The ADB - Focus on the Global South · MRC Mekong River Commission ... many pages of matrices and...

The ADBand

Policy !Mis"governancein

Asia

Focus on the Global South

MAY 2005

FOCUS on the GLOBAL SOUTH(www.focusweb.org) is a policyresearch and advocacy centerbased in Bangkok, with officesin Mumbai and Manila.

C/o Chulalongkorn UniversitySocial Research Institute(CUSRI)Wisit Prachuabmoh BldgChulalongkorn UniversityPhyathai Road Bangkok 10330ThailandTel: +6622187363, +662255235,+6622559976Email: [email protected]

Table of Contents

ARTICLES

Failure to Deliver? The ADB’s Policies, Projects and GovernanceSHALMALI GUTTAL 1

Private Power FailureNEPOMUCENO MALALUAN & JENINA JOY CHAVEZ 13

An Ominous Alliance: The ADB-Philippines Development PartnershipMARY ANN MANAHAN AND JENINA JOY CHAVEZ 21

New Country, Old Tricks: The ADB in East TimorLAO HAMUTUK 31

Playing God in God’s Own Country?: The ADB in the Indian State of KeralaK RAVI RAMAN 37

Saving the Tonle Sap Lake the ADB Way: Building a Large-Scale ModernHarbour, the “Gateway” to Environmental and Social RuinSUGITA RENA 45

Sizing up the Grid: How the Mekong Power Grid Compares Againstthe Policies of the ABD INTERNATIONAL RIVERS NETWORK 55

Corruption and the ADB BRUCE M. RICH 63

When Things Fall Apart MUSHTAQ GAADI 73

Right to Information and Right to be InformedGURURAJA BUDHYA 79

Accountability at the ADB?: A Critical Analysis of the Asian DevelopmentBank’s New Accountability MechanismFUKUDA KENJI 85

STATEMENTS

On the Public Communication Policy 99

On the Accountability Mechanism 107

On the Sector Policies: Forest and Water 121

On the Annual Governors’ Meetings 127

ABOUT THE CONTRIBUTORS 141

ABBREVIATIONS

ADB Asian Development BankADF Asian Development Fund !ADB"AGM Annual Governors’ MeetingASEAN Association of Southeast Asian NationsBIC Board Inspection Committee !ADB"BME Benefit Monitoring and EvaluationBOO Build Own OperateBOT Build Operate TransferCKEIP Chong Kneas Environmental Improvement ProjectCOPE Committee on Public Enterprises !Sri Lankan Parliament"CPI Corruption Perception Index !Transparency International"CRBIP Chashma Right Bank Irrigation Project !Pakistan"CRP Compliance Review Panel !CRP"DMC Developing Member CountryEEZ Exclusive Economic ZoneEIA Environmental Impact AssessmentEIRP Emergency Infrastructure Rehabilitation Project !ADB/Timor"EPIRA Electric Power Industry Reform Act !Philippines"ERC Enterprise Reforms Committee !India"ESS Employment Separation Scheme !Kerala"ETTA East Timor Transition AuthorityGMS Greater Mekong SubregionGoI Government of IndiaGRSC Grievance Redress and Settlement Committee !ADB"IDA International Development Association !World Bank"IDB Inter-American Development BankIFI International Financial InstitutionIMF International Monetary FundIMTL Microfinance Institute of Timor LesteINT Department of Institutional Integrity

!World Bank"IPP Independent Power ProducerIUCN World Conservation UnionIWRM Integrated Water Resource ManagementJBIC Japan Bank for International CooperationKCEMUDP Karnataka Coastal Environmental Management and Urban

Development ProjectKSCARB Kerala State Cooperative Agricultural and Rural Development BankKUID Karnataka Urban Infrastructure DevelopmentKUDCEM Karnataka Urban Development and Coastal Environment

ManagementKUIDFC Karnataka Urban Infrastructure Development and Finance

CorporationLIBOR London Inter Bank Offer RateMDB Multilateral Development BankMfDR Managing for Development Results !ADB"MGP Modernising Government Programme and Fiscal Reforms !India"MRC Mekong River CommissionNEDECO Netherlands Engineering ConsultantsNPC National Power Corporation !Philippines"OAG Office of the Auditor General !ADB"OED Operations Evaluations Department !OED"OM Operations ManualPBA Performance Based AllocationPCD Pollution Control Department !Thai Government"

PCP Public Communications Policy !ADB"PIU Project Implementation Unit !Karnataka"PRS Poverty Reduction StrategyPSALM Power Sector Assets and Liabilities Management Corporation

!Philippines"PSD Private Sector DevelopmentRDA Road Development Agency !Sri Lanka"RMU Results Management Unit !ADB"SARD South Asia Regional Department !ADB"SID Special Investigation Department !Thai Government"SLPE State Level Public Enterprise !India"SPF Special Project Facilitator !ADB"STDP Sri Lanka Southern Transport Development ProjectSPWMP Samut Prakarn Wastewater Management ProjectTA Technical AssistanceTFET Trust Fund for East TimorTOR Terms of ReferenceTSBR Tonle Sap Biosphere ReserveUNAMET United Nations Assistance Mission in East TimorUNDP United Nations Development ProgramUNTAET United Nations Transitional Authority in East TimorUNOPS United Nations Office of Project ServicesVRS Voluntary Retirement SchemeWB World BankWCD World Commission on DamsWSSRP 1 Water Supply and Sanitation Rehabilitation Project

THE ADB AND POLICY (MIS)GOVERNANCE IN ASIA | 1

Failure to DeliverThe ADB’s Policies, Projects and GovernanceSHALMALI GUTTAL

he Asian Development Bank !ADB" is the second largest source ofdevelopment finance in the Asia-Pacific region, next to the WorldBank Group. It provides loans !at concessional and near market

rates", partial risk guarantees, equity investments and technical assistance!TA" grants to governments and private enterprises in its DevelopingMember Countries !DMCs". Every year, the ADB moves huge amountsof money across the Asia-Pacific region in a bid to foster economicgrowth and trade integration among countries in the region.

T

2 | THE ADB AND POLICY (MIS)GOVERNANCE IN ASIA

As a multilateral development bank!MDB", the ADB provides financing andTA grants to governments and privatesector enterprises in a range of sectorsfrom agriculture, rural development,transport and energy, to water, health,education, law and public finance. Sinceearly this year, it has also moved into post-tsunami rehabilitation and reconstructionin India, Indonesia and Sri Lanka. TheADB’s approach to development is basedon the belief that rapid economic growthis the best path to development; that freeand open markets are the most efficientallocators of resources and opportunities;and that the private sector is the bestavenue for delivering goods and services.The appropriate role of government is toshift from “owner-producer” to“facilitator-regulator,” and to create an“enabling environment for private sectorparticipation” in all areas of economicactivity. All of ADB’s policies, projectsand programmes reflect this ideology. In2003, the ADB approved loans totalingUS$ 6.1 billion, compared with loans andequity investments of US$ 5.7 billion in2002. Also in 2003, the ADB approved atotal of 315 technical assistance !TA"projects amounting to US$ 177 million,compared with 324 TAs valued at US$ 179million in the previous year.1 In 2004,ADB lending operations stood at US$ 5.3billion, which was used for 80 loans for 64projects in the public and private sectors.The average loan size in 2004 was US$ 66million compared to US$ 72 million in2003. In this, the transport andcommunications sector received thelargest share of lending at US$ 2 billionfollowed by energy at US$ 761.8 million,and law, economic management andpublic policy at US$ 584.4 million. Therewas also US$ 807.2 million in approvedassistance for the private sector - a 49percent increase over 2003 - whiletechnical assistance grants were approvedfor US$ 196.6 million. The largestborrowers in 2004 were the People'sRepublic of China and India, eachreceiving US$ 1.3 billion, or about 24percent of the total lending. The othertop borrowers were Pakistan !US$ 709million" and the Philippines !US$ 446million".2

In February 2005, the ADB establishedan Asian Tsunami Fund !ATF". Earlierthis month, the ADB approved a US$300-million emergency assistance grant ' 1www.adb.org/About/FAQ/funding.asp2 Asian Development Bank Annual Report2004.

ADB's biggest ever single grant ' fromthe ATF for Indonesia’s tsunami-relatedrehabilitation and reconstruction efforts.It also plans to reallocate about US$ 65million in surplus funds from ongoingprojects to tsunami-related assistance andexpand the scope of projects already beingprocessed to cover tsunami-affectedareas.3 In India, the ADB has approved aUS$ 200 million loan and grant assistancepackage towards post - t sunamirehabilitation and reconstruction. Thiscomprises of a US $100 million grant fromthe ATF and a US$ 100 million loan fromthe ADB's ordinary capital resources.4 InSri Lanka, the ADB has approved a US$197 million grant and loan package for twopro jects for t sunami re la tedreconstruction that will also coverconflict-affected areas of Sri Lanka. Thegrant is from the ATF and the loan fromthe ADB’s concessionary financing arm.5

Given its expanding areas of operationsand increasing economic and policyinfluence in the Asia Pacific region, it isworth taking a look at the ADB’s trackrecord in project performance, policy andprogramme impacts, and governance, andassessing whether the institution iscapable of delivering benefits to thepeople and communities of the region.

STRUGGLING WITH POVERTYREDUCTION

In its first twenty odd years of operation,the ADB was better known for project-based lending, mostly for large physicalinfrastructure projects such as roads,highways, dams, power plants, ports, waterand sewage treatment plants, etc. By theend of the 1980s, the ADB expanded topolicy-based lending, which requiresborrowing governments to put in placesystemic reforms in their economic,financial, social and environment sectors,much like the World Bank’s structuraladjustment programmes. Since then,ADB loan agreements are routinelyaccompanied by policy matrices thatoutline the policy measures orconditionalities that a borrowinggovernment must agree to in order to geta loan. These include: passing laws and 3

www.adb.org/Documents/News/2005/nr2005068.asp4

www.adb.org/Documents/News/2005/nr2005065.asp5

www.adb.org/Documents/News/2005/nr2005064.asp


regulations that favour private sectorinvolvement in key economic sectors andservices !such as energy, transport, waterand urban basic services"; market-friendlyrestructuring and reforms in all sectors forwhich loans are sought !for example,banking and finance, agriculture, energy,water, justice, etc."; corporatisation andprivatisation of public enterprises andutilities which in turn demand measuressuch as market rates for the costs ofservices and utility tariffs, full costrecovery through user fees, theelimination of cross-subsidies, etc.;creating a “flexible” labour force !whichmeans workers can be hired and fired atwill, minimum wages are kept low, etc.";commercialisation of agriculturalproduction; and trade and investmentliberalisation. In sum, ADB policyreforms are designed to catapult aborrowing country’s economy into anunprotected, unregulated market systemin order to facilitate rapid economicgrowth.

In the aftermath of the Asianeconomic crisis, the ADB joined theInternational Monetary Fund !IMF", theWorld Bank and bilateral donors inclaiming that the crisis was brought aboutprimarily by “crony capitalism” and non-transparent, inefficient and corruptgovernment and corporate practices in thecrisis affected countries. The Asian crisisprovided the MDBs and bilateral donorswith a convenient opportunity to expandtheir demands for policy reforms intonational judicial, legal and regulatorysystems under the banner of “goodgovernance.”

In 1999, in step with the World Bankand the IMF, the ADB announced itsPoverty Reduction Strategy !PRS" andproclaimed that from hereon, povertyreduction would be the “overarchingobjective” of all its projects, programmes,and TAs. The strategic “pillars” of thePRS are pro-poor sustainable economicgrowth, social development, and goodgovernance. These elements would beoperationalised through a strategy thatinvolves poverty analyses, countrystrategies based on logical frameworks,new tools, instruments and targets,monitoring mechanisms, stake-holderparticipation, partnerships with Non-Governmental Organisations !NGOs",poverty partnership agreements !anotherterm for loan agreements" withgovernments, and most important, asharply increased role of the private sectorin all development projects and

programmes.6 In addition to the threestrategic pillars, the PRS also has fivethematic priorities: private sectordevelopment, environment, gender equity,regional cooperation and capacitybuilding.

But despite its elaborate framework,many pages of matrices and schematicdiagrams, and impressive lexicon ofdescriptions and definitions, the PRS hasbeen unable to move away from its narrowfocus on rapid economic growth.Demands for policy and sectoral reformsand good governance now come in thename of poverty reduction. In its earlyarticulation of the PRS the ADB stated,“Pro-poor growth interventions will seekto address impediments to broad-basedeconomic growth. Policy-based lendingwill be used to correct policy andinstitutional weaknesses.”7

ADB insiders admit that a majorbottleneck in implementing the PRS areits own staff, who are clueless about howto reduce poverty and are either reluctantor unable to move beyond the standardgrowth paradigm. Country programmestaff are also unable to show positive linksbetween the macroeconomic policies andsectoral reforms they favour and povertyreduction; often, the poverty reductioncomponents of projects/programmesinvolve sudden infusions of capital intolocal areas through micro-credit projects,agricultural loans, etc. As it is, the ADBsuffers from “goal congestion”8 where newgoals are constantly heaped on old oneswith little thought, analyses, or strategyfor meeting them. Faced with an overloadof goals and expectations, the default forconfused ADB staff then is to stay withthe business they know best: pushingloans.

PROMOTING THE PRIVATEOVER THE PUBLIC

Private sector development is at the heartof all ADB operations. The ADB’sPrivate Sector Development Strategy!PSD" empowers it to promote privatecapital investment in the region, provideand guarantee loans to the private sector,mitigate private sector risks, invest in

6 Fighting Poverty in Asia and the Pacific: ThePoverty Reduction Strategy. Asian DevelopmentBank. November, 1999.7 Ibid. Page 20.8 ADB 2000: Senior Officials and InternalDocuments Paint Institution in Confusion. WaldenBello in Creating Poverty, The ADB in Asia,Focus on the Global South, May, 2000.


equity, and facilitate financing to privateenterprises operating in its DMCs. Mostof its private sector operations have beenin infrastructure development, with someinvestments in the financial sector andcapital markets !such as in commercialand national development banks andfinancing for small and mediumenterprises". PSD operations are graduallyexpanding into social sectors as well, suchas health, education, water andenvironmental management.

Financing for private sector operationscomes through direct financing from theADB’s private sector window andcomplimentary financing with bilateraland commercial co-financers. The ADBprovides a range of financial “products” tothe private sector independent of itsagreements with borrowing governments.9In an interview with the Financial Times in2004, Robert Bestani, head of the ADB’sprivate sector department said that,"We've finally figured out what ourproduct is, how to package it and how tosell it." The "product", which Mr. Bestanisaid was "flying off the shelves," includestraditional infrastructure projects as wellas a range of new financial services todevelop emerging capital markets andfinancial systems. According to Mr.Bestani, what his department can offerabove all are risk mitigation anddevelopment of an economy's privatesector.10

Central to the ADB’s mission ofmobilizing private capital for developmentis the promotion of public-privatepartnerships between governments andprivate companies under Build-Own-Operate !BOO" and Build-Own-Transfer!BOT" arrangements in which the ADBprovides loans for government equity andpartial credit and risk guarantees toprivate investors. Partial risk guaranteescover sovereign and political risk andgenerally require counter-guarantees fromthe host government. Governments alsohave to guarantee the purchase of aspecified amount of output from theproject, often in hard currency. The ADBclaims that its financing and riskmitigation schemes have providedsignificant “comfort” to commerciallenders and investors in public-privatepartnerships. Governments and thepublic in borrowing countries, however,

9 See, the ADB website for information onADB financing facilities and products for theprivate sector.10 Reformers flex their muscles. Victor Mallet,Financial Times, February 27, 2004.

receive no such comfort. They are leftwith foreign exchange risks, heavy debtrepayment burdens, rising utility costs andpoorer quality services.

The ADB demands that borrowinggovernments “create an enablingenvironment for private sectorparticipation” by enacting laws thatpermit BOT, BOO and similar schemes;putting in place private sector-friendlylegal and regulatory frameworks; andpreparing private sector friendly projects.The PSD strategy supports the eventualprivatization of key public sectors andenterprises. As the ADB aggressivelypushes for privatization of a publicenterprise such as a state power utility, italso provides financing to privatecompanies who have an interest in theprivatised utilities/assets, thus ensuringthe transfer of public assets and wealthinto private hands.11 The ADB seemsunconcerned about conflicts of interest inthese dual roles, nor does it recognize thatit encourages moral hazard by assuringfinancial returns and mitigating risks forprivate investors.

This is clearly evident in the ADB’spush for restructuring of the electricity/power sectors, as in Indonesia,Philippines, India and Pakistan.Restructuring involves unbundling thethree main components of the powersector: generation, transmission anddistribution. The next step iscorporatisation, i.e. each of the unbundledutilities functions as a private companywould in its pricing and operations, evenas it is still owned by the state andsupported by public money. The finalstep would be the outright sale of theutility to a private company.

The ADB’s rationale for aggressiveprivate sector promotion is that theprivate sector ostensibly relieves thefinancial pressure on poorly resourced andinefficient public sectors and enablesgovernments to redirect resources freedup from utility and infrastructure coststowards spending in social sectors. Also,“…since well designed private sectorprojects within sound regulatoryenvironments typically operate moreefficiently than public sector projects,”12

11 Taking Stock of the Motives and Interests inADB’s Private Sector Operations. Jenina JoyChavez-Malaluan in Profiting from Poverty, TheADB, Private Sector and Development in Asia.Focus on the Global South, April 2001.12 Private Sector Operations. Strategic Directionsand Review, Page 12. Asian Development Bank,August, 2001.


they often result in lowered prices,improved quality, increased access togoods and services for the poor, and evenaccelerated economic growth.13 However,experiences across the Asia-Pacific ofADB-supported private sector projectsshow the opposite.

In India, the ADB has approved loanstotalling US$ 350 million to helprestructure the power sector in the stateof Madhya Pradesh. The Madhya Pradeshstate government and state electricityboard are to provide US$ 118.9 millionequiva lent in loca l currency .Restructuring started in 2000-2001, andby 2002, electricity tariffs were up by 20percent. By 2003-2004, tariffs furtherincreased by 150 percent. And in 2005,more tariff increases are expected fordifferent categories of users. Exacerbatingthe situation are pronouncements by theState Electricity Board that they will putan end to subsidies that benefit farmersand low-income groups. Rising electricitycosts will severely limit the abilities offarmers)majority of who work on small-hold family plots)to pump water intotheir fields and use other machinery asneeded, thus hitting at the very heart oftheir livelihoods. These reforms willexacerbate the agricultural crisis alreadypresent in the country !which has alreadyresulted in numerous farmers committingsuicide" and increase the long-term costsof social and economic mitigation.Contrary to the ADB’s claims, powersector restructuring has sharply increasedthe state government’s debt burden andinhibited the government’s ability tospend on basic social services. Reformsare making electricity unaffordable forlow- income communities and threaten tofurther impoverish those who are mosteconomically vulnerable in society.

In the early nineties in the Philippines,the ADB repeatedly raised the example ofthe National Power Corporation !NPC" asa model of energy sector liberalizationthrough BOT-type investments. What theADB conveniently ignored was NPC’sexposure to foreign exchange risk since ithad guaranteed payments and made PowerPurchase Agreements to !mostly foreign-owned" private companies in US dollars.The Asian financial crisis left NPC withmultiple disasters of a huge foreign debtburden, devaluated currency, andincreasing retail prices which resulted ingreatly decreased energy demand. The 13 Private Sector Operations. Strategic Directionsand Review. Asian Development Bank,August, 2001.

ADB’s response to this crisis in 1998 wasto aggressively push the PhilippinesGovernment to unbundle and privatiseNPC, which in turn was marked by amassive corruption scandal in mid-2000and huge social unrest.14 The winners inthis case were private companies whowalked away with a disproportionate shareof profits while economic risks weretransferred to consumers who had neitherthe benefits of state subsidies nor legalrecourse.

Similar examples of faulty policy adviceby the ADB can be found in other powerand water sector projects in Vietnam, theLao PDR, Cambodia, Philippines,Indonesia, India and Pakistan. TheADB’s rush towards sectoral restructuringand privatization is based on flimsy data,and sketchy and incomplete analysis.Despite disastrous experiences with pastBOT projects, the ADB continues toprovide private sector loans forinfrastructure projects that actually raiseutility prices and place considerable riskson governments who have no way torecoup their costs except by raising tariffsand levies on their own citizens anddismantling cross-subsidies for those whoare economically marginalized orvulnerable. Far from freeing up resourcesto redirect to social sector spending, everygovernment that has entered into an ADBdesigned public-private partnership is nowfaced with increased debt and financialliabilities, and no legal recourse.

GOVERNANCE: DOUBLESTANDARDS AND HYPOCRISY

The ADB has identified four elements of“good governance” for its operations:A c c o u n t a b i l i t y , P a r t i c i p a t i o n ,Predictability, and Transparency. All fourelements are operationalised by policy andsectoral reform programmes that promoteprivate sector needs over public interestpriorities. For example, “The litmus test*for Accountability+ is whether privateactors in the economy have procedurallysimple and swift recourse for redress ofunfair actions or incompetence of the

14 BOTs, Governance and the ADB. Andrew B.Wyatt in Good Governance or Bad Management,An Overview of the ADB’s Decision MakingProcesses and Policies. Focus on the GlobalSouth, May, 2002.See also, Privatising Power in the Philippines:Cure Worse than the Disease. Walden Bello inProfiting from Poverty, The ADB, Private Sectorand Development in Asia. Focus on the GlobalSouth, April 2001.


executive authority.”15 And, “Access toaccurate and timely information about theeconomy and government policies can bevital for economic decision making by theprivate sector.”16 Predictabilityis)predictably-all about developing legalframeworks, especially to support privatesector development.

The ADB claims that its “bread-and-butter business” is assisting the publicsector in the DMCs. With regard to goodgovernance, this assistance is gearedprimarily towards the reform of publicsectors/enterprises and the reconstructionof the public domain with an“appropriate” role for the State in amarket-friendly economy. The mainconcerns that guide ADB assistance to thepublic sector in operationalising “goodgovernance” are: maximising profits andminimising costs for the private sector,preserving markets, promoting market-friendly policy reforms and marketmechanisms in services provision, creatingcompetitive operating environments,enhancing cost recovery, divestiture andprivatization

Although the ADB claims to eschewinvolvement in the political aspects ofgovernance, its core mandate)promotingeconomic development and growth)isdeeply political. Economic developmentdetermines the distribution of a society’swealth and opportunities, who gains andloses, and how power is realigned orentrenched. It is thus both delusional andself-serving for the ADB to project thatthe political and economic dimensions ofgovernance can be separated in policy andreality.

Since the ADB’s good governancepolicies do not discuss the politicaldimensions of governance, it shows littleinterest in the fact that its own projectsand programmes can violate theconstitutional rights and democraticspaces of citizens. Too often, reformregimes imposed by the ADB have actedas barriers to the accountability ofgovernments to their own citizens. Thetransformation of public sectors to servecorporate and market interests in theguise of “efficient management of publicresources” undermines the ability of statesto meet their obligations to their citizens.

Strangely enough, the ADB’s policy ongood governance offers no prescriptionsfor its own institutional governance. 15 Governance: Sound Development Management.Asian Development Bank, August, 1999. Pages8-13.16 Ibid.

A c c o u n t a b i l i t y , P a r t i c i p a t i o n ,Predictability and Transparency are thebuzzwords for governments, but appearnot to apply to the ADB’s own conduct oroperations. The ADB is protected by itsfounding Charter from judicialproceedings under national laws andagainst financial liability for material harmresulting from its projects andprogrammes.17

ADB insiders have revealed that theinstitution is increasingly plagued by poorand irresponsible performance by Bankstaff and Management, a lack of clarityamong staff about operational policies andprocedures, and a noticeable absence ofdisciplinary processes within theinstitution. Questions have been raised inmeetings of the ADB’s Board of Directorsabout the appropriateness of Bank staffconduct in formulating, processing, andimplementing projects. Controversiessurrounding a number of ADB projectsand programmes ' from the ChashmaRight Bank Irrigation Project in Pakistanto reform programmes in the PacificIsland States)reveal that the ADB’scommitment to “good governance” isantagonistic to nationally meaningful andaccountable governance structures andmechanisms.

This is evident in the ADB-financedKarnataka Urban Development andCoastal Environment Management!KUDCEM" and Karnataka UrbanInfrastructure Development !KUID"projects in the state of Karnataka in India.In order to ensure efficient andindependent !i.e. free from “politicalinterference”" implementation of theprojects, the ADB demanded that aspecial Project Implementation Unit!PIU" be set up. Thus was established theKarnataka Urban InfrastructureDevelopment and Finance CorporationLimited !KUIDFC", which works directlywith the ADB in all aspects of projectd e v e l o p m e n t , f i n a n c i n g a n dimplementation. KUIDFC officials, whoare mid- to senior level bureaucrats in theIndian Administrative Service, claim thatthey have no control over project designand components, over procurementpolicies, and even over identification ofinternational consultants since these aredetermined by the ADB. In the words ofa senior KUIDFC official who requestednot to be named, “Since the ADBprovides the money, they make most of 17 See Article 48, Status, Immunities, Exemptionsand Privileges, in the ADB’s Charter, atwww.adb.org


these decis ions. We are justimplementers.” At the same time,democratically elected councillors in thetowns where project implementation hasstarted claim that they were not consultedby either ADB or KUIDFC officials onany aspect of the project, and the projectwas not discussed in city council meetingsbefore project agreements were signed.When they raised concerns about projectcosts, quality or management, councillorswere told by KUIDFC officials that ifthey complain, the officials will ensurethat no other projects come to theirtowns. According to Ms. Vidya Pandit, acouncillor of Sirsi town, “The ADBproject has resu l ted in thebureaucratisation of development wheredemocratically elected officials have novoice.”18

INFORMATION DISCLOSUREParticularly contentious in the ADB’soperations are its approach to informationdisclosure and the near- absence of publicparticipation in policy formulation, andproject and programme development,monitoring, and evaluation. By anyacceptable international standard, theADB is completely unaccountable to thepublic, non-transparent in its decision-making and policy, project andprogramme formulation, and irresponsiblein its stated commitment to promotepublic participation and access toinformation. The ADB’s informationdisclosure practices are characterized bytheir irrelevance to decision-making, theselective nature of what is chosen to bedisclosed to the public, and the dubiousquality of whatever information iseventually disclosed. The most importantpolicy and operational decisions in theADB are made according to itsinstitutional and political interests, andnot according to what is good for thepublic.

In response to widespread criticismabout its poor information disclosurepractices and lack of public participationin decision making about its projects, theADB proclaimed in late 2003 that it wasrevamping its information disclosurepol ic ies with a draft Publ icCommunications Policy !PCP". The ADBposted the PCP on its website forcomments and organised a series ofconsultation workshops across the regionto solicit inputs from “key stakeholders.”

18 Personal conversation with author on June24, 2004

The draft PCP was uniformly criticized bycivil society groups and project-affectedcommunities as inadequate since it limitedthe scope of public participation inproject/ programme formulation to whatthe ADB chose to selectively disclose. Italso failed to demonstrate how the viewsof various “stakeholders” would actuallychange the manner in which the ADBconducts business. Particularlyobjectionable was the ADB’s refusal todisclose information about its contractsand agreements with the private sectorunder the cover of “commercialconfidentiality.” Critics argued that sincemost private sector operations supportedby the ADB are bolstered by publicfinance, the public has the right to knowabout the arrangements being promotedbetween the public and private sectors.

The consultation workshops were alsocriticized by civil society and project-affected communities as poorly plannedand run. The workshops were not open tothe public. Participation in each workshopwas restricted to a handful of civil societygroups who were identified by the ADBunder no logical or justifiable criteria.Invitations to the workshops arrived tooclose to the workshop dates; documentswere not made available well in advance orin local language; and the time allotted fordiscussions was dismally short. Enragedcivil society groups staged a walk-out ofthe consultation workshop held in July2004 in the southern Indian city ofBangalore on the grounds that the ADBwas not serious in its commitment toinformation disclosure, accountability,transparency, and public participation. Astatement by a broad coalition of SouthAsian civil society groups in November2004 stated that the changes in the draftPCP were cosmetic and more oriented toboosting the ADB’s image rather than todeepen its commitment to transparencyand accountability.19

A leaked copy of the most recent draftof the PCP !the PCP R-Paper" which willbe submitted to the ADB Board ofExecutive Directors for approval on April22)and which, ironically is not availableto the public--is actually a step backwardin information disclosure practice. Manyimportant concerns and demands made bycivil society organizations and project-affected communities during theconsultation process over the past yearhave been ignored. Most importantamong the concerns that were ignored is 19 These statements can be obtained by writingto the author at [email protected]


the exclusion of project communities asone of the principle targets of the PCP. Inan inexplicable twist of logic, the ADB’spublic communications policy states thatthe policy does not directly target thepublic in developing member countriesand aims instead to strengthenpartnerships with those who have“business links to the ADB.”

REPEATED FAILURES TODELIVER BENEFITS

Project performance evaluations andaudits inside the ADB are conducted byits Operations Evaluations Department!OED" and, according to the ADBwebsite, “emphasize the 3Is: Integrity,Independence and Impartiality.”20 Whenreporting evaluation results for projectsand programmes, the OED rates themaccording to the following categories: 1"Highly successful, generally successful orsuccessful; 2" Partly successful, and; 3"Unsuccessful. The OED report for 2003states that although project and portfolioperformance in 2002-2003 showedsignificantly better performance than in1999-2001, “this result is marred by emergingevidence that the project performance report"PPR# is not identifying all projects that shouldbe rated as problem or potential problemprojects$only 1 percent of projects wasidentified as problem projects in 2003.”21!italicsadded by author"

An analysis conducted by StephanieFried, Shannon Lawrence and ReginaGregory of the ADB’s audit reports forprojects in Pakistan, Sri Lanka andIndonesia, three of the ADB’s largestborrowers, shows that by using thestandard of project sustainability as anindicator, over 70 percent of ADBsupported projects in these countries arenot likely to provide long term social andeconomic benefits to the countries andtargeted beneficiaries.22

In 2000, the OED found that half ofall projects rated “successful” by the ADBin 1999 were found to be of questionablesustainability. According to Fried et al, 20 www.adb.org/Evaluation21 Annual Report on Loan and Technical AssistancePortfolio Performance for the Period Ending 31December, 2003. Asian Development Bank,Operations Evaluation Department, June,2004.22 The Asian Development Bank: In its own Words,An Analysis of Project Audit Reports for Indonesia,Pakistan, and Sri Lanka. Stephanie GorsonFried, Ph.D and Shannon Lawrence,Environmental Defense with Regina Gregory,ADB Watch. July, 2003.

the ADB’s “partly successful” labelappears to be a euphemism for “largelyunsuccessful” or “troubled,” and the“unsuccessful” projects category appearsto mean “abysmal failure” and oftenindicates project related damage to theenvironment, economic structure and/orhuman health. The data studied acrossthe three countries include projects insuch diverse sectors as transport,agriculture, irrigation, water, health,energy and finance/credit. The mainproblems associated with the projectsexamined were poor project preparationand structures; design flaws; poor or non-existent record keeping; absence ofBenefit Monitoring and Evaluation !BME"and baseline data; lack of consultationwith project affected peoples, users andintended beneficiaries; lack of communityparticipation in project preparation; costand time overruns; operation andmaintenance deficiencies; sub-standardconstruction; and failure to mitigatesevere environmental and social impacts.

In the case of Indonesia, such projectsincluded those with large unmonitoredresettlement components, projects whererecord keeping was virtually abandonedand, those that were so poorly structuredthat rapid deterioration of projectinfrastructure was inevitable. In Pakistan,ADB projects display a “disturbing patternof systematic failure on the part of theBank” !Fried et al, 2003", and adverseproject impacts on social equity andincome equality have fostered ethnictensions. In Sri Lanka, as much as 78percent of ADB-supported projects maybe considered unsustainable orfailures)the equivalent of US $ 1.2 billionof Sri Lanka’s debt to the ADB.23

One of the most notorious examples ofADB project failure is the Samut PrakarnWastewater Management Project!SPWMP" in Thailand. Located at thehead of the Gulf of Thailand, theSPWMP was intended to treatwastewater from factories and householdslocated far away from the treatment plant.The project was developed without localp a r t i c i p a t i o n o r s i t e - s p e c i f i cenvironmental, social and economicimpact assessments. Data gathered bylocal residents and independentresearchers showed flaws in the project

23 The Asian Development Bank: In its own Words,An Analysis of Project Audit Reports for Indonesia,Pakistan, and Sri Lanka. Stephanie GorsonFried, Ph.D and Shannon Lawrence,Environmental Defense with Regina Gregory,ADB Watch. July, 2003.


design and threats of seriousenvironmental contamination since theplant would release toxic sludge and heavywater into local canals and fishing waters.The data also showed that the projectviolated Thai laws and justified allegationsof corruption, collusion, conflict ofinterest and even malpractice in theproject approval and developmentprocesses. This information wasrepeatedly presented to ADB project staffand managers and even to the ADBPresident, but the ADB maintained that itsaw no evidence of wrongdoing ornegative impacts.

Eventually, the SPWMP went throughthe ADB’s official inspection channels in2001. It was the first project to undergoinspection under the ADB’s InspectionFunction and soon revealed fundamentalflaws in the inspection process as well asthe ADB’s internal governance structure.The Inspection Panel found that the ADBwas not complying with many of its mostimportant policies and procedures, andthat the project should have beencompletely re-appraised at a much earlierstage, well before a supplementaryfinancing loan for the project was made.It did not, however, stop the project. Theproject was finally halted by the ThaiGovernment in February, 2003, followingfindings of deep rooted corruption andflawed engineering by the NationalCounter-Corruption Committee and aspecial Senate Committee.

A similar scenario has played out inPakistan since 2001 with the third stage ofthe Chashma Right Bank IrrigationProject !CRBIP", which threatens thelives and livelihoods of more than 30,000rural people through project-inducedflooding and displacement. AlthoughADB operational policies require that asuitable resettlement plan thatincorporates social development plans beprepared by the project developers inconsultation with affected communities,no such plan was in evidence. On thecontrary, ADB project staff colluded withlocal/national bureaucrats and did notprovide the affected communities withany information about the project untilmuch later in the project’s life-cycle. Thisproject also went into the ADB’sinspection process but with far lessfavourable outcomes than the SPWMP.In 2004, local communities initiated apeoples’ tribunal !titled the Lok Sath" toprovide a platform for affected peoples toshare their testimonies and build wider

societal support for the demands ofproject affected peoples.24

In the state of Karnataka in India, theADB has provided financing for theKarnataka Urban Development andCoastal Environment Management!KUDCEM" Project which covers 10towns and which ostensibly builds on the“success” of a similar project)theK a r n a t a k a U r b a n InfrastructureDevelopment !KUID" project--alreadyimplemented in 4 towns in another regionof the state. In all 14 towns, the project ischaracterised by design flaws, poor qualityconstruction, prolonged delays incompletion, non-disclosure of importantproject information to the public, non-transparent and non-participatorydecision-making, and a refusal to subjectproject implementation to public scrutinyand supervision. Project managers coercedlocal municipal authorities into acceptingterms and conditions that they are unableto justify to the public. In order to repaythe project loans, Municipal Councils arerequired to hike land taxes and user feeson services covered by the projects. Aparticularly contentious issue is the ADB’sinsistence that key operations of theproject be contracted out to foreignconsulting companies and out-of-stateprivate contractors, whose performance isnot assessed by independent third partyinspectors, and whose high consultancyfees add to overall debt burden created bythe project.

According to Harsha D’Souza from theNGO Task Force on the ADB LoanProject in Mangalore, one of the firsttarget towns of the project, theKUDCEM project is characterized by acomplete lack of transparency and wasdeveloped without any local input. “No-one knows what procedures were followedby the ADB in the allotment of contracts,fixing of rates for contract work, or therole of third party inspection agencies.The project is out of the purview of theKarnataka Transparency Act 2000, so wecan’t ask for information and get it.KUIFDC *the government implementingagency+ and ADB are not bothered to seethat the benefits of the project go to the

24 The ADB’s Uncivil Engagements: The Experienceof Chashma Affectees. Mushtaq Gadi in GoodGovernance or Bad Management, An Overview ofthe ADB’s Decision Making Processes and Policies.Focus on the Global South, May, 2002. Seealso the Chashma project website:www.chashma-struggles.net


people. They say that once a decision istaken, it can’t be changed,” D’Souza said.25

The lack of involvement of local,democratically bodies in the formulationof the KUID and KUDCEM project hasbeen cited as a serious problem in everyone of the 14 towns where the projectshave been implemented. According toVidya Dinker, also from the NGO TaskForce, the Mangalore City Corporationwas not even aware that project financingcame as a loan. Municipal Commissionersin at least two towns !Mangalore andPuttur" reportedly signed projectagreements that had blank spaces wherefigures for project costs should have beenwritten. “No-one at the state and locallevels has thought about the social andeconomic impacts of this project. Thishuge infrastructure being put up throughthe project is expensive and at our cost, itis a huge burden to tax-payers. We aregoing to have a city corporation that willbe down in debt as never before. Howwill they pump in enough money to seethat the infrastructure works efficiently inaddition to paying back the loan?”26

Independent reports from citizen’sgroups, researchers, peoples’ movementsand civil society organizations show thatthe Asia-Pacific region is scarred by ADB-supported projects that are poorlydesigned, implemented and managed; thatblock public participation in developmentplanning and the public’s right toinformation about projects andprogrammes; and that weaken local andn a t i o n a l g o v e r n a n c e t h r o u g hundemocratic, non-transparent and non-consultative methods of operation. ADB-supported infrastructure projects haverepeatedly displaced hundreds ofthousands of people across the region withlittle or no compensation and haveresulted in negative environmental andsocial impacts that the ADB has shiedaway from mitigating. It is hardlysurprising then that the ADB has beencharged by people’s movements, civilsociety organizations and researchersacross the region with creating“development refugees.”27

Numerous examples can be foundwhere the access rights of people and

25 Personal conversation with author on April18, 2005.26 Ibid27 See Peoples’ Challenge to the Asian DevelopmentBank, a statement prepared and presented tothe ADB President by civil society groupsduring the ADB’s Annual General Meeting inHonolulu, Hawaii on May 9, 2001.

communities to crucial resources andopportunities have either been severelyrestricted or lost altogether as a directconsequence of ADB-supported projectsand programmes. Policy prescriptionssuch as enhanced cost recovery for health,education and public utilities, water userfees in irrigation systems, creating“flexibility” in labour markets, and theprivatisation of public sector enterprises,have resulted in the disempowerment andmarginalisation of large numbers of peopleacross the region. The ADB’s strategy of“pro-poor growth” has encouragedgovernments to freeze minimum wagesand withhold the rights of workers toassociation, benefits and protection. Incountries such as Pakistan, India,Thailand, and the Philippines, protestsagainst ADB projects and programmeshave resulted in social unrest anddivisions, and at times, even politicalharassment of those who protest.

Equally worrying is the ADB ’sunwillingness to assume responsibility forproject, programme, and policy failures.The ADB conveniently uses local andnational governments as cover. Since allits projects, programmes, and policies arein one way or another built into nationaland sub-national development plans, theADB claims that decision making is in thehands of governments and that problemsof poor project design and management,flawed policies, corruption, and projectfailure are symptoms of systemic flaws innational capacity and governance.

WHAT TO DO WITH THE ADB?A politically balanced and accountableregional institution that is open to newthinking and ideas rather than wedded tothe doctrinaire principles of a narroweconomic growth paradigm can serve as aneffective counterbalance, if not a totalreplacement, for a global institution suchas the World Bank which imposes one-size-fits-all policy prescriptions that haveproven disastrous to developing countries.The Asia- Pacific region is diverse ingeography, climate, culture, society,politics, natural resource distribution,human capability and economicopportunity. The different countries inthe region have, during specific periods intheir past, pursued distinct strategies ofnational development, some of which!such as the miracle tiger economies ofSoutheast Asia and the mixed economiesof China, India and Vietnam" offerimportant lessons that can be adapted toother countries in the region. While it is


true that there is a lot of impoverishmentin the region, there is also a great deal ofwealth, intellectual capacity, humancreativity and opportunities for learningfrom past successes and mistakes. Localcommunities across the region havetackled poverty, hunger, natural disastersand environmental challenges throughsustainable, cost-effective and replicablestrategies. The region needs aninstitution that is committed tofacilitating development finance withouttying the region to policy conditionality;that is open to change in the face ofemerging realities; that supports theparticipation of local and nationalcommunities in development planning;and that is accountable to the public thatit claims to serve. It does not need theADB.

Given the ADB’s track record inproject performance, decision-making andgovernance structures, it is clearlyinstitutionally incapable of becoming analternative to the World Bank.Governments in the Asia-Pacific regionare said to like the ADB better than theWorld Bank because the ADB issupposedly more flexible and moresensitive to Asian governments’ realitiesthan the World Bank. Also, there isarguably greater potential for governmentsin the region to influence the operationsof the ADB than of the World Bank.However, this affinity is likely to be short-lived. The US already has capital shares inthe ADB equal to those of Japan, theADB’s largest Asian shareholder. USinfluence in the ADB is growing andbecoming more visible and obvious by theday as its policies, operations, andgovernance structures increasingly mirrorthe World Bank and as WashingtonConsensus ‘yes- men’ and ‘yes-women’continue to fill its technical andmanagement ranks. Worried about theinfluence of borrowing governments inthe ADB, the US Government)backedby some other western countries)hasindicated that unless the ADB becomesmore conciliatory and responsive to USinterests, it will slow down its financialcontributions to the ADB.

The capture by neo-liberal plannersand politicians of the ADB’s policymaking, operations planning, andgovernance structures make it doubtfulthat the institution can be remoulded tosuit the needs of the Asia-Pacific region.But it cannot be let off the hook either.At the very minimum, the ADB mustundergo some fundamental changes inorder to minimize the current damage

that it is wreaking across the region.These could include:

• Alter the ADB’s charter so that it isstripped of the high degree ofimmunity that it currently enjoys; theADB must be accountable and legallyliable to national laws for wrong-doing,faulty policy advice, badly designedprojects and programmes, corruptionand collusion, etc. We can also thinkabout possibilities to make the ADBliable in an international framework!such as the International Court ofJustice" for cross-border or regionalmisconduct. The ADB must pay forthe damage it causes; it cannot beallowed to get away scott-free as it doesnow.

• Re-haul the governance systems andstructures in the ADB. Decision-making has to become broad based,open and accountable; the public !notjust governments" must be able toparticipate in shaping developmentprojects and programmes, etc.

• ADB staff must pay taxes in thecountries they are based proportionateto their incomes and perks. !It mightalso be a good idea to revise ADBstaff’s pay-scales while we are at it."

• The ADB must completely separateits private sector and public sectoroperations. It must not be allowed totransfer public and common-poolwealth into private hands, nor to heaprisks and liabilities on the publicsectors and provide “comfort” to theprivate sector. Perhaps we needindependent regulatory mechanisms ineach country that guard against theconflicts of interest and moral hazardthat seem to currently be the norm inADB private sector operations.

• Financing must be separated frompolicy conditionalities.

• Demand that all ADB staff go througha period of “immersion” in the subjectand geographic areas they work in. !Itis possible that staff just might becomemore subdued in their enthusiasm forsectoral restructuring and reforms ifthey have practical, hands-onexperience of the impacts of thesereforms.

• Establish a regional watchdog agencythat is supported by governments in


the region to assess the quality andeffectiveness of the ADB’s operations.This agency should be able to censureand penalize the ADB for poorperformance, misconduct and faultypolicies and practices.

• The ADB must be freed from thegrips and interests of non-regionalactors such as the USA, Canada andthe EU. While Asian governmentshave not displayed particularlyprogressive stances in the ADB either,citizens within the region would likelybe able to exercise a greater measure ofinfluence on their own governmentsthan on those from outside the region.

None of these ideas are intended toreform the ADB. Rather, they areintended to shrink the institution’s reachand check its power while peoples andcommunities in the Asia Pacific regionbuild and put into practice alternativemodels of development and alternativeforms of governance to those imposed bythe ADB and the World Bank.


Private Power FailureNEPOMUCENO MALALUAN AND JENINA JOY CHAVEZ

eginning in the 1990s, the fundamental restructuring of theelectric power sector swept developing countries. From astructure dominated by the public sector, an increasing space for

the private sector in financing, operation, and ownership was cleared.By 1998, out of 115 developing countries analyzed, 44% hadcommercialized or corporatised their state utility, 33% enacted anenergy law that would permit unbundling or privatisation, 40% hadallowed the entry of Independent Power Producers !IPPs", and 21%had taken steps to privatize assets.1 These structural changesfacilitated robust global corporate interest in the privatisation of theelectricity sector. Between 1990 and 1999, 649 electricity projects withprivate participation, involving US$155 billion in investments, reachedfinancial closure in developing countries.2

1 R.W. Bacon, R.W. and J. Besant-Jones. Global Electric Power Reform, Privatization and Liberalizationof the Electric Power Industry in Developing Countries. Energy and Mining Sector Board DiscussionSeries, Paper No. 2. The World Bank !June 2002"2 World Bank, Private Participation in Infrastructure Database,http://www.worldbank.org/html/privatesector/ppi/ppi_database.htm

B


The Philippines was a frontrunner inpower industry restructuring. State-ownedNational Power Corporation !NPC" starteda process of reversal towards the 1990s. Itentered into supply contracts with IPPs inquick succession, with 43 IPP contracts fora total of 9,173 MW generation capacityapproved in ten years. The bigger bulk ofthis ' 32 contracts for 6,438 MW capacity)was approved during the administration ofPresident Fidel Ramos from1992 to1998.The privatisation process reached newheights when President Gloria Macapagal-Arroyo signed into law on 8 June 2001Republic Act 9136, or the “Electric PowerIndustry Reform Act !EPIRA" of 2001”.The law provides for the unbundling,deregulation and full privatisation of theindustry.

The World Bank and the AsianDevelopment Bank played key roles in theprivatisation of the Philippine electricityindustry. Through sector studies, technicalassistance, and loan conditions, theseinstitutions engineered the reform process,supporting changes in the legal frameworkthat would facilitate greater private sectorparticipation and ultimately the fullprivatisation of the industry.

Such operation implements the ADB andthe World Bank ’s Private SectorDevelopment !PSD" strategy. In 1993, theWorld Bank adopted a “commitmentlending” policy in the electricity sector,which meant that assistance is given only tocountries that pursue institutional andstructural reforms conforming to the WorldBank ’s agenda of unbundling andprivatisation of all new power generationand distribution investments.1 This policyagenda is shared by the ADB which, inaccordance with its 1995 Energy Policy,promoted private investment in the sector,and gave preferential allocation of ADBresources to developing member countrieswilling to restructure their energy sector toattract private investments.2 In 2000, theADB outlined its modes of support forPSD, to include: !a" indirect financing ofprivate enterprises through government-guaranteed loans to development finance 1 World Bank, Power for Development: AReview of the World Bank Group’s Experiencewith Private Participation in the ElectricitySector, 2003.2 Asian Development Bank, Energy 2000:Review of the Energy Policy of the AsianDevelopment Bank, 2000.

institutions; !b" other modes of publicsector assistance contributing significantlyto PSD, e.g., policy dialogue, technicalassistance, and project and program loans tohelp create conducive environment for theprivate sector; and !c" direct private sectoroperations !PSO" to provide assistance toprivate enterprises through direct financing,credit enhancements, and risk mitigationinstruments.3

Sixteen years after reintroducing privatesector participation4, the Philippineelectricity industry is a big mess. Publicinterest has been compromised, and theADB/World Bank privatisation model hasmuch to answer for.

