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May 2002

Too Hotto Handle

The Samut PrakanWastewater ManagementProject Inspection Process

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C o n t e n t s

Khlong Dan Community Writes to the ADB President

Controversial Report Poisons Board-Management Relations at ADBBy : Walden Bello

Evading Responsibility: The Asian Development Bankand the Inspection FunctionBy : Shalmali Guttal

Call for Goverment to Review Mega-Projects Tainted by GraftBy : Onnucha Hutasingh and Sunthorn Pongpao

Dirty Business in Samut PrakanBy : Chang Noi

Inspection Report on Samut Prakarn ShakesAsian Development BankBy : Walden Bello

Summary of the Final Report of the Inspection Panelon Samut Prakarn Wastewater Management Project

Summary of the Report and Recommendation of the InspectionCommittee to The Board of Directors of the ADBon Inspection Request

Interventions by Directors representing various Countriesat the ADB Board meeting held on 25th of March 2002

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Klong Dan Community Writesto the ADB President

513/9 Moo 11, Tambon Klong Dan,Bang Bo District, Samut Prakarn 10550,THAILANDTel./Fax: 66 2 330 1205

26 March 2002

Mr. Tadao ChinoPresidentAsian Development Bank (ADB)6 ADB Avenue, Mandaluyong City0401 Metro ManilaThe Philippines

Re: The Inspection of the SamutPrakarn Wastewater ManagementProject (SPWMP)

The Inspection of the Samut PrakarnWastewater Management Project is nowcompleted and the reports of the InspectionPanel1 and the Board Inspection Committee areavailable.2

We, the representatives of thecommunities at Klong Dan and Song Klongwish to express our concerns about theinspection process and the findings of theInspection Panel and the Board InspectionCommittee.

We note that the Inspection Panel findsthat the ADB did not comply with six of its ownpolicies and procedures in processing andimplementing the project. These include:

• Supplementary Financing of CostOverruns

• Bank Operational Missions• Environmental Considerations in Bank

Operations• Involuntary Resettlement• Incorporation of Social Dimensions in Bank

Operations• Governance

In particular, the Inspection Panelconcluded that not carrying out a reappraisal ofthe entire project for the supplementary loanproposal in 1998 was a crucial omission, whichthen resulted in other consequences.

The Inspection Panel also finds that ADBonly partially complied with the followingpolicies:• Benefit Monitoring and Evaluation• Economic Analysis of Projects

With regard to assessment of direct andmaterial harm on the rights and interests of thelocal communities, particularly those dependenton the coastal ecosystem for their livelihoods,the Panel states that:• The rights and interests of people with regard

to consultation and participation have beenadversely affected.

• The rights and interests of some of the peoplewhose livelihood depends upon the activitiesin, and in the vicinity of, economic exclusionzone could also be adversely affected due tothe potential problems caused by the dilutionof salinity, release of toxins or heavy metal.

• The rights and interests of people, who are inthe vicinities of the treatment plant, could beadversely affected by the odor, lowering of

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property value and potential problems causedby the existence of toxin and heavy metal inthe sludge management.

(Final Report of Inspection Panel on theSamut Prakarn Wastewater ManagementProject, 14 December 2001; page 2).

We reiterate our concern that theinspection process has been flawed andunacceptable:1. The Terms of Reference (TOR) for the

Inspection Panel’s work programmecompromised the very principles underlyingindependent inspection.

2. The Panel’s work programme gave moreattention to ADB Management prioritiesrather than to the concerns of the localcommunities who requested the Inspection.

3. The Inspection Panel failed to visit theproject site to carry out adequateconsultations and directly access informationwith local communities to be affected by theSPWMP.

4. The Inspection Panel worked from the ADB’s offices in Manila which limited their accessto information from independent sourcesoutside the ADB.

Most of these limitations wereacknowledged by members of the InspectionPanel as well. In the final report submitted bythe Inspection Panel to the ADB’s InspectionCommittee, the Panel notes that, “The fact-finding process for this Inspection, therefore, isnot complete. It is clear that the incompleteinformation has made the assessment of factsextremely difficult, and in certain areas,impossible” (Final Report of Inspection Panelon Samut Prakarn Wastewater ManagementProject, 14 December 2001; Page 7, paragraph18). And further, “The Panel is aware of thesevere limitations to the inspection process andthat it does not have the full picture. Based onthe limited information gathered and analysesdone, the Panel has reached certain conclusionsregarding the complaints submitted by theRequesters” (Final Report of Inspection Panelon Samut Prakarn Wastewater ManagementProject, 14 December 2001; page 38,paragraph 157).

The Panel finds that the ADB compliedwith its policies on Confidentiality andDisclosure of Information, and Internal Audit.The Panel’s report claims that it was “common

knowledge” that the ADB’s Office of theGeneral Auditor (OGA) conducted an internalinvestigation on allegations of corruption in theproject (Final Report of Inspection Panel onSamut Prakarn Wastewater ManagementProject, 14 December 2001; page 33, paragraph136). However, the findings of thisinvestigation are still not known to the Thaipublic and the residents of Klong Dan, and ourconcerns about the allegations of corruption inthe project have not yet been given full attentionby the ADB.

The Bank Inspection Committee reportagrees with the findings of the Inspection Panelon several key issues such as the SupplementaryFinancing of Cost Overruns, ADB’s OperationalMissions, Good Governance, and BenefitMonitoring Appraisal. However, we find therecommendations of the Inspection Committeeto the ADB’s Board of Directors shockinglyweak and disconnected with the findings of theInspection Panel.

It is evident that the ADB’s leadershipand senior management appear unwilling to takeresponsibility for their own actions and initiateappropriate action to correct their own mistakes.

The Inspection Panel and the InspectionCommittee reports make it clear that the ADBhas made serious errors in the appraisal,approval and implementation process of theSPWMP. The ADB must therefore immediatelystop all financial support for the project.

The ADB cannot expect to initiate a “good faith” process of dialogue with the KlongDan and surrounding communities unless it iswilling to take the bold but correct stepsrequired to show that it is indeed committed togood governance in both spirit and practice.

