Maputo: 24%).The EIR designed the regional workshops to berepresentative of WBG stakeholders. The par-ticipants represented governments: 25 percent,industry: 21 percent, civil society: 30 percent,the WBG: 11 percent, and others (academia,other multilateral organizations, etc.): 13 per-cent. Survey respondents represented govern-ment: 41 percent, industry: 21 percent, civilsociety: 25 percent, the WBG: 4 percent, andothers: 9 percent.

72. World Bank (1984).73. World Bank (1992). 74. The Bank has 10 safeguard policies: 8 deal

with environmental and social concerns (OP/BP4.01, Environmental Assessment; OP/BP 4.04,Natural Habitats; OP 4.09, Pest Management;OP/BP 4.12, Involuntary Resettlement; OD 4.20,Indigenous Peoples; OP 4.36, Forestry; OP/BP4.37, Safety of Dams; and OPN 11.03, CulturalProperty) and 2 deal with legal matters (OP/BP7.50, Projects on International Waterways andOP/BP 7.60, Projects in Disputed Areas).

75. Fox, Onorato, and Strongman (1998).76. Van der Veen et al. (1996). 77. The outcome rating denotes the extent to

which the project’s major relevant objectiveswere achieved, or are expected to be achieved,efficiently.

78. The institutional development impactdenotes the extent to which a project improvedthe ability of a country or region to make moreefficient, equitable, and sustainable use of itshuman, financial, and natural resources.

79. For projects completed during 1980–86,only 53 percent were rated for institutionaldevelopment impact under the older perform-ance ratings. They are therefore excluded fromthis comparison.

80. The sustainability rating denotes theresilience to risk of the project’s net benefitflows over time.

81. For this review, the EI portfolio includesprojects that are not primarily classified underthe oil and gas or mining sector headings of the

Bank’s classification system but neverthelesscontain significant EI-related components.

82. A more detailed discussion on the Bank’schanging role, portfolio objectives, and qualityof lending for the extractive industries is the“Review of the Portfolio of World Bank Extrac-tive Industry Projects.”

83. Under WB’s OP 4.01 for EnvironmentalAssessment, Category ‘A’ projects are those thatare likely to have adverse environmental andsocial impacts that are sensitive, diverse, orunprecedented; Category ‘B’ projects are thosewith adverse impacts on human populations orenvironmentally important areas; Category ‘C’ isa residual category.

84. See Attachment 3 for an explanation ofOED’s project ratings scale.

85. That is, whether the project creates morenet benefits to the economy than other mutu-ally exclusive options. See OP 10.04: EconomicAnalysis of Investment Operations, World Bank(September 1994).

86. See OP 13.55: Implementation CompletionReporting, World Bank (July 1999).

87. The four completed structural adjustmentloans in the sample were excluded from thisanalysis given the Bank’s practice of not esti-mating ERRs or quantifying benefits for suchprojects.

88. Guidelines for Preparing ImplementationCompletion Reports, World Bank (1999). Theearlier Bank policy on Project CompletionReports also required the preparation of an ex-post economic analysis.

89. This figure includes one EmergencyRecovery Loan.

90. That is, a proxy for the opportunity costof capital.

91. The fourth remaining SIL, Ethiopia’s CalubEnergy Project, was closed prematurely, preclud-ing any meaningful ex-post economic analysis.

92. This figure includes one GEF grant.93. The ERR for the Guinea Mining Sector

Investment Promotion Project was estimated forthe appraisal and re-estimated for the ICR.

94. This figure includes one RehabilitationInvestment Loan.

95. There is no reason to believe that the per-formance of extractive industries projects in this

E N D N O T E S

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regard is different than that of projects in othersectors.

96. The May 15, 2002, Toronto Declaration ofthe International Council of Mining and Metalsstates (on behalf of the mining industry): “orphansite legacy issues are important and complex.However, they are beyond the capacity of ICMMto resolve. Governments and international agen-cies should assume the lead role in addressingthem.”

97. Since the start of fiscal year 1993, theWorld Bank has approved 76 projects in theextractive industries or with significant compo-nents relating to extractive industries. As of June30, 2002, 48 projects have been completed (24oil and gas, 24 mining) and 28 projects are stillactive (15 oil and gas, 13 mining).

98. The purposive selection of projects thatwere likely to have significant adverse environ-mental or social impacts is consistent with theobjective of the Safeguards Review, as the WBG’ssafeguard policies are applicable only to suchprojects. As a result, the validity of the findingsis limited to such projects and should not beextended to those Category ‘C’ projects that werelikely to have minimal or no adverse impacts orSALs, which are not covered by the safeguardpolicies.

99. As stated in the Bank’s policy on Envi-ronmental Assessment (OP 4.01), to fall underCategory ‘A,’ a project is deemed to be likely tohave significant adverse environmental impactsthat are sensitive, diverse, or unprecedented. Cat-egory ‘B’ is assigned to projects whose poten-tial environmental impacts are less adverse thanthose for Category ‘A.’ Category ‘C’ is for proj-ects that are likely to have minimal or no adverseenvironmental impacts. SECALs have been cov-ered by the policy only since 1999. EarlierSECALs were uncategorized.

100. These requirements are recorded inAnnex 1-A and 1-B of the Safeguards Review.The list is based on the latest version of the poli-cies (as of June 30, 2002).

101. The individual project review work-sheets were sent to the relevant project managersfor fact checking.

102. It should also be noted that the extrac-tive industries portfolio includes a higher share

of TA and SECAL projects, whose classificationhas been subject to differing interpretation.

103. Given the small size of the sample, it wasnot feasible to evaluate any impact from theBank’s enhanced safeguards compliance sys-tem established in 1999.

104. See note 13 for additional informationabout the survey. The complete results are pro-vided in Annex D, Attachment 6b.

105. The adequacy of the initial project screen-ing and of Bank supervision were not themselvescriteria for evaluating the adequacy of safe-guards compliance at the project approval orimplementation stage but factors that weretracked and assessed in parallel as part of thesafeguards review.

106. That is, the process by which the EA cat-egory is assigned, the nature and extent of theEA or environmental analysis is decided, and theapplicable safeguard policies are identified.Responsibility for the initial project screeningresides with the project’s task team, under thesupervision of regional management, subjectto clearance by the regional safeguards coor-dinator, under the oversight of the central QACU.Before 2000, responsibility for initial projectscreening was shared between the project’stask team and the Bank’s regional environmentdivisions.

107. Of the 11 projects, 6 were ‘B’ projects thatshould have been more appropriately catego-rized as ‘A,’ and 5 were ‘C’ projects that shouldhave been more appropriately categorized as ‘B.’

