The World Bank Inspection Panel

278 Pages·2002·0.82 MB·English

The World Bank Inspection Panel
The World Bank Inspection Panel
The World Bank Inspection Panel:
The First Four Years (19941998)
Copyright © 1998
The International Bank for Reconstruction
and Development/THE WORLD BANK
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Washington, D.C. 20433, U.S.A.
All rights reserved
Manufactured in the United States of America
First printing November 1998
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Library of Congress Cataloging−in Publication Data
The World Bank Inspection Panel: the first four years / edited by
Alvaro Umaña
p. cm.
Includes bibliographical references and indexes.
ISBN 0−8213−4344−0
1. World Bank—Evaluation. 2. Economic development projects—
Evaluation. I. Umaña, Alvaro. II. World Bank Inspection
Panel
HG3881.5.W57W6915 1998
332.1'532—dc21 98−44530
CIP
The World Bank Inspection Panel:
The First Four Years (19941998)
The World Bank Inspection Panel: 1
The World Bank Inspection Panel
International Bank for Reconstruction and Development
International Development Association
Alvaro Umaña, Editor
Published for The Inspection Panel
The World Bank
Washington, D.C.
CONTENTS
Foreword link
Preface link
Background link
The Panel Members link
Case Summaries link
Panel Reports and Recommendations
Nepal: Arun III Proposed Hydroelectric Project and Restructuring
of IDA Credit 2029−NEP
Report and Recommendation link
Investigation Report link
Brazil: Rondônia Natural Resources Management Project (Loan
3444−BR)
Report and Recommendation link
Additional Review link
Review of Progress in Implementation link
Bangladesh: Jamuna Bridge Project (Credit 2569−BD)
Report and Recommendation link
Argentina/Paraguay: Yacyretá Hydroelectric Project (Loans
3520/2854−AR)
Report and Recommendation link
Review of Present Project Problems and Assessment of Action link
Plans
Bangladesh: Jute Sector Adjustment Credit (Credit 2567−BD)
Report and Recommendation link
Brazil: Itaparica Resettlement and Irrigation Project (Loan
2883−1−BR)
Report and Recommendation link
CONTENTS 2
The World Bank Inspection Panel
India: NTPC Power Generation Project (Loan 3632−IN)
Report and Recommendation link
Report on Desk Investigation link
The Inspection Panel's Experience link
FOREWARD
When the Board of Directors of the World Bank created the Inspection Panel five years ago, it created an
unprecedented means for increasing the transparency and accountability of the Bank's operations. This was a first
of its kind for an international organization—the creation of an independent mechanism to respond to claims by
those whom we are most intent on helping that they have been adversely affected by the projects we finance.
By giving private citizens—and especially the poor—a new means of access to the Bank, it has empowered and
given voice to those we most need to hear. At the same time, it has served the Bank itself through ensuring that
we really are fulfilling our mandate of improving conditions for the world's poorest people. The Inspection Panel
tells us whether we are following our own policies and procedures, which are intended to protect the interests of
those affected by our projects as well as the environment. In testament to the success of this approach, other
international financial institutions have seen its value and have followed suit.
This volume represents another critical feature of the Inspection Panel's mandate: to be entirely transparent in its
activities. All of its reports carried out in response to claims of adverse impact from some Bank−supported project
are made public following their consideration by the Bank's Board of Directors. The reports contained in this
volume embody the voices we have heard—from the Brazilians concerned about the effects of the Itaparica
Hydroelectric dam and reservoir to the Indians of Singrauli affected by the NTPC Power Generation Project. In
these and other areas in which the Inspection Panel has responded the Bank has taken measures, together with the
governments concerned, to ensure that problems are redressed and that solutions put in place are closely
monitored.
The Inspection Panel breaks new ground, and as such it and the Bank's management have had to learn as we
proceed how best to absorb and apply what we have found out from the Panel's reports. Yet the Inspection Panel's
value both to the Bank and to the Bank's beneficiaries and stakeholders has proven itself repeatedly and cannot be
overestimated. This volume presents in full the activities of a bold experiment in transparency and accountability
that has worked to the benefit of all concerned.
JAMES D. WOLFENSOHN
PRESIDENT
THE WORLD BANK
PREFACE
The World Bank Inspection Panel was created in September 1993 as an innovative tool to ensure accountability in
Bank operations and to address harm at the grassroots level. It is an instrument of last resort for local people who
feel that they have been or could potentially be harmed by World Bank−financed projects.
