World Bank involved in conflict of interest cases in Mozambique LNG development

A recent letter from international NGOs, co-singed by Urgewald, calls for oil majors to stop ravaging Mozambique’s Cabo Delgado region for its gas reserves. [1] The country has been shaken by violent unrest for years. Recent escalation of violence in the Cabo Delgado province, which is closest to the fossil fuel extraction sites, have been reported by the UNHCR. [2]

Since 2011, the World Bank has provided budget support and technical assistance operations involving measures aimed at developing Mozambique’s vast offshore gas reserves. [3] With this media briefing, Urgewald is releasing research, according to which World Bank-funded contractors hired by the government of Mozambique appear to have serious conflict of interests. The situation in Mozambique shows similarities to the conflicts of interest revealed in the World Bank’s involvement in Guyana earlier this year [4]. In some cases, the same contractors were hired in both countries. 

The World Bank’s involvement in Mozambique’s LNG development: A history of conflicts of interest
In 2012, according to the World Bank’s procurement disclosures, it funded the law firm SNR Denton to provide the government of Mozambique with support on LNG agreement negotiations. [5] According to SNR Denton’s website, the law firm also advised multiple oil companies involved in Mozambique’s LNG Area 1, including Total, ONGC Videsh Limited (OVL), and Bharat PetroResources. [6] In the cases of OVL and Bharat PetroResources, SNR Denton advised them on acquiring their shares in LNG Area 1 from Cove Energy and Anadarko, respectively. [7]

In addition, in March 2016, ExxonMobil purchased 25% interest in Mozambique’s LNG Area 4 from ENI for a reported US$2.8 billion. [8] In 2018, the World Bank funded a $2.4 million “contract for LNG Transaction Assistance for Area 1 and Area 4” involving a group of consultants, including ExxonMobil’s favored law firm Hunton Andrews Kurth. [9] During this same period – from 2016 to 2018 – ExxonMobil paid the law firm $500,000 in lobbying fees in the US. [10]

Furthermore, in 2014 the World Bank’s $110 million budget support to Mozambique required the government to approve a new petroleum tax law. [11] The new tax law includes, among others, value added tax or VAT exemptions and accelerated rates of depreciation for oil and gas exploration. These measures may significantly reduce the effective tax rates for companies involved in developing LNG Areas 1 and 4 among others. [12] It is difficult, if not impossible, for the public to track how much government revenue is foregone due to such tax breaks.

World Bank in Guyana: Improving Governance or Enabling Big Oil’s Influence?
In December 2017, Guyana’s Ministry of Finance revealed that the government’s multi-year Oil and Gas Development Program would be financed by the World Bank and Inter-American Development Bank (IDB). [13] So far, the World Bank has provided $55 million in general budget support and technical assistance to help the government improve governance and management of oil and gas development. [14]

At least three contractors providing services under the government’s oil and gas program funded by the World Bank have apparent conflict of interest. To begin with, the American Petroleum Institute is providing training to the government on industry standards for measuring oil production at the well head, which determines how much oil and taxes are due to the government. [15] The American Petroleum Institute is a powerful oil lobbying group in the US, spending on average $7-$9 million a year on federal lobbying [16] and counts ExxonMobil among its members. ExxonMobil is part of a consortium developing the vast Stabroek oil block off the coast of Guyana. [17]

Further conflicts of interest include the contractor hired to draft the Local Content Policy, Michael Warner, who recently ran ExxonMobil’s Local Content Centre for Development in Guyana. [18] Lastly, the law firm Hunton Andrews Kurth, which has represented ExxonMobil for some 40 years, including as a top lobbyist, was hired to advise the government. [19] According to research by Urgewald shared in March of this year [20], Hunton Andrews Kurth had been contracted by Guyana’s government and paid $1.2 million by the World Bank to draft the country’s new petroleum laws. [21]

Both local and international civil society wrote letters to Executive Directors at the World Bank expressing concerns over the apparent conflict of interest of the World Bank-funded contractors. Following extensive coverage by international and especially local media, a public relations director at Hunton Andrews Kurth contacted Kaieteur News to report that it had informed the Guyanese Government that the firm “would not represent the Government on the matter…” [21] This statement has not been confirmed by the Government of Guyana or the World Bank.

The World Bank’s Upcoming Policy Requirements for Guyana
The World Bank has indicated that it plans to provide more budget support to the Government of Guyana through a Second Programmatic Financial and Fiscal Stability Development Policy Credit. Most likely, the World Bank is currently discussing with the Government the Prior Actions that will be required for disbursement of this finance.

Dire need for more transparency: the World Bank’s involvement in Guyana and Mozambique
Given the World Bank’s budget support for Mozambique required approval of a new petroleum law and the Bank is already funding contractors with apparent conflict of interest to draft new laws in Guyana, the World Bank and Government of Guyana should disclose to the public what Prior Actions are under discussion and/or will be required for any upcoming budget support.