WHAT EFFICIENCIES?

Apart from the obvious intent to assistglobal business interest in opening updeveloping countries to foreign investments,the ADB/WB conviction is that greaterprivate sector participation is consistentwith public interest. On a general plane, thedevelopment of a strong private sector isseen as crucial to long-term rapid growth, inturn a necessary condition for sustainedpoverty reduction. On specific sectorperformance, privatisation is seen as crucialin minimizing or eliminating fiscal drain andimproving supply efficiencies, access, qualityof service, and the financial performance ofutilities.

Instead of posting improved financialperformance, however, the restructuredstate corporation continues to haemorrhagefinancially. The passage of the EPIRA didnot stop the NPC’s losses from growing.From a deficit of PhP8.2 billion in 2001, theNPC’s deficit has surged to PhP21.7 billionin 2002 and PhP81.4 billion in 2003, and isexpected to post a PhP91.3 billion deficit in2004.5 Next to the National Government,the NPC is the biggest contributor to thecountry’s consolidated public sector deficit,and thus accounts for much of the currentfiscal crisis.

Filipino economists, particularly those 3 Asian Development Bank, Private SectorDevelopment Strategy, March 2000.4 Mainly in generation, and now moving into thetransmission sub-sector. Historically, privateparticipation is allowed in distribution .5 Rosario Manasan, 2003, Analysis of thePresident’s Budget for 2004: Looking for theComplete !Fiscal " Picture, PIDS DiscussionPaper Series No. 2003-17, December 2003.


from the University of the PhilippinesSchool of Economics, blame inadequatetariff adjustments !supposedly done topander to “populist” demands" for thefinancial plight of the NPC.6 This simplisticanalysis unfortunately glosses over theproblems of private sector participationduring the IPP boom.

The IPP contracts were purported toreduce costs, increase access to best-practice technology, and shift key risks tothe private sector. Far from these obtaining,the new private capacity thru the IPPsturned out to be very expensive. Even oncontract signing date, many of the IPPsalready had rates higher than NPCgeneration cost for similar plants. Costscontinued to escalate from the start of IPPoperations. This was due to the lopsidedprice risk structures that were undulyfavourable to the private sector. It was theNPC, and ultimately the consumers, whoassumed the fuel price risk and exchangerate risk of these projects.

Generous off-take guarantees, coveringeven peaking plants, were also given basedon overly optimistic electricity demandforecast. When the country faced anoversupply of electricity after signing withdozens of IPPs, the burden shouldered byconsumers grew. Based on government’sestimates, the NPC paid over PhP60 billionin 2001 net present value to IPPs forundispatched power during the start of IPPcooperation periods until 2001. Theoversupply was not simple excusableprojection error. The risk structure andWorld Bank/ADB support had much to dowith the business decisions at that time.

There were also indications of corruptionin the approval of IPP contracts. A reportby the Philippine Center for InvestigativeJournalism alleges that no less than formerPresident Ramos “personally pushed for thespeedy approval of some of the mostexpensive power deals and justified signingmore contracts” despite warning ofimpending oversupply. It further claims that“individuals linked to Ramos lobbied for theapproval of some IPP contracts, whichcame with numerous other deals, includinglucrative legal, technical and financialconsultancies that were given to individualsand companies close to the former 6 Emmanuel S. de Dios et al., “The DeepeningCrisis: The Real Score on Deficits and thePublic Debt”, August 2004.

president.”7Because of these, even with the effective

tariff subsidy arising from the inadequateadjustments, Philippine electricity rates arefifth highest in the Asian region.

The Philippine Government had theopportunity to mitigate the problem andcome up with a more equitable resolution ofthe issue thru a review of the NPC powercontracts. The EPIRA incorporated suchrequirement for contract review as aconcession to public interest advocates, butit was not seriously implemented. TheInter-Agency Committee on the Review of35 NPC'IPP Contracts confined itself to avery conservative framework, starting fromthe conclusive premise that the contractswere all entered into with the requisiteregularity. The review committee limited itsobjective to reducing the cost of electricity“while respecting the validity of commercialcontracts and honoring obligations to theprivate sector”.8

Given the self-limiting framework of thereview, as expected the renegotiation of thecontracts did not yield substantial results.The renegotiated terms were confined tominimal reduction in allowed capacitynomination !particularly where the IPPs areallowed to nominate more than 100 percentof contracted capacity" and settlement ofcertain unpaid claims against the NPC. ThePower Sector Assets and LiabilitiesManagement Corporation !PSALM"estimates that the renegotiated termsyielded savings of US$994 million in netpresent value. This translates to an averagereduction of PhP0.0908/kWh in NPCobligation to IPPs up to 2011, of whichPhP0.0268 may be deducted from strandedcosts eligible for inclusion in the universalcharge.9 The IPP review and renegotiation

7 Luz Rimban and Sheila Samonte-Pesayco ofthe Philippine Center for InvestigativeJournalism came out with a series of articledocumenting the allegations of corruption. See,for instance, “Trail of Power Mess Leads toRamos”, “Ramos OK’d Most Expensive IPPs”,“Ramos Friends Got Best IPP Deals” and“IMPSA is a Showcase of All that is Wrong withIPPs”, all released on 5 August 2002.8 Inter-Agency Committee on the Review of 35NPC ' Independent Power Producers !IPP"Contracts: Final Report, 5 July 200.9 Letter of the Power Sector Assets andLiabilities Management Corporation !PSALM"President Edgardo M. Del Fonso to Rep.Loretta Ann P. Rosales providing a summary of


exercise hardly made a dent in overcapacityand overprice payments to IPPs.

UNDEMOCRATIC

The IPP boom went largely unchallenged bypublic interest advocates. It was only whenthe negative impact of the IPPs in pricingbecame pronounced that they started tolook deeper into the issue. Because the issueis quite technical and specialized, and thecontracts and operations data were notreadily available, it took some time to tacklethe issue in greater detail.

The failure of public interest advocatesto intervene in the IPP episode owes muchto the lack of public space in the IPPproject approval process. The principalmovers in the approval and implementationprocess are the NPC and the distributionutilities, and the executive agencies. TheNPC and the utilities are corporate entitiesthat enjoy autonomy in their operations.The approval process of the executiveagencies provides limited mechanism forpublic participation, and involves mainly theissuance of the environmental compliancecertificate where public participation tendsto be more localized and project-sitespecific. There is no mechanism for publicparticipation in looking at contracts.

Foreclosure of public participation is notexclusive to domestic processes. Processesof international financial institutions !IFIs",notably those of the World Bank and theADB, marginalize public participation asmuch. For instance, the World Bank on-linetechnical paper on a case-by-case approachto privatisation identified the followingsteps in privatisation: !1" identification ofprivatisation candidates; !2" feasibility study;!3" privatisation plan; !4" legislation orexecutive order; !5" sale.10 The process isdesigned to be unaccountable, placingparticular importance on autonomy ininstitutional design. Autonomy is the extentto which “an institution is insulated fromoutside interference, and thus from the vetopower held by politicians or social groups.”It locates the privatisation program at themost powerful centre of government to beable to overcome opposition and manage savings of IPP contracts that were renegotiated,15 July 2003.10 Welch, Dick and Olivier Fremond. The Case-by-Case Approach to Privatization: Techniquesand Examples. World Bank Technical Paper No.403 !1998".

political issues effectively. By implication,the process is designed to be non-transparent. The public only figures in stepthree after the policy issues have beenresolved and the legislation or executiveorder has been prepared. The public doescomes in not from a consultative frame, butas part of a communication plan to buildpublic support. In this process, the publicwill only have a chance to participate whenthe policy involves legislation that requirespublic hearing. Even here, the opposition isregarded as a problem to be managed.

The lending operation is the maincoercive instrument used by the ADB andthe World Bank to push their private sectordevelopment agenda. They influence thecountry’s commitment to the reformprocess by a “carrot-and-stick” lendingstructure. Lending for institutional reform isbundled with lending for investments in thesector. Targets in the institutional reformloan will be part of the conditions forrelease of tranches not only of theinstitutional loan itself but also of loans forsector investment. Once a governmentadopts a policy of allowing greater privatesector participation in the sector, the ADBand the World Bank mobilize theirmachinery, network and financial resourcesto assist in policy implementation. Theyprovide equity and debt, syndicate debtfinancing, design IPP contract structures,provide insurance mechanisms, and bringtogether project financiers, developers, andsponsors.

In the Philippines, the coercive nature ofthe ADB and the World Bank lendingpractices was witnessed in the passage ofthe EPIRA, shutting out what could havebeen an opportunity to insert public interestattributes to the bill. When PresidentArroyo assumed the presidency, sheannounced the deferment of the passage ofthe bill to the next Congress. Thedeferment would have provided more timefor greater public scrutiny of the bill, asmore facts are revealed and analysis ofpublic interest advocates improve. ButPresident Arroyo retracted her earlierdecision after the ADB and the World Bankexerted pressure to have the bill passedimmediately. Both institutions indicatedthat they are seriously considering placingthe NPC in technical default of its debt tothem if the bill was not passed beforeCongress adjourned. Passage of the EPIRAwas also tied to the release of US$750


million in loans from the ADB and US$200million from the Japan Bank forInternational Cooperation.

SHOW ME THE MONEY

For all the IFIs’ pushing, and despitealready extremely attractive contractualprovisions available to them, foreign privatesector interest has ironically waned. TheWorld Bank group’s lending and guaranteeoperations in the power sector has droppeddrastically from its peak in 1996, reflectingthe drying up of private capital flows to thesector. A 2002 World Bank survey of 50firms in the power sector showed that 52%were retreating, and only 3 firms continuedto be interested in investing in power.11Total investment in infrastructure projectswith private sector participation has beendeclining for three consecutive yearsbeginning 2001. A slight increase inelectricity investment in 2003 failed incomparison to peak investment levels in1997. "See table below.# This sudden lack ofprivate sector interest left power industries,legally restructured for privatisation,holding the proverbial empty bag.

In the Philippines, for instance, it wasexpected that at least seventy percent !70%"of total generating assets and IPP contractsof NPC shall have been privatised not laterthan three years from the effectivity ofEPIRA, or not later than June 2004. Thiswas to trigger the other provisions of theEPIRA to take place. However, as of March2004, only a 3.5 MW plant was sold. Thefirst big ticket power plant sale happenedonly in December 2004 with the sale of the600 MW Masinloc coal-fired power plantfor US$561.74 million to YNN PacificConsortium, Inc., a joint venture betweenFilipino-owned YNN Holdings andAustralian Great Pacific Financial Group.12

Filipino energy officials’ ecstasy over thesale of Masinloc aside, the prognosis is notgood for the NPC’s ability to sell furtherassets. Based on expressed investor interest,Masinloc is the most attractive generation

11 World Bank, Power for Development: AReview of the World Bank Group’s Experiencewith Private Participation in the ElectricitySector, 2003.12 Patricia Esteves, “YNN-Pacific has nofinancial muscle”, The Manila Times, February25, 2005; Efren L. Danao, “Winning Masinlocbidder under a cloud”, The Manila Times,December 8, 2004.

asset. Yet even Masinloc had to settle foronly two bid submissions, despite morenumerous earlier indications. Still, somemembers of the Philippine Senate haveraised questions over the Masinloc bidding,particularly the limited paid up capital andthe absence of any track record in poweroperation of the winning bidder.

Aside from the global slowdown inprivate investment in power, the NPCassets are also a hard sell. Given theuncertainty in the implementation of theprivatisation program, the ultimate concernis whether, given these developments,privatisation can lead to the vauntedcompetitive supply market. Also, in themeantime that no private sector is keen totouch Philippine power, the NPC, underEPIRA, has lost its legal mandate to installnew capacity. The private sector is notmoving, and the government has tied itshands. All that the pro-privatisationeconomists can think of to remedy thesituation is to raise electricity rates, hopingthat this could rekindle private sectorinterest.

The private sector fundamentalists fail todeliver, and consumers are called upon tosave the day once again.

REBUILDING THE PUBLICSECTOR

The lack of private sector interest in powerin recent years should be seen as anopportunity to pause and reassess policy inthe power sector, particularly with respectto the role of the public and the privatesectors. Total reliance on the private sector,as espoused by the ADB and the WorldBank, does not provide a neat and sure-firesolution to the problems of state utilities. Inmany instances, they can complicate andcreate new problems, even as old ones arenot necessarily resolved.

While private sector participation willcontinue to play a role in the provision ofcritical public utilities, the public will bebetter protected if the public sector retainssubstantial responsibility.

For the Philippines, there is urgent needto overhaul the IFI-sponsored EPIRA. Forone, there is clear need to give back to NPCthe power to continue to operate as ageneration company, subject to the samesafeguards against abuse of market power.

TableWANING PRIVATE INTEREST?Investment in Infrastructure Projects with Private Sector ParticipationBy Sector and By Region, 1990-2003 !in 2003 US$ Billion"

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 TOTALSectorEnergy 1.1 1.3 13.4 16.3 17.6 26.3 35.2 53.6 31.5 19.1 28.9 16.4 19.7 15.6 296.0 Electricity 1.1 1.3 9.2 11.5 15.8 22.0 31.1 50.1 24.6 16.1 26.2 15.0 9.7 14.1 248.9 Natural Gas * * 4.1 4.8 1.9 4.3 3.1 3.5 6.9 3.0 2.7 1.3 10.0 1.5 47.1Telecommunications 6.4 14.0 8.2 10.2 19.2 20.2 28.3 45.3 58.4 40.0 50.1 44.8 31.2 28.7 405.5Transport 10.7 3.5 4.8 6.1 9.2 9.9 18.4 22.4 19.7 9.1 9.7 10.5 4.9 4.5 143.3Water and Sewerage * 0.1 2.1 8.2 0.5 1.9 2.0 9.7 3.6 7.1 5.1 2.5 1.9 0.8 45.5RegionEast Asia and Pacific 2.7 4.4 9.9 14.0 17.5 22.8 32.8 39.9 10.8 10.1 15.2 12.8 10.6 11.5 214.2Europe and Central Asia 0.1 0.4 1.4 1.6 4.5 9.7 11.7 16.3 13.6 10.6 24.8 10.9 15.3 9.6 130.6Latin America and the Carribean 15.2 13.2 16.9 19.9 19.9 20.6 30.3 57.0 79.9 41.2 41.2 35.4 19.8 15.6 426.2Middle East and NorthAfrica 0.0 * 0.0 3.7 0.4 0.1 0.4 5.8 3.5 3.3 4.4 4.9 1.5 6.0 34.0South Asia 0.2 0.9 0.1 1.4 3.5 4.6 6.8 7.0 2.7 5.0 4.5 4.8 5.8 3.5 50.7Sub-Saharan Africa 0.1 0.0 0.1 0.0 0.8 0.9 2.0 4.9 2.8 5.0 3.6 5.3 4.6 3.4 33.6TOTAL 18.3 18.9 28.4 40.7 46.6 58.7 83.9 130.9 113.3 75.3 93.8 74.2 57.6 49.7 890.4

* No private participation in infrastructure occurred.

Source: World Bank PPI Database, as cited in Ada Karina Izaguirre, “Private Infrastructure Activity Down by 13 Percent in 2003”, Private Sector Note 274, September2004.


This should give government a usefulbenchmark in financing, investment, andpricing to complement the marketstructure. This also gives governmentflexibility to address new capacityrequirements when the private sector isreluctant to take risks.

Better public sector performance ispossible. In the Philippines, the first stepis to improve the financial performance ofthe state utility. Complete privatisation,or assumption of its debt by the nationalgovernment, or increase in tariff, is notthe only way to do this. One reason forthe financial difficulties of the state utilityis the problematic IPP contracts. Theresult of the IPP review and renegotiationmust be rejected, and the processreopened for a deeper review. A deeperreview is one that looks at anomalies thatcould explain the grossly disadvantageousterms of these contracts, correcting them,and making responsible officialsaccountable. Public sector performancecan benefit from improved participatoryprocesses. There should be better accessto key information, and greateropportunity for public scrutiny of policiesand key decisions.

Governments and IFIs can continue tooffer guarantees and other sweeteners toattract the private sector to invest inerstwhile public utilities. The hard fact isthat the private sector moves only when itfeels comfortable and only when it seessignificant profit potential. The conceptof public service is not top among its

motivations.

References:

Asian Development Bank. Report andRecommendation of the President to theBoard of Directors on a Proposed Loanand Technical Assistance Grants to theRepublic of the Philippines for the PowerRestructuring Program, RRP: PHI 31216!c1998".

Asian Development Bank. Private SectorOperations: Strategic Directions andReview. !August 2001".

Asian Development Bank. Developing BestPractices for Promoting Private SectorInvestment in Infrastructure: Power.!2000".

Gesmundo, Marcia. IPP Power PurchaseArrangements. !April 1997"

Hoskote, Mangesh. Independent PowerProjects !IPPs": An Overview. EnergyThemes, Energy Note No. 2. The WorldBank !May 1995"

Government of the Philippines. Republic Act9136. Electric Power Industry Reform Act.8 June 2001.

World Bank. Energy Sector Study. !September15, 1988"

World Bank. Philippine Power Sector Study:Structural Framework for the PowerSector.Industrial and Energy OperationsDivision !November 30, 1994" 157p.


An Ominous AllianceThe ADB-Philippines Development PartnershipMARY ANN MANAHAN AND JENINA JOY CHAVEZ

ime was when the Philippines was touted a “tiger”. Considered as acentre of communication and transportation in the Asian region, thecountry had the best infrastructure facilities, and was ahead of its

neighbours, trailing only behind Japan. The Philippines was one of twocountries in Asia predicted to have the biggest chance to prosper.1 Hostingthe first multilateral institution based in Asia-Pacific was of hugeimportance to developing countries, and for the Philippines, this would capthe string of recognition it was enjoying at the time. It was an indication ofrelative power and influence in the region. 1 The other was Burma. Interview with Mr. Richard Ondrik, Chief Country Officer, ADB PhilippineCountry Office !PhCO", April 15, 2004.

T


Four decades ago, former PresidentDiosdado Macapagal lobbied hard2 andimaginatively3 to host the AsianDevelopment Bank !ADB" in Manila.Other countries, all non-donors4 exceptJapan, offered to host the ADB, but thefinal choices were Japan and thePhilippines. Japan desperately needed tohost an international organisation toboost its growing international image. Butafter three days of secret voting, thePhilippines emerged as the victor, withnine votes to Japan’s eight.5 The choice ofthe Philippines as the host country to theADB was formalised in Article 37 of theADB Charter, known as the AgreementEstablishing the Asian DevelopmentBank, on December 4, 1965 in Manila.

The ‘privilege’ of hosting the ADB didnot come cheap, nor was it expressive ofreal influence. The agreement on the‘principal office’ or the headquarters ofthe ADB specified the responsibility ofthe host country, from the facilities it wasrequired to build and the immunities itmust provide the multilateral bank.

For starters, the Agreement6 grantedthe ADB “independence and freedom ofaction belonging to an internationalorganization”, and gave it the followingbenefits, among others:

• immunity from any form of legalproceedings except when it is relatedto its powers to borrow, lend andsecure obligations !Article III";

• inviolability and assured protectionof the headquarters by the

2 President Gloria Macapagal-Arroyo. Speechduring the Inaugural Rites of the ADBPhilippine Country Office, Mandaluyong City,March 1 2001. Seewww.opnet.ops.gov.ph/speech-2001mar01.htm3 The Philippine government, for instance, putup a huge sign along the Manila Bay shoreline,which read “Permanent Site of the AsianDevelopment Bank”. See “Drama of selectinghost country” in A Generation of Growth: AsianDevelopment Bank’s First 25 Years, ADB, April1992.4 Nine countries competed to be thehost'Malaysia, Singapore, Philippines, Japan,Iran, Afghanistan, Thailand, Cambodia and SriLanka.5 ADB, “Drama of selecting host country”,Ibid.6 Agreement between the Asian DevelopmentBank and the Government of the Republic ofthe Philippines regarding the Headquarters ofthe Asian Development Bank, Article II,Section 3. Seehttp://www.adb.org/Documents/Reports/Charter/default.asp

Philippine government !Article Vand VI";

• exemption from taxation, all customduties and other levies on any goodsand articles and all prohibitions andrestrictions on imported andexported items !Article IX";

• assistance in obtaining financialfacilities such as the freedom notonly to purchase and transfer funds,currencies and other financialinstruments but also most favourableexchange rate !Article X"; and forADB officials, staff and theirfamilies, access to residence andfreedom of movement in thePhilippines !Article XI", immunityfrom personal arrest or detentionand from legal process of every kindand exemption from taxation andimmunity from immigrationrestrictions !Article XII", andunrestricted duty-free importationof goods.

The Philippines also awarded the ADBa piece of prime property7, and wasresponsible for the construction and majorrepairs of the building and relatedfacilities. The ADB retained ownershipand control of the land and building. It,however, was responsible for the cost ofmaintaining the building and its premises.

The Agreement between the ADB andthe Philippines stacked on theresponsibilities of the host towards theADB, and the ADB’s responsibility ontoitself. There was little in the Agreementthat mentioned anything about the ADB’sresponsibility towards the Philippines asits host. The ‘honour’ of hosting the ADBwas all there was for the Philippines.

But what has such privilege gotten thecountry? And what of ADB-Philippines

7 When the ADB began its operations in 1966,it occupied the Metropolitan Bank Building inMakati. Under its first president, TakeshiWatanabe, the ADB grew to 600 people andthus, needed a bigger space. The Philippinegovernment constructed a new building forthe ADB on Roxas Boulevard, inaugurated onNovember 18, 1972. ADB moved to its presentlocation in Mandaluyong City in 1991. Thisallowed the Bank to centralise its operationswhich had spread to other locations over theyears. The building on Roxas Boulevard laterhoused the Philippines’ Department ofForeign Affairs. See A Generation of Growth:Asia Development Bank’s First 25 Years, ADB,1992; and ADB New Headquarters, Manila,Philippines, ADB, 1989.


partnership? Has the ADB’s really playeda significant role in the country’sdevelopment?

MAJOR DONOR, MAJOR CLIENT

The Asian Development Bank is thesecond largest source of developmentfunds for the Philippines. In 2003, ADBloans accounted for US$1.6 billion, whichis 14% of the borrowing from multilateraland bilateral donors.8

The Philippines, on the other hand, isconsidered a major member of the ADB.It is the eleventh largest shareholder with2.41% of total shares, giving the country a2.25% voting power in the Board ofGovernors9. Such ‘ majorness’, however,pales in comparison to the real big players( Japan and the United States with 15.78%shares and 12.94% of votes ( and does notreally make the Philippines a big decision-maker inside the ADB. In concrete terms,the Philippines has to share a seat in the12- member Board of Executive Directorswith five other developing membercountries ( Kazakhstan, Maldives,Marshall Islands, Mongolia andPakistan10.

Rather than its role in setting theBank’s direction, the Philippines isimportant to the ADB because it is amongits biggest clients, i.e. borrowers. It ranks5th among the 33 borrowing members interms of the size of borrowing. From 1968,the Philippines has borrowed a total ofUS$8.62 billion from the ADB,representing 8% of ADB’s total lending.As of December 2004, the ADB has given192 loans'177 for public sector projectsand 15 for private sector projects' to thePhilippines. The Philippines is likewise amajor user-client of ADB products andservices. It has tapped US$137 millionworth of ADB technical assistance !TA"for project preparation, institutionalcapacity building and policy studies. This

8 According to the National Economic andDevelopment Authority !NEDA", 2003Official Development Assistance !ODA"amounted to almost US$11 billion. ODA loansfrom JBIC accounted for 62% and the WorldBank, only 13% or US $1.4 billion. Seedocument at www.neda.gov.ph.9 The Board of Governors is the highestpolicy-making body within the ADB.Governors are usually either the Financesecretary or Governor of the Bangko Sentralng Pilipinas !Central Bank of the Philippines".10 The Executive Director and AlternateDirector for the above countries are currentlyfrom the Philippines and Pakistan,respectively.

accounts for 6.6% of cumulative technicalassistance to its developing membercountries, making the Philippines thefourth largest recipient of ADB TA. Thecountry is also the largest user of privatesector loans. "See Table 1.#

Typical of ADB operations, more thanhalf of the Philippines’ portfolio coversinfrastructure, mainly in the energy andagriculture sectors. This trend wassustained since the country first tappedthe ADB lending windows. Theadministration of Former PresidentFerdinand Marcos started the trend ofagriculture-energy heavy borrowing. Majorshifts in the ADB’s operations happenedduring the term of President CorazonAquino, particularly the emergence offinance and private sector operations.This coincided with the aggressiveprivatisation initiatives during Aquino’sterm. This continued and intensifiedduring President Fidel Ramos ’administration, which prioritised therestructuring and privatisation of theenergy sector. In line with the publicimage being maintained by PresidentJoseph Estrada, and in tune with themantra in the development circles,poverty reduction was attached to almostevery ADB loan and technical assistancepackaged during his presidency. Therhetoric changed but the mix of projectsremained heavily infrastructure based.Currently, President Gloria Macapagal-Arroyo supposedly focuses on thefinancial and capital market in its ADBportfolio.

MAJOR HEADACHE: THEPORTFOLIO PERFORMANCE

The Philippines’ ADB Portfolio hashad its share of controversies and slips."See Box$a summary of controversial projects#But beyond the failures as judged byaffected communities and public interestadvocates, for the ADB itself, thePhilippines is a poor performer.

The first Country Assistance PlanEvaluation !CAPE" prepared for thePhilippines found a general deterioration ofproject ratings since the mid-1980s. Prior to

1

Table 1CUMULATIVE LENDING TO THE PHILIPPINESas of December 2004In US$ Millions

TOTAL LOANS TOTAL TECHNICAL ASSISTANCE

TOTALINVESTMENTT O T H EPRIVATESECTOR

TOTALGRANTS

GRANDTOTAL

8% of Total ADB Lending 6.6% of Total TA ApprovalsOCR† ADF† Total Bank JSF/ACCSF Others Total

7,510.353 1,108.673 8,619.026 53.792 65.204 17.937 136.933 623.743* 15.700 9,395.402

†OCR is the usual source of ADB loans. This type of loan gives borrowers 15-25 years to repay the money. Its interest rate charge is at market value andgenerally is given to middle-income members.

††ADF is a special fund which provides concessional lending to lower income members. ADF loans give borrowers longer time to repay their debt "usually32 years plus 8 years of grace period# and a much lower interest charge "1-1.5%#. Only the poorest countries are qualified to access ADF. However, somecountries including the Philippines receive a mixture of OCR and ADF loans "15 projects since 1973#.

* 75.4% from Bank loans without government guarantee, 6.4%from equity facilities and 18.2% from complementary loans.

Source: ADB. Loans, Technical Assistance and Private Sector Approvals. December 2004.


1986, more than half !59 percent" ofevaluated public sector loans were rated. asgenerally successful, one third as partlysuccessful, and 4% rated as unsuccessful.However, from the 36 projects that werecompleted and evaluated since 1986, only31% has been rated as generally successfulcompared with the ADB-wide average of51%, and much lower compared to 68%success rate of its Southeast Asianneighbours. While the Philippine portfolioaccounted for only 10% of all projectscompleted and evaluated during this period,it contained a quarter of all unsuccessfulprojects, mostly in the agriculture andnatural resources sector.11

The evaluation report cites a string ofreasons for the high rate of project failuresin the Philippines, ranging from frequentinternal and external shocks that theeconomy experienced to more project-specific problems such as poor projectdesign to different types of projectimplementation bottlenecks such as lack ofcounterpart funding, low absorptivecapacity of the government and complicatedland acquisition and procurement policiesand procedures.12 It is no wonder then that“enhanced portfolio quality” throughimproved project monitoring andimplementation has been the watchword forthe Philippine portfolio over the past fiveyears.

Another reason for the country’s non-performing loans has to do with the‘overhang’ of undisbursed loans attributedto sluggish loan components, failure to meetdevelopment objectives and to a certaindegree, “goal congestion”.13 Of the US$1.8

11 ADB Operations and Evaluations Department,Country Assistance Plan Evaluation !CAPE" inthe Philippines, CAP: PHI2003-04, January2003. See also “Report on the Results and Impact ofADF Operation,” ADB Operations EvaluationOffice, Manila, March 2000.12 ADB Operations and Evaluations Department,Philippines Country Assistance Plan Evaluation!CAPE", CAP: PHI2003-04, January 2003.13 According to a senior official interviewed byProf. Walden Bello who spoke on condition ofanonymity, “people in the field are suffering from“goal congestion,” that is, trying unsuccessfully tointegrate the various objectives that donorgovernments have attached to lending in the last fewyears: poverty reduction, social development,sustainable development, promoting women’s welfare,and good governance”. See Walden Bello, “ADB2000: Senior Officials and Internal DocumentsPaint Institution in Confusion”, Creating Poverty

billion in loans approved by the Bank forongoing projects from 1998 to 2004, theundisbursed loans amounts to more than 60percent or US$1.1 billion. About $300million of this undisbursed loan has beenidentified for cancellation last year, not tomention reducing the number of activeloans from 37 to 29.14 Loan cancellations aregeneral actions taken by the Bank and thePhilippine government to improve itsportfolio performance. About half a billionworth of loans have already been cancelledby the ADB since 2000.Some examplesinclude the cancellation of the final tranchesof the Grain Sector Development Program15 andsuspension of disbursements for the SixthRoad Project.16

The bad showing of Philippine projectsreflects the overall poor ratings the ADBgets for its entire lending operations. TheADB in its initial years was considered as anagriculture bank, which financed irrigationfacilities, agro-processing industries, andactivities that increase agricultureproductivity. It is therefore quite ironic thatmost of the unsuccessful projects are in theagriculture and natural resources sector.This trend is not exclusive to thePhilippines but an ADB-wide experience'almost all forestry projects have failed, i.e.,well known within the Bank. How the ADBresponds to this failure, however, belies the‘development’ banking aspect of itsoperations. The ADB “has been trying toget out of agriculture lending” because“costs and benefits and project managementwere not as simple and straightforward as in

in Asia: The ADB in Asia, Focus on the GlobalSouth, May 2000.14 “ADB and Philippine Government StreamlinePortfolio to Address Undisbursed Loans”, NewsRelease, June 25, 2003.www.adb.org/documents/news/2003/nr2003089.asp.15 According to Richard Ondrik, senior official atthe ADB Philippine Country Office, the reasonsfor shelving the GSDP are “lack of political andlack of counterpart funding”, among others.16 ADB suspended loan disbursement to theproject in June 2003 due to unresolved right-of-way and resettlement issues; the Bank liftedsuspension last July. Apparently, somediscrepancies between ADB guidelines andPhilippine laws had been threshed out. The$167-milion project involves the improvement ofabout 840 kilometres of national roads in Luzon,Masbate, Mindanao, Palawan and Panay, andother structures.


energy and infrastructure programs.”17Instead of improving its agricultureoperations, a necessity given that most of itsdeveloping member countries areagricultural, the ADB is choosing instead tofunnel its resources to where it enjoys thebiggest and easiest returns. The ADB,therefore, worries more about its ownfinancial success rather than the needs of itsmembers.

Implementation problems are furtheraggravated by the changing composition ofthe loan portfolio as ADB intensifies itspolicy-based lending18. By ADB standards,the Philippine government has been slow inundertaking reforms, especially in meetingloan conditions. What is forgotten is thatwhen it comes to reform processes,sustainability rather than speed ofimplementation counts more. The Bank isalso guilty of imposing policy conditionsthat undermine the country’s democraticprocesses and that are blind to the politicalrealities of national policy making, leadingto civil unrest and leaving a legacy ofeconomic failure. Even by the ADB’s ownreckoning, the conditionality approachsuffers from many problems'“!i" undermining ownership by the

recipient government;!ii" a tendency to compensate for

perceived lack of commitment/weakadministrative, technical, and institution(sic) by increasing the detail and number ofconditions in adjustment operations;!iii" an incentive for borrowers to

exaggerate the difficulty of undertakingreforms; and!iv" partial reform syndrome--reform is

acceptably implemented only at the expenseof watering down the originalrequirements.”19

Despite these findings, however, theADB shows no sign of slowing down theconditionality route. It even plans to assume“a higher public profile” in the country’s

17 Walden Bello, “ADB 2000: Senior Officialsand Internal Documents Paint Institution inConfusion”, Creating Poverty in Asia: The ADB inAsia, Focus on the Global South, May 2000.18 ADB Operations and EvaluationsDepartment, Philippines Country AssistancePlan Evaluation !CAPE", CAP: PHI2003-04,January 2003.19 Review of ADB Program Lending, November22, 1999.

policy debates20, likely to increaseinterventionism from the Bank.

REDEFINING PARTNERSHIP?

The Philippines has enjoyed consistentbacking from the Bank despite poorportfolio performance. However, “aidsceptics” and various stakeholders aredoubtful of the capacity of developmentprojects and huge loans to address problemsof poverty, access to resources and services,and good governance, among others. EvenADB internal assessments reveal thatconsequences for development of theseprojects remain ambiguous. In fact,according to CAPE, “ADB lending programhas not had a major impact on economicgrowth or poverty reduction”. Even theimpact on institutional development hasbeen mixed. And because the ADB hasfailed in many of the sectors it lends to, it isnow trying to get out of these sectors andleave the job to the private sector.

The ADB’s assistance strategy21 to thePhilippines has evolved significantly in thelast 35 years. The Bank adjusted itsoperations to government’s policy shifts,changing circumstances, socioeconomicneeds and its own internal philosophy. Onpaper, Country Operational Strategies!COS" and Country Assistance Plans !CAP"drew coherence with between the ADB’sstrategic concerns and the country’spriorities. However, as ADB is involved

20 ADB Operations and EvaluationsDepartment, Philippines Country AssistancePlan Evaluation !CAPE", CAP: PHI2003-04, p.vi., January 2003.21 There are two basic documents outlining theADB’s assistance strategy to the Philippines.One, the Country Operational Strategy !COS",which describes the Bank’s operational strategycovering a period of one year. Two, the CountryAssistance Plan !CAP", which details theplanned program of assistance covering a three-year period. This usually is prepared betweenthree to four months, in consultation with thePhilippine government and other stakeholders,including NGOs. It is then, discussed with theBoard of Directors for approval. The CAP isonly indicative and may be revised subsequentlyto reflect more recent developments. Recently,the Bank decided to merge the COS and theCAP into a single coherent document, theCountry Strategy and Program !CSP", to addressits operation deficit and diverging activities. TheCSP was introduced in conjunction with theADB’s reorganisation in January 2002.


with a wide range of activities, in practice,its lending program tended to deviate fromits operational strategy. Previous COS forthe Philippines, for instance, were toogeneral and failed to set real and concretetargets. They normally encompass a varietyof interventions. This discrepancy betweenwhat the Bank professes in paper and whatit practices casts even more doubts on theeffectiveness of the ADB’s developmentassistance to the country as well as itsrelevance as a development partner.

To address the incongruity betweenADB’s publicly stated goals and itsoperational performance, the ADBestablished the Philippine Country Office22

in March 2001. This was also part of theADB-wide effort to “decentralise” itsoperations and respond ‘innovatively’ to theneeds of its members. The PhilippineCountry Office is supposed to give sharperfocus, better coordination, improvedmonitoring, and more effectiverepresentation in the ADB’s operation inthe country. In particular, it is concernedwith the project administration andimplementation issues.23 Its responsibilityalso extends to providing policy directionsand guidance to the Philippine government,especially on sector policy reforms, and toaccommodate the growing needs of theprivate sector.

The Philippines signed a PovertyPartnership Agreement24 with the ADB in2001, which was hailed as a high point in theA D B - P h i l i p p i n e s “d e v e l o p m e n tpartnership”. The Poverty Partnership

22 The Philippine Country Office has an initialstaff of 10, including 5 Philippine nationals. Itstop officials, however, are all foreigners.23 “ADB Concerned about Philippine ProgramPerformance”, ADB News Release, March 10,2003.www.adb.org/documents/news/2003/nr2003028.asp.24 Other stakeholders !civil society, the privatesector, international donor community" were“consulted” in a series of forums such as the fiveisland-wide multi-sectoral consultationworkshops to discuss the National Anti-PovertyAction Agenda, the Employment Summit inManila in 2001, and consultative meetings andworkshops for the preparation of the MTPDPfor 2001-2004. However, there was no clearindication of whether inputs from civil societyor project-affected communities were carefullyconsidered and incorporated in the agreement.

Agreement reflects the increasing like-mindedness between the two.25

A MODEL PARTNER?

Despite poor portfolio performance, thePhilippines remains one of the mostaggressive liberal reformers in the AsiaPacific region. Because of this, the challengeof aligning development priorities becomeeasier as the ADB shifts more and moretowards the neoliberal agenda. Since it tookout its first policy-based program loan fromthe ADB in June 1988, the Philippines hasadopted 18 policy packages $See Table 2%under ADB programs. Several more policyinterventions are underway, most of whichare geared towards the restructuring in thesectors of power, finance, and capitalmarkets.26

The Philippines is a significant partnerfor the ADB because it leads in some of thecrucial initiatives that the ADB is interestedin. The Philippines is among the first of theADB's developing member countries torestructure the energy sector27, and recordsthe highest assistance received from theADB in this very same sector. T h ePhilippines is also a pioneer of sorts in theADB’s private sector operations. Aside frombeing the largest user of private sector loans,it covers almost all of the private sector loanmodalities !equity investment, co-financing,complementary financing, etc." and mostsignificant sectors !agriculture, energy,finance, and industry development".Examples such as those coming from thePhilippines are important as the Bankcontinuously looks for opportunities tobuild up its private sector operations.

The congruence between the Philippinesand the ADB may be convenient for theBank !and most other multilateral economicinstitutions", but it is iniquitous for the

25 In an interview with Richard Ondrik, chiefcountry officer of the ADB Philippine CountryOffice last May 15, 2004, his gut feeling was thatthe Philippine government and the Bank aremuch closer now than it has been for the lastdecade.26 ADB Country and Strategy Program Update2004-2006: Philippines, November 2003.27 “ADB Reconfirms its Support to Power SectorRestructuring in the Philippines”, ADB MediaCenter, September13, 2004 See also Cai U.Ordinario’s “ADB pledges continued supportto power sector”, Manila Times, September 14,2004.


Filipino people who deserve more variedand flexible policy approaches. Projects inindustrial and mining sectors, for instance,clearly failed. None of the six companiesassisted by ADB thrived. According to theADB ’s Operations and EvalutionsDepartment, “one was foreclosed; anotherprepaid its loan pending investigation ofbreaches of environmental protectionprovisions !See Box below"; and still anotheris in receivership with a view to salvagingthe interests of lenders, including ADB. Therest have all been rated high risks.”28 Theills plaguing the restructure Philippineelectricity sector warrants a re-examinationof the ADB’s role and leadership inundertaking reforms.

Finally, the creditor-debtor relationshippervasive in the ADB-Philippines so-calledpartnership is what’s setting it up for failure.ADB officials may refute allegations ofinterventionism but what it does in factdilutes its claims.

References:

Asian Development Bank. AsianDevelopment Bank and the Philippines,Briefing for Third EuropeanAmbassadors’ Day, presented by TomCrouch, Country Director on 14February 2003 at the ADB Headquarters.

Asian Development Bank AsianDevelopment Bank in the Philippines,Briefing for the Young Professionals andYoung Economists, presented byRichard Ondrik on February 14, 2003 atADB Headquarters.

Asian NGO Coalition !ANGOC". NGOWorkshop on the MDBs: A Report,2001.

Shalmali Guttal, “The Emperor’s NewClothes: the Asian Development Bank’sPoverty Reduction Strategy”, Profitingfrom Poverty: The ADB, Private Sector andDevelopment in Asia, April 2001

Interview with Isagani Serrano, Vice-President, Philippine Rural

28 ADB Operations and EvaluationsDepartment, Country Assistance PlanEvaluation !CAPE" in the Philippines, CAP:PHI2003-04, p. vi., January 2003.

Reconstruction Movement, April 19,2004.


Table 2

POLICY PACKAGES OF ADB TO THE PHILIPPINES1988-2004

Project Amount( i n U S$million)

Date Approved

Forestry Sector Program 120.00 June 28, 1988Fisheries Sector Program 80.00 September 26, 1989Road and Road Transport SectorProgram

100.00 November 8, 1990

Second Palawan Integrated AreaDevelopment

58.00 September 27, 1990

Industrial Forests Plantations !Sector" 25.00 October 17, 1991Forestry Sector 100.00 November 19, 1992Capital Market Development Program 150.00 August 22, 1995Cordillera Highland AgriculturalResource Management

19.00 January 11, 1996

Rural Water Supply and Sanitation Sector 37.00 June 4, 1996Fisheries Resource Management 35.223 October 16, 1997Power Sector Restructuring Program 300.00 December 16, 1998Metro Manila Air Quality ImprovementSector Development Program !PolicyLoan"

200.00 December 16, 1998

Grains Sector Development Program-Program Loan

100.00 April 24, 2000

Grains Sector Development Program-Project Loan

75.00 April 24, 2000

Pasig River Environmental Managementand Rehabilitation Sector DevelopmentProgram-Program Loan

100.00 July 20, 2000

Pasig River Environmental Managementand Rehabilitation Sector DevelopmentProgram-Project Loan

75.00 July 20, 2000

Nonbank Financial Governance Program 75.00 November 15, 2001Second Nonbank Financial GovernanceProgram

150.00 September 2, 2003

Health Sector Development Program!Program Loan"

200.00 December 15, 2004

Health Sector Development Program!Project Loan"

13.00 December 15, 2004

Total 2012.223Source: Loans, Technical Assistance and Private Sector Approvals, December 2004; Also see

Country Assistance Programme Evaluation in the Philippines, CAP:PHI2003-04January 2003.


Box:ADB INVOLVEMENT IN CONTROVERSIAL PROJECTS IN THEPHILIPPINES

MASINLOC COAL-FIRED POWERSTATION

In 1995, ADB loaned the National PowerCorporation US $254 million fortransmission lines and a second 300-MWgenerating unit in the Masinloc coal-firedpower plant. The project was opposed bylocal communities for the pollution itcaused, compromising community healthand damaging centuries-old mango orchardsand productive fisheries and farming areas.The power plant had poor environmentalsafeguards , had no desulfurisation device,and was shown to have siphoned much ofthe water resources from nearbycommunities. The ADB did nothing.

In 2004, Masinloc was privatised. It wasreported that the ADB initially blocked thesale of the power plant because the NationalPower Corporation was not able to pay itsloans. When the Philippine Governmentagreed to assume the NPC’s debt, the ADBgave approval of the sale.

MARINDUQUE COPPER MININGCORPORATION $MARCOPPER%

The mining company, 40% owned byCanadian multinational Placer Dome,received two private sector loans amountingto US$40 million in 1991 and 1992 from theADB. In 1996, Marcopper mine tailingsspilled to the nearby Boac River, causingmassive environmental destruction andhuman displacement. Environmental groupsheld the ADB partly accountable for thedisaster, claiming that having financed theproject the ADB is bound by itsenvironmental policy. The ADB refused toown up to any responsibility, claiming thatits Marcopper loan projects have alreadybeen closed. To this date, communitiesaffected b y the disaster remainuncompensated.

WATER

Public utility Metropolitan Waterworks and

Sewerage System !MWSS" was privatised in1997, granting 25-year concessions for themanagement and operation of its facilities.In 2001, the ADB publicly supporteddemands of private concessionaire Mayniladto increase rates and to claim on foreignexchange losses. At the time, Maynilad andADB were negotiating a private sector loan,which has since been cancelled.

The ADB, together with the World Bank, iscollaborating wi th t h e PhilippineGovernment on the privatisation of waterdistricts across the country, abolishingexisting local water authorities and replacingthem with private entities it will helpfinance through its private sector lendingwindow.

POWER SECTOR RESTRUCTURINGPROGRAM In December 1998, the ADB extended aUS$300 million Power Sector RestructuringProgram loan to the Philippines, designedto dramatically reduce the government’s rolein the power sector by unbundling thevarious segments of the power industry, andprivatising the NPC. What made the loanvery controversial were the conditionsattached to the release of tranches, whichincluded effective increase in return on ratebase, the passage of the Electric PowerIndustry Reform Act !EPIRA", and thepromulgation of the EPIRA ImplementingRules and Regulations.

Amidst pressure to pass the EPIRA, apayoff scandal in the Lower House of thePhilippine Congress was exposed. The ADBdenied any involvement, saying they are notin the business of ‘meddling’ with domesticaffairs of client Governments. The ADB,however, was very public about its push forthe EPIRA and its displeasure about thedelay in its passage. The EPIRA was passedinto law, with poor governance andcompetition provisions. (See relatedarticle on power in this volume.)


New Country, Old TricksThe ADB in East TimorLAO HAMUTUK

n August 30th 1999, the people of East Timor voted for independencefrom Indonesia in a referendum organised by the United NationsAssistance Mission in East Timor !UNAMET". When the result was

made public on September 4th, the Indonesian military and its militia proxiesculminated their 24-year campaign of crimes against humanity, and went on arampage that destroyed more than 75 percent of East Timor’s infrastructureand displaced approximately 680 thousand people. With Indonesia’s violentand belated withdrawal, East Timor had no government until the UnitedNations Security Council approved a second mission, the United NationsTransitional Authority in East Timor !UNTAET" on October 25th.

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The Asian Development Bank !ADB"arrived in post-Indonesian East Timor aspart of a World Bank-led JointAssessment Mission which arrived in EastTimor on October 26th 1999. The JointAssessment Mission, which alsocomprised donors, the United Nationsand East Timorese leaders, came to EastTimor to ident i fy immediatereconstruction objectives and assessfinancing needs.

The findings of the Joint AssessmentMission were presented in Tokyo onDecember 17th at the first InternationalDonors conference for East Timor.Donors endorsed the concept of a TrustFund for East Timor !TFET" with theWorld Bank as trustee and jointadministrator with the ADB. Of the $520million pledged by donors in Tokyo, $147million was earmarked for TFET. Sincethen, TFET has received a total of $166million. Through TFET, the World Bankand ADB assumed control of donor fundsand began to shape and direct thereconstruction and development processin East Timor.

On January 10th 2000, the ADB signeda memorandum of understanding with theWorld Bank to establish workingarrangements and outline respective areasof responsibility in East Timor. As jointadministrator of TFET, the ADB isresponsible for a much smaller part of theTFET ‘pie’ than the World Bank and itsprojects focus on infrastructurerehab i l i t a t ion and deve lop ingmicrofinance.

CO-‘ADMINISTERING’ A NEWCOUNTRY

The ADB manages five infrastructurerehabilitation projects in East Timor,most of which are nearing completion.The ADB-managed projects reflect theADB’s usual pattern of relying on foreignconsultants and private sector companies;the ADB seems unable to engage ordevelop East Timorese skills. The ADBawarded large amounts of donor funds toprivate sector building and engineeringfirms, mostly from Australia. The ADB isalso using its position as manager ofTFET projects to increase the possibilitiesof foreign ownership of water andelectricity supply for East Timor.

