Pumping Britain's Department for International development. The report argues that far from helping the world's poorest people, such aid often serves its wealthiest B ritish overseas aid has facilitated o1l development projects, such as the controversial Baku-T'bilisi- Ceyhan, and the Chad-Cameroon pipelines. Far from helping the world's poorest people, such aid often serves its wealthiest corporations, leaving the poor worse off than before and aggravating global climate change. Such support for oil developments undermines reduction further poverty measures and entrenches a fossil fuel economy. Development money should be proactively supporting the shift away from oil and fossil fuels and playing a positive role in developing renewable energy for sustainable development, which alleviates poverty without creating dangerous dependencies. DFID's mandate and its support for oil development The Department for International Development (DFID)'s stated goals are to eliminate poverty in developing countries through sustainable development. adopted When DFID the Millennium Development Goals in 2000, its work was more sharply focussed on the poorest of the poor. Despite this, DFID has continued to support oil development projects, which have reversed development in many places. 22 Poverty Development and the Oil Industry Pumping Poverty, a new report published by Platform Research Ltd, Friends of the Earth (England, Wales and Northern Ireland), and Plan B, investigates the role of British overseas development aid in facilitating oil corporations leaving the poor worse off than before and aggravating global climate change! However, as Africa and climate change become the focus of the UK's 2005 leadership of the G8 - and following recent controversial DFID support for multilateral financing of BP's Baku-Tbilisi-Ceyhan (BTC) oil pipeline, together with its rejection of reforms proposed by the World Bank's Extractive Industries Review - fundamental questions are being asked over whether DFID's policies on oil development are in fact counter to the interests of the poor. A policy vacuum Given the importance of access to energy, there should be clear policy guidelines on what sort of energy development should be supported. DFID does not have a clear policy on when, how or whether to support oil development. Neither has it considered policy on how to contribute to the UK's goals for the mitigation of climate change. This vacuum is being filled de facto by the objectives of more powerful goverment departments, objectives shared by the big oil corporations. DFID's actions on oil development look more like a return to the discredited approach of tied aid, where aid is applied politically to help British interests rather than the poor. The consequence of DFID's lack of policy is direct damage to the interests of the poor, through the direct impacts of projects, through the economic and political retardation which dependence on oil exports commonly causes, and through climate change. DFID creates favourable investment conditions for British oil companies DFID is supporting oil development through its bilateral aid and its role in multilateral development banks such as the World Bank and European Bank for Reconstruction and Development. DFID serves as a partner in the UK government's key policy of maintaining energy security. A major part of its role is to help reform developing countries' oil taxation and regulation regimes, to better favour British business interests - especially in the former Soviet Union. According to the Foreign Office, which coordinates work on this priority, a key aim is to 'improve investment regimes and energy sector management in these regions, focusing on key links in the supply chain to the UK'. Spending taxpayers' money - no records kept Requests under the Freedom of Information Act have revealed that DFID does not keep records of many bilateral grants. As a result, neither DFID staff nor the public can discover what these taxpayer-funded projects achieved or whether they had a positive impact on poverty. Many of them appear to have helped oil corporations more than the poor, but in the absence of information it is impossible to know for sure. For example, in 1999-2000, DFID advised Georgia on its oil and gas pipeline legislation. It is not known whether this formed the basis of the legal framework for a BP-led pipeline. Agreed in 2000 between Georgia and the consortium, that framework will constrain the Georgian government's ability to pass any new environmental, social, labour or other laws that affect the profitability of the project in its 40-year lifetime. Georgian President Mikhail Sakashvili has described this as, 'a horrible contract from BP, horrible.' DFID and multilateral development banks - public risk insures private profit DFID, representing the UK government as a major shareholder in the World Bank, has been consistently supportive of Bank financing for oil projects, which amounts to $5 billion since 1992. Eighty-two per cent of this financing was for projects that primarily
