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World Bank Withdraws from Arun III Project at Inspection Panel's Recommendation

by Alfred Escher

Recently, the new President of the World Bank canceled the Bank's participation in the Arun III Hydroelectric Project in Nepal after the World Bank Inspection Panel declared that the Bank had violated its own policies concerning indigenous people and environmental assessment in approving the project. The Arun III project was the first case brought before the Panel, which began its operations in September 1994 (See related articles in the Spring 1994 and Fall 1994 issues of The Human Rights Brief)

Arun III Complaint Followed Two-Pronged Approach: Inspection Panel and Local Courts

In a speech at the WCL on October 25, 1995, Gopal Siwakoti, WCL LL.M. alumnus, described his role as a local lawyer and member of the Arun Concerned Group (ACG) in the complaint against the Arun III project. The legal attack against the project consisted of a law suit against the Nepalese government filed by ACG in the country's Supreme Court, as well as the complaint before the World Bank Inspection Panel. In the case before the Supreme Court, ACG challenged the government's refusal to provide relevant information about the project. The court ruled that the Nepalese constitution gave ACG the right to receive information of public interest from the government, including information about the project's impact on the environment and indigenous persons. The court also held that the government must prove that each condition set forth in the World Bank's structural adjustment program conforms with the Nepalese constitution.

Siwakoti admitted that the positive outcome of the two petitions was unexpected. According to him, both the lawsuit and the complaint before the Inspection Panel had at least three consequences for Nepal. First of all, they increased awareness among those affected by proposed development projects that individuals have the right to information regarding these projects. This will enable activists to safeguard the rights of indigenous persons and protect the environment more effectively in the future. Next, the Supreme Court's decision requiring that the terms of any loan agreement with the World Bank comply with the Nepalese constitution indirectly brings the Bank's activities within the scope of domestic jurisdiction, although the Bank itself remains immune from domestic lawsuits. Finally, the World Bank and the Nepalese government are now undertaking consultations with the local population regarding smaller, cheaper, and better alternatives to the Arun III Project, which was from the beginning a main demand of the ACG.

The Arun III Hydroelectric Project was valued at approximately $1.1 billion. By comparison, the annual per capita income in Nepal is $170, and the annual Nepalese budget is approximately $500 million. The planned project would produce about 200 megawatts of electricity for consumption mainly in the capital and urban areas. In order to repay the loans, the World Bank required a 100% increase in the electricity tariff for the whole country. The project would have been built by French and Italian companies using unskilled local workers.

The World Bank Inspection Panel found in its formal investigation report that the Nepalese government and the World Bank had not provided for adequate land compensation and resettlement for the local and indigenous people affected by the project. In addition, they had not undertaken an adequate environmental assessment. Thus, the Bank had not complied with its own guidelines concerning the protection of indigenous people and the environment.

Since its formation, the Panel has decided a total of four cases, including the Arun II project. In a case alleging expropriation of foreign assets in Ethiopia, the Panel decided not to recommend an investigation because the requester had not exhausted local remedies. In another case involving a power project in Tanzania, the Panel found that the requesters had been unsuccessful in the procurement process and thus were not eligible to file a claim. The fourth case, regarding the Rondonia Natural Resources Management Project in Brazil, is still in its initial stages. The Executive Directors have requested more information before deciding whether or not the Panel should undertake a formal investigation.

Generally speaking, the Panel's procedure consists of the following steps: First, a private group of at least two people adversely affected, or likely to be adversely affected, by a World Bank financed project in a direct material way must file a request for an investigation. Next, the Panel performs a preliminary review of the request. If the Panel decides the request is meritorious, it may recommend to the Bank's Executive Directors that an investigation be carried out. If the Executive Directors approve this recommendation, the Panel undertakes a formal investigation Upon completion of the investigation, the Panel submits a report to the Bank's President and Executive Directors. The Executive Directors then decide how to respond to the formal investigation report. They must inform the complainants about the Panel's report and subsequent actions taken by the Bank.

The Panel's procedures attempt to make private complaints as easy as possible. A request for investigation can be filed anytime up to the closing date of the project, i.e. the date on which the last part of the Bank's loan is disbursed. The request can be submitted in any language, although English is preferred. It may be filed at the Bank's headquarters in Washington, DC, or at any regional office. The complaint need not be in any special form, however, using the sample form prepared by the Panel is recommended.

For further information, contact:

World Bank Inspection Panel
1818 H Street N.W.
Washington, DC 20433
Telephone: (202) 458-5200
Facsimile: (202) 522-0916

Public Information Center
1818 H Street N.W.
Washington, DC 20433
Telephone: (202) 458-5454
Facsimile: (202) 522-1500

The Panel's proceedings are not the only proof of its effectiveness. According to the Panel members themselves, the mere existence of the Panel has enhanced Bank staff awareness that they are accountable for the Bank's compliance with its own policies and procedures. Thus, the term "Panel approving approach" has enriched the World Bank's parlance. Furthermore, other multilateral development banks are discussing the establishment of inspection panels.

The success and the effectiveness of the Panel also depends on an adequate flow of information concerning the project at issue. The following documents are now available at the Public Information Center of the World Bank, either free or for a standard charge of $15: original and revised project information, environmental assessments, staff appraisal reports, legal agreements between Bank and borrower, and impact studies. The Human Rights Brief will also continue to report on the Panel's activities and its further legal development.

© Copyright 1995 The Human Rights Brief

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