ACTIVISTS around the globe stole the thunder from the World
Bank's (WB) jj4st-concluded 50th birthday, insisting, "50 Years
Is Enough". In making their case, protesters were able to
point to a seemingly endless list of World Bank created,
catalysed or assisted catastrophes: massive relocation schemes
in Indonesia that damage rainforest ecosystems and impoveish tens of thousands, failed dams in Kenya and road-building
projects in Brazil that accelerate forest destruction, to name
just a few.
Most damning are internal WB studies that reveal the institution's failure on its own terms, by its very own yardstick. A
1992 internal review (the Wapenhans Report) revealed that
the Bank's own staff rate more than 1/3rd of the projects they
undertake as utter failures. It confessed that the deterioration
of the Bank's loan portfolio was "steady and pervasive."
Another 1992 report, the Morse Commission's review of the
Sardar Sarovar dam project, condemned one of the largest
Bank projects as beset by incompetence, negligence and institutionalised deception - and speci Ired that "the problems
besetting the Sardar Sarovar project arf more the rule than the
exception to resettlement operations sopported by the Bank in
India".
Yet another 1992 internal study concluded that the Bank's
forays into macroeconomic planning in Africa had been a
dystopic flop, with less than 20 per cent of its structural adjustment technical assistance loans to theAontinent substantially
effective.
Under siege as never before, officials of the world's most
important development usurer say that they are committed to
change. "What we are trying to do," explains Armeane Choksi,
the WBS vice-president for human resources development and
operations policy, is, "change the culture of this institution."
The Bank *adopted a "visioning document" called Learning
from the Past, Embracing the Future which purports to address
the legitimate criticisms leveled at the Bank. It also enacted a
"Next Steps" action plan to follow up on the Wapenhans
report.
But perhaps no step was more introvertive, despairing
and of indisputable importance than the Bank's creation of
an Inspection Panel, an independent appeals body designed
to investigate claims filed by people directly harmed by
the Bank's projects. The Inspection Panel holds out the
possibility of providing an independent and legitimate mechanism to ensure Bank accountability to its own policies and
procedures, many of them warped by political and economic
exigencies.
The first claim filed with the Inspection Panel was in
October 1994 by members of the Arun Concerned Group
(ACG), a Nepalese coalition of non-governmental organisations, on behalf of themselves and 2 anonymous claimants.
Their claim challenged the procedures by which the WB
had helped design, fund and implement the us $1.2 billion
Arun iii Hydroelectric Project, a gigantic dam scheme proposed for the pristine Arun river valley. The project envisions
a towering 68 m tall and 155 m long dam with a 400 megawatt
(mw) generating station.
The project will displace about 2,700 families; the hill
route it will take has already displaced 1,600 families, according to the Panel report. More far-reaching would be the effect
of 10,000 rough-and-tough road construction workers, their
families and the merciless cash culture on the lives of the
valley's 450,000 indigenous people.
The ACG pamphlet, Arun iii. An introduction and Issues of
Concern, says: "This project can only be beneficial to the country when we can sell the electricity produced to the northern
parts of India." Only a 50 mw deal is now in place, and a far
more expansive deal will be needed to make the project viable.
One of the ACG'S complaints is that it is too risky for Nepal to
go ahead with the project when it has not yet secured such an
agreement with India.
Arun ut is dubiously unique in that the estimated cost of
the project is larger than Nepal's annual national budget. The
enormous pricetag has prompted fears that a commitment to
the dam will "crowd out" public investments in other desperately needed areas such as education, nutrition, health, and
even infrastructural needs like transportation.
The ACG and other critics also contend that a series
of smaller dams would be more cost-efficient; they would
help develop local engineering and construction skills
rather than line the pockets of foreign contractors; they
would provide decentralised sources of electricity -
meaning that local people could gain access to electricity
without connecting to the national grid; small dams would
do Ar less damage to the environment; and they would
avoid the corpulent Arun iii's sitting on and asphyxiating
indigenous cultures.
The case against Arun iii, and for an alternative approach,
is so strong that it has generated a frisson of controversy
within the Bank itself. Martin Karcher, a division chief in
-the Bank's South Asian Country Department, quit his job
in opposition to the Bank's continued support to the
project. In a September 1994 interview with the Washington DC-based Environmental Defence Fund, Karcher
echoed the central criticisms of the ACG. "The government and
the donors need to consider alternative investment
programmes and a more balanced programme of development, which would generate more productive employment,
particularly among the poor," he said. "Large investments in
the power sector are liable to crowd out investments in the
social sectors."
