PNG: The Case

Status Update

As a result of our successful complaint process, World Bank Management traveled to Oro Province in April 2012 to meet directly with claimants as part of the implementation of its Action Plan.  Accountability Counsel and CELCOR continue to monitor the Bank’s progress towards bringing the Project into compliance with Bank policies.

In November 2009, Accountability Counsel and Papua New Guinea (“PNG”)-based Centre for Environmental Law and Community Rights (“CELCOR”) supported indigenous small landowners, or “smallholders” in filing a complaint with the World Bank Inspection Panel, the accountability mechanism responsible for ensuring the Bank’s compliance with its own policies.  The complaint detailed violations of Bank policy in connection with the Smallholder Agriculture Development Project (“SADP” or the “Project”) and prompted the Inspection Panel to conduct a full investigation into the Project.  The Panel’s Investigation Report, released in December 2011, documented numerous violations and led to the creation of an Action Plan, approved by the World Bank’s Board of Directors, meant to bring the Project into compliance with Bank policies.

a.     History 

The World Bank has been funding palm oil projects in Papua New Guinea since 1969.  Most recently the Bank provided funding for the Oro Smallholder Oil Palm Development Project (“OSOPDP”), implemented from 1992 to 2001, which sponsored new oil palm plantings and the construction and maintenance of access roads in Oro province.  Despite promises that these projects would alleviate poverty, OSOPDP and other past oil palm projects have contributed to food insecurity, land conflict, deforestation, and deteriorating community health in Oro province.

Road in Papua New Guinea meant to be maintained by a previous World Bank loan

Many smallholders and community members in Oro province were unsatisfied when the OSOPDP failed to deliver its promised results.  Communities found that the money they earned growing oil palm did not translate to higher living standards.  The OSOPDP incentivized “mono-cropping,” leaving smallholders dependent on fluctuating oil palm prices and leading to deforestation and the destruction of food gardens.  Moreover, many of the planned roads were not built or maintained as promised, leaving growers with no way to transport their fresh fruit bunches, which must be processed within a short time period after collection.

Despite these problems, the Bank continues to fund oil palm projects in PNG.  The US$69 million Smallholder Agriculture Development Project will receive US$27.5 million in funding from the World Bank.  The Project will also receive US$10.2 million from the Papua New Guinea Sustainable Development Program, US$10.7 from provincial governments in Papua New Guinea, and US$7.3 million from the Project’s stated beneficiaries, the smallholder oil palm growers, in the form of road maintenance levies.  The palm oil milling companies, which will profit from the increased oil palm production under the Project, will contribute US$5.7 million to the Project, less than the Project’s stated beneficiaries.  Funding goes to the Oil Palm Industry Corporation (“OPIC”), which is in charge of implementing SADP.

Deforestation to make way for new palm oil in Papua New Guinea

The Project’s stated goal is to alleviate poverty in Papua New Guinea by expanding oil palm production and improving rural access roads.  The Project involves “infilling” or planting new blocks of oil palm between established blocks and along existing access roads, as well as reconstructing damaged roads and establishing a system for future road upkeep.  The Project will be implemented in three communities in Papua New Guinea: Popondetta in Oro Province and Hoskins and Bialla in West New Britain Province.

Communities in Oro Province fear that SADP will perpetuate the same social and environmental harm as past World Bank oil palm projects.  Like past oil palm projects in Papua New Guinea, SADP is based on the Nucleus Estate Scheme concept whereby smallholder growing areas are developed adjacent to oil palm estates.  The Project design is based on the pre-existing relationship between the smallholder growers, OPIC, and the private-sector palm oil milling companies, keeping the smallholders dependent on the private milling companies for credit, agricultural inputs, and fruit collection services.

The Project will incentivize creation of 9,000 hectares of new oil palm plots.  It aims to encourage smallholders in Papua New Guinea to grow oil palm as their main income-generating activity.  A levy will then be deducted from growers’ income to rehabilitate and maintain rural access roads.  The government and the milling companies are also meant to contribute to the Road Maintenance Trust Fund, but the Project does not include a mechanism to ensure their participation.

