FINANCE:

South African coal plant proposal strains 'culture' of World Bank

"No" isn't a word the World Bank hears often from the United States.

In the past five years, the United States has opposed less than 3 percent of more than 3,400 World Bank Group loans and grants, a ClimateWire analysis has found.

Despite the country's being the largest shareholder, American opposition failed to stop any of the $183 billion worth of roads, dams, hospitals, irrigation systems or other projects that came before the bank's executive directors for approval. Nevertheless, America exerts a powerful influence on the bank, and its opposition is often enough to steer major policy shifts behind the scenes.

That clout is about to be tested. On Wednesday, the World Bank board is expected to vote on a $3.75 billion loan to help South Africa build a 4,800-megawatt coal-fired power plant. The plant will release an estimated 25 million metric tons of global warming pollution into the atmosphere. Its loan application has sparked some of the fiercest public outcry the World Bank has seen in years.

Opponents are leaning hard on the United States to cast one of its rare but potent "no" votes, shining a spotlight on the secretive World Bank decisionmaking process, in which critical choices are made behind closed doors and, analysts say, diplomatic sensitivities mingle with an institutional drive to approve loans. Actual "yea and nay" votes, in fact, are almost unheard of at the World Bank, where the money flow is virtually always given the green light by a well-orchestrated consensus.

"It's a culture of loan approval," said Bruce Rich, an international environmental lawyer and longtime World Bank critic. "The board members tend to almost rubber-stamp these projects. They almost never say no."

By most accounts, the 24-member board won't say no to South Africa's state-owned Eskom Holdings Ltd. this week, either. Analysts and congressional aides said they expect the U.S. director to abstain, an objection that would still allow the project to move ahead.

The South African government has lobbied fiercely for the loan. In a Washington Post op-ed last month, South African Finance Minister Pravin Gordhan argued that the country's economic health depends on it.

'Stunting' future growth prospects

"To sustain the growth rates we need to create jobs, we have no choice but to build new generating capacity -- relying on what, for now, remains our most abundant and affordable energy source: coal," Gordhan wrote. He said South Africa is working to address climate chnage and would prefer to build capacity with clean technologies. But, he said, options like wind and solar are not yet affordable enough, nor can they provide energy at the needed scale.

"A question that has to be faced is whether stunting growth prospects in our region will in any way serve the goal we all share of eliminating greenhouse gas emissions over the long term," Gordhan wrote.

Environmental groups also mounted a thundering campaign. South African opponents of the coal plant traveled to Washington, D.C., to meet with congressional leaders and World Bank executive directors. From the Netherlands to France, activists wrote letters urging directors to stand against the plant, on the grounds that limited public funding for energy should not go to fossil fuels.

European leaders are under the gun -- pressed on the one hand to act as leaders in fighting climate change, yet worried on the other about appearing to block economic development in Africa. In Norway, for example, the Ministry of the Environment is urging its government to reject the loan, while the Ministry of Foreign Affairs and Agency for Development Cooperation want to support it.

But no country is facing more pressure than the United States.

Last year, the Obama administration issued internal guidelines to discourage U.S. executive directors from approving coal power plants at any of the World Bank Group institutions. Green groups are pressuring the administration to make good on that promise and vote "no." But doing so, analysts said, could rupture relations between America and South Africa.

Diplomatic concerns are a major reason why countries almost never reject projects once they come for a vote, current and former World Bank officials said.

The 'optics' filter through a lens of consensus

"The optics of this are complicated," said Manish Bapna, executive vice president of the World Resources Institute and a former World Bank economist and team leader.

"The highly visible international arena in which these decisions are taken make it difficult for significant disagreements or dissension to manifest itself," he said. "When it does, it's a significant statement."

An analysis of five years' worth of positions on World Bank projects, data made public monthly by the U.S. Treasury Department, indicates that a "no" vote on the Eskom project would be highly unusual for the United States.

Of the 3,404 projects the World Bank Group approved in that period, the United States rejected only 88. Of those, 43 percent were loans to Serbia or Bosnia-Herzegovina, opposed on the basis of a law prohibiting America to approve loans for countries that have not taken the necessary steps to apprehend war criminals.

Enacted in 2006, that law is one of about 64 provisions that Congress created requiring the U.S. executive director of oppose the World Bank for a variety of reasons. America's representative at the bank also is expected to oppose loans to terrorist states and human rights violators, countries that practice female genital mutilation, and countries where budgets and audits of military expenditures are not transparent. Some laws govern or bar loans to specific countries like Cuba, Sudan, Myanmar and Iraq.