The World Bank's governing board of executive directors,
comprising representatives of the shareholder countries -
some of them clearly miffed - which contribute the
capital the Bank lends, authorised the formation of the
Inspection Panel in September 1993. By April 1994, the body
was in action.
Even among the executive board, support for the Panel
was tepid, although some members were strong backers. The
board established the Panel as an independent body, entirely
separate from the Bank's management. The founding resolu
tion stipulates that the Panel must consist of 3 members from
different countries, nominated by the Bank president and
appointed by the executive directors for 5-year terms.
The executive board gave the Panel a curiously nonspecific mandate to conduct investigations of Bank projects,
but made very clear the limits of the Panel's powers:
The Panel can investigate issues only in response to filed
complaints.
The Panel can only review the Bank's adherence to its own
policies; the Panel cannot pass judgement on the merits of
Bank projects on their own terms or formulate Bank policy.
The Panel can only make recommendations to the executive
directors; it has no direct power to change Bank policy.
Once the Panel receives a complaint, it asks the Bank
management to issue a detailed reply. After reviewing the
management response, the Panel may recommend to the
board that a ftill-fledged investigation be undertaken. It can
only proceed to undertake a full-fledged investigation -
involving a thorough review of internal Bank
documents as well as missions to the project
sites to meet affected parties and examine the
after receiving authorisa-
project's terrain
tion from the board.
Given the structural limitations of the
Panel, the novel nature of its mission and the
inertia of the Bank's "big-project, alwayslend" culture, the appointment of strong and X, independent- minded people to serve as
investigators was a prerequisite for the Panel
to be successful. Providing information was
the key function in the Ins ection Panel's
process, given the newness of the Panel and
the uncertainty of how it would work and,
more importantly, given the paranoid secrecy of the Bank staff and management.
The Panel's first case began with a sear-
ing indictment of the Bank's performance in
the Arun III case. In a 102-page complaint
filed by the ACG, the complaint alleges that the Bank violated
its own policy in 5 areas:
The Bank failed to consider the risks involved and
alternatives td the Arun III dam until the project was too far
underway.
The Bank's failure to release key factual technical informa-
tion in a timely fashion precluded local debate about the
project and participation in its design.
The Bank failed to assess the environmental impact of the
Arun project.
The Bank violated its resettlement policies as families forced
to move by the project were undercompensated and locals
did not directly benefit from the project.
The project would harm the indigenous residents of the
Arun valley.
On December 16, 1994, after reviewing the ACG complaint and
the Bank's response, the Panel submitted a 21 -page report
which listed the specific issues raised by the complaint, the
Bank management's response, and the Panel's assessment. On
virtually every issue, the Panel sided with the Arun Concerned
Group (ACG). Among its specific preliminary findings:
"If a less restrictive assessment, including a wider range of
hydro reipurces, could be undertaken, it would result in
expanding the number of economically and environmentally acceptable options."
"The lack of a long-term power sales agreement with India
poses a potential long-term risk to the project."
"A realistic comparison of risks associated with the
proposed project and its alternatives could not have been
carried out."
"The large fiscal demands of Arun III may contribute to the
risk that policies on poverty cannot be implemented,"
"The potential of direct, serious long-term damage (to the
environment) is significant."
"The Panel is concerned about the serious problem of
enforcing release of information in borrowing countries."
After the project planners switched plans for an access road
route, those displaced for the abandoned route "appear to
have been forgotten."
There appears to have been "a serious violation of the
resettlement policies of the International Development Association (IDA)", the arm of the WB funding the
Arun project.
With the release of the Panel's December 16, 1994, report, the
Nepalese activists had won a tremendous initial victory. But
the Panel's report was only the first step in a long process. The
next move rested with the 6oard of executive directors. On
February 2, 1995, the board rendered the second verdict in the
case: the Inspection Panel cotild proceed with the case, but it
could only investigate the i8sues of Bank compliance with its
environmental, indigenous 'leople and resettlement policies.
The Board refused to author@$e an Inspection Panel review of
the Bank's consideration of alternatives to the project.
The refusal was a major setback, since in many ways it was
the core of the ACG complaint. Paul Mitchell of the Bank's
public relations office says 4hat the board essentially only
authorised the Panel to look at a single issue - the route of the
access road to the dam. He says the indigenous people problem "is moot, because the government of Nepal says there are
no indigenous people in the country, or that everyone is".
