10 December 2003
By Kari Hamerschlag, Bank Information Center
March 1999
[Español]
On this page:
- Project Overview
- I. Impact of the Environmental Assessment Process on Project Design: a Mixed Review
- II. Inadequate Access to Information by Project Affected Communities
- III. Consultation Process on the EIA, Indigenous Peoples Development Plan and Strategic Assessment: Too Late in the Project Cycle
- IV. Project Monitoring and Compliance System Fails Despite Bank Supervision
- Recommendations to the World Bank and IDB
The $2 billion Bolivia-Brazil gas pipeline is the single largest private sector investment in Latin America. This 3000-km pipeline, which stretches from Santa Cruz, Bolivia to Porto Alegere, Brazil, is touted by its primary financiers, the Multilateral Development Banks (MDBs), as a model case in clean energy and strong environmental and social performance. While the environmental sustainability and economic feasibility of this project still remains in question, the pipeline does represent a positive model in Bank responsiveness and commitment to addressing myriad social and environmental impacts. It is important to keep in mind, however, that many project improvements came about in response to on-going pressure by groups at the local, national and international levels, rather than by virtue of a proactive approach on the part of the Banks.
The Banks’ project teams, in particular the social and environmental specialists, deserve credit for their consistent responsiveness to civil society concerns and their willingness to raise environmental and social issues persistently with the borrower and its partners. Nevertheless, the recalcitrance on these issues of several of the private sector sponsors1, in particular, Petrobras, was vehement and continues to remain a challenge. Throughout the preparation process, a constant tension and conflict emerged between the project proponents’ urgency to gain rapid loan approval and the rights of the affected people to gain access to information and to participate in decision making.
Public pressure directed towards the Banks and sponsors ultimately led to improvements in the project’s monitoring system, stronger Bank oversight and better communication between stakeholders and project sponsors. It also led to more substantial and inclusive Indigenous Peoples Development Plans in Bolivia and Brazil, better information dissemination among NGOs and more effective compliance with Bank policies. These improvements are evidence that active participation of project affected people significantly improves the social and environmental quality and reduces the negative impact of MDB financed and private sector operations. However, it is distressing that such intense activism and scrutiny was needed to engender these improvements. This experience points to many deficiencies in the way that the Banks currently design and carry out their lending operations. It also signals the lack of internal accountability systems to ensure adherence to the Banks own policies regardless of significant public scrutiny.
The complexity of this project has generated many lessons for all the principal actors involved: civil society organizations, international financial institutions, private sector companies and governments. This paper stresses four areas which merit greater attention by the MDBs in order improve the quality and performance of future Bank supported operations: 1) impact of the EIA process on project design; 2) access to information at the local level; 3) quality and breadth of consultation and participation in the Environmental Impact Assessment (EIA) process and Indigenous Peoples Development Plan; and 4) project supervision and monitoring. Lessons learned here equally apply to other large-scale private sector investment projects in the region.
Project Overview
In December 1997, the Inter-American Development Bank (IDB) and World Bank (WB) approved loans to finance a significant portion of the $2 billion Bolivia-Brazil gas pipeline. The IDB ($240 million) and WB ($310 million) loans went to finance Petrobras, the Brazilian state-owned energy company, the principal investor and operator of the pipeline in Brazil. The owner of the pipeline in Brazil is TGB, whose investors include Petrobras, Transredes, Enron, Shell and BTB. Gas Transboliviano, a consortia comprised of Transredes, Enron, Shell, Petrobras and others, owns the Bolivia side of the pipeline. Petrobras is responsible for pipeline construction in both Bolivia and Brazil. The Andean Development Corporation financed $84 million on the Bolivian side.
The natural gas pipeline, which is the longest in South America, runs from Santa Cruz, Bolivia to Puerto Alegre, Brazil for a total length of 3,056 kms. The pipeline crosses several fragile and important ecosystems: the Gran Chaco, a recently designated protected area of primary tropical forest in Bolivia; the Pantanal, the world’s largest wetland; and the Mata Atlantica Rainforest of Southeastern Brazil. The project has significant impacts on indigenous peoples in Bolivia and Brazil. A key challenge for the Banks has been to address pipeline impacts on the Bolivia side and to ensure that project sponsors adhere to Bank policies and procedures in Bolivia since the loan went to the Brazilian government.