108. The Bank’s Operational Manual listsseven investment lending instruments: SIL, Learn-ing and Innovation Loan, TAL, Emergency Recov-ery Loan, Financial Intermediary Loan, SectorInvestment and Maintenance Loan, and Adapt-able Program Loan. The manual lists the fol-lowing six adjustment lending instruments:Programmatic Structural Adjustment Loan,Poverty Reduction Support Credit, SECAL, SAL,Special Structural Adjustment Loan, and Reha-bilitation Loan.

109. EIA, Sectoral EA, Regional EA, Environ-mental Audit, Hazard/Risk Assessment.

110. The five SECALs in Russia, Poland, andUkraine were subject to careful environmentaland social review. The remaining one is the


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Madagascar Sector Reform Project, which shouldalso have been categorized as an ‘A’ because ofproposed new port facilities.

111. The mine closures supported by theseSECALs were unprecedented in scale, diversityof environmental conditions, and the complex-ity of environmental, safety, and social issues.The past environmental and social neglect ofthese mining operations further aggravated theproblems involved in their closure.

112. World Bank (1991). 113. As indicated earlier, there is no implica-

tion that the treatment of extractive industries proj-ects in this regard is different from the Bank’spractice in other sectors at the time, which wasto interpret the EA Source Book with great flex-ibility. In recent years, management, the Inspec-tion Panel, and the Bank’s legal department haveclarified that the EA Source Book is to be fol-lowed. The Safeguards Review is in line with thisposition.

114. However, Poland’s Ministry of the Envi-ronment has not endorsed this conclusion.

115. Environmental Assessment SourcebookUpdate No. 2: Environmental Screening, Envi-ronmental Department, World Bank, Washing-ton, D.C. (April 1993).

116. Thailand: Second Gas TransmissionProject.

117.The issue was settled amicably, but ittook some time.

118. Cameroon: Chad-Cameroon PipelineProject; Chad: Petroleum Sector Capacity Man-agement Project.

119. As mentioned in Chapter 4, this may berelated to the fact that many of the projects hadbeen assigned to lower EA categories or appli-cable safeguards were not triggered at the ini-tial project screening.

120. The PSR for the India Coal Sector Reha-bilitation Project dated March 28, 2001, recordsa “Highly Unsatisfactory” rating in respect tocompliance with the safeguard policy for Invol-untary Resettlement (OD 4.30), prior to receiptof a complaint by the Inspection Panel (RQ01/2)on June 21, 2001.

121. The Bank’s EA policy requires compre-hensive environmental and social baseline sur-veys only for Category ‘A’ projects.

122. World Bank (2001d). 123. However, some allowance needs to be

made for the evolving more rigorous interpre-tation of these policies, in a world that is evermore concerned about sustainable develop-ment, as noted in Chapter 2.

124. Here again, there is no reason to believethat the performance of extractive industriesprojects in this regard is different than that ofprojects in other sectors.

125. Other potential economic benefits includefinancial flows accruing to private investors,employees, local communities, and so forth,which represent compensation for risk capital,labor, and social and environmental services.

126. Beyond the allocation of fiscal revenuesin line with national development priorities, anassessment of the efficacy of public expenditurefor achieving sustainable development andpoverty reduction was outside the scope of thisevaluation. Such assessments are regularlyincluded in OED’s Country Assistance Evaluations.

127. As stated in BP 2.11, “The Country Assis-tance Strategy (CAS) is the central vehicle forBoard review of the World Bank Group’s assis-tance strategy for IDA and IBRD borrowers. TheCAS document (a) describes the World BankGroup’s strategy based on an assessment of pri-orities in the country, and (b) indicates the leveland composition of assistance to be providedbased on the strategy and the country’s portfo-lio performance.”

128. That is, those with negative GDP/capitagrowth during the 1990s.

129. The percentage was higher for better per-forming EI-dependent countries at 80 percentand lower for non-EI dependent countries.

130. Many of these countries fit the descrip-tion of LICUS. As stated in the LICUS Task ForceReport (World Bank 2002): “Low-income coun-tries under stress are characterized by very weakpolicies, institutions, and governance. Aid doesnot work well in these environments...Yet neg-lect of such countries (by the development com-munity) perpetuates poverty and may contributeto the collapse of the state, with adverse regionaland even global consequences.”

131. The five countries were chosen basedon the relative importance of extractive in-

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dustries in their economies, the intensity ofBank assistance they received, and for regionaldiversity.

132. Of the 60 CASs that were reviewed, 26covered EI-dependent countries, and 4 of thesewere joint Bank-IFC-MIGA CASs.

133. Since 2002, the Bank’s LICUS program(see note 72) has led to the allocation of addi-tional budget to eligible countries for activitiesdesigned to improve the institutional and pol-icy framework.

134. This relationship, which is statistically sig-nificant at the 95 percent confidence level (t-sta-tistic = 2.44), illustrates a conclusion that iswidely accepted in the literature. No claim ismade that EI dependence is the sole determi-nant of a country’s quality of governance. Thefigure includes all countries eligible for bor-rowing from the WBG with a population greaterthan one million as of 2000, for which data isavailable.

135. In Figure C11, Chile and Botswana areshown at the top, near center and to the righthand side, respectively.

136. Governance and Development, WorldBank, Washington, D.C. (1992).

137. For example, the Bank has set up aproject Web site with a comprehensive set ofdocuments including (i) the Project AppraisalDocuments for the three projects, (ii) the full setof Environmental Assessments and Environ-mental Management Plan documents, (iii) theLoan and Credit Agreements, (iv) Environmen-tal Compliance Monitoring Group and Interna-tional Advisory Group reports, and (v) up-to-dateprogress reports on project implementation.Many of these reports are in English and Frenchto make them more broadly accessible. Seehttp:www.worldbank.org/afr/ccproj/project/pro_document.htm.

139. The six countries were chosen for vari-ation in region, size and importance of the EIsector, quality of governance, and intensity ofBank intervention in the sector.

139. For additional information on GRICS,see http://www.worldbank.org/wbi/governance/data.html#dataset2001.

140. Because abuse of individual rights,mostly in connection with site security arrange-

ments for project sites, has been alleged in con-nection with some EI projects—albeit none inconnection with projects in the Bank portfoliounder review—the Bank needs to consider itsposition on these issues. While extractive indus-try leaders and some governments subscribe toVoluntary Principles on Security and HumanRights, the Bank has no comparable guidance.

141. In recent years, the Bank’s governance-related public expenditure and financial account-ability sector work has rapidly evolved. PublicExpenditure Reviews, Country FinancialAccountability Assessments, and Country Pro-curement Assessment Reviews are now part ofcore economic and sector work in all borrow-ing countries. Follow-up to these core diag-nostics in terms of policies and institutions andcapacity-building is part of regular CAS prepa-ration discussions.

