Slush Funds, Corrupt Consultants and Bidding for Bank Business

by Pratap Chatterjee

In March 1993, a team of British consultants from Environmental Resources Management (ERM) traveled to the Narmada Valley in India to conduct a study of the potential social and environmental impact of the controversial Sardar Sarovar hydroelectric dam project and its accompanying mass resettlement plan.

 The consultants returned to describe the "public health benefits," and "opportunities for environmental improvement provided" by the project.

 The team spent most of its time at an office hundreds of miles away from the site, visited the dam site once and never bothered to visit the resettlement areas. According to Patrick McCully of the Berkeley- based International Rivers Network, one member of the team claimed that she did not see any trees on her visit to the site, and therefore concluded that the environmental impact of the dam would be minimal.

 In June 1994, another team of British consultants, from Agrisystems Overseas, traveled to Phrae province in Thailand to study the impact of the Kaeng Sua Ten dam and the opportunities for local participation in its planning. The consultants refused to tell villagers who they were working for, but subsequent research by English support groups revealed who had hired them and for what purpose. To the surprise of the team, when it called a meeting with the local government, 5,000 enraged villagers turned out to protest. Later that day, a group of 200 villagers stopped the team's jeep, pulled the consultants out and beat them and damaged the vehicle, according to local newspapers.

 The governments of India and Thailand were seeking World Bank funding for the Narmada and the Kaeng Sua Ten projects. The consultants were paid out of trust funds administered by the Bank, but set up by donor governments, whose purpose is often to further the interests of donor country corporations. This interest frequently conflicts with the interests of the communities in which development projects are being conducted. But it is donor countries that dictate the funds' terms.

McCully says that the ERM mission was an attempt to discredit the independent fact-finding mission, paid for by the Bank, which condemned the Narmada project for its lack of environmental assessments and adequate resettlement plans. "The government knew that consultants would not criticize the project - because consultants do not criticize projects. If they did, their extremely lucrative contracts would soon dry up," he says.

 In the case of the Kaeng Sua Ten project, the money for the British consultants was provided by the Japanese government. "We were asked to help the government do an improved assessment of an old project that was first assessed in 1985 to include the participation of the people. But if the people don't want to participate, there's nothing we can do about that," says Yves Wong, the Bank's task manager for the project.

 Donor country trust funds supplied $41 million in 1993 to pay for consultants, often from the same donor countries where the money originated. Money from these funds, which unlike Bank loans does not have to be paid back, has been growing rapidly, mushrooming by 39 percent in 1993 alone. It constitutes more than one-third of the Bank's $103 million spent on consultants.

 One reason for the sudden explosion in these funds is the fact that companies based in the donor countries have been facing a drop-off in development project contracts. Until 1988, the industrialized countries in the Organization for Economic Cooperation and Development (OECD) received 87 percent of all contracts from the Bank's main lending arm, the International Bank for Reconstruction and Development (IBRD). OECD countries also won 82 percent of all contracts from the Bank's soft-loan arm, the International Development Agency. By 1993, these figures dropped to 71 percent and 62 percent respectively, as stiff competition emerged from contractors in developing countries.

Winning contracts

 A May 1994 U.S. Treasury study shows that U.S. companies won $2.7 billion in World Bank contracts last year for the $1.5 billion that the government donated to multilateral banks. The authors say that the estimates are crude and represent perhaps 40 percent of the total value of contracts the United States won from multilateral banks because not all World Bank contracts are identified by country of origin.

 The big winners include Newmont Mining of Colorado, which landed $110 million in contracts last year from the multilateral banks; General Motors and its subsidiaries, which won $98 million in contracts; McDermott of Louisiana with $79 million; Caterpillar with $65 million; the Chicago-based Ameritech with $60 million; Coca- Cola with $57 million; General Electric with $55 million; Chevron Chemicals with $22 million and >Time-Warner with $20 million. Other major contractors included 3M, Bankers Trust, Cargill, Dupont, Exxon, Ford, Harvard University, Monsanto, Mack Trucks and Union Carbide.