I. Impact of the Environmental Assessment Process on Project Design: a Mixed Review
Initial Environmental Impact Studies Inadequate
The World Bank assigned this project a category A designation, which requires the development of a comprehensive EIA. However both Banks considered the initial EIA, completed in October 1996, to be inadequate since it neither considered the secondary impacts associated with the pipeline nor provided sufficient detail about the compensation and mitigation measures. It also lacked an Indigenous People’s Development Plan (IPDP), which is required by the World Bank in cases where the EIA highlights significant impacts on indigenous peoples. The Banks therefore required Petrobras to commission additional studies and plans including: a Strategic Environmental Assessment to look at indirect cumulative impacts of the project; a detailed Environmental Management Plan (EMP) for Bolivia and Brazil to mitigate the social and environmental impacts; and an IPDP for the Bolivia side. The Banks also hired an independent environmental expert to review and make recommendations on the EMPs. This project set a new benchmark for closer project level coordination among the Banks by establishing an ad hoc Environmental Committee among all the financing agencies. In addition, IDB and CAF agreed to follow World Bank guidelines regarding environmental impacts and the rights of Indigenous People as these were the most stringent and explicit among the three institutions.
According to the World Bank, environmental assessments are carried out to ensure that proposed projects are "environmentally sound and sustainable and … to improve decision making."2 First and foremost, however, they should be viewed as instruments to determine whether a project merits Bank involvement. Secondly, they should be used to determine when and under what conditions the project should receive Bank financing. Ideally, the EIA process helps to influence the project design, and describe how to minimize its social and environmental impacts.
In the case of the pipeline, the EIA’s findings did influence the final conditions of the loan agreement by including specific enforceable environmental management and compensation plans, including the IPDPs, which were ultimately carried out in both Brazil and Bolivia. However, the findings of Strategic Environmental Assessment, which should have been given equal weight to the EIA, did not effectively influence project design. The Bank’s failure to ensure that major associated impacts identified in the Strategic Assessment are effectively mitigated points to a fundamental flaw in the EIA process.
Banks Fail to Address Associated Impacts of Pipeline
The Strategic Assessment identified many upstream and negative social and environmental impacts associated with the pipeline. Most importantly, it pointed out significant impacts from new gas and oil exploration on indigenous communal lands and protected areas in Bolivia’s fragile Amazon Basin. The study also highlighted the weak institutional capacity of the Bolivian government to address these impacts and recommended the development of an environmental action plan to address oil and gas development in sensitive areas.
Unfortunately, the Strategic Assessment’s influence over project design was undermined by two principal factors: first, it was published too late in the preparation process to seriously influence the project’s design; second, the Banks’ senior management lacked a commitment to use all of their available lending instruments (including loans to the hydrocarbon sector) to induce the Bolivian government to address the indirect and cumulative social and environmental impacts of the pipeline.
Just prior to project approval, the World Bank attempted to secure commitment from the Bolivian government to invest roughly $13 million in activities to control, prevent and monitor negative social and environmental impacts in protected areas and on indigenous lands. However, the government rejected the need for such a large investment. Instead the government agreed to first develop an initial environmental action plan; and then make the investments necessary to implement the plan.3 The Banks’ senior management, unfortunately, accepted this position and the IDB agreed to fund the nearly $1 million Plan. At this critical moment, just prior to project approval, the Banks neglected their responsibility and missed a key opportunity to use their influence to ensure that the Bolivian government shore up its capacity and develop the necessary legal framework to address these issues identified in the Strategic Assessment.
A year after project approval and weeks away from inaugurating the operation of the pipeline, the bids have only just recently been issued for the development of the environmental action plan. Meanwhile, oil and gas investments are expected to surpass $3 billion in the next three years. The IDB’s support for the environmental action plan is a good start, but is unfortunately long overdue and insufficient to address the shorter term needs for intensive monitoring, prevention, control and enforcement.