142. The Mining TA project includes, amongothers, components for (a) policy and regulatoryinstitutional strengthening of the Department ofMining and (b) institutional strengthening andcapacity-building for the Internal Revenue Com-mission. The Gas TA project includes, among oth-ers, components to (a) enhance the monitoringand regulatory capacity of the Department ofPetroleum and (b) facilitate the participation oflocal communities.

143. Notably a weak legislature and civil soci-ety, lack of freedom for the media, and lack oftransparency of public accounts.

144. That is, the use of public power in accor-dance with law.

145. For example, through AAA, technicalassistance projects, and other instruments that areprimarily aimed at strengthening governance andmanagement of environmental and social risks.

146. Given the Bank’s very modest recordwith fiscal revenue management in EI-depend-ent countries (see Chapter 5) the number ofsuch “test cases” is expected to be small.

147. The Management Response is expectedto identify the unit(s) responsible for followingup each recommendation.

148. Aspects to be addressed should include,inter alia, key policy issues, the Bank’s role,and business implications (including resourceissues and WBG coordination).


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149. Management accepts the need to factorgovernance into its support for extractiveindustry activities and will work to improve itsapproaches, based on country circumstances.However, it does not feel that mandating foran entire set of countries a specific program toensure that fiscal revenues are used fordevelopment priorities would be a practicalsolution.

150. “Significant” should be considered bothin absolute terms and in relation to total sectorproduction, based on analysis of past experience,and may vary by country.

151. In resource-rich countries, the WBGshould also encourage client countries to includeEI in the Poverty Reduction Strategy Papers.

152. In line with the Bank’s performance-based allocation of IDA credits.

153. This recommendation is consistent withthe LICUS approach mentioned in Chapter 5.

154. Such as on mine closure, safety of dams,forced and child labor.

155. Such as those related to consultationand disclosure, community development, secu-rity, hazardous materials management, acid rockdrainage, gas flaring, and transportation of oil,for which the good practice guidelines that havebeen issued need to be complemented by sup-porting language in the policies.

156. Several stakeholders have already soughtIMF and WBG assistance in advocating or requir-ing disclosure and in developing a reportingframework.

157. Such indicators could include, for exam-ple, health and safety statistics, gas flaring (orgreenhouse gas emissions), adequacy of mineclosure preparations (including funding) andoil transportation arrangements, hazardous mate-rials management and emergency responseplans, availability of infrastructure and services(e.g., health and education), and revenues gen-erated for governments.

Annex D158. As in IFC’s guidelines, “environmental”

aspects include worker health and safety.159. Environmental effects could be local (e.g.,

impacts on water quality) or global (e.g., contri-bution to greenhouse gases through gas flaring).

160. IFC does not have a Board-approved sec-tor strategy for EI, but its investment departmentsdiscuss their strategies annually with IFC man-agement. While these sector strategies are notnormally disclosed, IFC has started to publishregional strategies for mining (www.ifc.org/mining/region/region.html). IFC ceased to investin oil and gas exploration in fiscal year 1992, butthis was due to poor results and the difficulties ofassessing exploration risks. Exploration projects inmining are very rare, but IFC has invested at veryearly stages (exploration or pre-feasibility study).

161. See, for example, The oil and gas indus-try from Rio to Johannesburg and beyond—con-tributing to sustainable development (2002), bythe International Association of Oil and GasProducers (OGP) and the International PetroleumIndustry Environmental Conservation Association(IPIECA). Other initiatives in the mining sector,for example, the Mining, Minerals and Sustain-able Development Project (MMSD), came tosimilar conclusions.

162. For example, the ICMM is workingwith the Global Reporting Initiative (GRI) todevelop sustainability indicators for the min-ing industry. Ultimately, this is expected toresult in a consistent and coherent module forreporting on sustainable development for min-ing companies.

163. Mining and Minerals Sustainability Sur-vey (2001).

164. This and other comparisons of “evalu-ated” projects relate to a random, representativesample of 22 IFC projects (12 oil and gas, 10 min-ing) approved 1991–96 and evaluated 1996–2001(results in Attachment 4b) using IFC’s standardevaluation framework. For desk reviews of all45 “studied” projects—22 oil and gas and 23 min-ing projects approved since fiscal year 1993 orstill in IFC’s portfolio—a similar but simplifiedratings framework was used (Attachment 4e,results in Attachments 4c and 4d).

165. The results of all studied projects arenot strictly comparable, as they have a differentmaturity profile—older and younger—than theevaluated projects. Also, there are no compara-tors in IFC’s portfolio, as IFC does not track andrate development results on a portfolio basis. Thenumber of projects is too small to analyze trends.

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166. See, for example, World Bank GroupWork in Low-Income Countries Under Stress: ATask Force Report (2002), http://www1.world-bank.org/operations/licus.

167. “Significantly” used in this report impliesstatistically significant using a 90 percent confi-dence interval.

168. Until 1996, IFC effectively valuedresources at zero. Since then, IFC has started todeduct the net present value of the economicbenefits generated from the resource over theprojected life as depletion premium. This maydiffer substantially from how governments orinvestors might value the resource, which willdepend on many factors, such as country andresource risk.

169. Adequate economic returns do notalways mean large government revenues. Seebelow on distribution.

170. There are many different taxationregimes. For an excellent overview, see GlobalMining Taxation Comparative Study (J. Otto,2000) or Review of Legal and Fiscal Frameworksfor Exploration and Mining (Koh Naito, FelixRemy, John P. Williams, 2001). On oil and gas,see www.ifc.org/ogmc/pdfs/DanielJohnston.pdf.

171. Oil features higher royalties—and otherforms of “rents”—than mining. Royalties in miningaffect the cutoff grade and can thus easily make oth-erwise attractive deposits unviable; in oil this is lesslikely, as marginal costs are low compared with theresource value. Rents are the excess of pre-taxbenefits over cost, including the minimum returnon capital required to attract investment.

172. We surveyed over 50 people at the EIRPlanning Workshop, and about half responded(Attachment 6a). Broad and balanced repre-sentation of stakeholders was one of the work-shop’s goals.

173. Examples include questioning the appro-priateness of favorable tax exemptions and swaparrangements.

174. The Inspection Panel for the Chad-Cameroon pipeline claimed “it was unable to findany analysis justifying the allocation of revenuesbetween Chad and the Consortium [of investors].”World Bank management stated that it was nota party to the confidential agreement betweenChad and the Consortium, but that the reason-

ableness of the agreement had been independ-ently studied, and that it had made certain Chadreceived independent expert advice.

175. This appears to be changing. IFC hasstarted to track development results in supervi-sion, and some recent Board Reports for EI proj-ects identify government revenues as one ofthe indicators to be tracked.

176. See, for example, Breaking the ConflictTrap: Civil War and Development Policy, draftWBG Policy Research Report (2003), http://econ.worldbank.org/prr/CivilWarPRR.