The ADB’s Emergency InfrastructureRehabilitation Project 1 !EIRP 1" dealtwith emergency repairs on major roadsthroughout East Timor, the rehabilitationof Dili port, and the reinstallation ofelectric power. Given the urgent need to

reestablish infrastructure after the 1999destruction, projects were based onsystems in use under the Indonesianoccupation rather than on studies to findmore sustainable systems. Reinstating thepower supply focused on power stations inthe districts but also included someassistance for the Dili-Comoro powerstation and developing a power utility andfinancial management. This partproceeded more slowly than the road andport rehabilitation, which were completedin mid-2002. Most people acknowledgethat the ADB-established systems toprovide and manage electricity haveserious problems. Although otherinstitutions involved in developing theelectricity sector !UNDP, UNOPS, andthe Portuguese and Japanesegovernments" share responsibility forthese problems, the ADB has beenresponsible for overall coordination.According to the ADB, they have had‘mixed results’ in the electricity sector,and ‘consulting services have beenevaluated by ADB staff as unsatisfactory’.As of January 2003 more than 30% of thefunds amounting to $9 million went toforeign consultants under the EIRP 1.

T h e f o l l o w - u p E m e r g e n c yInfrastructure Rehabilitation Project 2!EIRP 2" will establish routinemaintenance systems to reduce annualemergency rehabilitation needs. Theproject includes detailed engineeringservices and project management servicesand training.

The Water Supply and SanitationRehabilitation Project 1 !WSSRP 1"project included a Quick ResponseFacility to support urgent repairs andrehabilitation to water supply andsanitation systems for all of East Timor.The project also focused on establishingwater supply and sanitation sectormanagement and planning under the EastTimor Transition Authority !ETTA"before independence, including capacitybuilding and institutional development toprepare frameworks, standards, andguidelines for the department. The secondWater Supply and Sanitat ionRehabilitation Project !WSSRP 2" largelycontinues the activities of WSSRP 1, withadded emphasis on upgrading technologyand communications, urban sanitation,and implementing a tariff system. Thewater supply system includes government-operated urban services and community-operated rural services, with internationalNGOs often contracted to establish therural systems. Although the ADB statesthat over 90,000 working hours have been


created and that local NGOs have beeninvolved in water supply projects, over40% WSSRP 2 funds have gone to foreignconsultants. In fact, over 80% of WSSRP2 funds have been contracted out toforeign consultants, companies andinternational NGOs.

The ADB continues to be involved inthe power and water sectors by fundingtechnical assistance. In the power sectorthe ADB has funded a plan for theelectrification of East Timor through2025, developed by Electro-watt Ekono,an energy company from Finland. Theplan examines different forms ofelectricity generation, including windpower, diesel generators, and gas turbines.However, the plan’s principal proposal ishydroelectric production with five newhydroelectric schemes costing between$160 and $206 million.

The ADB is also funding technicalassistance for Integrated Water ResourcesManagement !IWRM". The ADB believesthat the current ‘absence of a nationalpolicy that specifies the key principles ofIWRM across Timor Leste, coupled witha lack of water resource management skillsand experience, poses a very high risk offuture incompatible sub sector strategiesand conflicts over water resourceallocation as demand for water grows’.Therefore, the ADB’s technical assistance!TA" aims to develop a national waterpolicy for East Timor in conjunction witha national water law. Water policies arecurrently being developed by EastTimorese government departments,including the Water and SanitationService and the Ministry for Agriculture,Forestry and Fisheries, and the Ministryfor Development and Environment. TheTA will give the ADB the ability toinfluence ministerial water policiescurrently being developed and work toensure that they do not conflict with plansfor the provision of hydroelectric power.

The ADB has an enormous amount ofinfluence over future electricity and waterprovision for the people of East Timor.The East Timorese government presentlyhas a ‘no debt’ policy, and is unwilling toborrow money for new power generators.Alternative funding can come throughADB-negotiated Build Own Operate!BOT" or Build Own Operate !BOO"schemes. If this happens the ADB canmobilise project financing which willlikely come with a government provided‘take or pay’ guarantee for electricitybased on the ADB’s evaluation of whatthe market can afford to ensure theventure is profitable for the company or

companies involved, rather thanbenefiting local people. If electricity userscannot pay what the ADB hasdetermined, the government would haveto effectively underwrite the agreed costwhether the electricity is used or not.

The ADB has already facilitated oneBOT scheme in the telecommunicationssector through two TAs which negotiateda contract signed in July 2001, givingPortugal Telecom International a 15 yearmonopoly on fixed line, mobile, andinternet service in East Timor. The TAsalso drafted the regulatory framework forgovernment involvement in thetelecommunications sector.

BEYOND PORTS

The ADB also manages the Hera PortFisheries Facilities Rehabilitation Project.ADB involvement with Hera Port !justeast of Dili" dates back to the Indonesianoccupation, with a $50 million loan to theIndonesian government in 1984 for theIndonesia-wide Fisheries InfrastructureSector Project, completed in 1994. TheADB acknowledges that under thisproject Hera Port was poorly built, hencethe current need to rebuild. A 1997 ADBreport finds that the former projectgreatly overestimated the private sectorgrowth that would result from improvingsuch port facilities, which actually didlittle to generate employment or increaseavailability and quality of fish. The projectsignificantly damaged coastal and marineenvironments.

The current Hera Port FisheriesFacilities Rehabilitation Project is similar,although on a much smaller scale. Theproject is a sub-component of the WorldB a n k - a d m i n i s t e r e d A g r i c u l t u r eRehabilitation Project II, but since itdeals with infrastructure, the ADB isimplementing it. Aimed at developingHera Port for use by relatively largeoffshore fishing vessels, the projectfocuses on repairing and reinforcing portinfrastructure such as breakwaterstructures and wharves. The project beganin October 2001 and after delays, wasfinally completed in June 2003.

The ADB’s rationale behind theproject is to facilitate offshore fishing ofpelagic species like sardines and mackerelto increase the supply of cheaper fishprotein to the population of East Timor.The ADB estimates that current fishingmethods will increase fish proteinconsumption from 8 percent of the FAOrecommended daily consumption to 28percent whereas an increase in offshore


fishing would raise that figure to 56percent in five years. However, there arecurrently only 24 boats capable of fishingfurther off shore, although the ADBexpects that more will be provided by theprivate sector when the improved HeraPort facilities are available.

Almost all fish landed in East Timorare caught by relatively poor localfishermen, using small vessels operatingclose to shore. They will be unable tocompete with larger vessels bringing inlarger quantities, and the inshore fishingsector, which supported 9,000 EastTimorese fishermen in 1997, will becomeunviable as a livelihood. Eventually thedomestic fishing sector will be dominatedby larger fishing vessels which will beowned by wealthier East Timorese or nonEast Timorese. Moreover, the assumptionthat this will increase the supply ofcheaper fish is only true if the fish cannotbe sold more profitably in foreign marketsparticularly in nearby Australia, but alsoJapan and Indonesia.

The ADB is currently funding a TA forExclusive Economic Zone Demarcationwhich has been working on databases,maps and data sets for the United NationsConvention on the Law of the Sea.Although work is continuing, there iscurrently enough data available which canbe used for agreements with neighbouringAustralia and Indonesia on the EastTimorese Exclusive Economic Zonewhich will confirm East Timorese fishingboundaries. Furthermore, the ADB is alsocurrently pushing for the formulation of aFisheries Act which will govern, inter alia,licenses for non-East Timorese vessels tofish in the East Timorese ExclusiveEconomic Zone. If the ADB does becomeinvolved in developing an East TimoreseFisheries Act, they will probablyencourage the issuing of fishing licenses asa source of domestic revenue to larger,more competitive international vessels tofish in East Timorese fisheries.

MICRO-MANAGING FINANCE

The ADB’s Microfinance DevelopmentProject was initially allocated US$7.72million from TFET but this was laterreduced to US$4 million. The brief for theMicrofinance Development project was toaddress the lack of financial servicesavailable to the rural poor. The ADB aimsto increase the availability of rural creditby rehabilitating credit unions andcreating a sustainable microfinance bank.

The project formally began inDecember 2000 with the signing of the

TFET grant agreement but there weremassive delays in project implementation.The ADB states that this was due to theabsence of a legal framework for thebanking sector despite the fact thatIndonesian laws continued during theUNTAER period and the PortugueseBanco Nacional Ultramarino beganoperations as early as 2000.

The ADB wanted to push a differentlegal framework in order for the project torun as they wanted rather than using theexisting Indonesian laws. Together withthe International Monetary Fund, theADB would not allow the creation of agovernment-owned microfinance bank.Hence, the delay was compounded due tothe need for the legislation that allowedthe creation of a foundation to ‘own’ theUS$2 million capital which was set asidefrom the original TFET grant.Furthermore, the ADB wanted donor,rather than local, control of thefoundation to ensure the MicrofinanceInstitute of Timor Leste !IMTL" remains‘faithful to its original objectives’ and to‘resist political pressures’. This causedsome friction with the East TimoreseCouncil of Ministers who wanted moreEast Timorese representation on thefoundation’s board.

Once the laws existed the ADB createdthe Foundation for Poverty Reduction inEast Timor in order to receive the grantand be the temporary owner of the IMTL.The Foundation for Poverty Reduction iscurrently governed by a Board of Trusteeswhich is comprised of the ADBRepresentative in East Timor, the Headof the ADB’s Special Liaison Office !anex-officio member" and representativesfrom AusAID and the PortugueseDevelopment Support Agency. There aretwo East Timorese members.

The Board of Trustees appoints theBoard of Directors, which officiallygoverns the IMTL. At the moment theBoard of Directors is the Board ofTrustees, with the addition of the Head ofthe ADB’s Project Management Unit andthe Administrative and Finance Officer ofthe ADB’s office in East Timor. TheBoard of Directors does not functionindependently, and all tasks designated forthe Board of Directors are carried out bythe Project Management Unit.

The US$2 million starting capital wasdisbursed on 18 January 2002, althoughthe IMTL head office and the MainBranch in Dili did not begin operationsuntil 13 May 2002, a week beforeindependence. The district branches inGleno and Maliana did not open until


September and November 2002respectively.

TARGETED LENDING?

Initially the ADB focused lending onmarket vendors in Dili. This was due tothe desperate need to get the US$2million starting capital working ratherthan being used up in operating costs.Focusing lending on market vendors inthe two main Dili markets provided anopportunity to begin disbursing loansquickly and easily. In addition, IMTLagents could make daily visits to themarkets in Dili in order receive therepayments and ensure a high repaymentrate.

By December 2002, US$236,800 of theUS$2 million starting capital had beendisbursed. The IMTL had 1,533 borrowers,1,014 of whom were based in Dili, mostlymarket vendors. Four months later, theprofile of the IMTL borrowers hadchanged dramatically. Outstanding loansamounted to US$284,857, accounting forthe new borrowers in Gleno and Maliana.However, the number of active borrowersin the Dili main branch had fallen by morethan 60 percent to 412 and the averagesize of a loan for market vendors remainsat US$100, which is the size of the initialloan, indicating that many market vendorsare not taking out subsequent or largerloans. The Dili main branch was the onlybranch where borrowers, all marketvendors, defaulted on their loanrepayments. In addition, the overallnumber of borrowers had decreased to1,502.

The number of Dili-based borrowersdropped because market vendors declinedto take out second or third loans.Interviews conducted with marketvendors in the main Dili markets Taibisseand Comorro showed the mixed results ofthe ADB’s targeted lending. Someborrowers were relatively successful likeDomingos, a former guerrilla fighter whowas among the first people to borrowfrom IMTL and was already on his thirdloan from IMTL. Domingos said he wouldnot recommend that other people to takeout loans from IMTL, since sometimes itwas difficult to sell enough to repay thedaily installments.

Domingos was by far the mostsuccessful of the IMTL clientsinterviewed. Most borrowers indicatedthat although the loan allowed them toinvest in their stall, their ability to repaywas based on the number of customers,which showed no sign of increasing.

Maria, a 28-year-old married woman withthree children, who sold mainly coffee andsugar, was using the loan to invest in herstall. She had already received a secondloan of $250. She was able to make thedaily repayment of $2.20 if she hadenough customers, but business is verycompetitive with many stalls selling coffeeand sugar. Taking out a larger loan wouldincrease the daily repayments.

Bendita, a widow supporting 7 childrenin school, had also taken out a marketvendor loan. She had used the money tosupport the immediate needs of her sevenchildren and was not able to invest themoney in her small stall. According to her,IMTL sent people to look at her house,type of business and asked about hermarital status. She was told that if she didnot repay the loan she would be taken tocourt. According to an IMTL official thisis in the agreement with the client.

Borrowers who form groups in order totake out ADB loans in the areas outsideDili are serviced from the Dili mainbranch. Group loan borrowers felt theloans given to them were not flexibleenough to meet their needs, particularly asthe initial loan was very small and splitwithin the group, limiting the scope ofinvestment. Group loan clients in Liquisa,a town, west of Dili, said that they wereeither not that keen on borrowing moneyor they wanted to borrow more moneythan the ADB’s inflexible loan packageswould allow. For example, one wealthierclient wanted to borrow enough for amotorbike in order to travel with her stallto villages further inland.

INAPPROPRIATE SERVICES

The ADB had no intention of creatingfinancial services which reflected people’sneeds. Instead they created a series ofloan packages based on what they thoughtpeople could afford. All borrowers, butparticularly those in Liquisa, wantedsavings services, with a nearby bankbranch where they could make regulardeposits and earn interest. Services insavings were not advertised due to theinability of IMTL to deal with a largenumber of clients wanting to makedeposits. The IMTL has since beenoverwhelmed by the number of clientswanting to make deposits. The number ofdepositors in Dili increased from 991 inJanuary 2003 to 2, 049 by May 2003 anddeposits increased by 70 percent. InGleno deposits increased by 66 percent


and in Maliana deposits have increased by265 percent.

The total figure is 264 percent over theamount of deposits predicted in theADB’s Business Development Plan andfinancial projections. The ADB’s IMTL isnow in the awkward position of soon notbeing able to accept more depositors asthe amount of deposits is very close to the$1 million legal threshold which allows itto remain a microfinance institute ratherthan becoming a bank. Moreover, oncedeposits reach $1 million the IMTL needsto recapitalise in order to maintain a 2:1capital to deposit ratio as specified byinternational banking regulations. Theproportion of the original TFET grantdeposited as equity has been used up inoperating costs. The ADB currently doesnot know where it will get the moneyfrom.

SUSTAINABLE FUTURE?From May to October 2002, 28 percent ofall costs were met by interest from equitydeposited in commercial banks, 11 percentfrom interest from loans and 20 percentfrom loan fees charged on new loans. Theremaining 40 percent was charged againstequity. By May 2003 the income earnedfrom interest from equity deposited incommercial banks had fallen to 13 percentand income from loans had increased to 35percent. A massive 50 percent of theincome was due to the increase in loanfees on the microfinance group loanswhen the Maliana and Gleno branchesopened.

At the moment the income makes up80 percent of the operating costs, but thisis likely to drop if present trends continue,as there is no more money to open up newbranches to increase the number ofborrowers, and existing borrowers arereluctant to take out subsequent loans.

Up until December 2002 the largestproportion of IMTL’s income came frominterest from equity deposited incommercial banks. This amount hasdecreased as loans have been disbursed,which has increased the IMTL’s incomefrom predominantly fees charged on newloans and interest. The initial incomeboost from loan fees on market vendorloans has diminished as market vendorsare not taking out more loans. This wassignificant as market vendor loansaccounted for 49 percent of the value ofall loans. Since December 2002, theIMTL has relied on loan fees on rapidlydisbursed microfinance group loans out ofthe Maliana and Gleno offices to make

most of its income. Equity has decreasedwith loan disbursements and continuingoperational losses and because a quarter ofthe original TFET grant was spent oninternational consultants fees. The IMTLwill have to rely on loan fees and interestfrom existing borrowers and this onlymakes up 35 percent of its operationalcosts.

The Microfinance Developmentproject ends in December 2003. TheFoundation for Poverty Reduction andIMTL will be transferred to EastTimorese hands, a process the ADB refersto as ‘divestment’. The present Boards ofTrustees and Directors will be replacedand the Project Management Unit will bedisbanded. The new Board of Trusteeswill appoint a new distinct Board ofDirectors, which will assume all themanagement tasks of IMTL. The ADBcurrently has no idea how this divestmentprocess will take place.

With $4 million dollars and a projectrunning since December 2000, the ADB’smicrofinance project is a debacle with lessthan US$300,000 currently disbursed asloans and declining numbers of borrowers.They will be looking to hand over to EastTimorese ownership a loss making entitywhich is in urgent need of more funds inorder to be legally and financially viable.

A FUTURE WITH ADB?

With the microfinance developmentproject and with other projects, the ADBhas been overly preoccupied with ‘beingseen to get things done’ rather thanaddressing real needs. Although the ADBmanages funds donated by other countriesfor the benefit of East Timor, largeamounts of TFET money has been spenton foreign consultants and companies atthe expense of local labour, capacity andindustry.

Most of the TFET projects are nearingcompletion and the ADB is currentlylooking to extend its influence in EastTimor through technical assistance.Through its involvement in the power andwater sectors it is advocating theconstruction of large hydroelectricschemes. No independent environmentaland economic assessment has as yet beencarried out. The ADB’s rationale behindthe scheme is not to meet the needs ofpeople but what they can afford to payfor, making it likely to be yet anotherutility operated at a profit by aninternational company.


Playing God in God’s OwnCountry?The ADB in the Indian State of Kerala1

K RAVI RAMAN

esistance to the ADB policy package in the Indian state of Keralahas been manifest both before and after the acceptance of thefirst tranche of an ADB loan for US$775 million.2 With the

acceptance of Rs 600 crores "approx: $137 million# in December 2003,resentment runs high against the sweeping neo-liberal reforms, writteninto the conditions of the loan, of the privatisation of critical sectors likeeducation, banking, power and urban development.3

1 ‘God’s Own Country,’ is the State Government of Kerala’s tourism advertising slogan2 The Netherlands is co-financing one of the programmes within this loan package with $75 million.3 For a discussion on the implications of high-conditionality loans in developing countries, see JeffreySachs, ‘Conditionality, Debt Relief, and the Developing Country Debt Crisis” in Developing Countryand Economic Performance, Jeffrey Sachs "ed.#, 3 vols, vol 1, The University of Chicago Press, London,1989:255-98.

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In scrutinising the implementation ofreforms, ADB officials and theirconsultants have often swooped down onGovernment offices. These acts haveoften been blockaded by Governmentemployees as well as resistance groups. InAugust 2004, for example, ADB officialshad to quickly cut short their visit to theKerala State Cooperative Agricultural andRural Development Bank "KSCARB#following protests by the bank ’semployees. Given that the KSCARB isone of the most well run co-operativeinstitutions in India & in terms of ruraloutreach and credit deposit ratio - neitherthe ADB nor the state were able toconvince the public why restructuring ofany sort was required, let alone the type ofrestructuring they were proposing.Concerns were expressed that theultimate objective of the ADB was toconvert the KSCARB into a high-techbank with a re-prioritised neo-liberalreform agenda and to implement aVoluntary Retirement Scheme "VRS# forits employees.

A similar situation arose when ADBofficials visited the Corporation offices ofthe State in August 2003, and also whenthey entered the State EducationDepartment, a few months back. Thepublic was incensed that ADB officialswere attempting to monitor theimplementation of ADB-directed reformsin sectors like education and public sectorrestructuring as a condition of the firsttranche of the loan.

The major apparent preoccupation ofstate bureaucrats and politicians in Keralais whether they will be able to acquire thesecond tranche of the ADB loan worth Rs600 crores. In order to ensure this, thestate would have to show discrete progresson meeting the conditionalities of the firsttranche. For this however, the staterequests more time because of stiffresistance from various quarters delayingreforms. However, notwithstanding thatADB loan funds have already beenpartially dispersed, the state could verywell do without any assistance from theADB, a point repeatedly made by theADB Quit Kerala Campaign well before theacceptance of the first tranche, a point towhich we shall return later.

The high-conditionality loan is meantto launch three programmes: theModernising Government Programmeand Fiscal Reforms "MGP# which wouldrequire US$300 million, the Power Sectorreforms and the EnvironmentalImprovement and Poverty ReductionProgramme, both costing US$200 million

each. The Netherlands also proposed toco-finance the MGP with an amount ofUS$75 million; the state would get anoverall loan of US$775 million. The MGPand Fiscal Reforms is a cluster loancomprising two sub-programmes: the firstwould receive the allotted US$200 millionin two equal tranches and the remainingUS$100 million would again be disbursedin sequence, every fresh disbursal hingingon the state's adherence to the prescribedreform programme.1 The loan, whichwould be routed through the Governmentof India "GoI# would be directed to Keralain a 70:30 loan-grant ratio. The repaymentwould be over a twenty-year period with agrace period of five years. ADB loans toIndia are provided out of its OrdinaryCapital Resources at an interest rate basedon the prevailing six-month US dollarLIBOR "London Inter Bank Offer Rate#plus 0.6% per annum. In addition, theADB charges 1% "0.5% for loansnegotiated and approved during 2003# forthe front-end fee on the full loan amount,and a commitment charge of 0.75% perannum on the undisbursed loan balances.2

Even as the GoI receives the loan atthe current LIBOR rate of interest fromthe ADB "repayable in US dollar terms#,the State is expected to repay the GoI aninterest rate as high as 10 per cent inrupee terms for the loan portion. The GoIwould bear the foreign exchange risk onthe loan but a partial transfer of risk tothe state government remains a distinctpossibility.

LEGITIMISING THE INVASION?

Rectifying the breakdown of the financesof the state and low economic growth onthe one hand and the poor performance ofpublic service systems on the other are themajor reasons cited as justifying the MGP.The ADB prescription for this malady is‘good governance,’ and it claims that itsapproach to governance is ‘economic’rather than ‘political’. The Bank'sgovernance policy is considered anintegral component of its povertyreduction strategy, particularly as part ofits larger infrastructure development plan.The ADB's reading of the state's fiscalposition is first of all partial, and secondly,its obvious agenda is the implementation

1 ADB Documents 1 - 8, Government ofKerala, Thiruvananthapuram; Also see GoK,Asian Development Bank Loan Assistance Co-funded by Government of Netherlands.2 See Loan Disbursement Handbook, January2001, http://www.adb.org.


of neo-liberal reforms serving the interestsof market capitalism.

That the financial status of the variousstates in India have been badly erodedsince the mid 1980s brooks no argument.3The situation in Kerala is much worsethan that in the other states, with a longerhistory of fiscal deficit than the others. Allof Kerala’ fiscal deficit indicators haveshown an increase, as a percentage of theState Domestic Product, throughout thelast decade. The share of revenue deficitin the total fiscal deficit was as high as 84per cent in the late 90s. The responses ofvarious states in India to their respectivefiscal imbalances have been varied, rangingfrom public expenditure cuts and treasuryrestrictions, to borrowing from varioussources including multilateral financialinstitutions. While Andhra Pradesh,Karnataka and Uttar Pradesh have optedfor World Bank loans, others like MadhyaPradesh, Gujarat and Kerala have resortedto commercial loans from the ADB.

What exactly has been the cause of the‘fiscal crisis’ in Kerala? Is it the slowgrowth of its resource base asconventionally argued, or is it just a lack ofmobilisation of revenues and liquiditysqueeze? Available evidence pointsunequivocally to the latter. Contrary tothe trend in the 1980s, the Keralaeconomy registered a revival from theearly 90s, and stayed above the all-Indiaaverage. It kept up this tempo throughoutthe decade, despite the aberrationscreated in the cash crop sectors by theWTO-induced policies of the GoI, thedeclining trend in the devolution ofrevenues from the GoI to the state inaddition to the successful implementationof the statutes of the revised paycommission. Thus the state’s actualrevenue deficit is not due to negativegrowth in the economy, as one wouldexpect, but rather due to the lack ofjudicious mobilisation of revenues fromwithin the state.

ALTERNATIVE SOURCESPLENTIFUL

A few missed opportunities for resourcemobilisation are highlighted here. Theswelling middle and upper class incomebrackets in the state signal a vibrantconsumer market. It is most reflected in

3 See Govinda Rao, ‘State Finances in India;Issues and Challenges,’ EPW, August 3,2002;George K K, Limits to Kerala Model ofDevelopment, Centre for Development Studies,Thiruvananthapuram, 1999

Kerala becoming the state with thehighest per capita consumer expenditurein India. Yet, the potential of commoditytaxes has not been tapped.4 Tax evasion isas high as 30-35 per cent and it is probablethat the richer sections of society arebenefiting from this.

The case of specific commoditiestraded in the state makes for strangereading. Kerala is probably the richestmarket for gold in the country yet, thesales tax revenue realised from this sectoris as low as Rs 32 crores a year. It shouldhave been five to six times this amount,had there been stringent taxenforcement.5 Tax evasion has reachedsuch heights that the returns filed by themajority of the gold merchants/traders inthe capital city of Thiruvananthapuramshow sales amounting to a mere onesovereign per day!

Most importantly, there is an everincreasing revenue loss in various revenuegenerating sectors of the economy owingto under-assessment of tax, incorrectcomputation of agricultural income tax,exclusion of income from assessment,including those of luxury hotels and bars,non-realisation of potential value in forestproduce and so on. Failure to implementthe revised lease rents in plantations aloneleads to a loss of at least Rs 500 crores perannum, allowing the big planters to amasshuge profits. This has been repeatedlyconfirmed by the Assurance Committeesof the State Legislative Assembly.6 Yet,the class bias of the state blinds it to suchpockets of accumulation, just as it is blindto the pockets of poverty in theplantations, in the adivasi belts, urbanslums and along the coasts. Hardly threeto four per cent of the adjustment cost inthe MGP has been specifically set asidefor poverty amelioration: (the Keralamodel of the twenty first century!) Aquick estimate of all the locked up funds &tax and non tax arrears and others in the state- comes to more than Rs 4000 crores, anamount more than equivalent to the ADBloan.

It would take just 20 percent or less ofthe locked up funds to save the State fromthe ignominy of seeking the second 4 For a discussion on the commodity taxes inKerala, see Sebastian, 2000.5 For details, see K Ravi Raman, ‘The AsianDevelopment Bank Loan for Kerala: AdverseImplications and the Search for Alternatives’,Working Paper No 357, Centre forDevelopment Studies, 2004.6 Some of these issues are extensively dealtwith in the Legislative Assurance CommitteeReports, GoK, 1996 and 1997


tranche of Rs 600 crores from ADB. Asthe state is inherently biased towards suchclasses - the corporate planter capital,liquor barons, gold merchants, luxuryhotel owners and so on, that form thesocial structures of accumulation - hugefunds fail to flow to the state exchequer.7

What has been noted above refers tothe existing statutory means of resourcemobilisation. Other potential sources areequally important and could assure theState greater bargaining power vis-à-visthe central government and themultilateral financial institutions such asthe World Bank and the ADB. TheState's domestic savings, which includethe foreign exchange remittances of itsGulf migrants, are relatively high. Thedomestic savings in the nationalised banksin the State works out to more than Rs60,000 crores, of which around Rs 25,000crores are given as credits to the State.Given that the credit-deposit ratio in theState is low, the State’s claim to morefunds from the banks can easily bejustified. The State would also haveattracted a significant portion of foreignexchange from its Gulf migrants to thetune of Rs 18,000-20,000 crores per year,had it politically negotiated with the GoIand offered an interest rate nearly as muchas it now offers the ADB.8

Another possible source is marketborrowing. After assuming power, thepresent government has issueddevelopment bonds m or e tha n 20times, mobilising more than Rs 4000crores. The Malayali-speaking worldwould do well to realise that Japan, theleading donor to the ADB, became what itis today through the mobilisation of itsdomestic savings during its post-wardevastation. The transformation of Chinainto an industrial giant in the currentclimate of globalisation has a lot to dowith the money remitted by Chineseemigrants.

And what is more, even as the statepatiently waited before the Federal, theWB and ADB have glibly walked away 7 For some theoretical reflections, see DavidM Kotz, Terrence McDonough and MichaelReich, Social Structures of Accumulation: ThePolitical Economy of Growth and Crisis,Cambridge University Press, 1994; For avariant contemporary reading, see BarbaraHarris-White, India Working, CambridgeUniversity Press, 2002.8 For an early account of the remittances, seeZachariah, K.C, Kannan, K.P and IrudayaRajan, S, eds. Kerala’s Gulf Connection: CDSStudies on International Labour Migration fromKerala State in India, CDS, 2002.

with permission from the Government toraise up to $250 million in rupees from theIndian debt market.9 Allowing externalagencies to raise funds domestically forwhat is domestic lending simplyaccentuates the post colonial ‘bleedingprocess’. Enron, the architect of theMaharashtra debacle, too, mobilised itsfunds from Indian banks!

The State could have been able to findeconomic and democratic ways ofmobilising the already generated surplusor whatever tax is due to it both from theelite and the general public. It could havethen substantially expanded theproductive base of the economy withsustainable fiscal balances. The Statewould not then have been forced on itsknees by the ADB.

ADB LOAN NO CURE FOR DEBTOVERHANG

To grasp the true consequences of theADB loan in Kerala involves firstexamining the State’s existing public debt.Like many other states in India, theoutstanding debt of Kerala rose fastduring the 1990s. In absolute terms, thetotal debt of the state increased from Rs4716 crores in 1990-1 to Rs 20176 in 1999-00 and to more than Rs 36000 crores by2003-4.10 The debt indicators, such as thedebt-state domestic product ratio and thedebt-servicing ratio, clearly show thestate’s vulnerability. The debt servicingcost went up from Rs 483.42 crores tomore than Rs 3000 crores by 2002-3. Theratio of outstanding State debt to the netstate domestic product "NSDP# is morethan 34 per cent, one of the highest inIndia. The State's public expenditure isincreasingly becoming synonymous withdebt servicing which consumes nearly one-third of the state revenue. The repaymentcapacity, therefore, has been outpaced bythe growth rate of debt servicing.11

Consequently, the developmentalexpenditure of the State has declined. Theeducation and health sector - two majorsocial sectors supporting marginalisedcommunities & already receive a decliningshare of capital outlay. Any freshborrowing would only further compromise

9 See The Hindu, September 24, 2002.10 Some of these details are worked out fromCMIE, Public Finance, February 1999 & March2002; RBI bulletins; Budget In Brief, GoK,2004-05; GoK, Memorandum Presented to theTwelfth Finance Commission, FinanceDepartment, 2003.11 For details, see K.Ravi Raman, op cit.


the financial well-being of the state. Theannual debt servicing for the ADB loanalone would be around Rs 3500-4000crores for about a decade. This in additionto the existing cost of debt servicingworth around Rs 3000 crores would takethe annual total repayment to the range ofRs 3500 crores for a considerable periodof time. This would imply that nearly 38percent of the State's own revenue wouldhave to be set aside for debt servicingalone. The ADB loan is not the right,‘fiscal medicine,’ for Kerala.

Yet, the State tows the ADB line thatit was bad governance that bred the fiscalchaos, poor public service delivery andpoverty in the state. The solution then liesin applying the modified policies of theWashington Consensus - modernisationof governance "i.e. cuts in social security,including pension and retirementbenefits#, the privatisation of strategicstate enterprises and so on, - to spureconomic growth and fiscal sustainabilityand in turn, reduce poverty. And in orderto ensure that policies follow the plan, aidi s accompan ied by mu l t ip l econditionalities set by the multilateralfinancial institutions, making ‘goodgovernance’ mandatory.

To this end then, the State Cabinetwas effectively converted into anadministrative reform committee of theADB. With it’s 10th five yearly planningdocument, itself being carved out of thelarger agenda of the ADB, the StatePlanning Board thought it fit to drop theterm 'self' from the earlier ‘local selfadministration ’ . A senior Statespokesperson even went as far as to saythat democracy is an obstacle fordevelopment. And the Government playsalong with the ADB, only too willing toaccept its package of conditionalities suchas direct intervention in policy mattersincluding the approval of VRS and ESS"Employment Separation Scheme# to allcategories of employees. A Governmentthat ought to be providing employmentopportunities for its educated,unemployed masses has actually agreed tomaintain a minimum annual net attritionrate for civil servants of one per cent. Italso sees nothing amiss in the ADB'si n s i s t e n c e t h a t a l lprocurements/contracts/technicalassistance shall be through ‘normalcommercial practices’. Needless to say,the ultimate beneficiaries would becorporate capital in the donor countries,local capital as junior partners and a few of

the state's own comprador bureaucratsand consultants.12

The ADB’s view of ‘good governance’ isillustrated by the massive hike in thepower tariff. It was beaten back by themass mobilisation of various social sectors,including the mainstream left parties, eventhough they were responsible for invitingthe ADB to the State in the first place.ADB reforms also promote theunbundling and corporatisation of thepower sector by setting up separatecompanies for the generation,transmission and distribution ofelectricity and the formation of anautonomous Tar i f f Regu latoryCommission - all intended to privatise thepublic sector giant. This is at a time whenpower sector de-regulation in mostcountries has led to a dismal picture ofprice gouging and hoarding. The way inwhich the power sector reforms haveevolved, even denying a meagre subsidy tothe marginal farmers in Madhya Pradesh,shows without doubt, the hidden agendabehind externally aided policy loans.

More interestingly, no effort has beenmade to seek viable alternatives to theexisting pattern of electricity generationand distribution in the State. The heavybias in allocation of high-tension power inKerala to a handful of enterprises with lowlevels of employment and minimal linkageeffects, continuous patronage to power-sucking units and so on, are all beingperpetuated while the possibility ofsetting up mini-hydro projects, in a stateblessed with rivers, remains unexplored.

The State's unholy tie-up with theADB could be countered broadly at twolevels : as being immoral andundemocratic. Why should a resource-rich state look for external aid, attachedwith multiple conditions? What moralright does the Government have tomortgage future generations of the peopleof Kerala? How does the State propose tomeet its future debt servicing obligations?In a country that screams democracy atevery step, the decision to take out anADB loan has no public mandate or aparliamentary discussion. 12 K. Ravi Raman, ‘External Finance, PolicyReforms and the Welfare State: Implicationsof the ADB Programme Loan in Kerala,India’, paper presented at the InternationalConvention of Asian Scholars, NationalUniversity of Singapore, Singapore, 19-22August 2003; ‘Politics of Policy Reforms inIndia: Kerala Model Under Pressure’, EuropeanConference on Modern South Asia,: LundUniversity, Sweden; 6 - 9, July 2004


On the first of May last year, a few ofthe democratic groups and sociallyconcerned scholars of Kerala launched amassive campaign demanding that theADB quit Kerala.

With the state already steeped in debt,any further loan, they said, would only putthe State in greater jeopardy. Moreimportantly, it was pointed out that theentry of multilateral financial institutionslike the ADB into traditionally growndemocratic institutions in the State,would ultimately erode them andconsequently, the active politicalparticipation of the majority of the peopleof Kerala, spurring the furthermarginalisation of the poor. A day beforethe ADB Quit Kerala Campaign waslaunched, a few radical youth, callingthemselves, ‘Porattam’ "‘the Fight’, aMaoist outfit#, stormed the ADB stateoffice in the capital city ofThiruvanthapuram, damaging office filesand equipment.

The campaign, with new groups offeminists, environmentalists, and scholars,chose novel ways to register its protest. Itinstituted a, ‘sathyagraha chain’"fast#, inplace of the ritualistic relay fast. Anyonewas free to join the chain, which wasmaintained for several days. When theprotests gained momentum, the Statecracked down on protestors, evendismantling their shelter. It is probably areflection of our times that none of the socalled intellectuals questioned this mostundemocratic action of the government,save one or two members of theopposition. Though the campaign drew toa halt for a few days, the individualsinvolved kept up their protests inunprecedented ways: a Dalit activistbound himself in chains in front of thesecretariat with his little son helping him.The most novel protest probably camefrom the feminist groups of Kerala.Breaking all norms, they claimed the nightas their own, painting and dancing allnight long to express their anger anddiscontent at the ADB’s violation ofdemocracy. The campaign called for a‘democratic hartal’ "strike# on the 1st ofNovember - the day of state formation.Though at the moment, only a fewMalayalis recognise the risks inherent inthe ADB loan, new social forces areexpected to join in future. The politics ofreform makes it compulsory to acceptreforms even if the existing system doesfunction well.

The involvement of the ADB and theother multilateral financial institutionslike the World Bank in the Asia Pacific,

also presents a very dismal picture; be itthe transport system of Sri Lanka orPakistan's Access to Justice Programme.Japan’s Overseas Development Assistancealso has a bad environment and the humanrights record, particularly its involvementin the Sardar Sarovar Dam in lndia and theKoto Pandgjang Dam in Indonesia. Such‘uncivil engagements’ are plentiful, as hasbeen consistently highlighted by Focus onthe Global South, a Thailand-based NGO.13

SEMI-SOVEREIGN PEOPLE?

For the people of Kerala, the point ofgreatest concern is that the ADB contractis not just a loan but comes attached withmultiple conditionalities. A few of theseare worth mentioning. In future, allcontracts , agreements or evennegotiations with other financialagencies/donors must be discussed withthe ADB, which reserves the right toinsist on cross-conditionality with respectto other foreign contracts. In clearerterms, the Government loses its decision-making freedom on financial matters. TheState even severely restricts its freedom toenter into bilateral negotiations withother financial agencies/countries.

In addition, loan conditions concerningthe restructuring of State Level PublicEnterprises "SLPEs# include ensuring aminimum annual ‘net attrition rate of oneper cent’ of staff and approval andextension of the VRS and ESS to allcategories of workers, They also requirethe successful implementation of therecommendations of the EnterpriseReforms Committee "ERC#, by accepting,‘alternative systems of managementincluding privatisation, disinvestment,merger, management contracts andleasing’.

More over, public utilities wouldhenceforth be run on market principles ofcost recovery and efficiency in delivery.Rising user costs would most likelyrestrict access to education, health andwater and power. 'Uneconomic' schoolswould be closed and the PublicDistribution System & the Statesubsidisation and distribution of basicgoods and, Kerala's pride & would bereduced to a bare minimum: in effect, anenclosure of the commons.

13 Mushtaq Gadi, ‘The ADB’s UncivilEngagements: The Experiences of ChashmaAffectees’, in Good Governance or BadManagement, Focus on the Global South, May2002.


The Modernising GovernmentProgramme and Fiscal Reforms promisesto be a ‘paradigm shift in the wayGovernment transacts its business’. Inreality, it means the adoption of the ADBdiktat. This is recognised by the angryvoices of protest - of trade unions, thenon-parliamentary left, social activists,adivas is , women 's groups andenvironmentalists. Once the ADB wasable to bind the State through theconditionalities contained in its ‘commonpolicy matrix,’ it is feared that thefinancial, social and, to a certain extent,the political structure of Kerala wouldchange. The radical alterations will reversethe State’s social development model.

The proliferation of self-financingcolleges in the State, catering to theinterests of various religious groups, willsurely undermine the high quality ofeducation that Kerala has been proud of.The economic and social implications ofthis large scale privatisation of highereducation are already being felt; the worstbeing the suicide of Miss Rajani & anengineering student who could not meetthe financial burden of her education.

Who stands to gain most from theADB-driven reforms? With the massiveallocations of funds for capacity building,training, and computerisation, it isunrealistic to expect these to percolatedown to the lowest strata of society. TheADB is very particular that allprocurement & engineering technologiesfor civil works, software and hardware,goods and related services - will bethrough ‘normal commercial practices’.This means that ADB contracts would beawarded through international lyadvertised competitive bidding, althoughbidding is confined to the powerful donorcountries of the ADB. The pastperformance of ADB-tied procurementsshows that most of the procurement goesto the world's biggest corporations in thedonor countries.14 And with respect togrant or loan-tied Technical Assistance,the beneficiaries are again, a handful ofthe donor countries particularly the US,UK, Canada and Australia. Indeed, theconsultancy on fiscal reforms in Keralawent to the PDP Australia "P# Ltd. Yet

14 For details see Chris Adams, ‘Punishing thePoor: Debt, Corporate Subsidies and theADB’; also see C.P, Chandrasekhar, "Debtand Development in Asia', both in TheTransfer of Wealth: Debt and the making of aGlobal South, Focus on the Global South,"2000#.

another newly created class stands tobenefit - the comprador bureaucrats andconsultants.

Moreover, by redefining one of the‘core functions’ of the state as policing anddisciplining labour, the class nature of thisnew governance is gradually surfacing.Both the ADB and the State have beenoutdoing each other in trying to projectthe "human face" of the policy-package.But the ADB deal is inhuman when theinitial, paltry allocation of 4 per cent ofthe MGP for poverty eradication dwindleseven further in the final programmeimplementation structure. And thisminiscule percentage is intended fortargeting, identifying, and improving thequality of poverty reduction measures,which seems like the longest route topoverty eradication. At a time whensuicides and starvation among plantationworkers and adivasis are on the rise, onewonders why a fresh effort to identify thepoor is needed. Perhaps the ADB's onlycontribution here would be to scrap theBelow Poverty Line "BPL# survey of theGovernment of Kerala which puts thepoverty level in rural Kerala at a shocking36 per cent.

Whether the Government’s dream of a‘modernised’ and a ‘structurally adjusted’State comes to fruition, or remains anillusion, one thing is clear & no more willKerala ever be God ’s Own Country.Henceforth it would become, irrevocably,the ADB’s Own Country.


Saving the Tonle Sap Lakethe ADB WayBuilding a Large-Scale Modern Harbour,the “Gateway” to Environmental and Social RuinSUGITA RENA

onle Sap lake, known as the ‘heart’ of Cambodia, is the largest fresh-water lake in Southeast Asia and is recognised for its unique and diverseecological system. It is vital for the livelihoods and food security for a

vast number of Cambodian fisherfolk and farmers. However, poor naturalresource management and environmental degradation threaten the lake’sfragile ecology and the population that depend upon it. The RoyalGovernment of Cambodia, international agencies, and local people are seekingsolutions such as fishery reform, promotion of community fisheries, andprotective measures such as the ‘Tonle Sap Biosphere Reserve,’ with mixedresults.

T


Taking advantage of this context, theAsian Development Bank "ADB# isproceeding with studies to build a large-scale modern harbour it calls an‘environmental improvement project.’Central to the studies’ efforts, withobvious logical difficulties, is to argue thatthe harbour will ‘help’ and ‘improve’ thelocal community of floating villages andconsequently reduce the environmentaldestruction they cause. As an ADB staffmember writes:

‘(T)he anticipated changes at ChongKneas (the harbor) will draw thehuman settlement within the TonleSap Biosphere Reserve farther fromthe lake, eliminate sources of pollutionand, above all, provide hope of abrighter future to some of the world’spoorest and most deprived people.’1

Calling this large-scale transportinfrastructure project in the reservationarea an ‘environmental improvementproject’ has so far effectively shieldedthe ADB from complying withCambodia’s environmental protectionprovisions and the ADB’s own policies.These require broader publicconsultation, and consideration of theenvironmental impacts of a modernharbour on the well-being of the Lake asa whole. Yet, the ADB has limited themain scope of the harbour ’senvironmental impact assessment "EIA#by restricting the definition of ‘projectaffected people’ to the close vicinity ofthe project site. By doing so, the broadernegative impacts of the harbour are notbeing appropriately considered. Theproject’s altruistic name seems to havealso prevented the Chong Kneascommunity from gaining a clearunderstanding of what the project reallyis.

The communities around the lake, aswell as a number of local and internationalNGOs, have already been voicing strongconcerns that the harbour wouldexacerbate the existing social andenvironmental problems, and counter theemerging community-based attempts tomanage natural resources. These voiceshave been officially recorded in studies fora different ADB-funded project. However,their concerns have simply beendismissed. The ADB is expected to decide

1 Ian Fox, “Floating Villagers Head for HigherGround”, ADB Review, Volume 35 No. 6,November-December 2003.

whether or not to fund the project as earlyas the beginning of 2005.

The lake’s unique hydrology, makes it‘beat’ once a year, giving it the name ofthe ‘heart’ of Cambodia. During the dryseason, the lake covers an area ofapproximately 250,000-300,000 hectaresat a depth of 1-2 meters. Water flows outof the lake via the 100 km long Tonle Sapriver to join the Mekong river. In therainy season, abundant water flowingdown the Mekong reverses the flow ofwater up the Tonle Sap river, and the lakeexpands up to 1-1.6 million hectares,reaching a maximum depth of 8-11 meters.Approximately 60% of the lake’s wateroriginates from the Mekong river, and30% from the Tonle Sap watershed.Water levels rise at an average rate ofseven centimetres per day during the rainyseason, and fall by six centimetres duringthe dry season.

This vast floodplain, said to be one ofthe most productive inland fisheries in theworld, is critical to the overall health ofthe basin, and is home to many globallysignificant species. The large wetland areais home to an extraordinary richness oflife. Many types of habitat, includingflooded forest, open water, and grasslands,provide protection and food for thediverse plant communities, fish andwildlife species, including at least 57threatened species.

Approximately 1.2 million people live inthe floodplain area, 25% of who live infloating houses. Most of the floatingvillages are said to have been establishedhundreds of years ago, and theirtraditional way of life has not changedmuch since. Fishing is the principal sourceof income for the majority of thesevillagers. The lake yields about 230,000tons of fish per annum, which is morethan half of Cambodia’s total catch, andprovides livelihoods to an estimated 11%of the country’s population. Fish from theTonle Sap Lake are critical to Cambodia’sfood security, providing 40-70% of theanimal protein intake of Cambodians.Rice production in the Tonle Sapfloodplain constitutes around 12% ofCambodia’s total production. The lakealso plays a significant role in Khmercultural identity, which is reflected in thecountry’s traditions, livelihoods, festivals,and tastes.

Considering the ecological, economic,and socio-cultural value of the lake, itsmanagement is an urgent and significantchallenge for Cambodia. In October 1997,the Tonle Sap Biosphere Reserve "TSBR#was established in accordance with the


statutory framework of the WorldNetwork of Biosphere Reserves. This wasfollowed by numerous conservation andmanagement attempts by the CambodianGovernment, international agencies, localcommunities, and NGOs. The well-beingof the lake is, however, under threat,mainly by over-exploitation of naturalresources. The lack of appropriatemanagement plans and legal conservationframework, and insufficient capacity andconsensus to implement plans, as well asconflicts among the stakeholders, have allfurther hindered such efforts.

Inequitable access to resources is themain cause of conflicts amongstakeholders, namely fish lot owners andsmall-scale fisherfolk. Cambodia’s waterbodies, including the lake, are divided intoconcession areas or fishing lots, which areauctioned to private entrepreneurs forexclusive rights to catch fish for a limitednumber of fishing seasons. By its nature,the fishing lot system encourages large-scale commercial fishing operations, andtheir interests often prevail overconservation objectives, even under thewatch of the agencies responsible formanagement, such as the Department ofFisheries of the Cambodian Government.While the fish lot system couldpotential ly offer good fisheriesmanagement, in practice however, it hasbeen criticised for encouraging the over-exploitation of fish resources, fosteringcorruption, and for leaving little space forlocal communities to maintain theirlivelihoods. Fishery reform implementedin 2001 reduced these concessions areasby 55%. However, some previous problemsstill remain and furthermore, newdifficulties have emerged.

Under such conditions, people aroundthe lake have also intensified theirexploitation of other resources includingwildlife, forest and farming, to meet theirbasic needs. Increasing resourceexploitation is compounded by anincreasing population around the lake, aresult, amongst other factors, of escalatingin-migration. Some fisherfolk, facingdecreasing catches, have resorted to illegalfishing practices. Habitats are beingincreasingly degraded as flooded forestsare rapidly cleared for farming. Theincreasing use of pesticides and fertilizersto enhance agricultural production isdeteriorating water quality.

