Saturday, February 2, 2008

How Corruption Ruined Thailand’s Samut Prakarn Wastewater Management Project



How Corruption Ruined Thailand’s Samut Prakarn Wastewater Management Project

Background
Erroneous was how a 2004 Far Eastern Economic Review article1 described the scandal-tainted Samut Prakarn Wastewater Management Project in Thailand. Quoting from the joint report of the Bank Information Center and Terra-Thailand,2 the article detailed how corruption problems have transformed this Asian Development Bank-financed public initiative into a major development debacle. In fact, even the Thai Prime Minister3 publicly conceded that the project was riddled with corruption. And after years of resistance from affected communities and pressure from an international monitoring campaign, the ADB withdrew from the project in 2003.

The ADB and the Government of Thailand conceived the US$230-million wastewater management project in the early 1990s to improve the environmental quality, as well as the public health and welfare in Samut Prakarn Province through modern, reliable, cost-effective wastewater collection and treatment facilities. It was designed as the hub of all wastes (generated by about 1.2 million residents and over 4,000 factories) that flows into the Chao Phraya River. The Bank’s US$230-million stake in the project was the sum of two separate loans: the initial loan of US$150 million in 1995 and the supplementary loan of US$80 million in 1998.

Initially, the ADB recommended two treatment plants to be built in both sides of the Chao Phraya River. Controversy erupted when construction of a single wastewater treatment plant instead began in the village of Klong Dan. These were clear deviations from the original project
design and location. The Samut Prakarn project caught the Klong Dan locals, numbering around 60,000, by surprise. This was due to the failure of the Bank and the executing agency, Pollution Control Department (PCD), to inform and consult them about the project. In 2000, the mayor and citizens of Klong Dan filed the first-ever complaint with the ADB over the impacts of the Samut Prakarn project. Thus, the group became the first to test the Bank’s accountability to those impacted by its projects since the Inspection Function4 was established in 1995. In their formal request, the villagers asked the Inspection Committee to launch a full-scale reassessment of the project design and the flawed decision-making process. They contended that the project has violated the ADB’s environmental, social disclosure, good governance and anticorruption policies, as well as the project’s goal of sustainable development.

The Inspection Panel reported in 2001 that the Bank, indeed, did not comply with some of its policies and procedures in the project processing and implementation. These were: (1) supplementary financing of cost overruns, (2) bank operational missions, (3) environmental considerations in Bank operations, (4) involuntary resettlement, (5) incorporation of social dimensions in Bank operations, and (6) governance. Furthermore, the Panel concluded that the Bank committed a crucial omission when it did not reappraise the 1998 supplementary loan proposal, thereby resulting to other consequences.5 Notwithstanding these serious findings,
the subsequent recommendations of the Inspection Committee to the ADB Board
were perceived to be weak by the affected communities, as well as independent CSO observers. Moreover, the ADB failed to take adequate action towards implementing even these
recommendations.

In 2003, the Bank and the Thai Ministry of Finance agreed to close both the original and supplementary loans for this project. The undisbursed balance remaining in the original loan for US$18.3 million has been cancelled. The Bank said the project remains incomplete and suspended, and that no progress has occurred on the remedial measures.

In early 2004, the Natural Resources and Environment Ministry was given the gosignal to sue the owner of the Klong Dan Wastewater Treatment project for Bt20 billion for alleged contract fraud and duping the state to buy public land. In 2005, the ADB reported that the civil suit filed by PCD against the turnkey contractor was rejected by the court and no progress has made on this matter. Moreover, no progress has been made on fraud charges versus individuals associated in the controversial land acquisition; implementation of the resettlement plans and monitoring systems; community involvement initiatives; and odor and effluent management. The Bank would not act on the said issues until the contractual dispute between PCD and the contractor is resolved.

Project Impacts

When Klong Dan residents finally became aware of the nature of the wastewater management project, they strenuously objected. They raised a number of concerns about the negative impacts the facility would have on their environmental quality and economic wellbeing. They expressed concern about the ill effects of toxic wastes and heavy metals that would be released from the treatment plant. According to them, the project would hreaten their way of life, the local economy and community strength. The daily release of 525,000 cubic meters of treated wastewater to the sea would change the ecosystem of the coast, which is one of Thailand’s principal economic bases. The 2001 findings of the Bank’s Inspection Panel confirmed their fears. The report revealed that the Samut Prakarn project threatens the livelihoods of people that are dependent to the coastal ecosystem due to the dilution of salinity and release of toxins or heavy metal. Further, people living in the vicinities of the treatment plant could be adversely affected by the lowering of their property value as well as the odor and potential problems caused by the existence of toxin and heavy metal in the sludge management. Moreover, community members became convinced that the decision to move the project was driven more by the desire to enrich a handful of politically well connected landholders than by any considered assessment of the public interest. They pointed to a number of irregularities in the relocation of the project and acquisition of the Klong Dan site.

