4 December 2003
The World Bank and IDB Inspection Panel Claims
by Kay Treakle, Bank Information Center, September 1998
In September 1996, the environmental NGO Sobrevivencia/ FOE Paraguay submitted a claim to the World Bank Independent Inspection Panel and the first ever claim to the IDB’s Independent Investigation Mechanism. The claim was filed on their own behalf and on behalf of anonymous affected people from Paraguay. It was a last resort action by local people to assert their rights after years of frustrated attempts to obtain adequate and timely compensation from EBY. The Yacyreta Resettlement Plan, supported by the Banks, promised housing, schools, sewage treatment facilities, and the restoration of peoples’ livelihoods. The environmental impact mitigation plan asserted that negative impacts on vital fishery resources, water quality and health would be adequately alleviated. Moreover, the losses of critical habitat, unique ecosystems and wildlife (including threatened and endangered species), were to be addressed through the establishment of compensation areas in Paraguay and Argentina. Based on independent environmental and social surveys between 1991 and 1996, which were conducted by Sobrevivencia and the National Commission in Defense of Natural Resources, with interventions from the Environmental Department of the General Attorney’s Office of Paraguay, by 1996 it was clear that the actions required for 76 masl were not being fully implemented. The claim alleged:
"Socio-economic impacts include loss of jobs and livelihood and forced resettlement to smaller homes of poorer quality. Workers in occupations including ceramic making and fishing have lost their resource base. Others, including washerwomen, bakers and pastry makers...have lost customers concerned over the effects of lower water quality on the goods they produce and the services they provide."
The claim also cited numerous health problems caused by poor water quality, including increased respiratory infections, diarrhea, rashes, skin and intestinal parasites, nutritional disorders, and stress-related conditions. It asserted that the rising water table, "has also incapacitated sanitation systems and destroyed crops"; and that "untreated sewage is discharged into the lake and instead of being carried downstream it stagnates in the proximity of homes now near that water level." Irreversible impacts on fish resources, inadequate removal of biomass from the reservoir area, and the failure to establish adequate compensatory reserves were also cited in the claim.
The claim alleged violations of Bank policies on environment, resettlement, wildlands, information disclosure, indigenous peoples and project supervision, among others; and that these violations of policy caused material harm to local people.
The claimants requested several remedies including adequate compensation and retraining for people who had lost their homes and livelihoods; legal establishment and effective protection of compensatory reserves; a halt to privatization of the project unless an evaluation were first conducted of the economics of privatization and of its environmental and social impacts; and maintenance of the reservoir at 76 masl until all necessary environmental and social mitigation measures have been completed.
The Claims Process, Phase 1: The Panel Recommends an Inspection
Management’s Response:
Once a claim is filed with the Inspection Panel, the first stage of the process is for Bank management to respond within 21 days of the request, followed by a preliminary review by the Panel. Management’s response to Yacyreta was filed with the Panel on October 30, 1996. As is the case with several other claims, management first challenged the eligibility of the claim on several grounds. First, it noted that most of the Bank’s $300 million loan for Yacyreta had already been "substantially disbursed" at the time of the request, though it acknowledged that a separate loan had been amended to redirect funds toward environmental mitigation and resettlement at Yacyreta. Thus management took note of the provision of the Panel Resolution that a loan must be under 95% disbursed at the time a claim is filed, but recognized also that there was still at least 25% of the amended loan remaining to be disbursed.
Second, management noted the Panel Resolution requirement that claims must be filed "by an affected party in the territory of the Borrower". The borrower for Yacyreta is Argentina, "whereas Sobrevivencia and the individuals it claims to represent are all Paraguayan." Management’s response did acknowledge the "pragmatic interest in applying the Board resolution flexibly on this point", so did not formally object to Paraguayans bringing the claim. However, they did object to Sobrevivencia as a legitimate affected party in its own right, "for there is no allegation that the NGO has suffered or will suffer a material adverse effect as a result of alleged Bank policy violations." Management acknowledged that the Resolution allowed Sobrevivencia to file the claim on behalf of locally affected people, so it only partially challenged the NGO’s eligibility. Finally, management maintained that the claimants’ anonymity "imposes serious constraints on Management’s ability to respond fully to the Request, particularly with regard to issues...such as scope of the alleged harms, exhaustion of remedies, seriousness of alleged violations and causation."