The existence and experience of the Inspection Panel is significant. Never before has there been a body of this
kind to give voice to private citizens in an international context. Through the Inspection Panel, local communities
or groups who feel that their rights and interests can be, or have been, adversely affected by World
FOREWARD 3
The World Bank Inspection Panel
Bank—financed projects have gained access to the top levels of the organization to voice their complaints and get
answers.
The perception by locally affected people that their "rights and interests" have been or could be negatively
affected is what triggers a Request for Inspection to the Inspection Panel. The Panel, in turn, must verify claims of
harm by:
Evaluating whether failure of the Bank to follow its operational policies and procedures occurred, and
Determining if this failure has resulted or could potentially lead to harm—that is, whether it could have
materially adverse effects on people in the area of influence of the project.
The Resolution establishing the Inspection Panel does not provide a specific definition of harm; instead it speaks
of "rights and interests affected or likely to be affectedby failures of the Bank to follow its operational
policiesprovided they have or threaten to have material adverse effects."
The Requests for Inspection presented to the Inspection Panel have shown that there is a broad spectrum of
potentially harmful impacts that World Bank−financed projects can have on local populations. However, an
abstract definition of harm may be neither possible nor desirable, precisely because it is difficult to foresee all the
different potential forms and shades that actual or perceived harm can take within the context of a specific project.
The Inspection Panel considers that the question of harm, which is at the heart of the mission of the Panel, can
only be properly analyzed within the context of each specific case. The reader is encouraged to analyze the
spectrum of potential harm shown in the reports presented in this volume. If the intervention of the Panel has
made a positive contribution to improving the situation of affected people, its mission will have been at least in
part a success.
Although the Inspection Panel is not a quasi−judicial body, it has been vested with sufficient authority to have
access to all files, documents, Bank staff, and consultants
needed to carry out its mandate. Government and project officials have also commended the role of the Panel and
have provided its members with valuable information and assistance in each of its cases.
The Panel approved its own Operating Procedures to provide detail to operational provisions of the Resolution.
These Procedures have proven to be a very useful instrument for guiding the Requesters, the Panel, and Bank staff
in dealing with the different aspects of the Panel process in a fair and transparent way.
The Inspection Panel started operations in August 1994, and in the four−year period since then it has received a
total of 12 formal Requests for Inspection, 10 of which have been registered and processed by the Panel. This
volume contains the Inspection Panel's reports to the Board of Executive Directors for seven of the most
important Requests that were considered by the Panel during its first four years. As such it contains the real case
history of the Inspection Panel and presents the actual application of the Resolution of the Board of Executive
Directors that established the Panel during its first four years of existence. In addition to the Panel's reports
themselves, the volume contains a short summary of each of the cases, as well as some lessons from the Panel's
experience. It is worth noting that all the Inspection Panel reports have been adopted unanimously by the Panel
Members. Moreover, even though the lead Inspectors are identified for each of the Requests for Inspection, the
reports are very much a group effort. Panel Members and staff (the Executive Secretary, Mr. Eduardo Abbott, and
Assistant Executive Secretary, Ms. Antonia M. Macedo) have worked together as a team, and Ms. Pamela Fraser
provided valuable editorial support and saw this project to conclusion.
FOREWARD 4
The World Bank Inspection Panel
The Panel's work could never have been carried out successfully without the active participation and commitment
of the World Bank's Presidents. Both Mr. Lewis T. Preston, under whose mandate the Panel was established, and
Mr. James Wolfensohn, the current President, have been key supporters of the Inspection Panel.
ALVARO UMAÑA, EDITOR
BACKGROUND
The Inspection Panel is a three−member body1 created in 1993 to provide an independent forum to private
citizens who believe that their rights or interests have been or could be directly harmed by a project financed by
the World Bank.2 Created on the eve of the 50th anniversary of the World Bank by IBRD and IDA Resolutions,
the Inspection Panel was an unprecedented step on the part of an international financial institution to provide a
link between itself and the people affected by its projects.
The creation of the Inspection Panel was a bold Bank initiative to reform by creating an independent mechanism
for monitoring operations. The Panel was conceived as the Bank's response—against the backdrop of the
dissolution of communism, growing democratization, and increasing NGO influence in the early 1990sto public
pressure for more accountability. By the early 1990s the Bank clearly realized that it faced some fundamental
concerns about the effects caused to third parties as a result of its projectfinancing and technical assistance
activities. This realization played an integral part in its development of an independent monitoring mechanism.