Far more common than a "no" vote, though, is an abstention. Since loans are approved by a majority of the World Bank shareholders' votes cast, abstaining is essentially the same as not voting. In practice, it allows a country to state objections to a project without the diplomatic unpleasantness of outright opposition.

Abstention, a diplomatic 'no'?

Congressional aides said last week that they expect the United States to abstain on the Eskom vote.

Most U.S. laws governing foreign assistance give its World Bank directors wide leeway to abstain rather than vote "no," and they take it. America abstained 282 times since 2004 -- about 8 percent of the time -- on a wide variety of projects, ranging from a tiny $3.9 million credit for a biosafety plan in Burkina Faso to a $2.1 billion loan for a roads project in Kazakhstan.

U.S. Treasury officials declined to discuss World Bank voting patterns or explain any specific votes. The Treasury is required by law to post its "no" and "abstain" positions, and each month releases a list of recent board decisions. A handful of other countries, like the United Kingdom, Switzerland and Germany, issue annual reports that may contain a record of their countries' positions, but no other nations release the same volume of data as the United States, according to the Bank Information Center watchdog group.

And the reality is that by the time the World Bank board votes on a project, the outcome has already been decided -- favorably. Much like the way congressional leaders won't bring a major bill to the House or Senate floor without knowing they've got the votes for passage, World Bank management also delays board decisions until a broad consensus has been reached.

David Wheeler, a former World Bank economist and now a senior fellow at the Center for Global Development, said the bank's consensus culture has its roots in history. The original mission of the World Bank, which was created during World War II in Bretton Woods, N.H., was to help rebuild Europe. Even as the mission changed toward poverty alleviation, the United States and Europe dominated both financing and policy.

"Although they had differences among themselves, they basically were aligned in their worldview. I think there was a general sense of commonality in policy," Wheeler said. "Imagine the view of a country club that hasn't let anyone new in in a long time. It's a consensus culture."

That's changing, he and others said, as the geopolitics of the world -- and the World Bank -- shift. Major developing countries like China and India have more clout than ever before, in large part because they can easily access capital in the private markets. The World Bank, though, wants to retain those creditworthy big-borrowing countries as lenders.

"For some of the larger developing countries, the World Bank needs those countries more than those countries need the World Bank," Bapna said. In the future, he predicted, "instead of the rich countries being able to call all the shots, increasingly, it's going to require even more negotiation than we've seen in the past."

Bucking institutional momentum is rare

Per Kurowski, a former World Bank executive director from Venezuela, said the institution has no internal mechanism for handling a loan that is rejected. So taking a loan before the board without ironing out problems is, he said, "a no-no."

"You want to make absolutely sure you have the necessary consensus. They are risk-averse, and they don't want embarrassment," he said, adding, "Managements are afraid of risk and embarrassment no matter where they are."

In some instances, a country will withdraw a project if there is strong opposition or if the outcome appears uncertain. In 2000, for example, China withdrew a $40 million loan request for a controversial project involving the resettling of nearly 58,000 mainly Chinese farmers into a traditionally Tibetan and Mongolian area of Qinghai province.

Those instances of public clashes reverberating outside of the institution are rare. According to Rich, they also are the bank's "worst nightmare." He argued that from the time a country approaches the World Bank for a loan or -- as also often happens -- a country director helps a government design a project, all the gears in the bank already are working to see the money through. Loan packages take time to prepare, and by the time a proposal gets to the board, it's gone through months, maybe years, of intense staff and management work.

"There's already a big institutional momentum, and by the time it gets to the board, there are huge political costs for the bank as an institution," Rich said. "For the board to turn it down, the borrowing country is offended, it's bad for the careers of the management and the staff, it makes everyone look bad."

Yet opposition can also steer policy. When the Chinese Western Poverty Reduction Project fell through, it was widely understood that World Bank funds would not be used for Beijing's projects aimed at demographic restructuring and development of Tibetan areas. And while loans to countries that the United States regards as supporting terrorism, like Iran and Syria, go through despite American objections, they also don't come up very often. The bank has approved only three loans for Iran in the past five years, for example, and one $5 million equity investment in Syria.

Whether the United States abstains or votes "no" on Eskom, analysts watching the process say the debate is sending a strong signal that the World Bank will have to do more to encourage renewable energy and may even have to sideline loans for future coal plants.

Click here to download ClimateWire's analysis in .csv format.

Want to read more stories like this?

E&E is the leading source for comprehensive, daily coverage of environmental and energy politics and policy.

Click here to start a free trial to E&E -- the best way to track policy and markets.