177. Review of Legal and Fiscal Frameworksfor Exploration and Mining (Koh Naito, FelixRemy, John P. Williams, 2001) compares the fis-cal regimes of 23 countries. Global Mining Tax-ation Comparative Study, Institute for GlobalResources Policy and Management and Col-orado School of Mines (second edition, March2000, James Otto et al.) compares the effects oftaxation on “model” copper and gold mines. Anunofficial note on the WBG’s Web site, “BestPractices in Dealing with the Social Impacts ofOil and Gas Operations,” on management of gov-ernment revenues, cites numerous referencedocuments and concludes that internationalpractice of the government’s “take” in oil and gasis about 45 percent to 50 percent at the low endand 80 percent to 85 percent at the high end.

178. For example, a host government hasrequested an independent “fairness” assessmentof an existing contract with an IFC client com-pany. Routinely providing a resolution mecha-nism where conflicts between governments andinvestors arise may help settle disputes, and isnow often incorporated in agreements betweeninvestors and governments. However, years afterthe contract was signed, it is even more difficultto assess how reasonable a distribution is, andrenegotiating contracts later will also discouragepotential future investors. Annex C (Chapter 5 andBox C11) discusses issues related to the accept-ability of benefit distribution.

179. The WBG hosted a workshop on petro-leum revenue management (www.ifc.org/ogmc/petroleum.htm) in October 2002; the IMF hosteda similar conference in June 2002.

180. Chad (2000), Chile (1957), Gabon (1982),Ghana (1984), Guinea (1982), Guinea-Bissau


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(1989), Kyrgyz Republic (1995), Mauritania(1968), Russian Federation (1993), Tajikistan(1996), Uzbekistan (1994), Zimbabwe (1981). EIprojects have been among the first investmentsin several other countries.

181. The benchmark for a satisfactory businesssuccess is whether the real (inflation-adjusted),after-tax financial rate of return exceeds a com-pany’s estimated weighted average cost of capital.

182. Attachment 3 contains more informationon IFC’s EI investment activities.

183. Before that, the World Bank reviewed theenvironmental aspects of IFC’s projects, usingguidelines initially published in 1984 and revisedin 1988.

184. Available online at http://www.ifc.org/enviro/EnvSoc/childlabor/childsafeguard.htm.

185. Available online at http://www.ifc.org/enviro/enviro/pollution/guidelines.htm.

186. Ibid.187. Category ‘A’ projects are “likely to have

significant adverse environmental impacts thatare sensitive, diverse, or unprecedented.” Theyrequire EIAs that normally cover (a) environ-mental and social baseline conditions; (b) poten-tial environmental and social impacts (directand indirect), including opportunities forenhancement, cumulative impact, and otheranticipated developments; (c) systematic com-parison of feasible alternatives, sites, technolo-gies, and designs; (d) preventive, mitigating, andcompensatory measures; (e) capacity for envi-ronmental and social management and trainingprograms; (f) detailed results of the public con-sultation and disclosure program; and (g) mon-itoring. They usually quantify capital andrecurrent costs, environmental and socialstaffing, training, monitoring requirements, andthe benefits of proposed alternatives and miti-gation measures. See www.ifc.org/enviro/EnvSoc/ESRP/esrp.htm.

188. For example, a feasibility study for a proj-ect that would—if implemented—be catego-rized as ‘A’ was categorized as ‘C’ (no impact);an exploration project potentially affecting anature reserve and indigenous people was cat-egorized as ‘B.’ The CAO’s safeguard policyreview found that decisions about categorizations“may be inconsistent and non-transparent.” IFC’s

Environment and Social Development Depart-ment conceded that consistent categorizationwas difficult. This suggests a need for better guid-ance, transparency, and peer review.

189. For a more detailed description of theMillennium Development Goals, seewww.developmentgoals.org. We did not havesufficient data to analyze performance for theimportant goal of poverty reduction. Also,OEG’s analysis did not control for other factorsthat may affect achievement of MillenniumDevelopment Goals, such as, for example,income per capita.

190. Twenty-two projects were approved1991–96 and evaluated 1996–2001, 10 in miningand 12 in oil and gas.

191. There was insufficient information torate the twelfth project, as IFC had exited fromthe investment.

192. The portfolio analysis is mainly based ondesk reviews, even though some of the resultswere verified through OEG’s 13 field visits. Itexcludes 14 projects that were considered imma-ture and 5 projects from which IFC had exitedand insufficient information for an overall assess-ment was available. It also summarizes ratingsfor multiple projects in the same company andtakes into account longer-term developmentsthan the typical five-year span of the moredetailed evaluations. See Attachments 4e and 4f.

193. Ratings for the sample of evaluated proj-ects were not updated to incorporate new infor-mation, to remain comparable with those ofnon-EI projects in the same sample and allow formeaningful statistical analysis. For the studiedprojects, such new information was incorporated.For example, in several cases, material problemshad later been corrected and OEG considered thatthe earlier shortfalls were not material enough towarrant a rating less than satisfactory. Also, theevaluated sample included 1991–92 projects,some with environmental problems, that were nolonger considered in the studied portfolio(approvals since 1993 and current portfolio).

194. For example, some companies haveestablished a zero flaring goal. Shell’s and BP’ssustainability reporting is considered among thebest in the oil industry. See www.sustainabil-ity.com for the Top 50 corporate reports.

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195. IFC’s 2001 offshore guidelines require thefollowing: minimize low pressure and eliminatehigh pressure flaring (or justify where this is notpossible), eliminate continuous venting and min-imize emergency venting, and calculate GHGemissions annually. The World Bank’s 1998onshore guidelines simply state, “minimize flar-ing” but “flaring is preferable to venting.”

196. See www.worldbank.org/ogmc/global_gas.htm.

197. The code can be found at www.cyanide-code.org/thecode/thecode.PDF.

198. IFC’s policy requires that “all its opera-tions are carried out in an environmentally andsocially responsible manner.”

199. Community Development Resource Guidefor Private Companies, IFC (2000), http://www.ifc.org/enviro/Publications/Community/IFC_CDR_Guide.pdf. Also, the World Bank MiningDepartment hosted a conference on Local Man-agement of Mineral Wealth, June 2002.

200. Examples of SME linkage programs in EIinclude Chad-Cameroon Pipeline; Kyrgyz Repub-lic—Kumtor Gold Mine; Mozambique—MozalAluminum Smelter; Nigeria—Niger Delta Con-tractor Credit Facility.

201. An IFC specialist for social developmentexpressed some frustration that investment staffsometimes resist community development plansbecause they are not mandatory (unless theproject involves resettlement).

