Samuel Lowenberg - Independent Journalist biography articles articles

Businesses find ways to influence world bank projects

Legal Times  February 22, 1999, Monday

 

The World Bank's headquarters occupy a $314 million glass-and-steel leviathan on prime Washington real estate, just a few blocks from the White House and the Treasury Department. The main complex takes up a whole city block, and, along with several satellite buildings, is an insulated work environment for the Bank's more than 8, 500 employees drawn from around the globe. The Brave New World-like interior houses several private dining rooms, a cafeteria serving food from all over the world, even a two-story waterfall.

In offices lining miles of corridors, Bank executives and staff scrutinize loan requests from developing countries around the globe for everything from oil pipelines to power plants to medical equipment. Last year, the Bank's loans totaled $25.5 billion, distributed throughout Asia, Latin America, Africa, and Eastern Europe.

While this money is ostensibly lent to sovereign states in order to alleviate poverty, much of it quickly finds its way back to an army of companies and consultancies, both domestic and foreign, all fiercely competing for a piece of the international aid pie.

And in Washington, where there is money, there are lobbyists. In fact, the World Bank is a magnet for private-sector advocates seeking to shape publicly funded projects, who form a complicated and diffuse system of influence trading that operates largely out of public view.

"The name of the game is information, and ultimately relationships, " says the Bank's external affairs counselor, John Donaldson, himself a former congressional staffer.

"The more people work with us, the more they get known, and the more they end up on short lists."

Yet mention lobbying to a World Bank official and you will likely be met with indignant disdain and sputtered denials.

After all, the Bank likes to think of itself as an institution insulated from politics, populated only by technocrats and economic master planners. Its efforts are aimed at helping countries, not companies, officials say. The very notion that the Bank's policies could be influenced by corporate lobbyists goes against its self-image as a bureaucratic machine for combating world poverty. "Any approachers are strained through the fine muslin of international tendering standards,

" says Bank spokesman Phillip Hay.

But "approachers" nonetheless slip through and influence the process by which the Bank lends money to countries at key junctures along the way. Within the Bank's labyrinthine structure, there are joints and fissures, judgment calls to be made, and priorities to be assigned.

"There are always negotiable points, " says Julius Kaplan, a partner in the D. C. office of New York's Cadwalader, Wickersham & Taft who has been dealing with the Bank for 30 years.

"Lobbying comes up in almost every single project, in one way or another." And when directly lobbying the Bank fails, companies and even countries will sometimes turn to the institution's largest shareholder, the U.S. government. "The ability to put heat on the whole internal loan apparatus is something that the U.S. can do, " says Peter Madigan, a former deputy assistant secretary for legislative affairs at both the Treasury and State departments who is now a name partner in the lobbying firm Boland & Madigan. In their quest for international aid funds, lobbyists may hit various executive branch agencies from Treasury to State to the National Security Council.

Bank officials occasionally hear directly from members of Congress, who call up to urge special consideration for companies in their home districts. An approach that direct typically backfires, says Donaldson. The World Bank's mission and role in the world economy has changed dramatically since it was first established at a meeting in Bretton Woods, N. H., in 1944 by the Allied powers in World War II to lend money to war-ravaged Europe. The Bank's shareholders today include 181 countries, which vote on Bank projects based on the number of shares they hold. The United States' 16. 67 percent stake gives it considerable influence--including the power to appoint the Bank's president.

MISSION IMPOSSIBLE?

In the decades since its founding, the Bank has often come under criticism for sponsoring massive infrastructure projects that sometimes hurt the very people they were supposed to help.

During the late 1970s and 1980s, for instance, the Bank financed massive resettlement projects in Indonesia and Brazil that, liberal watchdog groups say, displaced hundreds of thousands of people and resulted in the massive destruction of precious rain forests.

