World Bank retaliates against Parliamentary Whistleblower

World Bank retaliates against Parliamentary Whistleblower

Monday, August 27, 2007

A World Bank Conflict of Interests

Preparation for a World Bank Project typically takes two or three years, and the final package of documents details the project structure and the implementation requirements, and it includes, or refers to the vast range of standard World Bank conditions. The Municipal Development Project documents were accordingly prepared for Armenia and they were submitted to the Minister of Finance & Economy, who represented the recipient Government.

The Minister of Finance & Economy prepared the appropriate recipient documents, and they were signed by the various participants in the project, including the Director of the Yerevan Water and Sewerage Company, the project beneficiary, and the Director of the Project Management Unit (PMU). The Bank requires that a Project Management Unit is established and fully staffed prior to the release of project funds because it represents the Bank in the recipient country for a range of project-related activities, in particular those associated with the utilization and accountability of project funds.

The documents were then approved by Parliament, then by the constitutional court, and then the Minister of Justice sent a letter to the Bank in which he confirmed that the pre-conditions had been met for the project to proceed.

(The Project Management Unit had in fact not been established.

That is covered in a separate section of this blog)

The Municipal Development Project, like many other World Bank water utility projects, featured an independent international operator. The Italian utility company ACEA won the tender and established a subsidiary company, ACEA – A. Utilities, especially for the project. ACEA - A. Utilities signed a Performance-Based Management Contract with the Yerevan Water and Sewerage Company, for the provision of water and wastewater services in accordance with the terms and conditions of the Municipal Development Project, and that included providing a range of consultancy services.

The contract clearly stated that ‘The Operator shall be an independent contractor in its performance of the Contract. The Contract does not create any agency, partnership, joint venture or other joint relationship between the Parties hereto.”

The Conflict of Interests Clause stated: “The Operator, Management Staff, Subcontractors and the employees and affiliates of the Operator and Subcontractors shall not engage, either directly or indirectly, in any business or professional activities in Armenia which would conflict with the activities assigned to them under this Contract”

The Municipal Development Project was eventually implemented in May 2000, and in complete violation of the management contract, in June 2000, ACEA – A. Utilities, the Project Manager, became ‘General Council’ of the Yerevan Water and Sewerage Company, the company to which it was obligated under the Municipal Development Project. Their Authorised Representative was accordingly appointed the Company’s General Director, which of course re-assigned his responsibilities to the Company and to the Armenian State Water Committee, and the Company architect was appointed ACEA – A. Utilities new Authorised Representative, after which he was no longer seen to participate in the project.

This clear ‘Conflict of Interests’ led to an interesting association between the Parties in the project, especially with respect to the Bank. The newly appointed General Director of the Yerevan Water and Sewerage Company continued to represent himself as Authorised Representative of ACEA – A. Utilities (although its name was changed on more than one occasion throughout the project), and the Director of the Municipal Development Project Management Unit, whose responsibilities were to represent the interests of the Bank, presented himself to the Bank as representative of the Yerevan Water and Sewerage Company.

In that way, a number of project amendments were submitted to the Bank’s Washington office – and the Bank’s Washington office accordingly gave its approval.

The foundation was set for a corrupt World Bank financed Municipal Development Project. The International Operator’s Authorised Representative, doubling as General Director of the Yerevan Water & Sewerage Company, substantially ‘Increased’ the already high level of corruption within and around the Yerevan Water and Sewerage Company.

The details of how fraud and corruption worth tens of millions of dollars was perpetrated under the Municipal Development Project, and how even more funds were misappropriated from the Armenian state budget by the International Operator’s Authorised Representative are included in this blog.

I again call on the World Banks Department of Institutional Integrity (INT) to stand by its commitment to stamp out fraud and corruption in World Bank projects, and to send its team to Armenia to carry out a full investigation into the wide-ranging corruption that was exposed by the Armenian Parliamentary Commission study of 2004 into this project.

Bruce Tasker

Senior Specialist and Analyst

Parliamentary Commission

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