II. Inadequate Access to Information by Project Affected Communities
Access to information about how and when a project will affect the public is a fundamental right to enable affected communities to participate and give informed input into the operation of a project. The Banks have recognized this right by adopting information policies which acknowledge that dissemination of project and policy information is essential for effective implementation and project sustainability. The World Bank’s Environmental Assessment (EA) Policy requires disclosure and accessibility of information regarding EA documents to project affected groups throughout the process. It specifically requires the borrower to make available information regarding project objectives and potential impacts to affected groups prior to initiating the EA study. A summary of the EA is expected to be provided in a timely manner to groups once the EIA draft is completed.4
In the course of project preparation and supervision, the Banks failed to enforce effectively their information and EA policies with regard to disclosure and document accessibility. Documents and information describing the impacts and mitigation plans for the project were not easily accessible by NGOs and remained far out of reach of project affected communities. Little or no information was provided to NGOs at the commencement of the studies, as called for by the EA policy, and sponsors failed to provide information in a timely manner prior to the consultation meetings. The expert’s report on the EIA draft remained confidential for several months after its completion. Only after extensive pressure were relevant studies made more accessible, and even then, information distribution was slow and limited to a few select NGOs and indigenous groups in the region.
When BIC and Amazon Watch first made contact with NGOs, environmental groups and indigenous organizations linked to communities affected by the pipeline, few groups had any information regarding the existence, let alone the substance of EIAs, social and environmental management and compensation plans. In response to their need for more information, BIC and Amazon Watch asked Bank officials about their plans for dissemination of these studies. Inquiries revealed that there were no plans to make these studies broadly available, even though the contents would affect hundreds of communities along the pipeline route. Through these inquiries BIC and Amazon Watch also learned that the Banks were planning a final analysis mission to the region prior to the public release of the findings of all the environmental studies. BIC and Amazon Watch immediately brought these concerns about policy violations to the Banks in letters and follow up meetings which yielded some positive results.5
In response, the sponsors agreed to place notices in local newspapers indicating that a copy of the final EIA would be available in Rio De Janeiro and Santa Cruz with consultants on hand for one day to answer questions. Posting public notices about availability of studies does not, however, ensure access. In the case of Brazil, Rio is far outside of the project area, rendering the studies inaccessible to groups impacted by the project. In the case of Bolivia, while local organizations based in Santa Cruz could get access, community groups directly affected along the pipeline route still had no accessible information.
After more complaints by local and international groups, the sponsors finally agreed to make the studies available directly to groups requesting them as well as locally and on the worldwide web. Despite repeated assurances, however, the project sponsors never sent hard copies of studies directly to the locally affected groups and NGOs. Groups therefore either needed to visit the consulting firm’s office in the main cities or have access to email in order to review the material, thus excluding the majority of local communities. The slow pace of distribution and the fact that some documents were not available in Spanish greatly inhibited the ability of groups to review and assess the adequacy of these studies prior to the final project consultation. Access to information remained an insurmountable problem at the community level.
The lack of information continued once pipeline construction began as local community residents in Bolivia sought to respond to the social and environmental impacts. Despite Bank requirements to make information about the environmental management and compensation plans known to affected communities, and to broadly distribute information about worker codes of conduct and procedures for addressing community complaints, communities in Bolivia had no knowledge of any of these things once implementation had started.6 Furthermore, now, more than a year after construction began, project sponsors are still not disseminating project monitoring summaries on a regular basis to NGOs in spite of repeated requests and the Banks’ and sponsors’ explicit commitments to do so.
