MDBs’ Love for Fossil Fuel Leaves Asian Nations Floundering

Multilateral Development Banks, a key infrastructure investor, continued implementing fossil fuel projects more than three decades after countries at the United Nations agreed to reduce human interference with the climate system. MDBs’ financial footprint traces a treacherous path trodden by the banks, fraught with a lack of transparency and accountability, often hiding environmentally harmful projects under green titles.

In parts of the world, MDBs’ finance even strengthened fascist rule or endorsed systems in which local and international laws were undermined in favour of the global fossil fuel syndicates, sustaining their businesses at the cost of many nations’ fragile economies. The results were inevitable—destruction of the environment, loss of biodiversity, eviction of hundreds of people from their ancestral land, loss of livelihoods, rise in inequality and persistence of energy poverty.

Many coal or gas power plants, financed by the MDBs, will continue to run for decades, some of them close to 2050, continuing to emit greenhouse gases while keeping nations reliant on expensive fossil fuel imports. Energy experts said continuing fossil fuel use implies delaying energy transition and pushing the world into climate catastrophe. MDBs’ financing in some places directly interrupted renewable energy expansion, prompting people to switch from renewable energy to fossil fuels.

“MDBs are part of the corporate world with lobbyists and strategists employed to maximise profit,” said Anu Muhammad, a prominent economist in Bangladesh. “The consequences third-world countries like Bangladesh bear because of their investments have never been a concern of the MDBs,” said Muhammad, also a leader of Bangladesh’s National Committee to Protect Oil, Gas, Mineral Resources, Power, and Port, a platform of intellectuals and activists.

However, he said MDBs’ endless greed could be checked through strong policies and leadership and by raising citizens’ voices. “MDBs’ real face gets manifested in countries like Bangladesh, where corrupt politicians and bureaucrats offer the golden opportunity for the banks to thrive,” added Muhammad.

What Bangladesh Has to Reveal About MDBs

The Beijing-headquartered Asian Infrastructure Investment Bank (AIIB) invested $600 million in the Bangladesh energy sector over the last five years without spending a penny on green and clean energy, according to a report released in 2021.

The report said the AIIB facilitated coal power expansion by connecting baseload coal power plants built in Bangladesh’s southeastern coastal region, rich in biodiversity, to the national grid. The AIIB investment included a private sector loan for building the gas-based 220MW power plant in Bhola, a south-central coastal Bangladesh district. The power plant will run until 2043. Many of the people displaced by the power plant were never adequately compensated. A local canal was filled up to build the plant, leading to waterlogging in some areas and affecting betel leaf farming.

In Narayanganj, on the outskirts of Bangladesh’s capital, Dhaka, the AIIB invested in another gas-based power plant worth 584MW, leading to the displacement of many families without proper compensation, burying their agricultural land under layers of sand produced during the plant’s construction. The plant also limited people’s access to the local river, making life difficult, especially for women, whose hygiene, particularly during menstruation, depended on the river’s water.

The Asian Development Bank (ADB), on the other hand, invested hundreds of millions in helping Bangladesh achieve electricity for all in 2022 by extending the national grid. The Electricity for All was one of the most powerful political gimmicks used during the fascist rule of Sheikh Hasina, overthrown by a student-led uprising last July-August, to justify her stay in power with a development narrative.

Bangladesh never ensured electricity for all despite increasing its generation capacity by about sixfold to 27,000MW during Hasina’s 15 years of rule; over 95% of the capacity depends on fossil fuels. Hours of power outages haunted the South Asian nation even in the ongoing winter when the power demand plummeted to around 11,000MW. The fuel crisis due to the dollar shortage kept scores of power plants out of operation, with the national grid half-used.

The expansion of the national grid facilitated supplying power generated from fossil fuels to Bangladesh’s remote islands and chars, where millions of solar home systems had been in use.

In Dhaka, the World Bank recently announced an air pollution control project beginning this June. The project aims to install specially designed devices in polluting industries, including fossil fuel-based power plants. The project sparked debate because it tries to make fossil fuels look cleaner.

MDBs—Brothers in Arms

MDBs often work as co-financiers, indicating a similarity in their interests. Their stand-alone projects also share many similarities.

The ADB joined forces with the Japan International Cooperation Agency and the European Investment Bank in the Tanhu hydropower project to generate 140MW in Nepal. The project is being implemented 2 km upstream of the location along the Seti and Madi rivers, where Indigenous communities live. A study conducted in 2017 on eight Indigenous villages revealed that the project would cause the majority of people to lose farmland and change or lose livelihoods. The project will result in the loss of 600 tons of crops and 758 households.

