World Bank Financing Arm Under Fire Over Burmese Coal Mine Link

By Seamus Martov 30 March 2017

The World Bank’s private sector lending arm, the International Finance Corporation, which gives financial assistance to businesses that invest in the developing world, has come under criticism in a new report over its connection to a controversial coal mining operation in Tenasserim Division.

The Ban Chaung coal project is led by the Thai firm Energy Earth and is located in territory partially controlled by the Karen National Union (KNU), Burma’s oldest ethnic armed group. According to a report released earlier this month by the NGO Inclusive Development International, the mine is severely affecting the health and livelihoods of locals in the area, who have already endured years of conflict.

The report titled “Reckless Development: The IFC’s Dodgy Deals in Southeast Asia,” alleges that the IFC “is surreptitiously channeling money” to a series of extremely controversial projects across Asia by way of for-profit financial intermediaries, like commercial banks and private equity funds, in a manner that runs afoul of the group’s own guidelines. According to the report’s authors, the IFC, in addition to its connection to the Burmese coal mine, is also linked to a range of other highly contested projects in Asia, including mega-hydropower dams in Vietnam and Cambodia and massive land grabs in Cambodia and Laos.

The IFC told The Irrawaddy that it disputes many of the findings presented: “While we share concerns for communities negatively impacted by some of the projects mentioned, we find many factual inaccuracies in the report.”

According to the report, when fully operational, the Ban Chaung mine is expected to adversely affect some 16,000 people from 23 villages living in the surrounding area. A press release quoted a spokesperson from one of the local groups that aided with the report warning of the serious repercussions of the mine project, which already allegedly includes the poisoning of local waterways and a significant decrease in local air quality due to noxious coal underground fires triggered by strip mining.

“After 70 years of civil war, the people of Ban Chaung are trying to rebuild their lives again from zero. But rather than focusing on community development and improving education, health and livelihoods, we have had to spend five years fighting with this company that is trying to take away everything,” said Naw Pe Tha Law from the Tarkapaw Youth Group.

Another villager quoted by the report indicated that company representatives had informed him of the permission from the KNU to go ahead with the project, which is located in territory that has been for decades under the control of the KNU’s Fourth Brigade. A report from 2015 by the Tarkapaw Youth Group also reported that Earth Energy’s Thai partner, East Star, a firm know to have longstanding ties to KNU officials in the area, had received a permit from the KNU’s Fourth Brigade to operate in 2011, a year before the firm entered into a partnership with Earth Energy.

Although the coffers of one of the country’s largest armed groups will grow thanks to the mining in Ban Chaung, the local population will see little, if any, benefit. Villagers interviewed for the report say that since mining operations began in 2012, the area has become unlivable.

“The smell is hideous. When I’m near it, I can’t breathe. I get dizzy and have headaches,” said a mother of six, interviewed for the report, who was forced to abandon her home because of the toxic fumes from uncontrolled underground coal fires triggered by the mining operations.

IFC Mine Connection Via Austrian and Chinese Banks

The report’s authors describe the IFC as being linked to the project by way of equity investments made in recent years by the IFC in two large commercial banks, Austria’s Raiffeisen Bank and the Postal Savings Bank of China, which the report describes as being closely connected to the Thai firm leading the project.

In January 2014, the IFC bought US$186 million worth of shares in Raiffeisen, at a time when the bank was facing significant financial difficulties, giving the Washington-based IFC a significant stake. Shortly after this deal was completed, Raiffeisen bought a 3 percent stake in Earth Energy, which is listed on the Thai stock exchange.

The IFC’s involvement with the Postal Savings Bank of China began in 2015 when the IFC bought a $300 million stake in the bank. Shortly after this deal was completed, the partially state-owned bank in turn co-arranged $1.5 billion in corporate bonds for four of China’s “big five” electric utility companies: Huaneng, Datang, Guodian and China Power Investment. An investors report produced by venture capital firm CM Equity cited by the Inclusive Development International report indicates that these firms are major buyers of Energy Earth’s coal.

According to the report, because the bonds that were underwritten by the Postal Savings Bank were general, the power firms would be free to use these funds to buy coal for their China-based power plants. “As such, the IFC, through its equity stake in Postal Savings Bank, appears to be channel¬ing funds that could be used for the purchase of coal from the Ban Chaung mine,” the report claimed.

In addition to drawing scrutiny from NGOs and environmentalists who frequently are at odds with much of what the IFC does, the move to invest in the Postal Savings Bank has also been questioned by the IFC’s former director Peter Woicke.

“It is unclear to me what the role is for the IFC in [the Postal Savings Bank of China]… If that [investment returns] is why you are doing it, you might as well be Goldman Sachs. But the job of the IFC is not just to be Goldman Sachs,” Woicke told the Financial Times in December 2015.

IFC told the Irrawaddy: “As has been communicated to IDI [Inclusive Development International] on numerous occasions, many of the sub-projects mentioned either pre-date or fall outside the scope of IFC’s investment with the financial institution mentioned.”

“The report is misleading in insinuating that IFC’s investments in the FIs [financial institutions] mentioned indirectly support a significant number of harmful activities. In any cases where IFC confirms non-compliance with the applicable environmental and social requirements by our FI clients, we raise these issues with our clients and seek redress,” added an IFC spokesperson.

The latter claim about steps taken by the IFC when it finds non-compliance by its clients seems to be at odds with a recent monitoring report by the IFC’s own Compliance Advisor/Ombudsman (CAO). The CAO report, which studied a sample of the IFC’s investments, found widespread systemic non-compliance by the IFC with its own policies and procedures.

The CAO report found that the “IFC does not, in general, have a basis to assess [financial intermediary] clients’ compliance with its [environmental and social] requirements,” which the CAO flagged as “highly problematic.”