Office of Compliance, Advisor/Ombudsman of the World Bank Must Greatly Expand Its Scope in Tackling Systemic Problems with Oil and Gas Projects Financed by the International Finance Corporation

November 30, 2011

Crude Accountability has published a new report, “Sufficient Recourse? : Controversial Oil and Gas Projects in the Former Soviet Union and Recommendations to Improve the Compliance Advisor/Ombudsman Function of the World Bank Group,” which highlights weaknesses in the CAO’s ability to improve oil and gas project outcomes in Georgia, Kazakhstan and Russia. The report evaluates structural and procedural limitations of the CAO that prevent it from effectively mitigating large, systemic problems resulting from IFC financed projects in this sector of the economy.

Sarah Bedy, the author of the report, summed up her research: “CAO complainants expected the CAO to push the IFC and its clients to uphold social and environmental best practices, especially in countries with weak rule of law and social and environmental protections; however their experience was that CAO often interpreted its mandate and evaluated complaints too narrowly.”

The report reviews the 31 complaints submitted to the Office of Compliance Advisor/Ombudsman from affected communities throughout the former Soviet Union. All the complaints received were connected to three oil and gas projects: the Baku Tbilisi Ceyhan Pipeline project, which traverses Azerbaijan, Georgia and Turkey; Lukoil Overseas Operating, which provided financing to the Karachaganak Oil and Gas Condensate Field in western Kazakhstan; and the Russkiy Mir project, an oil terminal constructed on the Black Sea coast in the heart of a resort community on the Taman Peninsula. Extensive interviews with the complainants and responses from the CAO staff comprise the bulk of the report, which also provides recommendations to improve the future operations of the CAO.

Recommendations to the CAO include limiting the terms of leadership for the head of the office, instituting institutional reforms that result in professional repercussions against IFC staff who violate the IFC’s environmental and social standards, addressing the inability of the CAO to adequately address violations of national law and corruption in host countries, and increasing the independence of the CAO from the IFC, including housing it outside of the IFC office building.

The CAO is the independent recourse mechanism of the International Finance Corporation, the private lending arm of the World Bank Group. Local communities impacted by IFC-financed projects should be able to turn to the CAO for assistance in instances where they believe the social and environmental performance standards of the IFC have been violated, or in instances where their quality of life has been compromised by the projects.

Crude Accountability’s Sergey Solyanik, a complainant against the IFC’s $150 million investment at the Karachaganak Oil and Gas Condensate Field, stated, “The question for the leadership of IFC and the Bank in general is do they want the CAO to be a buffer zone to soften the hit from civil society and the public, or do they want a real mechanism to solve problems and answer questions?…[I]f there is not a real mechanism, sooner or later there will be a social upheaval or a tragedy that will result in the loss of life, which will sit directly on the shoulders of IFC.”

The report is available on Crude Accountability’s website:http://crudeaccountability.org.