Oil, gas, and mining projects could be a boon for developing host countries, yet their environmental and social costs often outweigh their benefits. Partnerships between project developers, governments, and local communities are crucial for projects to have a lasting development impact.
MANY developing countries, rich in natural resources, have welcomed private investment in their oil, gas, and mining industries. Although projects in the extractive industries can have a serious environmental impact and be socially disruptive as well—particularly if people must be resettled to make way for them—they can make a significant contribution to the economic development of host countries if their adverse consequences are minimized through careful planning. Because they generate sizable revenues, create jobs and business opportunities, and often bring new roads and access to water and power to the isolated rural areas in which they are typically located, they have the potential to stimulate economic growth, reduce poverty, and raise living standards. In addition, host countries benefit from being exposed to best international practices in project planning and implementation and forced to build up their administrative and institutional capacity.
Frequently, however, national governments reap the most benefit from these projects, while social and environmental costs tend to be borne by local communities. A recent World Bank study of two oil and gas projects and two mining projects in Colombia, Papua New Guinea, and Venezuela (see box) reveals that the communities affected by these projects believe that the environmental and social costs have been heavy, while expected benefits have either failed to materialize or not been distributed in an equitable manner. These findings are particularly striking because these three countries have laws requiring that a percentage of revenues from natural-resource-based projects be allocated to regional and local development initiatives. The project developers not only carried out extensive social and environmental studies in an effort to mitigate negative impacts and maximize benefits but also provided large amounts of funding for social programs.