The Wall Street Journal
August 14, 2000

“World Bank officials concede that, once again, one of their massive Third World investments has exacted a severe toll on citizens whose lives ultimately were supposed to have been made better by economic development.”

HANDIDHUA RESETTLEMENT COLONY, India — World Bank officials took a Hippocratic oath when they agreed in 1997 to lend India more than a half-billion dollars to mine coal. Above all, the bank officials swore to themselves, the project would do no harm.

Since then, Coal India Ltd. has reaped big benefits from the bank’s money. The giant state-owned company says it has grown more efficient, more productive and more profitable.

But the same can’t be said for thousands of villagers, whose farms and homes in east and central India are being swallowed up by the mines financed by the World Bank.

Gobinda Dehury and his wife Pankajini watched their entire village of Balanda demolished last year by bulldozers. Now they live with their two-year-old son in a spartan house here in the “resettlement colony” of Handidhua, a ghost town where the water taps have no drinkable water, the shopping center has no shops and the community center no community.

“I’d have rather stayed in the village,” Ms. Dehury says. “Everything was there: water, electricity, coal.”

World Bank officials concede that, once again, one of their massive Third World investments has exacted a severe toll on citizens whose lives ultimately were supposed to have been made better by economic development. “We thought we could make a real difference in this project,” says Edwin Lim, the bank’s director for India. “We’ve been disappointed with the project on a number of fronts.” One of the biggest disappointments, bank officials admit, is they failed to honor their do-no-harm pledge.

What went wrong? From the start, bank officials acknowledge, they knew they were rolling the dice by lending India $530 million to start, expand or modernize two-dozen open-pit coal mines. The project would require large peasant resettlements of the sort caused by many past bank-financed infrastructure projects in developing countries. The record of such traumatic dislocations is riddled with failures.

Bank officials envisioned that many of the displaced subsistence farmers would be transformed into small-business owners. But the bank made a skeptical Coal India responsible for this ambitious retraining, despite the company’s lack of experience with such a task. With the company failing to satisfy bank expectations, both sides agreed last month to cancel the loan, with only half the money disbursed.

The World Bank’s major Third World projects have come under increasing fire in recent years from activists who charge that building roads, dams and pipelines often serves corporate and elite interests to the detriment of the poor. In April, some 10,000 protesters making this allegation marched on bank headquarters in Washington.

Still, bank officials continue to see the big projects as necessary for nurturing fragile economies. “These are the bread and butter of the bank historically,” and it doesn’t intend to back away from them, says Mr. Lim, who is 59 years old and has been with the institution for nearly three decades.

Founded in 1944 to rebuild a shattered Europe, the bank — owned by 181 member nations but dominated by the U.S. — now focuses on Asia, Africa, Eastern Europe and Latin America. It has a world-wide active loan portfolio of $116.4 billion. Its lending has unquestionably helped hasten economic growth in such nations as Chile, Mozambique and Uganda. And with its infrastructure projects under assault, the bank has stepped up efforts to address basic human needs, from primary education to the fight against AIDS.

Nonetheless, evidence from the field suggests that despite five years of reformist talk from bank President James D. Wolfensohn, the institution is still having trouble figuring out how to finance big development projects in poor countries while protecting the poor themselves.

In Peru, activists complain, a World Bank-financed gold mine adds little to the local economy while pushing poor farmers from their land. In Lesotho, critics allege, the bank hasn’t done enough to help those displaced by a series of dams. “We’ve never had confidence in the World Bank’s ability to restore these people’s lives,” says Lori Pottinger of the International Rivers Network, a Berkeley, Calif., group that has campaigned against the Lesotho water project.

The bank defends the Peru and Lesotho investments, saying those nations lack enough domestic capital to spark economic growth.

Still, bank officials say they worried about collateral human damage when they considered the coal-mining loan to India. “Resettlement in very large, densely populated absolutely poor countries like India is very tough,” says Mr. Lim. But India, hungry for energy, would have expanded coal mining with or without a bank loan, officials say. The bank concluded that its participation could soften the blow to farmers whose land and traditional livelihoods inevitably would be taken away.

