Lobbies query World Bank's interest in EA pipeline
Saturday October 23 2021
Human rights and climate lobbies are putting the World Bank Group on the spot over what they term as a breach of its own policies to help companies insure the East African Crude Oil Pipeline project.
The petitioners, led by Inclusive Development International, accuse the World Bank of giving “backdoor support” to the infrastructure project that will transport crude from Hoima in Uganda to the international markets through the Tanzanian port of Tanga. The project is deemed to be risky to the environment and local communities.
On October 14, three organisations filed a complaint to the World Bank, detailing how the institution, through its private sector lending arm, the International Finance Corporation (IFC), invested in Britam Holdings, one of the firms lined up to insure the oil pipeline and refinery.
The complaint, filed to Janine Ferretti, the World Bank’s vice president and head of its Compliance Advisor Ombudsman (CAO), claims that the IFC has supported environmentally risky projects through a $35 million investment in Britam.
When contacted, the IFC said it ceased directly financing new upstream oil and gas projects in 2019, but conceded it does not vet projects in which its funding to clients is used to ascertain if they meet the Bank’s commitment to sustainable development, as well as environmental and social policies.
“IFC does not clear due diligence conducted on individual sub-projects that a financial intermediary may support,” said Kristina Nwazota, IFC head of communications, Africa and Middle East in an e-mailed response to The EastAfrican.
According to CAO, Britam will know on November 3 or December 1 if its shareholder breached policy. If so, this would require a process of dispute resolution with the project affected persons, delaying the oil field developments.
CAO spokesperson Emily Horgan told The EastAfrican that the office “will make a determination regarding the eligibility of this complaint within 15 working days of receipt.”
But, in some instances, the watchdog may need to extend its decision by another 20 days.
In 2019, Britam was named part of a consortium of 16 local insurers lined up to provide insurance cover for the Eacop and the refinery, which are both necessary for drilling in the Lake Albert oil fields.
The lobbies say that along with the associated development of oil fields on the shores of Lake Albert, these projects will impact more than 120,000 people in Uganda and Tanzania, destroy critical biodiversity and wetlands, and significantly contribute to the global climate crisis.
The projects are being developed by French oil major TotalEnergies, CNOOC of China and the Uganda National Oil Company.
“These oil projects are the antithesis of sustainable development by their very nature,” said Coleen Scott, legal and policy associate at Inclusive Development International, the organisation leading the petition to the World Bank. “No project that entails drilling 130 oil wells in a national park, acquiring the land of over 120,000 people, and building the world’s longest heated oil pipeline through numerous protected areas could possibly satisfy the IFC’s performance standards.”
The lobbies, in their petition, say that the IFC “is exposed to these upstream oil projects through its equity investment in the Kenya-based insurance firm Britam Holdings Ltd, which in May 2021 publicly expressed its intention to provide crucial insurance underwriting support to the oil refinery and Eacop, which are both essential to the economic viability of the oil extraction at Lake Albert”.
In a May 2021 Forbes Africa newsletter, Britam Uganda’s CEO, Allan Mafabi announced the company’s intention to expand insurance coverage into the country’s growing oil and gas sector. He said the company had already shown capacity of insuring large infrastructure projects such as the Jinja Nile Cable Bridge and the Entebbe Expressway.
“We have the largest reinsurer on our panel in Swiss Re to support these oil and gas projects,” said Mr Mafabi. “As an industry, the regulator is putting the enabling regulations in place. We are now waiting for insurance to become gazetted as one of the local providers in the oil and gas sector.”
Mr Mafabi also alluded to Britam’s shareholders, who include the IFC, as well as a consortium of European development finance institutions and Swiss Re, one of the largest reinsurance companies in the world, as backing the insurer’s provision of cover.
“Our shareholders are world players … for this reason, we are well positioned to deliver,” said Mr Mafabi.
The petitioner organisations say it is clear that the IFC’s investment in Britam was critical in allowing the firm to participate in the underwriting of high-risk projects, in particular in the Ugandan oil sector.
The organisations, based in the US and Uganda, want a compliance investigation into whether the IFC breached its sustainability policy through its indirect backing of the oil projects.
‘Do no harm’
In its commitments, the IFC says that at the centre of its development mission “are its efforts to carry out investment and advisory activities with the intent to ‘do no harm’ to people and the environment, to enhance the sustainability of private sector operations and the markets they work in, and to achieve positive development outcomes.
