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Social and Economic Impact

Extending access to modern energy services

The UN General Assembly in December 2010 declared 2012 the "International Year of Sustainable Energy for All." Warning that a lack of access to affordable and clean energy is jeopardizing the achievement of the global targets to combat poverty and disease, UN Secretary General Ban Ki-moon in September 2011 launched a major new initiative to make sustainable energy universally available by 2030 to address 1.4 billion people without access to electricity and 3 billion people who continue to rely on traditional use of solid fuels. A key component of the initiative is promoting fuel switching from solid fuels to liquefied petroleum gas (LPG). The World Bank has undertaken a study to examine factors that determine household use of LPG and how to improve regulatory and market conditions to encourage greater use of LPG by households.

"Who uses bottled gas? Evidence from households in developing countries,"  Policy Research Working Paper 5731 by Masami Kojima, Robert Bacon, and Xin Zhou, July 2011
"Who uses bottled gas in developing countries?" in World Bank Research Digest 5(4): Summer 2011
Residential market for LPG: A Review of Experience of 20 Developing Countries   by William G. Matthews and Hilmar R. Zeissig, December 2011
The Role of Liquefied Petroleum Gas in Reducing Energy Poverty by Masami Kojima, December 2011.

Promoting Social and Economic Benefits

 Oil and gas industries generate significant revenues for the national economy. Sound macroeconomic management and governance are required to ensure that the money generated from these projects is invested in local communities through policies that foster economic development and poverty reduction.

Fostering Macro Policies for Sustainable Development

While the oil and gas industries provide significant opportunities for developing economies, they also bring substantial risks that need to be managed and mitigated by governments, investors, and communities. The limited nature of oil and gas resources make it particularly important that governments’ economic policies ensure that the benefits of their production contribute to the development of the human, social, and physical capital needed for sustainable development.
Unfortunately, in certain cases, neither investment nor oil revenues have been able to guarantee economic growth or poverty reduction. Thus, the presence of major oil and gas industries has been associated with a variety of negative social and environmental outcomes. The so-called “Paradox of Plenty,” where resource development fails to generate the sustainable benefits expected, is one of the most urgent challenges:

  • At the local level, where industry enclaves are surrounded by poor indigenous communities receiving little sustainable benefits from the development of extractive industries
  • At the national level, where revenues do not translate into long-term growth in human and physical capital, which forms the basis for sustained growth.

Improving Governance and Revenue Management

To improve the governance and revenue management of extractive industries, the following key policies are critical:

  • The establishment of transparency and accountability with respect to revenues earned and their disposition
  • Consultation with principal stakeholders in developing plans for the use of resource revenues to invest in development and poverty reduction
  • Credible oversight and audit of the implementation of these plans
  • Serious attention to building local institutional capacity

The World Bank strongly advocates the need to comprehensively address both environmental and social impacts of hydrocarbon development. The limited access to reserves in traditional areas, together with the incentives offered by host governments, is allowing the industry to extend its exploration and development operations to more geographically remote areas often home to isolated local and indigenous populations, and also to fragile ecosystems and unique biodiversity. Importantly, it is in such remote areas that governments and local communities are likely to have the least capacity to deal effectively with the issues.

Properly managed, oil and gas operations can be expected to provide major benefits to the communities in which they take place.  Some potential benefits include:

  • Increased local employment
  • The transfer of technical and commercial skills and development of local capacity;
  • A share in fiscal revenues at the local level
  • Enhancement of local social infrastructure and improvement in the delivery of services, especially in areas such as health, education, transport and power as a result of increased public funds and investor contributions; and
  • Positive multiplier effects in and beyond the communities in which the extractive operations exist

Facilitating Stakeholders Dialogue and Participation

The World Bank is actively facilitating dialogue between key stakeholders and assisting in the collection and dissemination of best practices. A growing number of approaches are being adopted by governments and industry, including:

  • Identification and clear articulation by governments and investors, in consultation with local communities and civil society generally, of clear and appropriate policies on social impacts;
  • Incorporation of policies into laws, regulations, and contractual obligations;
  • Effective local consultation in project design, implementation, and operation;
  • Detailed social impact assessments (SIAs) as part of project preparation, including plans for addressing all areas of concern;
  • Continuous monitoring and evaluation of social impacts as operations proceed;
  • Clear provisions for compensation in the event of any harm, and investor social funds to proactively address social concerns;
  • Effective participation in the project benefits at the local level, including sharing of fiscal revenues;
  • Investment in institutional capacity in local government and populations; and
  • Increased corporate sensitivity to social concerns at both project and management levels.

Promoting Small-Scale Projects, Local Employment, and Local Entrepreneurship

Rural populations often have limited access to development opportunities. Two of the limiting factors are access to reliable modern energy sources and knowledge and capacity to be active participants in development. However, as a result of recent major energy projects, in particular gas pipelines, there is a window of opportunity to develop the capacity of rural/indigenous peoples to benefit more extensively from these projects.

Communities in isolated regions are not attractive targets for distributors of electricity or natural gas since they are perceived to lack the “critical mass” and the ability to pay. The use of natural gas has the potential for widening access to electricity, since it may readily be used for small-scale power generation and for a wide spectrum of household, commercial and small industrial uses. Pilot projects in Africa and Canada of small rural gas applications have proven successful. Using stranded gas reserves or new gas pipeline systems it is possible to address this obstacle by developing economic small-scale gas projects for these rural communities.

To mitigate adverse impacts of such developments, it is of critical importance to develop within the indigenous communities a basic knowledge of the risks and benefits of the hydrocarbon industry. Working with their own organizations, indigenous peoples are attending Bank sponsored training programs aimed at developing their capacity to participate in the monitoring of operations and in accessing a share in the industry benefits.

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