Several internal factors also combined to influence the Bank's decision to create an inspection function. One was
the concern of both the Executive Directors3 and Bank Management about the content and direction of the Bank's
portfolio; the other was the external perception that the Bank was not accountable for its performance and less
than transparent in its decisionmaking. As a result, an independent task force was established to examine the
Bank's operations, and in November 1992 it submitted its report to the Board. The report, known in the Bank as
the Wapenhans Report, found that Bank staff were often more concerned about getting as many projects as
possible approved, and less concerned about project objectives and execution. It concluded that the Bank should
improve the performance of its portfolio through changes to its polices and practices.
In response to the recommendations of the Wapenhans Report, Management submitted an action plan to the
Board outlining the need for the Bank to have access when necessary "to a reliable source of independent
judgment about specific operations that may be facing severe implementation problems." To further emphasize
this point, the report noted in its conclusion that "the interests of the Bank would be best served by the
establishment of an independent Inspection Panel."4
However, the most important driving force behind the establishment of the Inspection Panel were the problems
arising from the Narmada dam and water projects in India. These projects—the Narmada River Development
(Gujarat) Sardar Sarovar Dam and Power Project and the Narmada River Development (Gujarat) Water Delivery
and Drainage Project—on the Narmada River underscored the Bank's prevailing culture of volume lending at the
expense of project execution. Each project had serious problems in
its design and implementation, in addition to a lack of environmental planning and mitigation, inadequate
appraisals, lack of information disclosure, inadequate resettlement planning, and no consultation with the affected
people.
Approved by the Board in 1985, the projects became the singularly defining reason for the necessity for an
inspection mechanism within the Bank Group. Although the IDA credit for the water delivery and drainage
BACKGROUND 5
The World Bank Inspection Panel
project was disbursed and closed by July 1992, the IBRD loan and IDA credit for the dam and power project were
still being disbursed when the projects' implementation became a matter of great international controversy and
criticism because of its disregard for its environmental impact and lack of adequate resettlement and rehabilitation
plans.
The ensuing controversy and intense criticism of these projects at the grassroots and international level led to the
first−ever independent review of a World Bank project. The objective of the review was "to conduct an
assessment of the implementation of the ongoing Sardar Sarovar projects as regards (a) the resettlement and
rehabilitation of the population displaced/affected and (b) the amelioration of the environmental impact of all
aspects of the project," with reference to "existing Bank operational directives and guidelines."5 The review was
chaired by Mr. Bradford Morse, and it was completed in June 1992. Know as the Morse Report, it highlighted the
problems that occurred when people were neither consulted nor informed about their resettlement as a result of
Bank−financed projects, and it underscored the need for more policy reform and the implementation and
enforcement of environmental and social policies. NGOs added to the pressure on the Bank by using the findings
of the Morse Report and the Wapenhans Report to launch a dual−track campaign. On the one hand they
simultaneously targeted both the press and the U.S. Congress and avidly agitated for two main public
accountability reforms: a new and expanded information disclosure policy, and the creation of an appeals
mechanism. On the other hand they vigorously opposed funding to IDA in the U.S. Congress unless the Bank
instituted the reforms.
Thus the Bank, driven by both internal and external pressures, considered a number of proposals for independent
review mechanisms for its operations. In the course of 1993 this ultimately led to a proposal "for an independent,
in−house 'Inspection Panel' consisting of three inspectors [who] would be appointed by the Board on the
recommendation of the President."6 On September 23, 1993, the Bank's Board of Executive Directors established
the Inspection Panel and in April 1994 appointed its members. The Panel began operation on August 1, 1994.
However, after four years of operations the Panel remains a controversial issue for the many parties who have
been affected in many ways by its establishment. The Executive Directors, Bank Management, officials of
borrowing countries, local and international NGOs, Bank staff, and local populations that are expected to benefit
from Bank−financed projects have seen their traditional roles changed. The words transparency and
accountability have gained added meaning since this new instrument came into existence to pursue both concerns.
Now that they have a forum, Bank critics must substantiate their claims against the Bank. Nonetheless, the
Inspection Panel was an unprecedented mechanism, and undoubtedly, it placed the Bank at the forefront in
redefining paradigms for accountability and reform in international financial institutions.
The following chapters describe the Panel's first four years of operations by replicating actual Panel reports on the
most relevant cases reviewed during that period, along with a short analysis of the Panel's experience over those
years.
Notes
1. The first members of the Panel were Messrs. Ernst−Günther Bröder, Richard E. Bissell, and Alvaro Umaña.
2. References to the World Bank or Bank include the International Bank for Reconstruction and Development
(IBRD) and the International Development Association (IDA).
3. The terms the Board and the Executive Directors are used interchangeably.
Notes 6
The World Bank Inspection Panel
4. Portfolio Management: Next Steps, A Program of Action (July 22, 1993), quoted in Ibrahim F.I. Shihata, The
World Bank Inspection Panel (New York: Oxford University Press, 1994), 8.
