An Assessment of the Asian Development Bank’s Inspection of Thailand’s Samut Prakarn Wastewater Treatment Project

Prepared for the Asian Development Bank’s Consultation on Inspection Function Review

Introduction

The Asian Development Bank (ADB) is currently reviewing its Inspection Policy, following its first-ever inspection of an ADB-financed project, the controversial Samut Prakarn Wastewater Management Project in Thailand. The purpose of Probe’s submission is to provide a public record of why the Asian Development Bank’s inspection of Thailand’s Samut Prakarn Wastewater Treatment Project has failed to deliver the level of accountability and justice demanded by affected communities, and to urge Canada’s Auditor General to conduct its own investigation so that Canadian taxpayers can be assured their tax dollars have not been diverted for corrupt purposes.

Probe International is a Canadian environmental group that works with citizens groups worldwide to investigate the social, environmental, and economic impacts of aid-financed development projects. Probe’s submission is informed by discussion and correspondence with Thai NGOs and affected residents in Thailand dating back to 1999. The author speaks Thai and worked with citizens groups in Thailand from 1990 to 1995 as a founding member of the Bangkok-based TERRA (Towards Ecological Recovery and Regional Alliance), a project of the Foundation For Ecological Recovery.

Background

Since 1986, the ADB has provided three grants worth US$1.2 million and two loans – the first in 1995 and a second in 1998, totaling US$230 million for the planning, design, and construction of two wastewater treatment facilities in the province of Samut Prakarn. After the Bank approved its second loan of US$80 million to the project, the proponent, Thailand’s Pollution Control Department, decided to build one treatment plant instead of two, and changed the site for the facility to Klong Dan district in Samut Prakarn province without public or Cabinet approval or an environmental impact assessment. Klong Dan residents allege corruption in the purchase of land at the new site and construction of project pipelines has inflated the project cost. Now 90 percent completed, the final cost of the facility is expected to reach US$948 million from an original cost estimate of US$348.7 million.

Since 1999, local communities and Thai NGOs have urged the ADB to withdraw financing for the wastewater treatment facility because, if completed, it would release harmful quantities of untreated heavy metal sludge and other semi-treated industrial effluents into fishing grounds, jeopardizing fishing livelihoods, and causing long-term damage to the healthy coastal ecosystem upon which the local economy thrives. Local communities have never questioned the importance of wastewater treatment facilities for tackling pollution problems in the province’s industrialized areas, rather they objected to the proponents’ decision, backed by the Asian Development Bank, to site a plant in Klong Dan district, an unpolluted area, without an open and rigorous review, and without regard for the rights of local residents to have a final say in the decision. Community leaders complained that construction of the plant had begun even though the environmental impact assessment prepared by the Bank’s client, Thailand’s Pollution Control Department, was seriously deficient, in violation of Thai laws, and the constitution. They also alleged that the pollution control department had illegally acquired land for the project at inflated prices, fenced off the project area and started construction, while denying local communities access to their traditional fishing grounds and coastal mangrove forests.

In May 2000, Probe International and other citizens groups from ADB-donor countries attended a meeting arranged by Thai NGOs for ADB Directors to meet with residents opposed to the Samut Prakarn project. Representatives of communities in Samut Prakarn province outlined their concerns and urged the three ADB directors in attendance (Cinnamon Dornsife, United States; John Lockhart, Australia; and Uwe Henrich, Austria, Germany, Turkey, and UK) to suspend funding for the Samut Prakarn Wastewater Management Project until the Bank could investigate their complaints and allegations of corruption in land purchases, visit the affected communities, and disclose the details of their findings to the Thai government and public.

When the ADB management and staff refused to take these demands seriously, local residents and Thai NGOs filed a request for an inspection of the project. Probe International and other NGOs in ADB-donor countries also urged the ADB to take action. In a December 2000 letter to Canada’s Executive Director, Julian Payne, Probe urged the Bank to 1) suspend all loan disbursements to the pollution control department; 2) launch an inspection panel to document contraventions of ADB policies; and 3) launch a forensic audit into procurement and land purchase irregularities and cost overruns.