ADB Policy Violations

Information Disclosure
Citizens never received detailed information about the project from the ADB. Nor were they ever consulted by the PCD that manages the project. For years, the Bank and the Thai government have known about the Samut Prakarn project but they have excluded the
participation of the Klong Dan people. Since the onset of the project’s construction, the Environmental and Social Impact Analyses have yet to be seen by the public.

Environment Policy
In their Inspection request, the Klong Dan villagers contended that there was no environmental impact assessment conducted prior to the plant’s construction. Given this, the facility
could have released toxic heavy metals into, and dilute the salinity of local waterways, in the process jeopardizing the fisheries that largely support the community. Likewise, documents
obtained from project co-financier, Japan Bank for International Cooperation showed the plant’s inability to fully treat wastewater with metals remaining in their original state after treatment. Social and Involuntary Resettlement The Bank failed to undertake a social initial assessment of the project area that led to poor project planning and design. This, in effect, deprivedaffected villagers of their right to participate and have their concerns addressed by the project proponents. No resettlement plan was established to compensate and support any villager that was displaced by the facility. Neither was there any socio-economic survey done
among the affected families. The full cost of resettlement was not identified or included in the project cost. In fact, resettlement and compensation were only mentioned when protests against the project began mounting.

Corruption

The land purchased for the facility was acquired under highly dubious circumstances, with the price twice its official rate. This was a clear violation of the ADB’s anti-corruption policy. In particular, the purchased land area was not the one specified in the project design. Likewise, the Bank accepted changes in the bidding documents to allow alternative bids for one facility instead of two facilities as stipulated in the loan agreement. It accepted the change in location of the treatment plant to Klong Dan minus the requisite project impact assessments. It failed to adequately scrutinize project changes that led to an 87 percent increase in costs prior to loan
signing. ADB also did not object when the contract was granted to the only bidder in direct violation of Thai procurement/bidding regulations.

Lessons to Learn
The botched Samut Prakarn Wastewater Management Project clearly demonstrates the devastating impacts of ADB’s failure to exercise its full monitoring, oversight and investigative
responsibilities relative to corrupt-ridden development projects. Its response to the allegations of corruption raised by the Klong Dan community has been grossly inadequate and unsatisfactory. The ADB failed to consider corruption issues during the project and appraisal stages. Despite the obvious high country and project risks, the Bank neglected to mention in its Review and Reports of the President (RRP) for neither the original loan nor the December 1998 supplementary loan (which was already covered by the Anti-Corruption Policy) that the Samut Prakarn project was susceptible to procurement fraud, bribery and other types of corruption. Similarly, its project monitoring and supervision during implementation was unsatisfactory. It failed to question a number of substantial design changes that contravened ADB policy, loan agreements or the Thai law, thereby providing significant opportunities for corruption.
From the onset, the Bank had all the opportunity to curb the corrupt practices related to the Samut Prakarn project. However, it failed to address these issues as illustrated by the following:

(1)The Bank’s three offices that reviewed aspects of the project did not fully investigate or report the corruption ssues related to the land transaction; (2) Management review of the project failed to find any evidence of corruption, and both the Inspection Panel and the Anticorruption Unit declined to consider the issue at all; (3) The Bank never publicly commented on the fact that the Thai government has filed criminal harges against many senior officials of the projects; and (4) The Bank did not launch a wider investigation of the corruption issues in view of the said charges.

(Footnotes)
1 Gay, Christopher. “Thai Project Yields Graft and New Policies.” Far Eastern Economic Review, 2004.
2 Herz, Steve.“Zero Tolerance? Assessing the Asian Development Bank’s Efforts to Limit Corruption in its Lending Operations,” 2004.
3 “Making the Case for Graft at Klong Dan,” The Nation, July 2003.
4 This policy became the Accountability Mechanism Policy in May 2003.
5 ADB. “Final Report of Inspection Panel on Samut Prakarn Wastewater Management Project,” 2001.
6 ADB. “Samut Prakarn Waste Water Management Project Fourth Semiannual Report to the Board Directors on the Implementation of the Recommendations
of the Board Inspection Committee as Adopted on 25 March 2002,” 2004.

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