Yours sincerely,

Narong KhomklomMayor of Klong Dan

Chalao Timthong Dawan ChantarahassadeeKlong Dan villager Klong Dan villager

Cc:• Mr. Osamu Tsukahara - Director, Japan• Mr. P.G. Mankad - Director, India;

Bangladesh; Bhutan; Lao People’sDemocratic Republic; Tajikistan

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• Mr. Zhao Xiaoyu - Director, China• Mr. John S. Lockhart - Director, Australia;

Azerbaijan; Cambodia; Hong Kong, China;Kiribati; Federated States of Micronesia;Nauru; Solomon Islands; Tuvalu

• Mr. Jusuf Anwar - Director, Cook Islands;Indonesia; Fiji Islands; Kyrgyz Republic;New Zealand; Samoa; Tonga

• Mr. Othman Jusoh - Director, Thailand;Malaysia; Myanmar; Nepal; Singapore

• Mr. Uwe Heinrich - Director, Austria;Germany; Turkey; UK

• Mr. Patrick Thomas - Director, Belgium;France; Italy; Spain; Switzerland

• Mr. Jeung-Hyun Yoon - Director, Republic ofKorea; Papua New Guinea; Sri Lanka; Taipei,China; Uzbekistan; Vanuatu; Vietnam

• Ms. Kh. Zaheer Ahmed - Director,Kazakhstan; Maldives; Marshall Islands;Mongolia; Pakistan; Philippines

• Mr. Julian H. Payne - Director, Canada;Denmark; Finland; Netherlands; Norway;Sweden

• Ms. Chantale Yok-Min Wong - AlternateDirector, USA

• ADB Inspection Committee

1 Final Report of Inspection Panel on Samut

Prakarn Wastewater Management Project. 14

December 2001.

2 Report and Recommendation of the Inspection

Committee to the Board of Directors, Asian

Development Bank on Inspection Request: Samut

Prakarn Wastewater Management Project, Samut

Prakarn Thailand, 28 February, 2002.

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The Asian Development Bank (ADB)Board is the latest casualty of a controversialwastewater treatment plant in Thailand.

Notes taken by a participant at the mostrecent meeting of the ADB Board on March 25that were made available to the author reveals aninstitution that is deeply shaken and split by thereport of an independent inspection panel on theproject, which is located in Samut Prakanprovince.

The independent inspection, the first everundertaken by the Bank, was triggered by thepetition of the people of Khlong Dan, a villageaffected by the project. The report faulted Bankmanagement for violating at least six of itspolicies. In response, the Bank managementissued a response denying all the charges. TheBoard Inspection Committee (BIC), in turn,supported the findings of the inspection panel,setting the stage for what one participantcharacterized as the “most contentious boardmeeting in ADB history.”

During the meeting, the BIC itself wascaught in the crossfire of critics and supporters.The result was a compromise that is likely tohaunt the ADB for a long time. The Boardrefrained from endorsing the full BIC report,coming out in support only of a carefullyworded statement committing the ADB to being“an active participant” with the Khlong Dancommunity and the Thai government in the

“proper assessment of damages by the Thaigovernment and, where relevant, the award ofappropriate compensation.”

The Board’s failure to mention anywrongdoing on the part of management, muchless reprimand it, was, in the view of someobservers, one more step in a retreat fromconfrontation with management. Prior to theboard meeting, the inspection panel and BICdecided not to seek an end to funding for theproject in spite of their devastating findings onmanagement’s transgressions.

Foremost among the critics during theBoard meeting was, not unexpectedly, AlternateDirector Ram Binod Bhattarai, who represents agroup of countries that includes Thailand.Bhattarai attacked both the inspection panel andthe BIC for “disregard of the Thai authoritiesand lack of respect for the sovereign rights ofThailand.” The BIC had supported theinspection panel’s decision not to make a sitevisit owing to what the latter considered“unacceptable” conditions imposed by thegovernment. For Bhattarai, it was the BIC andinspection panel that were at fault for“politicizing the event,” with “prematurereleases of information to the press andwelcoming flags in the Khlong Dancommunity...indicating a beginning of anunhealthy pattern and a display of lack ofprofessionalism.”

*The author can be reached at waldenbello@hotmail.com

Controversial Report PoisonsBoard-Management Relations at ADB

By Walden Bello*

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China attacks panel and BICBhattarai’s comments were, however,

mild compared to those of Director ZhaoXiaoyu representing China, who began bysaying that while the report might strike some as“a nice piece of steak, to me it is a lousy dishthat is overcooked.”

Asking what the Bank had gotten afterspending nearly $2 million on the inspectionprocess, Zhao answered: “We have produced apile of groundless damaging paper. The Bank’scredibility is undermined, the staff isdemoralized, the Thai government is fed up, anda good environmental project is unduly held upfor two years. The only visible gain is to ahandful of experts and consultants who got a fatcontract without having to worry about beingheld accountable.”

While attacking the inspection panel asenjoying a “power equivalent to God,” Zhaoprofessed concern for the morale of the ADBstaff, who would be encouraged by the SamutPrakan example to engage in “risk-aversebehavior.” The effect on the ADB, he predicted,would be like the impact on the World Bank ofthe full-scale inspection done on the Bank’scontroversial Western Poverty Project in China,which civil society groups had accused ofdisplacing ethnic minorities. “Today, if onevisits the offices of senior officials ofmultilateral institutions working on China, youwill find big China maps on the wall with littlered flags pinned here and there. These are notflags indicating bank activity. They are corereminders to senior managers that these areregions with ethnic residents, and they shouldkeep away from those places, even if these areareas of great poverty.”

A Board vote in support of the BICreport, said Zhao, “would see similar red flagssprout in the rooms of our own ADB staffreminding them to keep away from wastewaterprojects, thereby “leaving people to suffersurrounded by stinking wastewater and sludge.”Saying that Board support for the BIC was “notcourage but hypocrisy,” Zhao concluded bycalling the Samut Prakan inspection “fraudulentand the conclusions based on it groundless.”

