Sierra Club charges World Bank with Environmental Violations

From People's Weekly World, 11 February, 1995

World Bank Responds to Sierra Club; Sierra Club Responds to World Bank

Special to the World

WASHINGTON, D.C. -- Citing recent reports which reveal the World Bank's attempts to conceal investigation results of a proposed venture in Nepal, the Sierra Club has called for the colossal Arun Dam project to be canceled, and for smaller, less environmentally destructive projects to be considered.

The Sierra Club is supporting Nepalese environmentalists who believe that the Bank is pressuring their government to sign off on the $764 million project in an attempt to circumvent the World Bank's Inspection Panel findings and to preempt a comprehensive investigation.

The World Bank, Asian Development Bank and several bilateral aid agencies are proposing to finance the million-dollar project, costing more than Nepal's entire annual budget, in an isolated, biologically-rich and ethnically diverse mountain valley near the base of Mt. Everest.

"This dam represents precisely the kind of foreign aid rat hole that has caused some members of the new Congressional leadership to support sharp reductions in U.S. contributions to the World Bank," said Stephen Mills of Sierra Club's International Program. "One would think that after years of local and worldwide opposition to such environmentally destructive projects that the Bank would have learned a few things."

Nepalese citizen organizations have proposed a more sustainable approach to hydropower development, based on local knowledge and indigenous capacity. This alternative approach is based on decentralized, smaller-scale hydropower development, and emphasizes public participation and practical projects that take advantage of local knowledge, skills, materials, and equipment. This approach would result in much greater social and economic benefits for the Nepalese, while providing sufficient electricity for the country, starting with those in rural areas who need it most.

On Dec. 20 World Bank management issued an internal update to staff which stated that the Bank's internal inspection panel "does not recommend that further work be done on exploring alternatives." The memorandum directly contradicts a Dec. 16 inspection panel report which found policy violations in the Bank's alternative project evaluation.

The panel memorandum clearly states that the World Bank has not demonstrated "that equivalent levels of effort were devoted to an alternative economic analysis" and that there was an "absence of a close examination of alternatives."

Mills said, "For Bank management to come into compliance with its own policies, a full investigation of viable alternatives must be a part of the project analysis."

The World Bank has a long history of excluding indigenous people, non-governmental organizations, local experts and government officials from its decision-making process. In this case, the Nepalese government, which is still prepared to consider alternative energy projects, has repeatedly asked the Bank for more time to review the project proposal. The Bank is unyielding and is pressuring the Nepalese government to immediately indicate whether it wants to proceed.

Last year in an effort to further reform the lending practices of the Bank, Rep. Barney Frank (D-Mass.) former chair of the House subcommittee with jurisdiction over development banks, insisted on an exchange. In return for U.S. funding of the World Bank's International Development Assistance fund (IDA), the Committee required the Bank to increase its "transparency" or openness to public review and to create a new independent inspection panel to review controversial projects.

"The World Bank is attempting to subvert the work of its own panel. A unanimous Bank board vote is required for an inspection to even occur," said Larry Williams, director of Sierra Club's International Program. "These guys aren't even willing to play by their own rules when the risk is they may lose one of their pet projects" he continued.

"This represents the antithesis of sustainable development: a mega-project in a small country for the benefit of a small urbanized elite of industry, government officials and foreign contractors," said Mills. "In Nepal, the rural taxpayers and the environment will bear the burden."

Approximately 450,000 people from 10 ethnic groups would be adversely affected if the project is funded. The Arun III hydroelectric project will also directly affect the area's forests and wildlife because the forests surrounding the site would be cleared. A Nepalese non-governmental agency, the King Mahendra Trust, has said that total deforestation is likely to occur in the Arun basin in less than 15 years because new roads would make access to the forest easier. And the World Bank itself recognizes the dam will block the movement of migratory fish, although no studies have been done regarding those impacts and the economic and social implications.

Date: Mon, 20 Feb 1995 15:02:04 GMT

Sender: Activists Mailing List <>
Subject: World Bank Responds to Sierra Club Charges of Mismanagement of Arun Dam Project in Nepal

Below you will find Sierra Club's response to our article which appeared on Econet last week charging that the World Bank has tried to manipulate the Inspection Panel's review of the proposed Arun Dan development scheme in Nepal. Following Mr. Mitchell's memo you will find the Sierra Club's reply. We think you will agree that Mr. Mitchell makes a very fine case for us as to why the World Bank needs a major management overhaul.

Larry Williams
Director, International Program
Sierra Club

Dear Mr. Williams,

Your latest message on the Internet (White House Lagging on World Bank Review) has many incorrect facts about the Bank and the Arun project. The spread of material like that contained in this message does little to further productive debate about the project, the Bank, or development in Nepal.

While we are more than willing to engage in a debate about development and the individual projects the Bank supports, this becomes difficult when we see wrong information - like that contained in your message - being spread. We have always believed that the Sierra Club as a responsible organization, wants to enter into a rational debate about development and environmental issues. Hence our disappointment when we see your organization putting incorrect or misleading information about Bank projects into the public arena.

