Africa

Bribes by major international dam-building companies taint World Bank-funded Lesotho water project

International Rivers Network Press Release
August 2, 1999

A dozen major international dam-building companies involved in the World Bank-funded Lesotho Highlands Water Project (LHWP) have lavishly bribed at least one top official on the project, allegedly giving nearly US$2 million in bribes over ten years, reports the South African newspaper Business Day. The information was revealed as part of a court case for the bribed official.

Patrick McCully, Campaigns Director of International Rivers Network, says: “Bribery has long distorted the decision-making process on large dams. The international dam industry should be held accountable for its corrupt practices.”

The following list of companies and the reported bribe amounts paid was published in the July 29, 1999, edition of Business Day: ABB (Swedish/Swiss) – Ff 250000 (US$40,410); Acres International (Canadian) – C$279539 (US$185,002); Impregilo (Italy) – US$250,000; Spie Batignolles (French) – Ff 738630 (US$119,393); Sogreah (French) – Ff 84000 (US$13,578); Dumez International (French) – Ff 509905,62 (US$82,422). Lahmeyer Consulting Engineers (German) – DM 16000 (US$8674); ED Züblin (German) – DM 819862 (US$444,466); Diwi Consulting (Germany) – DM 4500 (US$2439); LHPC Chantiers (international consortium) – R392967 (US$63,959); Highlands Water Venture (international consortium, including Impregilo, the German firm Hochtief, the French firm Bouygues, the UK firms Keir International and Stirling International, and South African firms Concor and Group Five) – $733,404; Lesotho Highlands Project Contractors (international consortium which includes Balfour Beatty, Spie Batignolles, LTA, Züblin) – DM 105639 (US$57,269).

Patrick McCully of IRN says: “This list of corrupt companies reads like a who’s who of the dam-building industry.”

All of the companies implicated in this scandal are from countries that have signed the Organization for Economic Cooperation and Development’s convention on corruption and bribery. The OECD Convention obliges signatories to adopt national legislation which makes it a crime to bribe foreign public officials (www.oecd.org/daf/nocorruption). The OECD convention imposes forfeiture of a contract’s total value in instances of proven corruption, according to the Financial Times (June 25, 1999).

On July 29, the Lesotho government charged the former CEO of the multi-billion-dollar LHWP, Masupha Sole, with fraud, perjury and taking bribes. The international project to bring water from Lesotho to South Africa is managed by the Lesotho Highlands Development Authority and overseen by the governments of Lesotho and South Africa. Construction on one dam is completed and a second dam is underway in the 5-dam scheme, which is the largest infrastructure project under construction in Africa (for more information on the project visit http://www.irn.org or http://www.metsi.com/dwaf/).

The charge sheet states that Sole “did unlawfully, intentionally and corruptly accept bribe moneys, over the period February 1988 to December 1998, from Lesotho Highlands Water Project contractors.” Sole, appointed CEO of the LHWP in 1986, was suspended in December 1994 and dismissed from his position in 1995. The Lesotho government alleges he continued to accept bribes after that. One source told Business Day that contractors paid bribes directly into Swiss and French bank accounts in Sole’s name.

The World Bank has lent over $150m for the project. Its involvement obliges the bank to apply its operational regulations — including those on fraud and corruption — to project contractors. The bank’s procurement guidelines state: “The bank will declare a firm ineligible, either indefinitely or for a stated period of time, to be awarded a bank-financed contract if it at any time determines that the firm has engaged in corrupt or fraudulent practices in competing for, or in executing, a bank-financed contract.” A bank “sanctions committee” decides on these matters, and maintains a comprehensive list of debarred firms (called the Listing of Ineligible Firms). The list is not publicly available. Many of the firms implicated in this scandal have been involved in numerous dam projects funded by the World Bank.

According to a July 30 article in Business Day, the World Bank will wait until the outcome of Sole’s court case before contemplating action against any of the companies named on the charge sheet. Meanwhile, South Africa’s new Water Affairs and Forestry Minister, Ronnie Kasrils, said the conduct of implicated companies which were still involved in the project was being “closely scrutinized on an ongoing basis.” (For full story: http://www.bday.co.za/99/0730/news/news1.htm)

Several of the companies involved in this case are closely involved with the World Commission on Dams (WCD), which is analyzing the development effectiveness of dams worldwide (see http://www.dams.org for more information). The CEO of ABB is one of the WCD’s 12 commissioners, and ABB and other industry firms have funded the WCD.

Juliette Majot, Executive Director of IRN, says: “The close connection between these companies and the WCD threatens to compromise its ability to frankly assess the role of corruption in the dam industry. This issue will provide a serious test of the commission’s integrity.”

Corruption scandals such as this have played an important role in the ongoing problem of cost overruns on large dams. The World Bank has estimated that more than 70 percent of the dams it has built since 1960 have had cost overruns of over 30 percent. The bank also estimates that the sums distributed world-wide each year as bribes total US$80 billion. The OECD calls this figure is just “the tip of the iceberg.

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