Zhao’s remarks were supported byDirectors P.G. Mankad, representing a group ofcountries including India and Bangladesh, andZaheer Ahmed, representing a bloc that includesthe Philippines and Pakistan. Mankad warned

the Board that by approving the BIC report, theywould be “leaving the bank vulnerable to open-ended liabilities, bad precedents, and potentiallawsuits.”

Management under siegeSupporters of the BIC report were

perhaps not as inflammatory in their commentsbut they were equally firm in their views. C.Alexander Severens, speaking for the UnitedStates, faulted the Thai government forobstructing a site visit, a move that eroded thecredibility of the inspection process. Accordingto Severens, “When a government receivesresources from this institution, it implicitly andexplicitly makes a commitment to cooperatewith all representatives of this institution.Accordingly, we would hope that anygovernment would guarantee that allrepresentatives of the Bank, includingInspection Panel members, can do site visits.Efforts were made in this case, but it isregrettable that a site visit under reasonableconditions could not be facilitated.”

Alternate Director Frank Black,representing a bloc of countries including theUnited Kingdom, lashed out at what he regardedas the ADB management’s ultra-defensiveresponse. In his words, “the really fatal error-the point at which a bad situation becameinfinitely worse—was when management totallyrejected the findings of the independent panel.”In his view, this “did not show an institutionliving up to the high and necessary ideals ofaccountability, transparency, and capacity to bea learning institution.”

Black and a number of other directorscriticized Bank President Tadao Chino formaking what they felt was a big mistake insigning the management response to theinspection panel since, in their view, thiscompromised the neutrality he was supposed toexhibit as chairman of the Board. Chino wasalso commanded by US representative Severens“to look into some actions of the staff whichseem to indicate unwillingness to have theinspection process function as intended. Thisconcerns us gravely and we hope you will lookinto this matter and ensure it does not happenagain.”

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Chino on the way out?Listening to the exchange, one

participant commented, “I thought, there goeshis job. Chino alienated management byallowing the inspection to proceed. And healienated the BIC by endorsing a fiercemanagement reply denying all charges.”

Even the Japanese director, OsamuTsukahara, abandoned Chino, who comes fromJapan’s Ministry of Finance, by siding with theBIC and admonishing management “that it is ofcritical importance to listen carefully to NGO’sand others’ opinions.” He also instructed Chinoto push the Thai government to “accelerate” itsinvestigation of the villagers’ charges ofcorruption by government officials involved inthe Samut Prakan project. Tsukahara told Chinoto remind the Thai government that “the right ofthe borrower to make withdrawals may beterminated if corrupt or fraudulent practiceswere engaged in by the borrower and no timelyand satisfactory action has been taken to remedythe situation.” If he follows this missive fromthe ADB’s most powerful member-country,Chino is likely to add the Thai government tothose he has alienated.

Board-staff relations poisonedAlready beset by many problems before

the Samut Prakan inspection, the ADB has beenplunged into disarray by recent developments.The relationship between Board and Staff hasbeen poisoned, and within the board, membersfrom donor countries and those from recipientcountries are increasingly separated by a widegulf in values and priorities.

“Samut Prakan simply brought festeringantagonisms to the surface,” says one staffeconomist. “This institution, if it survives, willnever be the same again.” Another staffmember, also speaking under conditions ofanonymity, was more cynical. “After the soundand the fury, the Board will get behind arecalcitrant management and it will be business-as-usual,” she asserted. “Just wait and see.”

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The recently completed InspectionProcess of the Samut Prakarn WastewaterManagement Project (SPWMP) in Thailand hasrevealed fundamental inconsistencies in theaccountability mechanisms of the AsianDevelopment Bank (ADB).

The SPWMP is the first ADB supportedproject to be subjected to inspection and quiteliterally, has been a test case for the ADB’sfledgling Inspection Policy. However, every stepof the inspection process, from the initialinspection request filed by the affectedcommunities to the ADB Management’sresponse to the findings of the Bank InspectionCommittee (BIC) and the Inspection Panel, havebeen wracked by suspicion, mistrust and finger-pointing among the ADB’s staff, Managementand senior leadership.

In a recent meeting (March 25, 2002) ofthe ADB’s Board of Directors, Board Memberswere sharply divided about the extent of theADB’s responsibility and culpability in theSPWMP, and about how the Bank shouldrespond to the reports and recommendations ofthe Inspection Panel and BIC. While someDirectors from the Bank’s Developing MemberCountries (DMCs) rejected the findings andrecommendations, most Directors representingdonor countries accepted them. Both sidestalked about how the Bank’s actions regardingthe inspection results would set a “precedent,”

but again, there were serious differences. Thosewho supported the findings andrecommendations were concerned about settingprecedents for what they believe are essentialaspects of good governance; but those whorejected the findings and recommendationsclaimed that the SPWMP threatened to set aprecedent for future challenges to the Bank’sauthority, mandate and legitimacy.

These debates have been accompanied bya flurry of activities within the Bank regardinga review and update of the ADB’s OperationManual (OM) and a review of its InspectionPolicy. Two particularly interesting issues toemerge from all these activities are thecontroversy over the ADB’s Operation Manual(OM) and the nature of the ADB’s potentialliability under the inspection function.

Hide and seek in the OperationManual

Debate over the ADB’s OM was sparkedalmost a year ago, when the ADB Board notedthat the SPWMP Inspection Request referred topolicies and procedures that were not includedin the OM. The policies and procedures had,however, been approved by the Board in pastmeetings and for all practical purposes, wereregarded by the Board as official ADB policies.The OM is quite literally a manual that lists all

Evading ResponsibilityThe Asian Development Bankand the Inspection Function

*Shalmali Guttal is the Coordinator of the Micro-Macro Issues Linking Programme at Focus on the Global South(s.guttal@focusweb.org).