James Wolfensohn, who became president in 1995, imposed new mandates requiring the Bank to take into account the environmental and social effects of its projects and at the same time promote private-sector development. But this public-private mandate is tricky to navigate for the Bank's staff, especially when companies with millions or even billions of dollars at stake try to influence the institution's key lending and development policies. Since the Bank is often among the earliest investors in undeveloped regions, many of the world's largest corporations consider it a gateway to new markets and untapped resources.

But observers both inside and outside the Bank wonder whether it is appropriate for companies concerned about their bottom line to be trying to influence the Bank's decisions on how to allocate its relatively scarce resources to the world's poorest countries.

This is exacerbated by the fact that although the Bank is a public institution, there are no registration requirements for those who try to lobby it.

"The problem is that there are different interests between what the corporate sector wants to achieve in developing countries and what a public institution wants to achieve in developing countries, " says Lisa Jordan, executive director of the Bank Information Center, a D.C.-based nonprofit organization that tracks the Bank's record on social and environmental issues.

"Is the Bank in developing countries to further corporate interests or to help the poor?"

EXXON PUSHES PIPELINE

The clash between these goals is embodied by a lobbying campaign now being waged over an oil project in sub-Saharan Africa.

A consortium of oil companies wants the Bank to contribute funding toward a proposed $3.5 billion pipeline project, which the Bank argues will give the impoverished country revenue to help bolster social and educational programs. An international coalition of environmental and human rights groups is fighting the project by trying to block Bank involvement.

The consortium--which is led by the Exxon Corp. of Irving, Texas, and includes British and Dutch-owned Royal Dutch/ Shell Group and French oil giant Elf Aquitaine--has lobbied both the Bank and the Clinton administration to win support for some $190 million in Bank loans for a project that includes an oil field and refinery in Chad that would be connected to the Atlantic Ocean by a 650-mile oil pipeline through Cameroon.

Even the small amount of World Bank money sought by the oil companies--about 5 percent of the total--will make the project more attractive to other outside investors.

With the Bank due to make its decision this summer, in recent months lobbyists for Exxon have been trying to shore up support in the administration. Oil company representatives met with senior Treasury and State Department officials with oversight of the Bank last month, according to government officials involved in the process.

The Treasury official who was lobbied was William Schuerch, deputy assistant secretary for international development, debt, and environmental policy. He is the chief administration official in charge of overseeing the Bank and is frequently visited by lobbyists, according to Treasury Department officials. Schuerch declined to be interviewed.

And in an unusually bold step, Exxon lobbyists have been visiting the Bank's various executive directors to push their case, according to World Bank officials familiar with the project. The 24 executive directors, who represent the Bank's member countries, must approve all projects. The office of U.S. Executive Director Jan Piercy, whose staff has met frequently with Exxon representatives about the pipeline, declined repeated requests for interviews about its contacts with Exxon.

Exxon officials also declined to be interviewed or to reply to a list of written questions submitted to the company.

It is almost unheard of for a company to lobby all the directors, says Andrea Durbin of Friends of the Earth, a group opposing the pipeline.

"It gives an indication of how high the stakes are for this project." The increased influence that Durbin's group and other nongovernmental organizations (NGOs) have had on Bank policy in recent years is another manifestation of the Bank's struggle to fulfill its mandate to alleviate poverty while facilitating private-sector investment. On the pipeline project, for example, lobbying by the environmental coalition played a role in the Bank's decision to demand that Exxon redo its environmental impact statement. The NGOs oppose the project on the grounds that it could cause massive environmental damage, force indigenous people from their homes, and cause interethnic strife, as well as foster continued corruption in the Chad and Cameroon governments, which have have been widely condemned for their human rights records.

"It is really hard to make a case that oil exploration in West Africa benefits local communities, because local communities rarely receive the profits, " Durbin says.

But Robert Calderisi, World Bank spokesman for Africa, says the potential benefits from the pipeline project are too big to pass up.