Apart from questioning eligibility, management also denied that the problems raised in the claim resulted from "any alleged Management violation of the Bank’s policies and procedures." It asserted that even though reality had changed, the "project made economic sense when conceived" and that "it still makes more sense to complete the project than to stop it."
Moreover, management claimed that "all resettlement and environmental mitigation activities required prior to reaching the current reservoir level of 76 masl have been met" but then obliquely notes, "except some pending matters which are being addressed through appropriate financing and supervision." These measures were ostensibly outlined in a Plan of Action, which the Bank "urged the GOA to agree on" in April 1996. The management response also contains a point by point rebuttal of the allegations in the claim, disagreeing with the claimants’ allegations on all but two points.
The Panel’s Preliminary Review:
The Inspection Panel Operating Procedures provide for the Panel to undertake a preliminary review to determine whether the claim was filed by an eligible party; it falls within the scope of the panel’s mandate; there is sufficient information that management has "failed to demonstrate that it has followed, or is taking adequate steps to follow the Bank’s policies and procedures"; or if "such failure has had, or threatens to have, a material or adverse effect", among other things. During the review process, the Panel can obtain more information from the claimants and Bank management, and has the right to make a field visit to the project site. This step in the process allows the Panel to ascertain the integrity of the claim, and to determine whether or not to recommend to the Board a full investigation.
In the case of Yacyreta, Panel member Alvaro Umana and the Panel’s Executive Secretary, Eduardo Abbott, traveled to Argentina and Paraguay in early December, 1996. They were accompanied by Dr. Angus Wright, the representative from the IDB’s Investigation Mechanism, who had been asked by IDB President Enrique Iglesias to verify the legitimacy of the claimants. Together they met with Sobrevivencia, affected people, project sponsors, government officials from both countries and Bank staff.
Panel Recommendation:
The Panel’s Recommendation to investigate Yacyreta was submitted to the Bank’s Board of Executive Directors on December 26, 1996. The Panel recognized that the claimants were indeed eligible to file a claim; furthermore, it noted that there was prima facie evidence that confirmed "some of the allegations of harm made in the Request" related to loss of livelihood, health risks, water pollution, and resettlement. Importantly, the Recommendation found that the decision to raise the level of the reservoir to 76 masl may have violated Bank policy:
"The Panel observes that both the Resettlement and Environmental policies require an appropriate sequence of actions to prevent harm to both potentially affected populations and the environment. The sequence of actions in this Project...was allowed to slip badly when counterpart funding became unavailable and when an eventual privatization became an option to fund Yacyreta."
Moreover, the Panel pointed out that the Bank had accepted violations of the loan agreement, and challenged management’s assertion that the Bank was not required to apply remedies in the event that the borrower did not comply with the terms of the loan. The Recommendation noted that, "according to Bank policy, compliance is not achieved by merely including covenants in Loan Agreements but rather by ensuring that their provisions are implemented in a timely fashion by the borrower and executing agencies." It went on to cite the 1996 OED Performance Audit Report which made the same point: "the Bank accepted repeated violations of major covenants".
The Claims Process, Phase 2: The Ball Moves to the Board’s Court
Once a recommendation is made, the decision whether to go ahead with an investigation rests with the Board of Executive Directors. However there is no provision in either the Panel Resolution, or the Panel Procedures, for the Board to act within a specified time frame. It took a full two months for the Board to decide what to do with the Panel’s recommendation; and during that period it became clear that they were not merely deliberating over the merits of the claim and the arguments put forward by Management and the Panel. Indeed, the process to determine the disposition of the Yacyreta claim had become highly politicized.