By Shalmali Guttal*

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the operational policies and procedures thatADB staff and Management are expected toimplement and be guided by in the course oftheir work. It soon became apparent that theOM had not been updated for several years anddecisions made by the Board at earlier dates hadnot yet been included in the OM. This raisedquestions about what policies and procedureshad ADB staff followed in their work in the pastyears, and what then was the Inspection Panel toexamine: official, Board approved policies thatwere outside the OM, or, outdated policies in theOM. These problems were further compoundedby parallel policy documents about the sameprocedures (such as supplementary financing forcost overruns) without clarity as to which policydocuments were indeed the ones currentlyapplicable. Predictably, this resulted inconsiderable controversy about which policydocuments the Inspection Panel should havebased its findings on, with ADB Managementinsisting that the documents they followed werethe correct ones regardless of whether or notthey were outdated, or in the OM.

If nothing else, at least the SPWMPcatalysed the ADB into updating its OM with aview to which policies and procedures staff andManagement are expected to implement. In themidst of continued heated arguments andrecriminations among various sections of theBank, the ADB Board and Management arestruggling with some suprisingly basic questionsabout the purpose and scope of the OM. Forexample, would policies that are not included inthe OM not be operationalised? Would policiesnot included in the OM be subject to inspection?Which policies should be included in the OM?And, which policies should be excluded fromthe OM? i

The SPWMP has also spurred the ADBto undertake a review of its Inspection Policy,which is expected to be completed by November2002. However, recent discussions among ADBBoard Members and Management indicate thatregardless of whether a Board approved policyis included in the OM or not, the question ofwhich policies are “inspectable” remains thornyand complex. In order to protect itself fromfuture inspection processes, the ADB is likely toclassify the elements of its operational policiesand procedures as those that are mandatory, non-mandatory (or recommendatory) and mixed (i.e.,have mandatory and recommendatory elements).

These would then be grouped into differentdocument packages that may be named OMs or“something more appropriate.” ii What wouldthen be deemed “inspectable” are only thoseelements of operational policies and proceduresthat provide ADB staff with explicit directionson how to formulate, process and implementprojects. Elements of vision, strategy, intention,and internal finance and administration (whichcertainly influence how projects are formulatedand implemented) would not be “inspectable.”

An ADB insider revealed that theupdating of the OM and the review of theInspection Policy are moving towards arbitrarilylimiting the number of “inspectable” policiesand procedures. The less the ADB opens itselffor investigation, the less responsibility it needsto assume for problems in its own projects.

Immunity: A quagmire of self-interest

The limits of the ADB’s InspectionPolicy in terms of any real or tangibleaccountability by the institution are revealed in apaper from the ADB’s Secretary to the Directorsregarding the question of the ADB’s potentialliability under the Inspection Function. iii Thepaper provides a legal opinion about whether,and to what extent, the ADB is potentially liablefor its failure to comply with its policies andprocedure in the formulation, processing and/orimplementation of a proposed or ongoingproject.

The paper concludes that the by virtue ofthe immunity provided by its Charter, the ADBis not liable for any findings of wrongdoingthrough the Inspection Function and is protectedfrom any legal action that might arise from suchfindings:

“In short, the immunities and privilegesADB enjoys effectively shield ADB from thebarrage of competing, if not conflicting,demands that could be made on the ADB inlocal jurisdiction from a large number of variousgroups, both official and private of its membercountries. Plainly, ADB’s immunities andprivileges support the performance of itsfunctions.”iv

The rationale for the ADB’s InspectionFunction is based on the immunity it enjoys. Byits own admission, the ADB’s immunity from allforms of legal processes and local jurisdiction in

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any member country “denied citizens and otherrelevant people access to effective official forato air their complaints and seek properremedies.” Therefore, it needed another forumby which it could claim commitment to policiesof transparency, accountability and participationthat reflected the “peoples’ empowermentmovement around the world.”v

The paper identifies two objectives of theInspection Function: 1) to allow privateindividuals access to the ADB’s internaldecision making process, and 2) to safeguard, atthe same time, against the possibility of theADB being held liable by a Third Party formaterial injuries sustained by privateindividuals. The Inspection Function, then, wasnever intended or designed to offercomplainants or injured parties any redress:

“The establishment of the InspectionFunction was, therefore, designed to allowprivate individuals who are materially andadversely affected by ADB’s project in a DMCto lodge a complaint in order to seek properremedies. Nevertheless, there is one seeminglyself-contradictory aspect about the reason for theInspection Function that needs to be firmlyunderstood. That is, the absence of access toeffective remedies on account of ADB’simmunity from local jurisdiction is the essentialreason for the establishment of the InspectionFunction as an internal mechanism.... TheInspection Function cannot be an instrument bywhich to deprive ADB of its immunityprotection...”vi

According to the ADB’s internalgovernance mechanisms, final decisions aboutthe Bank’s compliance to policies andprocedures, and assessment of institutional andstaff conduct rest with the ADB’s Board ofDirectors. The ADB then, is its owninvestigator, judge and jury, with no obligationsof external, public accountability. The BICinvestigates complaints by an applicant groupnot with the intention of helping the applicantgroup to seek “proper remedies,” but with theintention of making ADB’s operations moreaccountable to its DMCs.

“The obligations imposed on ADB underits operational policies and procedures, e.g.,‘participatory consultation,’ do not create thecorresponding rights on the part of local privateindividuals. ADB’s contractual obligations are,first and foremost, with the Government.....The

Policy does not provide a mechanism ofindemnity or compensation for such materialinfringements of the rights and interests of theapplicant group. Nor is the Inspection Functiona mechanism for establishing liability for suchinfringements.”vii

The convoluted workings of theInspection Policy also allow ADB Managementto place the burden of proof in inspectionrequests on applicant groups, thus contradictingthe “non-judicial” nature of the inspectionprocess and undermining independentinvestigations of policy violations and wrongdoing. In refuting the inspection request bylocal residents in Sri Lanka for the SouthernTransport Development Project, ADBManagement claimed: viii

“There should be no furtherconsideration of the Request since it not onlyfails to show non compliance by ADB withADB’s Involuntary Resettlement Policy, but alsoattempts to undermine the balance in ADB’sInvoluntary Resettlement Policy as supported bythe CEA. It should also be noted that furtherconsideration of the Request under ADB’sInspection Policy could undermine the legalframework in Sri Lanka and the contractbetween ADB and Sri Lanka.”

