----- Original Message ----- From: "Soren" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Thursday, July 13, 2000 11:25 AM Subject: (50 Years) World Bank and corruption in Lesotho > Nineteen individuals and major corporations are currently on trial in > Lesotho for bribery connected to the Lesotho Highlands Water Project. In > addition to the World Bank, many export credit agencies - COFACE, ECGD, > HERMES - supported the project. NGOs are calling for the companies to be > suspended from further contracts and export credits, should investigations > find that they were guilty of wrongdoing. > > Below is a talk given by Nicholas Hildyard of the Corner House to a meeting > organised by Transparency International at Chatham House in London. > > ************ > > The Lesotho Highland Water Development Project - What Went Wrong? > (Or, rather: What went Right? For Whom?) > > Presentation to Chatham House Conference , July 10th 2000 > "Corruption in Southern Africa - Sources and Solutions" > > I have been asked to discuss the charges currently being prosecuted in the > Lesotho courts against 19 corporate and individuals accused of bribing a top > official in the Lesotho Highlands Water Project in order to gain project > contracts. My allotted task is to explore the question: "What went wrong?" > > I want to turn this question around. Instead of asking "What went wrong?" I > would like to ask, "What went right? For whom?" I want to do so because I > would like you to consider the possibility that what went most "wrong" - and > continues to go most "wrong" - from the perspective of project affected > people, human rights groups, environmentalists and a range of other civil > society groups concerned with accountability, transparency, equity and > sustainable development is precisely what went most "right" from the > perspective of those who have benefited institutionally and financially from > the project. > > Taking this approach may, I hope, challenge us to reconsider some widely > held explanations of corruption and "development failure", whether in > Southern Africa or elsewhere, and to look afresh at proposed solutions. It > may encourage us, for example, to focus less on the perceived "lack of > political will" to tackle corruption and more on those vested interests that > daily generate immense political will to block investigations when they are > initiated and to undermine anti-corruption drives. It may encourage us to > look not only at how regulations could be improved but also at the daily > institutional practices that actively encourage the flouting of existing > development guidelines and anti-corruption regulations. Or again, to look > not only at ways of opening up decision-making to public participation and > scrutiny but also at the institutionalized racism that assumes the Third > World to be inherently corrupt and corruptible and which thereby underwrites > bribery even where nominally accountable procedures are in place. > > I will return to these points later. First, I would like to look at some > specific examples of how > "what-went-wrong-for-civil-society-went-right-for-corporations" - and how > this phenomenon may actively have laid the ground for corrupt practices. I > leave it to the courts to decide whether or not such corruption took place > as alleged. My concern here is to examine how the actions (and inactions) of > the public institutions involved may have aided and abetted bribe giving, > regardless of whether or not any bribery actually occurred. > > > WHAT-WENT-WRONG-WENT-RIGHT 1: > SANCTIONS BUSTING > > From its outset, the Lesotho Highlands Water Project was founded on rule- > breaking. The project, which is intended to divert water from Lesotho to > South Africa, was first conceived during the Apartheid era when South Africa > was subject to international sanctions. To avoid the difficulties of > international financiers openly aiding the then-apartheid regime, the > project's financial advisers - Chartered WestLB - set up a London-based > trust fund through which payments could be laundered. It was an arrangement > which, to say the least, was of borderline legality - yet it was sanctioned > at the highest international level, not least through the Directors of the > World Bank (who collectively represent the bulk of the world's governments). > From a civil society perspective, this was the first thing to "go wrong" > with the project. For the companies and bureaucracies, however, it was the > first thing to go "right". Indeed, the project could not have proceeded > without such sanction busting. > > Rule breaking on this scale is hardly conducive to encouraging good project > governance. Moreover, it did not stop there. Throughout the project cycle, > numerous World Bank guidelines - intended to ensure that the project is > implemented without adverse effects on the environment and on people - have > been flouted; the project was approved on the basis of a deeply flawed and > inadequate environmental impact assessment, striking construction workers > have been shot, and project-affected peoples moved without proper > compensation. The World Bank - one of the project's principal players - has > done little to ensure compliance. On the contrary, it has dodged and ducked > its critics, even maintaining the convenient fiction that Lesotho is the > borrower for the project (despite South Africa in fact responsible being for > repaying the loans) where this has proved useful in evading its > responsibilities. In 1998, for example, residents of a local township filed > a claim with the World Bank's Inspection Panel, pointing out that as the > project effectively ignores demand side management in South Africa, it is in > breach of World Bank rules for water projects. In response, the Bank stated: > "As important as demand side management in the water sector is, there is no > specific reference in the project to such measures, nor is there a legal > requirement in the loan for RSA [Republic of South Africa] to implement such > policies, since this is a loan to [Lesotho-based] LHDA." > > Again, it is doubtful if the project would have got the go ahead had the > Bank's guidelines been properly enforced. What went wrong once again went > right. > > > WHAT WENT WRONG WENT RIGHT 2: > THE "GOOD OLE BOYS" SYNDROME > > Funding for the