IFIs in Africa News Briefing

Issue #32

Tuesday, August 19, 2008

In this issue:


IFC considers record mining investment in Guinea as its Simandou concession comes under dispute

A deal with the world’s third largest mining company, Rio Tinto, has been rescinded by the Government of Guinea, which had previously cited irregularities in the agreement granting the company mining permits. According to Rio Tinto, a letter sent by the president’s office “purports to transfer the deposits back to an exploration lease” in Guinea’s iron-rich Simandou mountain range, which could become a major new source of iron ore at a time of record prices.

The International Finance Corporation (IFC) – the World Bank’s private sector lending arm – has invested $35 million in the project for a 5 percent share. It is yet to respond publicly to these latest developments, but Rio Tinto has stated that it and the IFC “remain committed to the project.”

The outcome of the dispute is critical for Rio Tinto, which has cited the huge potential value of its Simandou claim – estimated at $6 billion – in fending off a hostile takeover bid by its rival, BHP Billiton.

The media has by and large attributed the dispute to the wiles of Guinea’s ailing and increasingly erratic president, Lansana Conté, who has ruled the country for the last 24 years. Indeed, within the space of a week, Conté fired the official responsible for questioning the Simandou agreement in the first place, promoted him, and then sacked him again.

However, the letter to Rio Tinto rescinding the Simandou mining permit came just days after the government announced the prospect of an agreement with Chinese investors granting rights to Guinea’s mineral resources in exchange for billions of dollars in investments. Australia’s The Age suggests these events may not be unconnected, describing this development as “Guinea’s latest threat to Rio’s Simandou ownership.”

Transparency International's Greg Thompson has come out on the side of Rio Tinto, telling AFP that the country “would miss out on all the benefits” and that “the big losers would be Guinea’s impoverished people if the project was cancelled.” Still, it remains unclear how much Guinea’s poor would stand to gain from the project, and what all of those benefits would be. In 2007, an International Crisis Group report suggested that mining revenues have been captured by President Conté and have helped sustain his grip on the country during his decades in power. Transparency International also ranks Guinea as one of the world’s most corrupt countries.

In addition, the environmental and social consequences of mining in Guinea have also led to deepening poverty for local communities. Despite assurances from the IFC that it will help develop the Simandou project “in an environmentally and socially sustainable way,” the institution has a poor track record of ensuring that its involvement in mining projects mitigates negative impacts and improves the lives of people on the ground.

At the same time that the future of the Simandou project is in doubt, the IFC is also reportedly considering investing $500 million in the Guinea Aluminum Corporation joint venture, a megaproject that would entail the establishment of a bauxite mine, alumina refinery, power plant, and port facilities. The project would be operated and partially owned by BHP. If approved, it would represent one of the IFC’s largest commitments ever and, with a $4.7 billion price tag, the total project cost would surpass even that of the disastrous Chad-Cameroon Pipeline – to date the single largest on-shore investment in Africa.



Bretton Woods Institutions send mixed messages about China’s role in Africa

At the same time that the World Bank congratulates China for investing billions in addressing Africa’s significant infrastructure gap, its sister institution the International Monetary Fund (IMF), Reuters reports, “has said it must examine the implications of a $9 billion deal between China and the Democratic Republic of Congo before deciding on its own debt relief package.”

During a recent visit to the DRC, the Bank’s regional Vice President for Africa Ngozi Okonjo-Iweala told journalists when asked about the deal that “the World Bank has no problem,” though cautioned that “each financial backer” financing development projects in Africa “must be transparent in its deals” – a clear reference to critiques that the terms of deals with Chinese investors have largely remained undisclosed.

In response to these persistent concerns, African finance ministers and central bankers issued a statement pledging transparency in their countries’ deals with China after meetings with the World Bank and IMF in Mauritania. The IMF’s Managing Director told Reuters, “It's good news that there are new sources of financing, but we have to be very careful in order that this new financial help does not destroy the original policies of the Bretton Woods institutions that aim to cancel debt.” Indeed, whether or not the World Bank approves of these major news deals such as the $9 billion for the DRC, it will be up to the IMF to decide whether the country qualifies for debt relief from the World Bank and others.

According to Reuters, the $9 billion Chinese loan and investment package to the DRC will primarily finance the development of infrastructure, mainly for much needed roads and power supply, in exchange for access to the DRC’s abundant mineral wealth. The deal would put China’s financial contribution to the country well above that of the Bank, which recently pledged $1.5 billion over the next three years.