And further,“The Requester does not provide

evidence of authority to represent its allegedconstituency, many of the allegations do notconcern acts or omissions by ADB, theallegations against ADB are not supported bysufficient evidence, and the requester is unableto demonstrate direct and material adverse effectcaused by ADB. Management submits thatthese multiple grounds for ineligibilitycumulatively warrant a BIC recommendation of“clear ineligibility” with regard to the Request.”

In sum, established as a purely internaladministrative process, the ADB’s InspectionFunction does not offer any avenue of redressagainst wrong-doing, malpractice, or violationof even its own policies and procedures to thosenegatively affected by an ADB project orprogramme. Despite its rhetoric of povertyreduction, good governance and promotingdevelopment, the ADB is protected fromfunctioning as a responsible public institution byits Charter. Its Inspection Function is not

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designed to open channels for fair hearing andopen discussion with those who ADB projectsare supposed to benefit—i.e., the citizens of aDMC. On the contrary, it is designed tosafeguard the ADB’s immunity and internaldecision-making from the messy realities of lostlivelihoods, degraded and pollutedenvironments, and erosion of rights andentitlements. Not only is the ADB safe frompublic scrutiny and accountability, but also, itscontractual relationship with the Governmentensures that project or programme imperfectionsand problems can be handled in a closed,exclusive group of project implementers (theGovernment) and ADB Management.

In such a system, local communities,project-affected peoples and other citizens haveno place or voice with the ADB and even theirown governments. The ADB’s InspectionFunction and Policy are a mockery of anyuniversally accepted precept of goodgovernance. Unless radically amended, theInspection Function and Policy will continue toprovide the ADB with more ways to evaderesponsibility for poor performance, baddecisions and actions, and harmful projects.

i Memo from the Director General of the SPDto the President, Secretary, GeneralCounsel, Directors General and PrincipalDirectors, 15 January, 2002.

ii Memo from the Secretary to the Directorsand Alternate Directors, 6 March, 2002.

iii Samut Prakarn Wastewater ManagementProject, Legal Opinion on the Question ofADB’s Potential Liability Under theInspection Function. 26 December, 2001.

iv Ibid.v Ibid.vi Ibid.vii Samut Prakarn Wastewater Management

Project, Legal Opinion on the Question ofADB’s Potential Liability Under theInspection Function. 26 December, 2001.

viii Response of ADB Management to theRequest for Inspection of the STDP, SriLanka, February 2002. Paragraphs 39 and103.

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TheAnti-Corruption Network andsenators say corruption beset the controversialwaste-water treatment project in tambon KhlongDan and a project at Nong Ngu Hao airport.They want the government to review the megaprojects Senator Niran Pithakwatchara said theprojects were examples of ‘policy corruption’in which decisions were made by a select groupof politicians and officials, without publicparticipation.

The projects would need long-termforeign loans, a burden the taxpayer could dowithout.

Lawan Chanhasadee, a protester fromKhlong Dan in Samut Prakan and arepresentative of the network, said politicians,public servants and contractors had a vestedinterest in the 30-billion-baht project.

Politicians had business connections withthe NVPSKG consortium which is undertakingthe project. The consortium comprises six firms,Northwest International, Vijitphan Construction,Prayoonvit, Sisaeng Karnyotha, KrungthonEngineering and Gateway Visavakram.

She urged the government to suspend theproject, which she said had lacked transparencyfrom the start.

Senator Charoon Youngprapakom said hedid not understand why the consortium haddemanded 6.8 billion baht in compensation fromthe Pollution Control Department forconstruction delays when the firm itself hadbreached the contract. The project was supposedto wrap up on Feb 20, but was still only 80%complete.

The contractor blamed delays on protestsby Khlong Dan residents, but Mr Charoon saidprotests occurred only twice and lasted sevendays.

Sources said the Asian DevelopmentBank had admitted it was wrong to lend moneyfor the project, which it believes breached thebank’s principles of transparency andenvironmental conservation.

However, the bank was not prepared tocancel the loan. It has suggested the governmentpay compensation to affected fishermen.

On the Nong Ngu Hao project, NoppananWannathepsakul, a Chulalongkom Universityeconomics lecturer, disputed the government’sclaim that the winning bid for the airportterminal was below the median price of 45billion baht.

The government says it managed to bringthe price down by insisting that local and notimported materials be used. In fact, the projectwas scaled down to reduce costs. The winnerquoted 36 billion baht for the scaled downproject. The government later called bids for asix-billion baht terminal expansion project.

The attorney-general has yet to approvedetails, he said. The government was trying tocover up the real cost, he said.

Meanwhile, opponents of the KhlongDan project have threatened to expose allegedirregularities by the end of this month. ChalaoTimthong, a protest leader, said villagers raisedquestions about the purchase of 1,900-rai landplots for the site and the terms of the contract.His group would meet the House Committee onScience and Technology today.

Call for Government to reviewmega-projects tainted by graft

By Onnucha Hutasingh and Sunthorn PongpaoThis article appeared in the Bangkok Post, 10th April 2002

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Where there’s muck, the old saying goes,there’s money. By all accounts, Samut Prakan isThailand’s muckiest province. A few peoplehave alchemised its pollution into gold.

In 1993, the Pollution ControlDepartment (PCD) counted 5,200 factoriesspilling out industrial waste in Samut Prakan.The Science Ministry got a consultant to spec awastewater project. The plan was circulated torelevant government agencies. The IndustryMinistry, Finance Ministry and NESDB pointedout the project overlapped with other projectsalready under way. The Interior Ministrycriticised the turnkey approach, and warnedthere would be problems over the land purchase.The Budget Bureau wondered if the completedproject would ever operate at a profit.

The Science Ministry took theseobjections in its stride. It ignored them. TheCabinet approved a budget of Bt13.6 billion inOctober1995. The Asian Development Bank(ADB) offered its largest-ever loan for a turnkeyproject. Bids were called.

Then the fun started. Thirteen firmsshowed initial interest in bidding. By the end ofthe process, all but one had mysteriouslywithdrawn. The remaining NVPSKGconsortium suggested some changes to theoriginal design. Instead of two plants located inthe two areas with the most factories, itsuggested one big plant 20 kilometres away atKhlong Dan. It also suggested upgrading thepiping and other details. The budget increasedby Bt l0 billion.

