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World Bank agrees to continue oil, gas lending

WASHINGTON - The World Bank this week agreed to continue making investments in oil, gas and mining, setting aside an independent review's recommendations that it phase out lending for such projects.

The bank's board of directors lent its support to a previously disclosed management proposal to encourage selective investment in extractive industries, including a greater focus on how projects may impact local communities.

"The proposals of management are built around the central theme that our investments and policy advice in the extractive industries should benefit the poor first and foremost," said World Bank President James Wolfensohn.

Wolfensohn had in 2000 commissioned an independent review of the bank's support for the extraction of oil, coal, gold and natural gas in poor nations, following concerns the lender was contributing to poverty instead of easing it.

The review, led by Indonesia's former environment minister Emil Salim, recommended the bank radically change its approach to funding such projects and even stop supporting some. Salim had called for an end of oil-related loans by 2008.

The World Bank Group's management responded in June by saying it would continue to fund oil, gas and mining projects but would require high environmental and social standards.

It also said it would boost its support for environmentally friendly renewable energies and clean energy sources like natural gas.

This week, Wolfensohn said that energy and mining resources are essential to many poor countries' development goals, and should not be excluded from the bank's remit.

"The harsh reality is that some 1.6 billion people in the developing nations still do not have electricity, and some 2.3 billion people still depend on biomass fuels that are harmful to their health and the environment," he said in a statement.

"That underscores the need for our continued but selective engagement in oil, gas, and coal investments."

Environmental and social groups criticized the World Bank decision for shying from meaningful reform.

"By largely ignoring the review's recommendations, the bank's management has ensured that the poverty pipeline will continue to flow," said Keith Slack, an extractive industries policy advisor at Oxfam.

"The bank's unwillingness to change means that this process will likely result in precious little for the poor communities affected by oil and mining projects around the world," Slack said.

Rashad Kaldany, director of the World Bank Group's oil, gas, mining and chemicals department, pointed to the bank's decision to disclose more information about revenues and evaluative measures as a sign of real progress.

"This is a large and very significant step forward," he told reporters on a conference call. "This is at the very least a cultural change that will be required. We will have to be very explicit in public on what we expect to accomplish through these projects."

The World Bank Group lends about $500 million to $600 million per year - about 3 percent of its total commitments - on extractive industries projects, Kaldany said.

In the past year, World Bank affiliates helped fund two criticized private sector oil projects - the Chad-Cameroon and the Baku-Tbilisi-Ceyhan pipelines - which both carry crude thousands of kilometers overland to the sea.

The bank management is expected to tweak language on some issues contested during the board meeting, including references to so-called "free, prior and informed consultation" rights for communities and governance standards for projects.

An updated version of its proposal will be reviewed by the board in coming weeks, the World Bank said. Following that last hurdle, the World Bank Group said it would hold an annual review of its activities in the oil, gas and mining sectors.

In a statement, the U.S. Treasury Department said it supported the bank's decision, but cautioned work was needed to help mitigate the risks associated with extractive industries in poor countries.

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