"It has the possibility of transforming one of the poorest countries on earth, " he says. While acknowledging the potential for corruption by the countries receiving their money, Calderisi says the Bank had worked safeguards into its proposed loans to ensure that the money will be properly spent. But even Bank officials question the institution's ability to control how its funds are spent. According to press accounts earlier this month, an internal World Bank report was highly critical of its own conduct in Indonesia, where massive corruption, human rights abuses, and eventually financial collapse occurred even as the Bank lent $25 billion to the Suharto regime over the course of three decades.

IT'S NOT A MARKETING EFFORT'

While most dealings with the Bank are not so controversial as the Exxon project, any outsider trying to make inroads there is likely to encounter a lengthy, mysterious, and frequently frustrating process.

"A lot of companies have looked at trying to do business with the Bank and have given up because they have put a huge amount of money into bidding on a project and it all disappears into a black box, and at the other end of the box it comes out and the bid has been given to somebody else, " says James Orr, executive director of the Bretton Woods Committee, a coalition of 600 companies and CEOs that do business with the Bank.

In many cases, even finding out who is in charge of a particular project or a decision can be a massive undertaking. Among the titles one encounters are " task manager, " "resident representative, " and "country officer, " while the key contact on a given deal may be found either at the Bank's Washington headquarters or in the country where the project is located. Whom to approach--and when--also varies, depending on what a lobbyist is looking for.

One of the most common missions for World Bank lobbyists is to influence bid specifications on a project. Such advocacy is akin to lobbying an appropriations bill in Congress, where the trick is to be as indirect and discreet as possible.

For multinationals seeking procurement contracts, the path to doing business with the Bank is often shrouded in abstract policy talk when the company's real agenda is simply to sell its products for use in the billions of dollars worth of projects the Bank supports around the globe.

This was exactly what D.C. consultant Sy Rotter says he had in mind last April when he set up a meeting between members of the board of his client, auto giant Daimler-Benz, and a variety of senior World Bank officials. At the daylong meeting, Daimler executives shared their thoughts with the Bank honchos about such issues as road design, recyclable auto parts, and alternative fuel engines.

"By all accounts it was a successful meeting because it focused on the overall objective of reaching a mutual understanding of the importance of this type of partnership, rather than focusing on specific negotiations" for equipment sales, says Rotter, who founded his World Bank lobbying firm, the Washington Liaison Office, 23 years ago. Of course, he adds, selling Daimler buses was the company's ultimate goal.

Since then, Daimler-Benz has merged with Chrysler Corp. and now, says Rotter, has a full time in-house staffer to deal with the Bank.

Lobbying a development bank requires degrees of subtlety. Sometimes the client company is not even directly involved.
<>BR Recently, lobbyist Diane Willkens, who heads Development Finance International, has been trying to win business for her client, Sun Microsystems Inc. The California computer and software manufacturer is eyeing a $6 million national identification project in Bolivia sponsored by the Inter-American Development Bank, a World Bank-style institution that concentrates its lending in Latin America.

Willkens says she has recommended consultants to the IADB to shape how the project--and the procurement guidelines it will entail--will be structured. Though the consultants are not affiliated with Sun, she hopes they will suggest bid specifications for equipment that are "friendly" to her client.

"That's the game that everybody is playing. Let's get consultants on these projects that prefer an American solution, " says Willkens.

"It's not a marketing effort. If you go in with a marketing effort, you lose." Lobbyists like Willkens and Rotter specialize in being a company's eyes and ears at the Bank. They alert their clients to upcoming projects before they become public, make introductions to key Bank people, help them structure their bids, and troubleshoot problems.

As in all lobbying, business is built on access and contacts. And lobbyists aren't shy about promoting their expansive Rolodexes. "I know more than 3,000 people at the Bank, " says Randy Grodman, who runs D. C.-based International Development Opportunities.

Most of these consultants declined to disclose their fees, saying that they charge an aggregate amount based on time and effort and usually require a retainer. When she does charge hourly, Willkens says that her fee is $250 an hour and her associates receive $150. Grodman says his firm, which also usually works on retainer, charges $200 an hour on average.