Why did the contractor’s suggestionsdiffer so much from the consultant’s originalspec? Why was the new location not among the13 options identified by the consultant? Why didthe Science Ministry not review this majorchange (the Chulalongkorn team trying to tracethe paper trail cannot find a review)? Why didthe ADB not treat this as a major revisionrequiring a full reappraisal? Why did theCabinet approve the relocation, upgraded specs,and budget hike without a murmur? Why wasthere no assessment of impact on theenvironment and local communities?

Now watch the muck turn into money.The contractors bought 1,903 rai for the projectat an average cost of Btl.03 million a rai. Giveor take a few satang that’s Bt2 billion. The localLand Office’s estimate for that location wasBt480,000 per rai. Banks said there was nocomparative data on land sales in that zonebecause the land was scarcely saleable. ThePCD justified the high price by comparing itwith the cost of land bought for the provincialjail, and land in a housing project much betterlocations than the project’s flood-prone stretchof deserted mangrove.

Why all this happened is, of course, amystery. But here is some information that canhelp you guess. In NVSPKG constructionconsortium, the S stands for the SisaengKanyotha company of the Silpaarcha family.The P stands for the Prayon Wiswakamcompany of the Liptapanlop family. Thecompany that sold the land (Khlong Dan Marine

Dirty businessin Samut Prakan

By Chang NoiThis article appeared in The Nation, Bangkok, 15th April 2002

15

and Fishery) is said to belong in part to theAsavaheme and Pinkayan families. The scienceminister who first approved the project wasSuwat Liptapanlop.

The prime minister at the time wasBanharn Silpa-archa. The Science Minister atthe time of the revision was YingphanManasikan. He was part of the “cobra faction”headed by Wattana Asavaheme. The consultantcompany (Seatech) is part-owned by SubinPinkayan, former commerce minister whotopped the list of the “unusually rich” in 1991.

It gets worse. The project is not liable tobe much use. It will probably never run at morethan 25 per cent of its capacity and always makea loss. That’s because the new location is faraway from the biggest concentrations ofpolluting factories. Pipe connections will beexpensive. A survey found 90 per cent offactories had built their own wastewaterfacilities.

The same thing has happened on asmaller scale with wastewater projectselsewhere. The specs are set too high. Theconstruction contractor makes alot of money.But the resulting facility is too expensive to runand maintain.

In 1998, only five of 26 plants were saidto be working. Now there are some 80, and aHouse committee recently concluded that only afew were working properly, and most of theBt 64 billion investment was wasted.

It is striking how many of those whohave headed the Science Ministry over recentyears have had very little obvious interest inscience:

Suwat Liptapanlop, Yingpan Manasikarnand now Sonthaya Khunpleum. It is strikinghow many of them have interests in constructioncontracting.

It gets even worse. The relocation of theproject onto a certain piece of land alsothreatens a highly productive fishery. Theunusual currents around the river mouth create aunique marine environment in the mangroves ofKhlong Dan, especially good for shellfishfarming. The villagers who depend on thesefisheries were never consulted. They found outabout the project when the contractor erected asign.

Despite local protests, the project hasproved unstoppable. Suwit Khunkitti tried tohalt and investigate the project in 1999. He was

steamrollered. Arthit Urairat said he would losehis job as Science Minister if he interfered.

The ADB held an independent review ofthe project. The Science Ministry tried toprevent the investigators getting access to thesite. The review found the ADB had broken itsown rules and procedures in six ways. Why wasthere no reappraisal when the site changed andthe cost rose? Why was the project wronglycategorised so that the environmental impactwas never examined? Why was there nosocial impact assessment? Why did the ADB notapply internally the standards of governancewhich it preaches to others?

It still gets worse. The contractor is nowtalking of asked for Bt6.8 billion incompensation for the delays and difficultiescaused by the protests. Before paying this, thegovernment should conduct the same sort ofinvestigation currently being done for theexpressway project.

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*The author can be reached at waldenbello@hotmail.com

The report on a controversial wastewatermanagement project in Thailand by anindependent Inspection Panel of the AsianDevelopment Bank (ADB) has struck Bankmanagement like a thunderbolt.

To make things worse, most of the keyconclusions of the inspection panel on ADBmanagement’s decision-making behavior havebeen endorsed by the ADB Board InspectionCommittee.

The focus of the report, the Samut PrakanWastewater Treatment Project, was designed toalleviate massive water pollution in SamutPrakan province, the most heavily industrializedand rapidly urbanizing of the five provinces ofthe Bangkok Metropolitan Region in Thailand.Sharp escalation of project costs eventuallymade the project the largest turnkey project eversupported by the ADB, with the figure reachingUS$948 million, of which about $230 millioncame from the Bank.

The revision of original estimates wasaccompanied by major changes in the design ofthe project. One such change brought into theproject a site that was not originally included:the village of Khlong Dan. This was donewithout consultation of the residents, provokingprotests from the villagers, who accused theBank of violating its key policies, includingthose on consultation, resettlement,environment, and good governance. In a letter

to ADB President Tadao Chino, threeindividuals—the mayor and two civic leadersrepresenting the villagers— asked for animmediate halt to ADB funding for the projectand an investigation of what they claimed werethe “many violations of ADB policies.”

Under pressure from a campaign wagedby key groups in Thai civil society and a numberof international NGO’s—which included amassive protest during the ADB’s 33rd annualmeeting in May 2000—the Bank Boardcommissioned a review of the project by anindependent panel. The team was eventuallycomposed of Judy Henderson, chair ofAustralian Ethical Investment Ltd, WiertWiertsema, co-founder of the Dutch NGO BothEnds; and Pin-Cheung Loh, former SecretaryGeneral of the International Cooperation andDevelopment Fund in Taipei.

Despite obstruction from the Thaigovernment and ADB management’s markedreluctance to assist them in visiting the projectsite without having to conform to what panelmembers viewed as unacceptable conditionsimposed by the government, the inspectionpanel issued a report based on available data andinterviews with Bank staff members inNovember 2001.

