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Bank Policy Initiatives for the Energy Sector

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Introduction

1. In the wake of the second oil crisis in 1979, the major international financing institutions decided to reassess their policies relating to energy sector assistance to the developing countries. In that context, the Bank carried out a regional energy survey and submitted a working paper to the Board in March 1981.¹ The purpose of that paper was to define the Bank's role in the energy sector of its developing member countries (DMCs)² and examine the implications to the Bank's operations. It envisaged a substantial stepping up of energy sector investments in DMCs in the 1980s, to about three times the level in the preceding decade, and concluded that in the 1980s the Bank should diversify its energy sector portfolio.³ The 1980s was a decade of major expansion in the DMCs' energy sector and substantial additions were made to the indigenous sources of supply. The vigorous economic growth in DMCs has resulted in increasing demands for commercial energy. The current estimate of capital requirements for DMCs' energy sector development to meet the demand forecast for the 1990s is about $100 billion a year. Such a massive expansion has major financial, environmental, and institutional implications leading to the emergence of new issues and concerns.

2. The Bank's Medium-Term Strategic Framework (1992-1995),⁴ which lays down the strategy for the Bank's operations as a whole, stresses the Bank's role in catalyzing and augmenting external capital flows into DMCs through increased cofinancing and encouraging DMCs to adopt policies creating an environment suitable for attracting external capital for development. Country strategies will define the priorities of Bank operations for each DMC within this framework to meet the development objectives of the Bank. This Paper seeks to assess the outlook for the energy sector in the DMCs in the 1990s. It identifies the major sectoral issues and concerns under three main unifying themes centered on (i) defining an appropriate role for the government in the sector; (ii) enhancing the efficiency of production, transportation, and end use of energy; and (iii) more closely integrating environmental considerations in all energy sector activities to enable sustainable development. The Paper spells out the Bank's policy towards the major issues and concerns in the energy sector and outlines the operational implications of such policy choices so that the selection and pursuit of energy sector activities for any given DMC will be in line with the Bank's overall strategy, the country strategy, and sector policies.

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