The executive directors' overall response to the Panel's initial work was lukewarm. Eveline Herfkens, executive director
from the Netherlands and a strong early proponent of the
Panel, called the Panel's preliminary report on the Arun project "a good first step," but cautioned that the Panel "should
not make statements that are not substantiated". Despite
Herfkens' criticisms, she supported giving authorisation to the
Panel to undertake a hill-fledged investigation.
The United States and the Netherlands are leading
supporters of the Panel in the Arun case, and have generally
been the strongest promoters of the Panel's independence, say
Bank watchers. Some legislators of the US's right wing segment
are even ready to close the Bank and the International
Monetary Fund, while others want to either deflate Or reform
the institutions.
The European reaction to the Panel is mixed. France
reportedly opposed the Panel's handling of the Arun case, and
Italy was critical of the reach of the Panel's report. Germany
has planned to lend nearly us $125 million to Nepal as a
co-financier of the Arun project, and was therefore a likely
opponent of Panel's actions. But Inspection Panel chairperson
Ernst-Gfinther Broder, himself a German, has successfully
neutralised the German advocacy of the project.
Japan had also planned to co-finance the project through a
us $163.3 million loan from its Overseas Economic
Cooperation Fund. But it rudely surprised the Bank in July
1994 by announcing that it would not contribute funds to
Arun iii until it had completed its own assessment of the project. Meanwhile Japanese NGOs are also planning to launch a
major Ar'un-review campaign.
The South itself has been cleaved on the Panel. Lori Udall,
attorney with the International Rivers Network, who serves as
the Washington Dc representative of the ACG, contrasts the situation to the Sardar Sarovar case, where the South's representatives, in the name of protect-
ing national sovereignty, presented a united front against
criticism of the social and environmental effects of a major
dam.
The executive directors'
response to 2 fundamental substantive issues raised by the
Arun case -the propriety of
the Panel's examination of
alternatives and the Panel's
jurisdiction -will also serve to
erode the Panel's power.
Understanding the way the
alternatives issue played out is
tricky business, but critical to
an analysis of where the Panel
may be heading.
Herfkens, one of the executive directors strongly opposed
to the Panel's investigation of
the alternatives issue, says that it "was never part of what the Inspection Panel was supposed to be about -it does not have 9
the expertise". The board, she
says, is fully equipped on its own to assess whether alternatives have been sufficiently fears that a commitment to
considered.
In the Arun case, because of areas such as education
the ACG'S central claim that
sounder, lower-cost alternatives were available, precluding the
Panel from considering unexplored options may have a significant effect on the ultimate decision on the case.
Still, there may be prospects for a backdoor consideration
of alternatives. As Eduardo Abbott, executive secretary to the
Panel, notes, "There is some room to look at alternatives in the
environmental and social assessment" review the Panel will
undertake. In other words, one, element of a sound environmental assessment is considering whether there are alternative
ways of doing things that are less environmentally threatening.
The second issue emerging from the Arun case, which may
have negative lasting repercussions on the Panel's power, is the
question of who is eligible to file claims. The executive directors' resolution establishing the Panel stipulated that the complainant0must meet 3 criteria: they must live in the borrower
country, they must be "directly affected" by the project and
they must be a group larger than an individual.
The residency requirement means that Northern NGOS cannot
file claims about projects abroad and cannot even serve as representatives for legitimate complainants except in exceptional
circumstances and with the board's approval. The practical
effect of their exclusion from direct involvement will be to
limit the number of cases brought to the Panel.
However, it is the other 2 standing criteria that were in
issue in the Arun case. The
2 anonymous Arun valley complainants filed the claims on
behalf of themselves. Thus they
each arguably did not meet the
requirement of representing
more than an individual. The
complainants contended that
the massive size of the Arun
project relative to the national
economy meant that every citizen of Nepal would be directly
affected; a contrary view would
be that they were not directly
and physically affected by the
actual project itself.
Panel chairperson Broder
insists the Panel applied its
standing rules properly in the
Arun case. The complainants
are eligible, is our conviction,
he says.
In a January 3, 1995, memorandum to the board, Ibrahim
Shihata, World Bank senior
counsel, argued that it is not
enough for multiple individuals to submit complaints; they
must represent a community of
interests. And the requirement
that the complainants be
"directly" affected by the
Bank's project "is not flexible",
he wrote. The broader policy
concern is that too many,
arguably frivolous, cases will be filed if strict standing rules are
not followed - and that they will be filed by Northern NGOS.