III. Consultation Process on the EIA, Indigenous Peoples Development Plan and Strategic Assessment: Too Late in the Project Cycle
An essential feature of the World Bank’s policies on Environmental Assessment and Indigenous Peoples is the requirement that government and/or project sponsors consult with local people. Both Banks require consultation at least twice during the project cycle. First, during project identification to seek input for the terms of reference for the study and second, before the Bank’s final appraisal mission. Before appraisal, the draft EIA is supposed to be released in the territory of the borrower and citizens are supposed to be given ample opportunity to comment on the EIA and IPDP findings before all of the decisions are made. The intent of the policy is to ensure that affected people’s views are fully taken into account in the final project design.
In this case, local groups have reported to BIC they had no input into the terms of reference for either the IPDP or the EIA. In response to local and international pressure, the Banks and project sponsors did, however, agree to hold consultations in August 1997 once the final draft environmental management plans were finished. However, the speed at which the project was moving forward, as well as the poor design of the consultation process, called into question whether local views would have any impact on the final project design. Furthermore, the failure to make information broadly accessible prior to the consultation violated the World Bank’s EA Policy which states that "For meaningful consultations, the Bank expects that this material be provided in a timely manner and in a format that is understandable and accessible to the groups being consulted."7
The sponsors wanted to move immediately to hold a meeting in Rio de Janeiro, an area outside the project area, and inaccessible to groups in both Bolivia and Brazil. After more pressure from the Banks (which were under pressure from civil society), the sponsors agreed to wait several weeks and hold two consultations, in Santa Cruz, Bolivia and Campo Grande, Brazil. To the credit of project sponsors, they agreed to cover the costs of 10 civil society representatives in each consultation, which given the size of the pipeline route was the only way to ensure participation of groups from outside those principle cities. The lead time, however, was still insufficient as the studies had just barely been released and were still not in the hands of the NGOs, indigenous groups or community representatives. Furthermore, the social compensation programs were being negotiated with the local authorities without community input. The Banks’ and sponsors’ interest in a quality consultation process was clearly subordinate to their interest in concluding the loan preparation as rapidly as possible.
Poor Quality Consultations
There were three fundamental issues that impeded the quality of these consultations. Most importantly, they were held too late to enable groups to have significant impact on the design of the environmental management plan. Petrobras had already started construction in Bolivia, albeit without Bank consent, just prior to the consultations. As Petrobras moved forward in violation of the environmental management plan, the content of which was supposed to have been under discussion at the meetings, it became apparent to local groups that these meetings were more a pro forma exercise designed to assuage the criticism rather than a real attempt to solicit quality input from stakeholder groups. Furthermore, the format of both consultations relied heavily on formal presentations by consultants and sponsors, rather than providing a real opportunity for effective input. Finally, groups did not have adequate access to information or time to analyze the information and submit proposals prior to the meeting. In many cases, groups came to the meeting without any prior information in hand. Unfortunately the sponsors and Bank failed to use this meeting as an opportunity to correct this situation and disseminate key project document summaries, as required by the World Bank’s EA policy.
Nevertheless, these consultations were important for a number of reasons. They provided, the first real (albeit late) opportunity for civil society representatives to express their frustrations, issues and concerns directly to Bank staff and project sponsors. Especially on the Brazil side, Petrobras had been totally unresponsive to NGOs and through this process could no longer ignore them. NGOs also were able to ask questions and get basic information about the project. The consultations provided an important starting point to address some of the issues raised by local groups, many of which were taken up by the Bank in subsequent negotiations with the project sponsors. These included the need to address land titling for indigenous peoples; the inadequacy of the proposed monitoring system and the need to include NGOs in monitoring; the need for an Indigenous Peoples Development Plan on the Brazil side; and better social communication and consultation processes at the local level.
The experience of these initial consultations conforms closely to many of the findings of an internal World Bank study that found that public input is often absent from project identification and in defining the Terms of Reference; consultations occur too late in the project cycle to influence project design; consultations do not always take place at required stages; and information is not provided in a timely manner to stakeholders. 8
Public Pressure Yields Meaningful Indigenous Participation in the Formulation of the Indigenous Peoples Development Plan in Bolivia
World Bank policy requires the development of an Indigenous Peoples Development Plan (IPDP) in projects which might adversely affect indigenous peoples. In this case, the pipeline in Bolivia traversed numerous indigenous communities, the Grand Chaco National Park and the Integrated Management Area of the Park Kaa-iya, a protected area managed by an indigenous organization, Capitania Alto y Bajo Izozog (CABI). The policy requires the active participation of indigenous peoples in the creation of the plan, including the terms of reference which provide the scope of issues to be addressed. In Bolivia, the sponsors commissioned Dames and Moore to develop the plan. CABI and Confederacion de Pueblos Indigenas de Bolivia Unidos y Organizados (CIDOB) were identified as the main representatives of the affected indigenous groups.