Floating fresh fruit bunches across a river in Papua New Guinea because the bridge had washed out

Many smallholders are concerned that the Project as designed will not reduce poverty or improve livelihoods, and instead will limit their economic opportunities by presenting oil palm agriculture as the only income-producing option in the region, despite the fact that it has been unsuccessful in increasing their standard of living.  They fear the Project will cause environmental harm including degradation of critical forests and increased water pollution from mill effluent being discharged into local rivers.  The smallholders are also concerned that the road maintenance plan will impose unfair and likely unsustainable fees on smallholders and are frustrated that this fee structure was developed without consultation.

b.     Initial Steps

Prior to Accountability Counsel’s involvement in the case, a community-based organization in Oro Province, the Ahora/Kakandetta Pressure Group, contacted the World Bank with concerns about the Project.  U.S.-based organization International Accountability Project (“IAP”), which was involved in the early stages of the case, then sent a representative to Papua New Guinea in April 2009 to gather information about the Project and its impact on smallholders.  IAP, along with PNG-based Centre for Environmental Law and Community Rights (“CELCOR”), visited the Project-affected areas and met with community organizations and smallholders to hear about their experiences with oil palm and SADP.  None of the communities had been consulted about SADP’s design and most expressed a desire for support for alternative agricultural options other than planting oil palm.

Use of child labor in harvesting palm oil

The communities worked with CELCOR and IAP to develop a campaign strategy that included filing a complaint with the World Bank Inspection Panel.  Accountability Counsel became involved to assist with drafting the initial complaint, working closely with CELCOR and IAP.

c.     The Complaint

In December 2009, CELCOR and Accountability Counsel submitted a complaint to the World Bank Inspection Panel on behalf of the Ahora/Kakandetta Pressure Group and affected customary landowners in Oro province.  The complaint argues for a moratorium on the Project until:

1. Poverty reduction is incorporated into the Project design;

2. Other economic livelihood options are presented;

3. A comprehensive environmental assessment is undertaken, including assessment of mill effluent treatment and creation of a critical forest inventory;

4. The Project design is changed to ensure project sustainability; and

5. Proper consultation is undertaken to ensure communities give their free, prior and informed consent to all components of the Project.

 d.     The Process

Registration of the Complaint

December 17, 2009 – The World Bank Inspection Panel registered the complaint in its public registry.

Management Response

Palm oil milling in PNG causing contamination

February 8, 2010 – World Bank Management submitted its Initial Response to the complaint to the World Bank Board of Directors.  The response denied many of the smallholders’ allegations, but admitted to noncompliance with Bank policy in three areas: that Project documents were not translated into the local language; that documentation of consultations with affected communities was lacking; and that the Environmental Assessment required prior to Project approval lacked information on milling companies’ capacity to treat the increased mill effluent, or liquid waste, that would result from the Project.  Management indicated specific steps that it would take to improve the Project, including translating Project documents into the local language and making them publicly available, and commissioning a study on the effects of effluent discharge on local rivers.

The Inspection Panel’s Initial Site Visit and Eligibility Determination

February 2010 – The Inspection Panel travelled to Papua New Guinea to meet with some of the complainants and other Project-affected people, PNG-based NGO CELCOR, Government officials, World Bank staff, and representatives of the Oil Palm Industry Corporation (“OPIC”).

Fresh fruit bunches awaiting collection in Papua New Guinea

March 10, 2010 – the Inspection Panel submitted a Report and Recommendation to the World Bank’s Board of Executive Directors, finding the complaint eligible for review and recommending a full investigation into the matters raised in the complaint.  Based on information gathered from its site visit, the Inspection Panel found that the complaint asserted serious violations of the Bank’s Operational Policies.  The Inspection Panel underscored the gravity of issues raised in the complaint, including the question of livelihood impacts on smallholders from oil palm production.

March 25, 2010 – The Board approved the Inspection Panel’s recommendation and authorized the Panel to conduct a full investigation into the issues raised in the complaint.

