Statement by Bikash Pandey (Alliance for Energy, Nepal)

 

February 3, 1998

Experience with the Arun (Nepal) Claim

I must point out that I was not one of the people who submitted a claim to the Inspection Panel. That was done by another group called the Arun Concern Group. Since they were not here, I was asked if I could represent some of the issues that had come up. I was also involved in putting together a claim, but was not the person who actually filed it. I just want to get that clear right from the beginning.

The claim was filed by the Arun Concern Group in October 1994. My own group is called the Alliance for Energy, and we concentrated on technical, economic, and other issues that have to do with the economic analysis of the project itself.

In August 1995, President Wolfensohn withdrew World Bank support for Arun III. I should also point out that the IDA management at the Bank had two chances to respond to the claim, first in November 1994, a month after it was filed, and also in May 1995 to put forward remedial measures. This is all part of the historical background on what happened with the Panel at that time since this was the first project that was put forward to the Panel, and perhaps many of you who are here today may not have been at the time involved in what developed and actually happened.

The Executive Directors had authorized the Inspection Panel to investigate possible violation of three operational directives: the environmental impact assessment, involuntary resettlement, and indigenous people. These are OD 4.01, 4.30, and 4.20.

In 1995, in August, as I mentioned, President Wolfensohn withdrew World Bank support for the project. After the cancellation, there was widespread panic that Nepal would perhaps end up in darkness since the one project that had been in preparation for eight years was suddenly no more.

Well, I’m happy to tell you that this did not happen. In fact, Nepal is projected to have a power surplus by the year 2000, two years before the most optimistic projection for Arun III. And the way this has happened is through a combination of smaller and more accessible projects funded by multilateral and bilateral aid and smaller projects being built by the private sector. Altogether, 40 percent more energy is being produced in the same time and at less cost than Arun III, and definitely at substantially less cost to the government, since, as I said, a good fraction of this is now being built by the private sector.

From the point of view of the people who were campaigning against this project, there are issues other than the three operational directives that the Board had asked the Inspection Panel to look into. In Nepal, we were particularly concerned about the issue of risk, the risk to a small economy of taking on a project of this magnitude. The project was to cost about $1 billion, and the government’s budget every year was less than that, about $700 to $800 million a year.

We were concerned that this huge amount of concessionary finance, including the IDA money and rents from the German Government, were going into one large infrastructure project, and there was the possibility of crowding out social sector spending, especially if there should be a cost overrun, a not unlikely event.

We also felt strongly that adequate analysis of alternatives would be less costly to the government and would have allowed the private sector to participate. We were afraid that this one large project was blocking these possibilities. Once President Wolfensohn canceled Arun, he stated that his re-examination of the project convinced him that it was not realistic for the Government of Nepal to fulfill the conditions and requirements that were put to it to build a project of the size and complexity of Arun III in the time period that was envisaged. In fact, he projected perhaps four or five more years for all these conditionalities to be met. In his re-examination, he likely was influenced by the Panel’s finding on how poorly the Government of Nepal had fulfilled conditions in the previous smaller Marsandi project, though this project was not extensive in impact (a 69-megawatt facility with just over 200 families affected by the acquisition of land). In spite of repeated follow-up, the resettlement plan was not completed even when the hydroelectric project itself was completed.

In the case of Arun III, we felt very strongly that the conditions may all be in place, but would they really be fulfilled? Time and time again, studies were done and further conditions imposed when difficulties were brought up, but we felt that the Inspection Panel played the role of that independent somebody else who had to point out that the emperor had no clothes--that all these things were in place but nothing was really going to happen.

When NGOs had been pointing out these issues, they had been dismissed as being anti-development or in the pockets of environmentalists.

One important question that comes up when conditions are not fulfilled or when projects are poorly carried out is who should be blamed—the Bank management or country governments, or both. My understanding, as somebody who is outside this process, not being from the Bank or from the government, is that when projects are developed, a certain partnership is created between management in the Bank and bureaucrats in borrowing countries.

In the course of developing a project, both sides come to the point where they need to make sure that the project happens. I find that this can often lead to the situation where Bank management has difficulty stepping back from the project.

From the part of our governments, especially when concessionary IDA kinds of loans are involved, there is every incentive to borrow large sums of money and get very large projects, as large as the affordability analysis will allow.

This puts special responsibilities on the management at the Bank. While it is understandable that they would like to reduce management overhead by constructing single large projects and would like to see the projects go forward after their extensive involvement, there is a real challenge to step back and critically assess whether the country governments can actually carry out the projects in a socially and environmentally sustainable manner.

One of the most important roles of the Inspection Panel, in my opinion, is to allow the Executive Directors of the Bank to have a second opinion on whether Bank management has gotten too close to the project to be objective. Will proposed activities actually happen? These are mitigation activities I am talking about. Or are they more paper to counteract the claims of affected people and NGOs? There are a few checks and balances in this system, and the Bank is a powerful lender. When projects don’t provide projected benefits or have higher than expected costs, borrowing countries don’t dare default.

I would like to support a continued role of the Inspection Panel to provide an alternative channel through which affected people can convey their concerns to the Board of the World Bank. Let me just end by stressing that the Bank, in our opinion, in the opinion of NGOs like myself, remains extremely important in the task of development. And it is our belief in this institution and its ability to listen to those affected by projects that it funds that encourage me to come and take the time and effort to come and speak to you all today.

Thank you.

 

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