202. A UNEP study, The Role of FinancialInstitutions in Sustainable Mineral Development(2002), recommended benchmarking projectsagainst international standards, such as the WBGguidelines (www.mineralresourcesforum.org/docs/pdfs/zemek.pdf). A 2001 study for Japan’sMinistry of the Environment considered WBGguidelines to be the highest among internationalfinancial institutions (http://www.env.go.jp/en/jeq/v006-04.pdf). Industry associations(OGP/IPIECA’s 2002 study, Key questions in man-aging social issues in oil & gas projects,www.ipieca.org/downloads/social/impact_assess-ment.pdf) recognize that WBG policies and guide-lines set de-facto standards where others do notexist—for example on resettlement. These posi-tive views were confirmed by OEG’s own eval-uations, research, and interviews.

203. The Environmental and Social Chal-lenges of Private Sector Projects: IFC’s Experience(2002), http://www.ifc.org/publications/pubs/loe/loe8/loe8.html.

204. This can put IFC in a difficult position,because it does not disclose the environmentalperformance of projects. For example, one clientclaimed compliance even though an evaluationhad just established material noncompliance.Clearly, IFC cannot verify claims of nonclients.

205. Available online at http://ifchq14.ifc.org/App s /OSD / IOToo l k i t . n s f / R e s ou r c e ?OpenFrameSet.

206. See, for example, the guidance notes atwww.ifc.org/enviro/EnvSoc/ESRP/Guidance/guidance.htm.

207. Banks adopting the so-called “EquatorPrinciples”—a voluntary set of guidelines basedon the social and environmental policies of IFCand the World Bank—are ABN AMRO Bank,N.V.; Barclays PLC; Citigroup, Inc.; Credit Lyon-nais; Credit Suisse Group; HVB Group;Rabobank; Royal Bank of Scotland; WestLB AG;and Westpac Banking Corporation.

208. IFC did not update safeguard policiesduring the CAO review of these policies.

209. Interestingly, many of these issues arecovered in the best practices for oil and gas com-piled with input from different stakeholdergroups and hosted on the World Bank’s Web site.However, these best practices (www.world-bank.org/ogsimpact) are unofficial and not evenwell known within IFC.

210. www.hrw.org/corporations.211. www.state.gov/www/global/human_

rights/001220_fsdrl_principles.html.212. The World Bank’s Operational Policy

7.60 (OP 7.60, June 2001), Projects in DisputedAreas, relates to disputes among countries, notwithin a country.

213. No assessment of the environmentaleffects of eight projects was possible: in five, IFCno longer had an investment and had insufficientinformation before exiting; in one, the sponsordoes not have the contractual obligation toreport because IFC has only an equity invest-ment; in two, projects had not begun commer-cial operations. Even for newer equityinvestments, IFC is not always able to contrac-


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tually require compliance with its environmen-tal policies and guidelines—but IFC’s reviewprocedures do not distinguish between invest-ment instruments.

214. For example, OEG’s Annual Review ofIFC’s Evaluation Findings: FY2001, in OEGFindings (April 2003) (http://www.ifc.org/oeg/OEG_Findings_042103.pdf).

215. An exception is one project where IFC hadput in place funds for mine closure before exit-ing and controlled their use even after the exit.IFC is now handing over the responsibility to over-see use of the funds to the local regulatory agency.

216. For example, World Bank sector adjust-ment loans in Ghana and Peru helped supportcapacity-building for proper environmental gov-ernance in EI. But due to insufficient funds, itis unclear whether the monitoring regimes willbe sustainable.

217. For example, by securing InternationalStandards Organizations (ISO) 14001, BS8800,and/or National Occupational Safety Association(NOSA) ratings.

218. For example, one IFC client did notcomplete a baseline study and thus experiencedmajor difficulties when faced with claims of pol-lution, and land and agriculture degradation;another client reportedly completed a baselinestudy but was subsequently unable to locate it.

219. For example, villagers claimed a companyhad not compensated for the destruction of along-standing village, but photographic evidenceshowed the village did not exist before miningactivities were announced; numerous claims ofstream and drinking water pollution could be dis-proved by evidence of prior conditions.

220. NGOs have criticized IFC, saying that itcannot demonstrate that EI projects reducepoverty and improve living standards. In the past,IFC has not consistently tracked changes in envi-ronmental and, particularly, socioeconomic indi-cators. OEG observed negative impacts in someprojects it visited—but clear improvements inothers.

221. While these guidelines apply in princi-ple only to coal, iron ore, and base metal proj-ects, IFC has in practice also applied them toother mining projects. Reserving money is notrequired in the general 1995 open pit and under-

ground mining guidelines, another exampleillustrating the need to update IFC’s guidelines.These are the guidelines relevant for preciousmetal mining, the largest share of IFC’s miningportfolio.

222. For example, in one portfolio project itwas doubtful whether and how funding formine closure could be secured, and in anotherIFC did not know whether a mine had beenclosed in line with IFC requirements. Supervi-sion documents do not consistently addresswhether mine closure plans and funding are inplace.

223. In It’s not over when it’s over: Mine clo-sure around the world (2002), the mining pol-icy group of the WBG’s global product group hassuggested several options for dealing with thisproblem, such as “closure bonds,” warranties,securities, and insurance.

224. Ibid. The publication recognizes thatmany aspects of mine closure are beyond the pri-vate sector’s control but recommends severalsteps that mining companies should undertake.

225. IFC asked the client to redress the prob-lem, but the client chose to prepay IFC’s loaninstead.

226. In another project, the reputation of anIFC client suffered because of a tailings dambreak at an adjacent mine.

227. For example, while IFC has stronglyadvocated the Business Case for SustainableDevelopment, IFC’s guidance for nominees to cor-porate boards does not specify whether they areexpected to promote the sustainability concept.

228. For example, ASM is a major issue in sev-eral mining projects in Africa.

229. See Annex C on what the World Bankhas done and can do with respect to ASM, thecollaborative group on ASM (http://wbln1018.worldbank.org/IFCEXT/casmsite.nsf) in whichthe WBG participates, and the MMSD workingpaper on ASM (www.iied.org/mmsd/activi-ties/small_scale_mining.html).

230. For IFC’s current disclosure policy, seewww.ifc.org/enviro/enviro/Disclosure_Pol-icy/disclosure.htm.

231. IFC’s disclosure policy is ambiguous: itrequires that the summary of project informationand environmental review summary be updated

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when there are material changes, but it does notspecify whether this also applies after Boardapproval. In practice, IFC did not always updatethese documents where later changes occurred.

232. In its current form, the AMR is highlytechnical, sometimes running into hundreds ofpages and would not necessarily lend itself forpublication. A less technical summary of key indi-cators of environmental, social, health, and safetyperformance (standardized to the extent possi-ble) may be preferable.

