Funders ponder response to corruption

Abid Aslam
Inter Press Service
October 21, 1999

The World Bank and other official financiers meet next month to discuss ways out of a corruption scandal reaching from the remote highlands of Lesotho to their own headquarters.

The Bank will lead a Nov. 17 meeting of official backers of the Lesotho Highlands Water Project, the former head of which faces trial in the southern African country on charges of accepting bribes from multinational companies.

The Highlands project is an eight-billion-dollar effort to supply water to South Africa and electricity to Lesotho. It involves construction of five dams on the Senqu River – also known as the Orange River – a power plant, and tunnels through Lesotho’s mountains. The work is due for completion in 2017.

”The list of corrupt companies reads like a ‘Who’s Who’ of the dam-building industry,” says Patrick McCully of the non- governmental International Rivers Network.

A dozen firms – including Canada’s Acres International, Italy’s Impregilo, Germany’s Lahmeyer Consulting Engineers, and Swiss- Swedish construction giant ABB – allegedly curried business by paying more than two million dollars in bribes to former project chief Masupha Sole between Feb. 1988 and Dec. 1998.

Members of the funders’ group meeting next month include Western governments that have signed an Organisation for Economic Cooperation and Development convention requiring them to make it a crime for their nationals to bribe foreign officials.

The World Bank helped to set up the scheme, lent it 150 million dollars and took responsibility for its ”sound financial management”, according to project documents.

The agency is under pressure from project critics to suspend companies implicated in the scandal from doing business with the global lender until the case is resolved – and then to permanently blacklist firms proven to have paid bribes.

”If there’s evidence of illegal activities under our rules, debarment would be the ultimate penalty,” says Robert Calderisi, chief spokesman in the Bank’s Africa department.

This would only happen if companies tampered with the Bank’s money – not funds provided by other project backers. Such a distinction is considered spurious by McCully and by observers including Jeremy Pope, executive director of Transparency International, an international watchdog group.

It nevertheless could save the lender from having to take action that would shake the international dam-building industry and complicate other Bank-financed projects.

A number of the firms also are involved in other Bank-supported dams – Impregilo alone is working on at least seven of these projects, according to McCully.

Several of the firms previously have been implicated in investigations of Third World dams financed by the Bank and other official lenders. These include Turkwell Gorge in Kenya, Chixoy in Guatemala, Tucurui in Brazil, Itaipu on the Brazil-Paraguay border and Yacyreta, on the border between Argentina and Paraguay.

The World Bank also is under fire for a 1994 letter to Lesotho authorities, in which it protested the suspension of Sole, the project chief, and another senior official under audit. The move would ”seriously jeopardise the progress of the project,” the Bank said at the time.

The letter threatened legal action if the officials were removed from their positions and is seen by project critics as evidence that the Bank sought to quash the Lesotho government’s early efforts to clean house.

Calderisi, the Bank spokesman, denies that charge.

”The intention was to obtain more information, not to stop a government action,” he says, adding that the lending agency ”had to send a stiff letter” because its earlier queries about the personnel changes had not been satisfactorily answered.

”They subsequently sent the information and we took no further action,” he said. ”With hindsight, the government was right.” Sole was fired in 1995.

For its part, the Bank has dispatched private lawyers to Lesotho to look into whether agency rules on bribery, procurement, and competitive bidding have been broken. No deadline has been set for the investigation and officials have yet to agree what punishment they will mete out to firms found guilty.

The Highlands Water Project was set up by legal sleight of hand under a 1986 sanctions-busting treaty between apartheid South Africa and what was then a military government in Lesotho, which is surrounded on all sides by its larger neighbour.

The World Bank, which brokered the arrangement, provided legitimacy and key financing for the scheme. With Lesotho as the Bank’s borrower of record, European banks, government export credit agencies and engineering firms could take part without appearing to violate international sanctions against the apartheid regime.

The Bank’s loans were channeled through Lesotho but were made at interest rates consistent with South Africa’s economic status, not that of its low-income neighbour.

South Africa no longer needed to play such financial shell games after white minority rule ended in 1993 but by then the two countries were committed to the project

The deal allowed South Africa to pipe water to factories and poor townships in Gauteng province, the country’s industrial heartland, without having to drain swimming pools in the region’s wealthy suburbs.

Lesotho’s government looks to the scheme for some 40 million dollars per year in water royalties. The project also is ”helping poor communities in Lesotho through a social fund,” according to a statement by Callisto Madavo and Jean-Louis Sarbib, the World Bank’s vice presidents for Africa.

“Unfortunately, this is not our perception here on the ground,” community leaders Thabang Kholumo of the Highlands Church Solidarity and Action Centre and Motseoa Senyane of the Transformation Resource Centre counter in a statement of their own.

”The fund has been and continues to be a tool of opportunistic politicians,” who have committed its resources to pointless pet projects although the social fund’s decision-making committee has yet to meet, Kholumo and Senyane declare.

”We see the same stretch of road repaired, torn up the next week, repaired again the following week and then torn up once more at the end of the month,” they complain.

”Punishing the corrupt multinationals involved in (it) and closely monitoring the implementation of the project’s social fund would reassure us of the World Bank’s concern,” they add.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s