Community-based fisheries and naturalresources management have beenpromoted. However, the low level ofeducation and poor social organization oflocal communities, as well as insufficient

institutional support, are major obstaclesto its effective development. Thehydrological cycle that supports andmaintains a high biodiversity andproductivity within the Lake is alsothought to be changing. Logging activitiesboth in the Mekong basin and the lake’scatchment area have changed the waterflow cycle. According to the draft harborproject EIA, the maximum water levelsover the last 20 years "1979-98# havedecreased by approximately 10%compared to levels between 1924 and 1965.This change may be linked to dambuilding activities in the Mekong Basinthat commenced in the 1950s. Damdevelopments also contribute todiminishing fish stocks by blocking fishmigration in the Mekong Basin. Decliningfood security and income will not onlyworsen the living standards of localcommunities but also the largerpopulation of Cambodia, potentiallycausing social unrest and politicalinstability.

ADB’S HISTORICAL INTERESTSIN HARBOR BUILDING

It was within this context that, inNovember 2002, the ADB approved theTechnical Assistance "TA# to prepare theC h o n g K n e a s E n v i r o n m e n t a lImprovement Project "CKEIP#. Thestated objective is to prepare aninvestment project to ‘improve the socialand natural environment in the ChongKneas area’ in Siem Reap Province. At thetime of writing "August 2004#, the TA isnear completion. According to the ADB,the starting point of the study ‘was to findout what the people themselves wanted’.2On the contrary, the CKEIP TA beganwith the ADB’s prior interests in buildinga harbour.

The design proposed is not a modestimprovement of the landing site, but agrand scale modern harbour. The maincomponents of the project are theconstruction of a harbour, two navigationchannels connecting the harbour to thelake’s low water edge in dry season, and aresettlement site for approximately 1,000households, mostly from the ‘floatingcommunities’ of Chong Kneas. Under thedesign, the harbour basin will be locatedat the high-water edge of the lake "i.e. theedge of the lake at maximum floodingduring the rainy season# with themaximum dimensions of 600 meters by 2 Ian Fox, “Floating Villagers Head for HigherGround”,Ibid.


1,100 meters. To connect the lake to theharbour basin, a 5- kilometre longcommercial navigation channel will bedredged an additional one kilometre intothe lake beyond its low water shoreline,with a nominal 52 meters width at the toeof the side slopes.

One more channel will be dredgedfrom a point near the settlement sitereaching to the existing natural channel ofthe Siem Reap River. This secondarychannel will be for the villagers’ use, aswell as to flush the water in thecommercial channel, which would beconnected to the secondary channelthrough an underground pipe with apump. The commercial and secondarychannels and the harbour basin, inclusiveof side slopes, are expected to cover atotal land area of approximately 110hectares. The settlement site and theharbour platform, created with excavatedmaterial from the harbour basin and thechannels, are planned to cover 43.6hectares and 27.8 hectares, respectively.

BLAMING THE VILLAGERS

The Critical Wetlands TA mentionedearlier, led to not only the CKEIP TA butalso to a number of ‘environmental’projects around the Tonle Sap Lake,collectively referred to as the ‘Tonle SapInitiative’. The primary objective of thisinitiative is to, ‘intervene in thisdownward spiral (of environmentaldegradation reducing the income andlivelihoods of the poor, inducing the poorto further deplete resources and degradethe environment) and establish a basis forenvironmental sustainability of naturalresources of the Tonle Sap Lake, whileallowing for those resources toeconomically sustain livelihoods’.3 TheCKEIP TA does intervene: itsimplistically blames the community forthe environmental destruction and claimsthat, ‘improvement of environmentalconditions requires construction ofphysical infrastructure including a harbor,(and) navigation channels’.4

However, the draft EIA, which isderived from the CKEIP TA, fails toshow how the construction of a modernharbour will improve the environment ofChong Kneas. Critically, it fails tosufficiently understand the present

3 Plancenter et al., Environmental ImpactAssessment $Draft% for Chong Kneas EnvironmentalImprovement Project "ADB TechnicalAssistance 399-CAM, "2003#.4 Ibid.

environmental and social conditions facedby the Chong Kneas communities. TheChong Kneas Commune "approximately8,000 people or 1,200 households#consists of eight villages, seven of whichlive on the water. These floating villagesshift their residence according to theseasonal changes in the lake’s water level.About 80% of the community practicefishing as the main source of livelihood,and are also often involved in fish cageaquaculture and fish trading. The draftEIA describes the need to improve theirincome levels and living conditions. Dueto the shifting nature of their lifestyle anddistance from the on-shore facilities, theyoften lack employment opportunities andaccess to social services, such aswastewater and solid waste management,drinking water services, education, andhealth facilities.

The community’s current disposalpractices, of draining and throwingeverything directly into the lake "includinghuman faecal matter and organic wastefrom fish cages#, and its dependency onnatural resources are described in thedraft EIA as degrading the environmentof the lake. However, the many studiesthat would be necessary to reach such aconclusion have not been conducted,making the offered conclusion unfounded.In fact, the Chong Kneas communities aresubsistence fisherfolk who are generallythought to put comparatively smallpressure on the total fishery resources.Furthermore, no flora and fauna studieswere conducted during the TA and otherpollution sources, such as the hotels andbusinesses in Siem Reap that dumpsewage into the river, which flows into theproject area "where the water quality wastested for the draft EIA#, were alsounexamined. The draft EIA also fails tostudy the practices of other actors, such asillegal or larger-scale fishing operators.

The project’s fundamental premisesremain to be satisfactorily justified.Various ADB documents emphasize thecommunity’s wish to move onto landwhere social services would be provided,and how that would improve theenvironment. Indeed, the CKEIP plancontains a resettlement component. Thiscomponent, however, does not necessarilydepend on the construction of a harbour,raising doubts about the need for one atall. Critically, the TA fails to consider howthe social and natural environments couldbe improved without the harbourconstruction. Instead, the alternativesconsidered are a ‘no project option’ andoptions with lesser degrees of


resettlement. In addition, the potentialnegative impacts of the harbour and howthey compare to the environmentaldegradation allegedly caused by the ChongKneas community is not investigated.

A WOLF IN SHEEP’S CLOTHING

The construction of the large-scalemodern harbour would be likely toexacerbate both the environmental andsocial problems CKEIP proposes toaddress. In essence, CKEIP is aninfrastructure project that would increasetransportation, leading to an increase inextractive activities and development onthe lake and its floodplain. Given thelake’s fragile status, as well as the flawedgovernance system, these changes couldhave critical and irreversible negativeimpacts. Listed below are some of the keyconcerns:

Increased activities on the floodplain of theLake: If constructed, a modern harbour isexpected to increase in-migration byproviding employment opportunities andimproving access to markets andtransportation, which would in turn leadto further development in the floodplain.The harbor and construction itself mayhave negative impacts, many of whichhave been insufficiently assessed.

Increased natural resource extraction: Thedraft EIA predicts an escalation in therate of fishery resource extraction:

‘(As a result of harbor construction)pressure on the capture fisheries willincrease due to increased ease inbringing catch to market, thelowering of transaction costs, andthe ability to utilize larger boats andmore sophisticated equipment.Local and regional demands for fishwill increase as the area’s economyexpands and better transport linksare established to the Thai boarder.’5

As large-scale fishing operations and fishcatches increase, the study anticipates adecline in small-scale fishing operations.$See Table 1% Instead of limiting large-scalefishing operations, however, the proposedmitigation measures promote communityfisheries, failing to address the anticipatedescalation of fishing by large-scaleoperations. The draft EIA provides no

5 Plancenter et al., Environmental ImpactAssessment $Draft% for Chong Kneas EnvironmentalImprovement Project, Ibid.

prediction of the project’s impacts on fishresources or its sustainability.

Increased volume and risk of pollution: Thedraft EIA refers mainly to pollutioncoming from the communities of ChongKneas, and from the navigation andlanding areas of the project. Operation ofthe harbour is also however, expected tobring additional pollution risks due toincreased boat traffic on the lake"especially for fuel transport, See Table 1#,road transportation, in-migration, anddevelopment in the area. It should benoted that there are no navigationregulations or oil spill contingency planson the lake.

Besides contributing to the downwardspiral of environmental degradation asdescribed, the harbour could contribute toinequality and further social problems.These concerns are:

Increased inequality and conflict overr e s o u r c e s : Commercialisation andexpansion of large-scale fisheriesoperations is likely to further marginalisesmall-scale fisherfolk. Moreover, conflictsover limited and already overstretchedresources caused by in-migration couldintensify. Domination of markets bymiddlepersons or formation ofmonopolies is also a concern, as is‘informal’ fee collection which is alreadyprevalent in Cambodia. The draft EIA,after admitting a lack of understanding ofthe current situation, simply concludesthat as long as the government does notpermit individual monopolies, this shouldnot be a concern.

Threat to food security: Fish is the mainsource of animal protein for up to 70% ofthe Cambodian population. Fish wouldbecome increasingly unaffordable to therural non-fishing population, especially tothe poorest segments of the population, ifcommercial values rise - a stronglikelihood if fish is harvested for marketsoutside Chong Kneas. Environmentaldestruction and resource depletion wouldalso threaten food security. This is simplynot considered in the draft EIA.

Threat to livelihood: All the negativeimpacts above would accentuatedifficulties in maintaining the livelihoodsof all small-scale fisherfolk around thelake. Experts point out that it is the small-scale sub-sector which provides the mostincome and employment opportunities


per unit of extracted aquatic organisms,and that maintaining these benefits mayrequire a reduction of large-scalecommercial fishing operations.

Land acquisition and resettlement: Pastprojects in Cambodia involvingresettlement and land acquisition havebeen highly problematic, bringing intoquestions such processes proposed for theCKEIP. Public consultation processes,and the level and delivery of compensationto affected people have generally beeninadequate. The legal status of land is stillunclear in many cases, and Cambodia hasno law governing resettlement. In the caseof the National ‘Highway 1 ImprovementProject’ "funded by the ADB#, forexample, the amount of compensationprovided to most of the affectedcommunities was far from enough torestore their living standards to pre-project levels.6 The suffering of thesecommunities has not been addressed bythe ADB or the Cambodian Governmentto this day.

Financial burden on Cambodia: Financingthe construction of a harbour using anADB loan, as well as the cost of operationand maintenance, may be an additionalburden on the already impoverishedKingdom of Cambodia . Manyconsequences of building the harbourcould be costly, yet many are notincorporated into the project cost sincethey are not adequately studied, cannot bedefined, or are dismissed as insignificant.In particular, the road connecting PhnomPenh to Siem Reap, construction of whichis currently being funded by ADB, is likelyto see more use. It is considered a morecost effective route for travel than by boatover the lake especially as low water levelsduring the dry season "and due to ongoingdam construction# will likely limit laketraffic. The successful operation of theharbour, furthermore, is subject toquestion as it would depend greatly onimproved local governance. How thatcould be achieved, however, is unclear.

BAITING THE LOCALCOMMUNITY

How does the local community in ChongKneas feel about the proposed harbourproject? The draft EIA claims that the 6 Legal Aid of Cambodia and NGO Forum onCambodia, Report on Compensation for ThreeGroups of People Affected by National Highway 1Improvement Project-Neak Leung to Bovet, "2002#

majority of the local community welcomesthe project. But this claim is questionable,because the local people have been giveninformation primarily about the benefitsof the project, and have been told that theenvironmental or economic impacts of theharbour will be insignificant or effectivelymitigated.

The draft EIA explains that villagerswere asked two very important questionstowards the end of one of the majorconsultations: ‘"i# did they have anyproblem with or objection to the“resettlement” alternative; and "ii# wasthere a way to design the “no-resettlement” alternative that theconsultants might have overlooked so thatit would meet the needs of thecommunity’.7 Without being able toconsider a ‘no harbour’ option, villagerswere required to choose whether or notthey wanted the social services and freeland that were offered with the harbourdevelopment. Obviously, presented withthis choice most villagers would select the‘social services and free land,’ option. Thishas not only shifted the attention of thevillagers away from the impacts of theharbour, but also foreclosed meaningfulparticipation by the local community infinding the best way to improve the socialand natural environment.

Even so, local communities and NGOsaround the lake have been voicing strongopposition to the harbour plans. Thesevoices were officially recorded in thepublic consultations of another ADB-financed project, the ‘Tonle SapEnvironmental Management Project’:

‘Nine groups "private sector,government, community fisheries,NGOs# rejected (fishing harbors atChong Kneas and Kompong Luong)because they felt it would havenegative impacts on the environment,encouraging more people to movedown to the lake, leading to increasedboat traffic and an increased numberof people using the resources of theTonle Sap, increasing pollution,impacting on fish habitats, increasingfees the poor would have to pay, andcreating a situation in which the localcommunity would live under theoppression of the private companywhich leases the harbour. One ofthese groups "community fisheries#suggested that there should be othermore appropriate projects to develop

7 Plancenter et al., Environmental ImpactAssessment $Draft% for Chong Kneas EnvironmentalImprovement Project, Ibid.


these areas and increase income forvillagers living there.’8

However, the voices were not includedin the public consultation process for theCKEIP, as the project limits its definitionof stakeholders to the Chong Kneas areaonly.

WORKING AGAINSTCONSERVATION

Considering its potential negativeimpacts, the harbour construction mayviolate the TSBR functions set out in the2001 Royal Decree on the Establishmentand Management of Tonle Sap BiosphereReserve. The Decree provides that theTSBR shall fulfill three complementaryfunctions; "i# conservation; "ii# sustainabledevelopment; and "iii# a logistic functionin support of demonstration projects,education and training, and research andmonitoring. Whether constructionactivity is legally permitted in the TSBRbuffer zone, where the proposed projectsite is located, is also highly questionable.While the Decree stipulates that activitiesin the buffer zone should be managed in away that is consistent with the protectionand conservation plan of the core area, thedraft EIA actually indicates the projectmay lead to an increase in wildlife huntingand trade, including from the Prek Toalwildlife sanctuary located in the core area.The Decree also states that, theconservation of fish and the quality of theenvironment is required. Considering thatthe draft EIA did not conduct necessarystudies, such as on flora and fauna in theproject area, how environmental qualitycan be effectively preserved andmonitored is unclear.

If the CKEIP were to proceed in itspresent form, it is also likely that it wouldbe in violation of ADB policies. First,failure to adopt a precautionary approachto harbour construction that couldincrease fishing capacity would be aviolation of the ADB policy on fisheries.Before supporting harbour construction, 8 Food and Agriculture Organization for theUnited Nations "FAO#, 2003. Consultationwith Stakeholders on Components andActivities in the Draft 5-Year GeneralFisheries Plan for the Tonle Sap: Results ofProvincial Consultation Workshops. TonleSap Environmental Management Project:Component 1: Technical AssistanceImproving the Regulatory and ManagementFramework for Inland Fisheries "ADB TA3993-CAM#.

the following should have been assessed todetermine whether increase in fishproduction would be sustainable: i# theimpacts of an increase in fish productionon resources in terms of conservation,r e h a b i l i t a t i o n , a n d l o n g - t e r msustainability; ii# the impacts of theharbour construction on over-fishingpractices or any existing problems; and iii#the project’s impacts on markets, andfinancial, economic, and social aspects.

There are many other concernsregarding compliance with varioussections of safeguard policies as follows:

• Failure to appropriately andsufficiently assess direct andindirect environmental and socialimpacts.

• Failure to prepare appropriatemitigation and monitoringmeasures for negative impacts.

• Exclusion of local fisherfolk andNGOs around the lake from thepublic consultation process.

• Failure to provide information toaffected communities in a timelyand appropriate manner, includingtranslation into Vietnamese.

• Failure to ensure meaningfulparticipation of local communitiesin decision-making.

• Possible failure to followCambodian law concerningprotective land use regulations.

• Failure to ensure specialconsideration of vulnerability ofethnic Vietnamese.

Relevant ADB policies in this caseinclude: Incorporation of SocialDimensions in Bank Operations,G o v e r n a n c e , E n v i r o n m e n t a lConsiderations in ADB Operations, andInvoluntary Resettlement.

CONCLUSION

Local and international NGOs have beenraising concerns about the CKEIP TA,only to receive responses from the ADBthat the project is appropriate. In June2004, Mekong Watch submittedcomments on the draft EIA to Mr. RajatNag, Director General of the MekongDepartment of the ADB.9 In thec o m m e n t s , t h e f o l l o w i n g

9 Mekong Watch, Comments regarding theDraft Environmental Impact Assessment forthe Chong Kneas EnvironmentalImprovement Project "ADB TA 3997-CAM#,"2004# Cambodia. "Response from the ADBhas not yet been received as of 2 August 2004#


recommendations were made to re-establish a track back to the project’soriginal aim of improving the social andnatural environment of the Chong Kneasarea.

1. Thorough investigation into the currentsocial and environmental problems facingChong Kneas, and the reasons for thoseproblems. Only with a sound understandingof the issues being faced by Chong Kneascommunities and the problemsthreatening the natural environment can aproject reflecting the real needs ofcommunities and the environment besuccessfully designed. Obstacles toeffective conservation efforts and naturalresource management need to beexamined in the context of the Lake as awhole.2. Negative impacts of the harbour must bethoroughly assessed. When a conclusion ismade in the EIA that an impact is"insignificant," sufficient basis for thisconclusion must be provided.3. Alternative project plans, in particular a ‘noharbour’ option, must be examined.4. Lessons should be learned from pastexperiences and incorporated into projectp l a n n i n g . This is true for both theenvironmental and social components ofCKEIP. Any project designs, includinginstitutional arrangements, shouldincorporate lessons learned from previousand ongoing efforts, such as those toregulate unsustainable fishing operations,promote community fisheries, and managenatural resources. There are also manylessons to be learned from past projectsinvolving land acquisit ion andresettlement. Furthermore, compensationand resettlement problems in past ADBfunded projects in Cambodia should beaddressed before proceeding with newprojects involving resettlement and landacquisition.5. All of the above should be conducted in closeconsultation with local communities and otherrelevant stakeholders. Decision-makingshould ensure meaningful and informedpart ic ipat ion o f communit ie s .Consultations must be sensitive to issuesfaced by vulnerable groups among theChong Kneas communities. Consideringthe inadequacies in the publicconsultation process to this point, aneffective communication strategy needs tobe prepared. This strategy shouldincorporate lessons learned from problemsalready arisen in this TA, as well as otherADB-funded projects in Cambodia in thepast. Furthermore, a user-friendlyfeedback mechanism should be put in

place to facilitate communication betweenproject proponents and affected people.This is necessary so that affected peoplecan more easily voice their concerns asthey arise.

References:Asian Development Bank "ADB#, Incorporation

of Social Dimensions in Bank Operations "OM47#. Operations Manual, "1997a#.

ADB, The Bank’s Policy on Fisheries. "1997b#.

ADB, Future Solutions Now: The Tonle SapInitiative, "2002a#.

ADB, Reports and Recommendations of Presidentfor Tonle Sap Environmental ManagementProject "2002b#.

ADB, Technical Assistance Report for ChongKneas Environmental Improvement Project"2002c#.

ADB, Environmental Considerations in ADBOperations "OM F1#. Operations Manual"2003a#.

ADB, Governance "OM C4#. OperationsManual., "2003b#.

ADB, Involuntary Resettlement "OM F2#.Operations Manual, "2003c#.

ADB, Fighting Poverty in Cambodia: The TonleSap Initiative Pipeline "Manuscript#, "2004#.

ADB, Response to Letter from FACT,"February 24th, 2004#.

Food and Agriculture Organization, NationalConference to Finalize the 5-Year GeneralFisheries Plan for the Tonle Sap: Conferencer e s u l t s . Tonle Sap EnvironmentalManagement Project: Component 1:Technical Assistance Improving theRegulatory and Management Frameworkfor Inland Fisheries "ADB TA 3993-CAM#."Distributed at the end of the conference#"2004#.

Fisheries Action Coalition Team "FACT#,Letter to ADB RE: Concerns and Requestsregarding the Public Consultation Processfor the Chong Kneas EnvironmentalImprovement Project "ADB TA No, 3997-CAM#, "February 13th, 2004#.

Royal Kingdom of Cambodia, 2001. RoyalDecree on the Establishment and Management ofTonle Sap Biosphere Reserve, "2001#

Tonle Sap Biosphere Reserve, Perspective ofTonle Sap Biosphere Reserve, "2000#.


Table 1: PROJECTED INCREASE IN VESSEL ARRIVALS AT CHONG KNEAS"from Plancenter, et al., 2003#.

2002 2008 2013 2018 2023 2028 2033No. of Annual Arrivals:

Fishing Boats 2,394 2,052 1,795 1,596 1,436 1,436 1,436Fuel Transporters 78 93 108 126 149 176 210

Tonnage per Boat:Fishing Boats 5 7 8 9 10 10 10

Fuel Transporters 200 200 220 240 260 280 300

A simple calculation of the number of boats and the tonnage per boat suggests an increase inthe total catch of fish. It is implied that while the number of small-scale fishing operations willdecrease, the number of large operators will increase. Between 2002 and 2033, the amount offuel transport is expected to increase by 400% "15,600 to 63,000 tons#, and boat frequency by270%. Although the probability of accidents occurring is thus greatly increased, the impact ofaccidents is not assessed in the draft EIA. In addition, the draft EIA states, ‘if the costsestimated for spill prevention and control are realistic, the comparison (between costs forshipment of oil to Siem Reap by water and road) suggests that ceasing shipments would be abetter alternative’. "Plancenter, EIA% Nevertheless, the harbor plan includes facilities forreceiving fuel, and navigation regulation or spill contingency plans on the lake are notproposed.

Box 1: LIST OF ADB PROJECTS UNDER THE ‘TONLE SAP INITIATIVE’

So far, four projects "total of US$3.245 million# have been completed, and six projects "total ofUS$13.552 million#, including CKEIP TA, are currently being implemented. By 2007, the approvalof seventeen more new projects is planned.

"Note: the list does not include investment projects that may result from TA studies. For example,the actual CKEIP loan that might be approved on the basis of preparatory studies conductedunder the ongoing CKEIP TA is not included in the list. It also does not include projects outsideof the ‘Tonle Sap Initiative’ framework, including an irrigation dam project on Stung Chinit River,the lake’s tributary.#

CompletedProject Name Approval

DateFundingAmount"US$#

FundingSource"s#

Protection and Management of Critical Wetlandsin the Lower Mekong Basin

1998 $1.65 million ADB,Finland

Establishment of the Tonle Sap BasinManagement Organization

2003 $135,000 ADB

Improving the Regulatory and ManagementFramework for Inland Fisheries

2002 $560,000 ADB

Capacity Building of the Inland Fisheries Researchand Development Institute

2002 $900,000 ADB

OngoingTonle Sap Environmental Management 2002 $10.91 million ADBChong Kneas Environmental Improvement 2002 $997,000 FinlandLiving with Floods on the Tonle Sap 2003 $85,000 CFWSTonle Sap Sustainable Livelihoods 2003 $1.26 million ADB,

FinlandParticipatory Poverty Assessment of the Tonle Sap 2003 $250,000 DFIDDeveloping and Testing Methodologies and Toolsfor Environmental Education and Awareness

2004 $50,000 CFWS

DFID - Department for International Development of the United KingdomCFWS - Cooperation Fund for the Water Sector.


Sizing up the GridHow the Mekong Power Grid Compares Againstthe Policies of the ABDINTERNATIONAL RIVERS NETWORK

he Asian Development Bank "ADB# is promoting thedevelopment of a regional power grid and electricity tradingsystem in mainland Southeast Asia fuelled primarily by

hydropower. This initiative threatens to undermine the fragile MekongRiver ecosystem that millions depend on for their livelihoods.

T


The ADB envisions that China's Yunnanprovince, Burma, and Laos & wherehydropower potential is huge andcommunity opposition is stifled & willgenerate cheap, re l iab le , andenvironmentally sustainable power forgrowing markets in Thailand andVietnam. An ADB-financed master planrecommends building transmission linesto connect a dozen proposed hydropowerprojects to these countries. This includesthe controversial Tasang Dam in Burma,the Jinghong and Nuozhadu dams on theMekong mainstream in China and theNam Theun 2 Dam in Laos. Hydropowerprojects are also recommended fordevelopment on Cambodia's Se San River,China's Panlong River and rivers in centraland southern Laos, among others.

By promoting the Mekong power grid,the ADB is lending considerableinstitutional support for hydropowerdevelopment in the region. The ADB isencouraging governments to press aheadwith ambitious hydropower plans andrallying public and private investors tofinance projects. ADB policies state thatsuch development should proceed throughan open and transparent process with fullpublic participation and full considerationof the impacts to communities and naturalresources. However, in this instance, thisis not the case.

Despite its grand scale and potentiallyfar-reaching impacts, the ADB is leadingthe multi-billion dollar Mekong powergrid initiative through a very poor processof development. This process has violatedthe ADB's own safeguard policies onenergy, water, and indigenous peoples. Ithas also contravened the ADB’s povertyr e d u c t i o n s t r a t e g y , s t r a t e g i cenvironmental framework for the GreaterMekong Subregion "GMS# and therecommendations of the WorldCommission on Dams. In addition,contrary to the international best practicestandards set by the World Commissionon Dams, the Bank has notcomprehensively assessed the full range ofoptions available to meet the energy needsof the Mekong region.

MEKONG POWER GRIDINITIATIVE

K n o w n f o r m a l l y a s P o w e rInterconnection and Trade in the GreaterMekong Subregion, the Mekong powergrid is one of the flagship initiatives of theADB's GMS program, which is supposedto encourage cooperation and economicgrowth in the six countries sharing the

Mekong River basin.1 As well as creating aregional grid, the initiative would establisha system for regional power trade andencourage private investment in thepower sector. Other institutions involvedinclude the World Bank, Japan Bank forInternational Cooperation "JBIC#, and theAssociation of Southeast Asian Nations"ASEAN#.

According to the ADB, the initiativewill enable countries to reduce nationalinvestments and power reserves, provide amore reliable supply of electricity, reduceoperational costs, reduce greenhouse gasemissions, and increase consumers’ accessto the cheapest and most environmentallyfriendly sustainable source of electricity inthe Subregion.2

The ADB has played a leading role infacilitating this initiative. The Mekongpower grid was conceived in an ADB-sponsored energy sector study for theregion completed in 1994 by Norconsult,one of Norway's largest hydropowerconsulting firms. Since then, the ADB hasconvened discussions among top Mekonggovernment officials and commissionedstudies to guide its development. In 2002,the ADB facilitated the signing of anInter-Governmental Agreement onRegional Power Trade at a summit ofGMS leaders. This key agreementcommitted the Mekong governments toestablishing a regional power market andcreated a high-level leadership body tocoordinate the implementation of regionalpower trade.

In April 2003, the ADB approved atechnical assistance grant to help GMSmembers prepare the regional power tradeoperating agreement. Three months later,the ADB released the Indicative MasterPlan on Power Interconnection and Tradein GMS Countries. This master plan, alsocompleted by Norconsult, examined thetechnical and economic aspects of theproposed initiative and recommendedconnecting twelve proposed dams inBurma, China and Laos to the grid. In late2003, the ADB approved a loan to financepower interconnection betweenCambodia and Vietnam, and approvedtechnical assistance grants for the NamTheun 2 Hydropower Project "Laos# and

1 The GMS includes Burma, Cambodia, Laos,Thailand, Vietnam and the Yunnan Provinceof China.2 Asian Development Bank, ‘TechnicalAssistance for the Study for a Regional PowerTrade Operating Agreement in the GreaterMekong Subregion,’ "technical assistancereport, April 2003#, pp. 1-2.


for power interconnection betweenThailand and Vietnam "via Laos#.

LACK OF PARTICIPATION ANDCONSULTATION

The importance of the participation ofcivil society in formulating strategies andmanaging natural resources is stressedthroughout the Bank's water and energypolicies. The Bank’s operations manualexplicitly states that participatorydevelopment processes will be adoptedwhich allow stakeholders to influencedecision-making throughout projectdevelopment cycles. Despite thesestipulations, members of civil society havebeen excluded from participation in thedevelopment of the Mekong power gridinitiative over the last ten years.

For most of the last decade, discussionand debate on the Mekong power grid hasbeen largely restricted to meetings ofhigh-ranking government officials, ADB,World Bank, aid agency officials, andhydropower industry representatives.3 Theinitiative was proposed in a 1994 ADB-funded subregional energy sector studycompleted by Norconsult. Since then,discussions have taken place in twoprimary forums: the ADB-sponsoredElectric Power Forum and the ExpertsGroup on Power Interconnection andTrade. The Electric Power Forum was setup as an advisory body to promoteregional power sector development andconsists of two members from each of thesix GMS countries "one from thegovernment agency responsible for energypolicy matters and the other from thelargest national power utility#. The Forumhas met annually since its first meeting inBurma in 1994.4 The Experts Group onPower Interconnection and Trade was setup by the ADB to develop detailed workprograms to help implement regionalpower interconnection and trade. Theexperts group, which has met annuallysince 1998, is comprised of senior energyofficials from the Mekong governments.Both of these groups have excludedmembers of civil society in substantivediscussions on the Mekong power grid. 3 Summary of Proceedings, Meetings of theExperts Group on Power Interconnection andTrade and Electric Power Forum, 1995-2002.Available athttp://www.adb.org/Documents/Events/Mekong/Proceedings/default.asp#power4 S. Chander, ‘South Asia Growth QuadrangleCooperation in the Energy Sector,’ "AsianDevelopment Bank Senior Project Engineer,2000#

Basic information on the Mekongpower grid and its potential benefits andcosts has not been presented to the publicand non-governmental stakeholders.Information is confined primarily tolengthy technical reports written inEnglish, including the ADB-financedenergy sector study and master plan. Thislack of important documents translatedinto regional languages and the failure tocreate accessible summary materials hasinhibited regional civil society fromlearning about and engaging in debates onthis initiative.

The process for collecting data for the2003 master plan was limited to reviewingexisting reports and meetings withgovernment officials. According to themaster plan, a Norconsult specialistvisited the GMS countries in Februaryand early March 2001 and met withofficials, relevant ministries and powersupply operating units to give thespecialist, ‘a comprehension of thesituation and to exchange ideas onpossible future development’.5 Drafts ofthe master plan were discussed at threesubsequent meetings of the ExpertsGroup on Power Interconnection andTrade held in 2001 and 2002.6 It does notappear that drafts or development planswere presented or discussed withelectricity ratepayers, affected people orother members of civil society.

INDIGENOUS PEOPLES NOTENGAGED

The ADB’s indigenous peoples policystates that special attention must be givento development initiatives that have animpact on indigenous peoples. TheMekong power grid and the hydropowerprojects that the grid would support arelikely to affect ethnic minorities living inthe region. They are most likely to bedisplaced by hydropower projects, whichare often in upland areas. Transmissionlines are likely to cut through their lands,displacing people, and destroying theirfarmlands, fields and ancestral homelands.

Thus f a r , e thn ic minor i tyrepresentatives have not had an 5 Norconsult, Indicative Master Plan on PowerInterconnection in GMS Countries, Volume IV,Institutional and Regulatory Arrangements,June 2002, pp. 1-1.6 Summary of Proceedings, Fifth and SixthMeetings of the Experts Group on PowerInterconnection and Trade, Greater MekongSubregion, 2001, 2002. Available athttp://www.adb.org/Documents/Events/Mekong/Proceedings/default.asp#power


opportunity to voice their concern,provide their consent, or discussalternatives. Concern for indigenouspeoples has not been integrated into eachstep of programming, project processing,and policy development.

Ten years ago, the energy sector studyrecognized that the Mekong power gridand its associated hydropower projectscould threaten the survival of ethnicminority groups. Yet despite this earlierforewarning, the ADB has not conductedeven a cursory survey to determine whichethnic minority groups are likely to beimpacted and to what extent their culture,livelihoods, and social and economicinstitutions would be affected by thisinitiative. This also contradicts a provisionin the indigenous peoples policy statingthat, ‘(s)trategies and approaches todevelopment that affect indigenouspeoples must include clear mechanismsfor accurate, objective analysis of theircircumstances’.7

Despite organising ongoing discussionswith high-ranking government officialsabout the Mekong power grid, the ADBhas not consulted with, or encouragedgovernments to consult with, ethnicminority groups. With this failure, theADB has ignored its indigenous peoplespolicy which says that plans should beconceived, planned and implemented tothe maximum extent possible with theinformed consent of af fectedcommunities.

CONCERNS NOT GUIDINGDECISION-MAKING

The ADB-commissioned 1994 energysector study and the master plan havefocused on technical and economic issuesrelated to energy sector development,while failing to adequately address thesocial and environmental impacts of suchactivities.8 Nevertheless, these pivotal

7 Asian Development Bank, IndigenousPeoples Policy, p. 17.8 Asian Development Bank, Regional IndicativeMaster Plan on Power Interconnection in the GMS,Summary information on technical assistancegrant, March 8, 2000. The scope of theTechnical Assistance, ‘will include to "i# assesselectric power demand and review thegeneration and transmission expansion plansin the member countries; "ii# update powergrid interconnection earlier, based on therevised demands and supply projections; "iii#formulate an indicative transmission masterplan to promote regional power trade; and "iv#identify the institutional and regulatory issues

studies have influenced policymaking onpower interconnection and trade, led tothe formation of regional advisory groupsand are guiding ADB technical assistanceactivities.

According to Norconsult, the energysector study, ‘should probably have beenupdated and made more complete onsubjects such as socioeconomicimplications and benefits of expanding theGMS power trade’.9 While the energysector study devotes one chapter to thegeneral environmental and socioeconomicimpacts of thermal and hydropowerdevelopment, it does not adequatelyexamine the impacts of specific projectsrecommended for development.Norconsult categorised 54 hydro projectsin terms of low, moderate, high or severeenvironmental impact. This was assignedbased on reservoir size, area of forests andagricultural land flooded, number ofpeople resettled, degree of flow regulation,and presence of ethnic minorities. Someprojects were classified, although noenvironmental impact assessments wereavailable on which to base these simplisticclassifications. Norconsult acknowledgedthat environmental information waslacking for most hydropower projects andthat assessments, ‘should not be assumedto be a definitive appraisal.’10 During theeight years which elapsed between whenthe energy sector study and master planwere completed, no additionalenvironmental and social impactassessments were carried out.

The ADB defined the terms ofreference for the master plan so narrowlythat social and environmental concernswere not investigated, as even Norconsultnoted.11 Consequently, analysis of theseconcerns is limited to statements aboutthe number of people who would bedisplaced and a graph comparingresettlement with mean energy costs. Themaster plan did not assess the totalnumber of people who would be resettledor affected by the projects nor thepotential impacts faced by ethnic minoritygroups as well as the potential impacts ofthe transmiss ion corr idors oncommunities, forests, or nature reserves.

Norconsult admits that the level ofstudy of the generation projects

that need to be addressed to properlyimplement the plan’.9 Norconsult, Indicative Master Plan, VolumeIV, p. 7-10.10 Norconsult, 1994, p. 2-50.11 Norconsult, Indicative Master Plan, VolumeIV, pp. 7-10 to 7-11.


considered in the master plan is varyingand that the, ‘possible environmentalimplications are quite uncertain’. It alsorecommends that findings, ‘need to beverified in more detailed studies beforeinvestment decisions are made’.12 Themaster plan also states that, ‘(h)ow to dealwith environmental and socio economicmatters should be subject to clarificationin connection with implementation of themaster plan. These tasks includelegislation as well as an adaptedgovernance structure’.13

Despite these warnings for morestudies and appropriate governancestructures, the ADB is irresponsiblymoving forward with the Mekong powergrid initiative.

IMPACTS ON FISHERIESRESOURCES NOT ASSESSED

The master plan recommends thedevelopment of the Jinghong andNuozhadu dams on the Upper Mekong inChina. These dams are part of a plannedcascade of eight dams on the UpperMekong which are likely to severelydisrupt the Mekong's flood-drought cycleand block the flow of sedimentdownstream. It is predicted that theseimpacts will lead to a major decline infisheries in the basin, including possibleextinction of some species.

The master plan also recommends theconstruction of the Nam Theun 2Hydropower Project in Laos. This projectwould divert water from the Theun Riverto the Xe Bang Fai River, a Mekongtributary on which over 120,000 peopledepend for fishing, gathering wildvegetables and irrigating their rice fields.A 2001 livelihood survey of people livingin the Xe Bang Fai basin detailed thecomplex fish migration patternsconcluding that wild capture fisheries, ‘areclearly one of the most importantlivelihood resources in the Xe Bang Faibasin’.14

Despite these potential impacts tofisheries no assessments have been carriedout in accordance with the ADB’sfisheries policy.

12 Norconsult, Indicative Master Plan, VolumeIII-A, p. 8-5.13 Norconsult, Indicative Master Plan, VolumeIV, p. 7-13.14 Bruce Shoemaker, Ian G. Baird and MonsiriBaird, The People and Their River: A Survey ofRiver-Based Livelihoods in the Xe Bang Fai RiverBasin in Central Lao PDR, "Canada Fund,Vientiane, November 15, 2001#.

CUMULATIVE IMPACTS NOTCONSIDERED

The ADB-financed master plan envisagesthe construction of 10 key powerinterconnection projects, associatedhydropower projects, substations andother infrastructure projects, yet does notconsider the cumulative impacts of theseprojects. Nor does it consider how theseimpacts may exacerbate impacts ofprojects already built or those currentlyunder construction. This is despite theBank’s guidelines on environmentalassessment highlighting that, ‘(c)umulativeimpacts are important because impacts ofindividual projects may be minor whenconsidered in isolation, but significantwhen the projects are viewedcollectively’.15

Possible cumulative impacts notassessed, include impacts to fisheries,water and sediment flow, downstreamcommunities, plant and animalbiodiversity, and the repercussions ofdisplacing people from their lands andtheir subsequent impact on naturalresources. Indeed, rather than assesscumulative impacts, the ADB recentlystated that for the Mekong power grid:‘(e)ach project would be evaluated on itsown merit’.16

Further, Bank policies state thathydropower projects will be examined inan overall context of integrated waterresource management "IWRM#. Thissentiment is echoed in the Bank'sStrategic Environmental Framework,which states that, ‘(t)he ADB should onlycons ider f inancing hydropowerdevelopment projects if compatible withan endorsed river basin managementplan’.17

It does not appear that the Bank hasconsidered the power grid initiative in anoverall context of integrated waterresource management. To achieve this,the Bank should work with institutionssuch as the Mekong River Commission to;assess the condition of natural resources 15 Asian Development Bank, ‘StrategicEnvironmental Assessment,’ undated, availableathttp://www.adb.org/documents/guidelines/environmental_assessment/strategic_environmental_assessment.pdf16 Letter to International Rivers Networkfrom Jong-Inn Kim, Project Engineer, AsianDevelopment Bank, Mekong Department,Infrastructure Division, "September 22, 2003#.17 Asian Development Bank and StockholmEnvironment Institute, Strategic EnvironmentalFramework, p. 9.


in the basin; determine how and to whatextent people use and depend on theseresources for their livelihoods; and analyseoptions for development of theseresources for agriculture, energy, water,transport and other uses.

COST-EFFECTIVENESS NOTPROVEN

The scenario recommended for griddevelopment in the master plan isestimated to save about $900 millioncompared to a non-grid option. However,Norconsult admits the savings are only inthe order of 1-2 percent of total cost,meaning that grid development will haveminimal impacts on consumer electricitytariffs. The generation and transmissionsystem is estimated to cost $43 billion.Furthermore, Norconsult stated that costestimates used in the master plan and theinitiative ’s potential environmentalimpacts were uncertain, concluding thatfurther studies should be carried outbefore investments are made.

The ADB's energy policy stipulatesthat the ADB should support power tradethat is cost-effective for all parties.However, as the master plan explicitlystates, the initiative’s cost estimates andenvironmental implications are uncertainand need further study. The ADB shouldheed this advice and suspend investmentdecisions on the Mekong power grid untilits cost-effectiveness has been proven.

ASSESSMENT NOTCOMPLETED

The recommendations of the WorldCommission on Dams "WCD# representcurrent international best practicestandards for water and energydevelopment planning. The WCD wasestablished by the World Bank and IUCN"World Conservation Union# to assess thepast performance of dams and issueguidelines for future energy and waterdevelopment. When the WCD report wasreleased in 2000, the ADB expressed itss u p p o r t f o r t h e WCD’srecommendations.18 It incorporated theminto a 2000 ADB energy policy paper,which stated that, ‘For new hydropowerprojects, the approach recommended by

18 Letter from Asian Development BankPresident Tadao Chino to Kader Asmal, Chairof the World Commission on Dams,"December 22, 2000#.

the World Commission on Dams will bepursued’.19

One of the most important principlesin the WCD report calls for thecomprehensive assessment of optionsbefore decisions are taken to proceed withany program or project. The WCD alsostates that, ‘Assessing options should startearly in the planning process and can beincorporated into master plans and sectorplans using strategic impact assessmentsand other planning tools’.20

The ADB is implementing theproposed Mekong power grid and tradeinitiative despite no comprehensiveanalysis of energy options having beenconducted. There is no proof that theconstruction of a power grid fueled bynew hydropower projects is the bestoption for meeting the region's energyneeds. Despite this, the ADB iscontinuing to promote the developmentof the power grid and its associatedhydropower projects as the mostenvironmentally sound and economicallyviable option.

Renewables, decentralised options: TheADB has not assessed the viability oflarge-scale renewable energy options ordecentralised small-scale energy systemsfor meeting the growing energy needs ofThailand and Vietnam. The 1994 energysector study focused exclusively on thepotential development of thermal "coal,oil, gas# and hydropower projects forconnection to a regional power grid.Norconsult briefly mentioned that theElectricity Generating Authority ofThailand is involved with solar, wind,geothermal, fuel cells, and solar waterheating projects. However, Norconsultstates that these resources are unlikelymake major contributions to the Thaienergy supply by the year 2020, dismissingthese options without assessing them.21

The master plan states that optionsavailable for future generation in Vietnaminclude hydropower, coal and gas,geothermal heat, and nuclear power.Hydropower and thermal options areinvestigated in detail, with tables listingpotential projects and basic informationon their generating capacities andlocations. The report mentions that

19 Asian Development Bank, Energy 2000:Review of the Energy Policy of the AsianDevelopment Bank, "2000#, p. 55.20 World Commission on Dams, "2000#, pp.222-223.21 Norconsult, Indicative Master Plan, VolumeIII-A, p. 2-3.


Vietnam aims to develop more renewablesources of energy in the future and that200 MW of geothermal-based generationare included in Vietnam's powerdevelopment plan up to 2020. However,no details are given about the totalestimated geothermal potential inVietnam in the master plan nor of specificprojects that may be implemented.22

Recent developments indicate thatrenewable technologies have considerablepotential for meeting energy needs inThailand. A 1998 study commissioned byThailand's National Energy Policy Officefound that biomass-fired power plants hadthe potential to generate 3,000 MW ofeconomically viable power. According toTha i energy expert DetcharutSukkamnoed, the technical potential ofbiomass in agro-industrial factories is ashigh as 7,000 MW. In Vietnam, the useof small decentralised systems such asmini-hydro plants and wind generators,large-scale photovoltaic power systems,and biogas plants also have significantpotential.23 Any energy strategy for theGMS should take into account thepotential of renewable options not only inThailand but in meeting needs in othercountries in the region. These optionsshould be assessed as equal contenders totraditional options, with social andenvironmental factors given the samesignificance as technical, financial, andeconomic factors.

Demand-side management and supply-side efficiency: The ADB's energy policyand the WCD stress that demand-sidemanagement and supply-side efficiencyoptions should be given priority over thefinancing of new electricity generatingprojects. It does not appear that theseoptions were considered in the ADB-financed energy sector study or masterplan. The former study did not analyse thepotential to reduce energy demand orimprove the efficiency of existinginfrastructure. The master plan states thatthe effects of demand side managementwere factored into the estimates of Thaifuture energy demand. However, thepotential energy savings from demand-sidemanagement is not quantified, analysed ordiscussed in the report.

According to the magazine Watershed,the International Institute for EnergyC o n s e r v a t i o n e s t i m a t e s t h a t

22 Ibid., p. 2-19 to 2-2223 Grainne Ryder, ‘Ending Vietnam’s HydroThreat to Cambodia’s Mekong Tributaries:Why Power Sector Reform Matters,’ "ProbeInternational, November 2002#.

implementation of demand-sidemanagement measures could save 2,200MW in Thailand.24 This could result inenergy savings at a lower cost and withfewer environmental and social impactscompared with the construction ofcontroversial new power plants. Giventhese benefits, the ADB should haveadequately considered and supportedsupply-side efficiency and demand-sidemanagement options before movingforward with the Mekong power gridinitiative.

CONCLUSION ANDRECOMMENDATIONS

The Mekong power grid initiative is anambitious plan & recommending theconstruction of 12 hydropower projectsand hundreds of miles of transmissionlines across the region and costing anestimated $43 billion. According to theADB, this initiative will provide cheap,reliable and environmentally sustainablepower for Thailand and Vietnam.However, as this analysis shows, the ADBhas not proven that this initiative iseconomically, environmentally, or sociallysustainable. The ADB has promoted thisinitiative through a poor process ofdevelopment, violating its own safeguardpolicies on energy, water, and indigenouspeoples, failing to consult with civilsociety in the region and contravening itspoverty reduction strategy, strategicenvironmental framework for the GMS,and the recommendations of the WCD.

Rather than rushing forward toimplement the Mekong power grid, theADB should step back and take a‘cautious approach’ to development inaccordance with the Bank’s own policiesand strategies. We call for the Bank toi m p l e m e n t t h e f o l l o w i n grecommendations:

1# Given the uncertainties regarding thepower grid initiative, its potential social,environmental, and economic costs andquestionable benefits for electricityconsumers in Thailand and Vietnam, theADB should suspend the Mekong powergrid initiative.

2# The ADB should ensure that acomprehensive assessment of energyoptions for the region is undertaken in

24 Apsara Palettu, ‘The Role of the State in theMarginalization of Alternative Energy,’Watershed, Vol. 7, No. 3, "March-June 2002#, p26.


accordance with WCD recommendations.This process should be open, transparentand participatory. This assessment shouldconsider demand-side management,supply-side efficiency, and both large-scaleand decentralised renewable options.Social and environmental concerns shouldbe given as equal consideration astechnical and economic concerns.

3# As part of the comprehensive optionsassessment, studies should be carried outto examine the cumulative environmental

and social impacts of the Mekong powergrid. This should be completed with thefull participation of affected people.Particular emphasis should be placed onconsulting with and assessing the impactsto ethnic minorities.

We urge the ADB to follow theserecommendations and ensure that theMekong power grid initiative will notundermine the environment, negativelyimpact people’s livelihoods and causeeconomic hardship.


Corruption and the ADBBRUCE M. RICH

orruption in the multilateral development banks "MDBs# canoccur at three interconnected levels. First, there is corruption ofindividual members of staff and management for personal gain.

Second, there is corruption in procurement for provision of goods andservices for specific investment projects "e.g. the corrupt biddingpractices, through agents, of international companies involved in theproject#. Third, there is systemic corruption on the part of governmentofficials and ministries in borrowing countries, where substantialpercentages of development assistance are stolen, with at least passiveMDB complicity.