233. Trust and validity can be increased whenthe community participates in the monitoringactivities and in the design of the baseline datacollection, gets trained in sampling and analyt-ical techniques, and participates in the record-ing and archiving of the data. Such measurescould proactively increase trust or may be nec-essary once trust is lost.

234. Examples include an updated environ-mental action plan for La Colorada (Mexico)and an updated environmental managementplan for Konkola Copper Mine (Zambia).

235. This is true not only for EI, but for IFC’sentire portfolio.

236. For example, Kumtor in the KyrgyzRepublic (www.cameco.com/operations/gold/kumtor/index.php) or MBR, a Brazilian com-pany: (www.mbr.com.br/eng/meioambiente/meioambiente.asp).

237. Disclosure of financial information,including revenues generated for governments,is covered in the next section.

238. Available from the WBG bookstore oronline at www.ifc.org/enviro/Publications/Prac-tice/practice.htm.

239. For Category ‘A’ projects, IFC’s 1998procedures require that “The project sponsorcontinues to consult with relevant stakeholdersthroughout project construction and operation,as necessary, to address environmental assess-ment related and other issues that affect them.IFC requires the project sponsor to report onongoing consultation as part of its annual report-ing requirements” (emphasis added).

240. For example, one IFC client did not effec-tively consult the community and key players atthe outset. An accident with hazardous materialspill soured community relations, cost the com-

pany millions of dollars, and created major andcostly problems; it may result in preventing themfrom developing an important deposit on the con-cession. The company started an active socialassistance program, but it came late.

241. IFC has prepared a checklist for improvedpublic consultation, “Doing Better Businessthrough Effective Publish Consultation and Dis-closure: A Check Sheet” (Attachment 6).

242. This is particularly the case where gov-ernments get revenues based on production orrevenue (e.g., royalties), not on profitability. Inaddition, in several projects, notably in Europeand Central Asia and Africa, the governmentretroactively changed fiscal rules or contractualarrangements.

243. OEG used the 2001GRICS published bythe World Bank Institute. It measures perceptionsof a large number of respondents, and, as withany such indicator, individual country rankingsare subject to large margins of error. Countrieswere sorted using a composite of the average rat-ings for voice and accountability, political stability,government effectiveness, regulatory quality,rule of law, and control of corruption, and thenwere divided into quartiles. Results are similarusing Transparency International’s 2002 Cor-ruption Perceptions Index. However, IFC staffattested that IFC had not invested in severalprojects due to country governance concerns.

244. For example: IMF Economic Issue 6: Whyworry about corruption. (Paolo Mauro, 1997).Also: IMF Economic Issue 12: Roads to nowhere:How corruption in public investment hurts growth(Hamid Davoodi and Vito Tanzi, 1998).

245. Transparency International ranks themin the top third on corruption, ahead of severalindustrialized countries.

246. “Good” control of corruption—govern-ment effectiveness, voice and accountability,political stability, and rule of law—was definedas the top half of the World Bank Institute’s“GRICS-II” data. Too few (4 of 45 studied proj-ects) of IFC’s EI investments were in countrieswith good control of corruption to conductmeaningful statistical analysis.

247. Ranking in terms of “successful” wasbased on returns (in NPV terms). “Highest cor-ruption” countries were those in the bottom


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quartile of Transparency International’s 2002Corruption Perception Index.

248. Rankings for control of corruption byquartile of the World Bank Institute’s “GRICS-II”data.

249. Bribery in business sectors: www.trans-parency.org/cpi/2002/bpi2002.en.html#sectors.

250. See www.oecd.org and the section oncorruption.

251. For example, the United States with theForeign Corrupt Practices Act of 1977.

252. For more details, see www.worldbank.org/afr/ccproj.

253. Revenue distribution and managementin IFC projects: www.ifc.org/test/sustainabil-ity/docs/Revenue_Distri_Mgmt.pdf.

254. See http://www.ifc.org/ogmc/socialan-deconomicimpact.htm.

255. The “extractive industries transparencyinitiative” (www.dfid.gov.uk/News/News/files/eiti_guide.htm) and “publish what you pay”(www.publishwhatyoupay.org) advocate dis-closure.

256. See, for example, IFC’s publication, TheBusiness Case for Sustainability (www.ifc.org/test/sustainability/docs/TheBusinessCase.pdf)and its 2002 Sustainability Review (http://www.ifc.org/ar2002/review/sustainability.html).See also the work of the Natural Resources Clus-ter of Business Partners for Development(www.bpd-naturalresources.org).

257. Over 90 percent of 33 staff responded.We did not survey managers and directors butinterviewed them individually.

258. Fifty-two percent of IFC respondents sawthis as a problem. Their comments included,“The big issue is that the WB country departmentsrarely give adequate priority to mining issues.”“IFC/WB coordination happens only on an indi-vidual basis at staff level and on the director level,but the former is not very consistent.”

259. Eighty-eight percent of 34 WBG respon-dents stated that the WBG avoided good EIprojects due to safeguard concerns. This confirmsthe 2001 Fourth Quality-At-Entry Assessment bythe WBG’s Quality Assurance Group, whichfound that risk aversion resulted in droppingenvironmental components of projects. Ananonymous World Bank survey respondent put

it bluntly: “The World Bank Management isextremely sensitive to developed country socialand environmental NGOs.”

260. This recommendation also applies tocountries expected to become resource-rich,through a large IFC-supported project, for exam-ple, and where IFC intends to make investmentsmore generally.

261. One form of public-private partnerships,as recommended in the WBG’s Private SectorDevelopment Strategy (2002) is “output-basedaid” (OBA). OBA would use public funding, atleast in part, but feature private provision of serv-ices. Some taxation schemes allowing tax cred-its for community development expendituresare similar to OBA.

262. For example, IFC should encourage dis-closure of production-sharing agreements, con-cession, and privatization terms, as well aspayments made to governments at different lev-els. Given that providing this information iseven illegal in some countries and investorsmay have justified concerns about unilateraldisclosure, the WBG should encourage country-or industrywide disclosure.

263. “Significant” should be considered bothin absolute terms and in relation to total sectorproduction, based on analysis of past experience,and may vary by country.

264. IFC should continue to appraise projectsby comparing their global competitiveness andreview in-depth geological and metallurgicalcharacteristics. IFC should also diligently checkthe background of sponsors and how conces-sions were awarded.

265. Current supervision of EI projects is sig-nificantly better than average, and these rec-ommendations build on this strength.

266. This requirement should apply to allportfolio companies. For example, IFC shouldroutinely ask clients for Annual MonitoringReports, even where they are not required.

267. The requirements should encompassenvironmental and social risks, as well as finan-cial risks (e.g., from hedging) and parallel whatIFC normally addresses in its loan covenants.

