THE WORLD BANK SHAME: THE SCENT OF MONEY AND THE STENCH OF CORRUPTION

By Peter Bosshard
Tue, 09/08/2009

When there is a chance to push a big loan out the door, some people just can’t say no. Every World Bank President since James Wolfensohn has committed to fight the cancer of corruption. For more than ten years, the Bank has talked the talk, but has not walked the walk. In April, an internal evaluation gave the institution the lowest possible grade for its anti-corruption efforts. As if to prove the point, the World Bank is now considering support for a multi-billion dollar project which squarely violates its procurement guideline and shows all red flags of corruption: the Gibe 3 Dam in Ethiopia.

With a price tag of $1.7 billion, Gibe 3 is the biggest dam and possibly the largest infrastructure project in Ethiopia’s history. According to scientists working in the region, the dam will push the fragile ecosystems of the Lower Omo Valley and Lake Turkana to the brink of collapse and undermine the livelihoods of 500,000 people. In July 2006 the Ethiopian power utility EEPCO awarded the contract for Gibe 3 to Salini Costruttori, an Italian construction company, without any competitive bidding.

According to Transparency International (TI), public works are the world’s most corrupt sector, with higher corruption risks than even oil and arms trade. No-bid contracts are an open invitation to bribery in this environment, and international competitive bidding is the most basic measure to curb corruption. “Open, public competition must be the rule and the actual practice for all procurement decisions above a relatively low value threshold; any exceptions should be possible only in truly exceptional circumstances (e.g. natural disasters)”, argues Michael Wiehen, a former World Bank director and board member of TI, in a paper on dams and corruption.

Ethiopia’s federal public procurement directive requires competitive bidding for large public work contracts. EEPCO argues that the directive allows for no-bid contracts in the case of unforeseen emergencies. This is certainly not the case for Gibe 3. In 2004, the utility already awarded a large contract for the Gibe 2 Dam to the same company without any competitive bidding. Salini had proposed Gibe 2 without as much as a feasibility study, and the project did not figure on EEPCO’s priority list. It has since suffered long construction delays.

The Gibe 3 Dam not only violates Ethiopian regulations, it also contradicts the procurement guidelines of multilateral development banks. The African Development Bank is currently considering support for the dam project. Friends of Lake Turkana, a group of affected people from Kenya, filed a request for investigating this breech of the procurement guidelines with the Bank’s Integrity and Anti-Corruption Division in May 2009. Around the same time, an anonymous letter from inside the Bank warned International Rivers that opposition against the dam was useless since the project had been “greased by a few million dollars”.

The Italian export credit agency SACE has refused to lend support for the Gibe 3 Dam. Reason also seemed to keep the upper hand at the World Bank. In January 2009, a Bank manager informed the Bank Information Center: “The Government was also considering a request to the World Bank for its support for the Project. We have indicated to Government of Ethiopia that lending support to the project would not be possible, as the EPC contract has been awarded and the process did not follow the WB guidelines.”

Ethiopia has a low rating on Transparency International corruption index. Yet it is also one of the World Bank’s biggest clients in Africa, and has taken up 3 billion dollars in Bank support in the last four years. Have these friendly relations tempted the Bank’s management to look the other way? In an about-face, the Bank announced in its Monthly Operational Summary of June 2009 that it was considering an IDA credit of $50 million for the Gibe 3 Dam. When NGOs checked with the responsible Bank manager, he admitted that “at the request of the Government of Ethiopia for IDA support for the project, we have agreed to undertake due diligence to determine whether the Bank can be involved in the project or not. In this context, as we have noted before, we can possibly consider a guarantee to mobilize private capital for the project.”

The World Bank’s procurement guidelines are less strict for projects supported by guarantees than for loans and credits. The reason for this double standard is not clear, but this is a moot point. The Operational Summary states explicitly that the Bank is considering a credit for Gibe 3, for which open bidding is required. The Bank knows this has not happened. According to a manager in its Africa Energy Group, it still considers a credit “for environmental and social aspects of the project”.

The World Bank’s seal of approval would open the door for support from other lenders which have so far stayed away from the Gibe 3 Dam because of the project’s serious social and environmental impacts and corruption risks. Can the Bank ignore its own anti-bribery guideline so blatantly? Will its managers once again ignore the stench of corruption as they smell the sweet scent of money?

Peter Bosshard is the policy director of International Rivers.