Taken from the Armenian text of a 168 Hours Newspaper Article
Recognizing the need to improve the Yerevan water utility, in 2000 the World Bank provided a $30 million dollar credit, with $5 million dollar co-financing from the Armenian Government, to finance the Municipal Development Project. Bruce Tasker continues his assertions that there were serious irregularities throughout the implementation of the project.
During 2003 and 2004, Mr Tasker, was Senior Specialist for an Armenian Parliamentary Commission which studied the effective use of credits, grants, and humanitarian assistance received by Armenia since the time of independence in 1991, and he was required to study the Municipal Development Project in detail. In March 2004, the Head of Commission, Deputy Speaker of Parliament Vahan Hovhanissian, promised that at the end of the study, he would present a final report on all the irregularities found. But today, three years later, still nothing has been heard from him. And so in January this year, Bruce Tasker applied to Washington’s Government Accountability project (GAP) and submitted the evidence of irregularities he had gathered through the study he managed, and which he had submitted to the Commission and to the World Bank in 2004. In March, GAP submitted a ‘Demand Letter’ to the World Bank’s Department of Institutional Integrity (INT), with a request that the INT carry out an investigation into Mr. Tasker’s claims, based on his documents.
Two days ago the World Bank announced that “INT’s preliminary reviews of the allegations based on the documentation provided by Mr. Tasker, along with additional documentation obtained by INT, have to date found no evidentiary basis to substantiate his assertions nor any issues related to fraud and corruption in a Bank-financed project”. Therefore Tasker decided to bring to the attention of the Armenian public a few of the not-unimportant irregularities that were perpetrated during the time of the Municipal Development Project. Furthermore, Mr. Tasker not only explained the financial manipulations, he presented the documents to support his claims.
According to Mr. Tasker, on the basis of Government decree 1302, in 2002, the local auditing company ‘Aucon’ carried out a re-valuation of the Yerevan Water & Wastewater Company (YWSC) assets, which re-valued the non-fixed machinery and equipment assets at approximately $1 million. Accordingly, the 2003 YWSC financial accounts detailed the assets re-valuation, including that of the non-fixed assets. Mr. Tasker presented documents to the 168 Hours paper which show the value of the Company’s non-fixed assets, originally half a million dollars, was increased by a factor of 200 to more than $100 million, and then reduced after another re-assessment and depreciation charge to a final valuation of approximately $25 million. At the same time the YWSC shows a consequential 6 billion Drams ($11 approx) charge for the depreciation of assets.
The YWSC financial accounts are externally audited each year by an approved independent auditing firm, and the 2003 accounts, like those for the four previous years, were audited by the auditing firm KPMG. Then, because of the Commission interest in the Municipal Development Project, which included a study of Walkling’s conflicting responsibilities as General Director of the YWSC, these accounts were assessed by the Project Management unit, then by the Ministry of Finance & Economy, and finally by the World Bank. In practice, all organizations which were associated with the Municipal development Project were involved in the assessment of the YWSC externally audited accounts.
Tasker is amazed that none of these authorities found it strange that during the re-valuation process, the value of the non-fixed assets shot up from $500,000 to $100 million, to be reduced to a final book value of $25 million, and suggested that that may be one of the reasons why the statement was withheld from the Commission until after the original September end of term of the Commission. But the Speaker of Parliament extended the term of the Commission, and in October, the statement was eventually released.
The British engineer explained that this kind of discrepancy either indicates a very troublesome mistake or a major manipulation of finances. The important factor is that, in accordance with the terms and conditions of the World Bank credit, the YWSC should have pledged ‘ALL’ its fixed and non-fixed assets as security against the loan. Whether or not it was reasonable that all the fixed and non-fixed assets should have been pledged against the loan is altogether another question. But the fact is that the Armenian Government agreed to that condition, apparently later deciding to pledge only the non-fixed assets as security. Tasker says it appeared that for that reason, the YWSC showed such a high value for its non-fixed assets. Tasker says the value of the machines and equipments should in fact have been no more than that recorded by the auditing company ‘Aucon’, because they were basically those from the Soviet times which were still being used.
In that way, the World Bank $30 million credit was secured by non-fixed assets, which after all that financial manipulation, were revalued at $25 million. It also did not go unnoticed that the accounts for years 1999 to 2002 correctly stated that ‘ALL’ the company’s assets were pledged against the loan, although the Commission found that they were in fact not pledged, as no security agreement had been signed.
At first sight it seems that our authorities had hoodwinked the World Bank. But that would be very naïve, taking into consideration the World Bank has financed many water projects, and in more developed countries than Armenia. It would be naïve to think the World Bank did not realize that its $30 million credit was secured only by low-value non-fixed assets, so it would seem that this has all taken place with the consent of the various parties. And in as much as the fixed assets did not find themselves pledged under a security agreement, it is not too hard to imagine that the Yerevan water utility could soon become the target of yet another ‘Privatization’, which is not at all beyond the capabilities of our authorities. And it would seem that that is where the basic threat of this manipulation is hidden.
Tasker says that this is one of several claims of wrongdoings he has sent to GAP, whose lawyers studied the documents, after which on the 29th March GAP applied to the Department of Institutional Integrity (INT), the World Bank’s department that studies wrongdoings within Bank projects. But it is difficult to say what the chances are that the INT will carry out an unbiased investigation into wrongdoings that Tasker has claimed were perpetrated with the knowledge of officials who work for the same World Bank Group. Some even suggest that the INT may prefer to protect the interests of the World Bank and it’s officials, rather than investigate the wrongdoings.
Since the demand letter of March this year, GAP has been in regular contact with the INT, and on the 15th October again wrote to inquire what additional documentary evidence the INT needs for it to consider Tasker’s claims of wrongdoing serious enough to instigate an investigation. Until now, the INT has not requested one evidentiary document, not from GAP nor from Tasker, to give Tasker the opportunity to substantiate the claims he is making. Tasker asks, is this $100 million dollar financial manipulation by the Authorized Representative of the International Operator, who doubled as General Director of the YWSC, serious enough? Or should he publicize other similar wrongdoings?
This week Washington is hosting the annual meetings of the international financial institutions, where the Armenian Prime Minister will be attending. At today’s meeting, water privatization projects will be discussed, and GAP will be participating to again present Tasker’s Armenian claim.