268. IFC should encourage its clients toimprove their practices in line with evolvinggood industry practices. Where clients do not

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correct important shortfalls, IFC should call theloan, raise the issue at shareholders’ meetings,or inform the local regulatory agency, or thepress. IFC should consider developing guidelineson how active it should be as a shareholder.

269. Together with the World Bank and otherstakeholders.

270. The policies and guidelines need to becomprehensive enough to capture all importantenvironmental and social effects, local, regional,and global, as well as short- and long-term. Yet,they also need to be practical and reflect IFC’sindustry experience: they need to be realistic(achievable at reasonable cost), client-driven(adaptable to the client’s other reporting require-ments), and monitorable (sufficiently specific). Tobe practicable, the policies and guidelines shouldmeet the business case for sustainability, that is,implementing them should be in a company’slong-term commercial interest.

271. IFC could build on existing industry ini-tiatives. Information on industry-specific indi-cators should include, for example, fiscalrevenue generation, health and safety statistics(including HIV/AIDS prevention), gas flaring (orgreenhouse gas emissions), adequacy of mineclosure preparations (including funding) and oiltransportation arrangements, hazardous mate-rials management, and emergency responseplans. It could also include data to capture pri-vate sector contributions beyond compliance,such as infrastructure, health, and educationservices. The reporting requirements shouldalso include relevant sustainable developmentindicators, such as water quality, access topotable water or schooling, and income levels.Other documentation, such as aerial photogra-phy and videotaping of the site and surround-ing areas, could help to later documentimprovements or deteriorations, and potentiallyreduce later disputes.

272. Such an assessment should be conductedas early as possible, and IFC should prepare guid-ance on what IFC and its clients should dowhen early consultations were not carried outor were insufficient.

373. For example, IFC could review the mineclosure plans of all existing clients and share bestpractices among them.

274. From 1983 until 1991, IFC also financedoil and gas exploration, but the amounts involvedwere small ($60 million). It ceased to do so,mainly because of disappointing initial results.

275. Institutional Investor country credit rat-ings below 30 or without a rating. In this reportsuch countries are referred to as “risky” countries.

276. Chad (2000), Chile (1957), Gabon (1982),Ghana (1984), Guinea (1982), Guinea-Bissau(1989), Kyrgyz Republic (1995), Mauritania(1968), Russian Federation (1993), Tajikistan(1996), Uzbekistan (1994), Zimbabwe (1981).

277. http://www.ifc.org/enviro/enviro/Disclosure_Policy/disclosure.htm.

Annex E278. The first guarantee issued by MIGA

(1990) was in mining.279. OED for the Bank, OEG for IFC, and

OEU for MIGA.280. See Joint OED/OEG Evaluation of WBG

Activities in the Extractive Industries Sector—Approach Paper, p. 4 ff.

281. “MIGA project” refers to a MIGA-insuredinvestment project. A single project may have sev-eral contracts of guarantee, depending on thenumber of investors/lenders requesting coverage,the type of investment insured (equity, debt), andthe risks insured (expropriation, war and civil dis-turbance, transfer restriction, breach of contract,or a combination thereof). Because contracts ofguarantee have a limited lifespan, the term “MIGAproject” in this report also refers to a project thatwas insured by MIGA but for which coverage waseither cancelled or has expired.

282. All 31 projects conform to the definitionof EI sector projects in the context of this jointWBG evaluation, which is consistent with theclassification used by MIGA.

283. For one project selected for the review,only a partial evaluation could be made.

284. In total, MIGA issued 51 Contracts ofGuarantee in support of 24 mining projects and10 contracts for 7 oil and gas projects.

285. Contracts of guarantee issued in FY01 inmining were for existing MIGA projects.

286. Also see results of MIGA staff survey.287. The mean was 3.9 years and the standard

deviation 1.55 years.


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288. Accessible at www.ipanet.net orwww.miga.org.

289. MIGA’s early work in this respect wascited in the Mining Journal (January 1997) as animportant factor leading to the resurgence in min-eral exploration and mining project planning inAfrica in the mid-1990s.

290. Because MIGA had not officially adoptedits own safeguard policies from its inception, itis more appropriate to evaluate the “consis-tency” of its projects with these polices ratherthan “compliance.”

291. Based on a review of MIGA EI projects’consistency with safeguard policies undertakenin conjunction with this evaluation.

292. Nine mining and three oil and gas proj-ects, with one project undergoing incompletereview. Therefore, graphs in this section pres-ent the results for 11 projects.

293. The World Bank has 10 safeguard poli-cies, of which 7 are covered in the presentreview: (OP/BP 4.01, Environmental Assess-ment; OP 4.30, Involuntary Resettlement; OD4.20, Indigenous Peoples; OP 4.04, Natural Habi-tats; OP 4.37, Safety of Dams; OPN 11.03, Cul-tural Property; and OP/BP 7.50, Projects onInternational Waterways. The following threepolicies are not covered in the present review:OP 4.09, Pest Management; OP 4.36, Forestry;and OP/BP 7.60, Projects in Disputed Areas.

294. Shortly after MIGA obtained its in-houseenvironmental expertise, a review of the port-folio was conducted to identify high-risk proj-ects from an environmental and socialstandpoint, as well as priorities for potentialmonitoring site visits.

295. In its description of Framework for Safe-guard Policies at MIGA.

296. IFC or WB environmental and socialspecialists reviewed 10 out of 12 projects cov-ered in this safeguards review.

297. Roger J. Batstone, Review of Implemen-tation of Safeguard Policies of World BankExtractive Industries Projects, OED BackgroundPaper World Bank (2003).

298. A list of MIGA safeguard policy triggersis shown in Attachment 4.

299. OEU rated consistency with safeguardpolicies using a scoring system with four cate-

gories: negligible, modest, substantial, and high,as defined in Attachments 3a and 3b. Projectswere substantially consistent when the “set ofrequirements generally was met, or expected tobe met, with only minor shortcomings.”

300. While one guarantee project was approvedby MIGA’s Board in 1992 to cover the initialstages of project development, OEU’s assessmentof the consistency with safeguard policies wasbased on documents available when the projectwas approved by IFC’s Board in 1996, as the scopeand design of the project changed appreciablybetween 1992 and 1996. Assessment ratings werebased on the full feasibility study and compre-hensive EA, which were completed in 1995.

MIGA Management notes that if this uniquecase was excluded from the scoring in Table 1,the ratings would have been significantly higherin many categories.

OEU notes that it has selected a representa-tive sample covering 39 percent of MIGA guar-anteed projects and including various types ofpartnerships and arrangements for MIGA guar-antees.

301. Assignment of environmental categories(‘A’ or ‘B’) was appropriate for all sampled proj-ects, with the possible exception of one project‘N’ for which documentation was incomplete.

302. MIGA Management notes that there isclear documentation in the files that showsthat all the key concerns of the IndigenousPeoples Policy and the Involuntary ResettlementPolicy were addressed at the planning level, atthe minimum, in well over half of the applica-ble projects.

