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dam-l IRN PR: Companies Charged Should Be Suspended From WB Contracts/LS



INTERNATIONAL RIVERS NETWORK
PRESS RELEASE
Lori Pottinger, Africa Campaigner
510 848 1155
lori@irn.org

26 NOVEMBER, 1999

Companies Charged with Corruption Should Be Suspended From World Bank Contracts

Dam-building companies charged with corruption in a Lesotho court should be
suspended from receiving World Bank contracts while they are under
investigation, says International Rivers Network. IRN is also calling on
the World Bank to establish an independent investigation of its role in the
scandal.

Ten companies and two consortia have been summoned to appear in the Maseru
Magistrates' Court in Lesotho on November 29 on charges of bribing Mr.
Masupha Sole, former director of the Lesotho Highlands Development
Authority (LHDA). Mr. Sole is accused of accepting around US$2 million in
bribes from the companies.

The LHDA contracted the companies to work on the Katse dam, the first of
five huge dams planned under the Lesotho Highlands Development Project
(LHDP). Katse is now completed and work has started on a second dam,
Mohale.

The World Bank has provided both fiscal management and loans for the
Lesotho project, and is currently carrying out an internal investigation of
the LHDP contracts it has financed. The Bank is following a narrow
interpretation of its procurement guidelines, and it appears that if it
takes any sanction against the corrupt companies it will only be against
those with contracts directly financed by the Bank. Companies which paid
bribes on other project-related contracts would thus be exempt.

The Bank's guidelines state that "the Bank will declare a firm ineligible
either indefinitely or for a stated period of time, to be awarded a Bank
financed contract if it at any time determines that the firm has engaged in
corrupt or fraudulent practices in competing for, or in executing, a
Bank-financed contract."

Critics argue that the Bank's responsibilites are not restricted to
individual contracts because of the Bank's role in getting the project off
the ground, and as its fiscal manager. They argue that the World Bank is
interepreting its procurement guidelines narrowly in hopes that they will
not have to apply them to some of the biggest dam building companies in the
world, companies with which they do substantial business.

"Such a narrow interpretation of its procurement guidelines may be in
keeping with the letter of the guidelines, but it is certainly not within
their spirit, nor the spirit of President Wolfensohn's frequent
anti-corruption statements," says Patrick McCully, campaigns director for
International Rivers Network and a leading expert on the dam building
industry.

"While the case is underway the companies involved should be suspended from
competing for contracts on Bank projects. If proven guilty, all the
companies should be disqualified from Bank projects, not just those who
paid bribes on bank-financed contracts," says McCully.

The World Bank is offering financial and technical assistance to the
Government of Lesotho in its investigation and prosecution of the case.
Critics argue that their role of supporting the prosecution is
inappropriate because the World Bank is the fiscal manager and a funder and
promoter of the project with a long-lasting and close relationship with the
companies charged.

"The Bank is not a knight coming to the rescue of the government of
Lesotho. It is a leading actor in a major corruption scandal. The set-up
gives little reason for confidence that justice will be served, " says
McCully.

Leaked correspondence between the World Bank and the Lesotho government
from 1994 suggests that the Bank knew of corruption allegations against
Sole at that time, but actively tried to prevent the official's suspension.


"It's time for an independent investigation that considers not just the
role of the companies, but the performance of the World Bank in its
oversight responsibilities," McCully says. "We need to know what the World
Bank knows about the bribes, and when it first knew it. We know from past
experience that internal World Bank investigations cannot be trusted to
reveal the truth."

IRN also calls for the establishment of a Commission of Inquiry that would
include representatives of local non-government organizations, to
investigate more allegations of corruption among former and current senior
officials of both the Lesotho Highlands Development Authority, and the
Ministry of Natural Resources.

Background

The companies charged are Acres International (Canadian); ABB
(Swedish/Swiss); Dumez International, Sogreah, Spie Batignolles, Cegelec,
and Coyne et Bellier (French); Lahmeyer International (German); Universal
Development Corporation and Electro Power Corporation (Panamanian);
Associated Consultants and Project Managers (Lesotho); and Sir Alexander
Gibbs and Partners (British).

The international consortia charged are Highlands Water Venture and Lesotho
Highlands Project Contractors. International companies in the consortia
include Ed Zueblin (German), Impregilo (Italian) and Balfour Beatty
(British).

Many of the campanies are no stangers to allegations of corruption. Spie
Batignolles and Sogreah were involved in Kenya's Turkwell Gorge Dam which,
because of bribes reportedly paid to Kenya's president and energy minister,
cost more more than twice what the European Commission said it should have.

Impregilo, Dumez and Lahmeyer were three of the principle firms involved in
the Yacyreta Dam in Argentina and Paraguay, which Argentina's President
Carlos Menem called a "monument to corruption." Yacyreta's projects cost
was $2.7 billion; the final cost was $11.5bn.

Lahmeyer and Impregilo also had contracts on Guatemala's Chixoy Dam.
Various sources estimate that between $350 and $500 million were lost to
corruption on this project.

ABB and Dumez worked on Itaipu Dam (Brazil/Paraguay). The dam was
originally projected to cost $3.4 billion, but the final cost came to
around $20 billion. Numerous corruption allegations surround the project.

The Lesotho Highlands Development Project is the biggest water project
under construction in Africa. The World Bank was the key player in
establishing the financial feasibility of the project in 1986 when both
South Africa and Lesotho were ruled by undemocratic governments. The World
Bank's role included arranging the entire financing package.

ENDS

For more information: Lori Pottinger, Africa Campaigner, IRN Tel. 510 848
1155 lori@irn.org
www.irn.org

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      Lori Pottinger, Director, Southern Africa Program,
        and Editor, World Rivers Review
           International Rivers Network
              1847 Berkeley Way, Berkeley, California 94703, USA
                  Tel. (510) 848 1155   Fax (510) 848 1008
                        http://www.irn.org
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