It is appalling that you accuse the Bank of "pressuring" the Government of Nepal to sign off quickly on the Arun project "in order to circumvent the Inspection Panel". This is clearly not correct and disappointing coming from the Sierra Club.

The Bank has, in fact, gone out of its way to encourage the new government to review the project and to ensure that any questions it has about the project are answered. The Bank has briefed the new government in Nepal, discussed the project in Washington with the Minister concerned, and is now awaiting the Government's decision on whether or not it wants to proceed. The Government of Nepal itself set the timetable for an answer by the end of February.

Your statements about the Inspection Panel are also inaccurate. The Panel HAS NOT found the Bank in violation of its own policies. Indeed the purpose of the inspection which the Board of Directors authorized on February 6th is to put the Panel in a position to make definite findings.The fact that the Bank's Executive Directors want to have an independent view on the matter is a sign of the Bank's strength in its project design and approval process, not of weakness. They have not jumped to conclusions about the final outcome of the inspection - and neither should the Sierra Club.

In accordance with the resolution establishing the Panel all key documents relating to this matter have now been made public and are in the Bank's Public Information Centre.

Your statements about the project are also polemical. To assert that the project will cost "more than Nepal's entire budget" confuses the total cost of the project, which will be spread over eight years, with the cost of a budget for a single year. If the aim is to encourage rational debate this sort of polemic does not help.

The Government of Nepal is expected to provide about USD 145 million or 19% of the total project costs, again spread over eight years. The other funding is either concessional (i.e. zero interest loan) or a grant. Most of the loan funds do not have to be paid for 10 years or until the project comes on stream. At that point it is projected that revenues from the project will be about USD 100 million per year while debt servicing will only be about USD 10 million per year.

To exaggerate the cost of the project, while omitting any mention of the benefits is hardly responsible.

Paul Mitchell
Public Affairs South Asia
World Bank
February 15, 1995


February 17, 1995

Mr. Paul Mitchell
Public Affairs South Asia
World Bank

Dear Mr. Mitchell,

It is always good to hear from the World Bank and to have the opportunity to engage in an exchange of information regarding what the real facts are surrounding the Bank's drive to build the Arun Dam. Your memo raises three points of contention which I will address in the order they were raised:

WB claim #1 -- The Bank did not pressure the Government of Nepal to quickly sign off on the Arun project in order to circumvent the Inspection Panel.

Sierra Club's Response: We believe that your are misinformed on this point. Our information on the Bank's behavior comes from the NGOs in Nepal who were told this by officials of the Nepalese Government. They reported that the WB gave the Government of Nepal a deadline of eight days to make-up their mind on building the dam. The government protested by saying that they needed more time to gather more information and objected to being pressured in this way. The eight day deadline just happened to fall one day prior to a scheduled Inspection Panel briefing of the WB Board of Executive Directors. Quite a coincidence, wouldn't you agree? If this was not an attempt to circumvent the Inspection Panel, then what was it? We put two and two together and make the call that the project managers were hoping to report to the Executive Directors prior to their meeting with the Panel that Arun is a done deal. How would you explain such behavior?

In fact, the pressure on Nepal to accept Arun Dam on a take-it or leave-it basis continues. Representatives of the Nepalese Government were in Washington recently to meet with Bank officials. They were told very bluntly that if they have any dreams to building any of the other dams they had better accept Arun as a done deal. This is a lot of pressure to put on this new government that is not in a strong political position at home to take a principled stand.

WB claim #2 -- The Inspection Panel did not report in its preliminary findings that the Bank was in violation of its own policies for failing to explore alternatives to the project:

Well, yes and no, the Inspection Panel's findings were only preliminary. But the Panel said what we already knew was true. In late December 1994 the Panel asked the Bank's board of Executive Directors to authorize a "further investigation" into what it called "apparent violations of [Bank] policy" in the planning and design of Arun. The Panel also noted that the Bank may face problems in complying with its policies on "information disclosure, indigenous people, environmental and social impacts and involuntary resettlement" in implementing the project.

WB claim #3 -- To assert that the project will cost 'more than Nepal's entire budget' confuses the total cost of the project.

Sierra Club's Response: It is helpful to our readers to put the $764 million it will take to build this project in perspective. In terms of the US budget $764 does not sound like much, but in terms of the budget of Nepal it represents more than their annual outlay. A staggering investment for this developing country. You should have been happy we used the $764 million figure because the real cost of this dam will be more like $1.082 billion! We should have added another $285 million for the construction interest costs which Nepal must pay up front during the eight years the dam is being built.

We agree with the Nepalese NGOs that there are better energy investments available to Nepal which the Bank staff has not been willing to give fair consideration to. Why? Because they would cost less and they would require more staff time to develop than this mega-project. Unfortunately, Mr. Mitchell, some of your managers still believe that success is measured by the dollars moved. Less costly alternatives are not going to be seriously considered until that attitude changes. We look forward to the findings of the Inspection Panel on Arun. Perhaps then, we can continue this dialogue.


Larry Williams
Washington Director
Sierra Club International Program

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