You are here: Home » Opinion » Columns
Business Standard

Joe Athialy: The weakest link in development lending

The World Bank and ADB's internal accountability mechanisms sometimes violate their own guidelines and policies on project lending

Joe Athialy 

Joe Athialy

Institutions such as World Bank and Asian Development Bank (ADB) are considered the panacea of all ills that developing countries like India face. Although the amount of money these institutions lend is small, their influence on the economy is high. They continue to be the benchmark for social and environmental policies, good governance, climate change, corruption and so on. A look at some of the reports of these institutions' own accountability mechanisms, however, suggests that all is not well when it comes to complying with their own guidelines and policies.

Consider the case of the Tata Mundra power plant in Gujarat, a $4-billion project in which ADB and the International Finance Corporation (IFC) invested $450 million each. In October 2013, the Compliance Advisor Ombudsman (CAO) - the accountability mechanism of IFC, the private sector arm of the World Bank Group - released its findings on its audit on the Coastal Gujarat Power Ltd (CGPL, the formal name of the Tata Mundra project).

The CAO observed: "IFC's review of its client's E&S [Environmental and Social] assessments was not commensurate with the risk involved. IFC paid insufficient attention to the requirements of the Performance Standards. IFC should have required that its client commission additional E&S assessment in order to ensure compliance. IFC did not pay adequate attention to verifying whether pre-project consultation requirements were met. IFC failed to assure itself that directly affected fishing communities were engaged in effective consultation. IFC's E&S review regarding marine impact did not meet the due diligence requirements set out in the Sustainability Policy. IFC has failed to ensure that its client has correctly applied the requirements of the Thermal Power Guidelines. IFC failed to meet the requirements of the Sustainability Policy despite sufficient indications of project-related displacement (both physical and economic) as to require objective assessment….IFC is unable to demonstrate that its client's monitoring is commensurate to risk."

In an 11-page response, IFC dismissed the CAO findings, essentially rejecting expert opinion, defended its project decision and its client and issued no remedial action. World Bank President Jim Yong Kim cleared the IFC management's response and did not take any action until public pressure mounted about a month later. Over 100 Indian organisations and networks wrote to Kim decrying his inaction on the CAO findings. Sixty-eight organisations from 28 countries wrote to him urging him not to ignore the findings. The US-based Physicians for Social Responsibility wrote to Kim (himself a physician) urging him to deny World Bank support to the coal plant on public health grounds.

IFC issued a statement and action plan and in another few weeks, Kim responded to what he called, "civil society's concerns on private sector investments". The local organisation, Machimar Adhikar Sangharsh Sangathan (MASS), rejected the action plan terming it "a non-serious, non-committal one, and issued under duress from the growing criticism of IFC's/World Bank President Kim's inaction on CAO's findings of serious social and environmental violations". Responding to Kim, MASS said his response was a "disappointment because [he] missed the point, chose to act weak and made a mockery of all that communities have been saying about impacts."

Three months after the CAO's findings, ADB's Compliance Review Panel (CRP) decided to investigate policy violations while financing the 4,000 Mw coal plant. ADB's board of directors approved the recommendation of its accountability mechanism, the CRP for a full investigation.

In its eligibility report, CRP said, "The CRP finds prima facie evidence of noncompliance with ADB policies and procedures, and prima facie evidence that this noncompliance with ADB policies has led to harm or is likely to lead to future harm. Given the evidence of noncompliance… the CRP concludes that the noncompliance is serious enough to warrant a full compliance review."

CRP found the following evidence of noncompliance: insufficient public consultations; the project-affected area is defined erroneously; CGPL discharges water at a higher temperature than is allowed by ADB standards; ADB's air emission standards are not met; insufficient cumulative impact assessments; flawed social and environmental impact assessments; harmful effects of the cooling system on the environment and the fish harvest; inaccessibility of fishing grounds and effects of coal-dust emissions. The full investigation is underway.

There are four other projects financed by IFC that are under CAO scrutiny.

(1) In response to a complaint by workers on Tata Tea's plantations in Assam alleging inhuman working and living conditions, violations of their freedom of association and coercion of workers, CAO ordered a full investigation in January this year. IFC's project with Amalgamated Plantations Private Ltd is to set up a company to acquire and manage the 24 tea plantations in Assam and West Bengal owned by Tata Tea and implement a sustainable "worker-shareholder" model. The project costs an estimated $87 million; the IFC investment comprises equity of $7.8 million.

In its report, the accountability office concluded, "This complaint raises potentially significant adverse [environmental and social] impacts associated with the project." A full investigation of potential non-compliance began in March 2014.

(2) The technical assistance provided by IFC to the Vizhinjam port in Kerala is contested by the local residents and fishworkers in three separate complaints. In its complaint, the fishworkers' union, Kerala Swathantra Malsya Thozhilali Federation, raised concerns about negative impacts of the proposed port project, such as pollution from port operations, damage to marine biodiversity, possible displacement of fisherman and their families, and loss of livelihood for fishing communities within the vicinity of the project site. This report is awaited.

(3) Financed through an intermediary (FI), the Infrastructure Development Finance Corporation (IFC), faces more scrutiny in the GMR Kamalanga thermal power project in Odisha for using FIs to camouflage its lending to the project and refusal to take responsibilities for alleged negative impacts of the project. This report is expected in June or July.

Since an FI is involved, none of IFC's policies are applicable in the project and people are denied access to IFC's grievance mechanism. This is the first complaint at the CAO on an FI from anywhere in the world.

(4) CAO also initiated an enquiry into the violations by the largest cement manufacturer, Lafarge, financed partly by IFC in 2003. A cross-border project between India and Bangladesh, the limestone for the cement plant in Bangladesh is mined in Meghalaya, allegedly violating the customary rights of and Constitutional provisions for tribals in the state. The complaint was filed only in January this year and preliminary investigations have begun.

There are at least three pointers here.

People affected by these projects have decided to take on the financiers of those projects that are threatening their lives and livelihood. Apart from petitioning the district collector or, at best, other state agencies and, rarely, the judiciary, people realise that the unfettered flow of global finance to the project proponents without accountability needs to be challenged. Taking on big financiers such as World Bank and ADB makes companies sit up and take note of the issues raised by the people.

However progressive the policies look on paper, institutions like World Bank and ADB do little to implement them. They do not have independent monitoring mechanisms and rely on the reporting of the company on compliance. What is more alarming is that even when internal mechanisms like CAO confirm the concerns of the communities and investigate violations, the lending institutions' senior management defend their actions and their client. This casts a big shadow on their claim that these institutions ultimately want to alleviate poverty and better the lives of the have-nots.

The writer works with Bank Information Center, an independent watchdog of the World Bank Group

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, April 17 2014. 21:46 IST