Inspection Reporton Samut Prakan

Shakes Asian Development BankBy Walden Bello*

17

Damning findingsThe findings were damning. According

to the inspection panel, the Bank management:• violated its policies governing the review of

cost overruns by not carrying out areappraisal of the whole project in preparingfinancing for a supplementary loan;

• failed to comply with policies coveringchanges made in project design by notconducting a full reappraisal of technical,economic, social, and environmental issuesrelevant to the project;

• breached the Bank’s environmentalguidelines by not conducting anenvironmental impact assessment (EIA) ofthe project;

• violated the Bank’s policy on involuntaryresettlement by not carrying out a socialimpact assessment (SIA);

• violated Bank policy on governance by notallowing opportunities for the affectedresidents of Khlong Dan to participate indesigning and implementing the project; and

• failed to comply with Bank policy on projectevaluation and monitoring by not putting inplace a system for effectively monitoring thesocial and environmental impacts of theproject.

In response, the Bank’s managementdrafted a point-by-point rebuttal of theInspection Panel report. However, the BoardInspection Committee (BIC) headed by JohnLockart of Australia upheld most of the Panel’smain findings. According to the BIC, “ADB’sfailure to comply with policies onsupplementary financing of cost overruns andoperational missions (and particularly the failureto carry out a comprehensive reappraisal after afundamental change in technology and amassive cost overrun and again when asubstantial supplementary loan was processed)constituted and led to important omissions.” Itwent on “accept” the inspection panel’sconclusion that “a relevant group has suffereddirect and material harm as a result of ADB’snoncompliance with operational policies andprocedures.”

Inexplicable recommendationIt is inexplicable, however, that after

finding significant deviations from its policies

that resulted in harm to Khlong Dan villagers,the inspection panel did not recommendsuspension of loan disbursement, as the KhlongDan villagers demanded. In fact, the suggestedcourse of remedial action is rather weak,consisting of ADB management admitting it didnot comply with its policies, improving themonitoring, consultation, and participationprocess, and working with the Thai governmentto compensate villagers for the harm done tothem.

Reparations are unlikely to ocur,however, since, as a multilateral institution, theBank is exempted from damage claims and theThai government has stoutly resisted anysuggestion it behaved inappropriately inimplementing the project.

Fear that they would be used tolegitimize continuation of the project was one ofthe factors that prompted the Khlong Danvillagers to be interviewed by the panel. Withthe inspection panel’s formula of gettingmanagement to acknowledge violations ofpolicy while endorsing continued ADB fundingof the project, the villagers’ skepticism about theinspection process appears to have beenjustified.

Siege mentalityNevertheless, the panel report is creating

consternation among Bank staff. Managementfears that the Samut Prakan fiasco will dominatetalk at the Bank’s 35th annual meeting inShanghai in mid-May. There is also the fear thatthere will now be greater public scrutiny of theBank’s operational policies, many of which arenot yet in the Operations Manual and thusinaccessible to both staff and the public. In fact,according to one ADB source, “the OperationalManual has not been updated for five years,which raises fundamental questions about staffbeing aware of the existence of certain policies.”

The biggest fear, however, is that theSamut Prakan case—the first inspection to beconducted under the Board’s inspection policyapproved in 1995— will trigger other requestsfor independent inspection panels. Twocontroversial projects, one in Sri Lanka, theother in Pakistan, are said to be in the inspectionpipeline as a result of strong pressure from civilsociety groups. To contain the impact of suchinspections, management is seeking to limit

18

what is “inspectable” in projects in fairly narrowterms to “operational policies and proceduresthat provide ADB staff with mandatorydirections on how to formulate, process, andimplement projects” and exclude all othermatters such as “strategies and strategic aspectsof all policies.”

SkepticismWill the Samut Prakan decision really

mean a change in the Bank’s way of doingbusiness? Many within the Bank are doubtful.Noting the move to limit the elements ofprojects open to inspection, an ADB economistwho requested anonymity said, “Instead ofopening itself to a transparent process, the Bankis allowing itself to be taken over by a siegementality.” Referring to the response ofmanagement to the inspection panel report, shecontinued, “the document amounts to a blanketdefense not only of everything the ADB staff didbut of everything the Thai government did-including preventing the inspection panel fromconducting a site visit.”

This skepticism was echoed by analternate director in the ADB board: “Thesefellows are entrenched, and they’ll manage toresist change. Look, you have a great inspectionpanel report, but there’s hardly any change. Theproject goes on.”

19

IntroductionThis document provides a summary of

the Inspection Panel’s final report to the AsianDevelopment Bank (ADB) on the inspectioncarried out of the Samut Prakarn WastewaterManagement Project (SPWMP). The inspectionwas requested by the communities of Klong Danand Song Klong, Samut Prakarn, Thailand (alsoreferred to as the Requesters). The inspectionwas conducted from September-December,2001. The members of the Inspection Panel (thePanel) were independent experts, who were notpart of the ADB Management or staff, butselected by the ADB’s Inspection Committee.The Terms of Reference (ToR) for the inspectionwere developed by the Inspection Committeeand did not include all the issues that theRequesters outlined in their inspection request.

The following sections are summaries ofthe findings of the Panel. Key observations,statements and conclusions from the report havebeen highlighted by the author in bold typeface.The author’s own comments are in brackets anditalics.

A. MethodologyThe ToR for the Inspection Panel dated 4

September, 2001 specifies that the purpose ofthe inspection is:

“to determine whether the ADB compliedwith its operational policies or procedures in

processing or implementing the Samut PrakarnWastewater Management Project in Thailand. Ifthe Inspection Panel (the Panel) determines thatADB has not complied with its polices, it mustfurther determine whether this non-compliancehas had, or is likely to have, a direct andmaterial adverse effect on the rights andinterests of the groups making the request (theRequesters).”1

In carrying out the inspection, the Panelreviewed documents obtained from the ADB,the Requesters, the Executing Agency (thePollution Control Department), consultants,non-governmental organisations (NGOs),academics and experts involved in the project.The Panel also conducted interviews withvarious individuals who had been involved inthe project at some time or the other.

