Since the beginning of October last year, the 168 Hours newspaper has been reporting on activities in Washington to persuade the World Bank’s oversight organization, the Department of Institutional integrity, to carry out a full investigation into claims of corruption in Armenian World Bank projects. The action has been led by Bruce Tasker, based on information he gathered through a study he managed for a Parliamentary Commission headed by Deputy Speaker Vahan Hovhanissian in 2004, and has been going on since January 2007, supported in Washington by the Government Accountability Project.
In June 2007 Paul Wolfowitz, the Bank’s President resigned under pressure as a result of compromising information exposed by the Government Accountability Project (GAP), and now in January 2008, Suzanne Folsom, Director of the INT has also resigned, in this case under pressure from her own colleagues. Folsom was installed by Wolfowitz instead of better qualified candidates, and it was generally known that in preference to investigating corruption in World Bank projects, she would block claims and sometimes encourage reprisals against the claimants – generally referred to as ‘Whistleblowers’.
Following her resignation, Tony Cantor, the British Ambassador in Armenia, prior to leaving Armenia into retirement, informed Tasker that the INT had eventually started the investigation which Tasker and GAP had been pressing for throughout most of 2007. Ambassador Cantor advised that INT is now working closely with Roger Robinson, the former World Bank Country Manager in Armenia, who is presently in Kyrgyzstan (together with Jimmy McHugh, his IMF partner in Armenia). The INT then wrote that it has started a review of the claim. But knowing how effectively the INT operates, it is impossible to imagine when, or if that review may become an investigation. It could possibly take a further year, or even longer. So the 168 Hours newspaper will keep its promise and report on the campaign until the INT reaches its final conclusions.
168 Hours has reported numerous aspects of the corruption, including that more than 4 million dollars of Municipal Development Project money was spent to buy water pipes to replace the worst of Yerevan’s old pipes, but the pipes were used for other profit making activities; that Yerevan’s water users paid more than 8 million dollars for water meters which the World Bank claimed were paid for by the Municipal Development Project; that the Authorized Representative of the International operator, Richard Walkling, in his dual and conflicting role as General Director of the Yerevan Water Company, falsified annual accounts, overstating the value of company assets by almost 100 million dollars, which in 2003 resulted in a loss to the Armenian people of more than 10 million dollars; and how at the start of the project, the Director of the Project Management Unit (PMU) used a counterfeit stamp on a World Bank document to gain approval of the 30 million dollar project loan. We have also reported how Mr. Varoudakis, the present World Bank Armenia Country Manager, convened a press conference and recklessly announced that the Bank considered there were no major irregularities with the project, when later at a meeting with Tasker and GAP’s International Project Director, he admitted he had not even seen the documentation.
Bruce Tasker has now provided more information to the 168 Hours newspaper, and today we can report on how in 2003, Richard Walkling, in his capacity as General Director of the Yerevan Water Company, received a 20 million dollar subsidy from the state budget (the people of Armenia) and yet was able to register a loss of more than 55 million dollars, when the company has annual expenses of about 10 million dollars.
Through the first 28 months of the Municipal Development Project, with Walkling as General Director of the Water Company, he received more than 7 million dollars in subsidies from the Armenian state budget, specifically to help the company pay for the 6 million dollars worth of electricity it used each year. But despite that assistance, in a little more than 2 years, he managed to build up an electricity debt of almost 25 million dollars. In May 2002, the Government signed a decree that 10 billion Drams worth of the electricity debt should be eliminated by converting it to capital. In October the entire water company’s electricity debt, which by then was nearly 13 billion Drams ($25 million), 10 billion of which was earmarked for conversion to capital, was transferred to the state company Haigasart, under the Government’s Integrated Finance Rehabilitation Plan. In December of the same year the water company received a subsidy of more than 3 billion Drams ($6 million) from the state budget to pay a part of its electricity debt, and in December it paid that money to Haigasart. The water company financial records for 2002 did not detail the transfer of the electricity debt to Haigasart, nor did it record the receipt and payment of 3 billion Drams. And rather than clearly detailing the electricity debt as it had done for the previous four years, it double accounted the debt by concealing it as a separate general debt item.
Then in 2003, in addition to the $7 million and the further 6 million state subsidies already received, the company received a grant of more than 10 billion Drams ($20 million), to be recorded as an increase to the company charter capital, and most of which was to be used to pay the remaining electricity debt. By that time, the total state assistance had reached nearly 35 million dollars.
The result was that in 2002, 10 billion Drams worth of electricity debt was eliminated by converting it to capital, then that eliminated debt, plus another 3 billion Drams worth of electricity debt that had accumulated during the year was transferred as a debt to Haigasart and then the transferred debt was double accounted by concealing it in the company financial records. Then in 2003, the state budget paid more than 10 billion Drams in cash to increase the company charter capital, which had already been increased through conversion of the electricity debt.
This created a potential loss to the state budget of more than 30 billion Drams ($55+ million), through cash payments made by the state budget to the water company; as a result of the water company converting electricity debt of more than 10 billion Drams; and then through concealing transfer of the same electricity debt to Haigasart and registering it as a general debt.
To add to that, in preparation for the Municipal Development Project, in 1999 the state provided more than 5 billion Drams to the company in a plan to consolidate under a single credit agreement all the 9.5 billion Drams worth of electricity debts it had accumulated through years 1996 to 1999. But the 5 billion Drams worth of electricity debt was not eliminated from the company accounts, as it should have been. In 2003, agreement was reached between the company and the state that a part of that 9.5 billion Dram credit should also be converted to capital and the remainder should be written off. That operation was manipulated to cost the company another several billion Drams.
Then, on top of creating a loss of more than 30 billion Drams through manipulating electricity debts, the water company wrote off customer debts worth more than 14 billion Drams, which was a further loss to the state budget. Moreover, after the embezzlement scam, purportedly to increase the water company charter capital, the charter capital was not in fact increased as it should have been.
So, in 2003 the Yerevan water company, under management of Richard Walkling, who was also Authorized Representative of the Italian company A. Utilities, managing the World Bank financed Municipal Development Project, was at the center of embezzlement which cost the people of Armenia more than 55 million dollars.
The correct way for Walkling to have rehabilitated the water company’s finances would have been to simply write off the 13 billion Dram electricity debt (‘Payables’) and to write off 13 billion Drams worth of customer debt (‘Receivables’). In this way the two debt write-offs would have balanced each other out and the operation would have created a zero loss for the company. And although the state budget would have suffered a loss of 13 billion Drams, that would have been much less than the massive losses created, and the Armenian people would not have needed to pay 10 billion Drams in cash to the water company.
In 2004, which should have been Walkling’s last year in charge of the project (and the water company), after all that manipulative rehabilitation of company finances, he managed to accumulate yet another loss of about 40 million dollars.
These are some of a number of reasons why Bruce Tasker and the Government Accountability Project are demanding that the Department of Institutional Integrity in Washington carries out a full investigation into the fraud, corruption and embezzlement, perpetrated by Richard Walkling and overseen by the World Bank’s Roger Robinson, as a result of the Bank’s Municipal Development Project.