The Panel’s Investigation and Engagement with the Bank

April 21, 2010 – Accountability Counsel sent a letter to the President of the World Bank on behalf of CELCOR requesting that the Bank’s funding for the Project be suspended until admitted policy violations were corrected.

May 12, 2010 – The World Bank sent a response letter, refusing to suspend the Project.  It reasoned that oil palm planting under the Project was not scheduled to begin until after the policy violations would be corrected.  The response letter also provided target dates by which key improvements would be completed to help bring the Project into compliance with Bank policy.

August 31, 2010 – Accountability Counsel and the Center for International Environmental Law (“CIEL”) submitted comments to the World Bank Group Palm Oil Strategy Review.  The World Bank initiated the Review to analyze the Bank’s involvement in the palm oil industry, following criticism through the SADP complaint and the World Bank’s private sector Wilmar complaint to the CAO, that funding palm oil development was not a responsible or successful way to promote economic growth in developing countries.

Smallholders in Papua New Guinea standing in front of their house

September 2010 – The Inspection Panel travelled to Papua New Guinea to conduct a 2-week investigation into the violations alleged in the complaint.  Accountability Counsel sent a delegation to Papua New Guinea during the Panel’s visit to work alongside CELCOR to provide support to the communities during the investigation.

The Panel held meetings with smallholders who would be affected by the Project, and with representatives from OPIC and the mill companies.  By the end of its trip, the Inspection Panel had witnessed social harms, including alcoholism, overcrowding, sexual abuse, domestic violence, and lack of budgeting or financial skills, caused by previous oil palm projects in the region.  The Panel identified numerous issues and inadequacies with the design of SADP, as well as a failure to carry out several actions required for Project approval.

December 1, 2010 – Accountability Counsel and CELCOR sent another letter to the World Bank President asking for an updated commitment for completing actions required to bring the SADP into compliance with World Bank policy.  The dates that Bank Management had previously given for completing actions necessary to bring the Project into compliance all passed with little progress being made.  Project documents still had not been made available to affected people in their own language, promised consultations with affected people had not taken place, and the effluent study, which was initially required before Project approval, still had not been completed.  Accountability Counsel and CELCOR continued to request, on behalf of the affected communities, that funding for the SADP be suspended until the Project was brought into compliance with admitted Bank policy violations.

December 14, 2010 – Bank Vice President James Adams sent a response letter indicating that Bank Management was moving forward with its commitments and explaining that there were “no grounds for withholding disbursements.”

Use of child labor in palm oil harvesting in PNG

March 31, 2011 – Following its Oil Palm Strategy Review, the World Bank announced the adoption of a new World Bank Group Framework and IFC Strategy for Engagement in the Palm Oil Sector.

June 7, 2011 – Accountability Counsel and CELCOR sent a third letter to World Bank President Zoelick and Vice President Adams informing them that the effluent study had still not been released and that infilling had begun despite assurances in December 2010 that completion and disclosure of the effluent study would take place “prior to the commencement of any infill planting of oil palm under the SADP and thereby in time for implementation of mitigation measures, if any are called for by the study. 

June 21, 2011 – Bank Vice President James Adams sent a response letter promising the release of the effluent study by the end of July and assuring Accountability Counsel and CELCOR that infilling had not, in fact, begun under SADP.

July 25, 2011 – World Bank Management finally released the Effluent Study, which, per the Bank’s own policies, should have been completed as a pre-requisite to Project approval in December 2007.  In addition to being untimely, the Effluent Study is not sufficiently comprehensive to give Bank Management an adequate understanding of whether mills in the Project area have the capacity adequately to treat increased palm oil mill effluent due to SADP, not to mention whether there will be health or environmental impacts from the Project.  Bank Management itself recognized these problems and helped develop an Action Plan “to follow-up on the issues that have been raised in the SADP effluent study and ensure adequate mitigation measures are in place to deal with increased palm oil mill effluent due to the Project.”