A report revealed that the ADB financed high-carbon development projects and strategies under its 2009 energy policy. 

The report also cited the 200MW ADB-financed coal-fired power plant project built in Naga City, Cebu, in the Visayas group of islands in the Philippines. A University of the Philippines Toxicology and Pharmacology Department member revealed that “amounts of arsenic, cadmium, and mercury,” sometimes above their permissible limits, were found in all the samples taken from areas near the power plant.

MDBs, Their Strategies and Influences 

MDBs are banks created by a group of countries. They are active in most Asian countries and are expected to earn reasonable returns for their shareholders, an objective principally achieved by issuing loans. Emerging after World War II, initially to help rebuild Europe, MDBs like to do business in the conventional proven business model, independent researchers said.

The interests of MDBs and Asian nations, which are hardly able to influence MDBs, occasionally clash, giving rise to tension. In 2016 and 2017, high tension arose between Bangladesh and the World Bank over a corruption scandal in the Padma Bridge project.

Bangladesh’s people firmly believe that their latest energy price hikes were owed to conditions imposed by the International Monetary Fund to release a $4.9 billion loan. Other prominent MDBs are the European Bank for Reconstruction and Development, the Islamic Development Bank, the Inter-American Development Bank, the African Development Bank, and the New Development Bank.

MDBs are unique actors, especially in energy governance, because they are involved in national and global policy-making processes. MDBs’ key working areas include policy dialogue, technical assistance, and research. Equipped with highly paid, well-educated individuals and elaborate research wings, MDBs could easily influence global energy governance, especially in Asia, by introducing new technologies, regulatory measures, and policies.

The Washington-based World Bank is the largest and oldest MDB, established in 1944. Almost all countries are members of the WB, but the USA is its largest shareholder. The ADB was created in the Cold War era at the behest of the government of Japan, a well-known promoter of fossil fuels, particularly gas. A close ally of Japan, the US increased its support for the ADB, with its influence growing in Asia.

Beginning with infrastructure development, MDBs ran lending programmes and promoted privatisation. “MDBs have the same profit-oriented policies as any other financial institutions,” said Rayyan Hassan, executive director of NGO Forum on ADB, an Asian-led network of over 250 CSOs worldwide, adding that the average interest rate charged by the banks on loans is 6%. “MDBs give large loans with a rather long recovery period. MDBs also permit loan restructuring in case countries undergo any sudden changes, as happened with Sri Lanka recently,” Rayyan added.

MDBs in number

According to an NGO Forum on ADB analysis, ADB and AIIB have invested nearly $25 billion in South Asia since 2016, mostly as loans. Most of the investment was made in the public sector.  

India took the highest amount of $10.09 billion, directing all of it to renewable energy. Bangladesh received the second largest loan of $7.08 billion, building 2,327MW of power plants based on gas and oil and 226MW of solar power. The other South Asian countries—Pakistan, Nepal, Sri Lanka, Afghanistan, Bhutan, and Maldives—received 28% of the overall investments.

Renewable energy investment accounted for only $3.82 billion out of the total ADB investment of $18.56 billion. The rest went into the fossil fuel, transmission and distribution sector and energy efficiency.

Researchers said that they collected data from documents released by the MDBs. The documents often lack clarity, denying a clear understanding of the projects. A deeper look into individual projects could reveal how fossil fuel investments are tucked away in some projects that appear green on the surface. For instance, a brick sector development programme was hidden in an ADB power system efficiency improvement project. 

Since 2016, over $1.6 billion of the total AIIB investment of $6.4 billion went into renewable energy projects. The remaining amount went into fossil fuels and transmission and distribution. Less than 8% of the total ADB investment, involving $1.34 billion, was described by the bank as low risk. Considering its environmental impacts, the rest of the investment was categorised as medium or high risk.

The AIIB considered a little over 17% of its investment, $1.1 billion, low risk. In contrast, the rest of the investment was spent or allocated for either high-risk or medium-risk projects in terms of their harmful environmental impacts. In 2020, nine MDBs provided at least $3 billion in support for fossil fuels.

During 2007–2015, a study showed that ten DBs were involved in estimated capacity additions of 1,18GW, including 31GW of hydro plants and 23GW of other renewables. The World Bank invested $178.6 billion in the energy sector in Asia between 1985 and 2019, nearly 35% of it going into fossil fuel projects.