project has come from the World Bank; the European > Investment Bank; the German, British and French bilateral aid agencies; the > UK Commonwealth Development Corporation; commercial banks including Banque > Nationale de Paris, Dresdner and Hill Samuel; and a number of export credit > agencies (including Germany's Hermes, France's COFACE, South Africa's SACCE > and Britain's ECGD). The ECGD's support amounted to £66 million and went in > loan guarantees five UK companies: Balfour Beatty, Kier, Stirling, Kvaerner > Boving and ABB Generation's UK subsidiary. > > Not one of these agencies however ever vetted the corruption records of the > companies bidding for contracts. Even today, there is no binding requirement > for any of them to undertake such a vetting process of the companies they > award contact to. Yet, most of the companies now in the dock in Lesotho - > charged with passing some £2 million in bribes to a key official in order to > win the contracts for the project - are no strangers to allegations of > corruption. Spie Batignoles and Sogreah, for example, were involved in > Kenya's Turkwell Gorge Dam which, because of bribes reportedly paid to > Kenya's president and energy minister, cost more than twice what the > European Commission said it should have cost. > > Impreglio, Dumez and Lahmeyer were three of the principle firms involved in > the Yacyreta Dam in Argentina and Paraguay, which Argentina's President > Carlos Menem called "a monument to corruption". > > Lahmeyer and Impregilio also had contracts on Guatemala's Chixoy Dam. > Various sources estimate that between $350 and $500 million were lost to > corruption on this project. > > ABB and Dumez worked on the Itaipu Dam on Brazil/Paraguay border. The dam > was originally projected to cost $3.4 billion, but the final cost cam to > around $20 billion. Numerous corruption allegations surround the project. > > As for Balfour Beatty, it was banned in 1996 from bidding for contracts in > Singapore following allegation (denied by the company) of corruption. It was > also involved in the Pergau dam in Malaysia. Here an article in yesterday's > Observer is particularly pertinent. The author, Gregory Palast, quotes > barrister Jeremy Carver, an advisor to Transparency International. Carver > reportedly told Palast: "I went to a DTI reception. I was introduced to > someone who identified himself as the chairman of a company and we were > talking about corruption. He announced with great pride that he personally > handed over the cheque to the government minister for the Pergau dam 'bribe' > in Malaysia." Identifying Carver's interlocutor as "the chairman of Balfour > Beatty", Palast continues: "The corporate honcho was not confessing, but > boasting about the payment which he may have considered not a bribe but just > the cost of doing business Malaysian-style." > > Balfour Beatty is part of the Lesotho Highland Project Contractors > consortium. In March 1991, according to Swiss bank records which form the > basis of the prosecution's case, the consortium allegedly paid 585,000 > pounds via an intermediary into a Swiss bank account controlled by a > Lesothan official. Only one month earlier a building contract was signed, > worth one hundred and thirty five million pounds. > > In March 1994 the consortium allegedly paid another two hundred thousand > pounds to the official's account. Two weeks later, they signed the contract > to build another dam, worth forty one million pounds. > > Altogether this consortium alone allegedly handed over a million pounds in > bribes. > > Yet even when this evidence was set out in the charge sheets against the > companies, many of the funding agencies which supported them appear to have > taken no steps to scrutinize the allegations. In the case of the UK Export > Credits Guarantee Department, for example, the agency at first denied that > Balfour Beatty, one of the companies it supported, was being prosecuted (a > position it justifies on the grounds that although the charges had been > filed, the case has still to come to court); it has made no inquiries to the > chief prosecutor in Lesotho; and its own inquiries appear to have ended when > assured by the company that no wrong doing took place. Meanwhile, demands > from non-governmental organizations that the company be suspended from > applying for other credits pending further investigations (it is currently > seeking one for the equally controversial Ilisu Dam) have been resolutely > rebuffed. > > Yet again, what went wrong from a civil society perspective - the total > absence of any good governance mechanisms requiring the vetting of > contractors or mandatory investigations where allegations have been made of > a company - went right for the companies. Indeed, had checks been > undertaken and their results made public, it is an open question how many of > the companies would have been awarded contracts. > > > WHAT-WENT-WRONG-WENT-RIGHT 3: > DON'T LET FINANCIAL OVERSIGHT GET IN THE WAY OF MY CAREER > > Internal investigations into the consistent failure of World Bank staff to > implement operational directives on issues such as resettlement and > environment have repeatedly highlighted the "pressure to lend" as a major > reason for non-compliance. The Lesotho saga adds a further twist to this > indictment. > > Leaked correspondence between the World Bank and the Lesotho government > suggests that the Bank knew of corruption allegations against Masupha Sole, > the former director of the Lesotho Highlands Development Authority who is > alleged to have taken the bribes, as early as 1994. The Bank's reaction, > however, was to berate the Lesotho authorities for having suspended Sole > from his post pending an investigation into the project's accounts. Their > reason: it would interfere with project construction timetables and could > lead to costly overruns. > > In a letter to Mr Pekeche, Principal Secretary at the Ministry of Natural > Resources, Praful Patel of the Bank's Southern Africa Department, gripes: > "While the undertaking of a management audit may be normal practice, the > suspending of key management staff in order to conduct such an audit is most > unusual. In our view, the absence of key members of senior staff from the > project during this critical time could seriously jeopardize the progress