Indonesia:
Call for suspension of World Bank (IFC) lending to oil palm
An
internal audit has revealed that the World Bank’s private
sector arm – the International Finance Corporation (IFC) –
has allowed commercial interests to override its social and environmental
standards in making major loans to the oil palm sector in Indonesia..
The uncontrolled expansion of oil palm plantations in Indonesia
has become synonymous with widespread clearance of forests and peatlands,
massive CO2 emissions and the theft of indigenous peoples’
lands. Yet the government plans to expand from a current 7 million
hectares of plantings to more than 20 million hectares over the
next decade.
Although
the IFC knew about all these risks, it went ahead with loans to
the Wilmar palm oil trading group, in violation of its own standards,
according to the report. The IFC failed to assess the supply chains
or look into the damaging impacts of the company’s subsidiary
plantations that were taking over community lands and forests in
Borneo and Sumatra. These findings come from a highly critical audit
report just issued by the semi-independent Compliance Advisory Ombudsman
of the IFC which looked into a detailed complaint filed in July
2007 by Forest Peoples Programme and a coalition of 19 Indonesian
civil society and indigenous peoples’ organisations, including
SawitWatch and Gemawan.
The
complaint was sparked by the fact that the IFC was persistently
ignoring NGO warnings that its favoured commercial client, Wilmar
International, was operating in violation of both IFC standards
and Indonesian law. In a detailed dossier submitted in 2007, the
NGOs demonstrated that Wilmar was: failing to recognise the customary
rights of local communities; grabbing the lands of communities with
the connivance of local and national State agencies; party to serious
human rights abuses when communities objected to the takeover of
their lands; clearing extensive areas of forest and peat; carrying
out illegal practices such as use of fire to clear lands; failing
to comply with legal regulations and failing to carry out environmental
impact assessments and; breaking promises made to communities to
establish areas as smallholdings. At the time the IFC made the investment
guarantee to Wilmar that triggered the complaint, Wilmar group companies
were actually the subject of legal proceedings brought by the government
for alleged violations of environmental laws.
The
company, Wilmar trading, has over the 8 years that it has enjoyed
IFC patronage grown into the world’s largest trader of crude
palm oil and become a ‘vertically integrated’ business
empire, worth an estimated US$7 billion, with factories in eastern
Europe, ports and refineries in Sumatra, shipping facilities, an
HQ in Singapore and an aggressively expanding ‘land bank’
of extensive plantations in Sarawak and Indonesia, heading towards
a target area of 1 million hectares.
The
IFC-Wilmar case has been particularly shocking as, even after the
complaint had been filed and a team from the CAO was negotiating
land disputes between Wilmar and local communities, IFC staff persisted
in ignoring the situation and prepared a further loan to the Wilmar
Group. Although NGOs warned the President and full Board of this
travesty and even though IFC staff were again in violation of procedures,
the Board approved a further loan to the company.
As
is normal when the CAO issues an audit, in this case Senior IFC
staff also published a ‘Management Response’ to go out
at the same time that the audit was released. Having carefully scrutinised
this response NGOs have told the IFC they find it ‘inadequate’.
In a strongly worded letter
supported by NGOs
from all over the world to World Bank/IFC President, Richard Zoellick,
they argue that:
“In
the first place, it is clear to us, and the audit confirms this,
that IFC suffers a systemic problem whereby the pressure to lend
and to support business interests overcomes prudence, due diligence
and concern for social and environmental outcomes. No actions are
proposed to address this problem. Secondly, the Management Response
provides no contextual analysis of the wider problems within the
palm oil sector in Indonesia, instead an Annex to the management
response only puffs the potential benefits. As our own documentation
has detailed and as the audit report confirms, the palm oil sector
in Indonesia suffers endemic problems which are not limited to one
company or group of companies…. We note in particular that
in the Management Response:
• No
actions are suggested to discipline IFC staff for systematic policy
violations.
• No actions are recommended to stop IFC staff misleading
the Board when controversial projects are presented for the Board’s
approval.
• No actions are proposed to remedy the wider problems
still besetting the Wilmar group’s operations in which IFC
has so heavily invested.
• No actions are proposed to address the fundamental problem
that the current land tenure laws and land acquisition procedures
in Indonesia deny customary rights and encourage companies to take
over communities’ lands without their free, prior and informed
consent.
• No actions are proposed to address the problems raised
in our complaint that companies are planting on peatlands and burning
forests, despite global concern about climate change being exacerbated
by deforestation and land use change,
• Indeed no comprehensive action plan is presented to
clarify what IFC staff will actually do to ensure future compliance
with standards.”
The
NGOs have thus called on the IFC President and Board to suspend
IFC lending to the palm oil sector in Indonesia until these deficiencies
are addressed.
Sources:
Press release by Forest Peoples Programme, SawitWatch and Gemawan,
10th August 2009; http://www.forestpeoples.org/documents/ifi_igo/ifc_wilmar_cao_fpp_press_rel_aug09_eng.pdf
Original complaint and follow up correspondence with the IFC and
CAO see: http://www.forestpeoples.org/documents/ifi_igo/ifc_wilmar_fpp_let_jul07_eng.pdf
http://www.forestpeoples.org/documents/prv_sector/bases/oil_palm.shtml
CAO audit see:
http://www.forestpeoples.org/documents/ifi_igo/ifc_wilmar_cao_audit_report_jun09_eng.pdf