C


There are indications that the AsianDevelopment Bank "ADB#, due both to itsorganisational deficiencies and its externallending environment, is more susceptibleto corruption than the World Bank at allthree levels. The following sectionsexamine the ADB’s internal culture andeffectiveness in addressing these threetypes of corruption.

THE EXTERNAL BORROWINGENVIRONMENT IN ASIA

The external lending environment of theADB is extremely corruption prone andcalls for an extraordinary level of duediligence - a level the institution has notmet. The ADB’s top five cumulativeborrowers, and its largest borrowers in2003, are among the most corruptcountries, as ranked by TransparencyInternational. They are Indonesia "$19.3billion#, China "$13.3 billion#, Pakistan"$13.55 billion#, India "$13.315 billion#, andBangladesh "$7.32 billion#. The ADBapproved some $6.105 billion in loans forfiscal year 2003, of which $1.532 billionwere for Indonesia, $1.488 billion forChina, $871 million for Pakistan, $275million for Sri Lanka, and $262 million forIndia.

Transparency International rankscountries annually according to aCorruption Perception Index "CPI#, froma possible highest rating of 10 "highlyclean# to 0 "highly corrupt#. In 2003,Transparency International published 133rankings: Indonesia is rated near thebottom at number 122, with a CPI rankingof 1.9. Bangladesh ranks dead last at 133 onthe list with a CPI of 1.3. Pakistan, thethird largest cumulative borrower andthird most important borrower for FY2003, ranks 92 with a CPI of 2.5. Indiaranks number 83 with a CPI of 2.8 andChina, number 66 with a CPI of 3.4.Moreover, a number of the ADB’s smallerborrowers such as Cambodia and Laos,while notoriously corrupt, do not evenhave a Transparency International rating.

Such a lending environment should callfor controls on corruption as perhaps thenumber one institutional priority. InsteadADB Management has only belatedly andtimidly recognised the seriousness of theissue, despite having promulgated a goodgovernance policy "for its borrowers, notfor itself!# in 1995, an Anti-CorruptionPolicy in 1998, and more detailedOperational Procedures on Anti-Corruption in 2000.

My own conversations with ADBofficials "some of whom were quite

forthcoming, some of whom wish toremain anonymous# revealed concernsover the quality of financial reporting andaccounting from borrowers. While theADB offers technical assistance toborrowers for ‘governance’ programs, ithas not prioritised rigorous financialreporting and accounting for its own loans- the most important thing to ensureborrower transparency. I was told thatthe ADB now requires that financialreports be submitted in a timely andregular manner, and that ADB staff aresupposed to read the reports, but it is notclear what attention is actually paid tothem.

A DYSFUNCTIONAL INTERNALCULTURE

The ADB suffers from the same ‘cultureof loan approval’ as the World Bank andother MDBs, yet without sufficientresources and commitment to monitorand implement them. But it also suffersfrom a deeper institutional crisis: aninternal culture that continues to turn ablind eye to corruption. Stephen Baker, aformer Executive Director to the ADBrepresenting Australia, shared hisreflections with his peers in February2001. He stressed that following the Asianfinancial crisis there was a, ‘rudeawakening to the damage wrought bycorruption,’ and that the ADB still had ‘toget far tougher with those who “skim andscam” on ADB projects and thosegovernments which are party to, or allowit to happen’.1 This former ADBExecutive Director also alerted hiscolleagues to the poor performance of theADB: ‘Having previously worked underthe premise that every $1 of investmentmust return at least $1.10, it wasdepressing to find from the evaluationreports that some projects returned aslittle as 30c on the dollar and even some ofthe generally successful ones only 60c onthe dollar. Even more depressing was thefact that in certain sectors, the Bank keptlending and kept failing’.2

Just fifteen months ago "June 2003#,Frank Black, former Executive Director tothe ADB for United Kingdom, Germany,Austria and Turkey, noted that, ‘theBank ’s appointments, promotion,appraisal and incentive systems are in

1 Stephen Baker, ‘ADB & Wherefore Art Thou"Reflections of a Board Member who spentthree interesting years with the Bank#,’February 2001, p. 10.2 Ibid., p. 1.


need of a thorough overhaul. The systemlacks transparency at present, and there isa prevalent “patronage” system, wherebystaff of sometimes dubious quality, canrise in the institution by aligningthemselves with powerful “patrons” insenior positions’.3

Black, in his widely circulated critiqueof the Bank, stated that the ADB, ‘isperceived as very government-oriented’and, ‘can too easily slip into playing therole of propaganda mouthpiece for somegovernments "and not always the mostdemocratic or legitimate governments#’.Black argues that the ADB’s ability topromote good governance in its borrowersis often hampered by an institutionallyrooted conflict of interest where majorborrowers are also shareholders. TheBoard itself is part of the problem since,‘it is almost entirely reactive to, and veryeffectively “contained” by the Bank’smanagement, and by its “consensusculture”’. According to Black, ‘(t)oo often,and particularly in the case of institutionalreform and some sensitive policy issues,this can mean either “no change” or aseries of backroom deals and compromisespresented as “consensus,” but amountingto the lowest common denominator’.4

These deeper institutional crises feedinto and reinforce the culture of loanapproval. Pushing money out the doorrepresents the path of least resistance fora management and board that is reluctantto exercise independence and rigor vis-à-vis major borrowing governments. In thewords of former Executive DirectorBaker, ‘Considerable energy is spent onpreparing projects and programs for Boardapproval. Far less is spent on ensuring theyare successfully implemented’.5

In this atmosphere, ADB Managementhas shown an almost cavalier approach tothe implementation of its own policiesand procedures. In response todocumented examples of major violationsof ADB policies in complaints before theADB’s Inspection Panel, Management hasdenied every alleged violation in everycase: the Samut Prakarn WastewaterManagement Project, the Sri Lanka 3 Frank Black, ‘The Asian Development Bank"ADB#: A Unique Contribution? TheEffectiveness of the Financing and PoliticalRole of the ADB in Reducing Poverty in theAsia/Pacific Region,’ "prepared by FrankBlack, departing Executive Director forAustria, Germany, Turkey and the UnitedKingdom at the ADB, June 2003#, p. 8.4 Stephen Baker, ‘ADB & Wherefore ArtThou,’Ibid., pp. 4-8.5 Baker, ‘ADB-Wherefore Art Thou’.

Southern Transport Development Project,and most recently the Pakistan ChashmaRight Bank Irrigation Project "Stage III#.The first two projects are discussed inmore detail in section VI of thisstatement.

The most recent ADB Managementresponse "May 2004# to an Inspectionclaim concerns the Chashma Right BankIrrigation Project. For this project, theADB committed $172.6 million "60% ofthe total project cost of $296.52 million#for a 171-mile irrigation canal along theIndus River, including the construction of72 distribution canals, 68 cross-drainagestructures, and 91 bridges. The mostrecent ADB financing was approved in1999. The project area in northwestPakistan impacts on part of theNorthwest Frontier Province borderingAfghanistan. A grievance committee forthe project received complaints fromalmost 9,000 people detailing economichardship and livelihood losses resultingfrom the project. A major issue is that theADB never prepared, as required by ADBpolicy, a resettlement and rehabilitationaction plan to address the forceddisplacement, and losses of land andlivelihood by the thousands of peoplecovered by the project ’s hugeinfrastructure footprint. In November2002, representatives of local affectedcommunities requested an independentinspection of the project, and theinspection finally commenced inDecember 2003.

ADB Management issued its responseto the draft inspection report in May2004. Their views on ADB policies andprocedures are disturbing and revealing.Management defensively asserts that noADB Operational Policies and Procedureswere violated because, ‘(j)udgment alsoapplies to the interpretation given toOperational Policies and Proceduresthemselves. It is for this reason that theADB’s “internal laws” are not written asrule based statutes but as operationalprinciples... This set up… means thatManagement "as well as the Board# arecalled upon to make evaluations anddecisions about what is possible and“doable” while adhering to the integrityand spirit of ADB’s internal laws… Withthe above in mind, Management feels itrelevant to highlight that many "if not all#of the operational principles in place inthe past and today are drafted on theunderstanding that “one rule does not fit all”.


Professional judgment fills the vacuum’"emphasis added#.6

And what a vacuum it is! Rather thanenforce adherence to policy andprocedure, Management goes on to arguethat instead, their application is aquestion of “professional judgment”.Broadly, such judgment, ‘is needed inrelation to all due diligence areas,including: technical, commercial,economic, financial, legal, institutional,environmental, social, gender, indigenouspeoples, resettlement.’ For the ADB togrant itself such a broad prerogative ininterpreting its own ‘operationalprinciples’, especially for financial andlegal procedures , pol ic ies andrequirements, is an extraordinarydeclaration of unaccountability for aninternational public financial institution.

NEGLIGENCE OF THE ADB ININVESTIGATING CORRUPTION

Non-governmental and communityorganisations in ADB borrowing countrieshave complained about financialirregularities and corruption in ADBprojects for years. We see flagrant caseswhere corruption has been linked not onlyto irregular procurement and massive costoverruns but-most importantly from thestandpoint of local communities-also tomajor changes in the location and designof large infrastructure projects. Theseunappraised changes have resulted inmajor , unmitigated socia l andenvironmental impacts. Two of the mostblatant examples are described below.

A. The Thailand Samut PrakarnWastewater Treatment Plant

The ADB approved a total of $230 millionin loans for this project. When theoriginal $150 million loan was approved bythe ADB Board in 1995, the project wasappraised as two industrial wastewatertreatment plants on both sides of theChao Phraya River in Thailand. Yet theproject approved was never implemented.Instead, the Thai Pollution Control Boardmoved the site of the plant 20 kilometersaway to build a single plant in the KlongDan district. Only one company - theNVSPKG Joint Venture - submitted a bid

6 ADB, ‘Comments of ADB Management tothe Inspection Panel on the Panel’s DraftReport on the Chashma Right Bank IrrigationProject "Stage III# "Loan 1145-Pak (SF. in theIslamic Republic of Pakistan, May 2004,’ pp.3-4.

for the construction, a violation of bothThai and ADB procurement rules.

Building the plant on the changed siteresulted in a cost overrun of 87% "from$507 million to $946 million; among otherthings, a pipeline had to be built totransfer the waste from the industrialplants near the original site#. In addition,some 60,000 villagers would suffer seriousenvironmental, social and economicimpacts because wastewater plantdischarges would pollute the coastalfisheries that most are dependent on. Tofinance the cost overruns caused by thechange of location, ADB Managementasked the ADB Board to approve an $80million supplemental financing loan in1998. ADB policies and procedures clearlyrequired a reappraisal of the project atthat time, since it was not the project thatwas approved in 1995, but this was notdone. Nor were any of the requiredenvironmental impact or social studiesconducted based on the new site.

Over the past several years, the Thaipress has printed numerous articlesalleging that this seemingly illogical andcostly site change was linked to a massiveland fraud conspiracy among various Thaigovernment officials. The Bangkok Postreported on November 15, 2002 that theThai Development Research Institutefound the company that won the bid waslinked to a former Science Minister andhis relatives, and the then deputyCommerce Minister and the DeputyIndustry Minister happened to be co-owners of the land at the new site. Amajor consultant to the project, SeatecInternational Asia Technology, wasowned by a former politician who alsojointly owned some of the land at the newsite:7 ‘Thai law enforcement authoritiesbelieve that PCD (the Thai PollutionControl Authority, Executing Agency forthe project) officials, executives of theJoint Venture, and the owners of theKlong Dan property conspired to inflatethe purchase price of the (land) parcels byas much as 1000 percent.’8 Thai

7 Supawadee Suanpoolthong, ‘A Case Study ofCorruption: Politicians exploited plan “atevery stage”’, Bangkok Post, November 15th

2002.8 Steve Herz, ‘”Zero Tolerance?”: Assessing theAsian Development Bank’s Efforts to LimitCorruption in its Lending Operations’"Washington D.C.: Bank Information Center,March 2004#, p. 22, citing Bangkok Post, ‘KlongDan Wastewater Plant Scandal: Vartana, NineOthers Accused: Graft Report Names VIPs,Senior Officials’ "June 11, 2002#; and The


authorities have brought criminalindictments against senior officials of thePollution Control Authority, real estatedevelopers, and executives of thecontractor.9

Several Thai Government bodieslaunched investigations into corruption inthe project. A Special Committee of theThai Senate ‘found corruption at everystage of the project’.10 The Thai PrimeMinister stated last year that the ADBproject was, ‘riddled with corruption’.This has become one of the biggest, mostpublic corruption scandals in Thai historyand more remains to be uncovered: ‘Manyin Thailand now suspect that the collusiveland deals are only the tip of the iceberg ofthe corruption on the Samut Prakarnproject, and that far grander corruption islikely to have occurred in theprocurement and construction of theproject.’11

So how has the ADB responded tocorruption allegations in Samut Prakarn?A June 2000 ADB Special ReviewMission to Klong Dan found no evidenceof irregularities in the land acquisitionprocess. The affected communities atKlong Dan then filed claims of violationsof ADB policies before the ADBInspection Panel and the ADB Anti-Corruption Unit of the Office of the ADBAuditor General "OAG#. But theInspection Committee of the ADB’sBoard, which has to approve inspections,refused to allow the Panel to pursue thecorruption allegation, arguing that it wasoutside the Panel’s jurisdiction and thatthe Anti-Corruption Unit was conductingits own investigation. The Anti-Corruption Unit never conducted a fullinvestigation, arguing that the Thaigovernment was already on the case. TheADB mainly examined the allegation thatan ADB official involved with the projecthad a conflict of interest, and concludedby rejecting the allegation.12 The Auditor

Nation "Bangkok#, ‘Making the Case for Graftat Klong Dan,’ "July 18, 2003#.9 Ibid., citing citing Bangkok Post, ‘Klong DanWastewater Plant Scandal: Vartana, NineOthers Accused: Graft Report Names VIPs,Senior Officials’ "11 June 2002#.10 Luntharimar Longcharoen, ‘Slap in theADB’s Face: The Khlong Dan WastewaterTreatment Project Corruption Scandal,’TERRA "Towards Ecological Recovery andRegional Alliance#, Bangkok.11 Herz, ‘Zero Tolerance,’ citing and The Nation"Bangkok#, ‘Making the Case for Graft atKlong Dan,” "July 18 2003#.12 See Herz, ‘Zero Tolerance’, pp. 24-25 andfootnotes.

General of the ADB has stated that whilethe ADB did not release its internalfindings to the Thai authorities, it did passon some ‘tips’ to them.

Meanwhile, ADB Management ’sFebruary 2002 response to the ADB’sInspection Panel investigation claimedthere were no violations of ADB policyand procedures.13 The Inspection Panelreleased its report in March 2002, andfound violations of six major ADBpolicies, including Management’s failureto conduct a complete reappraisal of theproject when supplemental financing wasrequested in 1998. After a heated Boarddiscussion, with some major borrowingcountries arguing against the findings ofthe Inspection Panel, the Board basicallyendorsed the report’s recommendationsfor remedial measures to address theneeds of the affected population, but didnot address any internal issues concerningviolations of ADB policy and procedures,let alone corruption.13

In early 2003, the Thai governmentdeclared the contract for the plant nulland void, and the Pollution ControlDepartment announced that it waspursuing legal actions against thecontractors to sue for recovery of all fundspaid under the contract. All consultingcontracts have been terminated.14

The plant remains unfinished and thenumerous legal actions filed by Thaiauthorities are unresolved. The ADBclosed both loans for Samut Prakarn inDecember 2003; the 1998 supplementalloan of $80 million for cost overruns andthe yet to be disbursed balance of $18.3million of the original $150 million loanfrom 1995. None of the remedial measuresto address the harm done to localcommunities have been carried out.15

It is a scandal that a full investigationof the ADB’s responsibility for notmonitoring, supervising, and addressingthe massive corruption in this debacle hasnot happened. Once the corruptionallegations and huge cost overruns beganto surface in the late 1990s, it should haveintervened, demanded a full forensic audit 13 See Bank Information Center, ‘BIC ProjectFactsheet #8: The ADB funded SamutPrakarn Wastewater Management Project inThailand,’ Updated July 2002.14 Asian Development Bank, ‘Samut PrakarnWastewater Management Project, FourthSemi-Annual Report to the Board of Directorson the Implementation of theRecommendations of the Board InspectionCommittee as Adopted on 24 March 2002,’April 2004.15 Ibid.


of the project, and halted disbursementson loans. Instead, the Board InspectionCommittee’s February 28, 2002 responseto the Inspection Panel "which was notallowed to address the issue of corruption#simply noted: ‘A sudden increase of $421million in the estimated cost of a recentlyapproved ADB project is a significantevent’.16

And what has the ADB learned?Following the second hearing of thisCommittee on corruption and the MDBsin July 2004, the Far Eastern EconomicReview published an article posing thatvery question to ADB officials. Thedirector of the ADB ’s MekongDepartment declared, ‘we learn fromSamut Prakarn as much as we learn fromother projects’.17 Given the ADB’s record,this is not encouraging.

B. The Sri Lanka Southern TransportDevelopment Project

The Sri Lanka Southern TransportDevelopment Project "STDP# is anongoing controversy with somesimilarities to Samut Prakarn. After theADB Board approved loans for a majorinfrastructure project that was appraisedin one location, the location was changed,causing massive cost overruns,environmental damage, and economichardship for affected populations.Evidence of procurement irregularities inthe ADB-funded project were highlightedin the Sri Lankan press. The leadcontracting company reportedly bribedthe project head who was subsequentlydismissed by the government. An affectedcommunity filed an Inspection Panelclaim in 2001, and again in 2004, aftertheir original claim was rejected by theADB Board Inspection Committee. TheBoard Inspection Committee reaffirmedManagement’s assertions that no policiesw e r e v i o l a t e d , d e s p i t e t h erecommendation of an Inspection Panelmember that an inspection proceed.Although the corruption charges became awidely publicized national scandal, theADB continues to turn a blind eye tomounting evidence of major procurementirregularities, cost overruns, andcorruption in this $90 million loan.

16 ADB Board Inspection Committee,‘Inspection Request, Samut PrakarnWastewater Management Project,’ February28, 2002, Para. 38, p. 7.17 Christopher Gay, ‘Thai Project Yields Graftand New Policies,’ Far Eastern EconomicReview, July 20, 2004.

The Sri Lanka STDP involves theconstruction, under the authority of theGovernment Road Development Agency"RDA#, of a high-speed highway link fromthe capital, Colombo, to the southern cityof Mataria. Much of the original route andarea of impact for the road "a trace threekilometres wide# was moved to a differentlocation after the project was appraisedand approved. According to the June 4th

complaint submitted to the ADB by SriLankan community groups, the changedroad route is twice the cost of what waspresented to the ADB Board when itapproved the loan.18 The result is that thenumber of households displaced anddestroyed by the construction more thandoubled, from 622 affected houses,according to the original environmentalassessment, to at least 1,315.19 The alteredroute will destroy a valuable wetland,1,000 hectares of rice paddies, and rubber,tea, fruit and vegetable gardens belongingto the local inhabitants. Five temples willbe damaged. The affected communitieswere not consulted, and the ADB, theclaimants allege, has violated itsenvironmental, social and resettlementpolicies.

The affected communities filed alawsuit against the Road DevelopmentAuthority "RDA# and won a judgmentfrom the Sri Lanka Supreme Court inJanuary 2004 that RDA had violated boththe National Environmental Act and therights of the petitioners under the SriLankan Constitution.20 To violate the lawsof its borrowers is a blatant contraventionof ADB policy.

Allegations regarding contractingirregularities emerged in Sri Lankannewspapers in 2001 and 2002, which wereconfirmed by a parliamentary Committeeon Public Enterprises. In the biddingprocess for the project, 29 companiesapplied, and three met the pre-qualification bidding procedures, based ona number of considerations, including thefinancial condition of the prospectivecontractors. A Japanese company, KumagiGumi, did not meet the pre-qualification 18 Joint Organization of the AffectedCommunities on Colombo-Matara Highway,‘Submission of Complaint: SouthernTransport Development Project Sri Lanka,Loan SRI 1711,’ June 4, 2004 "complaintsubmitted to the Asian Development BankSpecial Project Facilitator as part of therevised ADB inspection claim process#, p. 3.19 Ibid., p. 2.20 Ibid., Appendix 2 containing details ofInspection Request and new evidence, andAppendix 9, Supreme Court Judgment.


criteria21, and in fact had a negativefinancial worth. Kumagi hired an agent,Access International, to help win thecontract. As is typical with this sort ofarrangement, Access would win a hefty feeif it paved the way for a successfulcontract award for its client. Sri Lankannewspapers reported that Access hadinfluential political connections, includingin the Prime Minister’s Office.22 Access isalleged to have bribed the RDA projectofficial, by installing a new dieselgenerator in his home, giving him the useof a new SUV, and promising financialrewards if Kumagi won the contract.23

This use of agents as motors of corruptionto win contracts similarly occurred in theLesotho Highlands Project, discussed inthe Committee’s July 21st, 2004 hearing.

After the pre-qualification process wascomplete, the ADB reportedly sent aletter to the Sri Lankan Treasuryrequesting that Kumagi Guminevertheless be considered as a bidder onthe project. Three companies, includingKumagi, participated in the final bidding;only Kumagi was allowed to submit asecond alternative bid. Kumagi, knowingthe lowest bid of the other twocompanies, was naturally able to submitanother, lower bid, and win the contract.In the aftermath, the bidder that wouldhave under normal procedures won thecontract, protested, threatening to bringlegal action.

The Sri Lankan parliamentaryCommittee on Public Enterprises "COPE#conducted an investigation, and concludedthat both national governmentprocurement guidelines and those of theADB had been violated.24 The A ttorneyGeneral of Sri Lanka, when asked howKumagi could have won the contract inviolation of national and ADB tenderguidelines, reportedly stated: ‘KumagiGumi had been accommodated purely ona suggestion by the ADB on February 13,2001, particularly since it is an ADBfunded project and the guide on pre-qualifications specifically provides (in such

21 To pre-qualify companies had to score 60points in an evaluation framework assessingtheir financial stability, technical capacity etc.The pre-qualifying companies had scores of 95,79 and 75. Kumagi’s score was 54.22 Frederica Jansz, ‘COPE shoots downSouthern Highway,’ Sunday Leader "Sri Lanka#,October 27, 2002; Frederica Jansz, ‘OfHighways and Backroom Access,’ SundayLeader "Sri Lanka#, November 1, 2001.23 Ibid.24 Ibid.

cases) for ADB approval’.25

When the ADB Anti-Corruption Unitundertook its first mission to performspot procurement audits in a borrowingcountry last year, it went to Sri Lanka, butdid not look at the Southern TransportDevelopment Project.26 A ccording t oADB staff, they do not wish to pursueanti-corruption claims against a projectwhere an Inspection Panel claim may beunderway or pending. This is truly ap e r v e r s e a n d c o u n ter-productiveapproach, since the Inspection Panel doesnot appear to investigate corruption, andindeed, projects with Inspection Panelclaims underway may be precisely theones where corruption may be betterdocumented.

Meanwhile, the STDP project proceedsand Kumagi remains the contractor.Neither ADB Management nor the ADBBoard appears to be interested ininvestigating the extremely seriousprocurement irregularities and costoverruns in this case.

The June 2004 complaint of affectedcommunities notes:

‘The ADB Board of Directorsapproved a project which wassignificantly different to the one beingimplemented. ADB management isdisbursing funds for a Project that isdifferent from the one approved by theBoard in 1999. ADB management hasnot carried out a full review of theProject to ensure that the currentproject is in compliance with ADBpolicies nor has it sought approval forthe Project’s increased costs.’27

This would seem to be a clear case ofADB Management and its Board failing tofulfill its fiduciary duty under the Articlesof Agreement to, ‘take the necessarymeasures to ensure that the proceeds ofany loan made, guaranteed, or participatedin are used only for the purposes for whichthe loan was granted… .’

WHAT IS THE ADB DOING TOCOMBAT CORRUPTION?

In the past few years the ADB has failedto systematically apply its Anti-

25 Ibid.26 The Anti-Corruption Unit examinedanother project, and no corruption. It foundweak financial controls which could have beenexploited for corruption if corruption werepresent in the project.27 Ibid., p. 4.


Corruption Policy and Procedures. It hasnot investigated the most flagrant,scandalous, and well publicized examplesof corruption, such as the Thailand SamutPrakarn Project and the Sri LankaSouthern Transport Development Project.This lack of institutional leadership andmanagerial integrity concerning a publicinternational financial institution’s mostbasic fiduciary duty is disturbing.

Conversations with ADB staff andExecutive Directors ’ offices revealdiffering perspectives on the institution’scommitment to fight corruption. Someassert that over the past year ADBManagement has finally started to realisethe seriousness of the issue and there is anew resolve to deal with the problem. TheADB’s Auditor General is both candid andhopeful, but concedes that change is justbeginning and progress is fragile. Somesenior staff are deeply cynical about theinstitution’s ability to change, noting thatcosmetic commitments to reform come incycles in anticipation of new ADFreplenishments or ADB capital increases.

These caveats should be kept in mindwhen examining the anti-corruptionpotential of several ongoing initiativesdiscussed below.

A. The June 2004 Donors’ Report for theNinth ADF Replenishment

The Asian Development Fund "ADF# IXDonor ’s Report reveals a generalawareness of institutional problems in theADB, but, as noted above, barelymentions the word corruption.28 TheDonor’s Report does not address the scaleof potential ‘leakage’ from ADB lending,let alone suggest anything as specific asStephen Baker’s farewell observations tothe Executive Board in 2001. It doesemphasise a, ‘Managing for DevelopmentResults "MfDR#’ framework, to beadministered by a Results ManagementUnit "RMU#. ‘MfDR at ADB willincorporate measures of effectiveness,efficiency, client satisfaction, and staffsatisfaction. The RMU is developingthese indicators drawing on global bestpractices...’29 W ith respect t o specificmeasures to combat corruption in ADBloans, this is not very illuminating.

The Donors’ Report notes the need fora ‘merit-based culture’ and that ‘thecurrent incentive structure is weighted

28 Asian Development Bank, ‘ADF Donors’Report: Development Effectiveness forPoverty Reduction,’ June 2004.29 Ibid., pp. 6-7.

towards new lending; they (donors)suggested that ADB reorient incentivestowards implementation and developmentoutcomes’. To that end, a new HumanResources Strategy is being developed.‘ADB is planning early remedial action,including: "i# revising staff incentives topromote greater attention to projectquality rather than lending targets…"iv#implementing a human resources strategyfocused on improving performancemanagement and providing for greateraccountability.’30 I t is very difficult withcommitments expressed in such general,vague language to assess how deep oreffective they are. The avoidance of anyspecific discussion in the text of glaringproblems in ADB performance, and aboveall, the almost total avoidance of thecorruption issue, only fuels scepticism.

B. Performance Based Allocation

The Donors’ Report cites improving thePerformance Based Allocation "PBA# ofADF resources. The idea is to allotlending based on overall countryperformance, as assessed by ADB-promoted indicators. The ADF IXDonors’ Report proposes a greateremphasis on PBA for determining countrylending allocations, and an increasedweighting of governance considerations inthe PBA to 50%.31

The ADB has had a PBA system inplace since 2001. This system does notappear to have had any impact on theimplementation of the Anti-CorruptionPolicy and Procedures, nor caused anyperceptible change in Management’swillingness to investigate even the mostglaring corruption scandals associatedwith ADB projects. Although a revisedPBA system could result in reducedlending allocations to borrowers that ranklow on the Transparency InternationalIndex, this includes many of the ADB’smajor borrowers. Moreover, allottingresources to borrowers based on general‘governance’ rankings would seem to havelittle relevance to stopping actual ongoingcorruption of ADB resources if the ADBitself has no idea of the extent of ‘leakage’from its country lending.

C. Suspending Loans When BorrowersDo Not Address Corruption

One unambiguous ly promis ingdevelopment has occurred in the past 30 Ibid., pp. 7-8.31 Ibid., p. 16.


year: the reported ha lt ing ofdisbursements on two loans to Indonesiabecause of corruption concerns. Althoughthe 1998 ADB Anti-Corruption Policyprovides for this type of recourse, untillast year it had never been used.Reportedly, ADB Management and theBoard are considering halt ingdisbursements on a third loan toIndonesia, again for corruption.

D. The New Human Resources Strategy

The Donors’ Report also refers to the newADB Human Resources Strategy. TheHuman Resources Strategy contains asomewhat franker acknowledgement ofADB’s institutional problems: ‘There is awidespread perception that the internalappointment and promotion processes arenot transparent and are not structured toe n s u r e m e r i t - b a s e d d e c i s i o nmaking….Staff consider that there isundue non-disclosure of informationabout the processes, and combined withthe lack of objective criteria forrecruitment and selection, they do nothave an appropriate level of informationto substantiate decisions. These factorscreate a strong level of distrust andcynicism about how the organizationmakes HR decisions.’32 There is agrotesque irony here. ADB staff complainthat they suffer from the same lack ofaccess to information, and arbitrary,unaccountable disregard of ADB policies &at least concerning human resourcesmanagement & as communities and NGOsaffected by ADB projects.

The new Human Resources Strategyproposes general measures that in onesense are uncontroversial: a ‘Focus onResults ’ and ‘Linkage BetweenPerformance and Incentives,’ looking at,inter alia, ‘internationally accepted bestpractices in its HR management policiesand practices’.33 But exactly what resultsand incentives is the strategy referring to,and how will these plans be implemented?

The Summary of Actions in the HumanResource Strategy notes that the, ‘lack ofobjective criteria to aid selection for eachposition,’ will be remedied by theestablishment of ‘an ADB-widecompetency framework and skillsinventory,’ by the end of 2004. A‘stronger linkage between salary increaseand improved performance evaluation to

32 Asian Development Bank, ‘HumanResources Strategy: Revised Draft forDiscussion,’ 5 July 2004.33 Ibid., p. 8.

ensure high level performers are rewardedwith higher salary increases,’ will beestablished. Finally, the Summary statesthat to establish a ‘clear understanding ofu n a c c e p t a b l e b e h a v i o u r s a n dconsequences’ for staff, there will be ‘amore effective internal governancesystem,’ ‘mandatory code of ethicsseminars for all staff,’ and a ‘review andstrengthen(ing of) policies, processes andappropriate sanctions to ensure staffcompliance’.34

In the July 5th, 2004 ‘Revised Draft’ ofthe Human Resources Strategy, there is nomention of the priorities expressed in theADF Donors’ Report of ‘reorient(ing)incentives towards implementation anddevelopment outcomes,’ ‘promot(ing)greater attention to project quality ratherthan lending targets’ & let alone anyreference to country lending ‘leakage’. The‘Summary of Actions’ in the HumanResource Strategy does not contain theslightest indication of what the specificcontent or orientation of the newperformance indicators will be. Itproposes purely instrumental measureswhich are almost completely disconnectedfrom the very real corruption and projectperformance problems that areundermining the ADB’s mission.

E. Reviewing the Implementation of theAnti-Corruption and Governance Policies

The ADB is also conducting a review ofthe implementation of its Governance andAnti-Corruption Policies to consider, ‘thegovernance and anticorruption priorityactions for the period 2005-2009’.35 Thestudies of NGOs have already, as one staffmember told us, done a significant part ofthe work the ADB should have doneitself.36 The Committ ee should be k eptappraised of the progress of this effort,particularly regarding the ‘priority actions’that the review will identify for the nextfive years.

F. Revised Public Communications Policy

The ADB is currently revising its ‘PublicCommunications’ (information disclosure)Policy. Non-governmental groups have 34 Ibid., pp. 10-16.35 ADB, ‘Fighting Poverty in Asia and thePacific: Achieving Results Together - Reviewof the Implementaiton of the Governance andAnti-Corruption Policies’ "ADB internaldocument, 6 pages#, p. 1.36 See e.g. Herz, ‘Zero Tolerance?’;Environmental Defense Fund, ‘The ADB in itsOwn Words’, etc etc


welcomed progress in this area, notingthat the draft proposals of the ADB do gobeyond the current disclosure standards atsome other MDBs.37 But there are anumber of critical areas of particularrelevance to assessing the ADB ’scorruption efforts where moreinformation should be disclosed & startingwith, for example, more detaileddisclosure of the ADB’s own operationalbudget, resource allocation, andexpenditures and outlays.38

G. The Anti-Corruption Unit

Finally there is the role of the Anti-Corruption Unit itself. The ADB Anti-Corruption Unit, with five professionals,appears to be understaffed compared tothe 55-person strong Department ofInstitutional Integrity "INT# at the WorldBank. Indeed, a report undertaken byRichard Thornburgh and his associates inJuly 2003 indicates that the World Bankplans to further increase its anti-corruption staffing levels.39 I n the case ofthe ADB, with approximately $6 billion ayear in loan commitments compared tothe World Bank’s $24 billion, anappropriate staffing level for the Anti-Corruption Unit should be at least around14.

The Anti-Corruption Unit, which isunder the authority of the ADB’s Officeof the Auditor General "OAG#, isprimarily reactive in its function,investigating cases of alleged corruptionwhen someone files a complaint. AnOversight Committee "analogous to theWorld Bank Sanctions Committee# ruleson whether individuals and firms shouldbe blacklisted and barred from futureADB business "usually for a limited periodof several years#. With a much smallerstaff than the World Bank’s INT, Anti-Corruption Unit investigations have leadto the debarment of 207 firms andindividuals, as opposed to 288 to date atthe World Bank. The World Bank makesits debarments public, but the ADB does 37 Letter of Jennifer Kalafut and MishkaZaman, Bank Information Center, to Mr.Robert Salamon, Principal Director, Office ofExternal Relations, Asian Development Bank,May 28, 2004.38 Ibid., p. 6.39 Dick Thornburgh, Ronald L. Gainer, CuylerH. Walker, ‘Report Concerning the ProposedStrategic Plan of the World Bank’sDepartment of Institutional Integrity, and theAdequacy of the Bank’s Mechanisms andResources for Implementing that Strategy,’July 9, 2003, p. 6.

not. The Thornburgh report on fightingcorruption at the World Bank stronglyemphasized the desirability of automaticpublication of debarments.40

The rationale for not naming debarredcompanies and individuals at the ADBseems to be two-fold. First, the news ofdebarment supposedly spreads rapidly inthe business and consulting community,since debarred firms doing business in theAsia-Pacific region have to alert possiblebusiness partners of their status for everyprospective ADB contract. Second, large,powerful firms bring tremendous politicalpressure to bear when confronted withpotential debarment. Public debarmentwould likely make this pressure on theADB, given its closeness to governments,even more intense. In particular, somemajor industrialised donor nations play anextraordinarily hypocritical role inlobbying for their businesses behind thescenes at the MDBs. ADB staff informedus that the Ambassador to the Philippinesof a donor country directly protested theprospective debarment of a majorcompany for corruption, claiming that theADB Anti-Corruption policy was notintended to have such consequences.Nevertheless, the argument for automaticpublication of debarments is strong.

Since the Anti-Corruption Unit servesa primarily reactive function, it is at bestonly one part of an effective strategy toaddress corruption. Preventive measures,as the Thornburgh World Bank reportstresses, are equally important. The Anti-Corruption Unit has begun, despite itslimited resources, to undertake proactivespot procurement audits of projects. As itis, the effectiveness of the Anti-Corruption Unit is also limited by therestrictions and limitations ADBManagement and the Board have putupon it. For example, there appears to bea de facto rule that the Anti-CorruptionUnit will not conduct pro-activeinvestigations of projects if an InspectionPanel claim is in process or pending, norwhen there is an ongoing governmentcorruption investigation. But these areprecisely the cases where there may begreater evidence of ADB negligence orcomplicity.

40 Thornburgh, Ronald L. Gainer, Cuyler H.Walker, “Report Concerning the DebarmentProcesses at the World Bank,” August 14,2002, pp. 82-83.


When Things Fall ApartMUSHTAQ GAADI1

n 27 March the Asian Development Bank !ADB" Inspection Panel metwith Mr. Khadim Hussain, one of the Requesters of the Inspection of theChashma Right Bank Irrigation Project !CRBIP". He informed the

panel that it had been decided at the Lok Sath that the requesters would ‘disengage’themselves from their role as the Requesters of the Inspection, but they wouldnevertheless facilitate the work of the Panel.

!An excerpt from Final Report of the ADB Inspection Panel on ChashmaRight Bank Irrigation Project"

1 This article presents views and experiences of the writer who was one of the requesters of theInspection Claim on ADB-funded Chashma Right Bank Irrigation Project !CRBIP" in Pakistan. Theprocess of engagement and dialogue with ADB started with the Chashma Stakeholders Dialogue inAugust 2001. After the stakeholders’ dialogue failed, the Inspection Claim was filed on 19 November2002. The request for inspection was judged valid by ADB Board Inspection Committee !BIC", butthe actual inspection process was delayed to enable the ADB and the Pakistani government toestablish and implement the Grievance Redress and Settlement Committee !GRSC". The Requestersrejected this decision and argued for immediate inspection. The GRSC functioned without theparticipation of the requesters from 20 May to 29 December 2003. Its final report was submitted tothe BIC on 16 February 2004. A four-member Inspection Panel was later constituted. The Panelvisited Pakistan and the project area between 27 March to 6 April 2004. The final ChashmaInspection Report was approved by the ADB Board of Executive Directors on 19 August 2004.

O


The tale of the Chashma struggleneeds to be told and retold. Thearchitecture of silence within which theBank and its Inspection Panel areconstituted and operate are morerevealing than all the words that fill theirreports and statements. The uncoveringof this silence is itself a tool for speakingtruth to Power.

There are many moments in theChashma struggles -- the stakeholders’dialogue, the filing of the inspectionclaim, the establishment of the GrievanceRedress and Settlement Committee!GRSC"$that need to be properlyrecorded and analyzed. Even moreimportant and urgent is the need toexplain the causes of and the thinkingbehind the project affected ‘requesters’decision to disengage from the officialinspection process. It was a major event inthe inspection process, but on which thefinal inspection report is completelysilent.

The inspection report is wordless onmany other aspects of the Chashmainspection. It did not even refer to thePanel’s failure to attend the specialsession of Chashma Lok Sath !PeoplesAssembly" held in the project area on 27March 2004. The Lok Sath was held notonly to present what had been lost andwhat violations the lands and peoplessuffered. It was also an occasion to pass apeoples ’ judgment. Similarly, theinspection report is completely silent onthe way the Panel’s terms of referencewere framed, and glosses over the fact thatrequesters refused to give comments onthe Panel’s TOR as a gesture of protest.The Panel’s Silence on these and manyother issues belies the serious deadlockthe Panel encountered from its birth to itsend.

As one of the Inspection requesters, Iconsider it indispensable to expose thatdeadlock, to explain the underlyingphilosophy of the Chashma struggles, andto vindicate the victims’ refusal toconform with the law and powerrepresented by the ADB’s inspectionprocess.

The deadlock was primarily a dialectical!methodical" inversion of the relationshipbetween law and power. It is thereforenecessary to position the law and legalactivism in the proper context.

The law primarily operates in apolitical sphere, with aims to solveconflicts and contradictions in !civil"soc iety . These conf l ic t s andcontradictions relate to life, security,property, wealth, identity, religion, sex,

rank, status, profession, culture,environment, development and manyother aspects of social life.

Marx eloquently described the logic oflaw and power as “defined simply as non-interference; the limit within which eachindividual can act without harming othersas determined by law, just as a boundarybetween two fields is marked by stakes”.1The law is thus not concerned with libertyand freedom as such, and insteadconstructs the limits to liberty andfreedom. The law creates and sustains thefiction of the sovereign and equalindividual. By declaring that the real andeffective !social" differences in wealth andpower shall not affect the equal andsovereign titling of concerned individualsor parties as stakeholders, the law leavesthese differences intact. The law not onlyleaves relations of domination and conflictin !civil" society untouched, butstrengthens them by infecting the law!political sphere" itself. Far fromabolishing these real and effective differencesin position and power, the law actuallypresupposes and supports their existence.

That law, justice and social order arecreated by the weak and are products ofthe contract between the weak and thepowerful is a myth. They are creations ofthe powerful who seek to put an end tothe !senseless" resentments among theweak. They are power internalized.

It is from this point that we define andanalyze the Chashma struggles viz.standard legal activism. Legal activismdenotes, here, invoking the law to seekaccountability, reforms, remedies,compensation and reparations forsufferings and losses as a result of breachesin the rule of law.2 The law is invoked toavoid or minimize further losses. That is,invoking the law is maintaining the rule!and power" of the law. The law isgrounded on logical uti l itarianconsiderations$ if we know what movesthe law and how, we can manipulate itaccordingly. To do this, however, it isnecessary that we accept the law and itspower. Here the truth-justice game isconjured: interpretations, evidence andcounter-evidence, drama of victimhood,judge and finally, judgment. Whateverutilitarian objectives legal activism claims

1 T.B. Bottomore, ed., Karl Marx, EarlyWritings, p.262 The term ‘legal activism’ represents the widerange of standard practices including publicinterest litigations, lobbying, advocacy,stakeholders’ dialogue, policy reformsdialogues, etc.


to serve, it inevitably ends up affirmingprevailing relations of domination. AsNietzsche said, the moment “one partyhas become decisively weaker than theother, then subjection enters in and lawceases, but the consequence is the same asthat previously attained through the ruleof law”.3

Despite the manifest differences inform and strategies between the rule oflaw and subjection, the consequence anddialectics of oppression remains the samein both conditions. The rule of law merelyfollows the guidelines of the oppressor.

However, this manifest difference inform and strategies of the rule of law andsubjection ceases to exist in !post" colonialsituations, which historically meant thebrute power to kill and kill. A brute andnaked imperial sense of power definessovereignty. The law exists in its mostprimal form, that is, the power to inflicttorture, corporal punishment, physicalcoercion, and death. Law and justice herehave not yet acquired the power ofpeculiar pleasure-seduction that is themain characteristics of modern societies.

It would be helpful to briefly juxtaposethe prevalence of the alienation ofvictim/oppressed from the law with theMarxian/Hegelian alienation in labor/work.Marx said that, “the more the workerspends himself, the more powerful thealien objective world becomes which hecreates over against himself, the poorer hehimself-his inner world-becomes, the lessbelong to him as his own”.4 Similarly, themore the victim/oppressed involves him inthe labor of justice, the more he feelsalienated, estranged and, finally dead. Thelabor of justice that the victim/ oppressedspends in the sphere of law eludes thevictim in very strange way, as he himself isnot in it. Justice remains external tovictim as it does not belong to hisessential being. The more he strives togain justice in the sphere of law, the morehe feels sheer denial and negation. Thelaw thus becomes major and effectiveinstrument for domination anddehumanization.

At the most perverse level, law fetishismmakes the victim/oppressed take the lawas his Master and fall down before him. Asmorality and, more concretely in this case,law, is originally rooted in a desire toavoid pain and violence, an act of its

3 K. A. Pearson !1996".ed, Friedrich Nietzsche:On the Genealogy of Morality, p. 138.Cambridge4 Karl Marx. Economic and PhilosophicManuscript of 1844, p.70.

obedience is the tragic reaffirmation ofthat primal scene of compulsion andviolence.

The Chashma struggles at firstfollowed standard legal activism ( NGO’slobbying and advocating, stakeholders’dialogue with ADB and the government,filing the complaint, and preparing theinspection claim. This first phase ofChashma struggles was labor of justice:kneeling down before the Master andliving in the anticipated moment of theMaster’s death from which the salve!victim" would begin to live.5 Then camethe radical break from, or rupture in theeconomy of law. This happened when thevictim/oppressed declared through hisWord that the Master !law" was no morealive, already dead. This was the momentof casting off the dark shadow of law andpower and thereby disassociating from theconditions of alienation and immersinginto an act of knowing, transforming andbecoming.

This started when the law !and itscauses and effects" became the object ofreflection. This reflection was later thusdescribed in a letter to the GrievanceRedress and Settlement Committee:

“Law? First he robbed everybody,took all the earth, and all rightsaway from men, took them forhimself - killed all those who wereagainst him, and then wrote lawsforbidding to rob and to kill…… itwas you who came and told usabout the Law. You said, 'the lawpermits you to forcibly snatchaway our ancestral lands anddestroy our houses, crops andtrees'. The law sanctions yousimply to do everything you wantto do'. We knew not of such Lawand such method.”6

This dialectical inversion did not onlyreveal itself in Word; it was also concretelyachieved and realized in practice. TheChashma Lok Sath was the framework ofa peoples’ law, the spirit of a people’sexperimentation with the truth and truthtelling.

It would be a mistake to assume thatthe experiment of the Chashma Lok Sathwas an easy one and that it emergeduncritically. As Paulo Freire says, in

5 Jacques Lacan !1953". Functions and field ofspeech and language. p. 144.6 Second Letter of the Inspection Requestersto the GRSC dated August, 2003. Seewww.chashma-struggles.net.


dialectical thought, action is human onlywhen it is not merely an occupation butalso preoccupation, that is, when it is notdichotomized from reflection. Moreover,the term ‘experiment’ itself impliesuncertainty and requires the dialecticalunity of action and reflection. Theconcept and methods of the Lok Sathemerged and evolved in a very concretesituation of conflict and competition.

Before the start of the inspectionprocess, the ADB and the Governmentbecame united in the establishment of theGrievance Redress and SettlementCommittee !GRSC". The establishmentof the GRSC was perceived as a threat tothe peoples’ struggles and unity. Adiscussion was initiated and the idea ofdoing peoples’ law and a peoples’ tribunalwas suggested. It took a long time beforethese suggestions were realised as the LokSath. The reflections on relationshipbetween law and domination, thediscussion on underlying causes of theiroppression and helplessness, thecollection of histories and litany ofviolence, testimonies of the violated andvictims, story-telling, singing and dancingwere the methods of the Lok Sath. TheLok Sath was ‘the pedagogy of theoppressed that was forged with, not for,the oppressed’.7

It was not an easy experiment. Thefirst and foremost challenge in the LokSath was to de-mystify law and power andto re-establish the truth of thevictim/oppressed. This does not meanthat the victim/oppressed were notconscious of the violence of law. On thecontrary, the violence of law was theirevery day experience. Who are betterprepared than the victims/oppressedthemselves to understand the terriblesignificance of the violence of law anddomination?

However, it is equally true that theirconstant immersion in situations ofoppression inhibited their imagination.The opening of a new imaginative spacerequired them to overcome deeply-rootedfears of violence, and to take risks that areonly possible with the unity of reflectionand action. The Lok Sath stimulated therestoration of this dialectical unity. Mostimportant, it was successful in the de-mystification of law and establishing thetruth of the victim/oppressed. The LokSath statement on 24 August 2003presents this truth thus:

7 Ibid.

“We assemble here to guard theTruth….The Truth that is eclipsedby perpetual fabrication offalsehood and mendacity. TheTruth that is mutilated bydishonest reports, wrongs of high-paid consultants and officials andlust for money and profit…..S a r k a r !the government" andSuhkar !the banker" come to usand offer sympathies andpromised to alleviate oursufferings and correct wrongs. Astrange happening. Whenever weassemble and cement our allianceswe are offered futile dialogues andfalse promises. When we stoppedthe canal at different points, wewere promised that we would beprovided alternative lands andhouses. We were left woundedand annoyed. Then we wereinvited to participate in multi-stakeholders' dialogue. It left usbleeding. It is now third time thatSarkar and Suhkar have made theCommittee to alleviate oursufferings and hardships. The olddrink in a new bottle. It will alsopass, leaving us without anydestiny… We denounce thefalsehood of the promises. Wereject the Committee and itsr e c o m m e n d a t i o n s . T h eCommittee was imposed on us. Itwas established without ourconsent and participation. Werefuse to play the old game.”8

The specific deadlock that theChashma Inspection Panel tried to avoidwhen visiting the project area was thisprocess of the Lok Sath. The InspectionPanel was invited by the requesters toattend the special session of Lok Sath on27 March 2004. The invitation stated:

“We will show what we have lost.What violations and crimes havebeen effected upon our lands andour beings. And will tell of acommon sense and a reason thatrelies on the knowledge of thepeoples that reject the securityregimes inflicted in the names ofprogress and development.”