The World Bank lobbying field even has its own revolving door. Former Bank procurement chief Donald Strombom says he set up one of the first such advocacy firms, International Development Business Consultants, when he left the Bank in 1987.

Jean-Louis Imhoff, a former adviser to the French executive director at the World Bank, heads World Business Inc. The company's vice president, Michele Calderon, describes the company as a World Bank lobbying firm, representing mostly French companies, though she declined to discuss specifics. "It's all about intelligence, " says Calderon.

"It's acquiring information that enables you to position yourself on the international market better than your competitors."

PRIVATE-SECTOR DEAL MAKING

Some former Bank officials do not lobby the Bank directly, but can make use of their contacts in the international community to set up large investment deals in the developing world.

The Emerging Markets Partnership, for instance, is run by Moeen Qureshi, a former prime minister of Pakistan whose duties at the Bank have included senior vice president for both operations and finance. Also at the firm is Everett "Sam" Santos, who formerly ran the infrastructure division of the International Finance Corp., the private-sector lending arm of the Bank.

Investment firm Trinity International Partners is led by the team of E. Patrick Coady, a former U.S. executive director of the Bank; Larry Mellinger, former U.S. executive director of the Inter-American Development Bank, and Bush White House Chief of Staff John Sununu.

Coady declined to discuss his firm's business, saying only, "I haven't gotten a nickel out of the World Bank since I left in 1993." Trinity reportedly specializes in putting together power generation deals in developing countries, such as Turkey, that receive World Bank funds. Sometimes, a company finds it necessary to lobby the World Bank even if it has no interest in securing Bank funds. Yancy Molnar of International Business Government Counselors, a firm representing about 60 U.S. multinationals, says that the Bank wields so much influence in poor countries that it can sometimes kill a project even if it is not involved in it.

Molnar cites one of his own clients, a company that is building an energy plant in a Southeast Asian country where the Bank is funding a similar project. His client is concerned that the Bank may decide his project is redundant and advise local officials to quash it.

"The Bank plays such an influential role in these poor countries, " says Molnar, whose task is to convince the Bank that both projects are necessary.

Sometimes corporate lobbying efforts transcend a single deal and instead try to affect the Bank's broader policies in a way beneficial to the company. INDIRECT PRESSURE BY ENRON Such was the case with Houston-based energy giant Enron, a company that has partnered with the Bank on projects in Indonesia and India. Enron has been especially aggressive in promoting its agenda at the Bank, according to one current and one former official there.

One of the ways that Enron tried to pressure the Bank was by contributing funding to a study by the Center for Strategic and International Studies assessing the Bank's future. Enron Chairman and CEO Kenneth Lay, who has made a point of getting to know top World Bank people, was co-chairman of the study and used it as a platform to pressure the Bank to offer special financial-risk guarantees that Enron was seeking for its power projects. Enron's Washington lobbyist at the time, former Bush Commerce official Linda Powers, also testified before Congress about the issue.

"Enron was very aggressive in pushing the Bank in this direction and holding their feet to the fire in any way it could do it, " says a senior Bank official.

After Enron's push for the guarantees caused a split among participants in the study, including politicians, NGOs, and even other companies, Enron withdrew as a sponsor. Enron officials declined comment on their lobbying.

The extent to which Enron and others work to influence the Bank's policies and investment decisions sometimes places Bank executives and staff in an awkward position, says John Donaldson, the Bank's external affairs counselor. Under the Bank's new mandate, staffers are finding themselves having to attend more and more to corporate lobbyists, even as they try to fulfill their basic mission of alleviating poverty. It is a constant balancing act, says Donaldson, and the staff frequently find themselves in uncharted waters.

"There's no rule book to determine where the line is" for what is considered appropriate lobbying, he says.

"Often well-intentioned people can only rely on their judgment. Hopefully, they make the right decisions."

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