The information flow

 The main source of information on upcoming contracts for companies is their country embassy in Washington, D.C. The British embassy, for example, has an office to find out about projects before they are mentioned in official publications and to pass the information back to the Department of Trade and Industry in London.

 "It's easy enough," says Chips Westwood, who is in charge of the British operation. "All country departments of the Bank have five-year plans of the projects that they would like to fund, and by keeping in touch with [the country departments], it is possible to get this information."

 Bank staff are not allowed to give information about upcoming or currently available contracts directly to companies at any stage of the process. Officially, the information can only be obtained from the borrower government.

 In fact, once a World Bank project has been appraised and a report published, copies are provided to members of the Bank board of executive directors. Many of these government representatives ship these reports to their home countries or to their embassies in the borrower countries, where they put them in trade or commerce libraries for corporate representatives to peruse.

 In the United States, the Department of Commerce maintains a library which makes the reports available for overnight borrowing. Reports often arrive before they are approved, in contravention of the Bank's own guidelines. In every U.S. state capital, there is an office to assist potential contractors, and in embassies such as those in Jakarta, Indonesia, lists of projects in the country for which external finance is available are provided and updated regularly. Regular perusal of such reports can give companies the upper hand in bidding for contracts.

The inside track

 The trust funds enable donor governments to skew project contract awards in favor of companies from their country. Unlike the contracting process, which is officially competitive, the consultants are hired at the discretion of the task manager in charge of the loan at the Bank. In order to select a consultant, task managers can access an internal roster of experts, called Data on Consulting Services, that is available to all Bank staff. Any consultant can get on to this list for three years provided they meet certain minimum standards set by the Bank.

 But World Bank recruitment staff say that their service is not the usual way to find consultants. "A lot of it is word-of-mouth," says one Bank staff member in the department. Consultants exist aplenty. The problem is finding the money to pay them - and this is where the trust funds come in.

 Multinational Monitor obtained Bank documents outlining how the trust fund money is supposed to be spent. The documents reveal that donor country trust funds frequently stipulate that their money can only be used to hire consultants from their country. Of the 25 consultancy funds listed in a 1991 World Bank handbook, every single one was tied to buying services from the donor country, although some countries - notably Canada, Scandinavian countries and the Netherlands, also permit for the hiring of qualified consultants from developing countries. Some countries, like Sweden, stipulate that local consultants can only be hired in conjunction with donor country consultants.

 Some of the funds are very restrictive and specifically tied to promoting new industries in donor countries - two major areas for most donor countries being environmental services and services to Eastern Europe. Seven countries - Australia, Britain, France, India, Japan, New Zealand and Switzerland - require that final approval for hiring consultants be given by the donor in question, not Bank management. Some funds actually promote specific consultants. For example, the Korean fund provides World Bank task managers with a list of Korean consultants who are eligible for the fund.

 While untied funds have been added in recent years - notably from Switzerland and Japan - they differ from the tied funds more in appearance than reality. For example, most Japanese aid officially is untied, but in practice, nearly all of it goes to Japanese companies.

While it is difficult to measure the benefits of the trust funds to donor countries, one crude way of estimating the benefits is to compare the value of contracts awarded to various countries that have substantial donor trust funds.

 Some OECD countries that now maintain trust funds won more contracts in 1993 than they have averaged in the past 48 years. Among these winners are Denmark, Finland, the Netherlands, New Zealand, Norway, Portugal and Switzerland.

 On the other hand, Belgium, Canada, Italy, Japan, the United Kingdom and the United States have been less successful in recent years. But as the biggest contractors in the past, their recovery is likely to be slow.

Of the four developing countries that put money into trust funds, the return on the trust fund investments has been very good for three - Brazil, India and South Korea - while the other - Pakistan - has not yet reaped the benefits of its investment.