8 Statement of the Chashma Lok Sath held on24 August, 2004. See www.chashma-struggles.net.


Not only did the Panel opt not toattend the Lok Sath, but it also refused toacknowledge its legitimacy. TheInspection Panel knew that theirparticipation in the Lok Sath wouldsubvert the law as determined by theirMaster. Later on, in a letter to theInspection Panel, this event was thusdepicted:

“Like the coil of a snake, Power!un-Truth " encirc led andcontrolled you by the force of itsmagical armaments !contracts,terms of references, rules, firewalls, plans, permissions". Powerdecided the terms and conditionsof your b i r t h as well as yourexistence and thus stripped you ofyour real human face. This becameespecially clear to us when youcould not come to Lok Sath.”9

The rupture-abyss that emergedthrough Lok Sath led to the collapse ofthe Chashma Inspection. Things fellapart. This was not the final act of LokSath. The future of Lok Sath is open andwill be decided through the new dialecticsof actions and reflections.

9 A letter to the Inspection Panel. Seewww.chashma-struggles.net.


Right to Informationand the Right to be InformedGURURAJA BUDHYA

he citizens of India have been struggling hard to receive whatdemocracy promised. Post-independent India witnessed'development' projects that displaced and affected the lives of

millions of poor. In part, this has resulted from a lack of informationflowing between government and civil society on issues of policy anddevelopment. The major obstacle to the development of an effectivefreedom of information regime in India is the culture of bureaucraticsecrecy.1 The recent involvement of International Financial Institutions!IFIs" and especially the Asian Development Bank !ADB" in India hasonly served to entrench this culture, despite pronouncements to thecontrary.

1 Right to Information ( Resource Kit: By Public Affairs Centre !PAC", Commonwealth HumanRights Initiative !CHRI" and Consumer Rights Education & Awareness Trust !CREAT". Circulatedduring a Right to Information Workshop organized by Mangaluru Nagara Parisarasaktha Okkuta!MNPO" and in association with NGO Forum, December 2003.

T


Article 19!1"!a" of India’s Constitutionguarantees that, “all citizens shall have theright to freedom of speech andexpression.” The Supreme Court of Indiahas, in several landmark decisions,interpreted this broad guarantee toinclude the right to information as well.India is a signatory to the UniversalDeclaration of Human Rights, which, inits celebrated Article 19, defines freedomof expression and opinion as including theright to, “seek, receive, and impartinformation” and to the InternationalCovenant on Civil and Political Rights,which also protects the right toinformation.

In several states in India in the 1990s,movements developed to monitorgovernment projects in order to root outcorruption and promote transparency. InRajasthan, for example, the MazdoorKisan Shakti Sangathan emerged as apowerful force in checking bureaucraticcorruption.1 These in turn led to Right toInformation Acts being implemented in 12Indian states to ensure openness,transparency and accountability ingovernment, and to ensure the meaningfulparticipation of citizens in governance.

However, these laws have existed onlyon paper. After a decade of legislation,central and state governments continue toneglect public participation in decision-making.

Globally, civil society has been active inpushing for greater responsiveness andaccountability of public institutions,demanding that they institute properconsultation processes support andparticipatory development. The 1990s sawmany governments, including those ofJapan, Republic of Korea and Thailand,approve laws guaranteeing their citizensthe right of access to governmentinformation. International FinancialInstitutions !IFIs" have also considerablyinfluenced governments to enacttransparency laws, however symbolic theymay remain.2

This paper looks into the case of aninfrastructure development project incoastal Karnataka, South India, and usingthis example examines the Indian

1 On the MKSS, see Mazdoor Kisan ShaktiSangathan, The Right to Know, the Right toLive !MKSS: July, 1996" and Mander and Joshi,'The Movement for Right to Information inIndia'.2 The Right to Information to People, byY.G.Muralidhara, Kannada Prabha,dt.3.1.2003.

Government’s and the ADB’s claim thatthe public is informed.

INFRASTRUCTUREDEVELOPMENT PROJECTS INCOASTAL KARNATAKA

The coastal region of Karnataka is anenvironmentally sensitive area locatedbetween the Arabian Sea and WesternGhats. Since the early 1990s, theKarnataka State Government has broughtmega-industries into the coastal regions ofKarnataka.

Presently, the region is at the receivingend of an infrastructure developmentproject called the 'Karnataka CoastalEnvironmental Management and UrbanDevelopment Project !KCEMUDP".3 It isfunded with a loan from the ADB, andimplemented by the Karnataka UrbanInfrastructure Development and FinanceCorporation !KUIDFC".4 Since the westcoast of Karnataka has been identified asan important growth zone by the StateGovernment, the KCEMUDP was seen asproviding a support for this, as part of theState’s urban investment program. TheState has commenced the loan applicationprocess without meaningful consultationswith people on the development plans.

The KCEMUDP is the second projectfor Karnataka being funded by the ADBand the third Urban Development Projectfor India. The KCEMUDP !as agreedbetween the ADB and Government ofKarnataka" targets:

• already existing selected urban andindustrial areas;

• potential industrial and tourismdevelopment zones; and

• environmental management andcoastal erosion control.

The project will comprise a number ofsub-projects, namely, urban environmentalimprovements, urban transport, povertyalleviation, coastal environmentalmanagement and capacity building. 3 Refer -Executive Summary-Final Report,Karnataka Coastal EnvironmentalManagement and Urban Development Project!TA No.2806-IND", By NEDECO/DHVConsultants in association with ORG,November 1998.4 The Karnataka Urban InfrastructureDevelopment and Finance Corporation is acompany incorporated under the CompaniesAct, 1956, with 100% equity participationfrom the State Government. The StateGovernment has identified KUIDFC as thenodal agency to implement external aidedprojects for infrastructure development.


The estimated cost of the project isRs.8, 667, million !$206.4 million", out ofwhich 70% is from the ADB as a loan,24% is from the State Government andthe remaining 6% is from the Urban LocalBodies. The loan is obtained from theADB by Government of India !GOI",which further lends from it to theGovernment of Karnataka !GOK" as 70%loan and 30% grant. The loan, at theADB's variable rate of interest, is for 25years with an initial grace period of fiveyears. The loan from the GOI to theGOK attracts 13% interest and similarrepayment periods as the ADB/GOI loan.The GOK will sub-lend the total proceedsof the GOI assistance together with itsown contribution to the respectiveimplementing agencies in a mix of loanand grants. In General, all direct revenue-earning projects are financed as loanswhile other projects are financed throughgrants, or a mix of the two.5

UNDEMOCRATIC DECISION-MAKING PROCESS

After deciding to go ahead with thedevelopment of the coastal region, theKUIDFC appointed the NetherlandsEngineering Consultants !NEDECO" toprepare a proposal for submission to theADB on the KCEMUDP. Not a singlepublic debate or discussion was held bythe GOK during the formulation of the'Coastal policy on Urbanization'. It waspublic pressure led by the environmentalmovement in the coastal areas,thatprompted the Department of Forests,Ecology and Environment !DFEE" toprepare an Environmental ManagementPlan with the help of the Danish aidagency Danida in 1995.6 The plan spelt outspecific actions to be taken by local andstate institutions to ensure that districtdevelopment proceeded in a sustainablemanner.7 These reports are now gathering

5 Refer -Executive Summary-Final Report,Karnataka Coastal EnvironmentalManagement and Urban Development Project!TA No.2806-IND", By NEDECO/DHVConsultants in association with ORG,November 1998.6 Refer to the report, 'Managing SustainableDevelopment', DFEE-Danida Study onEnvironmental Management Plan forDakshina Kannada District, India, 1995.7Refer the report 'Managing SustainableDevelopment', DFEE-Danida Study onEnvironmental Management Plan forDakshina Kannada District, India, 1995.Implementation of the recommendations of

dust in the Department. There were alsono public debates on the completionreports of the plan in 1998, and theirapproval by the State Cabinet in 2000.8They have never been brought into thepublic domain, thus defeating the spirit ofpeople’s involvement in decision-makingas envisaged by the 74th ConstitutionalAmendment, since:

• Firstly, no consultations were heldwhen the State developed andfinalized its infrastructuredevelopment policy.

• Secondly, even as it had alreadyapplied for the ADB loan, theGOK did not hold consultationsto examine the financial and otherimpact of the activities to befunded by the loan.

• Thirdly, even after the approval ofthe loan by the ADB, fullinformation was not madeavailable to the people of theregion.

THE PEOPLE’S STRUGGLE FORINFORMATION

A few NGOs participated in a fewmeetings organized by NEDECO in 1998while it prepared its initial report. ButNGOs and citizens have not beeninformed or engaged in policy processesafter these meetings. In response, theNGOs of Mangalore, who have beendiscussing issues of concern together since2000, formed the NGO Task Force onADB.9 The Task Force’s objective is toseek clarity about the project and to makethe information available to the public.The Task Force raised concerns related tothe rate of interest on the loan, norms,unnecessary expenditure, repaymentterms and the implementation of theproject.10

The NGO Task Force did not relent intheir efforts to get information from the

the report is the responsibility of theGovernment.8 Government Order No.UDD 2 PRJ 99 !P",Bangalore, Dated 21st December 2000.9 Concerned individuals and groups to bringtogether the NGOs working on issuesconcerning Mangalore region have initiatedNGO Forum meetings. The main objective isto develop an understanding and informationsharing amongst them. More than 35 NGOsworking on wide range of issues meet once in amonth.10 Memorandum submitted by NGO TaskForce, Mangalore to Hon'ble Mayor ofMangalore, dt.27.6.2001.


ADB. It was only when a letter written bythe NGO Task Force to the ADB-Resident Mission was redirected toKUIDFC, that they got an initialresponse.11

There are no mechanisms in place forproviding information to the generalpublic on the progress of the project. Theparticipation of stakeholders in theplanning and implementation of theproject is totally missing. The KUIDFChas not voluntarily provided informationto the general public about the ongoingproject or even supplied information whenasked for it. When the KUIDFC wascontacted to provide project progressreports, the KUIDFC directed theinquirer to the Mangalore CityCorporation.12

People’s access to project informationis important, because without theparticipation of affected peoples and thecommunity in general, project qualitysuf fer s . The Karnataka UrbanInfrastructure Development Project!KUIDP", funded by another ADB loan, isa case in point.13 On visiting the sit es, theNGO Task Force on ADB observed thepoor quality of water supply, drains,underground drainage, roads and publicworks implemented under the project.The latest investigation by the KarnatakaLokayukta !Government of KarnatakaOmbudsmen" unearthed shortfalls andlapses in KUID Project implementation inTumkur City. The investigation found thatthe project lacked proper attention fromthe supervising staff, engineers and projectconsultants. The investigation reportedthat none of the schemes under theproject were fully implemented14,supporting feedback from citizens aboutthe lack funds reserved for post-projectmaintenance and the state’s burdened

11 Letter from KUIDFC to NGO Task Force,Mangalore !letter No.KUIDFC/NGOTASKFORC/LOC EX/2001- 2002 467Dt.7.5.2001".12 Interview with the members of NGO TaskForce, Mangalore.13 The KUIDP is an integrated urbaninfrastructure and institutional strengtheningprogram designed to provide and upgradeessential urban infrastructure and services inthe towns of Mysore, Chennapatna-Ramnagaram and Tumkur cities. See AnnualReport - Urban Development Department,Government of Karnataka, 2000-2001.14 Investigation report by the ExecutiveEngineer, Technical Wing, KarnatakaLokayukta, Bangalore, dt.12.3.2004

taxation base.15

THE UNDERMINING OF LEGALRIGHTS TO INFORMATION

The public expectation on the KarnatakaRight to Information Act !KRIA" 2000 isyet to be realized.16 Experience in the pasttwo years shows KRIA’s legal weakness!e.g. narrow definition of ‘responsibility ofcompetent authority’ and interpretationof concepts like ‘information’ and‘document ’ " , and il lustrates theadministration’s reluctance to implementit.17 KRIA only provides information tothose who ask for it, rather than requirethe state to proactively disseminateinformation, making it possible for stateagencies to keep the public andmunicipalities in the dark about stateprojects.

The 74th Constitutional Amendmentconsiders people as important in decidinghow their own needs should be met. Itsmain objective is to decentralize power tothe municipalities, providing for manychanges in their structure, composition,powers and functions.18 But the Centraland State Governments have not beenwilling to carry out such changes. Theentry of the IFIs with their huge sums ofmoney has strengthened State and Centralgovernments, encouraging them to movein the opposite direction, curtailing theautonomy of the urban local governments.

THE ADB AND PUBLICCOMMUNICATIONS

The IFIs also responded internally todemands for transparency and reviewedtheir information and disclosure policiessince 2001. Presently, the AsianDevelopment Bank’s !ADB" public

15 Review Report on ADB Funded Projects!1996-2001" Mysore, Tumkur, Chennapatna,Ramanagara, By NGO Task Force,Mangalore, February 2002.16 Karnataka Act No.28 of 2000, FirstPublished in the Karnataka Gazette on thethirteenth day of December, 2000. TheKarnataka Right to Information Act, 2000,received the assent of the Governor on thetenth day of December, 2000, and wasimplemented in July 2002.17 Southern News ( Karnataka, August 11,2004 at http://www.newindpress.com/18 Information brochure on 'The Constitution74th Amendment Act 1992 on Municipalities',published by the National Institute of UrbanAffairs !NIUA", New Delhi for the Ministryof Urban Affairs and Employment.


communications policy19 spells out itsintention to be more open to decision-makers and the public. The ADB feelsthat its advantage over other developmentagencies in Asia will be lost unless itmodernizes its approach to disclosure anddissemination of information.

After receiving comments from thepublic and civil society organizations andconducting consultations in 12 locations,the ADB intends to implement its policyfrom 1st January 2005. Such an elaborateexercise seems appropriate, but howserious it is about implementation isunclear.

T h e A D B ’ s 'D r a f t P u b l i cCommunications Policy' only allowspublic comments on the reactive andlimited responsibility of the institution to'give information to one who seeks'. Thedraft policy limits the responsibility of theADB to providing information only tothose who explicitly ask for it, rather thana broader flow of information from theADB to the public.

The ADB’s policy must be more thanjust symbolic to ensure that the public hasa clear and balanced picture of itscontributions to the region's development

A more proactive communicationspolicy will also help ensure that projectsfunded by the ADB incorporate people’smany concerns. Proper information willfacilitate the involvement of localmunicipalities in project implementation.The ADB should take the responsibilityfor monitoring and informing the publicon how projects are being implemented.

CONSULTATIONS, NOT JUSTFOR SHOW

The public consultations on the DraftPublic Communications Policy in Indiaand elsewhere have drawn criticism. Thecitizens and NGO representativesboycotted the consultation in July 2004 inBangalore because consultationorganizers did not inform or inviterepresentatives of affected communities,notably from Kerala, Karnataka and otherSouth Indian states where there areprojects implemented with ADB loans.The report of the meeting did notdocument the 'boycott', raising questionson the way the ADB holds itsconsultations.

19 Draft Public Communications Policy of theAsian Development Bank, 28th February 2004,available online for comment atwww.adb.org/disclosure.

The right to information and the rightto be consulted become even moreimportant given that IFIs lending comewith policy conditions. IFI financedprojects are implemented by bureaucraticstate agencies, and lack of access to crucialinformation increases the vulnerability ofthe stakeholders. Without informedparticipation of citizens, ADB projectswill either only benefit vested interests orbe ineffective.

Loan conditions should be put in thepublic domain because they directly affectthe crucial policies of the recipientgovernment.

The ADB has failed to initiate dialoguewith the public in their project regions inIndia, giving rise to many problems. TheADB’s Draft Public CommunicationsPolicy raises the issue of resourcei m p l i c a t i o n s c l a i m i n g , “ t h eimplementation will result in additionaldemands on current staff”, or “likely tospend more time and effort”, or “incuradditional costs for printing, copying andpostage.” These are claims that should notcarry any weight. These are butapprehensions due to a lack of'experience' in communicating with thepublic. The ADB has to realize thatmeaningful engagement with the public isthe most important component ofcommunication. The entire institutionand its project planning processes,therefore, must incorporate the publicdialogue mechanisms.

Institutions like the ADB that makegovernments toe the line on their policyconditions are now themselves subjectedto greater public scrutiny. If institutionsthey do not adhere to the principles ofdemocracy and respect the objectives ofthe Constitutions of sovereign countries,civil society will swing into action, as theyhave already done in many places.


Accountability at the ADB?A Critical Analysis of the Asian Development Bank’sNew Accountability MechanismFUKUDA KENJI

he Board of Directors of the Asian Development Bank !ADB"approved its new Accountability Mechanism on May 29, 2003. Thiswas the result of a long process to review the ADB’s Inspection

Function, which aimed to enhance the ADB’s accountability byaddressing the concerns of the people negatively affected by ADB-funded projects. At the same time, the new mechanism was establishedin response to strong voices from civil society in both the South andNorth criticizing the shortcomings of the existing process and calling foraccountability and transparency in ADB-funded projects.

T


This paper examines the backgroundand process of the review of theInspection Function, and analyzes thenew mechanism in the context of thestruggles of affected people and civilsociety efforts against the ADB’sproblematic projects.

ORIGIN OF INSPECTIONMECHANISM

The development of InspectionMechanisms at Multilateral DevelopmentBanks !MDBs" stems from thecontroversial Narmada dam project inIndia. As a response to the globalcampaign against the Narmada projectduring the beginning of 1990, the WorldBank, which was the main financier of theproject, decided to conduct anindependent investigation of it. Theindependent investigation team assessedthe Narmada project and the WorldBank’s compliance with its own policieson environmental assessment andinvoluntary resettlement. The teamreported that the dam would adverselyimpact the lives of the local communitiesand that the World Bank sharedresponsibility for such harm. This reportled to the Board of Directors of theWorld Bank to pressure the Indiangovernment, and as a result, India finallydeclared in 1993 that it would not ask forthe outstanding disbursement of theWorld Bank loan for the Narmadaproject.

The Narmada case made clear thatBank Management tended to avoidensuring that Bank-funded projects metthe international standards set forth in theBank’s safeguard policies. Some NGOsmonitoring World Bank operationstherefore proposed the establishment of apermanent independent body to receivecomplaints from affected people. The U.S.Congress was also a strong proponent ofthis independent mechanism. InSeptember 1993, the World Bank’s Boardapproved the establishment of theInspection Panel, which is an independentbody to investigate the compliance of theWorld Bank to its policies based onrequests from affected people.

The ADB, the little brother of theWorld Bank, became the thirdorganization to establish an inspectionmechanism called the ‘InspectionFunction’ in 1995, after the Inter-American Development Bank !IDB" in1994. However, both the ADB and theIDB adopted less independent systemscompared to the World Bank. The stated

objective of the current InspectionFunction of the ADB is to enhance thetransparency and accountability of theADB by conducting investigations byindependent experts on whether or notthe ADB has complied with itsoperational policies and procedures.

WHY ARE INSPECTIONMECHANISMS IMPORTANT?

Firstly, inspection mechanisms provideone of the few quasi-judicial mechanismsby which independent experts canmonitor management staff of MultilateralDevelopment Banks !MDBs". MDBsotherwise enjoy immunity from any legalaction under international law. However,most of the inspection bodies of MDBsreport to the respective Boards ofDirectors and are thus not totallyindependent from the decision-makingbodies of the institutions.

Secondly, inspection mechanisms arethe only institutional ways for affectedpeople to raise their concerns to MDBs.Before this mechanism, affected peoplehad to rely on informal ways to influencedecision-making in MDBs, includingpublic campaigns and lobbying MDBs,donor governments and the media.Though the importance of these tools hasnot diminished, inspection mechanismsprovide avenues for affected people toaccess independent investigation bodiesthat are expected to provide impartialassessments of MDB’s policy compliance.They also provide ways for affected peopleto attract attention of decision-makerswithin MDBs.

Whether or not the inspectionmechanisms provide solutions to thegrievances of affected people is a difficultquestion. The experiences of the WorldBank’s Inspection Panel, which hasreceived 27 claims since its establishment,demonstrate different impacts of themechanism upon project implementation,local struggles and the policies andpractices of the World Bank. Only twoprojects were canceled as a result ofinvestigations by the Panel, while partialsolutions or compensation for theproblems were provided to some people inseveral cases. The Management of theWorld Bank has continuously tried toavoid the investigation mechanism bybuilding coalitions with Board Membersfrom developing countries. This tactic hasbeen a big obstacle for the operation ofthe mechanism. In the case of the ADB,while eight claims were filed, only twohave been approved for inspection. Of


these two cases, requesters’ grievanceshave yet to be adequately addressed.

HOW DOES THE INSPECTIONFUNCTION WORK?

Before describing the complicatedprocedures of the Inspection Function, itis important to explain the primary actorsand their roles in the inspection process.

Requesters of the Inspection are, needlessto say, those who initiate the inspectionprocess by filing a claim. To satisfy theeligibility criteria set by the ADB, therequesters have to be two or more personsaffected by an ADB-funded project, ortheir representatives. The InspectionPolicy requires requesters to show that !1"the ADB has failed to comply with its ownoperational policies and procedures, !2"this failure led to material harm upon therequesters, and !3" requesters have alreadycontacted ADB Management to ask forremedies to the problems. These legalisticrequirements make the mechanismdifficult for affected people to access.

The Board Inspection Committee !BIC" isa sub-committee of the ADB Board ofDirectors. It oversees the wholeinspection process and makesrecommendations to the Board. The BIChas a critical role in the inspectionprocess , including; !1 " makingrecommendations to the Board onwhether or not an inspection should beconducted; !2" selecting Panel membersfrom the Roster of Experts after theBoard authorizes an inspection; !3"preparing the Terms of Reference !TOR"and timeframe for the inspection; and !4"making recommendations to the Board onany remedial measures based on thePanel’s report and the Managementresponse to the report. The Board ofDi rec tor s dec ides upon therecommendations submitted by the BIC.Thus, the Board is the final decision-making body to decide what actionsshould be taken on the project concerned.

The Panel of Experts is a team of threepersons that conducts the actualinvestigation of the project concerned andreviews ADB Management’s complianceto policies and procedures. The membersof the Panel are selected by the BIC fromthe Roster of Experts, and the Panel’sactivities are determined according to theTOR also prepared by the BIC. Uponcompletion of the investigation, the Panelprepares a report of their findings andrecommendations, and submits the reportto the Board.

The existence and importance of theBIC is one of the major differencesbetween the ADB’s Inspection Functionand the World Bank’s Inspection Panel.The BIC undermines the independence ofthe Panel by recommending another set ofremedial measures after the Panel’s report.Furthermore, members of the BIC mayhave conflicts of interest when the BICreceives claims regarding countries theyrepresent as Board members.

The inspection process is lengthy.Requesters are required to send acomplaint to ADB Management, andManagement responds to the complaintwithin 45 days. If requesters are notsatisfied with the Management response,they send an official request for inspectionto the BIC. Then the BIC forwards therequest to Management and Managementis allowed 30 days to respond to therequest. Within 14 days of Managementresponding, the BIC recommendswhether or not to authorize theinspection to the Board. The Board thendecides on whether to authorize theinspection within 21 days. Thus, 110 daysare consumed just to decide whether ornot the ADB will conduct an inspection.

After the inspection is authorized bythe Board, the BIC selects three panelmembers from the Roster of Experts, toconduct the investigation and prepares itsTOR and timeframe for the inspection.After the Panel completes theinvestigation on policy compliance andsubmits the report on its findings to theBIC, including any recommendedremedial changes in the scope orimplementation of the project,Management is again given 30 days torespond to the Panel’s report. Within 14days of receiving Management’s response,the BIC submits the f ina lrecommendations to the Board based onthe Panel report and the Managementresponse. It is then up to the Board tomake the final decision on the BIC’srecommendations within 21 days.

ACCOUNTABILITY DOWN THEDRAIN

Because of the complex process anduncertain outcomes, relatively fewrequests have been filed with the ADBInspection Function. So far, the SamutPrakarn Wastewater Management Projectin Thailand is the only case that has gonethrough the entire process. All otherrequests for inspection have beendismissed as ‘ineligible’ except for therequest on the Chashma Right Bank


Irrigation Project-Stage III in Pakistan,for which the Board of Directors decidedto conduct inspection in April 2003 butdelayed the commencement of the actualinvestigation until the second half of 2003.

The Samut Prakarn WastewaterManagement Project has been the mostcontroversial ADB-funded project for thepast three years, and it has been the targetof local vil lagers ’ protests andinternational campaigns calling for theADB’s accountability.

The project has been subject to muchcriticism regarding environmental andsocial impacts, corruption, lack of publicparticipation and lack of environmentalimpact assessment. Local people especiallyfear that the wastewater from thetreatment facility will damage thefisheries, especially the mussel farming,upon which their livelihoods depend.

Local people have been strugglingagainst the project since late 1998, half ayear since the beginning of theconstruction of the project. In 2000,NGOs, farmers associations, trade unionsand other civil society organizations inThailand, jointly organized a large protestat the ADB annual meeting held inChiang Mai, Thailand. The ADB facedmore than 3,000 people protesting againstthem chanting, ‘ADB get out of Thailand’.The rally included two hundred peoplefrom Klong Dan, where the SamutPrakarn project is. After this event, SamutPrakarn became recognized as the mostnotorious ADB project. InternationalNGOs also started to campaign againstthe project, targeting the ADB and theJapan Bank for International Cooperation!JBIC", claiming that these Banks shouldbe accountable to the people affected bythe projects they fund.

The decision to file an inspectionrequest was not made easily. Some localgroups in Thailand were skeptical aboutthe effectiveness of this process. In theend, however, local people decided to usethe Inspection Function as a way to makethe ADB accountable, and demand theADB suspend its loan for the project. Theproject was obviously not in compliancewith ADB policies because anenvironmental impact assessment for theproject was never conducted. The ADBBoard authorized the inspection on July20, 2001, which marked the firstauthorization in the history of theInspection Function.

The inspection process of the SamutPrakarn project was filled withdisappointments. First of all, the Panel

could not enter Thailand to visit theproject site. Under the Inspection Policy,‘no-objection’ from the government is aprerequisite for the Panel’s site visit.When asked by the BIC, the Thaigovernment put many conditions on thesite visit, including that the ADB shouldbear all responsibility for any damagescaused by the site visit. The Panelconsidered that they could not conductinterviews with the stakeholders in a fairmanner under such conditions, anddecided not to go to Thailand. As a result,the requesters lost the opportunity topresent their views to the Panel, and thePanel had to finish their investigationwithout ever meeting with requesters. ThePanel also complained that they had noway to communicate with outsidestakeholders, and they had difficulties inaccessing relevant documents andinterviewing ADB staff.

Despite these obstacles, the Panelreport revealed that the ADB had violatedseven policies in the course of approvingthe Samut Prakarn Project. Theseincluded policies on supplementalfinancing for cost overrun, operationalmissions, environmental considerations,involuntary resett lement, socialdimensions, governance, and benefitmonitoring and evaluation. The Panelrecommended that the ADB should admitthese violations and that the ADB shouldnegotiate with the Klong Dan communityregarding the damages, remedies and thelocal community’s participation in themanagement and operation of the plant.The Panel denied, however, therequesters’ demand to suspend ADB loandisbursement for the project.

Although the Management Responseto the Panel’s report denied every policyviolation, the BIC agreed with most of theconclusions of the Panel, but failed torecommend that the Board actually admitto the policy violations. The Boardapproved the BIC’s recommendations onMarch 25, 2002, without admitting topolicy violations, and instructedManagement to make semi-annual reportsregarding the implementation of theBIC’s recommendations.

The ADB has not however, taken anysteps to build trust with the Klong Dancommunity to this day. The ADBcontinued to disburse the loan for theproject while substantially ignoring themajor issues local people raised. Thus,despite the Panel finding clear violationsby the ADB of its own policies,accountability of the ADB to the peopleaffected by its project was not fulfilled.


The fact that the ADB had violated itsown policies on environmental and socialimpacts may have influenced the Thaigovernment’s decision-making. Onemonth after the final decision of theBoard, Prime Minister ThaksinShinawatra visited Klong Dan and metwith the community, which led to a seriesof studies by the Environment Ministry.As a result of strong criticism from localpeople, media, senators and academics,the Thai Government announced thesuspension of the project’s construction inFebruary 2003. This was a remarkableevent in the histories of both civilsociety’s struggle in Thailand andinternational campaigns against the ADB.

REVIEW PROCESS OF THEINSPECTION FUNCTION

During the inspection of the SamutPrakarn project, many stakeholdersrecognized the serious need for revisingthe inspection policy. The review of thepolicy began in December 2001, and tookalmost one and a half years to complete. Itis worth noting that the review of theInspection Function was the mosttransparent and participatory policy-making process in the ADB’s history. Atthe same time, it involved politicalconflicts among the stakeholders, none ofwhom were satisfied with the results ofthe review.

In the beginning of the review,international NGOs played a leading role.The ADB employed two environmentallawyers from NGOs who had extensiveexperience working on the World BankInspection Panel. In March 2002, 11NGOs submitted recommendations forrevising the inspection policy.

The ADB released a total of threedrafts of the new policy, and organized 10public consultations in both developingcountries and donor countries, where thefirst and second drafts were extensivelydiscussed. NGOs organized preparatorystrategy meetings for these consultations,and as a result, NGO’s proposals arguingfor a permanent and independent paneland accessible procedures gained broadsupport at these consultations.

After the initial success of the NGOcampaign calling for an independent andstrong accountability mechanism, ADBstaff and governments of developingcountries started to resist such amechanism. At the Phnom Penhconsultation in August, the Managementattempted to influence the views ofdeveloping countries by circulating a

memo written by senior staff. Thisincident became a scandal and infuriateddonor governments and NGOs.

After a round of external consultations,the debate continued within the ADB,and civil society had to wait for the resultof these secret negotiations until February2003, half a year after the second draft wasreleased. The subsequent ‘working paper’!the third draft" proposed to establishboth a problem-solving body and anindependent panel to review policycompliance. NGOs again submittedcomments on the working paper claimingthat the sequential model proposed in theworking paper - which requires a case tofirst go through part of the problem-solving phase before reaching thecompliance review process - wouldundermine the effectiveness of themechanism.

Finally, the Board of Directorsapproved the new policy called the ‘ADBAccountability Mechanism’ at the end ofMay 2003. The new policy is acompromise between NGOs and donorgovernments on the one hand, and ADBsenior staff and governments ofdeveloping countries on the other.Although there are a number ofimprovements in the new policy, severalsevere shortcomings also exist. Bothpositive and negative aspects of the policyare described below.

STAKEHOLDERS OF THEMECHANISM

Following is an explanation of the variousstakeholders ’ perspectives on theAccountability Mechanism, based on theirreactions to the inspection of the SamutPrakarn Project and the subsequentreview of the Inspection Policy.

ADB Management and Staff: ADBManagement and staff have been majorobstacles in the inspection process. ADBstaff have a strong incentive to lend moremoney to their clients, the developingmember countries, and do not want toadmit to the problems caused by theirfunding. In each inspection case, ADBstaff have tried all means to derail theinspection process. In the Samut Prakarncase, the Management Response to theinspection request denied every policyviolation alleged, and claimed that therewas no need for the inspection. There waseven a rumor that the Thai government’s‘objection’ to the site visit was suggestedby ADB staff. After the Panel revealedthat the ADB had failed to comply with a


number of policies, the Management againresponded that they believed there hadbeen no policy violations, despite theBIC’s report to the Board largely agreeingwith the Panel’s conclusion. In the case ofthe Chashma Right Bank IrrigationProject, Management claimed that anInspection should not be conductedbecause it would undermine the on-goingefforts to solve the problems through the‘Grievance Redress and SettlementCommittee’. ADB staff have tried to avoidinspection by pressuring the Pakistanigovernment to establish this committeealthough, the process of its establishment,including the TOR and selection ofmembers, was far from satisfactory for therequesters. These are some of theexamples of how ADB Management hastried to avoid taking responsibility for theharm caused by ADB projects.

D e v e l o p i n g M e m b e r C o u n t r i e s ’Governments and their EDs: In many cases,Developing Member Countries’ !DMCs"governments are the owners of theprojects subject to protest by local people,and naturally do not want these voices tobe heard by the ADB. They also tend tobe under the mistaken impression that theinspection is to investigate the faults ofDMCs. Some claim that the Thaigovernment opposed the site visit by thePanel in the Samut Prakarn inspectionbecause it feared that the Panel wouldinvestigate the Thai government ’sconduct, instead of the ADB’s.

In the process of the policy review,DMCs strongly opposed the introductionof a problem-solving mechanism, claimingthat the mechanism would undermine thesovereignty of the DMCs. They alsostrongly opposed the unrestricted sitevisits by the Panel, and demanded thatsite visits should only be conducted withthe consent of the governments. TheseDMCs opinions have been incorporatedinto the new policy to some extent.

Donor Governments and their EDs: Donorgovernments have been the majorproponents of the independent inspectionpanel. They feel that their contributionsto the ADB should be used effectively,without causing local and internationalprotest. In some countries, NGOsmonitoring the ADB had successfullyconvinced the donor governments tosupport their proposals.

NGOs and People’s Organizations: Thereare different perspectives on the ADB’sinspection mechanism among civil society

organizations. International NGOsworking on the ADB’s accountability havebeen the main actors pressuring the ADBto establish a more independent andeffective mechanism, because it is almostthe only institutional mechanism withinthe ADB where affected people can havetheir grievances addressed. NGOs indeveloping countries are more skeptical ofthe effectiveness of the mechanism. Theyare concerned how actual solutions for thelocal people will !or will not" beimplemented though this mechanism.Other local NGOs and people ’sorganizations see it as one strategy in thecampaigns to gain the attention ofdecision-makers in the ADB and donorgovernments. Although the degree ofexpectation varies, there is a consensusamong NGOs that an effective andaccessible inspection mechanism will be auseful tool to demand the ADB’saccountability.

THE FUNCTION OF THE‘CONSULTATION PHASE’

The ADB newly introduced a ‘problem-solving ’ function in the ADBAccountability Mechanism, which will beperformed by the ‘Special ProjectFacilitator !SPF"’ during the ‘consultationphase.’ The SPF is separated from thePanel, and the position is for one personwith a small secretariat. The role of theSPF is to conduct the consultation phaseof the Accountability Mechanism “torespond to specific problems of locallyaffected people in ADB-assisted projectsthrough a range of informal and flexiblemethods.” The SPF is appointed by andreports to the President of the ADB.Thus, the SPF is fundamentally the tool ofManagement, and the Board does nothave significant influence on the processduring the consultation phase.

It is welcomed that the ADBrecognizes its own role in problem solvingfor ADB-funded projects. While thecompliance review by the Panel will onlylook at the problems caused by the ADB’sviolations of its polices and procedures,the SPF will broaden the scope toproblems not related to issues of policycompliance.

Although the problem-solving functionmay be useful for affected people to acertain extent, there are many concernsregarding the consultation phase, asexplained below.

Independence of the SPF: NGOs havedemanded that the SPF should beindependent from Management and


should report to the Board instead of theADB President. The independence of theSPF is essential in the consultation phasebecause trust by the parties concerned!including the borrower and affectedpeople", is essential in seeking asatisfactory resolution to a dispute. It isdisappointing that the SPF will beappointed by the President. Furthermore,the new policy also allows current ADBstaff to be the SPF. It is unlikely that aninternally selected person would ever beseen as independent and trustworthy byproject-affected people.

Relationship between the SPF and thePanel : It is regrettable that the newAccountability Mechanism requires therequesters to file their complaints first tothe SPF, and then to wait for at least 84days before filing a request for compliancereview. This means that even if therequesters are already exhausted fromengaging in fruitless dialogues withManagement, they still need to file theircomplaints first to the SPF and waitnearly two months. This step is redundantand a waste of time and energy for boththe requesters and the SPF.

ADB’s ability to solve problems: Thefundamental question of the newconsultation phase is the ADB’s ability tosolve the problems of affected people in afair and impartial manner. The new policystates, ‘the consultation phase is designedultimately to improve and strengthen theinternal problem-solving functions of theoperat ions departments ’ . Manyexperiences of engagement with ADBManagement suggest, however, that theADB has always sided with borrowinggovernments, and as such, is reluctant tosolve or even acknowledge problems. TheADB’s poor problem solving capacity hasagain been demonstrated in yet anotherproject, the Chashma Right BankIrrigation Project-Stage III. It is not clearhow the SPF will overcome this culture ofdenial within the ADB.

MAJOR IMPROVEMENTS?

Although some issues remain to beaddressed, there are a number ofimprovements in the policy. In particular,the new mechanism has become far moreaccessible to affected people, evencompared to the World Bank InspectionPanel.

Independent and Permanent Panel: Apermanent Panel called the ComplianceReview Panel will be established.

Assuming requesters can endure theconsultation phase, this will allow therequesters to consult with the Panel andbe given necessary assistance for filingclaims. It is also expected that the Panelcan build institutional learning regardingpolicies and institutional problems of theADB.

Citation of Policy Violations: The newpolicy does not require requesters for thecompliance review to cite the policyviolations that led to material harm.Because the ADB has many policies andall of them are written in English, theprevious requirement was a major burdenand obstacle to the affected people. Underthe new policy, requesters will be asked toexplain; !1" how they are, or are likely tobe, affected materially and adversely; and!2" that this material harm is, or will be,caused by the ADB-assisted project. Nowit is the Panel’s role to decide whichpolices and/or procedures are violated inthe project of concern.

Reduced Management Response: TheInspection Function was extremelylengthy and allowed many meaninglessrefutations from Management. Under thenew policy, Management will be allowedto submit their response only once whenthe Panel delivers a draft report. This willsave the time and energy of both the Paneland Management.

Language: The new policy will allowboth the claim to the SPF and the requestfor compliance review to be submitted inany official or national language of theADB’s developing member countries.

Anonymity: Requesters can ask thattheir identity be kept confidential.

Requesters’ Comment on Panel’s DraftReport : Requesters will be given theopportunity to comment on the draftreport of the Panel. They may thus have acertain degree of influence on the Panel’sfinal report.

Monitoring of the Remedies: The Panelwill monitor the implementation of anyremedial actions approved by the Board asa result of the compliance review. Thiswill help its compliance review to be morebeneficial to local people affected by theproject. In many inspection cases of theWorld Bank, implementation of theBoard decisions have been left to theManagement. The effectiveness of thesedecisions was severely undermined by the


reluctance of Management and borrowinggovernments to follow the decisions.

Private Sector Operations: The privatesector operations of the ADB are coveredby the new mechanism, which were notincluded previously in the InspectionFunction.

TOOTHLESS NEW POLICY

Compared to what NGOs wereadvocating, the new policy lacks measuresto ensure the impartial investigation ofand adequate solutions to problems.

Site Visit: Among the mostcontroversial aspects of the policy revisionconcerned site visits. The old policyrequired ‘no-objection ’ from thegovernment for the Panel to conduct asite visit. The experience of the SamutPrakarn case clearly showed that thisprocess must be abolished to ensure fairand impartial investigations. NGOsproposed that this condition beeliminated, and that there should be aclause in every loan agreement betweenthe ADB and borrowing governmentsallowing the Panel to conduct site visits.In the process of the review, developingmember countries of the ADB stronglyopposed this proposal, saying thatallowing free site visits by the Panel wouldinfringe upon the sovereignty of a country.The new policy is unchanged and says, ‘thepolicy should assume the good faithcooperation of all parties in thecompliance review’. Leaving room forgovernments to resist site visits will limitthe effectiveness and independence of thePanel’s investigations.

Suspension of Loan Disbursement: Anothermajor issue of contention was thesuspension of loan disbursement. Therequesters of the Samut Prakarn caseseriously questioned why the ADB did notsuspend the loan disbursement when itbecame obvious that the ADB violated itsown policies during the project. Duringthe inspection policy review process,NGOs demanded that the Panel shouldbe empowered to recommend thesuspension of loans even when theinspection is in progress, because somecases may require immediate attention toaddress problems of a f fectedcommunities. In the Samut Prakarn case,more than 90% of the projectconstruction was completed when theinspection was over; it became too late tochange the project design thus

undermining the effectiveness of thePanel’s recommendations.

The new policy still says nothing aboutloan disbursement. It only states that afterthe investigation, the Panel will makerecommendations including any remedialchanges in the scope or implementation ofthe project.

FURTHER STEPS

Although there are a number ofimprovements in the new AccountabilityMechanism, the mechanism itself will notbe enough to prevent the negative impactscaused by ADB-funded projects. Furthersteps must be taken to enhance the socialand environmental performance of theADB, including the transparentimplementation of the mechanism,addressing the shortcomings of themechanism, institutional reforms of theADB, and strong and effective monitoringfrom civil society.

Transparent Implementation of the NewM e c h a n i s m : While the review of theInspection Policy was conducted in atransparent manner, the effectiveness andreliability of the mechanism rests on howthe Accountability Mechanism will beimplemented. NGOs have suggested thatthe new mechanism should have acommittee or a forum consisting ofrepresentatives of each sector to enhancec o m m u n i c a t i o n w i t h e x t e r n a lstakeholders, but this proposal was notincorporated into the new policy. Thereare still opportunities,, however, forNGOs and peoples’ organizations toinfluence the implementation of thepolicy, including the selection of the Paneland the SPF and establishment of theoperating procedures for both phases. TheADB should ensure that these processesare as transparent and participatory as thepolicy review process was. In particular,the SPF should be selected by and work inconsultation with civi l societyorganizations, because the institutionalarrangement of the SPF !i.e. s/he isappointed by and reports to the President"will not ensure her/his independence andcredibility.

Leadership of the President: Even if thenew mechanism is an improvement overthe previous arrangements, theimplementation is left to the ADB andexternal stakeholders, and the leadershipof the President is crucial for thesuccessful implementation of the


mechanism. Traditionally ADB Presidentshave been reluctant to strongly lead theinstitution, and have seen their role as amediator in the culture of consensus-based decision-making in this ‘Asian’organization. In the Samut Prakarninspection case, the President failed toexercise his leadership when the Thaigovernment objected to the Panel’s sitevisit and Board opinion split between theSouth and the North.

Responsible organizations need leaderswho hear the people’s voices and guidetheir institutions. The ADB president isplaying a key role as the chief executive ofADB Management and the chair of theBoard of Directors. The newly introducedconsultation phase requires a more activePresident, as it is the President whodecides on the remedial measuresrecommended by the SPF. Lack of meansof enforcement in the new mechanism,i.e., suspension of loan disbursement, canalso be addressed if the Presidentexercises his leadership in makingdecisions to suspend loans in cases whichrequire urgent actions.

Educating ADB Staff: It is ADB staffthat design, appraise and implement theADB loan projects. Even if the Panel/SPFis independent and recommends solutionsthat people demand, the implementationof these recommendations is in the handsof ADB staff. Educating and trainingADB staff regarding the negative impactscaused by ADB loans and the importanceof accountability will help makeoperations of the AccountabilityMechanism more effective. The staffshould also be given incentives to avoidnegative impacts from the projects theyfund.

Strengthening Civil Society: As describedin the beginning of this article, inspectionmechanisms have been established as aresult of civil society’s struggles againstdestructive projects funded byinternational financial institutions. It isalso true for the ADB. NGOs andpeople ’s organizations have madetremendous efforts in both inspectioncases and in the review of the inspectionpolicy. The new mechanism is the resultof this strong effort to establish theaccountability of the ADB and bringjustice to affected communities. The caseof Samut Prakarn showed that localpeople, local NGOs and internationalNGOs can work together against giantorganizations like the ADB.

Critical flaws remain in theAccountability Mechanism that canpotentially undermine the entire process,specifically, the right of governments toreject site visits and the lack of measuresto stop loan disbursements. Withoutpersistent and active monitoring, both ofprojects in the pipeline and those alreadyunder way, we will continue to seedisasters caused by the ADB. While civilsociety has had some success in bringingabout this new Accountabil ityMechanism, it may also be up to civilsociety to make sure that it works.

ADB INSPECTION FUNCTION!superceded by the New Accountability Mechanism, May 2003"

ADB Board ofDirectors

Board Inspection Committee (BIC)

ADB Management

RequestersAffected Peoples/ Representatives

Panel of Experts

(1) Requesters file complaint to ADB Management.Management must respond within 45 days

(2) If unsatisfied, Requestersfile with BIC within 45 days

(4) Management mustrespond to BIC

(5) BIC has 14 days to give Boardrecommendation on proceeding.

(6) Board decides on proceedingwithin 21 days

(7) If proceeding, BIC constitutesPanel and sets TOR and timeframe

(8) Panel conducts investigation,submits findings to BIC

(10) BIC submits Panel reportand Management response toBoard within 14 days

(11) Board makes final decision onBIC recommendations within 21 days

(9) Management has30 days to respondto Panel report

(3) BIC forwards this claim toManagement within 30 days.

ADB ACCOUNTABILITY MECHANISM PROCEDURE!Active, May 2003"

ComplainantsAffected Peoples/ Representatives

Compliance ReviewPanel (CRP)

(1) CONSULTATION PHASE(2) Claimants file complaint to SPF(3) SPF determines eligibility of the complaint (if

ineligible, complainant can still file with theCompliance Review Process)

(4) Review and Assessment of the complaint(5) Decision by the Complainant to continue

Consultation Process or may file compliancereview if

(6) ADB Operations Department andComplainant comment on SPF findings

(7) Implementation of the course of action

(6) CPR submits finalreport to Board

(3) Board authorisation of theCompliance Review

(7) Board makes finaldecision on Report.(8) The CPR will monitor theimplementation of actionsapproved by the board.

Office of the SpecialProject Facilitator (SPF)

(5) Managementcomments on Draft

ADB Management /ADB President

COMPLIANCE REVIEW PROCESS(1) Complainant files request forCompliance Review, if they find theconsultation process not purposeful

(2) CRP determines theeligibility of the request

(4) CRP conductsreview, circulates Draft

(5) Complainantscomment on Draft

ADB Board ofDirectors

STATEMENTS ON ADB POLICIESFROM MOVEMENTS, ADB WATCHERS,

CIVIL SOCIETY GROUPS,AND SOCIAL CRITICS


On the Draft PublicCommunications Policyof the ADB

n an effort to make the ADB more open, transparent, accountableand effective to its various stakeholders, the Bank came out with anew Public Communications Policy !PCP" last year. The PCP deals

with issues on stakeholders’ and affected communities’ right to accurateand timely information, a critically important element to their right tomeaningful participation.The Bank’s press releases state that the draft has been developed with inputs from variousstakeholders including representatives from NGOs and civil society in Bangladesh and India.On October 26, 2004, after a process that included 13 face-to-face consultations, ateleconference with Nepali groups, a walk-out in Bangalore, written comments andstatements of protest, the ADB released the second draft of the PCP. The new draft failedto incorporate many of the recommendations offered by civil society. Below is a collectionof comments and statements of protests from movements and civil society groupsmonitoring the PCP review process.

