Camisea, Peru. Photo credit: Emily Greenspan, OxfamCan forest-rich countries learn from the mistakes of extractive projects and avoid unleashing their own resource curse?
For poor developing countries, exploiting natural wealth such as minerals and metals should prove a blessing, offering the potential to generate huge revenues and help lift them out of poverty. Instead many have been inflicted by the “natural resource curse”, in which countries with an abundance of natural resources enjoy less economic growth and worse development outcomes than those endowed with less of Nature’s bounty.
Despite efforts to improve governance and oversight related to extractive industries projects, the natural resource curse persists today. A recent WRI, Oxfam and Bank Information Center report shines the spotlight on the Camisea natural gas project in Peru and highlights the importance of investing in sub-national governance and capacity building before scaling up investments in natural resource projects.
$1 billion in gas revenue, but poverty remains
The findings of the report, People, Power and Pipelines, as described in this article, have implications not only for extractive industry projects, but also for forest management in developing countries. In particular, international financial institutions, national governments and other stakeholders involved in REDD - that seek to reduce emissions from deforestation and forest degradation - should learn from the mistakes of extractive projects and avoid unleashing their own resource curse.
The massive Camisea project’s gas production infrastructure and pipeline physically impacted five of Peru’s 24 regions, three of which are among the poorest in the country. Between 2004 and 2009, over $1 billion in gas revenues were distributed to sub-national governments. Yet the social benefits have arguably been slight. In 2008 close to 60% of Peru’s rural population remained mired in poverty, including regions benefiting from pipeline revenues, and despite the fact that national poverty levels declined steadily from 2006 through 2008. In addition, the project took a heavy toll on local ecosystems with three major oil spills occurring within the first 15 months of construction.
Local governments unprepared for influx of funds
Peru embarked on a substantial decentralization process in 2002, handing more political and fiscal control to sub-national governments. This meant that provincial and district governments in the vicinity of the project were unprepared, only two years later, either to manage the significant social and environmental risks associated with a major gas pipeline or to effectively deploy the massive revenues generated.
Peru: Camisea Pipeline Path and PovertyAgainst this backdrop, People, Power and Pipelines analyzed the experience of sub-national government in the Cusco region in managing the natural gas project’s impact and associated revenues between 2005 and 2007, researching public records and conducting interviews with key players. The report’s findings highlight five challenges, stemming largely from weaknesses in sub-national planning and capacity, which may provide an instructive lesson for similar situations in other countries and sectors.
Significant surplus revenues were carried over from year to year by sub-national Governments, without applying an investment strategy. This resulted in missed opportunities to gain returns on these funds, address the risks of oil price volatility and to prepare for the eventual decrease in gas revenues.
While institutions, procedures and plans for fiscal management were in place, interviews with municipal officials suggested that these were rarely used in day to day administration.
A lack of strategic planning hindered municipal governments’ ability to coordinate large land use projects, plan for the future, and manage the impacts of infrastructure expansion in environmentally and socially sensitive regions. For example, a road was built through the Megantoni National Sanctuary without assessments of impacts on the local environment or on indigenous populations.
Visible investments, such as roads and buildings, were favored over less visible investments that would enhance social capital such as health, education, and agriculture.
Public access to information on how gas revenues were being used was limited and insufficient for citizens to hold government accountable.
Lessons for REDD Revenues
Peru’s experiences from the Camisea project could prove instructive for REDD as the international community ramps up efforts to provide a financial compensation mechanism for developing country actions to reduce emissions from forest loss. Although funding for REDD will likely take different forms, a frontrunner option is to link it to carbon markets in developed countries. Companies would then meet their emission reduction commitments by channeling funding to REDD projects in forest-rich countries.
If REDD does not work as intended, its failure could not only undermine climate reduction goals in developed countries but also inflict a new kind of resource curse on developing nations.
Like Camisea, and extractive projects more broadly, carbon markets would generate funding for poor, but natural- resource- rich, nations, at a scale rarely seen before. There is a risk, though. If REDD does not work as intended, its failure could not only undermine climate reduction goals in developed countries but also inflict a new kind of resource curse on developing nations.
Drawing on Peru’s Camisea experience, international financial institutions and others designing REDD should therefore:
Withhold access to carbon markets until in-country governance and capacity is sufficient to manage the scale up of funds. Indicators developed by WRI’s Governance of Forests Initiative (GFI), for example, can be used to assess the strengths and weaknesses of forest governance in a given country.
Support sub-national capacity building for long-term strategic planning and programs that strengthen transparency and accountability mechanisms for tracking revenues and expenditures in areas where REDD funds are channeled.
Draw on and adapt best practices from successful extractive industry projects to avoid known pitfalls.
Above all, careful sequencing of governance and capacity building should be employed before scaling up revenue flows. This will help ensure that urgently needed REDD and extractive industry payments are used in a way that generates long term development benefits, especially for the poor. It will create incentives for strengthening developing country governance and capacity. And it will help architects of REDD avoid inflicting a new “REDD resource curse” on nations whose wealth lies in forests.
Linnea Laestadius is an intern with the Office of the Vice President for Science and Research at WRI. She is a PhD student in Health and Public Policy and a CLF Farming the Future Fellow at the Johns Hopkins Bloomberg School of Public Health.
Janet Ranganathan, Vice President for Science and Researchjanetr@wri.org+1 (202) 729-7656Janet Ranganathan is the Vice President for Science and Research at the World Resources Institute.