 Bank managers believe the consultant trust funds play a positive role because they help both recipients and donors. "Two principal forces drive the Consultant Trust Fund Program: the Bank's need for outside expertise in addition to its own; and the Bank's developmental and commercial interests," says the trust fund handbook.

 But critics such as Willi Wapenhans, a retired Bank vice president who authored a 1992 internal review of the Bank's operations, say that these funds have introduced ethical conflicts into Bank work, due to a lack of independent review. "The direct involvement with staff, consultants and trust fund personnel under the Bank's direction in project and program design threatens the institution's ability to assess with disinterest the merits of a financing proposal," he says.

 The Bank is aware of these problems. One year ago, it formed a team under George West, an adviser from the Bank's controller's office, to investigate the trust funds. The results of the West team's investigation have not been made public, but sources in the Bank confirm that task managers have been using the trust fund money for a variety of illegitimate purposes. These range from giving contracts to friends to siphoning money off to use for other projects and pushing pet projects by directly raising money from donors.

 West told Multinational Monitor that he did not find many examples of direct abuse, but that he found cases of managers approaching donors to raise money for projects that they wanted to promote, in contravention of Bank rules. "There's an awful lot of variety in the way the funds are used. Some are justified and some are not. We have made a number of suggestions to Bank management and we are consulting with donors. If they say, æHell, no, you guys are crazy,' that's OK. But I don't think that will happen," he says.

 West says his investigation did not look at what percentage of the appraisal costs was made up of the donor country-tied consultancies, nor did he compile a tally of contractors and consultants to check for a trend of abusing the funds to provide contracts for fellow nationals.

One task manager reports, on condition of anonymity, that he gave a contract to a friend in India whom he knew was not competent but then forced his friend to hire foreign staff with the necessary skills to bring the project up to par. Another Bank staffer says that he discovered that one U.S.-based consultant, who was being paid by a trust fund, was using a fake address to win a contract reserved for developing countries.


 Getting information on the trust funds is difficult for non-consultants. Three telephone queries to the Bank's public relations department yielded no substantive information. Alan Dratell, a Bank spokesperson, says that the trust funds "are not a news story," and refuses to give any information. Queries to the British embassy in Washington, D.C. yielded an angry response from Chips Westwood. "I don't see why information about money spent on British consultants should be published. This has nothing to do with the developing world, just to help the Bank to move ahead," she says.

 Activists disagree. "I think the Bank must be held responsible for creating this sort of conflict. [At the Kaeng Sua Ten dam site,] 15 villagers have had warrants issued for their arrest. Without its political meddling, these things would not happen," says Larry Lohmann, a U.S. activist who has worked with Thai non-governmental organizations and villagers confronting unsustainable development projects.

 "Consultants like this are just prostitutes who take their clients' money and do what they know the client will like. They have no professional accountability to anyone other than their paymasters," says McCully. In the Narmada situation, he says the consultants were clearly incompetent. "They went there in March, well into the dry season, when the deciduous trees of the area have lost their leaves. It would be like a tropical forest dweller visiting an English oak wood in December and thinking that the trees were all dead," he says.

 Likewise, he says the consultants' acceptance of government claims of adequate plans for resettlement in the Narmada project are naive at best. Official figures in 1985 showed that 33,000 families would have to be resettled. More current government figures, however, show that the reservoir will displace about 200,000 people and the entire project may affect as many as 1.2 million people. Many of those who have been resettled have returned to their old villages because the quality of the land they were given was so poor. New land allocated this year is already occupied by other people, so land conflicts may take place if new people move in.

Monitoring for the future

 It is hard to say if this will change in the future. Trends point to a major increase in the use of trust funds, and the Bank is trying to make them more accountable. However, it would seem that the Bank's efforts are aimed more at making the use of the funds more efficient than at rooting out conflicts of interest. If West's investigation foreshadows Bank efforts at reform, then the trust fund abuses are likely to continue indefinitely.