Tractor lifting fresh fruit bunches in Papua New Guinea

September 19, 2011 – The Inspection Panel submitted its Investigation Report to the World Bank Board of Directors and Management, giving Management 6 weeks to respond.  Per the Panel rules, the Report was not released to the public at this time, nor was a copy released to the claimants or their representatives.

October 31, 2011 – World Bank Management issued a Response to the Inspection Panel’s Report, which included an Action Plan and Annex listing actions Management committed to undertaking in order to bring the Project into compliance with Bank policies.  In violation of Bank policy and practice, Bank Management unilaterally developed the Action Plan without any consultation with the claimants, their representatives, or the affected communities generally.  Per the Panel’s policy, the Response was not released to the public at this time, nor was a copy released to the claimants or their representatives.

Palm oil plantations as far as the eye can see in Papua New Guinea

November 2, 2011 – Accountability Counsel and CELCOR released a report, The World Bank’s Duty in PNG, which highlighted the ongoing concerns of smallholders in Project-affected areas and the responses still required by the World Bank to bring the Project into compliance with its own policies.  Accountability Counsel and CELCOR also released a critique of the Effluent Study, An Environmental and Due Diligence Failure, as an Annex to The World Bank’s Duty in PNG.

November 3, 2011 – Accountability Counsel met with the World Bank Executive Director in charge of Papua New Guinea about claimants’ ongoing concerns and the problems with the Effluent Study.

Late November 2011 – Accountabilty Counsel distributed The World Bank’s Duty in PNG and An Environmental and Due Diligence Failure to all World Bank Executive Directors to ensure that the Directors were informed about claimants’ concerns prior to the Board vote.

World Bank Board of Directors Vote on Management’s Action Plan

December 13, 2011 – The World Bank Board of Directors met to discuss the Inspection Panel’s Report and Management’s Response.  The Board approved Management’s Action Plan and the commitments set forth in Annex 1, requiring Management to carry out a number of actions to bring the Project into compliance with Bank policy.

Roads and bridges are frequently destroyed during the rainy season in Papua New Guinea

December 19, 2011 – The Panel’s Investigation Report and Management’s Response were released to the public.  The Investigation Report confirmed violations of the Bank’s policies regarding Indigenous Peoples (OP/BP 4.10), Environmental Assessment (OP 4.01), Forests (OP/BP 4.04), Project Appraisal (OMS 2.20), and Economic Evaluation of Investment Operations (OP 10.04).  Most significantly, the Panel found that the Project fails to incorporate basic elements required to decrease poverty among Project “beneficiaries” and was designed without consultation or study of indigenous landowners’ capacity to pay their proposed share of the road maintenance portion of the Project.

Taken together, the Action Plan and Annexes in Management’s Response addressed many, but not all, of the violations found by the Inspection Panel.  Management’s commitments, approved by the Board, included developing and implementing a Consultation Framework; improving documentation of consultations with affected communities; improving mill effluent processing and environmental monitoring; and ensuring that any levies imposed on smallholders to fund road works do not present an unsustainable burden.

Accountability Counsel’s summary of the actions the World Bank must now take to bring the project into compliance is available here.

Monitoring and Follow-Up

Rows of oil palm trees in Papua New Guinea

January 25, 2012 – Accountability Counsel and CELCOR sent a letter to World Bank Management requesting a timeline for carrying out the Action Plan and addressing the Project’s known policy violations.  Bank Management responded with expected timelines for completing some of the required actions and indicated that it would report back to the Board in 12 months to update them on the implementation of the Action Plan items.

March 15, 2012 – Accountability Counsel met with the World Bank Executive Director in charge of Papua New Guinea to request assistance in determining whether Management was on track to complete its early 2012 commitments within the target timeframe.

April 13, 2012 – World Bank Management travelled to Oro Province to meet with claimants and other interested smallholders as part of its effort to bring SADP into compliance with Bank policy.  The Bank presented its Action Plan and gave updates about the Project’s status.  Claimants and other smallholders then expressed their continuing concerns, which centered around the Road Maintenance Trust Fund and development of alternative livelihoods.

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