5. Ibrahim F.I. Shihata, The World Bank Inspection Panel, 11.
6. Ibid, 31.
THE PANEL MEMBERS
Members of the Panel, as provided for in the Resolution that established the Panel, are selected ''on the basis of
their ability to deal thoroughly and fairly with the request brought to them, their integrity and their independence
from the Bank's Management, and their exposure to developmental issues and to living conditions in developing
countries. Knowledge and experience of the Bank's operations will also be desirable."1 The first three Panel
members, Messrs. Ernst−Günther Bröder (a German national), Richard E. Bissell (a U.S. national), and Alvaro
Umaña (a Costa Rican national), were appointed by the Executive Directors in April 1994. The members were
appointed for nonrenewable terms of five, three, and four years, respectively. Mr.Bröder was appointed by the
Board to serve as the Panel's first chairman.
Every year the Panel selects one of its members as a chairperson. Mr. Bröder served as chairman for the first two
years, from 1994 to July 1996, followed by Mr. Bissell who served as chairman from August 1996 to July 1997.
Mr. Umaña replaced Mr. Bissell as chairman at the end of Mr. Bissell's nonrenewable three−year term in July
1997. Mr. Bröder replaced Mr. Umaña as chariman at the end of Mr. Umaña's term in July 1998. Mr. Bröder's
term will end in July 1999.
Mr. Jim MacNeill (a Canadian national) joined the Panel in August 1997, replacing Mr. Bissell at the end of his
term, and Prof. Edward S. Ayensu (a Ghanaian national) replaced Mr. Umaña as of August 1, 1998.
Biographies of the Members
Ernst−Günther Bröder
Mr. Bröder is a former President of the European Investment Bank (EIB), Luxembourg, from 1984 to 1993,
where he also served as a director from 1980 to 1984. He held several supervisory and consultative functions in
international banks and other institutions. Mr. Bröder was a Governor of the European Bank for Reconstruction
and Development, London from 1991 to 1993 and a member of the special advisory group for the Asian
Development Bank, Manila, from 1981 to 1982. He is a member of the Panel of Conciliators for the International
Centre for Settlement of Investment Disputes, Washington, D.C. He started his professional career in the
Managing Board's staff of the Bayer Corporation from 1956 to 1961 and served in the Technical Operations
Department's Industry Division of the World Bank from 1961 to 1964. Before being appointed President of the
EIB he served from 1964 to 1984 in the Kreditantstalt für Wiederaufbau in Frankfurt, where he was a member of
the Managing
Board from 1975 to 1984 and has been its spokesman since 1980. He has written and co−authored several books
and articles on financial and economic subjects. Mr. Bröder holds a doctorate in economics from the University of
Freiburg and studied political and natural sciences at the Universities of Cologne, Mainz, and Paris. Under the
terms of the Resolution that established the Panel, Mr. Bröder served as the Inspection Panel's first Chairperson.
THE PANEL MEMBERS 7
The World Bank Inspection Panel
Jim MacNeill
Mr. MacNeill is a policy advisor on the environment, energy, management, and sustainable development to
international organizations, governments, and industry. He is Chairman of the International Institute for
Sustainable Development and a member of the boards of the Woods Hole Research Center, the Wuppertal
Institute on Climate and Energy Policy, the Environmental Education and Training Institute of North America,
and Ontario Hydro. He was Secretary General of the World Commission on the Environment and Development
(the Brundtland Commission) and a major author of the Commission's world−acclaimed report, "Our Common
Future." He served for seven years as Director of Environment for the Organisation for Economic Co−operation
and Development (OECD). Earlier, he was a deputy minister in the Government of Canada. Mr. MacNeill holds a
graduate diploma in economics and political science from the University of Stockholm and bachelor's degrees in
science (math and physics) and mechanical engineering from the University of Saskatchewan.