In fact, a recent World Bank report has highlighted China’s role in building Africa’s infrastructure, particularly for transportation and power. While acknowledging that 70 percent of China’s investments are directed toward the four countries on which it depends most for oil and raw materials – Nigeria, Sudan, Ethiopia and Angola – the report notes that when it completes the ten hydropower plants it is currently constructing, China will have increased sub-Saharan Africa’s power generation capacity by 30 percent.

This becomes all the more critical when the World Bank has fallen well short of its own pledges to ramp up financing for infrastructure on the continent under its Africa Action Plan, which were based on optimistic projections of new resources following the G-8’s commitments to double aid to Africa in 2005. However, the Bank has recently unveiled plans to scale up finance for infrastructure over the next three years, and much of the anticipated increase for Africa is likely to come in the form of public-private partnerships (PPPs). Many of the Bank’s most controversial projects in Africa have been PPPs, such as the Bujagali Dam in Uganda, the West African Gas Pipeline between Nigeria and Ghana, and the Chad-Cameroon pipeline.

Since the Chinese economy has taken off and it has increasingly looked to Africa to provide raw materials, the World Bank has been confronted with the question of how to respond. For the most part, the Bank has appeared to welcome China’s renewed involvement on the continent, as evidenced by its laudatory new infrastructure report and overtures by Bank President Robert Zoellick last year to collaborate on projects with the Export-Import Bank of China (China Exim). However, it is unclear whether the much touted initiative has led to any joint projects, and some observers have speculated that the Bank’s decision to team up with China Exim is part of its strategy to avoid competition with its rapidly growing Chinese counterpart.

Meanwhile, there has been much speculation that China’s search for raw materials could be behind the recent decision by the Government of Guinea to rescind its agreement with Rio Tinto in its Simandou iron ore concession (see “IFC considers record mining investment in Guinea as its Simandou concession comes under dispute” above). The decision to cancel the project – in which the Bank’s private lending arm, the IFC, holds a 5 percent stake – came just days after a delegation of Chinese investors visited the country and the government announced it was negotiating a multi-billion dollar investment in exchange for mineral rights. Reuters reports that China had earlier agreed to build a $1 billion hydropower plant for the access to Guinea’s extensive bauxite deposits.



World Bank announces countries eligible for avoided-deforestation credits

The World Bank took the next step in making its controversial Forest Carbon Partnership Facility (FCPF) a reality on July 24 when it announced the list of countries that would be eligible to receive grant funding to prepare for participation in the initiative.

Six of the 14 countries chosen are in Africa: Democratic Republic of Congo (DRC), Gabon, Ghana, Kenya, Liberia, and Madagascar. Five countries in Latin America and three in Asia were also selected.

The FCPF is designed to reward countries which preserve endangered forests, and is a response to the long-acknowledged fact that deforestation and piecemeal degradation of natural forests is responsible for between twelve and twenty percent of the carbon emissions contributing to global warming. The greenhouse gas emissions associated with the consequent release of carbon are the only kind to come primarily from developing countries. Impoverished peoples seeking new farmland are the typical agents of deforestation, so addressing the problem requires acute attention to livelihoods and income opportunities for vulnerable communities.

The DRC, the largest country in the Congo Basin, which hosts the world’s second-largest surviving tropical forest, was expected to be included in the program, although there were some doubts about whether its administrative infrastructure would be judged viable. In 2007, the World Bank’s Inspection Panel issued a damning report on Bank-sponsored forestry projects in DRC in which entire populations of indigenous Pygmies were disregarded. Both Congolese and international groups involved in that complaint to the Bank will be watching keenly to see how the FCPF is implemented in the DRC.

The announcement of the eligible countries was made at a two-day meeting of the FCPF’s Steering Committee in Paris. The constitution of that body has been a bone of contention. It now includes an equal number of developing (potential beneficiary) and industrialized (donor) countries, as well as observers from inter-governmental organizations, non-governmental organizations, and forest-dependent peoples. The last category was hastily added to the list of observers in late 2007, as a result of consultations with civil society where it became obvious that indigenous peoples and others living in the forests had largely been omitted from discussions about the FCPF. The last-minute structural changes occurred as the World Bank was preparing to publicly unveil the initiative at the Bali climate summit of the United Nations Framework Convention on Climate Change (UNFCCC) in December 2007.

The 14 countries will participate in programs of “reducing emissions from deforestation and degradation” (REDD). Through the FCPF, they will get grants to be used for “readiness” – establishing baseline emission reference levels, creating new strategies, and designing methodologies for monitoring progress. When projects are implemented and progress is certified, governments will earn carbon credits which can then be traded on international markets.

