December 1, 2000

Probe International urges ADB to:

1) suspend loan disbursements to the project;

2) appoint an inspection panel to document contravention of ADB policies; and

3) launch a forensic audit into procurement and land purchase irregularities.

Julian Payne
Executive Director for Canada, Finland, Netherlands, Norway, and Sweden
Asian Development Bank
P.O. Box 789
Manila
Philippines
Fax: (632) 636-2048/(632) 636 2000

Re: ADB-financed Samut Prakarn Wastewater Management Project, Thailand

I am writing to urge you, as the ADB Executive Director for Canada, to immediately suspend loan disbursements to the Samut Prakarn Wastewater Management Project in Thailand and launch an inspection panel investigation into the violation of ADB policies, the
contravention of Thai law, and allegations of corruption in connection with the project.

By now you will have received a letter of complaint from communities affected by the project, in which their representatives demand that the ADB investigate three major areas of concern:

First, the villagers claim that the ADB violated at least six of its own policies in financing the $775-million wastewater treatment plant – policies on corruption, environmental assessment, involuntary resettlement, social assessment, confidentiality and disclosure of
information, and good governance.

Second, the villagers claim that the project has broken Thailand’s environmental law because construction began without approval from Thailand’s National Environment Board, without a public hearing, and without Cabinet approval.

Third, villagers suspect corruption in connection with the purchase of land required for the project site, and have made their allegations known to Thailand’s National Counter  Corruption Commission and the ADB’s Office of the General Auditor.

As the lead financier of this project, the ADB has a responsibility to investigate these complaints and allegations without further delay. The Asian Development Bank has provided $1,245,000 in grant funding for project design and an additional $230-million in loans for project construction over the past 15 years.

The ADB should investigate the following:

1. Violation of Thai laws

The wastewater treatment plant now under construction was never approved by the ADB or the Thai government.
The project approved for financing by the ADB in 1995 included two wastewater treatment plants to be built in Pla Kod and Bang Po Mai subdistricts, a highly industrialized area with thousands of factories that discharge untreated wastewater containing toxic chemicals and
heavy metals (i.e., chloride, mercury) into public waterways. Two years later, the project owner, Thailand’s Pollution Control Department, moved the project site to another area of Samut Prakarn province, Klong Dan subdistrict, which is 20 kilometres away. PCD then changed the project design from two treatment plants to a single facility. This was done without approval from the National Environment Board or the Thai Cabinet, as required by Thai law.

No environmental impact assessment or public hearing was conducted prior to construction.
Construction of the project started two years ago, without an environmental assessment or a public hearing, as required by Thailand’s 1992 Environmental Act and ADB policy.

2. Environmental and social concerns, and the violation of ADB policies

The project will spread hazardous pollutants. The ADB claims that the project is designed to control industrial pollution and improve environmental quality in Samut Prakarn province. The fact is, the wastewater treatment plant under construction cannot remove heavy metals or toxic chemicals from industrial wastewater; it is only designed for breaking down bacteria. By collecting wastewater contaminated with toxins from one area and discharging it in another area that is not contaminated by toxins, the project is actually
spreading toxic pollutants instead of containing them.

The project will poison a highly productive marine ecosystem.
The plant’s daily discharge of wastewater laced with toxic chemicals and heavy metals is expected to cause a steady buildup of toxic sludge in the shallow sea near Klong Dan subdistrict, which will slowly poison fish and shellfish stocks and destroy the area’s thriving fishing economy.

The project threatens citizens’ property rights. The ADB has advised Thailand’s Pollution Control Department to prepare a resettlement plan for local communities, even though resettlement was not part of the original project. This contravenes ADB resettlement and social assessment policy. Furthermore, local communities do not want to
move. Resettlement is unacceptable, the affected communities told the ADB last month: “We have maintained our livelihoods for many generations and we will not let anyone destroy our livelihoods as well as the biodiversity and richness of our environment.”

3. Allegations of corruption and project irregularities

The government proponent bought the land needed for the project from a private consortium under highly irregular terms and at twice the market value. Under the terms of the 1997 contract between Thailand’s PCD and the private consortium selected by PCD to build and operate the plant, the consortium was responsible for buying the land needed for the project site and then selling it to the PCD. So in 1998, the consortium bought land in Klong Dan subdistrict for an undisclosed amount and then sold it to PCD at an inflated price, roughly twice the market value per unit of land.

The project’s budget, originally suspected of being too high, has increased by at least 30 per cent to $755-million, leading to suspicions of corruption.

The proponents’ decision to move the project to an unsuitable site has prompted suspicions of corruption. Independent experts in Thailand report that the new site is not appropriate for constructing a treatment plant due to the high risk of land subsidence, flooding, and seawater intrusion in the area.

4. The project is uneconomic and unnecessary

The proponents have no plan for recovering the system’s high costs from users nor have they identified who the users will be, paying or non-paying. Since the treatment plant now under construction cannot treat wastewater for heavy metals and toxic chemicals, Samut Prakarn factories have no incentive to send their wastewater to the plant. According to the Samut Prakarn Provincial Industries Chief, all 6,570 factories in the province already have their own facilities for biologically treating their wastewater and joining a  centralizedtreatment system would only add to their operating costs without improving the quality of their wastewater.

Given that this project is unwanted, environmentally destructive, uneconomic, unnecessary, tainted by allegations of corruption, and its proponents appear to have violated Thai law and ADB policies to win ADB financing, we urge you, on behalf of your shareholders, to do the following:

1) suspend loan disbursements to the project;

2) appoint an inspection panel to document contravention of ADB policies; and

3) launch a forensic audit into procurement and land purchase irregularities.

By taking these steps, we believe that the ADB will have all the evidence it requires to make an informed decision to withdraw support from the project.

So that we may keep concerned Canadians informed, we would appreciate a written response from you at the earliest possible time.

Sincerely,

Gr√°inne Ryder

Policy Director

cc: ADB Inspection Committee, (F) 632-636-2000
Inspection committee member Zaheer Ahmed, Pakistan
Inspection committee member Barry Holloway, Papua New Guinea
Myoung-Ho Shin, Vice-President, West, (F) 632-636-2030
Paul Martin, Minister of Finance, Canada
John Manley, Minister of Foreign Affairs, Canada
Maria Minna, Minister for International Cooperation, Canada
Denis Desautels, Auditor General of Canada (F) 613 957 0474