“IFC is committed to ensuring that the costs of economic development do not fall disproportionately on those who are poor or vulnerable, that the environment is not degraded in the process, and that renewable natural resources are managed sustainably.”
When contacted, Mr Mafabi did not confirm whether Britam is using the World Bank affiliate’s funding to pool resources for the oil projects insurance, but described the complaint as “outrageous” and “utter nonsense” because IFC’s investment in Britam is at group level in Nairobi.
In September 2017, the IFC invested $35 million in Britam, in exchange for 10.37 per cent shareholding, with the insurer issuing 224.1 million new ordinary shares to the World Bank affiliate, but current records show the IFC controls 8.8 per cent of the Nairobi-headquartered insurer.
According to Britam’s 2020 Annual Report, the IFC holds a seat on its board.
Less than a month after the IFC’s direct investment in Britam, funds of the World Bank affiliate were again invested in the insurer through the development finance institutions backed private equity fund, Africinvest III. The IFC first invested $24.57 million in Africinvest Fund III in 2014, accounting for about 20 percent of the Fund’s total commitments, and in October 2017, Africinvest III became a “strategic partner” of Britam and purchased a 14.3 percent stake in the company.
The IFC funds were provided to Britam as general equity capital, to be used by the company however it saw fit, including directing capital to its insurance subsidiaries in East Africa.
But the IFC argues that it supports these projects on the grounds that they have been cleared by national laws and agencies.
“Without commenting on the particulars of Britam’s portfolio, financial intermediary clients of IFC are not prohibited from supporting these projects as long as the clients adhere to applicable national social and environmental laws and to IFC’s Performance Standards, which define IFC clients’ responsibilities for managing their environmental and social risks,” said Ms Nwazota.
Activists criticise the compensation of project-affected persons as flawed, arguing that it “has caused enormous pain and suffering” to communities, citing those relocated due to the Kabaale oil refinery spending nearly six years of restricted access to their land before being moved to a sterile, camp-like resettlement site.
Thousands of people across Uganda and Tanzania await compensation nearly two years overdue, without the ability to grow food on their land, the petitioners say.
The complaint is the first filed to the Compliance Advisor Ombudsman concerning insurance coverage provided by an IFC client, amid growing pressure on financial institutions to stop backing new fossil fuel projects.
“This is certainly not the first time IFC has skirted its own sustainability policy to make a deal, particularly when it comes to financial intermediary investments like its equity stake in Britam,” says David Pred, Executive Director of Inclusive Development International (IDI).
IDI says it has found more than 150 “extremely harmful projects” that the IFC has supported indirectly through its investments in commercial banks, private equity funds and insurance companies, which make up more than half of its total business.
“IFC is supposed to be ensuring that these financial intermediaries are only investing in projects that comply with its Environmental and Social Performance Standards, but we can see that this is still not happening in practice,” he said.
The 1,443km Eacop, which will be the world’s longest heated oil pipeline when completed, carries significant risk and cannot be built without multiple layers of insurance coverage, the petitioners argue.
Global insurers Swiss Re, AXA and Zurich have publicly committed to not cover the project, while at least a dozen European, American and Australian banks walked away from Eacop’s financing worth $3.5 billion, citing its environmental impact, which runs counter to their lending policies.
While the World Bank Group pledged that it would no longer fund upstream oil projects beginning in 2019, what was left unsaid was whether this commitment applies to IFC’s financial intermediaries like Britam, which account for more than half of the IFC’s $75 billion portfolio.
As of September 2020, the Uganda Oil and Gas Co-Insurance Consortium, of which Britam is part, had pooled over $500 million in coverage capacity for the oil and gas sector.
In May 2021, the International Energy Agency said that in order to reduce carbon dioxide emissions to net-zero by 2050, give the world a chance of limiting warming to 1.5 degrees Celsius and stave off climate disaster, there should be no new fossil fuel supply projects, including new oil fields.
“The Eacop and Lake Albert oil projects would block the IEA’s net zero pathway before the ink is even dry on their report,” said Mr Pred. “It is reprehensible that the world’s premier development bank would be involved in a project directly or indirectly that would have such catastrophic consequences for the planet.”