At their first informal meeting to discuss the recommendation in early February 1997, the Board split over whether to approve an inspection, with the Part I (donor) countries in favor and the Part II (borrower) countries opposed. While Board deliberations are confidential, the Directors’ positions on Yacyreta were no secret. The Argentine Executive Director, Julio Nogues, launched the strongest attack, mobilizing opposition to the Panel, the claim and the claimants from other borrowing countries. Mr. Nogues’ statement at the Board meeting objected to an investigation and accused the Panel of operating outside its own resolution, and of placing the country in a precarious financial situation owing to the recent financial crisis. He also took issue with the claimants’ eligibility because they are Paraguayan. There was also a strong reaction from the Part II countries to the term "investigation", which to some implied wrongdoing. They were concerned especially that the Panel process would focus on the role of the government in causing harm, rather than on the role of the Bank.
However for the first time in a Panel deliberation the donor country Directors unanimously supported the Panel’s recommendation. The strongest advocates for an investigation included the U.S., Netherlands and Switzerland. Apparently President Wolfensohn supported an investigation as well, but was searching for a consensus and it was clear that one would not be reached. The Board had split completely between North and South. Given the fact that the Part I countries own more than 50% of the Bank and thus have more than 50% of the votes, if a vote had been taken to authorize an inspection, the outcome would have been different. But the Board rarely votes. To do so in the case of Yacyreta may have been seen by some Directors, and certainly by President Wolfensohn, to be too costly for the Bank. The decision about the Panel’s recommendation was thus postponed.
During this period, NGOs conducted a vigorous international campaign aimed at lobbying the Executive Directors to support the claim. The main intent was to ensure that the Board understood that the international NGO community was paying close attention to their process and that anything short of a decision to accept the Panel’s recommendation would damage the Bank’s credibility. Letters supporting the claim were also sent from some members of congress in both Argentina and Paraguay. In a letter from Argentine Senator Mario Anibal Losada to Julio Nogues, the issue of privatization was highlighted:
"It is out of utter disdain that any pending construction be completed or additional projects under the pretext of a possible privatization plan be undertaken, for not only is future funding in danger, but so too are the standards of living and health for the citizens of my district and those that live on Paraguay’s border."
Senator Losada included in his letter a copy of a Declaration he authored that was unanimously approved by the Argentine Senate on April 17, 1996, requesting "the important need for these issues to be recognized by international institutions."
A letter to Mr Wolfensohn, signed by 26 NGOs from around the world summed up their view of the stakes riding on the Board’s decision:
"To deny an inspection of this claim would deny the claimants the fair hearing they seek and would undermine the credibility and utility of the Inspection Panel as a forum to which directly affected local people can turn for impartial review. If a claim as strong and compelling as that presented in Yacyreta is turned away by the Board, it may be difficult for NGOs to continue to support the Panel process. We consider the Yacyreta claim to be an important test of both the Inspection Panel process and the Board’s commitment to reform."
The Board met again in late February. In addition to deliberating over the Panel’s Recommendation, the Board heard a presentation from Bank management of a new EBY-generated Action Plan. The Plan had two parts: Plan A addressed those environment and resettlement actions that were to have been completed prior to filling the reservoir to level 76 masl and Plan B proposed actions that would be necessary for "continued operation of the reservoir at 76 masl in an environmentally sound manner."
While it is important to note that effective actions, or remedies, are a desired outcome of the claims process, the Board’s acceptance of the Action Plan undermined the Panel process in two important ways. First, it gave management direct access to the Board in order to present their point of view of the claim without making a similar allowance for claimants, who had not seen the Action Plan and were unable to respond to it either in person or in writing. The balance of power in the deliberation thus resided with management. Second, directing the Panel to look at the efficacy of the Action Plan deflected the Panel away from focusing on specific Bank policy violations.
The Board was also unable to reach consensus on the term "investigation", and instead authorized the Panel "to undertake a review of the existing problems of the Yacyreta project in the areas of environment and resettlement and provide an assessment of the adequacy of the Action Plan as agreed between the Bank and the two countries concerned."
NGOs were skeptical about the change in language and what that implied, but hopeful that the process would allow for an honest independent analysis of the Bank’s role in Yacyreta and of the new proposals for problem-solving. In a meeting with Bank Vice President for External Relations, Mark Malloch Brown, Bank Information Center and CIEL were told that the Panel process would not be altered by the language; that essentially the Inspectors would have the same access to internal documentation, management, staff and both governments, and would have the opportunity to conduct field visits. Alvaro Umana was appointed the lead Inspector, and was given four months to complete the Panel’s work.