6 Comments
The example chosen of a
The example chosen of a natural gas pipeline in Peru is a good choice for discussion because it points out flaws in the Redd proposals to stop the demise of the planet by reducing the rate of destruction of forests. Atmospheric concentrations of CO2 equivalents are at 390ppm and rising while the need to below 350 remains a prerequisite to stopping runaway global overheat. Natural gas as a natural sequestered carbon deposit sought by energy companies for profit who in turn give monetary royalties to smooth the path of extraction is totally at odds with what needs to happen which is to keep forests standing and protect the life of the Earth itself.. In Peru land has been sectioned and auctioned off to oil companies for exploration the same as it almost always is around the world to the ultimate detriment of the local people who live there. A local leader involved in trying to stop oil and gas extractive industries from harming local lands is attempting to create a political party of indigenous peoples to confront the long hand of the business community which swings such weight in the world. The slopes of the land flow to the sea through the forests that have stood the tests of time but they can not take the spoils of oil exploration washing down their slopes to be troubled by dams and development below.
The wall street model of capitalism is at odds with a living planet and has proven itself unable to do anything close to what's needed so those who see in the next century can be hopeful for the future for their children on an Earth where Nature and the beauty of life survives. Copenhagen Accord and small sum set aside to deal with global warming and its effects is pathetic compared to the amounts given to war. To extractive industries; to corporations treated as though they are who breath and live on this planet with the most at stake. They are not. Those with the voice to speak today about the need to take action to protect the very essence of what protects us from the ravages of space and the violence of the Universe so a moment of peace can see the rise of living things on God's good Earth need friends in high places and a growing awareness. An awareness that it's going to take a grand change to confront and defeat what could release vast stores of sequestered carbon in a form capable of extinguishing life from Earth.. I'm not going to pull any punches when I say Redd doesn't have what it takes to stop global overheat. What does in my estimation is closer to what Richard Hansen proposes where extractive resources have duties levied where they are produced and rewards divvied out to end production results which best support a living planet.
The planet is in trouble. Big trouble and if the very thoughts we have are dominated by a media convinced that things can be put back like they were prior to the three trillion dollar war in Iraq the planet will die. It's that simple. It's not pretty but it's simple. If the best the world of mankind can do is less than one percent of the money spent on a cavalier war of choice in Iraq the planet is doomed and the poor creatures who's lives will be lost and who's stories will never have a chance to be told are too numerous to count.
So to those talking of pipelines and messing with dribble of derivatives formula, to the warlords and masters of China messing with lives in far off places where Nature survives I ask you - What do you want. What do you really want.
The world needs a master plan. A way to communicate and to find a way to keep the Earth a place where life can continue to exist. This isn't a little thing but there are still ways of getting past this little hurtle without great pain. I don't know how far gone our planet is or exactly how close to rapid release of methane we are but I do know that nations and people working together have a greater chance of success and progress to make the best of whatever happens to be the case. I think this cuts across languages and speaks to the essence of what needs to be said in the World..
Very good article. I think
Very good article.
I think Peru should select people with good reputation, honest, willing to work, professionalism etc to assist the needs in the areas where can be done better and efficiently.
Trained locals and assist them with their needs.
There is great potential in Peru.
I think this article brings
I think this article brings up an important point; that large-scale natural resource projects and large-scale wealth trasfers to developing economies such as those proposed under REDD mechanisms have to be managed and accounted for in a consistent, well-governed manner, otherwise they're counterproductive. Included in the support of these kinds of investments should be a project management team to oversee the implementation of such complex ventures for countries who rank lowly on the Governance of Forestry initiatives (GFI) indicator.
I think this article raises
I think this article raises a very important point: that REDD revenues, when and if they materialise, may not flow down to the forest asset holders (indigenous people, forestry concessionaires, titled Andean settlers) that they should benefit, and therefore not generate the intended incentives for sustaining forests. This risk is real, especially if REDD is executed in a way that supports the re-centralization of forest management practices in Peru (see Phelps et al., Science 328, 312-313). I also think that attention should to be paid to how the REDD value chain is being constructed, so that there is an equitable distribution of rents between goverments, intermediaries and forest peoples. There is a relatively high risk that there is a high level of intermediation in the emerging REDD regime and that a significant part of the rents are captured by outside organizations and that this again may reduce flows to forest asset holders.
As can be seen from Venezuela's oil industry and Peru's mining industry, the resource curse is very much alive and kicking in South America. Economies that do not diversify, and the people that depend on them, invariably loose out. In this sense, REDD and a broader policy and business movement to compensate people for sustaining natural capital on their lands, would seem to be a right step in diversifying rural income streams in Peru. In this sense I agree with Roberto's comment below; how do we encourage grassroots social enterprise by communities that have traditionally protected standing forests, in order that REDD is incorporated into their income generating strategies and that they are empowered to negotiate on equal terms with government, business and NGO organizations.
Frank Hajek
Director,
Servicios Ecosistemicos Peru
www.seperu.org
Av. El Sol 627-B, Of.305,
Cusco, Peru
This article points out
This article points out correctly that the Regional Governments in Peru have not been building the right capacities for social investment of the "canon" of the extractive, business as usual, operations in their areas. Nevertheless, I believe REDD should come about under social businesses focus, as the structures proposed by Muhamud Yunus. Of course, the Regional Governments will have to participate on MRV activities but I don't see them as Project Developers of any sort. Finally, the people who run the extractive business have, by definition, a very narrow and unsustainable approach to the areas where they operate. The Camisea story is not good news but if one goes around the world and look at similar projects one will find pretty much the same type of consequences showed by this article.
Linnea and Janet: Great job
Linnea and Janet: Great job on this publication, and kudos on the quality of the reasearch. Hope these lessons can be translated to concrete actions in Peru. Crescie (former WRIer)