In July 2001, the ADB appointed a three-member inspection panel to investigate:1) whether the Bank had complied with its policies in approving financing for the Samut Prakarn Wastewater Treatment Project proposed by Thailand’s Pollution Control Department; and 2) whether or not violation of Bank policies has had or could have adverse effects on the communities that submitted the inspection request.

Inspection Panel Findings

In March 2002, the inspection panel submitted its report to the ADB Board, confirming what local communities and NGOs in Thailand had already complained to the Bank about, through letters, meetings, and protests dating back to 1999. The Bank had violated at least six of its own policies in approving financing for the Samut Prakarn project and, in so doing, had denied important information to residents affected by the project.

The panel noted the project’s massive cost overrun from an initial estimate of US$507 million at appraisal to US$948 million but failed to resolve allegations of corruption involving private contractors, government officials, and ADB staff.

The panel also found that:

• ADB staff had violated Bank policy by failing to classify the project properly, consider alternatives, conduct a thorough environmental assessment, follow its own rules for assessing the impact of the project on local communities, and disclose information to local communities;

• ADB Bank staff repeatedly violated operational policies and procedures (including Supplementary Financing of Cost Overruns, Bank Operational Missions, Environmental Considerations in Bank Operations, Involuntary Resettlement, Incorporation of Social Dimensions in Bank Operations, and Governance);

• Only after protests and pressure from local communities and NGOs did the Bank acknowledge that compensation for damages to livelihoods would be required if the plant is completed and becomes operational;

• “A relevant group has suffered direct and material harm as a result of ADB’s non-compliance with operational policies and procedures”; The panel noted that the rights and interests of people whose livelihoods depend upon a healthy marine ecosystem in the project vicinity could be adversely affected by problems such as the dilution of salinity in the coastal mangrove areas, or the release of toxins or heavy metals from the treatment plant.

The Board Inspection Committee, which is responsible for developing recommendations based on the inspection panel’s findings, recognized that serious mistakes were made. For example, committee chairman, Australian Executive Director John Lockhart, noted: “ADB’s failure to comply with policies on supplementary financing of cost overruns and operational missions constituted and led to important omissions.”

Probe’s Assessment of the Samut Prakarn Inspection Process

The Board’s main recommendation, that ADB staff work closely with the Thai government as an “active participant” in the project to compensate adversely affected villagers and address unresolved problems is vague and open-ended, thus providing no basis by which affected communities can hold the Bank and its client accountable. The Board has apparently decided to ignore the demands of residents that compensation is not a solution, that the project as currently designed is an unnecessary financial burden for taxpayers and an environmental hazard for local communities.

The ADB promotes its inspection panel process as a “key instrument of governance,” whereas citizens affected by the Samut Prakarn project regard it as an exercise in futility for the following reasons:

• The inspection panel failed to investigate project cost overruns and resolve allegations of corruption as requested by Klong Dan residents.

• The inspection panel identified serious errors in judgement and procedure on the part of ADB staff which have ultimately jeopardized the interests of local residents. Yet the Board trivializes this evidence as a “learning opportunity” for the Bank without penalty to either the Bank or its client. Local communities and Thai NGOs have thus concluded that “the ADB’s leadership and senior management appear unwilling to take responsibility for their own actions and initiate appropriate action to correct their own mistakes.”

• Legally protected from damage claims and judicial proceedings, Bank Directors, management and staff remain fundamentally unaccountable to communities harmed or threatened by the Samut Prakarn project.