The Claims Process, Phase 3: The Panel Opens Space for People Affected by Yacyreta
Once a recommendation for inspection has been approved by the Board, the Panel Procedures’ methodology includes "meetings with the Requesters, affected people, Bank staff, government officials" along with project authorities and NGOs. They also include public hearings, site visits, and
written and oral testimony. Along with research in the Bank’s project files and interviews with Bank staff, field research by the Panel is the most effective means to ensure that all sides of the claim can be understood. The complexities of projects, and the multitude of actors, require the face to face contact in order to make judgements about the efficacy of claims.
The Panel visited Yacyreta in May and July of 1997, and met with affected people, local community leaders, municipal authorities, as well as government and EBY officials in both countries. The meetings with communities were especially important because it gave affected people the opportunity to speak to officials from the Bank who were there to listen to their problems. While the role of the Panel in field visits is in part to sift fact from fiction, and to look carefully at the reality of the claim’s allegations, the obvious independence of the Panel from EBY provided space to citizens to voice their complaints and concerns in an atmosphere devoid of intimidation and disregard.
The news that their claim had been accepted by the Boards of Directors of both the World Bank and IDB
was a turning point for the long-neglected affected people. Years of intimidation and a lack of response from government institutions had practically destroyed the organizations of affected communities. The validation of their claims by the two financial institutions, and the presence of the Panel in the field, generated a hope among the community organizations that their joint efforts could make a difference. One immediate consequence of the Panel’s visit to the field was that EBY began meeting with community leaders; for some, this was the first time that their complaints had elicited such a response from the Entidad. Moreover, practically all dam-affected groups began organizing within sectors and then formed networks across sectors. The buildup of public pressure had an effect on the government, both locally and nationally, with some officials joining in efforts to form a new organization, the "Association of Municipalities Affected by Yacyreta", to pursue compensation denied by EBY.
The Panel’s field visit was not the only catalytic feature of the emerging social movement at Yacyreta, but it gave impetus to community organizing. Their final Report and findings would provide the communities with official confirmation of their claims; the hope was that the claimants could use that Report to pressure EBY and the Banks to open up the process to greater community participation in designing solutions to their problems.
The Claims Process, Phase 4: Shoot the Messenger
The Panel’s Report was delivered to the Board on September 16, 1997, almost one year after the claim was filed. The Findings were unequivocal:
"Despite extensive but inconsistent supervision efforts, the Bank has failed to bring the project into compliance with relevant Bank policies and procedures due to a poorly conceived Project design in the first place, compounded by changing standards and regulations over time, EBY bureaucratic procedures and lack of financial resources." Moreover, the report said, "the Panel has found that the Bank has not been able to bring the project into compliance with the ODs (4.01 and 4.20 on Environment and Resettlement) and is not likely to do so until the year 2000."
In addition to several explicit policy violations cited, the Report found fundamental inadequacies in the Action Plan. It criticized Bank management for failing to consult with locally affected people, and called into question the financing arrangements for completion of the Action Plans and for completion of the dam to 83 masl:
"The investment required to reach elevation 83 masl has been estimated by Management to be at least $700 million beyond [that required for execution of] Plans A and B. This however does not take into account the actual costs of remaining expropriations (including thousands of hectares of land), resettlement of urban populations on both sides of the reservoir, and replacement of infrastructure (railroads, ports, airport) which would render the Management’s estimate wholly inaccurate."
The report also confirmed problems with resettlement and implementation of environmental actions that Sobrevivencia and local organizations had raised in the claim, and called on the World Bank and IDB to provide "financial and technical assistance to correct the harms that have been identified."