The Panel "is not intended to be a window for American based NGOS", Herfkens says.
Noting that only I claim has been filed with the Panel in its
first year in existence, Broder counters, "NGOs have shown a
very responsible attitude in not flooding us with requests."
David Hunter, senior attorney with the Washington-based
Center for International Environmental Law, says that there is
no reason for the Panel to ignore legitimate cases just because
technicalities are not followed. Combined with another jurisdictional issue - a requirement that complainants must have
previously notified Bank staff of their concerns and not
received a satisfactory response - strict standing "could completely narrow the focus of the Panel", he says.
Hunter notes that national groups in capital cities are the
only Southern NGOS likely to have lodged formal complaints
with the Bank. But these groups are not likely to be "directly
affected" by Bank projects. Besides, "If a family in a village
cannot piggyback on a national group working on an issue,"
Hunter says, then it may be that neither the family nor the
national group will be able to file complaints.
The Arun case also raises serious questions whether the management is determined to subvert the Panel. jean-Francois
Bauer, division chief in the Bank's country division, which
includes Nepal, and Argun Ceyhan, task manager for the Arun
project, both declined to comment to Down To Earth on the
Arun project or the Inspection Panel, referring instead all
questions to the Bank's public relations office.
The public relations office was not much more forthcoming. "Anything that can add quality to our projects is welcome," says Paul Mitchell, but he declines to comment further
on the Panel or its performance in the Arun case. Knowledgeable sources report that the Bank management has tried to
sour the executive directors on the
Panel, and has exerted improper
influence over them.
They say that Joe Wood, the
Bank's vice-president for South
Asia, defended the Arun project at
an executive board meeting shortly
after the Panel issued its December
report, and misrepresented what
the Panel found.
Mitchell denies that the Bank
management sought to improperly
influence the board. Regarding
what he views as basically a board
endorsement of the Bank's performance in the Arun project, he says,
"The facts must 'have spoken for
themselves." Herfkens too denies
that the Bank was unduly influenced by the management in any
way. But Eduardo Abbott - while
not claiming knowledge of any specific incidents of improper Bank
influence - acknowledges that
"there is no denying they have better access" than the complainants.
A second problem exhibited in
the handling of the Arun complaint
was dark secrecy. The Bank staff s
response to the ACG complaint was
kept confidential till February,
when the executive board voted on
the Panel's preliminary recommendation. Udall compares the situation to a law suit in which the
defendant is able to keep his response to the plaintiff's claim secret,
thus preventing the plaintiff from responding to the defendant's argurners. Mitchell claims that the refusal to release
the Bank's response to the complaint was in keeping with the
guidelines established by the executive directors. According to
Broder, the transparency problems are attributable to the
Bank's inexperience in operating openly.
The Board decision to narrow the scope of the Panel's full
investigation revealed a final shortcoming in the Panel
process: the Panel's dependence on the board for authorisation to proceed with an investigation.
Froixi the perspective of parties affected by Bank projects,
this requirement constitutes "a major roadblock". By way of
analogy, Udall points to the Operations and Evaluation
Department in the Bank, which reviews the efficacy of Bank
projects internally; that department is able to pick and choose
without the board's permission, she says, and the Inspection
Panel should be given similar autonomy.
The Arun case has shown that the Panel will have to overcome
a wide array of obstacles if it is to operate as a citizen accessible, independent check on Bank recklessness. Thankfully, the
experience so far has by no means
been completely disillusioning. The
Pai*l has established itself and
shown that its inspection process
can work. It has asserted its indepenA,ence, and demonstrated a
wiltingness to issue far-reaching
criti6sms of Bank projects.
b4oreover, the Bank staff -
although perhaps grudgingly in
man@ cases - has cooperated
with the Panel in turning over
docAments and information.
The other benefit is that the
very existence of an independent
monitor shining the spotlight on
Bank operations - and allowing
the public to see what is lit up -
appears to be exerting a salutary
effect on the Bank staff. Finally, the
involvement of the Panel in the
case should provide more political
space in Nepal for the ACG and
other Nepalese NGOs battling
the Arun proposal. Whether the
Panel will fulfill its promise -
whether it can, in any way, save the
Bank from itself - remains to be
seen. Much more will be evident by
mid-1995, when the Panel completes its investigation of the Arun
project and the board responds to
its final recommendations.
---This story was written by Robert
Weissman and researched by
Billy Treger.
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