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Chad Dobson

Chad Dobson

Posted: October 14, 2010 04:52 PM

Co-authored by Rebecca Harris

On Wednesday, October 6, the opening of the Civil Society Policy Forum of the World Bank/IMF Annual Meetings, economist and Columbia University professor Jeffrey Sachs spoke on a panel, "New Issues and Opportunities in Resource-based Development." Sachs, director of Columbia's Earth Institute, addressed resource-based investments in low-income countries within the context of rising global prices of minerals, food grains and hydrocarbons. He discussed the ongoing challenge of converting natural resources into sustainable development in low-income countries.

Sachs was joined by Karin Lissakers, director of the Revenue Watch Institute, who released their "Revenue Watch Index" during this year's Annual Meetings. The 2010 Revenue Watch Index is an assessment of government-published data, such as contract terms and revenues related to oil, gas and mineral resources, a tool that was developed to be employed by government officials, civil society and media in order to demand accountability and improved public disclosure.

Professor Sachs initiated the discussion with an explanation of a paper he had written years ago on the paradox of the resource curse, examining how economic growth differed between resource-rich and resource-poor countries, and noted that he observed that between 1960 and 1980, it was the resource-poor countries that outperformed the resource-rich in economic development. He asked how, then, resource-rich countries must harness the benefits of such wealth, especially in light of the high natural resource prices on the global market.

Sachs responded that transparency is the answer. He stated that he "wholly subscribed" to the notion that "transparency, public scrutiny and to the maximum extent possible, proper democratic governance over these resources" were essential in avoiding the resource curse and ensuring positive development outcomes.

The conversation then shifted to the key macroeconomic aspects of natural resource management, which included contracting. He outlined the difficulties that natural resource-dependent governments face in negotiating a fair deal with the international actors who bring the necessary capital and technology to extract resource deposits. Also emphasized was the wide range of difficult choices resource-rich governments incur, ranging from types of contracts to concessions, bidding processes and investment guarantees and asserted that it was because of the confidentiality of such contracts that governments could not compare terms with other similarly resource-rich countries. "I think this is something that really needs to be busted open completely, in my view, because the companies' interests in the confidentiality, I think, are rarely suitable grounds for maintaining the confidentiality, vis-à-vis the public and the high social costs of having many of the contracts remain confidential has been extraordinary," insisted Sachs.

The development-based argument for contract transparency was further illustrated by the real-life example of the World Bank-financed Chad-Cameroon pipeline. He noted that despite the fact that the project was bankrolled by international public funds, the World Bank refused to reveal the contract, insisting that it was confidential. Sachs exclaimed that he was shocked by this, due to the large quantity of public money involved and explained that "it turned out to be a very bad deal on all sides." He continued that it was "completely useless from Chad's development perspective, but part of the problem was that it was secret and it remains secret even after the process went forward."

Sachs underscored the importance of planning and how a given project is implemented in terms of infrastructure development, whether or not it will be "an enclave project that has no spillovers" or "a nucleus of a successful regional development." He once again cited the Chad-Cameroon pipeline project as an example of failure. He explained that "in the Chad pipeline, the only electricity generated for the project was the electricity used to pump the oil, so Chad was left with fuel wood and no electricity." He continued, "There was one power plant built in the project and it was built for the pumping station and there was no consideration given to actually using any of the energy resources for the country's own electrification."

Such strong statements in favor of transparency for extractive industry projects are timely, in that the International Finance Corporation (IFC), the private sector arm of the World Bank, is in the process of reviewing and revising their Sustainability Policy, Performance Standards and Disclosure Policy. Currently, the IFC lacks a meaningful requirement of extractive industry contract disclosure between IFC clients and the host governments. As it stands, IFC clients have to disclose "relative terms" of "key agreements" only when the project generates 10% or more of government revenues. To date, not a single project from all the extractive industry projects approved by the institution since 2006 has met this criterion. Furthermore, civil society contends that this benchmark is arbitrary, in that the fiscal and developmental impacts of extractives projects "occur irrespective of the size of a country's total revenues."

Many civil society organizations, including the Bank Information Center, are advocating that all IFC-supported extractive industry projects must disclose all contracts, principal and derivative, related to the EI operation to which the government is a party. In addition, we are asking that for any information that is removed from an EI contract, the client or government must provide a clear reason for confidentiality and the merits for confidentially must outweigh the importance to the public. Because the influence that it wields is disproportionate to the amount that it invests, IFC represents an important target for civil society advocacy to not only strengthen social and environmental requirements in IFC's own projects, but also potentially to a host of private banks and across the industries in which it invests.

As Professor Sachs noted in his closing remarks, "To get things right...would be hugely complicated and require many players, many sectors and many political and institutional processes. All of that, in my view, means transparency is essential so that there can be the active public debate and dialogue, confidence building that is need to get right a process that will take a generation or even more."