“Exxon and the World Bank have put Guyana on the world map with one of the biggest fossil fuel extraction projects of our time. It is global recognition that we can do without, especially in the time of climate change and its very real impacts on Guyana’s low lying coastline, where ninety percent of our population resides and our agriculture exists. Guyana’s 3rd report on our nationally determined contributions under the Paris Climate Agreement will be taking these realities into consideration. To assist our country’s efforts in this regard, we need a relevant environmental counterpart to the World Bank, which is supporting the development of the oil sector in Guyana,” says Annette Arjoon-Martins, Head of the Guyana Marine Conservation Society.

“In both Mozambique and Guyana, the World Bank’s stated objective is to improve governance surrounding the development of oil and gas. Improving governance should include helping to shield these governments from the powerful influence of the oil industry. Instead, it seems the World Bank might be facilitating it by funding contractors with such close ties to the involved oil companies,” says Heike Mainhardt, Senior Advisor for Multilateral Financial Institutions at Urgewald.

Notes:
[1] https://www.foei.org/wp-content/uploads/2020/06/Letter_Cabo_Delgado_English-1.pdf
[2] https://www.unhcr.org/news/briefing/2020/2/5e3d2d8f4/fresh-violence-northern-mozambique-forces-thousands-flee.html
[3] World Bank Mozambique Extractive Industries Technical Assistance Advisory for $75,000 covering LNG transaction assistance from May 2011 to March 2014. World Bank Mozambique Poverty Reduction Support Credits 9, 10 & 11 for a combined $290 million in budget support from July 2013until December 2016. World Bank Mining and Gas Technical Assistance Project for $78 million from March 2013 until December 2021 with assistance directed at LNG Areas 1 and 4.
[4] https://urgewald.org/medien/world-bank-directors-urged-intervene-guyanas-oil-development-over-conflict-interest
[5] https://projects.worldbank.org/en/projects-operations/procurement?supp_id=302171&supp_name=SNR%20DENTON%20UK%20LLP&srce=contracts
[6] https://www.dentons.com/en/find-your-dentons-team/industry-sectors/energy/oil-and-gas  As viewed on May 2, 2020.
[7] https://www.dentons.com/en/insights/alerts/2013/february/11/mozambique-petroleum-update  As viewed on May 2, 2020.

[8] https://www.oedigital.com/news/447041-exxon-joins-eni-at-area-4-off-mozambique
[9] https://projects.worldbank.org/en/projects-operations/procurement?supp_id=381198&supp_name=HUNTON%20ANDREWS%20KURTH%20LLP&srce=contracts
[10] According to calculations by the Center for Responsive Politics based on data from the Senate Office of Public Records.
[11] See the World Bank’s Program Document for Mozambique’s Tenth Poverty Reduction Support Credit; Prior Action 3, page 21: http://documents.worldbank.org/curated/en/135751468052833483/pdf/902990PGD0P146010Box385366B00OUO090.pdf
[12] According to Ernst and Young (2015), the new 2014 law allows oil and gas companies to immediately deduct 100 percent of their capital expenditures against taxable income for spending on exploration and appraisal.  Coupled with the fact that Mozambique allows for losses to be carried forward for a period of five consecutive years, this could result in large scale oil and gas development projects paying very little taxes for multiple years.  See EY, 2015. Global Oil and Gas Tax Guide. Ernst and Young (EY), 2015.
[13] OilNOW, 2017. IDB/IDA begins funding Guyana O&G development programme. December 1, 2017. Available at: https://oilnow.gy/featured/idbida-begins-funding-guyana-og-development-programme/
[14] The two World Bank operations include: First Programmatic Financial and Fiscal Stability Development Policy Credit for $35 million (as budget support to Guyana); and Petroleum Resource Governance and Management Project for $20 million (as technical assistance).
[15] See  https://www.api.org/news-policy-and-issues/blog/2019/11/14/helping-build-a-safe-sustainable-energy-future-for-guyana; and  https://www.kaieteurnewsonline.com/2019/10/06/guyana-benefits-from-american-petroleum-institute-expertise-training-on-oil-metering/
[16] According to calculations by the Center for Responsive Politics based on data from the US Senate Office of Public Records.
[17] https://urgewald.org/medien/world-bank-paves-way-carbon-bomb-drilling-project-guyana
[18] See https://projects.worldbank.org/en/projects-operations/procurement?supp_id=419470&supp_name=MICHAEL%20WARNER&srce=contracts  and  https://www.kaieteurnewsonline.com/2019/05/17/sole-sourced-or-open-tenderquestions-surface-over-contract-awarded-to-exxonmobils-specialistman-hired-to-finish-guyanas-local-content-policy/
[19] https://www.theguardian.com/business/2020/mar/08/world-bank-accused-over-exxonmobil-plans-to-tap-guyana-oil-rush
[20] See https://urgewald.org/medien/world-bank-funds-exxonmobils-go-law-firm-revise-petroleum-law-guyana
[21] https://projects.worldbank.org/en/projects-operations/procurement?supp_id=381198&supp_name=HUNTON%20ANDREWS%20KURTH%20LLP&srce=contracts
[22] https://www.kaieteurnewsonline.com/2020/06/03/following-knews-expose-exxonmobil-lobbyist-bolts-from-contract-to-rewrite-guyanas-oil-laws/