Thailand's Samut Prakan Issue Splits ADB Over its Unwanted Wastewater Treatment Plant by Phairath Khampha 16 April 2002 The board of the Asian Development Bank was the latest casualty of a controversial wastewater treatment plant in Thailand. Notes taken by a participant at the meeting of the board of the Asian Development Bank (ADB) on March 25, 2002 that were made available to the Penguin Star revealed an institution that was deeply shaken and split by the report of an independent inspection panel on the project, which is located in Thailand's Samut Prakan province. The independent inspection, the first ever undertaken by the bank, was triggered by the petition of the people of Klong Dan, a village affected by the project. The report faulted bank management for violating at least six of its policies. In response, the bank management issued a response denying all the charges. The Board Inspection Committee (BIC), in turn, supported the findings of the inspection panel, setting the stage for what one participant characterised as the "most contentious board meeting in ADB history". During the meeting, the BIC itself was caught in the crossfire of critics and supporters. The result was a compromise that would likely haunt the ADB for a long time. The board refrained from endorsing the full BIC report, coming out in support only of a carefully worded and rather hypocritical statement committing the ADB to being "an active participant" with the Klong Dan community and the Thai government in the "proper assessment of damages by the Thai government and, where relevant, the award of appropriate compensation". The board's failure to mention any wrongdoing on the part of management, much less reprimand it, was, in the view of some observers, one more step in a retreat from confrontation with management and a clear indication that much of what the ADB claimed to stand for was nothing more than much hypocrisy. The ADB, after all, is in the business of giving loans to poor countries, the interest then to be repaid to the rich countries that fund the loans. Prior to the board meeting, the inspection panel and BIC decided not to seek an end to funding for the project in spite of their devastating findings on management's transgressions. Foremost among the critics during the board meeting was, not unexpectedly, alternate director Ram Binod Bhattarai, who represented a group of countries that includes Thailand. Mr Bhattarai attacked both the inspection panel and the BIC for "disregard of the Thai authorities and lack of respect for the sovereign rights of Thailand". The BIC had supported the inspection panel's decision not to make a site visit owing to what the latter considered "unacceptable" conditions imposed by the government. For Mr Bhattarai, it was the BIC and inspection panel that were at fault for "politicising the event", with "premature releases of information to the press and welcoming flags in the Klong Dan community indicating a beginning of an unhealthy pattern and a display of lack of professionalism". Mr Bhattarai's comments were, however, mild compared to those of director Zhao Xiaoyu representing China, who began by saying that while the report might strike some as "a nice piece of steak, to me it is a lousy dish that is overcooked". Asking what the ADB had gotten after spending nearly $2 million on the inspection process, Mr Zhao answered: "We have produced a pile of groundless damaging paper. The bank's credibility is undermined, the staff is demoralised, the Thai government is fed up, and a good environmental project is unduly held up for two years. The only visible gain is to a handful of experts and consultants who got a fat contract without having to worry about being held accountable." While attacking the inspection panel as enjoying a "power equivalent to God", Mr Zhao professed concern for the morale of the ADB staff, who would be encouraged by the Samut Prakan example to engage in "risk-averse behaviour". The effect on the ADB, he predicted, would be like the impact on the World Bank of the full-scale inspection done on the bank's controversial Western Poverty Project in China, which civil society groups had accused of displacing ethnic minorities. "Today, if one visits the offices of senior officials of multilateral institutions working on China, you will find big China maps on the wall with little red flags pinned here and there. These are not flags indicating bank activity. They are core reminders to senior managers that these are regions with ethnic residents, and they should keep away from those places, even if these are areas of great poverty." Because the World Bank, too, is in the business of making money from loans, hence it would search out projects with the least controversy in order to reap early huge returns for the ruch countries financing the loans it gives. A board vote in support of the BIC report, said Mr Zhao, "would see similar red flags sprout in the rooms of our own ADB staff reminding them to keep away from wastewater projects, thereby leaving people to suffer surrounded by stinking wastewater and sludge". Saying that the board's support for the BIC was "not courage but hypocrisy", Mr Zhao concluded by calling the Samut Prakan inspection "fraudulent and the conclusions based on it groundless". Mr Zhao's remarks were supported by directors P G Mankad, representing a group of countries including India and Bangladesh, and Zaheer Ahmed, representing a bloc that includes the Philippines and Pakistan. Mr Mankad warned the board that by approving the BIC report, they would be "leaving the bank vulnerable to open-ended liabilities, bad precedents, and potential lawsuits". Supporters of the BIC report were perhaps not as inflammatory in their comments but they were equally firm in their views. C Alexander Severens, speaking for the United States, faulted the Thai government for obstructing a site visit, a move that eroded the credibility of the inspection process. According to Mr Severens, "When a government receives resources from this institution, it implicitly and explicitly makes a commitment to co-operate with all representatives of this institution. Accordingly, we would hope that any government would guarantee that all representatives of the bank, including inspection panel members, can do site visits. Efforts were made in this case, but it is regrettable that a site visit under reasonable conditions could not be facilitated." Alternate director Frank Black, representing a bloc of countries including the United Kingdom, lashed out at what he regarded as the ADB management's ultra-defensive response. In his words, "the really fatal error--the point at which a bad situation became infinitely worse__was when management totally rejected the findings of the independent panel". In his view, this "did not show an institution living up to the high and necessary ideals of accountability, transparency, and capacity to be a learning institution; but institutionalised hypocrisy". Mr Black and a number of other directors criticised ADB president Tadao Chino for making what they felt was a big mistake in signing the management response to the inspection panel since, in their view, this compromised the neutrality he was supposed to exhibit as chairman of the ADB board. Mr Chino was also commanded by US representative Mr Severens "to look into some actions of the staff which seem to indicate unwillingness to have the inspection process function as intended. This concerns us gravely and we hope you will look into this matter and ensure it does not happen again". Listening to the exchange, one participant commented, "I thought, there goes his job. Mr Chino alienated management by allowing the inspection to proceed. And he alienated the BIC by endorsing a fierce management reply denying all charges." Even the Japanese director, Osamu Tsukahara, abandoned Mr Chino, who comes from Japan's Ministry of Finance, by siding with the BIC and admonishing management "that it is of critical importance to listen carefully to NGOs and others' opinions". He also instructed Mr Chino to push the Thai government to "accelerate" its investigation of the villagers' evidence of corruption by government officials involved in the Samut Prakan project and why the ADB appeared to willingly ignore this evidence, contrary to its claims that it would not involve itself in projects prone to corruption. Mr Tsukahara told Mr Chino to remind the Thai government that "the right of the borrower to make withdrawals may be terminated if corrupt or fraudulent practices were engaged in by the borrower and no timely and satisfactory action has been taken to remedy the situation". If he were to follow this missive from the ADB's most powerful member-country, Mr Chino would likely to add the Thai government to those he had alienated. Already beset by many problems before the Samut Prakan inspection, the ADB was plunged into disarray by recent developments. The relationship between the board and staff was poisoned, and within the board, members from donor countries and those from recipient countries were being increasingly separated by a wide gulf in values and priorities, the whole lot smacking of hypocrisy and obvious self-interest and pompous self-importance. "Samut Prakan simply brought festering antagonisms to the surface," said one staff economist. "This institution, if it survives, will never be the same again." Another staff member, also speaking under conditions of anonymity, was more cynical. "After the sound and the fury, the board will get behind a recalcitrant management and it will be business-as-usual," she asserted. "Just wait and see."