Despite the fact that CABI is the official administrator of the park, and CIDOB the representative body for indigenous groups in Eastern Bolivia, the consulting firm failed to consult them regarding conceptual design of the key elements of compensation, mitigation and development plans that aimed to mitigate the project’s impacts on the park and other affected indigenous areas. Several meetings regarding the draft IPDP were held with indigenous representatives from CABI and/or CIDOB, as well as with USAID and Wilderness Conservation Society (WCS), a US based group which works with CABI. However, as minutes from the IPDP annex indicate, the purpose of these meetings was primarily to inform the indigenous organizations of what had been decided rather than to engage them on broader project design questions and the terms of reference of the plan.
In an effort to get the project sponsors to recognize the legitimate role of CABI and CIDOB in both the definition as well as the management of these plans, US AID, BIC/Amazon Watch and CABI/CIDOB all sent letters to the Banks raising various concerns. Other efforts were made to pressure the project sponsors directly. Among the issues raised were the lack of input into the plan’s conceptual design, the lack of sufficient resources to defend the park, and lack of recognition of CABI’s authority to monitor the construction phase. While the IPDP and EMP acknowledge that CABI is the administrator of the Kaa-Iya Protected Area, the strategy of Dames and Moore, and later Petrobras, has been to deal with CABI as just an indigenous organization, rather than as a legally recognized administrator of the Protected area.9
Only after the barrage of letters, coupled with a strong and insistent position by CABI, did a serious but difficult consultation and negotiation phase begin. The result was unprecedented in form and substance. The nearly $3.7 million IPDP that was finally negotiated provides support for park management; land titling; community development and assistance for natural resource management.10 The largest compensation program of its kind in Bolivia, this IPDP set an important precedent by including indigenous representatives in the plan’s oversight and management. Other private sector companies in Bolivia will now feel under greater pressure to follow this model in future projects with significant indigenous impacts.
IV. Project Monitoring and Compliance System Fails Despite Bank Supervision
The World Bank’s own internal studies have found that environmental supervision has often been inadequate, in both category A and B projects.11 Even when Bank staff go on supervision missions, field visits are often quick and superficial and fail to identify serious shortcomings in the project. Moreover, project information provided by the borrower is not necessarily reliable or impartial. In the case of the IDB, project monitoring is carried out by local office staff who are often not fully involved in the design of the operation, and thus less aware of potential problems areas. While there has been great rhetoric about the role of NGOs in all phases of the project cycle, their role in monitoring is rarely acknowledged explicitly in MDB funded projects and views and on-the-ground experience of affected communities are rarely sought by Bank officials.
Having witnessed multiple transgressions by Petrobras in the early construction phase of the pipeline, CSOs were very concerned about ensuring that Petrobras complied with the social and environmental mitigation plans once the loan was approved. Prior to loan approval, local and international NGOs and indigenous organizations strongly urged the Banks to establish an effective compliance system and strong Bank supervision. In addition, local and international NGOs and indigenous organizations pressured repeatedly to gain an officially recognized and supported role in on-site project monitoring. Brazilian NGOs, in particular, raised the need to establish an effective NGO communication mechanism and liaison directly with Petrobras.