Despite these findings, the Board’s consideration of the Panel’s Report on Yacyreta was delayed. At the time the Report was submitted, the Board had also been considering two other controversial Inspection Panel claims: The Itaparica Resettlement and Irrigation Project in Brazil and the NTPC Power Generation Project (Singrauli) in India. Both of these claims had been recommended for inspection by the Panel and both had been denied by the Board. A contentious debate among Board members raised a number of serious issues that superceded their consideration of the claims, and which had a polarizing affect on the Board. Moreover management’s use of Action Plans in all three cases added an unanticipated element to the process — e.g. the role of the Panel in reviewing proposed remedies as opposed to searching for policy violations. The discussions of the two new claims along with the Yacyreta report prompted the Board to fundamentally question the role of the Panel. The outcome of the collision of claims was in effect a decision to "shoot the messenger". President Wolfensohn proposed a Board review of the Inspection Panel.
Meanwhile, NGOs had also begun to worry about the apparent limitations of the Panel process and the lack of independence of the Panel from management. By October of 1997, ten claims had been brought to the Inspection Panel. Of those, the Panel had recommended 5 inspections and the Board had approved only one unconditionally — the first claim regarding the Arun III Hydroelectric Project in Nepal. It became clear that the process was not being implemented as originally envisioned in the Resolution as a result of the numerous obstacles being thrown in the path of the Panel from management and the Board.
Between September and early December, the Board put a discussion of Yacyreta on hold while they began a review of the Panel. After months of waiting, during which the Inspection Panel’s Report had not been made public officially, the Board finally scheduled a discussion of Yacyreta for December 9, largely because U.S. Director Jan Piercy asserted that the claim should not be linked to a completion of the Panel Review.
Prior to the meeting, Part I Executive Directors had expressed great concern about the findings of the Panel, and were anxious for the Bank to push for immediate resolution of the problems by revising the Action Plans with the participation of the claimants and local communities. They were also concerned about the findings that suggested that the Bank’s economic analysis was flawed. In particular they wanted an analysis of the costs of raising the level of the dam to 83 masl. There was also support for a follow up role for the Panel. However, any hope that the Board would move in the direction of resolving the problems and prescribing remedies were dashed when the Board finally met on December 9. The meeting was again contentious and inconclusive, with another split between North and South that resulted in a postponement of final decisions. Instead, the Board thanked the Panel for its report and asked management to report back in six months as to the progress of implementation of the Action Plan. The Board then agreed to revisit the Panel’s report in early 1998.
While putting Yacyreta on hold, the Board nevertheless went forward with its review of the Panel. As part of the review, the Panel convinced board members to hear directly from claimants who had actually utilized the mechanism and had practical experience with the process. On February 3, representatives from several of the claims — Yacyreta, Itaparica, and Arun — traveled to Washington to present their experiences to the full Board and to President Wolfensohn. A statement from Madhu Kohli, claimant in the Singrauli case, was also read at the meeting.
Several issues raised by the claimants were common to all of the claims, including
- the tendency of management to submit Action Plans to the Board as a means to undermine the claim;
- the lack of due process for claimants — once claims reached the Board, claimants were excluded from the process and unable to defend their claims directly, or to have access to or comment on the Action Plans;
- the fact that claimants did not receive official information about the disposition of their claim and had to rely on informal communications through NGOs in Washington who had routine access to the Panel and some Executive Directors;
- the tendency for the Board to avoid issues related to policy violations. On the positive side, they noted that the Panel itself had been extremely fair and had listened to the complaints of local people in ways that Bank staff had never done. Local communities had been empowered by the process and became better organized to assert their rights and to pressure for justice and accountability with local authorities and the Bank. Ultimately, the claimants found the process important for their own attempts to press for solutions in the projects. They were hopeful that the process would increase the accountability of the Bank as a whole.
After the meeting with the Directors, Yacyreta claimant Pedro Arzamendia sent a letter, signed by members of his organization, to President Wolfensohn asking him to come to Yacyreta to see for himself the conditions that people have been living in. The letter requested that the Panel Report be translated into Spanish and that the Action Plans be made available to the public so that the affected communities could understand the Panel’s findings and the work that was supposed to be done to solve the persistent environment and resettlement problems cited in the original claim. The letter complained that the Action Plans were created without the participation of the people, and ended, "the communities affected by the Yacyreta Project are waiting anxiously for the decision of the Directors of the World Bank, concerning the actions that the Bank will take in this case."