The following letter was sent to the Socially Sustainable Development Unit of the Latin America and the Caribbean Region of the World Bank on October 12th, 2007, regarding the proposed Environmental Development Policy Loan to Peru.
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(includes WRI’s Analysis of Environmental & Social Challenges in Peru’s Hydrocarbon Sector)
Ms. Laura Tuck
Environmentally and Socially Sustainable Development Unit
Latin America and the Caribbean Region
World Bank 1818 H Street, NW Washington, DC 20433
Subject: Environmental Development Policy Loan to Peru – Oil & Gas Sector Issues
Dear Ms. Tuck:
We are writing with regard to the proposed environmental development policy loan (DPL) to the Government of Peru that is currently in preparation.
As the World Bank recognized in its 2007 Country Partnership Strategy for Peru, responding to environmental challenges, especially in the context of increased investment in the extractive industries, will require new and strengthened environmental institutions with adequate resources to fulfill their responsibilities. We support the Bank’s initiative to raise the profile of environmental issues in Peru and to provide assistance to the Government of Peru in order to build its capacity to address environmental concerns. While the success of the DPL will ultimately depend on the political will of the Peruvian government, we are encouraged that the Ministry of Economy and Finance as well as several sector ministries have been actively involved in this process since its inception.
As you undoubtedly understand, there has been significant growth in Peru’s oil and gas sector over the past three years. As of July 2007, nearly 70% of the Peruvian Amazon had been allocated for oil and gas activities, up from 13% at the beginning of 2005. Peru’s previous experience with the hydrocarbon sector illustrates the numerous environmental and social impacts that can occur in the absence of effective environmental governance—including deforestation, erosion, increased migration, loss of biodiversity, contamination of water supplies, and health risks to impacted communities. In the context of numerous potential projects ecologically and culturally sensitive areas, developing the institutional capacity for better environmental and social management will be critical for minimizing future impacts of the oil and gas industry.
Given this critical need for strengthened environmental governance in the hydrocarbon sector, we are pleased to hear that the DPL will include support for reforms impacting the Ministry of Energy and Mines. While the Bank’s attention to date has focused primarily on the mining sector, we encourage you to work with the Government of Peru and civil society in order to identify priorities for reform in the hydrocarbon sector.
The World Resources Institute (WRI) and the Instituto del Bien Comun (IBC) are developing a partnership that seeks to minimize the environmental and social footprint of the oil and gas sector in the Peruvian Amazon, maximize opportunities for local communities to benefit from oil and gas activities, and ensure that areas with highly vulnerable populations (such as isolated indigenous peoples) and sensitive biodiversity are not harmed by oil and gas activities.
In this context, we write to share a brief analysis of some of the underlying challenges in the hydrocarbon sector and concrete recommendations for reforms the Government of Peru could adopt in order to address these challenges. Given that the World Bank has already developed a substantial body of work regarding the mining sector, and that the mining and hydrocarbon sectors face similar environmental and social challenges, an effort is made to highlight differences between the two sectors.
Additionally, creating a national environmental authority that is independent of the sector ministries and has the technical and budgetary capacity to enforce environmental regulations will be instrumental in the improvement of environmental and social management in all environmentally sensitive sectors. The World Bank has repeatedly recognized this need in recent reports on Peru.1 Still, additional analysis of the various alternatives up for discussion – which range from strengthening the National Council for Environment (CONAM) to creating a new Ministry for the Environment, among other options – will be necessary to ensure that the resulting institution has the capacity and authority to efficiently and effectively protect the environment.
Finally, while we recognize that there are plans for consultations with civil society, the private sector, and professional societies further along in the formation of this development policy loan, we encourage you to establish a formal process for engaging with non-governmental organizations within this initial stage of project development, when there is still an opportunity to influence which objectives will be included under this loan. There are numerous groups within Peru, with expertise in sector-specific issues as well as the broader issue of environmental institutionality, who have been working with allies in government in order to advance the types of reforms that will be included under this loan. Such groups have the capacity to play a critical role, both in informing the conditions of this loan, as well as in ensuring their fulfillment by the government in Peru.
We look forward to continued engagement with the World Bank regarding this loan. We welcome any questions, comments, or requests for additional information.