World Bank Announces Funding Approval for Peru Pipeline Project

WASHINGTON, DC — The World Bank's International Finance Corporation (IFC) today announced $300 million in funding for the liquefied natural gas (LNG) project in Peru, or Camisea II. The first phase of the Camisea project was one of the most controversial energy projects in the world—with six pipeline ruptures since 2004. After an insufficient evaluation of the social and environmental impacts of the second phase, IFC's support of Camisea II could have serious implications for the region.

"We are disappointed that the IFC has decided to fund the second phase of the Camisea project. We believe the board of directors should have requested a delay of the vote in order to more fully assess the environmental and social impact this project will have on local communities," said Ian Gary, Oxfam America's Senior Policy Advisor for Extractive Industries and a member of the World Bank’s Extractive Industries Advisory Group.

The region surrounding the Camisea project is home to indigenous communities, notable biodiversity, national parks, and reserves. Communities in the Lower Urubamba area were particularly neglected by the first phase of the project, with serious compensation agreement problems and little spending of royalties by local governments for increased social services. And these communities have not been fully consulted on the second phase.

"The IFC declined to participate in the first phase of the Camisea gas project, and, with support for Camisea II, runs the risk of being further tarnished for its financing of oil, gas and mining projects, such as the Chad-Cameroon oil project, with dubious development impacts," said Gary.

In April 2006, the IFC instituted new "Performance Standards" to manage social and environmental impacts and enhance development opportunities for all financed countries. The standards require that the company sponsor obtain "broad community support" for high-risk projects within affected communities.

"The IFC has greatly undermined its new environmental and social policies by not fully applying these standards to the gas fields in the Peruvian Amazon, which will supply the export facilities financed by the IFC and other lenders," said Gary. "The narrow parsing of this project, done in order to avoid addressing serious problems, sets a disturbing precedent and will do significant harm to the credibility of the IFC's social and environmental risk management."

"We have yet to see, for example, how the IFC demonstrates compliance with its 'Broad Community Support' requirement, within the narrowly-defined transportation/export portion of the project, let alone for the upstream gas fields that supply the project. 'Broad Community Support' is an important new feature of the 'Performance Standards,' but it is unclear how, or whether, the IFC ensures compliance," said Gary.

Now that the World Bank Group has decided to support the project, it must address serious failures, risks, and concerns still pending from the first phase of the project and from new gas development in the Amazon. These include:

• A lack of fully independent monitoring (the Peru LNG consortium's "Independent Advisory Panel" is not independent and falls far short of the IFC's International Advisory Group for the Chad-Cameroon Pipeline Project);
• An inability to spend royalty revenues effectively, ongoing corruption investigations, and a Camisea Fund that was subverted from its original intent;
• Threats to isolated indigenous people living within the Kugapakori Nahua state reserve;
• Inadequate respect for communities' right to free, prior, and informed consent to this project;
• Significant impacts on local culture, human health, fisheries, and biodiversity that have not been adequately assessed much less addressed.