Given the project’s complexity and in response to intensive external scrutiny, the Banks recognized early on the need for a broad based monitoring system to be carried out parallel to significant Bank supervision. During project preparation, the Banks worked with project sponsors to set up an elaborate and multilayered monitoring and quality control system. This included: 1) establishment of the Environmental Committee (made up of sponsor representatives); 2) the contracting of Dames and Moore to ensure implementation of the environmental plans; 3) the in-house use of on-site environmental inspectors by Petrobras and the construction company; and 4) the hiring an environmental auditor to monitor compliance with the EMP and compensation plans and to act as a liaison with civil society, contracted directly by the project sponsors. Despite the Banks’ stated commitment to NGO participation in monitoring, they failed to ensure as part of the system, that sponsors establish an effective NGO on-site monitoring and feedback mechanism. However, on the Bolivia side, CABI successfully negotiated a role in monitoring construction in the Park Kay-Iya, which was explicitly recognized in the EMP.
The quality control, monitoring and compliance system appeared to have all the necessary components, with the exception that NGO involvement was absent. As project implementation began, however, it became clear that Petrobras lacked either the political will or capacity to effectively comply with the EMP, social communication and compensation plans in Bolivia. In Summer of 1998, the Comite de Fiscalizacion de el Carmen, a local monitoring body set up with support from local NGOs, FOBOMADE and PROBIOMA, documented and presented to the sponsors a number of serious social and environmental impacts and violations. These included: the close proximity of the pipeline route to the town; trash dumping; purchases of illegally harvested wood for construction; new access roads; inadequate erosion control measures; failure to repair damage caused to local roads and power generator; workers misconduct and sexual abuse of local women; and reduced community access to food and medicine. The experience in el Carmen revealed a failure on the part of Dames and Moore, the Environmental Auditor and the Environmental Committee to either enforce the worker codes of conduct and the EMP or to investigate seriously and seek resolution of community grievances and EMP violations.
A number of fundamental problems prevented the system from working effectively: 1) the failure of the auditor to act independently and impartially and respond effectively to NGOs; 12 2) the lack of commitment of project sponsors to implementation of the EMPs and Compensation programs13; 3) the opening of multiple construction fronts in Bolivia and the subsequent failure of Dames and Moore to hire sufficient number of inspectors; 4) Dames and Moore’s conflict of interest as monitors of the EMP that they authored; 5) the failure to include NGOs and local communities in the monitoring program; 6) the failure of the Bolivian government to adequately supervise and monitor the project; and 7) the failure of the system to address broader impacts that may not have been explicitly included in the Environmental Management Plan.
Ombudswoman Hired and Role for NGOs Finally Achieved
Finally in September 1998, as a result of mounting pressure from local and international groups and the Bank as well as the obvious failure of the environmental auditor, project sponsors appointed an ombudswoman to maintain regular communication with NGOs and facilitate their involvement in on-site monitoring. Recognizing the vital role of the local monitoring committee in bringing forth accurate, documented information about specific impacts and violations, the Bank became very supportive and instrumental in gaining the sponsors’ agreement to formalizing the NGOs’ role in on site monitoring. In October, two meetings took place in Santa Cruz, Bolivia and Campo Grande Brazil, where project sponsors, Bank officials and NGOs established new mechanisms of communication. Petrobras and the other project sponsors officially recognized civil society coordinating bodies and agreed to support on-site monitoring by local civil society representatives. In an unprecedented agreement, the Banks agreed to fund three meetings yearly to facilitate better communication among all parties.
Monitoring System still Inadequate
Unfortunately, hiring the ombudswoman did not fix the deficient monitoring system. While many of the issues in El Carmen have since been addressed, problems with this system still continue today. Of most concern is the system’s failure to bring to light and resolve a critical violation of the environmental management plan- the failure of the sponsors to carry out timely restoration, reforestation and revegetation of the right of way in Bolivia. Only after local and international groups raised the issue are the Banks investigating and responding to this critical issue. Given that construction on the Brazil side will span thousands of kilometers and continue over the next two years, if the Banks don’t rectify the system’s inherent flaws, they can expect many more problems and violations in the future.
Conclusion
Lessons from this project are abundant for all involved. BIC has condensed these lessons into a summary of specific proactive actions that the Banks, in particular, can take to improve the quality and social and environmental sustainability of their operati