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close this book Sustainable Energy News - No. 4 March 1994
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World Bank Energy

by Gunnar Boye Olesen, OVE

In 1992, the World Bank has adopted a new energy policy based on two policy papers Energy Efficiency and Conservation in the Developed World and The World Banks Role in the Electric Power Sector. These policy papers call for loans to be based on integrated energy strategies (Integrated Resource Planning), institutional capacity building, economic pricing and regulatory reform targeting improved end-use efficiency.

While the energy policy papers of the World Bank are substantially improved, a new evaluation of the World Bank's lending practices in the power sector does not show a correlation between the policies and the actual lending practices. The study made by Environmental Defense Fund (EDF) and Natural Resource Defense Council (NDRC) shows that in the power sector the loans under preparation during the first 6 months of 1993, totalling over USD 7 billions, do not comply with the Bank's new policy.

The study shows that the Bank fails to implement its own policy in all areas studied, except for pricing, where the Bank intends to enforce its policy. The Bank staff has no requirement or incentive to operationalize the policy which they have only applied selectively. Of the 46 loans reviewed only two loans will comply with the Banks new energy policy: one loan to the Polish Power Grid Company and one to the Government of Colombia.

Background

Historically, the World Bank has not provided many loans for energy efficiency, while the general power sector lending has often had serious environmental and social impacts. As an example Bank projects of the Industry and Energy Department are currently displacing over 380,000 people (according to a recent World Bank document The Bank-Wide Resettlement Review: Mid-term Progress Report, August, 1993).

During the 1980's only one percent of the Bank's energy lending was for end-use efficiency, and about half of these funds had to be reprogrammed to other use due to project problems. One major problem was that the potential industrial investors were unwilling to borrow money for energy efficiency improvements. They prefered to borrow money for production expansions.

Another way of supporting energy efficiency is the Bank's calls for removal of subsidies for energy. The Bank regularly includes conditions on its loans, requiring electricity pricing reform. This condition has, however, in many cases not been enforced.

Besides this, the Bank has attempted to improve end-use efficiency through units with earmarked funding from donor countries. An example is the Energy Sector Management Assistance Program (ESMAP) that has conducted many assessments and pre-feasibility studies in developing countries. Yet, these hundreds of recommandations were not implemented. Proposed end-use energy efficiency investments were generally not included in subsequent Bank loans. Another such unit is the Asia Alternative Energy Unit (ASTAE), which is located on the loan-making side of the Bank, providing it with greater opportunity to interact with the loan-making staff than ESMAP, which is located on the policy side of the Bank.