Edward S. Ayensu
Professor Ayensu is President of the Pan−African Union for Science and Technology and an international
development advisor. He held many important positions during his 20 years at the Smithsonian Institution in
Washington, D.C. He is Executive Chairman of Edward S. Ayensu Associates Ltd. — Science, Technology and
Economic Consultants and Executive Chairman of Advanced Gracewell Communications Co. Ltd. and the
founding Chairman of the African Biosciences Network. He is Chairman of the Ghana National Biodiversity
Committee. He is also a member of the International Advisory Council on Global Scientific Communications,
UNESCO and member of the Board of Directors and International Vice Chairman of the International Institute for
Sustainable Development (IISD). In addition, he has held various posts in other international scientific and
technical organizations. For nearly two years he was the Senior Advisor to the President and the Director of the
Central Projects Department at the African Development Bank. He was the Vice−Chairman and advisor to the
Scientific and Technical Advisory Panel of the Global Environment Facility, a multi−billion dollar fund
administered by the World Bank, United Nations Development Programme, and United Nations Environment
Programme. He is a former member of the Energy Sector Management Assistance Programme Consultative
Group, which is administered by the World Bank and UNDP, and of the Senior Advisory Council of the Global
Environmental Facility. Professor Ayensu became a member of the Inspection Panel in August 1998. He obtained
his doctorate degree from the University of London.
Biographies of Former Panel Members
Alvaro Umaña, 199498
Mr. Umaña is Professor and Director of the Natural Resources Management Program at INCAE, a Latin
American Graduate School of Management. He served as Costa Rica's first Minister of Natural Resources from
1986 to 1990 under President Oscar Arias. Mr. Umaña is a member of the Board of the Rockefeller Foundation
and the World Resources Institute. He has published several books and many technical articles on energy, the
economics of natural resources, and the environment. Mr. Umaña is a private entrepreneur in the ecotourism and
conservation areas and is involved in sustainable wildlife reproduction and export. Mr. Umaña holds a Ph.D. in
environmental engineering and a master's degree in economics from Stanford University. He also holds a master's
degree in environmental pollution control and a bachelor's degree in physics from Pennsylvania State University.
Richard E. Bissell, 199497
Mr. Bissell is a former senior official with the U.S. Agency for International Development (USAID), where he
served from 1986 to 1993 as Head of Policy and later as Director of Science and Technology. Most recently a
Research Fellow at the Overseas Development Council, he focuses on issues of aid policy, with a focus on Africa
Biographies of Former Panel Members 8
The World Bank Inspection Panel
and Asia. He founded and served as a senior manager of a high−technology pollution monitoring company with
worldwide sales. Mr. Bissell was previously a professor at several U.S. universities, including Georgetown
University and the University of Pennsylvania. He was editor of The Washington Quarterly between 1984 and
1986 and managing editor of Orbs between 1976 and 1982. He has published widely, in both books and articles,
on political economy in developing countries. He was educated at Stanford University, and took his Ph.D. at the
Fletcher School of Law and Diplomacy, Tufts University.
Note
1. IBRD Resolution No. 93−10; IDA Resolution No. 93−6.
CASE SUMMARIES
Nepal: Arun III Proposed Hydroelectric Project and Restructuring of IDA Credit 2029−NEP
The Arun III Request was presented in October 1994; it was the first Request for Inspection to be received by the
Inspection Panel. The Request alleged violations of IDA's policies on environmental assessment, involuntary
resettlement, and indigenous people, among others. The main effects of the proposed project were related to its
overall economic impact and to the access road (necessary to build the 201 megawatt power station) in a valley
where there were no roads and there were significant environmental and cultural resources, including a rich ethnic
diversity.
In its Response to the Request IDA management denied any acts or omissions in violation of its policies. The
Panel disagreed. IDA's Board accepted the Panel's recommendation for an investigation but restricted it to alleged
violations of environmental assessment, involuntary resettlement, and indigenous people policies. The Panel's
review focused on the impacts of the project that were related to the access road. In June 1995, after the Panel had
submitted its report, Management reassessed the project as proposed and decided to withdraw its support.
Although the Board did not authorize an investigation into the analysis of economic alternatives that had been
conducted for the project, the Panel's report noted that project alternatives had not been considered with the same
level of effort and, therefore, that a "realistic comparison of the risks associated with the proposed project and its
alternatives could not have been carried out." The Panel pointed out that alternatives, such as smaller,
hydroenergy−based solutions, had not been adequately analyzed.
The project would have been the largest ever undertaken by Nepal. Total investment was estimated at more than
$1 billion—about the equivalent of the annual government budget—in a country with a per capita annual income
of approximately $200. Given the low level of electrification, the demand for power did not justify such a large
investment, and expected power sales to India, which were necessary to guarantee an adequate economic rate of
return, were uncertain.
Considerable international attention was paid to this project, and nongovernmental organizations (NGOs) took an
active role in questioning the project's economic viability and its environmental and social impacts.
Ethiopia: Compensation for Expropriation of Foreign Assets and Extension of IDA Credits
In April 1995 the Panel received a Request from a Greek family alleging that IDA had violated provisions of
Operational Manual Statement 1.28 by extending credits to Ethiopia and was now negotiating more financial
Note 9