The lengthy loan agreement reached with Coal India in 1997 called on the company to make whole all of the villagers it would displace, with bank representatives from New Delhi and Washington making periodic monitoring visits. The bank employs sociologists, medical doctors, economists and many other sorts of experts on the needs of the poor in developing countries. But it doesn’t run the projects it finances. That duty is left to borrower governments and, at times, state-owned companies.

Bank staff members say they expected that problems would arise with the Indian coal project because of its scale and difficulty. They didn’t have to wait long. In late 1997, a bank inspection team discovered in the state of Bihar that many peasants were resisting resettlement or floundering once they lost their farms.

Bihar and its southern neighbor, Orissa, offer a mind-bending juxtaposition of modern aluminum smelters, power plants and coal mines alongside medieval agriculture. Barefoot men in loincloths guide water buffalo and wooden plows through small fields. Women dry rice on village roads and gather seeds and mushrooms from the forest floor. Leprosy remains common.

Most of the farmers in the way of the mines were immediately suspicious of Coal India’s attempt to move them. Many have refused to go where they’re told or vow improbably to stay put, despite the coming excavation. Reasons for resistance range from monetary to mystic.

Sankirtan Korali, who is 56 years old and supports a dozen family members on 18 acres of rice, lentils, oilseeds and millet in the doomed village of Darliparli, consulted a fortune teller about whether to head south to a resettlement colony assigned by Coal India. The seer’s advice: “Going south means death.” That w as enough for Mr. Korali. He says he will take whatever compensation the coal company gives him and go elsewhere.

Coal India has offered farm families varying sums, depending on the value of lost acreage and homes. In Darliparli, residents report being offered $270 an acre. A few hours away, Jallia Gornaik says he received $570 for each of his three acres of rice paddy in the village of Anantaberini, plus $4,550 for his house. Faced with widespread resistance from other villagers, the company recently began offering $1,140 to those families who head off on their own.

Residents of the village of Balanda objected that these amounts were puny. They tried a lawsuit and then civil disobedience. But eventually the bulldozers arrived under police protection and leveled everything.

Hundreds of Balanda families were told last year to move to the Handidhua resettlement colony, which boasts 321 tiny homesites. Only 11 families have arrived at the expanse in impoverished Orissa, where unfiltered bilge water from the coal pits is pumped in a few hours each day for bathing and washing. The coal company promised to provide drinking water, but so far hasn’t.

On the front porch of the empty shopping center lives Rudramani Naik, a 60-year-old widow dressed in a bright orange sari. In Balanda, she and her husband owned a house and a small plot of farmland, she says. A rail line now runs through the former village, framed on one side by the conveyor belts of the Ananta mine and on the other by the gaping Jagannath coal pit.

In 1989, Coal India’s Orissa subsidiary, Mahanadi Coalfields Ltd., paid the Naiks 60,000 rupees (about $1,360) for their property. But Ms. Naik wasn’t forced to move until a year ago, by which time her husband and one son had died and the money was long gone. Her other son, unemployed, offers no support. While she owns a homesite in Handidhua, she has no money for a house and survives on her husband’s coal-company pension of less than $14 a month. “My son has left me, so now I’m alone,” she says. “I can’t earn any money.”

Meanwhile, Coal lndia has improved its earnings. Fueled by the World Bank’s millions, the company says its new excavators are tearing record amounts of coal from the ground to feed the Indian economy. Modernized equipment and other improvements are allowing each miner to produce 21% more per shift than he did just four years ago, the company says.

Wealth will eventually flow to the poor, says Shashi Kumar, the Coal India engineer charged with carrying out the bank’s social dictates. “If coal production doesn’t increase, the power plants won’t come,” he says. “If the power plants don’t come, the expansion of industry won’t take place. And if industry doesn’t expand, employment along the chain won’t be produced.”

Company executives note that they allow some displaced villagers to live temporarily in staff quarters. The sick are permitted to use Coal India hospitals. And some villagers have fared far better than Ms. Naik.

One unusually prescient group of 60 Balanda families years ago anticipated the coming of expanded mining and bought 600 acres of good land 12 miles from the village. When Coal India’s eviction notice finally came in 1999, they took the company’s money and moved to what they call New Balanda, building sturdy cement-block houses.

But complaints outnumber successes. On several occasions, bank officials returned from inspections and grumbled to Coal India about poor conditions in resettlement colonies, including Handidhua.