303. MIGA’s EA disclosure policy requiresthat, “For all Category ‘A’ projects during theenvironmental assessment process, MIGA willrequire the project investor to consult, or to haveconsulted, project-affected groups and local non-governmental organizations about the project’senvironmental impacts, and to take their viewsinto account. The project investor should initi-ate such consultations as early as possible, andconsult with such groups throughout projectimplementation, as necessary, to address project-related environmental and social issues that affectthem.” There is no requirement for public con-sultation in MIGA-approved Category ‘B’ projects.

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304. MIGA’s General Conditions of Guaran-tee have been revised over the course of theperiod that MIGA has been in existence and,hence, over the period that is covered by theprojects under review. For all guarantee issuedsince 1999, MIGA has the right to terminate thecontract if the project does not comply withMIGA’s environmental policies and guidelines.

305. Due mainly to monitoring requirementsof senior lenders and other bilateral insuranceagencies.

306. The reinsurance agreement covering thisproject pre-dates the current reinsurance prac-tice by which MIGA’s environmental and safe-guard policies must be adhered to if MIGA is toact as an reinsurer. In particular, MIGA willrequire that the primary insurer change its con-tract wording, if necessary, to meet MIGA’s stan-dards. All current MIGA reinsurance contractsinclude MIGA’s right to terminate the reinsurancecontract if the investor is not in compliancewith MIGA’s environmental and social policiesand guidelines.

307. Unlike the World Bank, MIGA does nothave a Projects in Disputed Areas safeguardpolicy.

308. The new evaluation framework approvedby CODE in 2002 introduces systematic cost-ben-efit analysis to the evaluation of individual guar-antee projects and harmonizes evaluationstandards with those used by OEG. The devel-opment outcome of guarantee projects is eval-uated in four different categories: BusinessPerformance of the project, Economic Sustain-

ability, Environmental and Social Impact, andImpact on Private Sector Development. OEUuses the following rating scale: Satisfactory,Moderately Satisfactory, Moderately Unsatisfac-tory, and Unsatisfactory.

309. Internal MIGA staff workshops under-taken in 2003 have identified similar shortcom-ings of the RMC process and other MIGAdecisionmaking committees.

310. For a recently closed down project, OEUassumed a net job creation of zero.

311. From Framework for Safeguard Policies atMIGA. MIGA’s external Web site: www.miga.org.

312. Op. cit. Ibid.313. It should be noted that given the size of

the Agency, the survey was administered to theentire population of current MIGA underwritersand project managers involved in EI projects.Thus, it was sent to 12 MIGA active staff, witha response rate of 83 percent (10 staff).

314. The CAO report Insuring ResponsibleInvestments? A Review of the Application ofMIGA’s Environmental and Social Review Pro-cedures (CAO03/07/2003, accessible atwww.cao-ombudsman.org) also deals with thetreatment of environmental issues but addressesprocedural compliance rather than the more in-depth examination of compliance with individ-ual safeguard policies, which OEU considered.Thus, it is not directly comparable with this staffsurvey, which specifically asked about the treat-ment and application of environmental issues inEI projects.


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Study Series2003 Annual Review of Development Effectiveness: The Effectiveness of Bank Support for Policy Reform

Agricultural Extension: The Kenya Experience

Assisting Russia’s Transition: An Unprecedented Challenge

Bangladesh: Progress Through Partnership

Bridging Troubled Waters: Assessing the World Bank Water Resources Strategy

The CGIAR: An Independent Meta-Evaluation of the Consultative Group on International Agricultural Research

Debt Relief for the Poorest: An OED Review of the HIPC Initiative

Developing Towns and Cities: Lessons from Brazil and the PhilippinesThe Drive to Partnership: Aid Coordination and the World Bank

Financial Sector Reform: A Review of World Bank Assistance

Financing the Global Benefits of Forests: The Bank’s GEF Portfolio and the 1991 Forest Strategy and Its Implementation

Fiscal Management in Adjustment Lending

IDA’s Partnership for Poverty Reduction

Improving the Lives of the Poor Through Investment in Cities

India: The Dairy Revolution

Information Infrastructure: The World Bank Group’s Experience

Investing in Health: Development Effectiveness in the Health, Nutrition, and Population Sector

Jordan: Supporting Stable Development in a Challenging Region

Lesotho: Development in a Challenging Environment

Mainstreaming Gender in World Bank Lending: An Update

The Next Ascent: An Evaluation of the Aga Khan Rural Support Program, Pakistan

Nongovernmental Organizations in World Bank–Supported Projects: A Review

Poland Country Assistance Review: Partnership in a Transition Economy

Poverty Reduction in the 1990s: An Evaluation of Strategy and Performance

Power for Development: A Review of the World Bank Group’s Experience with Private Participation in the Electricity Sector

Promoting Environmental Sustainability in Development

Reforming Agriculture: The World Bank Goes to Market

Sharing Knowledge: Innovations and Remaining Challenges

Social Funds: Assessing EffectivenessUganda: Policy, Participation, People

The World Bank’s Experience with Post-Conflict Reconstruction

The World Bank’s Forest Strategy: Striking the Right Balance

Zambia Country Assistance Review: Turning an Economy Around

Evaluation Country Case SeriesBosnia and Herzegovina: Post-Conflict Reconstruction

Brazil: Forests in the Balance: Challenges of Conservation with Development

Cameroon: Forest Sector Development in a Difficult Political Economy

China: From Afforestation to Poverty Alleviation and Natural Forest Management

Costa Rica: Forest Strategy and the Evolution of Land Use

El Salvador: Post-Conflict Reconstruction

India: Alleviating Poverty through Forest Development

Indonesia: The Challenges of World Bank Involvement in Forests

Uganda: Post-Conflict Reconstruction

ProceedingsGlobal Public Policies and Programs: Implications for Financing and Evaluation

Lessons of Fiscal Adjustment

Lesson from Urban Transport

Evaluating the Gender Impact of World Bank Assistance

Evaluation and Development: The Institutional Dimension (Transaction Publishers)

Evaluation and Poverty Reduction

Monitoring & Evaluation Capacity Development in Africa

Public Sector Performance—The Critical Role of Evaluation

Multilingual EditionsAllègement de la dette pour les plus pauvres : Examen OED de l’initiative PPTE

Appréciation de l’efficacité du développement :

L’évaluation à la Banque mondiale et à la Société financière internationale

Determinar la eficacia de las actividades de desarrollo :

La evaluación en el Banco Mundial y la Corporación Financiera Internacional

Côte d’Ivoire : Revue de l’aide de la Banque mondiale au pays

Filipinas: Crisis y oportunidades

Reconstruir a Economia de Moçambique

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