Bangkok Post
March 26, 2002

Management of the Asian Development Bank stand accused of violating their own funding policies, guidelines on the environment and denying residents, affected by the wastewater scheme, access to vital information.

The report on a controversial wastewater management project in Thailand by an independent Inspection Panel of the Asian Development Bank (ADB) has struck the bank’s management like a thunderbolt. To make matters worse, most of the key conclusions of the inspection panel on ADB management’s decision-making behaviour have been endorsed by the ADB Board Inspection Committee.

The focus of the report, the Samut Prakan Wastewater Treatment Project, was designed to alleviate massive water pollution in Samut Prakarn province, the most industrialised of the five provinces of the Bangkok Metropolitan Region. A sharp escalation of project costs eventually made the project the largest turnkey project ever supported by the ADB, with the expenditure reaching US$948 million, of which about $230 million came from the bank.

The revision of original estimates was accompanied by major changes in the design of the project.

One such change brought into the project a site that was not originally included: the village of Klong Dan. This was done without the consultation of the residents, provoking protests from the villagers, who accused the bank of violating its key policies, including those on consultation, resettlement, the environment, and good governance. In a letter to ADB President Tadao Chino, three individuals: the mayor and two civic leaders representing the villagers, asked for an immediate halt to ADB funding for the project and an investigation of what they claimed were “many violations of ADB policies.”

Under pressure from a campaign waged by key groups in Thai civil society and a number of international NGO’s, which included a massive protest during the ADB’s 33rd annual meeting in May 2000, the Bank Board commissioned a review of the project by an independent panel. This team was eventually composed of Judy Henderson, chair of Australian Ethical Investment Ltd, Wiert Wiertsema, co-founder of the Dutch NGO Both Ends; and Pin-Cheung Loh, former secretary-general of the International Co-operation and Development Fund in Taipei. Despite obstruction from the Thai government _ and ADB management’s marked reluctance to assist them in visiting the project site without having to conform to what panel members viewed as unacceptable conditions imposed by the government, the inspection panel issued a report based on available data and interviews with bank staff members in Nov 2001.

The findings were damning. According to the inspection panel, the Bank management:

– violated its policies governing the review of cost overruns by not carrying out a reappraisal of the whole project in preparing financing for a supplementary loan;

– failed to comply with policies covering changes made in project design by not conducting a full reappraisal of technical, economic, social, and environmental issues relevant to the project;

– breached the bank’s environmental guidelines by not conducting an environmental impact assessment (EIA) of the project;

– violated the bank’s policy on involuntary resettlement by not carrying out a social impact assessment (SIA);

– violated bank policy on governance by not allowing opportunities for the affected residents of Klong Dan to participate in designing and implementing the project; and

– failed to comply with bank policy on project evaluation and monitoring by not putting in place a system for effectively monitoring the social and environmental impacts of the project.

In response, the bank’s management drafted a point-by-point rebuttal of the Inspection Panel report. However, the Board Inspection Committee (BIC) headed by John Lockart of Australia upheld most of the panel’s main findings. According to the BIC, “ADB’s failure to comply with policies on supplementary financing of cost overruns and operational missions [and particularly the failure to carry out a comprehensive reappraisal after a fundamental change in technology and a massive cost overrun and again when a substantial supplementary loan was processed] constituted and led to important omissions.” It went on to “accept” the inspection panel’s conclusion that “a relevant group has suffered direct and material harm as a result of ADB’s non-compliance with operational policies and procedures.”

It is inexplicable, however, that after finding significant deviations from its policies that resulted in harm to Klong Dan villagers, the inspection panel did not recommend suspension of loan disbursement, as the Klong Dan villagers demanded. In fact, the suggested course of remedial action is rather weak, consisting of ADB management admitting it did not comply with its policies, improving the monitoring, consultation, and participation process, and working with the Thai government to compensate villagers for the harm done to them.

Reparations are unlikely to occur, however, since, as a multilateral institution, the bank is exempted from damage claims and the Thai government has stoutly resisted any suggestion it behaved inappropriately in implementing the project. Fear that they would be used to legitimise continuation of the project was one of the factors that prompted the Klong Dan villagers to be interviewed by the panel. With the inspection panel’s formula of getting management to acknowledge violations of policy while endorsing continued ADB funding of the project, the villagers’ skepticism about the inspection process appears to have been justified. Nevertheless, the panel’s report is creating consternation among bank staff. Management fear that the Samut Prakan fiasco will dominate talk at the bank’s 35th annual meeting in Shanghai in mid-May. There is also the fear that there will now be greater public scrutiny of the bank’s operational policies, many of which are not yet in the Operations Manual and thus inaccessible to both staff and the public. In fact, according to one ADB source, “the operational manual has not been updated for five years, which raises fundamental questions about staff being aware of the existence of certain policies.”

The biggest fear, however, is that the Samut Prakan case-the first inspection to be conducted under the Board’s inspection policy approved in 1995, will trigger other requests for independent inspection panels. Two controversial projects, one in Sri Lanka, the other in Pakistan, are said to be in the inspection pipeline as a result of strong pressure from civil society groups. To contain the impact of such inspections, management is seeking to limit what can be “scrutinised” in projects in fairly narrow terms to “operational policies and procedures that provide ADB staff with mandatory directions on how to formulate, process, and implement projects” and exclude all other matters such as “strategies and strategic aspects of all policies.”

Will the Samut Prakan decision really mean a change in the Bank’s way of doing business?

Many within the Bank are doubtful. Noting the move to limit the elements of projects open to inspection, an ADB economist who requested anonymity said, “Instead of opening itself to a transparent process, the bank is allowing itself to be taken over by a siege mentality.” Referring to the response of management to the inspection panel report, she continued, “the document amounts to a blanket defence not only of everything the ADB staff did but of everything the Thai government did-including preventing the inspection panel from conducting a site visit.”

This scepticism was echoed by an alternate director on the ADB board: “These fellows are entrenched, and they’ll manage to resist change. Look, you have a great inspection panel report, but there’s hardly any change. The project goes on.”

The author is executive director of the Bangkok-based Focus on the Global South, a programme of Chulalongkorn University’s Social Research Institute.