Their patience wearing thin, company officials put most of the blame on the villagers. “Nobody wants to be resettled, not even from hell to heaven,” says Mr. Kumar. “We genuinely want to help, but somehow — due to lack of will on their part and sometimes due to lack of care on our part — things aren’t working out the way we want.”

Beyond moving villagers to make way for mines, Coal India was supposed to guide peasants toward new means of making a living. The bank’s inspectors found this effort succeeding only sporadically.

India is so crowded that the company couldn’t simply find new farmland for many of those forced to move. For decades, Coal India helped villagers it displaced by offering them work with the company. But these days, the mining giant, which has a payroll of 562,000 employees, is trying to reduce bloat. In fact, the World Bank demanded the company step up efficiency as a condition of making the mining loan.

But trimming corporate fat means fewer jobs for each ton of coal produced, and many of those jobs demand greater skills than peasant farmers possess. Of the more than 10,000 adults expected to lose land or homes, only about 3,200 have secured jobs with Coal India or its subcontractors.

The World Bank thought it had a solution to the jobs problem: requiring the company to train villagers to start small businesses. Bank officials say they had seen this strategy work elsewhere in India, although not in cases of forced resettlement of so many people. Now, all around the coal areas, the company has sponsored classes in basic carpet weaving, incense making and electrical repair.

Yet only 1,400 displaced peasants have finished job training, and of those, just 550 actually earn anything with their new skills, the company says. One difficulty is that most of the villagers are illiterate and have had little contact with the market system. Many say they hope that if they hold out long enough, Coal India eventually will provide them with full-time salaried jobs.

Bank officials assert the coal company hasn’t tried hard enough to help victims of economic progress. The loan agreement didn’t specify a precise time frame for accomplishing the entrepreneurial training, but the bank had assumed that Coal India would fulfill this obligation in something close to the five-year duration of the payout of the loan, ending in late 2002.

Coal India executives now say that expectation was unrealistic. Many peasants, particularly the women, have turned out not to want to start businesses, or are just too lazy, company officials say. “To convert a person from a villager without any trade in his hand, give him training … and turn him into an entrepreneur — there’s no place in the world that has taken place in less than a decade,” says Mahanadi Coalfields’s chairman, S.N. Sharma.

Bank officials realized as early as 1998 that thousands of villagers wouldn’t get Coal India’s training or go into business. Poverty specialists at the bank suggested a solution that hadn’t been in the original loan plan: Coal India should provide refilled mine land or unused company property for peasants to start livestock farms, hatcheries or even forestry operations. These pursuits would be more familiar to people whose agricultural roots reached back generations, the specialists said.

Coal India signed on, at least in principle, in 1998. But the company didn’t agree to set up test projects until a year later. And even today, the land-based projects languish in planning stages.

Bank officials carried out six supervisory visits in 1999 and this year. Each tour led to a stern letter to Coal India about the slow progress in dealing with the woes of resettled villagers. By this spring, frustration had mounted on both sides, as the bank’s warnings started to sound more like ultimatums. In April, protesters descended on the bank’s Washington headquarters, although officials say the noisy demonstrations didn’t affect their thinking about the Coal India situation.

Last month, the Indians took the face-saving step of requesting that the loan be canceled, with only half of the $530 million doled out. The bank quickly assented — the second time in three years one of its loans to India has been derailed. Such drastic moves are relatively unusual.

A smaller $60 million loan aimed at improving Coal India’s environmental practices and aiding displaced peasants remains in place, although the bank’s leverage in enforcing its social goals obviously has been reduced.

Apart from the resettlement and job-training fiascoes, bank officials say India has been too slow in allowing private investment in its coal industry and that some Coal India units have been losing money.

Bank officials defend their gamble on Coal India. “We were confident that these projects would be better done with our involvement than without it,” says Mr. Lim.

Company officials are ambivalent. “The World Bank loan was very welcome when it came — no doubt,” says Mr. Sharma of Mahanadi Coalfields. But “if some part of it isn’t available, we’ll manage. India will run, World Bank loan, or no World Bank loan.”

Indeed, bank officials confirm that their experience with Coal India doesn’t affect 79 other loans to the country, which have a total value of about $11.5 billion.