• The ADB’s client and project proponent, Thailand’s Pollution Control Department, has publicly dismissed the inspection panel’s findings as irrelevant to the project. This combined with the Board’s ill-defined assurances that the Bank will work with its client as an “active participant” to resolve problems and assess compensation needs is far too little, too late for local residents. The Bank’s response places an unfair burden on victims to extract from the project proponents what is rightfully theirs: due process and prompt redress.

Probe’s Conclusions & Recommendations

• The failure of the inspection panel to resolve allegations of corruption in connection with Samut Prakarn as well as the systematic violation of Bank policies by Bank staff warrants further investigation by Canada’s Auditor General and by national auditors and treasury departments in other ADB-donor countries. Quite apart from the corruption allegations, donor governments should be concerned that the ADB has financed a billion-dollar wastewater treatment facility that does not have enough customers to recover its costs.

• The ADB should not require a costly two-year self-inspection to recognize that victims of ADB projects require compensation. Rather, the panel should have asked why the ADB funds projects that create victims. Mechanisms for redress should be automatically built into ADB loan agreements and project contracts.

• The Bank’s inspection of this particular “problem project” points to a much deeper crisis in governance. Its decision to finance the Samut Prakarn facility was not subject to market discipline or to adequate public and regulatory oversight. The Bank did not insist on its client’s compliance with national laws and respect for the rights of citizens. Nor did the Bank build compensation standards and procedures into its project contracts and loan agreements. Therefore, the Bank is inherently incapable of accurately assessing a project’s benefits, costs, and risks to ratepayers, local communities, and taxpayers, and should exit the business of infrastructure financing.

References

Recommendations to Inspection Policy Review of the Asian Development Bank, FoE Japan, Japan Center for Sustainable Environment and Society, Mekong Watch, June 11, 2002.

“Inspection into Klong Dan finds ADB violated its own policies,” Watershed, March – June 2002.

Letter from Probe International to Julian Payne, Canada’s Executive Director, Asian Development Bank, April 1, 2002.

Open Letter to Prime Minister Thaksin Shinawatra from the people of Klong Dan and Song Klong subdistricts, Samut Prakarn and Chachoengsao provinces, March 28, 2002.

“Independent Inspection Panel admits Klong Dan’s faults,” Krung Thep Dhurakit, March 27, 2002.

“Panel faults ADB loan,” The Nation, March 27, 2002.

“Probe shakes bank to its roots,” Walden Bello, Bangkok Post, March 26, 2002

Chairman’s Concluding Statement: Board of Directors’ Decision on Inspection Request – Samut Prakarn Wastewater Management, Board of Directors Meeting, March 25, 2002.

“Panel against halting plant construction,” Anchalee Kongrut, Bangkok Post, March 22, 2002.

Strengthening Public Accountability: Recommendations to the Asian Development Bank for Revising its Inspection Policy by 11 NGOs, Washington DC, March 18, 2002.

ADB and the “Inspection” of the Samut Prakarn Wastewater Management Project, Luntharimar Longcharoen, Towards Ecological Recovery and Regional Alliance, Bangkok, March 2002.

Evading Responsibility: the Asian Development Bank and the Inspection Function, Sharmali Guttal, Focus on the Global South, Bangkok, March 2002.

Board of Directors’ Decision on Inspection Request – Samut Prakarn Wastewater Management Project (Loan Nos. 1410-THA and 1646-THA), March 2002.

Report and Recommendations of the Inspection Committee to the Board of Directors of Asian Development Bank on Inspection Request: Samut Prakarn Wastewater Management Project, February 28, 2002.

Final Report of Inspection Panel on Samut Prakarn Wastewater Management Project, December 14, 2001. Letter from Probe International to Julian Payne, Executive Director, Asian Development Bank, December 1, 2001.

Letter to President Tadao Chino from 102 Thai senators, December 1, 2000.

The ADB-Funded Samut Prakarn Wastewater Management Project in Thailand: Advocacy for Accountability, Nurina Widagdo and Genevieve Gencianos, Bank Information Center, Washington DC, July 12, 2000.