FROM THE OFFICE OF PUBLIC AFFAIRS

August 2, 2004
JS-1841

U.S. Department of Treasury Statement
Concerning the Extractive Industries Review

The Treasury Department has examined the final report of the Extractive Industries Review commissioned by World Bank President Wolfensohn as well as the World Bank Management's response to that report.  The Department has also reviewed internal World Bank evaluations related to the subject and the World Bank Management's responses to them.  Overall, we believe that if the actions laid out in the Management responses are implemented, the World Bank Group would be headed in the right direction with respect to its future role in extractive industries. The responses rightly recognize that, when properly managed, extractive industries offer important benefits in terms of providing the energy services and materials needed to grow a modern economy, as well as a stream of revenues to governments for public services and poverty reduction. At the same time, the responses acknowledge that extractive industries can pose environmental, social, and governance risks and that the World Bank Group needs to play a more effective role in the mitigation of those risks in client countries.

The Department agrees that the Bank should stay engaged with financing oil and coal projects as long as this engagement is on a highly selective basis, that is, where the Bank's "additionality" is adequate. Based on the same test we also support lending for developing natural gas resources as both a bridging fuel and for economic development.  When financing an extractive industries project, the World Bank Group should ensure establishment of an appropriate revenue management mechanism, commit adequate internal resources for monitoring its operation, and take appropriate (and timely) actions if the mechanism is not being fully implemented.

The US has been a strong advocate for greater fiscal accountability and transparency, including through G8 declarations at Evian and Sea Island.  The Extractive Industries Review points to the need for increased transparency of revenue flows from extractive industries operations to governments.   In fact, we believe financial assistance should be predicated upon the government of a country where a project is located having in place, or committing to establish, a functioning system for accounting for revenues and expenditures.  The government should also have in place, or commit to establish, a functioning system for the independent auditing of such accounts and the public dissemination of the results. Furthermore, we would like there to be an ex ante presumption of disclosure of such documents as Host Government Agreements, Concession Agreements, and bidding documents, allowing for redaction of, or exceptions for, commercially proprietary information. 

We agree that there exist high value biodiversity resources both inside and outside of formally designated protected areas and that some such areas may not be appropriate for new extractive industries investments.   We believe the International Finance Corporation should engage with international experts and stakeholders to develop and implement appropriate criteria and decision processes that will be consistently and transparently applied to determine whether or not to finance an extractive project in areas of high biodiversity, high species endemism or areas providing key ecosystem services.  This process should include consideration of the status of land use planning in the host country (including its existing and proposed system of protected areas), implementation of relevant national laws and international conventions, and current scientific understanding of the risks to biodiversity and ecosystem services associated with the extractive project.

We support targets for increased lending for both renewable energy and energy efficiency as long as: 1) they not distort financial sustainability, and 2) financed projects result in improved access and affordability of energy services.  Moreover, targets focused on financial inputs should be supplemented by targets that focus on outcomes.  We are less interested in the amount of money allocated to stand-alone renewable energy and efficiency projects than in more systematically mainstreaming these technologies into different lending sectors.

We also recognize that market and policy failures may affect energy choices. For example, economic losses due to pollution from different energy sources may not be factored into the decision process for energy investments. In this regard, we encourage efforts to address institutional and policy distortions in developing countries that may inappropriately skew decision-making by energy producers or consumers.

We support the principle that local communities should benefit from projects that affect them.     We believe that ex ante screening of extractive industries projects should be adopted, and that such screening evaluate the acceptance of, and impact on, locally affected communities 

As long as it is carefully managed, we also support the establishment of a multi-stakeholder consultation mechanism to continue the dialogue on issues in which a sharp divergence of views remains, tap into expertise on a range of technical issues, and explore voluntary initiatives that require participation of outside stakeholders (particularly those in host countries). For example this mechanism could be used to: (1) design and pilot test new approaches, such as for upstream engagement of affected communities; (2) explore collaborative initiatives to identify best social and environmental practices on specific activities; and/or (3) advance efforts to implement minimum criteria for transparency of public finances as a tool for helping to ensure that the use of natural resources contributes to shared development progress.