The FCPF is controversial because it is an extension of carbon trading, a profit-based market mechanism created and maintained largely by the World Bank that many environmental groups say has had dubious impacts on reducing emissions. Carbon trading schemes like the FCPF risk creating “perverse incentives” – countries or companies may initiate destructive behavior in order to be paid to stop it. Indeed, debate continues over whether a program of incentives to preserve forests should be structured on the basis of improvements over a past record of destruction, or rewards for countries which have maintained good forest conservation records all along. The FCPF has opted for the former model, which is likely open to more abuse. Indeed, many environmental groups are concerned that logging companies claiming to use “sustainable” methods will be among the main beneficiaries of the program – a concern that neither the Bank nor others supporting FCPF have denied.

This week, the UNFCCC holds another meeting in Accra, Ghana. Civil society groups from across Africa will be meeting in advance of the official sessions to establish a network of groups on the continent working on climate issues. Another civil society meeting, drawing activists from around the world, will debate approaches to REDD.



World Bank acknowledges serious flaws in West African Gas Pipeline

Civil society activists in Nigeria are welcoming the World Bank’s acknowledgement of a series of damaging mistakes during the building of the World Bank-financed West African Gas Pipeline (WAGP) running from Nigeria through Benin, Togo, and Ghana. But they also say the report does not go far enough in answering crucial questions.

A report by the Bank’s independent Inspection Panel outlines serious errors made by the West African Gas Pipeline Company (WAPCo) as it took possession of lands in Lagos and Ogun States, Nigeria and displaced already-impoverished residents. In its response to the Panel report, the World Bank’s management admits that residents were paid just 10% of the established value of their land. The World Bank’s Board of Executive Directors earlier this month to discuss the report.

The Panel also criticized the Bank’s refusal to consider the impact the pipeline would have on communities in the Niger Delta, the source of the gas – a refusal Bank management continues to defend on the grounds that the multi-country pipeline was a distinct project from the wells and the older pipeline to Lagos that connects to the WAGP.

“The Inspection Panel has clearly laid out the reckless manner in which WAPCo disrupted the lives and livelihoods of villagers in Nigeria,” said Nnimmo Bassey, Executive Director of Environmental Rights Action/Friends of the Earth, a Nigerian non-governmental organization that was among the groups that filed the initial complaint with the World Bank. “We take satisfaction in the fact that the Panel validated our claims, and that the Bank’s management accepted responsibility for allowing WAPCo to trample people’s rights. But we still don’t have an explanation of why such grievous violations of World Bank policy were allowed to occur.”

Bassey’s colleague Mike Karikpo added, “The World Bank should explain why it failed to effectively present the case for ‘land-for-land compensation’ that Bank policy calls for, and should prove its claim that now, after the mistakes are acknowledged, there is no more land available for the displaced people. Even after reading the Bank’s version of events, it is hard to believe the Bank did not collude with WAPCo to slash the already very conservative valuation of the villagers’ property.”  

Karikpo added, “Let’s remember that WAPCo is not a struggling local enterprise, but a consortium of some of the world’s richest companies, including Chevron and Shell. It is stunning to see them, and the World Bank, deny impoverished people their due.”

Nasiru Jimoh, a member of the Igbesa community that comprises the bulk of the people displaced by the WAGP, commented, “The World Bank quoted us the prices we should be paid, and then reneged without consulting us. They have sown confusion and despair in my community. Now that they are admitting mistakes, they must publicly disclose how they decided on their valuations of our trees, crops and lands.”

The Panel also found that the project was initially promoted as an instrument to reduce the gas flaring that afflicts Niger Delta communities with unending noise, heat, light, and pollution. Actual reductions in gas flaring will be, as the Bank’s management acknowledges, substantially less than was implied before the project was begun.

The WAGP case has implications far beyond Nigeria, said Joshua Klemm, Program Associate at Bank Information Center, a Washington non-governmental organization that monitors the World Bank and other international financial institutions. “The Bank is now in the process of finalizing its strategy to address climate change, and clearly wants to take the lead on the issue. But will this be the pattern we see when the strategy gets implemented: promises made to end climate-damaging activities like gas flaring which then evaporate once the project gets built?”



Additional Articles


Note: The text of the IFIs in Africa News Briefing may be freely used providing the source is credited.

The Bank Information Center (BIC) partners with civil society in developing and transition countries to influence the World Bank and other international financial institutions (IFIs) to promote social and economic justice and ecological sustainability. BIC is an independent, non-profit, non-governmental organization that advocates for the protection of rights, participation, transparency, and public accountability in the governance and operations of the World Bank, regional development banks, and IMF.

BIC is supported by private foundations and organizations that work in the fields of environment and development. BIC is not affiliated with any of the Multilateral Development Banks, nor does it receive any funding from them.


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