I


NGO LETTER TO ADB PRESIDENT TADAO CHINO ON THE PCP

April 5, 2004

President Tadao ChinoAsian Development BankManila, Philippines

Dear President Chino,

We are writing regarding the recentlyreleased Draft Public Communications Policyof the Asian Development Bank !28 February2004". While we acknowledge that theDraft Policy includes some improvementsover existing standards, it still remains aninadequate policy draft document failingto address many of the obvious problemsassociated with access to information atthe ADB. We are therefore disappointedwith the draft, as it may imply that thereis insufficient political will within theinstitution to adopt critical transparencyreforms. We hope this interpretation willbe proven wrong, but we feel it isimportant to clearly state our concernwith the ADB’s refusal to adopt many ofcivil society’s core recommendations.

As recently reported by the FinancialTimes, you have a keen desire for the ADBto emerge from this review as a leaderamong the Multilateral DevelopmentBanks !MDB". We are uncertain how thisdesire will be translated into reality if theADB does not substantially improve theDraft Policy. If the ADB aspires to be aleader in the MDB community, therequirements outlined in the Bank’sdisclosure policy should not fall short oftransparency standards that are wellestablished and foster universalagreement.

We believe that all citizens have a rightto information about ADB operationsthat affect them. As a MultilateralDevelopment Bank, the ADB’s governorsrepresent nations that have legalobligations under the International Bill ofHuman Rights, yet the Draft Policyrejects many of civil society’s keyrecommendations that are consistent withthis international agreement.

The name of the policy, as well, doesnot properly represent citizens’ right toinformation as described in internationallaw. The use of the term “public

communication” does not in any waycompletely address the reason fordeveloping such a policy or explicitly statenor imply that the policy is an enforceablerule for disclosure that fully respects thecitizen’s right to information, applicableto all the Bank’s officials and department.We would strongly recommend that thepolicy affirm this right unequivocally, andthat the policy be named the PublicCommunication and Information DisclosurePolicy.

The draft Public CommunicationsPolicy acknowledges that disclosureprovides opportunities to “enhancedevelopment effectiveness by makingmore operational information available tothe individuals and communities” thatbenefit from them, or that are affected bythem. We feel there are many ways inwhich the ADB could improve the DraftPolicy in order to acknowledge andrespect the right to information asenshrined in the International Bill ofHuman Rights. This affirmation andaction on well established principles ofdemocratic governance is exactly what thedraft PCP is avoiding; and this failure ismost disappointing.

Key recommendations from civilsociety absent in the draft PublicCommunications Policy include, amongothers:

• disc losure of deta i leddescriptions of proposed loansand grants in draft and finaldraft form !this refers to theReport and Recommendationof the President and theTechnical Assistance Report",including those pertaining toprivate sector lending;

• disclosure of Aide Memoires;• disclosure of all draft and final

draft policy, country, andstrategy papers, with adequatetime provided for comment;

• opening the meetings of theBoard of Directors, includingthe release of transcripts ofBoard proceedings or, as apreliminary measure, detaileds u m m a r i e s o f B o a r ddiscussions;

• making a commitment totranslate a wide range of policy


and operational informationinto relevant languages;

• providing citizens with anopportunity to appeal to anappropriate and independentbody in cases where they feelthe Bank has failed toadequately implement thePolicy’s guiding principle of “apresumption in favor ofdisclosure;” and

• strengthening the capacity ofResident Missions so as toprevent policy implementationfrom becoming over lydependent on Headquarters inManila.

Detailed comments on the draft PublicCommunications Policy will follow fromcivil society organizations separatelyduring the comment period.

Finally we hope and trust that you willreconsider the proposed Draft Policy andlead the institution towards adopting aPolicy that will demonstrate the ADB’sdesire to play a leading role in promotingmeaningful transparency in its ownoperations and among the MultilateralDevelopment Banks in general.

Sincerely,

Sameer DossaniExecutive DirectorNGO Forum on the ADB

Cc: Board of Directors

Endorsed by:Australia:Michael Simon, Oxfam Community Aid

AbroadLee Tan, Australian Conservation

FoundationBinnie O'Dwyer, FoE ' AustraliaAzerbaijan:Azad Aliev, Association of Social

Economic ResearchersBangladesh:Ashraf-ul-Alam Tutu, Coastal

Development Partnership !COP"Nasreen Pervin Huq, ActionAid

BangladeshMajibul Huq Dulu, Jamuna Char

Integrated Development Project!JCDP"

Zakir Kibria, BanglaPraxisBulgaria:Anelia Stefanova, Za Zemiata !For the

Earth"Cambodia:

Sithirith Mak, Fisheries Action CoalitionTeam

Thida Khus, SILAKACanada:Ian Baird, Global Association for People

and Environment !GAPE"Germany:Dorothy Guerrero, AsienhausKnud Vöcking, UrgewaldCarole Werner, World Economy, Ecology

& DevelopmentIndia:Shripad Dharmadhikary, Manthan

Adhyayan Kendra !Manthan ResearchCentre"

Smitu Kothari, Lokayan Programmes onSeeds of Hope and Tribal Self-Rule

Anna Pinto, Centre for Organization,Research & Education !CORE"

Debabrata Roy Laifungbam, South AsianSolidarity for Rivers and Peoples!SARP"

Charmaine Rodrigues, CommonwealthHuman Rights Initiative !CHRI"

Himanshu Thakkar, South Asia Networkon Dams, Rivers & People

Ravi Rebbapragada, SAMATAIndonesia:Fabby Tumiwa, INFID ' Working Group

on Power Sector RestructuringMuhammad Riza, Yayasan Duta AwanItaly:Antonio Tricarico, Campagna per la

riforma della Banca mondialeJapan:Kenji Fukuda, Mekong Watch JapanYuki Tanabe, JACSESKei Kurihara, Fukuoka NGO forum on

ADB !FNA"Kazakhstan:Yevgeniy Zhovtis, Kazakhstan

International Bureau for HumanRights and Rule of Law

Malaysia:Adrian Goh, SOS SelangorNepal:Gopal Siwakoti, WAFEDNetherlands:Henneke Brink, Both EndsVincent Brisard, ASEED EuropePakistan:Khadim Hussain, ActionAid PakistanMohammad Nauman, CREED AllianceZafar Lund, Hirrak Development CenterMukhtar Ahmad Ali, Consumer Rights

Commission PakistanAsim Nawaz Khan, NGO Network

Welfare AssociationKhawar Mumtaz, Shirkat GahPapua New GuineaRuth Pune, Center for Environmental

Law and Community Rights!CELCOR"


PhilippinesSameer Dossani/Jessica Rosien, NGO

Forum on ADBJoan Carling, Cordillera Peoples AllianceSheila Coronel, Philippine Center for

Investigative JournalismNepomuceno Malaluan, Action for

Economic ReformsSwitzerlandBruno Gurtner, Swiss Coalition of

Development OrganizationsThailandPianporn Deetes, South East Asia Rivers

Network !SEARIN"Penchom Saetang !Ae", Campaign for

Alternative Industry Network !CAIN"Piyachet Klaewklad, Asian Labor

Network on International Financial

Institutions Thailand !ALNI Thailand"S. Parasuraman, ActionAid AsiaNaing Htoo, EarthRights International!SE Asia"

UKAlex Wilks, Bretton Woods ProjectTom Griffiths, Forest Peoples ProgrammeToby Mendel, ARTICLE 19USAMishka Zaman, BICSusanne Wong, International Rivers

NetworkShannon Lawrence, Environmental

DefenseDoug Norlen, Pacific EnvironmentJohn Fitzgerald, GAPPaul Orum, Working Group on

Community Right-to-Know


BOYCOTT OF ASIAN DEVELOPMENT BANK’S CONSULTATIONON DRAFT PUBLIC COMMUNICATIONS POLICY

16 July 2004Mr. Louis de JongheCountry DirectorIndia Resident MissionAsian Development Bank

Dear Mr. Jonghe,

We, the undersigned members of variouscivil society organisations do herebyexpress our profound concern with theprocess of consultation that is taking placetoday. The reasons for our concern areelaborated below:

a) This consultation is notrepresentative of those deeplyaffected by ADB supportedprojects. Affected people acrossSouthern India have not beeninvited into this consultationprocess !to name a few, fromInfrastructure developmentp r o j e c t s i n T u m k u r ,C h e n n a p a t n a m a n dRamanagaram, and the WestCoast Project in Mangaloreimplemented by the KUIDFC".

b) It is not clear to us what criteriaADB has used to selectparticipants to this consultation.Those who should be legitimateparticipants in this consultationprocess !project affected people"have been denied a voice, andthereby their rights to shapeprojects in their area. Moreover,those who have been invited tothis consultation were givenextremely short notice !one week".

c) Our experience with past andongoing projects of ADB showsthat it is critical to givesubstantive information in locallanguages to affected people. It isthe right of the affected peoplethat they receive informationabout the projects at early stagesof negotiations and not during theimplementation phase only. Bynot engaging in this practice ADBis denying people’s right to

information. The organizing ofthis consultation process alsoreflects these flaws.

d) Past and ongoing experiences ofADB project show that theappropriate information is notprovided to the appropriatepeople at appropriate times.Despite repeated requests fromproject affected people and localelected decision makers, ADBp r o j e c t m a n a g e r s a n dimplementers have not sharedcrucial information about projectdesign, financing arrangements,risks, liabilities and repaymentschedules. Further, projectaffected people and the locallyelected decision makers do nothave access to clear and effectiveg r i e v a n c e a n d redressalprocedures.

e) As a public institution, ADB mustbe bound by the best practices ofinformation disclosure. Whetheror not the project implementer!Government or a privatecontractor" provides informationon projects, ADB cannot shy awayfrom its own responsibilities inthis matter.

f) It is evident that ADB’sc o m m i t m e n t t o p u b l i cparticipation is superficial. Anyprocess of information ‘disclosure’that does not result in meaningfulparticipation by project affectedpeople and perceptible change inADB’s institutional behaviourtowards accountability andresponsiveness to communityconcerns, is a futile exercise. It isalso clear to us that ADB’s‘disclosure’ of information has nobearing on its institutionaldecision making processes.

g) The standards and norms that areused by ADB while undertakingsocial-economic and environmentassessments are inadequate andunacceptable.


h) We strongly object to ADB’sdisregard for national laws, localregulations and measures wherebythe institution pressurizesgovernments to amend laws to suitproject interests.

The above concerns have been voiced bycivil society actors and project affectedpeoples in several countries and in severalforums. It is indeed a matter of greatregret that ADB has not found theseconcerns important enough to address.For these reasons, we the undersignedchoose not to participate in thisconsultation. Should the ADB, be willing

to engage seriously with the issues raisedabove, we would be happy to take thediscussion further.

Sincerely,

M. N. Kotenagabhusan, TumkurChelevaraju, RamanagaramSamatha, HyderabadCommunications for Education andDevelopment, BangaloreFocus on Global South, IndiaEQUATIONS, BangaloreCivic, BangaloreSTDP, SrilankaEnvironment Support Group, Bangalore


SOUTH ASIAN STATEMENT ON THE 2ND DRAFT OF THE ADB’SPUBLIC COMMUNICATIONS POLICY

e, the undersigned civil societyorganizations and movements inSouth Asian region, call upon

the Asian Development Bank to adopt thefollowing demands to be incorporated inits Public Communication andInformation Disclosure Policy.

We believe that the communities andcitizens have a right to timely, full andaccurate information about projects andpolicies that shape and affect their lives.As an institution that claims commitmenttowards public good, the ADB has aresponsibility and obligation to operate ina transparent and accountable manner.We believe that the ADB has failed in itsduty to consistently provide timely,complete, accurate and accessibleinformation to the public. Reading the 2nd

draft PCP, we recognize that changes havebeen made, but are inclined to commentthat the changes are few and cosmetic tosay the least, and where changes have beenmade, they serve to mainly boost theADB’s image rather than deepen itscommitment to transparency andaccountability. Further, contentious issuesraised in past civil society comments andstatements have not yet been resolved.

The second draft of the PCP still fallsfar short of the demands of citizens andcivil society organizations in the SouthAsia region.

Following are our comments on the 2nd

draft PCP and our demands on what weexpect to see in the final PublicCommunication and InformationDisclosure Policy.

• The current draft is silent on howcertain decisions and the changesmade to the draft arrived at; thepolicy should disclose the processand rationale behind the changes.

• We demand that the PCP berenamed as PublicCommunication andInformation DisclosurePolicy, by which the duties andresponsibilities of the ADB aregeared towards disclosure.

• The disclosure should be moreorientated towards project-affected people, communities and

citizens, not towards industry,private sector and government.

• The policy should be more specificand conclusive, rather thannarrative. The policy should beunambiguously in favour of fulldisclosure and not allow forselective interpretation by ADBmanagement and project staff.

• The policy is still geared towardsconstraints than disclosure, there ischange in the 2nd draft but thetone remains the same.

• The ADB should not only discloseinformation, but also, it mustrecognize that its disclosure policyshould come out as a result ofdemands and aspirations of thepeople.

• The policy should not make anydistinction between public andprivate sector lending andprojects. The ADB is a publicinstitution and should act as such,and not favour private sectorinterests.

• The draft is extremely weak onprivate sector projects. Given thatall development projects are!directly or indirectly" publiclyfinanced, information pertainingto all private sector operations inADB supported developmentprojects must be on the publicdomain. This is particularlyimportant in light of increasingprivate sector involvement inADB financed projects andprogrammes. The business andcompetitive interests of projectsponsors cannot take precedenceover the public’s right to knowabout the details of these projects,especially if the public willeventually shoulder the financialburden of these projects.

• In all private sector projects, theADB must disclose full andaccurate information aboutfinancing arrangements including,

W


details of concession and actualfinancing agreements, risk andprofit distribution, contingent andother liabilities, details ofguarantee and counter-guaranteeagreements, expenditure patterns,audit reports and anti-corruptionreports.

• There should clearly articulatedmethodology on how the policywill be evaluated.

• We believe the policy mustinc lude recourse to anindependent appeals body. Such abody will interpret ADB’s statedpresumption in favor of disclosureand provide an independentreview of the regime ofexceptions. The policy must beunder the review of CRP!Compliance Review Panel". Wedemand that any individual citizenor interested party, regardless ofwhether they are harmed byADB’s non-disclosure, should beeligible to lodge a disclosurerelated appeal with the CRP.

• The policy still does not meet thestandards in place in manynational information laws. Wedemand that at a minimum, thepolicy reflects national and localRight to Information laws andregulations.

• ADB should also be bound bymember countries internationalhuman rights obligations relatedto freedom of information such asarticle 19 of UN InternationalCovenant on Civil and PoliticalRights which many Asia Pacificcountries have ratified.

• ADB enjoys immunity to nationallaws !for example as inBangladesh". We demand thatthere should be no such immunityto the disclosure policy or to ADBas an institution.

• We demand a shift fromdocument-based disclosure torecognition of a general obligationof the ADB to disclose allinformation held.

• We demand that there should beclear mechanism to take recourseto CRP !Compliance Review

Panel" if ADB provides wrong anddelayed information. ADB mustprovide adequate compensation ifit provides any wrong informationand if there is any damage becauseof delay in providing information.

• We demand that the obligation todisclosure information, for ADBfinanced and supported public andprivate sector projects be on theADB. The ADB cannot transferits obligation to full disclosure onto governments.

• The draft policy is still not specificon how the ADB intends todisseminate information beyondthe Internet. The cost ofproviding information in nationaland local languages should beborne by the ADB.

• The ADB’s policy on informationdisclosure must be linked to itsinstitutional decision-makingprocesses, particularly those oninspection and anti-corruption.Information disclosure in and ofitself does not satisfy the expectedstandards of transparency,accountab i l i ty and goodgovernance.

We look forward to the ADB’sresponse to these comments anddemands.

November 24, 2004

Signed by:South Asian Solidarity for Rivers and

Peoples !SARP", NepalBrahmaputra Barak Rivers Watch !BBW",

IndiaDelhi Forum, IndiaBanglaPraxis, BangladeshSri Lankan Working Group on Trade and

IFIs, Sri LankaAdvancing Public Interest Trust !APIT",

BangladeshAOSED, BangladeshFocus on the Global South, IndiaWater and Energy Users’ Federation-

NepalNepal Policy Institute, NepalMelamchi Local Concerns Group, NepalSouth Asia Network on Dams Rivers and

People, IndiaThe Innovators, Bangladesh

Individual signatory:Gururaja Budhya, India


On the ADB’sAccountability Mechanism

he accountability mechanism, which was approved in 2003, is aninstitutional platform/tool through which project-affected communitiescan raise their concerns with the ADB and have them evaluated !address

their problems and investigate actual violations" in an independent and neutralbody. This mechanism comprises two complementary functions*aconsultative phase run by the Special Project Facilitator !SPF" and acompliance review phase led by an independent three-person ComplianceReview Panel !CRP". The former aims to assist communities adverselyaffected by ADB projects through informal methods of consultation,inspection and evaluation of problem projects on the ground, with the consentand participation of all parties involved. When the complainants areunsatisfied with this process, they can opt for the CRP to address theirconcerns. The CRP determines whether the ADB did violate any of itsoperational policies and procedures with the intention of holding theinstitution accountable for its actions.

Much has been written about the limitations !and flaws" of this policy. It provides a space forthe affected people to voice out their complaints but does not provide any solution. Thebodies tasked to evaluate the cases are, more often than not, neutral and impartial butundemocratic and secretive. To date, there are four cases filed at the office of the SPF!Melamchi in Nepal, Southern Transport Development Project in Sri Lanka, Sixth RoadProject in the Philippines, and Chasma Right Bank Irrigation Project in Pakistan". TheSTDP and Melamchi are also under inspection at the CRP.

Below are the statements of complaint on the STDP from Sri Lankan affected communitiesand protest letter on the Chasma Right Bank Irrigation Project in Pakistan.

T


RE: SOUTHERN TRANSPORT DEVELOPMENT PROJECT SRI LANKA,LOAN SRI 1711

23rd March, 2005

President Haruhiko Kuroda,Asian Development Bank,6 ADB Avenue,M a n d a l u y o n g C i t yPhilippines

Dear President Kuroda,

Bank Information Centre of Washington,Both Ends of Amsterdam, Friends of theEarth of Tokyo and EnvironmentalDefense of Washington join us in bringingthe following to your attention.

We are writing to you to express ourconcern regarding the closure of theprocess of the Special Project Facilitator!SPF" for the Southern TransportDevelopment Project !STDP" in SriLanka. As you will be aware, we, theaffected communities of the SouthernTransport Development Projectregistered a complaint with the SPF on 9June 2004. The complaint was registeredby SPF on 16 June and determined eligibleon 5 July 2004.

The Complaint was raised because theproject was being carried out in breach ofADB Guidelines and Polices, therebycausing unnecessary harm and suffering tomany people. The SPF was meant toresolve the problems created, but the SPFhaving admitted that there are realproblems with the project has donenothing to help or reduce the harm beingcaused to the Complainants or others bythe Project. SPF stated specifically thatrequired Environmental studies and socialstudies had not been completed

"The CT was designed on the basis offeasibility studies, including a SIA and anEIA. The feasibility of the FT has to besimilarly assessed in social, environmental,economic and technical terms, a taskwhich does not seem to have been doneadequately to date." The SPF stated that

".. the number of households to bere located have increased

considerably" , there were"insufficient transparency ... delaysin payment ... resettlement siteslack water, roads and electricity...Affected Persons ... live in sub-standard temporary shelters".

These are breaches of ADB Policiesand Guidelines and of the LoanCovenants.

A request has been made to theCompliance Review Panel !CRP" who arenow investigating the project, but theyhave said that only the SPF can stop theharm being caused to the affected people.Confirmation of any breaches will beavailable from CRP in July along withrecommendations on what should bedone. This will be long after the harm hasbeen done and the situation becomingirretrievable.

The main criticisms we would like to drawyour attention to refer to the followingaspects:

Delay of the Process:The SPF delayed the investigation takingmore than double the time provided for inthe policy. The SPF gave its originalreason for the delay its wish to await theoutcome of a national committeeestablished by the Sri Lankan PrimeMinister. Subsequently in the RAR, theSPF further attributed the delay in theprocess to the fact that SPF wanted toawait the outcome of the SafeguardCompliance Review commissioned byADB Management. Since the SPF is partof the ADB’s independent accountabilitymechanism, the SPF should not defer topolitical interventions of the borrowingcountry or to investigations undertaken byADB management.

Failure of OSPF to Facilitate AgreedConditions:

In preliminary discussions with theclaimants leading up to a meeting of allparties, the OSPF had proposed to theclaimants that certain items be completedprior to such meeting. The claimantsagreed to this suggestion. The conditions


included the publication of SafeguardCompliance Review Report conducted byManagement. However, the Managementof the South Asia Regional Department!SARD" failed to provide the claimantswith this report and the claimants havenot received it until this day.

Since the conditions for the proposedjoint meeting had not been met, theclaimants chose not to participate in thejoint meeting proposed by the facilitator.

Failure of OSPF to Take Leadership in theFacilitation Process:

The SPF chose to contract the facilitationprocess to a professional mediator, whichis an option in accordance with theAccountability Mechanism. !as perAppendix 7, para 6". However, the SPFdeferred all responsibility to the mediatorby allowing the mediator to keep allagreements and communications betweenthe disputing parties confidential.Although such confidentiality agreementsare standard international practice, theyare inappropriate in the context of theSPF. The ADB ’s AccountabilityMechanism Policy clearly establishes theSPF as the facilitator. If the SPF choosesto hire a mediator, it should be under thecondition, that the SPF would always beinformed of developments in thefacilitation process. The mediator was ill-informed and took no account of theCourse of Action that had been agreed byall parties and approved by yourpredecessor, President Tadao Chino. Themeditation process consisted of only onemeeting with some of the Complainantswhen only the background was explored.No attempt at finding a solution wasmade. The hired mediator issued a reportfull of inaccuracies and errors indicatinghis lack of grasp of the facts and pointsalready agreed with SPF. Please see theattached comments on the mediator’sreport made by the Complainants.

Inappropriate Closure of the SPF Process:

In February, the SPF announced itsdecision to close the process on the basisthat it had been “unpurposeful”. Thisannouncement came as a completesurprise to the claimants who wereexpecting the process to continue. Inmaking the decision to close the process,the SPF deferred to the judgment andreport of the hired mediator. Themediator himself relied simply on the factthat the Executing Agency and the Bank

failed to respond to the mediator and thatthe Executing Agency did not wish tocontinue. The SPF did not make its ownevaluation of the facilitation and thereforefailed in its mandate to take the lead onthe facilitation process. Further, the SPFhas failed to define the meaning of“unpurposeful” yet uses it as an escapefrom doing its duty to "be responsive toAffected Persons"

The position is a result of their inability toput any pressure through the mediationprocess on the ADB Management to finda solution to the harm being caused.Having claimed “unpurposeful” the SPFfailed to consider the claimants opinionon whether or not they thought theprocess was purposeful.

Conflict of Interest:

In May 2004, before the SPF process hadstarted, ADB Management commissioneda Safeguard Compliance Review on STDP.For reasons of transparency and achievinga joint solution to the problems and harmbeing done to the Affected Persons it wasagreed that the report on the SafeguardsReview would be shared with theComplainants. It appears that ADBManagement failed to release the reportas they were concerned that it wouldcreate difficulties for them in anysubsequent investigation of the breaches.This conflict of interest of theManagement meant that they did notwholeheartedly seek to find a solution tothe suffering that was being caused by theproject.

The SPF is set up as recourse mechanismfor affected people if they feel that ADBManagement has failed to address theirconcerns. While Management mustalways be encouraged to review its ownfunctioning and correct acts ofomission/commission, to do so during anon-going accountability process whilehaving ignored all previous requests callingupon it to undertake just such anassessment, leads one to believe thatManagement’s separate investigation wasnot undertaken in good faith. The SPFshould have recognized that the timing forseparate investigations by Managementwas inappropriate in view of the ongoingSPF process. In failing to discourageManagement from conducting thisindependent rev iew, the SPFcompromised its supposedly independentinvestigation.


In Conclusion:

The failure of the SPF has direct practicalimpacts for us, the affected people, in thatwe are losing our homes due to a projectthat has violated ADB policies. In thecourse of its investigation, the SPFrecognized the failings. We are verydisappointed and concerned about theSPF’s handling of this case, and hope thatyou will take the initiative to investigateour claims and address the situation of theaffected people on the ground. Whilstyour investigation is underway westrongly recommend a Suspension ofDisbursements of the Loan, this ispossible as the Executing Agency hasbreached and continues to breach theloan covenants.

Best regards,

Sarath Athukorale, Heather MundyPresident Secretary

Joint Organization of the AffectedCommunities on Colombo MataraHighway

Endorsed by:Friends of the Earth JapanBoth ENDS, NetherlandsBank Information Centre, USAEnvironmental Defense, USA

Copies:Executive DirectorsAlternate Executive DirectorsSpecial Project FacilitatorChairman Compliance Review PanelDirector General South Asia Department


THE JUDGEMENT

Chashma Lok SathMarch 27, 2004

I

In the Beginning

We gathered in Daera Din-Panha !Circleof God’s Protection" to meditate on truth- to uncover the truth of what has passed.How and why it had become. And what isto be done now.

Where these words are the result of ourmeditations on truth at the Lok Sath, theyare words which emerge from the depthsof truth. And it is our judgement on theChashma Canal.

Where we sat bears visual testimony tothe color by which the canal has scarredour lands. The entire Damaan lay itselfbare to us. In the distance towards theWest the Suleiman Range, the fountain ofthe rowed kohee, cast its shadow areminder of the ways things had oncebeen. We sat in the Command Area laiddusty brown ' testimony to the failure ofthe canals dream and promise ofabundance and perennial water. And welooked down on kaachi seeing the lushgreen of the riverine belt. And in thedistance we see the shimmering of thegoddess. The Indus.

And it is homage to the Indus that theLok Sath opens with our poets’ recitation:

If the River dies, my dearest listen, theeyes die, the heart dies, the identity of ourbeing and our living dies

So as the slumber of the blue watersdieIt is not just the swan couplet thatdies,But the entire laughter of the Riverthat dies

And so we are inextricably tied to theRiver. To know the state of our beinglook merely at the River as your guide.Our laughter, cries and suffering are mereechoes of that of the River. We allowedourselves to be parted from the Indus andthe ways of our ancestors, we allowedothers to take her away from us and be

packaged in languages which have norelation to the lands and its waters.

And singing our redemption song webrought to pass the Lok Sath: And intaking back the power we worship theGoddess. To revive our lands and ourwaters and speak once more in thelanguage of the Indus.

The passing of this judgement at the LokSath sets a precedent of our peoples doinglaw. And it is in this vein that we speakthis judgement our gaze turning uponthose who perpetuate crimes whichdestroy the link which furnishes as ourvery being.

II

Dreams and Crimes

There once came a dream of abundance. ACanal would be carved across out landsthat would furnish us with all the waresthat we need to enter the world of thedeveloped. A world in which water wouldbe plentiful, and crops could be grown forsale at far away markets, and all theoddities of the world could come to rest inour hands and on our terms.

We lived and breathed that dream. Itcolonised the way in which we knew ourworld. It was taught in our schools. It wasechoed in the building of our nation!s". Allspoke from the same hymn sheet and asense of naturalness was granted to thisdream. It became the only dream. Andtherein lies the first and most deadly of allcrimes, the drawing of a singular dream.

So the canal came into being. And in itsbecoming the dream slowly faded. Realitywas a mere shadow of the promises. Andwe awoke from the dream. Instead thedream brought with it a violence thatruptured our very sense of being, tearingus from the lands and its waters. Themirage was built on lies and deceit.

Here is the litany of violence that thecanal and its dream brought to us, bydesign or by default, by intent or bynegligence this is what came to pass:


Flooding

Lands stolen

Housing destroyed

Roads destroyed

Birds Flown

Crops destroyed

Trees Uprooted

Forests Cleared

Deceit

Lies

Corruption

Mobility lost

No Compensation

Drains unnecessary/incomplete

Distributaries incomplete/too low

Graveyards lost and torn and madeinaccessible for us

Water Logging

Prisons built to protect us

Rowed Kohee Destroyed

Livelihoods destroyed

Damaan dividedToo much water/Too little water

Migration

Barren wastelands

Nomadic lifestyles destroyed

No Consultation

New Power brokers

Kacchi destroyed

!wo"manslaughter as people drown in thecanal

And therein lies the testimony of thosewho have lost. This litany would be seen

as isolated incidences and so thecategories and listing of violence wouldrestrict itself. And that is precisely howyou would bracket your violence, simpleboxes to be remedied. To be left in yourhands and your graciousness to remedy.That this is not a mere misfortune or anisolated happening was testified to bythose from other areas who have sufferedsimilar violation. From the LBOD;Tarbela; Badin, RBOD, Kacchi Canal,Greater Thal Canal, Ghazi BarothaProject, coastal areas ' all subject tosimilar logics.

The dream had become a nightmare.

And yet there was a deeper series ofcrimes that this litany speaks of. It tells ofa threefold taking

Of Language: When you tore us apart youalso tore apart the language by which weread this land. The language of the land bywhich we have lived for centuries wasreplaced by a science which relies on thestate as its motor and its legitimacy ' yeta science that failed as the litany bearstestimony to its technical failures.Language dignifies life and you deny usthe communicable nature of humanity andnature. The Lok Sath restores this.

Of Power: power was taken away from usand placed in others’ hands. And with thatdestiny is taken from our hands.Everything that furnished us with thelanguages of the land have been taken andgiven to others to exert their control overus and our destinies. No longer payinghomage to the Goddess and the RowedKohee we must pay homage to the manwho controls our waters, whocompensates us, who resolves our disputesover our lands et al. The Lok Sath restoresthis.

Of Material: water which lied betweenGod and us you have taken away andsought to make it into just a simple goodwhich can be bought and sold. And incommodifying water you commodify us.The Lok Sath responds to this.

III

Guilt

The testimony of the victims thatconstructs the litany omits to tell us whois responsible for these crimes. Whoenabled this violence? Who is guilty?


We bring to task two criminals whocolluded together:

The state of PakistanThe Asian Development Bank

The former provided the physical arms forthe implementation of the crime ' thepolice, the ongoing colonial architectureof power, WAPDA, the law, thebulldozers. The latter furnished thecapital and forms the new colonialarchitecture of power that the weight ofthe world now carries.

The justification and your defence is thatit was done for a greater common good,under the name of development. It is thisthat animates your interventions. Adevelopment that requires sacrifices, thedeath of us as us. And for what have webeen sacrificed ' the salvation you seek forthis sacrifice is in development. That whatyou do is for the good of us. And if not usthen certainly it is good postponed forsome future or a good shifted to someother place. And when we testify that infact it is not good for us and victims fromother projects testify that you are habitualcriminals, one wonders who it is whobenefits from this sacrifice?

We announce that those who benefit areyourselves. Your machinery and industryof your being ' civil contracts, corruption,consultants, interest rates, new loans tocover old loans, promotions, dailyallowances, and the continuity of elites oldand building of elites new.

That this was your intent is apparent asyou attempt to abrogate responsibilityclaiming it was the other that committedthe crime. And when you have the chanceto redeem yourselves in your Stakeholdersdialogue and in the GRSC, you soil yourhands even more and your intent is madeclear as the business of your being isrenewed. You obscure your crimes by yourlaws and your conscience dies.

Our Lok Sath pronounces you guilty.

IV

Punishment and/or Surrender

And so what is to be done?

Realisation of your crimes has not beenforthcoming, your deeds, your words andyour eyes tell us that this realisation hasnot come to pass. Instead you obscure andcollude to avoid your responsibility, thepassing through the temples and themachinery of your law acts as yourredemption song. And yet it cannotredeem because you have not recognisedyour crime and your failures.

Instead we are left with no choice.Punishment and/or surrender? It is both.The only punishment that can be issurrender of yourselves and the confessionand realisation of your crimes. Step awayfrom your law which negates anypossibility of your conscience. And resortto the course of salvation which lies eitherin the law of love or of suffering. Thechoice is laid bare for you ' respond toyour conscience and admit your crimesand failures and take responsibility forthese. Or face our conscience.

Let us help you make this tangible:

The Lok Sath declares the start of acampaign of civil disobedience which caninclude:

1 Water Taxes will not be paid.

2 A Long March or Jal Jatra, apilgrimage to worship the Indus water andfeel its pain.

3 An Indefinite Hunger Strike tosuffer on your behalf and quenchviolence.


SOILED TEMPLE OF JUSTICE

Letter to the ADB President TadaoChino

Who would want to enter into the soiled templeof Justice, wherein lies the coprse of Justice,slain by her very guardians?

- Rohinton Mistry

Justice is mocked and slained wheneverthe powerful refuses to respect and obeythe laws that he make himself. The case ofchashma inspection is not quite different.

We filed the inspection claim andcontinued to engage in this process withthe hope that ADB would at least respectits accountability laws and thus accept theverdict of its own appointed inspectionpanel. We were of the view that ADBwould be keen to learn from its obviousproject failures and take correctiveactions. We believed that the inspectionprocess would provide leverage to localcommunities and open the space for theirreal and meaningful participation indecision-making process.

However, very soon, our hopes turnedinto utter despair. After four years, thesituation on the ground is as muchoppressive and devastating as before. Fewpoints will be suffice to elaborate this evergrowing alarming situation.

For last four years, the project-causedflooding continued to turn the once fertileand very productive vast Indus riverinebelt into desert. Agriculture is completelydestroyed in this region. Hundreds ofhouses, tube wells, schools and hospitalbuildings and local roads have beendemolished or severely damaged. Majorityof the people have not yet been paidrightful and just compensation for theirlands that were illegally and forciblyacquired under he British colonial laws.Rather, they are compelled to pay 25percent commission as a bribe to get theircompensation. The resettlement plan hasnever been prepared. The villages in thewestern belt are still living in dangerflooding zone. Forests and grazing landshave been destroyed while a large numberof people once depending on these naturalresources for their subsistence are nowleft to cope with this situation themselves.

These are just few examples.

Precisely speaking, the situation isalarming in terms of flooding,environmental destruction and livelihoodslosses and, will continue to become worstunless genuine efforts to ensure peoples'participation in decision-making are notundertaken.

ADB proclaims that the establishment ofthe Grievance Redress and SettlementCommitee !GRSC" is one of its majorachievements. However, this claim isnothing more than self-delusion. TheGRSC was established against the adviceof the Roster member at the initial stageof inspection. Moreover, ADB failed tocreate enabling conditions for themeaningful and effective participation ofthe requesters and representatives of localcommunities in decision-making of theGRSC. At the time of the GRSC's midterm review, the ADB's consultant forland acquisition alleged the seriouscorruption in the use of the grant money.He was fired and his contract wasterminated. Later on, the inspection paneldid also confirm the inadequacy of theGRSC and its doubtful achievements.

After this long and disappointingengagement, we feel that the inspectionlaws are rather only beneficial to ADB interms of getting fake legitimacy andcredibility, and controlling and diffusingopposition of local communities. Theworst aspects of this situation is that therequesters and local communities areexposed to the coercion of thegovernment while they get nothingsubstantial in terms of the compensationof their losses.

We believe the only way to make theaccountability laws credible andtrustworthy is the open confession ofpolicy violations that will lead to thegenuine cooperation. Otherwise, nobodywould want to enter into this soiledtemple of Justice.

Specific Comments regarding theADB Board Inspection Committee’sResponse to the Chashma InspectionPanel Report


The Panel’s recommendations address twoseparate issues: 1" the need to remedy thespecific problems caused byManagement’s non-compliance with ADBpolicies in the case of the Chashma RightBank Irrigation Project !CRBIP", and 2"the need to prevent these type of failuresin future ADB-funded projects.

It is essential that the ADB Board’sdiscussion on the Inspection Panel reportprovides answers to the followingquestions:

1" What is the specific action plan tourgently address the significantnegative impacts of this project, asdetailed in the Inspection Panelreport and the Inspection Claim?

2" How will the implementation of thesePanel recommendations, as endorsedby the Board Inspection Committeeactually change the situation of peoplein the project area and providenecessary remedies?

3" Given the well-documented failures ofconsultation and participation in thedesign and implementation of CRBIP,how will the Board ensure that“remedial actions” are carried out withthe “full participation of the affectedcommunities and theirrepresentatives”?

4" What actions will be taken by ADBManagement and the Board to ensurethat these supervision and policycompliance failures do not happenagain?

The reliance on the implementationof GRSC recommendations and thelong overdue EMP and Hill TorrentManagement Plan to address thePanel’s first recommendation isinadequate.

1" The GRSC did not include “fullparticipation of affected communitiesand their representatives” or providefor “full compensation for any lossesand restoration of livelihoods ofcommunities and households thathave been adversely affected,” asrecommended by the InspectionPanel. According to the InspectionPanel report:

“Management does, however, referto several instances when theNGOs have declined invitationsto attend meetings, primarily in

the setting up of the GRSC, andconcludes that ‘solutions cannotbe found unless the engagement ofall parties is meaningful andconstructive.’ But Managementdoes not discuss the explicitdemands that the Requestershave formulated, and whichthey consider prerequisitesfor making their participationmeaningful.” !para 218"

“The reasons given by theRequesters for refusing to ‘becomea formal part’ of the negotiationon the GRSC included the‘inadequacy and unrealistic nature’of the proposed committee. Theyalso refer to their experiences ofprevious efforts to engage in adialogue. One such experiencerefers to the deficient decision-making process on resettlement,which - as discussed above -Management considers to havebeen ‘informed, consultative andparticipative.’” !para 219"

“The isolated efforts to engageaffected communities and civilsociety organizations in a dialoguehave suffered from a lack ofcontinuity and clearly definedframework. None of the effortshas resulted in any process orstructures that would allowrepresentatives of affected peoplesor civil society organizations toparticipate in the execution andfollow-up of agreed measures, orthat would make possible a regularand institutionalized informationsharing. Even without going intoany discussions aboutshortcomings in terms of itscomposition and mandate, themost recent experience of theGRSC illustrates the problem.After an eight-months spate ofintensive activity, the committeehas been dismantled and follow-upis handed back to the EAs andproject consultants.” !para 222"

2" The GRSC recommendations do notaddress critical categories of project-induced impacts and losses. As theBIC notes, GRSC recommendationsdo not consider forest degradation andreduced access to fuel wood andrestricted access to grazing land inpreviously unirrigated land, whichtogether accounted for the largest


percentages of complaints submittedto the GRSC. Additionally, theGRSC recommendations do notaddress project-related impacts in theeastern riverine belt, do not providefor sufficient remedies of the landlessand were not developed in aparticipatory manner with affectedcommunities. Furthermore, there hasnever been an assessment of theGRSC recommendations’ compliancewith currently applicable ADB policyrequirements. The Inspection Panelreport itself documents severalinadequacies in the scope of theGRSC recommendations:

“However, GRSC noted that ‘thenumber of the affected personswill certainly be more -than thenumber of complaints 8,914received. as many of them may nothave filed theirapplications/complaints for onereason or the other.’ Moreover,the complaints were processed onthe basis of responses to aprescribed matrix and classifiedaccordingly. The complaints inthe Request, however, covered awider range. They includedvarious aspects of matters relatingto land acquisition, resettlement,compensation, rehabilitation, lossof livelihood, loss of mobility, lossof or diminished access to culturalproperties, exposure to floods, lossof access to or loss of sources ofpotable water, deprivation ofwater for the practice of thetraditional rod-kohi cultivationsystem, in-migration and the useof fertilizers and pesticides.” !para58"

“One of the charges to GRSC wasto identify measures to mitigateadverse impacts on the morevulnerable of the population -women, small landholders and thelandless. The GRSC was also toexplore and recommend programoptions to extend opportunities tothe poor who are displaced fromtheir land and other assets.Though the percentagebreakdown of grievancespresented in the entitlementmatrix provides evidence as to theextent of the various types ofharm, it does not address thesocio-cultural issues (e.g.,access to town, severance and

loss of support networks,dispersal of community,gradual disappearance ofgraveyards, conflict betweenfarmers and between farmsand landlords). Nor does itpropose any appropriatemeasures to rectify them.”!para 246"

“GRSC, from a broader genderperspective, points to a number ofsuch issues as girl enrolment andretention rates in schools; motherand child health care;strengthening of women’s rolesleadership, representation anddecision making for effectiveparticipation under the new localgovernment system andinvolvement of women in thecanal water management fordomestic use. However, it doesnot provide any concreterecommendations related tothese issues.” !para 247"

“GRSC talks of providing canalwater allowance for domestic usefor villages with saline groundwater and a high percentage oflandless inhabitants as anentitlement in compensation forreduced opportunity for grazingand fuel-wood collection. It isdoubtful that just anassurance of freshwatersupplies as compensation issufficient, or even relevant,for those people (women,smallholders and landless)who are vulnerable to risks offurther impoverishment.”!para 248"

Recommendations for the Board in itsdiscussion of the Chashma InspectionPanel report:

1" ADB should openly confess theviolations and non-compliancewith all relevant and applicablepolicies.

2" Based on the more than 8,000complaints received by the GRSC,remedial actions should bedeveloped in consultation with localcommunities. Some of theseremedial actions may be similar toGRSC recommendations, whileothers may arrive at differentlocally appropriate and acceptable


solutions. The development andimplementation of these remedialactions should be monitored by anindependent entity acceptable toall parties, including to theRequesters. A participatoryassessment of project-inducedimpacts in the riverine belt andproposed remedial actions shouldbe included in the Hill TorrentsManagement Plan.

3" The Inspection Panel reportrecommendations should beimplemented and progress should

be monitored by the Board.

4" The Board should clarify andemphasize that Management isrequired to comply fully with ADBpolicies and not simply to adhereto “the integrity and spirit” ofADB’s internal laws based onManagement’s own judgment

Mushtaq GaadiInspection Requester !Chashma Lok Sath"

August 17, 2004


HUNGER STRIKE AT THE ADB OFFICE

February 15, 2005

Ten persons from the ADB fundedChashma Right Bank Irrigation Projectstaged one day hunger strike in front ofthe ADB office in Islamabad, Pakistan.The hunger strike began at 9:30 in themorning. When the hunger strike started,there was rainfall that continued for thewhole day.

We decided to sit on the ground in therainfall. The police came at 10:00 PM,and asked us to end the hunger strike orface the arrest. We told the police officerthat we were peaceful and non-violent andwe would not end our hunger strike at anycost. Finally, the police officer appointedtwenty policemen to guard the office ofAsian Development Bank. After sittingmore than six hours, we went to the gateof the Asian Development Bank. A coupleof ADB staff member came down andasked us to give our written resolution.We refused to give the written resolutionand insisted that we would directly give itto Mr. Marshuk Ali Shah, the countrydirector of Asian Development Bank inPakistan. The ADB staff members wentto inform Mr. Marshuk Ali Shah. He hashowever refused to meet us. We told theADB staff that we would not leave theplace and continue to our hunger strike infront of their office until and unless Mr.Marshuq Ali Shah would not receive ourresolution and listened our message. Afterhalf an hour, Mr. Marshuq Ali Shahdecided to receive our resolution andlisten our message. We then met him inhis office inside the ADB building andhanded over the following resolution.Moreover, we told him that we staged thehunger strike to register our peacefulprotest against the way ADB and thegovernment are negotiating and finalizingthe agreement. We told him that wewould not accept the agreement if our fullparticipation and consent is not ensured.Mr. Marshuq Ali Shah said that we shouldaccept any middle ground and makecompromise. He did also commit thatADB would attend the Lok Sath to beheld on March 20, 2005.

Following is the final written resolution.

Resolution

We are here today to tell the world of thesuffering we continue to face because ofthe wrongs of those who purport to becommitted to our “development”. Formany years we, the sufferers of the ADBfunded Chashma Right Bank IrrigationProject, have followed and exhausted allpossible legal procedures for therealization of our rights andcompensation/ reparations of the damageswe suffered. But the justice has beendenied to us time and again. We realizedthat the Law has become an effective toolin the hands of the powerful to silencingand weakening the voices of victims andviolated ones. We come here today toonce again alert the powers that our non-violent and peaceful Civil Disobediencewill continue.

1. The government and the ADB haverecently negotiating an agreement toconclude the inspection process that willsupposedly reflect the recommendationsof the Inspection Panel. We have seriousreservations about this report andparticularly the draft Action Plan and wewill not accept any “agreement” betweenthe ADB and the government until andunless we are part of the deliberations andfind the “agreement” to be satisfactory.

2. Given the continuous andwidespread violations of our rights, weconsider it our duty to defend ourselvesthrough breaking the Law in the non-violent and peaceful manners. The litanyof the violations is not small one. Ourlands were forcibly and illegally acquiredand we have not been so far compensatedeven the project is complete for the lasttwo year. When some of us go anddemand the compensation, they are askedbribe. We consider this is an act ofrobbery against the Weak. Our legal andhistorical rights over floodwater wereabolished without even giving us anyinformation. Our lands are now beingflooded every year because of the project.We have lost our homes, property, crops,trees, grazing lands, forests, publicinfrastructure, ways, and many otherthings. We are also loosing our culture aswell. There is now massive in-migration of


outsider tribal Pakhtoons in our area afterthe project. We have therefore no otheroption except the refusal to pay Abiana!Irrigation Tax" in order to defend ourselves against the excesses of Law. We willstrive to make this civil disobedience aswidespread as possible.

3. We will be holding the Lok Sath onMarch 20, 2005 at Taunsa Sharif. As wehave done on the previous occasions, weinvite the ADB and the governmentagencies to join us in the Lok Sath and

hear our voices. If the ADB does notrespond to our invitation, our campaign ofnon-violent and peaceful civildisobedience in the form of refusing topay the irrigation tax will be initiated withimmediate effect at the Lok Sath.

4. Our final mode of protest be anindefinite hunger strike. This will beginwhen it becomes clear that there is nolonger any utility to waiting and hopingfor the ADB and the government torespond meaningfully to our demands.


On Sector Policy:Forestry and Water

he ADB Forestry Policy was crafted in 1995 but there was never anoperations manual !OM" issued for this policy. The policy, in

theory, prohibits the Bank from funding projects that contributesignificantly, directly or indirectly to deforestation, degradation ordepletion of forests. An Environmental Impact Assessment !EIA" isrequired for any projects that may affect forests. The ADB Water Policy!approved in 2001", on the other hand, outlines its vision for anintegrated water management in the region.

Both policies are currently under review. And both review processes have been contested bygroups monitoring them. Below are some of the statements on the reviews of the water andforest policies.

T


ON THE REVIEW OF THE FOREST POLICY

November 19, 2004

Dear President Chino,

We are writing to express our concernabout the review process of the ForestPolicy. NGO Forum and many of ourNGO colleagues have been monitoringthe review process ADB has beenconducting on the Forest Policy for twoyears now. It is our observation that thereview process has been extremely lackingin transparency and accountability.Despite repeated enquiries from our side,we have received no or arguablymisleading information about the status ofthe review at different stages. In fact, itwas only after an NGO memberapproached ADB in early 2003, that ADBmade the working paper of the policypublicly available.

As late as October 22, 2004, ADB’swebpage on the Forest Policy stated that“the Forest Policy Committee is finalizing therevisions of the Board considered WorkingPaper. A revised Draft Forest Policy Paperwill be made available for stakeholdercomments by July 2004. Comments will beaccepted up to four weeks from the date ofposting. Forest Policy Paper will be scheduledfor Board consideration/approval for 3rd

quarter 2004”.