export oil to developed therefore not helped meet the energy needs of developing countries.? The World Bank's own Extractives Industry Review (EIR) also detailed the disappointing poverty alleviation record of Bank-funded extractives projects stating that, 'project funding in the extractive industries has not had poverty reduction as its main goal or outcome'? DIFD has also supported loans for Reconstruction European Bank Development (EBRD) for oil projects in the Former Soviet Union and Eastern European states, totalling over S1 billion since 1991. The World Bank Group, EBRD, and oil companies have all acknowledged that a primary role of this public finance is to reduce project risk for private investors. Effectively, by transferring onto public from private institutions, these projects are being subsidised with taxpayers' money. Rules broken and safeguards ignored DFID has paid scant regard to the merits of particular oil projects, or to the mandatory rules for which projects the World Bank will invest in. For example, DFID strongly supported a loan to BP's BTC Caspian oil pipeline in October 2003, just three weeks after Azerbaijan's dynastic transfer of power from Heydar Aliyev to his son Ilham, in an election characterised by fraud and intimidation. Independent analysis by civil society groups had previously found the BTC project to be in breach of 173 World Bank and other mandatory international standards. Yet DFID did not respond to the analysis, and its consultant relied entirely on materials from BP in assessing the project. DFID opposes pro-poor reforms The World Bank commissioned Extractive Industries Review (EIR) presented an oppor- tunity for reform, with the key recommenda- tions including a phase out of its support for oil and coal projects; a focussing of its energy portfolio on renewable energy technologies; and 'free, prior and informed consent' of ex- raction projects on indigenous people's lands. However, throughout the process, DFID was ine of the more retrogressive voices, com- = aining that the EIR's assessment was 'unduly -egative'* DFID failed to support a significant -crease in WBG financing for renewable en- -gy projects until it was too late. Its argument that the World Bank (and DFID itself) should countries and has continue to support oil projects in order to help relieve poverty is simply not supported by the performance of such projects. Oil: bad news for development There is a well-established and growing body of evidence on the negative economic and political consequences of dependence on revenues from the from natural resource extraction, particularly and oil, in developing economies. Bank's own research has also found that the greater a country's dependence on extractives the slower its economic growth. Yet DFID has + = multilateral development banks. Transparency The World addict www.bloodforoil.org no concrete guidelines on how to judge which oil developments may help alleviate poverty, and which may exacerbate it; furthermore, it has a weak attitude towards compliance with existing policies and standards, especially in The only solution on offer from DFID and the World Bank is the Extractive Industries (EITI). This Initiative encourages governments and companies to disclose payments so that civil society can hold governments accountable for the management of revenues. It is a voluntary scheme and so is limited in its scope to address corruption when and where it is needed most. Additionally, whilst transparency is crucial, it is only one element in the complex problem of poor governance and poor revenue management. Oil: bad news for the poor economic Oil has not only undermined development, it has failed to meet the energy needs of the poor. Large-scale oil projects are geared primarily for export, not for domestic the rural poor consumption; meanwhile, need smaller-scale and more balanced energy approaches, for which renewable energy technologies are far better suited. Continued dependence on oil can severely harm oil- importing, developing countries' economies through price fluctuations - Sub-Saharan African countries, for example, spent 14 per cent of their GDP on fuel imports in 2000. The recent rise in oil prices is demonstrating the urgency with which this issue needs to be addressed. Supporting oil extraction serves to entrench the fossil fuel energy economy - undermining efforts to combat climate change, which will impact the poor most severely. DFID recognises • that climate change, 'threatens to undo decades of development efforts..?, and could prevent achievement of the Millennium Development Goals. While DFID has initiated an important help developing programme to countries adapt to climate change, it has failed to address its support for one of the main causes of climate change. DFID's incoherent policies on oil development have put the interests of more powerful UK government departments and big corporations ahead of the needs of the world's poor. This represents both a betrayal of its pro-poor mandate and highlights a severe lack of joined up thinking across government departments. Pumping Poverty highlights these areas. and makes recommendations for DFID and for Parliament. In addition. the Early Day Motion (650) on development aid for oil achieved the support of 116 MPs in just over two months, indicating that action on the issues raised in the report is long overdue. 1. This article, compiled by Jo Hamilton, is based on the summary of Pumping Poverty, written by Greg Muttitt and Lorne Stockman. The fult report can be downloaded from www.planb.org. For further information email [email protected] or call 01865 241 097. 2. Vallette J. and S. Kretzmann (2004). The Energy Tug of War: The winners and losers of World Bank fossil fuel finance. Washington DC: Institute for Policy Studies. 3. Extractives Industries Review (December 2003) Striking a Better Balance: The World Bank Group and the Extractives Industries. The Final Report of the Extractives Industries Review. P.21 4. DFID letter to Emil Salim, 20 October 2003. Available from Platform Research. Tel 020 7403 3738 5. The World Bank (2003) Extractive Industries and Sustainable Development: An Evaluation of World Bank Experience. Washington DC. 23