of > the project." > > Instead of picking up the ball and immediately suspending the companies > pending a corruption inquiry - the minimum that the Lesotho authorities' > audit should have prompted - the Bank effectively turned a blind eye to the > corruption charges. Yet again, what went wrong for civil society - the > institutional pressure to push ahead with the project regardless of evidence > of corruption - went right (in this case, very right) for the companies. Had > suspensions been instituted at this stage in the proceedings, many of the > companies might not have been awarded contracts for the second phase of the > project - constructing the Mohale Dam. > > Indeed, it now emerges that, despite previous assertions to the contrary, > the Bank - and the South African authorities - knew full well of the > corruption charges at the time that Mohale was approved. Nonetheless, the > Bank pushed to have Mohale built now, rather than in a decade's time when > the water may be needed in South Africa, because the contractors were in > place and it would be therefore be cheaper than waiting. > > WHAT-WENT-WRONG-WENT-RIGHT 4: > NOT MY PATCH, GUV > > Now that the corruption charges have been laid against the companies, > history looks set to repeat itself. Although the Bank has instigated an > internal investigation, the investigators - Arnold and Porter, a prestigious > Washington-based law firm - have been subject to innumerable restrictions. > For example, the firm has been denied complete access to World Bank files > and is only allowed to copy files which it could have obtained via third > parties. Once completed, the investigation will not be made public. > > Meanwhile, demands by NGOs that any conviction in the Lesotho courts should > result in the companies being debarred from World Bank contracts, as > required under World Bank rules, are being steadfastly resisted. Convictions > in the court, the Bank has stated, will have no bearing on the Bank's future > dealings with any of the companies. Instead, the Bank is insistent that it > will only disbar companies if its own internal investigations show that a > company has been involved in corruption involving a project component > specifically financed by the World Bank. Since the Bank only made a small > contribution to the multimillion dollar financing scheme, this would mean > that few - if any - companies are affected. > > That position is based on the narrowest legal interpretation of the Bank's > guidelines and a singularly selective view of the Bank's involvement in the > project. Not only did the Bank finance the design of the project: it was > also responsible for setting up and coordinating the financing programme. > Indeed, in a confidential 1991 World Bank project document, the Bank > explicitly states; > > "In the early stages of project preparation, the Government of Lesotho > explicitly requested that the Bank be the lead agency in the raising of the > massive amounts of funds required for implementing the project and in > helping to guide the complicated and sensitive negotiations between Lesotho > and the Republic of South Africa. That the proposed project has reached its > current stage is clear evidence of the Bank having successfully fulfilled > this role to date." > > Clear evidence too that the Bank's claim to be a passive bystander in the > project - the basis for restricting its action in the event of a conviction > - is nothing short of hogwash. Hogwash, however, which, like so much of the > Bank's previous actions and inactions, will ensure that > "what-goes-wrong-goes-right" - at least for the companies' accused of > corruption. > > DRAWING CONCLUSIONS > > Where does all this lead us? What immediate conclusions might we draw from > the pattern of institutional behaviour documented above? > > First - and most obvious - that the problem of corruption is unlikely to be > addressed by new regulations unless and until the well-documented structural > and institutional barriers to their rigorous implementation are addressed. > Put simply, the World Bank and other funding agencies are institutionally > predisposed to behaviour that "makes-things-go-WRONG-for-civil-society-and-R > IGHT-for-the-corporations-that-benefit-from-the-projects-they-finance-or-und > erwite". > > Second, that addressing those institutional and structural barriers will > require root-and-branch overhaul of the mission, management and culture of > institutions such as the World Bank. Institutions which act so consistently > to the detriment of openness, accountability and democratic decision-making > processes do not do so because of minor, easily remedied institutional > failures. Their delinquency is far deeper-seated. Combating the pressure to > lend, for example, requires more than mere exhortation to take seriously the > World ank's guidelines: it requires radical changes in incentives; severe > career penalties for those who flout the rules; and legally-enforceable > means of redress for those who suffer the consequences. > > And, third, that such radical change is unlikely to come about through the > goodwill of the institutions under scrutiny. Public pressure is essential if > change is to be achieved. > > In that respect, the Lesotho corruption trial represents an opportunity not > to be missed. It offer the chance to hold the World Bank and other funding > agencies to account; to insist that they formally suspend all the accused > companies until the Lesotho case arrives at its conclusion; that they > instigate thorough, independent investigations of the allegations > immediately and publish their findings; and that they debar any company > found wanting from all future contracts and support. > > The Lesotho Government has played its part - exploding the myth that all > Third Worlders are on the take in the process. It is now up to those outside > Lesotho to take up the fight. And to "Organise! Organise! Organise!" to > ensure this time it is civil society, not the companies, which find > themselves at the right end of any official decision. > > > > =========================================================== > 50 Years Is Enough Network http://www.50years.org > To unsubscribe, email [EMAIL PROTECTED] with > unsubscribe > in the body of the message. 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