This section of the webpage has now beenreplaced by a link to the Forest PolicyPaper stating that “the proposed Policy isbased on a review and revision of ADB's Policyon Forestry !March 1995" and a participatoryreview process.” This link opens up a pdfdocument of the working paper of June2003. However, it is our understandingthat this working paper was rejected byADB’s Board in July 2003. The webpageconveniently omits this crucial detail. Noexplanation is given in regard to the earliercommitment to post a revised workingpaper with a four week period for publiccomment.

This inconsistent process is unacceptable.The suspicion arises that ADB isdeliberately trying to mislead or onlypartially inform the public on thedevelopments on the Forest Policy. Fromthe point of civil society organizations

tracking the ADB Forest Policy process, itis not even clear at this point whether theADB still intends to produce a final R-paper on the policy for Boardconsideration. The lack of information onADB’s webpage gives rise to seriousconcerns as to whether the Bank hasunilaterally decided to abandon the reviewprocess altogether. Such a decision showsdisrespect to the NGO representativesthat ADB invited to take part inconsultations or submit comments.

We strongly believe that specific sectoraland thematic policies for IFIs and otherdevelopment agencies are essentialinstruments to make IFIs moreaccountable to affected communities andhelp ensure that sector projects andprograms do not cause adverse impacts.For this reason, we wish to haveclarification as soon as practicableregarding the ADB’s policy proposals fordealing with the impact of its futurefunding on the people and forests of theregion.

To this end, we strongly advise you andthe Forest Committee Team to informcivil society organizations !CSOs" thathave been monitoring the review processabout the latest developments and futureplans regarding the finalization of thispolicy. Tribal peoples, forest communitiesand workers, and others who depend onforests have a right to know whatdecisions ADB is taking in regard to theirenvironment and means of livelihood. TheBank cannot expect to be taken seriouslyin its commitments to transparency andeffective participation, if it does not bringlight into this situation. We look forwardto your early action and response on thismatter.

Best regards,

Sameer DossaniExecutive Director

CC:Javed Mir, Forest Policy CommitteeBoard of Directors


Response from Bob Dobias, the newhead of the Agriculture, NaturalResources and Socials Sectors Division,and therefore in charge of the ForestPolicy sent a general response saying that:

"We fully appreciate your concern that thereview of the Policy on Forestry be transparent.As you may know, well over 500 people,representing governments, NGOs, privatesector, and other stakeholders, have providedinputs to the review. It is our intention tocontinue with the public consultation process.

Our internet site on the policy review!http://www.adb.org/Projects/forestpolicy/"has informed readers that, following a revisionof the W-paper to incorporate commentsreceived from internal and external reviewers,fundamental issues were raised related toADB's support to the forest sector. Wecurrently are in the process of an internaldiscussion of these concerns.

Please be assured that we will make public theconclusions of our internal deliberations andinvite comments on them."


ON THE PROPOSED REVISION TO ADB’S WATER POLICY

June 2, 2004

President Tadao Chino

Dear President Chino:

We, representatives of 34 NGOs from 18countries, are writing to express ourconcern with the proposed revision toADB’s Water Policy regarding LargeWater Resources Projects and toencourage you to push for modificationsto the text that would bring the policy inline with World Commission on Dams!WCD" recommendations. The proposednew text significantly waters down thespirit and intention of the original policyprescription and undermines the ADB’scommitment to the recommendations ofthe World Commission on Dams !WCD".The revision would contradict theinternational trend towards recognition ofa rights-based approach to development,and the principle of free, prior andinformed consent.

In a letter from Mr. A. Seki, formerDirector General of the Bank’s Regionaland Sustainable Development, to IRNdated 9 July 2002, Mr. Seki stated thefollowing:

“We are still benefiting from therecommendations of the WCD whendeveloping or revising our relevantpolicies and practices. An earlier examplewas the Water Policy… Please note thatactions to implement the Water Policyare being taken, supported by the WaterFund. ADB will consider the specificconcerns of IRN in the implementationof the Water Policy with regard tospecific projects. When the Water Policyimplementation is reviewed in 2005, ADBwill consider the generic concerns of IRNin any update.”

Given the Bank’s commitment to considerthe WCD recommendations in anyupdate to the Water Policy, we weresurprised and disappointed to see aproposed change to the Water Policy thatactually weakens the policy’s stipulationsin relation to gaining public acceptanceand brings it substantially out of line with

WCD recommendations. In addition, wewere surprised to see that the interimreview of ADB’s Water PolicyImplementation fails to mention theWCD even once.

Therefore, we would like to recommend,in line with ADB’s previous commitmentsto

…over incorporate WCDrecommendations into its safeguardpolicies1, that the proposed paragraph bemodified as follows to bring it incompliance with World Commission onDams guidelines. In addition, we expectthat the 2005 revision of the Bank’sWater Policy will look at ways ofincorporating other WCD strategicpriorities into the Water Policy, aspromised by Mr. Seki. We suggest thefollowing language modification to thedisputed paragraph:

“ADB will adopt a cautious approach tolarge water resource projects - particularlythose involving dams and storage - giventhe record of environmental and socialhazards associated with such projects. Allsuch projects will need to be justified inthe public interest, and decision-making process and mechanismsshould be used that enable informedparticipation by all groups of people,and result in the demonstrable publicacceptance of key decisions. Whereprojects affect indigenous and tribalpeoples, such processes are guidedby their free, prior and informedconsent.”

This proposed language comes directlyfrom the WCD’s Strategic Priority 1 onGaining Public Acceptance. In recentyears, there has been a growingrecognition by the internationalcommunity that free, prior and informed

1 In a letter from Mr. Tadao Chino, Presidentof the ADB, to the Mr. Kadar Asmal, Chair ofthe WCD, dated 22 December 2000, Mr.Chino stated that “ADB will re-examine itsown procedures, including our environmentand social development policies, anddetermine the extent to which the report'srecommendations may necessitate changes inthese procedures.”


consent !FPIC" and other forms of publicacceptance are important principles ofdevelopment policy2. Evidencedemonstrates that only such a rights-based approach will allow affectedcommunities to negotiate satisfactoryoutcomes of development projects.

For your reference, we enclose Mr. Seki’sletter to International Rivers Network of9 July 2002, as well as IRN’s original letterto President Chino analyzing the ADB’sresponse to the WCD and suggestingchanges to ADB policies to bring them inline with WCD recommendations.

We hope you will push for this proposedrevision when the policy comes to theBoard in July, and we hope you will ensurethat the 2005 Water Policy revision willlook at ways of further incorporatingWCD guidelines into the policy.

Sincerely

Aviva ImhofDirector, Southeast Asia Program

Endorsed by:

Australia:Michael Simon, Oxfam Community Aid

AbroadBangladesh:Zakir Kibria, BanglaPraxisAshraf-ulAlam Tutu, Coastal

Development PartnershipCambodia:Russell Peterson, NGO Forum on

CambodiaCanada:Ian Baird, Global Association for People

and the Environment !GAPE"India:Sanjai Bhatt, Department of Social Work

at the University of Delhi

2 The principle of free, prior and informedconsent for indigenous peoples has beenrecognized by many legal instruments anddevelopment institutions, including ILOConvention 169, UNDP’s policy onindigenous peoples, and IDB’s resettlementpolicy, OP 710. The report of the ExtractiveIndustries Review !EIR" that wascommissioned by the World Bankrecommended the adoption of the FPICprinciple for indigenous people and for anyother communities affected by Bank projects.Since the EIR report came out, the principlehas been supported by World Bank PresidentJames D. Wolfensohn and by several membergovernments of the World Bank.

Shripad Dharmadhikary, ManthanAdhyayan Kendra

Smitu Kolthari, LokayanRoy Laifungbam, CORE !Centre for

Organisation Research & Education"Sankar Ray, Freelance JournalistHimanshu Thakkar, South Asia Network

on Dams, Rivers & PeopleIndonesia:Heine Nababan, People's Coalition for

the Rights to WaterJapan:Yuki Tanabe, Japan Center for a

Sustainable Environment and Society!JACSES"

Netherlands:Henneke Brink, Both EndsNorway:Tonje Folkestad, FIVAS !Association for

International Water and ForestStudies"

Pakistan:Mushtaq Gadi, MAUJZafar Lund, Hirrak Development CenterAsim Nawaz Khan, NGO Network

Welfare AssociationPhilippines:Joan Carling, Cordillera Peoples AllianceJiragorn Gajaseni, Greenpeace Southeast

AsiaJessica Rosien, NGO Forum on the ADBIsagani Serrano, Philippine Rural

Reconstruction Movement !PRRM"South Korea:Joo-won Seo, Korean Federation for

Environmental MovementSri Lanka:Hemantha Withanage, Sri Lankan

Working Group on Trade and IFIsand The Centre for EnvironmentalJustice

Sweden:Göran Ek, Swedish Society for Nature

ConservationSwitzerland:Bruno Gurtner, Swiss Coalition of

Development OrganizationsThailand:Jim Enright, Mangrove Action Project!MAP"

Shalmali Guttal, Focus on the GlobalSouth

United Kingdom:Juliette Williams, Environmental Justice

FoundationUSA:Nancy C. Alexander, Citizens' Network

on Essential Services !CNES"Shannon Lawrence, Environmental

DefenseAlfredo Quarto, Mangrove Action ProjectMishka Zaman, Bank Information Cente


The ADB Annual GovernorsMeeting !AGM"

he Asian Development Bank !ADB" is a multilateral developmentbank comprised of shareholders from 63 member countries, 45 fromAsia-Pacific and 18 from outside. The highest policy-making

responsibility in the ADB rests with the Governors, or Finance Ministers ofmember countries. They regularly meet once a year in the AnnualGovernors Meeting !AGM", an occasion to report on ADB administrative,financial, and operational directions. Mandated by the ADB Charter, inArticles 28 and 29, this meeting provides a space for member governmentsto interact with ADB staff, non-government organizations !NGOs", media,senior government officials, and representatives of observer countries,international organizations, academe and the private sector.The AGM is held in a member countryusually in April or May for three days,preceded by a two-day high-level seminarprogram on topical issues such asgovernance, poverty reduction, developmentfinance, international financial architecture,economic and social development,information technology in development, andcountry presentations to investors by financeministers of developing member countries.

At the ADB’s Inaugural Meeting, the Boardof Governors elected the Directors of theBank in accordance with the ADB Charterand determined the date for thecommencement of its operations. At itsSecond Annual Meeting, the Board ofGovernors reviewed the size and

composition of the Board of Directors inconformity with the provisions of Article30.1 of its Charter. It was also decided thateffective from the Fourth Meeting, there willbe 8 Directors representing regionalmembers and 4 from non-regional membersto be elected by the Board of Governors.

The AGM used to be exclusive for ADBdirectors, governors, staff and membercountries’ officials. In 1992 NGOs wereinvited to the AGM for the first time. Thusbegan a new era of civil society engagementand direct challenge to the ADB. In thissection we have compiled the mostsignificant civil society statements on theAGM since 2000.

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TableThe Party HostsTHE ADB AGM THROUGH THE YEARS

YEAR DATE VENUE/COUNTRY

2006 Thirty-Ninth 4 - 6 May Hyderabad, India2005 Thirty-Eighth 4 - 6 May Istanbul, Turkey2004 Thirty-Seventh 15 - 17 May Jeju Island, Korea2003 Thirty-Sixth 30 June ADB Headquarters, Manila2002 Thirty-Fifth 10 to 12 May Shanghai, China2001 Thirty-Fourth 9 to 11 May Honolulu, USA2000 Thirty-Third 6 to 8 May Chiang Mai, Thailand1999 Thirty-Second 30 April to 2 May ADB Headquarters, Manila1998 Thirty-First 29 April to 1 May Geneva, Switzerland1997 Thirtieth 11 to 13 May Fukuoka, Japan1996 Twenty-Ninth 30 April to 2 May ADB Headquarters, Manila1995 Twenty-Eighth 3 to 5 May Auckland, New Zealand1994 Twenty-Seventh 3 to 5 May Nice, France1993 Twenty-Sixth 4 to 6 May ADB Headquarters, Manila1992 Twenty-Fifth 4 to 6 May Hong Kong, China1991 Twenty-Fourth 24 to 26 April Vancouver, Canada1990 Twenty-Third 2 to 4 May New Delhi, India1989 Twenty-Second 4 to 6 May Beijing, China1988 Twenty-First 28 to 30 April Manila1987 Twentieth 27 to 29 April Osaka, Japan1986 Nineteenth 30 April to 2 May Manila, Philippines1985 Eighteenth 30 April to 2 May Bangkok, Thailand1984 Seventeenth 25 to 27 April Amsterdam, The Netherlands1983 Sixteenth 4 to 6 May Manila, Philippines1982 Fifteenth 28 to 30 April Manila, Philippines1981 Fourteenth 30 April to 2 May Waikiki,, Hawai'i1980 Thirteenth 30 April to 2 May Manila, Philippines1979 Twelfth 2 to 4 May ADB Headquarters, Manila1978 Eleventh 24 to 26 April Vienna, Austria1977 Tenth 21 to 23 April ADB Headquarters, Manila1976 Ninth 22 to 24 April Borobudur, Indonesia1975 Eight 24 to 26 April ADB Headquarters, Manila1974 Seventh 25 to 27 April Kuala Lumpur, Malaysia1973 Sixth 26 to 28 April ADB Headquarters, Manila1972 Fifth 20 to 22 April Vienna, Asutria1971 Fourth 15 to 17 April Singapore1970 Third 9 to 11 April Seoul, South Korea1969 Second 10 to 12 April Sydney, Australia1968 First 4 to 6 April Manila, Philippines1966 Inaugural 24 to 26 Tokyo, Japan

Source: http://www.adb.org/AnnualMeeting/all-meetings.asp


Chiang Mai 2000

The ADB was in for a jolt in Chiang Mai when the People’s Forum 2000, an assembly that paralleled the33rd AGM, gathered more than a thousand participants, many of whom were from communities affected byADB projects, who demanded accountability from the ADB.

STATEMENT OF THE PEOPLE’S FORUMChiang Mai, Thailand

May 5, 2000

ore than 1, 200 participants,including representatives ofcommunity groups, people ’s

o r g a n i s a t i o n s , n o n g o v e r n m e n t a lorganisations !NGOs", academics andconcerned citizens, gathered for thePeople’s Forum 2000 at the Phucome Hotelin the city of Chiang Mai from 3-5 May. TheForum was organised by the Thai WorkingGroup on the ADB, a network of ThaiNGOs, and participants included villagepeople and representatives of NGOs fromthroughout Thailand, as well as NGOrepresentatives and concerned citizens frommany other countries, including Laos,Cambodia, Vietnam, Philippines, Sri Lanka,Pakistan, Bangladesh, Indonesia, Nepal,Hong Kong, Japan, Australia, Canada,Finland, Netherlands and the United States.

The People’s Forum 2000 was convenedprior to the 33rd Annual General Meeting ofthe Board of Governors of the AsianDevelopment Bank !ADB" in Chiang Maifrom 6-8 May. Forum participants sharedknowledge about the impacts of ADBprojects and programs in many countries,describing how ADB loans and policyprescriptions are causing and exacerbatingsocial and environmental problemsthroughout the Asia-Pacific Region.

Having examined and discussed theprojects, programmes, loans and loanconditionalities of the Asian DevelopmentBank, the participants of the People’sForum 2000 are in agreement that:

I. The ADB promotes and imposesdevelopment based on a narrow andprescriptive economic growth model,ignoring the many well-documented failuresof this model and its inability to ensureecologically sustainable or socially equitabledevelopment.

a" Throughout the Asia-PacificRegion, local communities and people arebeing victimised by, and fighting against,projects funded by ADB loans thatdispossess people by evicting them fromtheir homelands, violating their rights to useand manage local resources, polluting anddestroying their environment, andundermining their food and livelihoodsecurity. Detailed case studies documentingthe impacts of specific ADB-fundedprojects were presented during the People’sForum 2000. These projects include large-scale hydroelectric dams, industrialcomplexes, wastewater treatment plants,highways, plantations, and chemicalintensive agriculture.

b" Although the ADB promotes thesupposed virtues of transparent andcompetitive market-driven reforms andprocesses, the ADB itself inherently distortsthe market in a way which favours largecorporations and inappropriatedevelopment, while undermining localsmall-scale, people-centered andenvironmentally benign development.

II. The ADB does not only provideloans for socially and environmentallydestructive projects, but also exerts itspolitical leverage with client governments toimpose far-reaching policy changesincluding sectoral reform, structuraladjustment, privatisation, and the removalof state subsidies and social services.

a" In using loans and prescriptive loanconditionalities to impose these projectsand policies on local communities andgovernments, the ADB ignores andundermines national and local systems of

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democracy, accountability and decisionmaking.

b" The economic, environmental, andsocial impacts of national debt incurredas ADB loans, and the impacts ofservicing this debt, is becoming anincreasingly serious problem for manygovernments in the Asia-Pacific Region,and are often cited by the ADB as apretense for its imposition of furthers t r u c t u r a l a d j u s t m e n t , l o a nconditionalities and poverty creation inthese countries.

c" The Asian Development Bank’sGreater Mekong Subregion !GMS"program is an unaccountable forum forpromoting and subsidising private sectordevelopment and investment in sectorssuch as power generation, transport,telecommunications, etc. The GMSprogram further bypasses andmarginalises national and local processesof decision making.

d" W h i l e t h e A D B ’ s l o a nconditionalities impose the reduction orremoval of state subsidies and socialsector spending in some of the poorestcountries of the Asia-Pacific Region,the ADB itself relies on public subsidiesfrom Northern country donors for itsvery existence. Furthermore, many ofthe structural reforms of the socialsector !e.g. removal of public subsidiesof small-scale food producers" sought bythe ADB, and the undemocraticprocesses used by the Bank to imposethese reforms, would be totallyunacceptable to societies in the donorcountries that fund the ADB.

III. The ADB’s rhetoric promoting ‘good governance’ in recipient countries is the blatant and self-serving propaganda of an institution that is fundamentally undemocratic, unaccountable, elitist, and secretiprojects and programs, nor to the taxpayersin donor countries whose money financesthe Bank, its staff and operations. In fact, inthe Northern donor countries of the ADB,there are no effective mechanisms for publicoversight or monitoring of the ADB and itsactivities in the recipient countries.

a" Project development studies andenvironmental and social impactassessments of ADB-funded projects andprogrammes are not subject to publichearings and independent peer review. Infact, these studies are often undertaken byconsultant companies that have a vestedinterest in the implementation of these

projects. On the rare occasion that thesestudies do raise critical concerns about thepotential social, environmental, andeconomic impacts of a particular project,these concerns and potential impacts areroutinely ignored by the ADB.

b" In several donor countries, theincome received by private companies inthese countries through projectprocurement and consultancy contractswith the ADB is equal to, or greater than,the amount contributed to the ADB bythese countries. Clearly, the ADB is simplya mechanism for donor governments tosubsidise their domestic private sector 'with no regard for the impacts in recipientcountries of this hypocrisy of the ADB anddonor governments.

c" Even by its own analysis, more than40 per cent of ADB projects fail to achievetheir state objectives. But neither the ADBas an institution, nor the ADB’s highly-paidstaff, accept legal, financial or moralresponsibility for these failures. The failureof ADB-funded projects is used by the Bankas justification more disbursing more loansand contracting more consultants, all ofwhich only serves the institutional agenda ofthe ADB.

Furthermore, we the participants in thePeople’s Forum 2000, in recognition of theADB’s present activities in Thailand, thehost country of the People’s Forum 2000,are in agreement that:

If the ADB accepts the right of peopleand society to reject the destructive projectsthe Bank funds, the ADB must immediatelyinitiate a process by which the Bank willhalt its loan disbursement for all active loansto the Government of Thailand and cancelits loans for the following projects inThailand:

1. The ADB must stop all loanconditionalities to the Thai governmentthat interfere with the sovereignty ofThailand.

2. Samut Prakarn Wastewater TreatmentProject, Klong Dan sub-district, Bang Bodistrict, Samut Prakarn province

This project would ' every day ' releasemore than 500,000 cubic metres ofwastewater contaminated with heavy metalsand other toxic inorganic effluentsemissions into one of the most productive


fishing grounds in the Gulf of Thailand, andultimately destroy the fishing-based meansof livelihood and local economies of morethan 30,000 families living in communitieslocated in the vicinity of the project/

3. Agriculture Sector Programme Loan

The conditionalities of this loan wouldresult in policy and sectoral reforms thatwould benefit large-scale industrialagriculture, degrade the genetic diversity offood crops, and undermine the means oflivelihood security and self-reliance of small-scale farmers who are the primary foodproducers for Thai society. Womenfarmers, and particularly women heads ofrural households, would be especiallydisadvantaged by the implementation ofthese loan conditionalities that wouldseverely restrict their potential economicand social advancement.

4. Social Sector Programme Loan. Theconditionalities of this loan would result in:

Privatised education would reduce teacher-student ratios, increase family-leveleducation expenses while reducing access toprimary and tertiary education at reasonablecost. Conditionalities would also result indrastic changes to the country’s educationsystem. Economically disadvantaged peoplewill have less opportunity to receive aneducation and the quality of education willdecrease. The private sector will have theopportunity to manage education, whichwill result in re-orienting education towardsbusiness and profit, while ignoring the roleof education in creating an awareness andsense of responsibility to society, and willalso result in the entrance of foreigninvestors into Thailand’s education system.Privatised education as proposed and guidedby the ADB will lead to a failure in theeducation system which, as stated in theEighth and Ninth National Economic andSocial Development Plans, must emphasisehuman development.

Corporatisation of public health careinstitutions would introduce the profitmotive of private corporate administratorsinto the health and welfare of all membersof Thai society, leading to increased costsand decreased access to emergency andlong-term health care, impacts that wouldparticularly affect poor families, women,and those members of society with chronichealth problems such as those resulting

from HIV/AIDS and urban environmentalpollution.

The oppression of workers will occur as aresult of ADB loan conditionalities thatseek to abolish or freeze the minimum wagefor workers. This will deny the fundamentalrights of workers to receive a minimumwage ensuring the livelihood security forworkers, their families and dependents.ADB conditionalities have already beenapplied to eliminate the standard minimumwage provisions in every province, resultingin minimum wages for workers that do notcorrespond to the variations in the cost ofliving in various provinces. The minimumwage must be equally applied throughoutthe country and must correspond to theactual cost of living. Additionally, thegovernment must contribute to socialsecurity funds in an amount equal to thefunds contributed by workers andemployers, and must immediately establishan unemployment fund to ensure the socialsecurity of employees.

The corporatisation of State-ownedenterprises must be immediately halted ascorporatisation will result in the transfer ofownership from the Thai public to multi-national corporations. People would bedirectly affected by corporatisation as thepurchase price of services will increase,State-owned enterprise workers will beunemployed, and eventually public utilitieswill be monopolised by multi-nationalcorporations.

5. If ADB activities violate the rights of thepeople and if its activities occur without theconsent of the people, and instead relies oninformation provided by the government,the people will not accept responsibility forre-paying the ADB loans.

6. For the impacts caused by the ADB’sconceptual framework, policies andconditionalities attached to loanagreements, and ADB-funded governmentdevelopment projects and the resultingdamages, including the destruction oflivelihoods, resettlement, environmentaldegradation, the ADB must paycompensation to the people affected.

Furthermore, the ADB mustimmediately halt all disbursement ofTechnical Assistance grants and loans andimmediately halt all activities regarding thepreparation of ADB-funded project andprogramme loans proposed for funding orimplementation in Thailand in the future.


The participants of the People’s Forumurge the Board of Governors and the Boardof Directors of the ADB, during the Bank’sAnnual General Meeting of the Board ofGovernors, to include the above demandsregarding the Bank’s loans to Thailand onthe Board’s Agenda. Participants of theForum, and in particular the localcommunities that would suffer the impactsof the ADB-funded Samut Prakarn WasteWater Treatment project, expect that theADB and its Board of Governors willrespond in an effective and constructivemanner to the above demands.

In conclusion, we the participants in thePeople’s Forum 2000 witness for the publicrecord the absence of representatives of the

ADB during the proceedings of the Forum.Bank President Tadao Chino declined ourinvitation to attend the concluding plenarysession of the People’s Forum 2000. Whilethe ADB’s Governors and ExecutiveDirectors may believe the Bank’s rhetoricabout participatory development and itsdesire to work within a civil society, theparticipants of the People’s Forum 2000have once again observed the vast differencebetween the rhetoric and practice of theADB.

Endorsed by the participants of the People’sForum 2000,Final Plenary Session,5 May 200


Honolulu 2001The tradition of direct action and engagement started in Chiang-mai continued in Hawa’ii, at the 34th

Annual Meeting of the ADB. The Honolulu protests featured another first in civil society engagement withthe ADB -- ADB President Tadao Chino came out of the AGM site to personally receive the statementsprepared by the protesters.

PEOPLE’S CHALLENGE TO THE ASIAN DEVELOPMENT BANKHonolulu, Hawaii

May 2001

he Asian Development Bank !ADB",which is holding its 34th AnnualMeeting in Honolulu on May 7-11,

2001, is an institution that is now widelyrecognized as having imposed tremendoussufferings on the peoples of the Asia Pacific.In the name of development, its projectsand programs have destroyed the livelihoodsof people, brought about the disintegrationof local and indigenous communities,violated ancestral domains, underminedsovereign self-determination, promoted asharp rise in inequality, deepened poverty,and destabilized the environment.

We, representatives of peoples,indigenous communities, and organizationsthroughout the region, have had enough ofthis destruction in the name ofdevelopment. We have had enough of anarrogant institution that is one of the mostnon-transparent, undemocratic, andunaccountable organizations in existence.

We seek genuine dialogue with the ADB,demanding that it recognize the error of itsways and yield the space to promotealternative strategies of development thattruly serve the people’s interests.

In this spirit, we are presenting thefollowing demands to President TadaoChino:

1. Development must not be a process thatcreates refugees. The ADB creates refugeesthrough physical displacement of peoples aswell as alienating them from theircommunities, livelihoods and culture.

We demand an immediate halt to andindependent review of all controversial/disputed ADB projects, especially thosethat directly threaten people’s livelihoodsand economic and social security like theSamut Prakarn Wastewater Management inThailand and the Cordillera Highland

Agricultural Resource Management Projectin the Philippines. The ADB should nottake any further action on these projectsuntil critical issues are resolved.

a. The ADB should acknowledge thatADB financed projects havedisplaced peoples and created a newclass of “development refugees.”

b. The ADB should assess thecompensation needs of all thosepeople whose livelihoods have beennegatively affected, particularlythose displaced as a result of pastADB projects, using open,transparent and participatoryprocesses . Fo l lowing suchassessments, the ADB shoulddevelop and implement adequate,just and timely compensationmeasures. The Bank Fundsearmarked for compensation shouldbe used for direct compensation andnot for further studies andassessments, or to pay for consultingcompanies or experts. Funds fora s ses sments and eventua lcompensation must be providedthrough project budgets and theADB’s own resources. Full directcompensation must be provided toall people negatively affected byADB funded hydropower and otherinfrastructure projects in the AsiaPacific region. This must be done ina timely and transparent manner, inconsultation with local peoples, andwith ongoing monitoring and inputfrom truly independent observers.

c. The ADB must put into placeappropriate mechanisms to monitor

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the environmental, social andeconomic impacts and costs of allprojects and programs it supports inany manner or form. Thesemechanisms must include guidelinesfor mitigation of impacts and howmitigation costs will be met; suchcosts cannot and must not beexternalised and passed on toaffected communities, society atlarge, or the public purse. Thosewho benefit most from projectsmust be responsible for theproportionate share of the costs.

d. The ADB must put into placetransparent and universal lyaccessible arbitration/grievanceprocedures through which the ADBcan be held accountable forviolation of its own guidelines. TheADB should put particular emphasison this in both its public and privatesector operations.

e. The ADB should put justice high onits agenda. A rigorous mechanismfor reparation for the negativeimpacts of past and existing projectsshould be set up.

f . In solidarity with the people ofKlong Dan, we demand that theSamut Prakarn project beimmediately stopped, and that nofurther release of funds be madeuntil the Inspection process is fullycompleted in a transparent andparticipatory manner.

g . In solidarity with the advocates inSri Lanka opposing the Sri LankaWater Resource ManagementProject, we demand a halt to theproject and a review of the WildlifeManagement Project.

h. The ADB should adopt andimplement the fundamentalp r inc ip l e s and gu ide l inesrecommended by the WorldCommission on Dams, especiallythose regarding prior informedconsent and the assessment ofalternatives.

2. Current sectoral reform processes such asthose in the agriculture sector in Pakistanand Thailand and in energy in thePhilippines fail to fully capture the complex

political-economic realities in thesecountries. Indiscriminate scaling down orabolition of agricultural and social subsidiesexposes poor households with low accessand endowments to start with to evengreater insecurity.

We call for an independent evaluationand an immediate stop to all sectoral reformprocesses. The results of these evaluationsmust be used to re-work and restructurereforms, including content, sequencing andeven alternative models.

3. We call for an immediate andindependent review of the ADB’s PrivateSector Development !PSD" strategy withspecial focus on the impacts of this strategyon local populations, the public sector,national and subnational governmentcapacities and the overall business climate.The results of this review should feeddirectly into a fundamental rethinking andreworking of this strategy to serve local,subnational and national economicpriorities and needs, rather than those ofexternal investors and foreign governments.During the period of the review and re-strategising, ongoing PSD initiatives shouldbe slowed down and no new initiativesshould be started. The review should alsotake into consideration political, social andeconomic realities such as distributionaldisparit ies that render marketsuncompetitive and exclude the poor, as wellas weak governance structures that renderregulation ineffective and incapable ofupholding consumer and worker rights.

4. The ADB itself acknowledges that closeto 70 percent of its loans to the developingcountries will fail to produce lastingeconomic or social benefits in thesecountries. Yet the ADB insists that thesedebts be repaid, further contributing to theimpoverishment in these countries.

We demand full and unconditionalcancellation of the illegitimate debts ofADB’s borrowing countries. The ADB mustalso immediately undertake a region-wideassessment of the debts owed to it by allborrowing countries. In particular, theassessment should focus on; a" the impactsof debt servicing on social and otheressential services; b" the programmes andconditions under which the debts werecontracted, as well as their legitimacy interms of debt repayment.

When the ADB experienced an internalfinancial squeeze at the height of the Asiancrisis, it chose to remedy this by making


capital costlier for borrowing governments.We demand that the ADB shift the burdenback from the borrowing to the donorcountries.

5. We deplore the inconsistency with whichthe ADB requires good governance,transparency and accountability fromborrowing governments while at the sametime fails to impose the same strictstandards on itself.

In its push for privatization, the ADBturns a blind eye to corrupt practicesemployed by borrowing governments suchas the Philippines in the case of the powersector reform loan in order to meetconditions for the release of ADB loans.

Furthermore, we challenge the ADB tostop placing the entire blame for the failureof projects and programmes on governmentsand take institutional responsibility for theprojects and programs it supports.

a . The ADB should democratizedecision-making within the highestlevels, and function on the principleof one country, one vote, and not onthe current practice based on theamount of subscribed capital.

b. In general, the ADB should open topublic scrutiny decision-making andagreements between the ADB andhost governments about projectsand programmes. The ADB shouldreview past and current decisionmaking processes in light of theirimpacts on national sovereignty andwhere found wanting, these decisionmaking processes must be changedto respond to national, rather thanexternal interests.

c. All of the ADB’s review panels forprojects, programmes, operationsand governance must be equallybalanced in their compositionamong affected peoples, civil societyand independent experts. Further,affected peoples and civil societymust have the right to select theirown representatives on these panels.d" The ADB should locate allreviews and assessments of itsprojects, programmes, lendingpractices and decisionmakingprocesses within national and sub-national democratic processes suchas parliaments, congresses and

national assemblies. Directions forfuture policies and practices mustemerge from public debates anddiscussions, and not throughcloseddoor negotiations among elitegroups of ADB management,national and government elites andtechnical “experts.”

WE CALL ON THE ADB TORESPECT THE RIGHTS OF PEOPLESOVER THEIR RESOURCES ANDL I V E S A N D I M M E D I A T E L YIMPLEMENT THE ABOVE DEMANDS.

ON MAY 9, WE MARCH INSOLIDARITY WITH THE PEOPLESOF HAWAII WHO REJECT ANYFUTURE USE OF THEIR ISLANDS BYMULTILATERAL INSTITUTIONSLIKE THE ASIAN DEVELOPMENTBANK KNOWN FOR THEIR ANTI-PEOPLE AND ANTIDEMOCRATICPOLICIES.

Endorsed by:Northern Farmers Alliance, Thailand

Kanchanaburi Conservation Group,Thailand

Bor Nog Conservation Group, ThailandBan Krud Natural and Conservation Group,

ThailandKlong Dan Local Community Projection

Group, ThailandIsaan Framers Cooperative Federation,

ThailandCommittee for the Solution of Farmer’s

Problems, Chiang RaiCommittee for the Solution of Farmer’s

Problems, Payao Local Theatre Project,Thailand Four Regional AlternativeAgricultural Network, Thailand

Northern Farmer Network, ThailandKok-Ing-Nan River Network, ThailandMae Thood River Network, LampangMae Mog River Network, Lampang Mae

Soi River Network, LampangIsaan Forest and Land Network, ThailandThai Network for People Living with

HIV/AIDS, ThailandIsaan River Network, ThailandChiang Mai Consumer Network, ThailandWomen Rights Network, ThailandChiang Rai-Payao Rural Women NetworkThailand Labor Network, ThailandFour Regional Slum Network, ThailandChiang Mai Community Network, ThailandMedia Center for People, ThailandEastern Farmer Network, Thailand


Southern Local Fisherman Federation,Thailand

Student Federation of Thailand Committeefor Natural and EnvironmentalConservation Educational Institute,Thailand

Assembly of Isaan Farmer, ThailandAssembly of Cassava Planter ThailandAssembly of Indigenous People, ThailandAssembly of the Poor, ThailandAssembly of Moon River Basin, ThailandGroup for Save Wand River, ThailandNam Ping River Community Forest

Network, ThailandLove Muang Nan Group, ThailandAssembly of Northern Community Forest,

ThailandNGO-Coordinating Committee for

Development !NGO-COD", Thailand

Freedom from Debt Coalition, PhilippinesCordillera People’s Alliance, PhilippinesFocus on the Global South, ThailandFocus on the Global South - India

Programme

Fukuoka NGO Forum on the ADB, JapanAID/WATCH, AustraliaCreed Alliance, PakistanGlobal Justice Coalition, AustraliaNGO Forum on the ADB !International

Committee"Non-Timber Forestry Project, CambodiaOxfam AmericaOxfam Community Aid Abroad-AustraliaInternational Rivers Network, USAAsia Pacific Movement on Debt and

Development !Jubilee South AP"Environmental Foundation Ltd., Sri LankaODA Reform Network, JapanMekong Watch, JapanNGO Forum on CambodiaPADETC, Lao PDRACTION AIDUK Green Movement of Sri LankaShelly Rao, FijiSUNGI Development Foundation, PakistanYouth for Unity and Voluntary Action!YUVA", India

Shanghai 2002After two consecutive years of massive protests, the AGM was brought to China where no street action wasorganized. Instead, dissent was brought inside the AGM in highly critical seminars organized by NGOs todirectly confront ADB officials. No joint statement was prepared in Shanghai.


Manila 2003Originally set for Istanbul, the 36th AGM was reduced to a fanfare-free one-hour business-only meeting inManila due to security issues highlighted by the United States’ war on Iraq. Filipino activists took the lead inthe protest actions against the ADB.

ASIAN DEVELOPMENT FOR WHOM?The Philippine Working Group on the ADB Statement on the 2003 ADB AGM

June 2003

e, members of civil societyfollowing on the actions of theAsian Development Bank, urge its

officials, country representatives, anddelegates to stop adopting flawed policiessuch as the privatization of public utilitiesand basic services. We further call on theADB to cease pushing indiscriminateliberalization of the economy.

While the ADB speaks of lending toovercome poverty and pursue development,in reality it chooses to push market-orientedpolicies for private profit. These policiesbenefit ONLY the developed countries andowners of capital at the expense of people’swelfare, livelihood, and the destruction ofthe environment.

It has been 36 years but the ADB has yetto distinguish itself against the BrettonWoods institutions. On the contrary, theBank threads the same line: espousingpolicies of industrialized countries andcorporate interests. All of these take placewhile developing member countries wait tomake their pleas heard and theirmembership count. Genuine developmenthas been elusive because there has been noreal concern for poor countries in the firstplace.

Instead, the ADB has coalesced with theInternational Monetary Fund, the WorldBank, and the World Trade Organization inpaying lip service to “helping the poor”through poverty reduction programs andsector reform loans. But there is acatch*countries have to acquire ADB’sgoodwill only through faithful and most ofthe time, painful compliance with theBank’s conditionalities. The Philippines hasfallen victim to these conditionalities. Afterdecades of prescribing, nay imposingstructural adjustment programs, the ADBcontinues its adherence to market-basedpolicies. Further, the Bank applies the same

private sector fundamentalism to all socialservice sectors without second thought.

The results speak for themselves.While the ADB speaks about “water for

all”, it treats water as a mere economicgood, accessible only to those who can pay.At present, water is four times the originalgovernment price, and yet the promisedquality of service has not been achieved.

The power sector suffered the same fatein 2001, when ADB loans backed thepassage of the law privatizing powergeneration, supply, and transmission. Sincethen, power rates have risen tounprecedented levels. This is contrary toclaims of private sector efficiency thatsupposedly leads to cheaper costs.

Water and power sector privatization hasfailed because it is flawed in the first place.The provision of basic services is betterserved and protected by the public sector.

Other sectors in the public sphere arealso up for grabs, the same with governmentservices. Increased private sectorparticipation is peddled as panacea to allexisting problems. Adding insult to injury,the Philippine government has acceptedthis diminished role rather conveniently.

The cry for genuine reform calls for areexamination of the whole privatizationand liberalization policy. The people,especially the poor, are held hostage bythese policies. We, therefore, call on theADB to review and amend its programs ofoperations.

We further demand, that the ADB ceasepromoting privatization of public utilitiesand basic services, and the indiscriminateliberalization of the economy.

W


Jeju Island 2004The ADB took the 38th AGM to Jeju Island in South Korea, an extremely expensive place beyond the reachof NGO’s limited resources. Groups engaging the ADB chose to concentrate on on-the-ground work anddecided to boycott the Meeting.

A BETRAYAL OF ASIA AND THE PACIFICBoycott the 37th Annual Meeting of the ADB

May 1, 2004

he NGO Forum on the ADB calls onall civil society organizations andactivists to participate in a month of

protest against the disastrous consequencesof the policies and projects of the AsianDevelopment Bank !ADB". We also callupon civil society organizations andrepresentatives to refrain from participatingin the 37th Annual General Meeting of theADB, on 15-17 May 2004, Jeju Island,Republic of Korea as part of this protest.For nearly four decades, the ADB hascreated poverty in Asia throughirresponsible project and program lending.Its continued focus on mega infrastructureprojects, rent seeking investments, andprivatization of water and power reflect itsprioritization of narrow corporate, financialand elite interests over the concerns of themajority, especially the poor. The ADB’sreckless promotion of economic modelsthat benefit elites rather than commonpeople has placed an unsustainable debtburden on the peoples and communities ofAsia and the Pacific. Given that the majorarchitects and beneficiaries of ADB projectsand programmes are Japan, the UnitedStates !US" and Europe, ADB operations aretantamount to a betrayal of the people ofthe Asia-Pacific region.

It is time to say enough is enough.The selection of the remote island of

Jeju, South Korea, as the venue for theupcoming Annual General Meeting !AGM"is a highly inappropriate choice for ameeting of this magnitude. The expense oftravel rules out civil society participation,even for Korean civil society. Jeju is thelatest in a long line of remote and expensivevenues for the ADB’s AGM, which haveincluded places such as Honolulu in the USand Nice in France. The choice of Jeju asthe venue for the 2004 AGM indicates thatthe ADB cares little for broad civil societyparticipation and largely ignores its own

claim that “interaction with NGOs isessential to -ADB’s. effective operations”. Ifthe ADB were serious about this goal, itwould do everything in its power to ensurethat the AGM is held in accessiblevenues.

Civil Society Organizations demand thatthe ADB be held accountable for theconsequences of its lending. The ADBclaims to agree in principle with thisstatement, but views accountability only interms of compliance to its own operationalpolicies for safeguard, governance andquality. While such a view of accountabilityis extremely limited, experience hasrepeatedly shown that the ADB is incapableof living up to even this narrow concept.

We demand that the ADB commissionindependent monitoring and evaluation ofits projects. While the EvaluationsDepartment of the ADB has recently beengiven some degree of autonomy, this doesnot constitute independence. We alsodemand that the ADB change its system ofstaff incentives to stop rewarding those whocan most effectively have loans approved!currently the most common way for a Bankto measure success" and start rewardingthose who work to ensure ADB compliancewith its operational policies.

While the ADB recognizes officialcorruption as a major impediment tosustainable and equitable development, ithas continued lending on a large scale togovernments that have a limited capacity toutilize funds. The governments do not wanttheir aid flows to decrease; the ADB doesnot want its lending levels to decrease. Thisscenario is an open invitation to corruption.

We demand that the ADB enforce itspolicy of “zero tolerance” towardscorruption by conducting an independentaudit of all its operations. The ADB musttake steps to ensure that money lent to the

T


public purse is not diverted to privatepockets.

Despite ADB’s lip service to the benefitsof transparency, stakeholders are stilloften denied access to information whileADB projects impact their lives andlivelihoods with impunity. We demandthat all stakeholders have access to projectrelated documents in local languages. Wefurther demand that all documentssubmitted to the Board of the ADB be inthe public domain, and that Board meetingsand transcripts be open to the public.

We call on Civil Society fromaround the world to express theirsolidarity with the peoples of Asia byjoining in the AGM boycott. Wefurther call on groups to express theiroutrage at the ADB’s policies ofplunder by arranging demonstrations,letter writing campaigns and otheractivities of protest during the monthof May.

Endorsed by:

Australia:Kate Walsh, AID/WATCHLee Tan, Australian Conservation

FoundationBinnie O'Dwyer, FoE ' AustraliaBangladesh:Ashraf-ul-Alam Tutu, Coastal Development

Partnership !COP"Khurshid Alan Shashanka Saadi, ActionAid

BangladeshZakir Kibria, BanglaPraxisBrazil:Elisangela Soldatelli Paim, Núcleo Amigos

da Terra/Brasil - FoE-BrazilGermany:Dorothy Guerrero, AsienhausIndia:Anna Pinto, Centre for Organization,

Research & Education !CORE"Dr Ashok Kundapur, D K ParirasaraktaraSouparna Lahiri, Dehli ForumSavita Gokhale, EARTHCAARE

FoundationGirija Godbole, Jeevan SanthaShripad Dharmadhikary, Manthan

Adhyayan Kendra !Manthan ResearchCentre"

Maj. Gen !Ret" S.G. Vombatkere, NationalAlliance of People’s Movement

Bittu Sahgal, Sanctuary MagazineDebabrata Roy Laifungbam, South Asian

Solidarity for Rivers and Peoples !SARP"Indonesia:

Arimbi Heroepetrie, DebtWatchBinny Buchori, International Forum on

Indonesian Development INFIDHeine Nababan, People’s Coaltion for the

Rights to WaterMuhammad Riza,Yayasan Duta AwanKorea:Chang Shik Moon, Korean Federation for

Environmental Movements in DaeguKyrgyzstan:Natalia Ablova, Bureau for Human Rights

and Rule of LawValery Uleev, Spravedlivost !Justice"Ramazan Dyryldaev, Kyrgyz Committee for

Human RightsKalia Moldagazieva, Human Development

Centre, Tree of LifeTolekan Ismailova, Civil Society Against

CorruptionAsiya Sasykbaeva, Center InterbellimNepal:Gopal Siwakoti, WAFEDNational Policy InstituteNational Concerns SocietyMelamchi Loan Concern GroupNetherlands:Henneke Brink, Both EndsJanneke Bruil, Friends of the Earth

InternationalPakistan:Mohammad Nauman, CREED AlliancePhilippines:Mary Ann Manahan, Focus on the Global

SouthSameer Dossani/Jessica Rosien, NGO

Forum on ADB, SecretariatSri Lanka:“Affected Communities Col Mata Highway”Dilena Pathragoda, Center for

Environmental JusticeGama Surekaama SanvidhaniyaHemantha Withanage, Sri Lanka Working

Group on IFIsUnited Society for the Protection of

AkmeemanaThailand:Naing Htoo, EarthRights International !SE

Asia"Jim Enright, Mangrove Action ProjectUK:Tom Griffiths, Forest Peoples ProgrammeUSA:Mishka Zaman, Bank Information CenterAviva Imhof, International Rivers Network


About the ContributorsGURURAJA BUDHYA works withthe Urban Research Centre, Bangalore,and can be contacted [email protected]

JENINA JOY CHAVEZ is SeniorAssociate with Focus on the Global Southand Coordinator of its PhilippinesProgram. She may be reached [email protected].

FUKUDA KENJI may be reached [email protected].

MUSHTAQ GAADI is with theChashma Lok Sath People’s Assembly. Hemay be reached [email protected].

SHALMALI GUTTAL is a seniorassociate at Focus on the Global South.She can be contacted [email protected].

LA’O HAMUTUK, The East TimorInstitute for Reconstruction Monitoringand Analysis, is an activist research outfitbased in Dili, Timor Leste. They can bereached [email protected].

INTERNATIONAL RIVERSNETWORK, established in 1985, workswith affected communities in fightingeconomically, environmentally, andsocially unsound river interventionprojects. For inquiries, contact SusanneWong at [email protected]. “Sizing up theGrid” is an abridged version of n articlereleased in January 2004. Full text may beaccessed athttp://www.irn.org/programs/mekong/poweranalysis.pdf.

NEPOMUCENO MALALUAN isTrustee at the Action for EconomicReforms and Partner at the Quevedo,

Malaluan & Lumba Law Offices. He canbe contacted at [email protected].

MARY ANN MANAHAN is aresearcher with Focus on the GlobalSouth, Philippines Program. Her emailaddress is [email protected].

K RAVI RAMAN is an AssociateFellow at the Centre for DevelopmentStudies, Thiruvananthapuram. His e-mailaddress is [email protected].

SUGITA RENA of Mekong Watch maybe reached at [email protected].

BRUCE M. RICH is a Senior Attorneywith Environmental Defense.His email address [email protected].“Corruption and the ADB” are excerptsfrom his Testimony ConcerningCorruption and the Asian DevelopmentBank to the United States’ Senate ForeignRelations Committee, September 28,2004. The full testimony may be accessedat www.foreign.senate.gov/hearing.html.

HERBERT DOCENA did the layoutfor this volume and helped copyread somearticles. He is a Research Associate withFocus and may be contacted [email protected].

BEN MOXHAM edited some of thearticles and drew up the diagrams for theADB’s accountability process !pages 94and 95". He was a researcher with Focusand may be contacted [email protected].

RESTO S. CRUZ I andJEWELLORD NEM SINGH did thefinal proofreading of this volume. Theyare both interns with Focus on the GlobalSouth.

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