The Panel was not able to visit theproject site because of conditions imposed bythe Government of Thailand for a site visit. Theconditions referred to possible law and orderissues and that the ADB shoulder all financialliabilities for costs that might arise from a sitevisit.

The inability of the Panel to visit the siteand meet directly with project affectedcommunities clearly constrained the ability ofthe Panel to make proper assessments on anumber of issues raised by the Requesters.

*Summary Prepared by Shalmali Guttal, Focus on the Global South (s.guttal@focusweb.org)

Summary of the Final Reportof the Inspection Panel onSamut Prakan Wastewater

Management Project14 December, 2001*

20

According to the Panel, “The fact-findingprocess for this Inspection, therefore, is notcomplete. It is clear that the incompleteinformation has made the assessment of factsextremely difficult and in certain areas,impossible...”2

The Panel notes that the conditionsimposed by the Government of Thailandfundamentally undermine the effectiveness ofthe inspection system, and go against the spiritand objective of the establishment of such asystem. The conditions also undermine theimpartiality of the Panel, which requires a fairaccess by the Panel to all stakeholders and by allstakeholders to the Panel. According to thePanel, “The fact that for more than 2 months nocommunication could be established with theRequesters of the Inspection is disturbingindeed.”3

It is important to ask here why theGovernment’s conditions were not discussed bythe Inspection Committee and ADBManagement. It is quite clear that ADBManagement did not welcome or supportapproval for the inspection process. In its ownreport to the ADB Board, the InspectionCommittee clearly states that ADB Managementdid not respond to repeated requests by theCommittee to clarify the implications of theGovernment’s conditions. The Committee alsostates that this failure on part of theManagement created a difficult situation for theADB in its relations with the Government. WereADB Management and staff advising theGovernment on how to deal with the inspectionprocess? If ADB Management were confidentthat they had followed all ADB policies andprocedures, why were they silent on theconditions imposed by the Government,especially those regarding the ADB taking onfinancial liabilities arising from site visits by theInspection Panel?

B. Overview of the management of the project by the ADB

I. Observations on certain commonperceptions 4

The Panel notes that certain commonperceptions shared by ADB staff and managershad a strong influence on the decisions made for

the Project.First, there was a perception that the

Project is a “good environmental project” andtherefore, ADB requirements regardingenvironmental categorisation, social andeconomic impacts on the community and otherrelated policies are easily met. And since theProject was intended to improve theenvironment of the Project area, theenvironmental impacts of the Project can onlybe viewed as positive. It was also perceived byADB staff and management that if the Projectwas not done, the people in the Project areawould be worse off.

There has been a tendency among ADBstaff and management that many importantchanges in the Project that were made after theloan approval were changes of a technical natureand were viewed individually as minor changes.However, the Panel points out that if viewedcollectively and over time, these changes(project costs, construction methods, location oftreatment sites and the number of turnkeyprojects) amount to major departures from theoriginal loan agreement.

The Panel notes that ADB staff andmanagement firmly believe that the ADB ismerely a financing institution and it is theproject owner (in this case the ThaiGovernment) who is responsible for the requiredwork. However, this is contrary to the fact thatthe Bank expects its staff to complete certainrequired actions before it agrees to finance theproject and that there are other requirements thatADB staff are expected to fulfill at differentstages of the project cycle.

Despite the fact that under various ADBpolicies participation should include communityinputs in the formulation of project design,mitigation of negative impacts and optimisationof overall project benefits, ADB staff viewcommunity participation as public relations andawareness programs.

In the implementation of the project, aturnkey contract approach was adopted and theturnkey contract for the SPWMP is the largestsingle turnkey contract in the history of theADB. The bidding documents for the Projectrequired the contractor to acquire the land forthe Project and also placed the responsibility forcertain functions such as studies of the projectimpacts on the turnkey contractor. Such asituation gives rise to possible conflicts of

21

interest and biases in the actions of the turnkeycontractor, and it is important that the ADB orthe Project owner ask an objective third party toreview the output of the turnkey contractor.However, despite the unique nature of thecontract arrangements, no special attention wasgiven to review the various changes in theProject. In the perception of ADB staff andmanagers, since the Project is implementedthrough a turnkey contract, all Projectimplementation issue should be taken care of bythe turnkey contractor.

The Panel notes that when there is a needto interpret a policy requirement, ADB staff andmanagers believe that the strictest interpretationshould be followed. In the case of the Project,the most restrictive interpretation was adoptedeven in situations where a common senseapproach was needed.

And finally, the Panel notes that there is aperception among some people in the ADB thatthe Requesters are a small group of peopleorganised by specific interest groups, and do notrepresent the views of the majority in the KlongDan community.

The perceptions of ADB Managementand staff indicate their prejudice towards theProject and the Requesters.

II. Review of certain events in the projectcycle 5

The Panel notes that certain actions ofthe ADB that occurred during the project cycleresulted in important consequences for theProject.

The Report and Recommendation of thePresident (RRP) and draft loan agreement forthe Project (which was signed by theGovernment) explicitly mention that therewould be two treatment plants located on eachside of the Chao Phraya river. At that time, itwas envisaged that more than one turnkeycontract would be used for the procurementarrangement. Although the contractors wereasked to acquire the land, the Loan Agreementstates that the final responsibility for landacquisition rested with the Government.

The loan for the Project was approved bythe Executive Directors of the Board of the ADBon 7 December, 1995. During this Boardmeeting, one of the Directors noted that theADB and the Thai Government had includedcommunity participation in the planning of the

Project. However, the Panel points out that thecommunity discussed in this Board meeting wasnot the community affected by the Projectbecause at that time, the site of the plants hasnot yet been selected.

Between the time that the Loan wasapproved by the ADB Board (7 December,1995) and the signing of the Loan Agreement(31 July, 1996), the cost of the Project increasedfrom $ 507 million to $ 948 million-an increaseof about 87 percent of the original estimate. ThePanel was not able to determine whether theProject was reviewed before signing the LoanAgreement and if there was a review, at whatlevel the review was carried out.

The Panel states that this was the firstimportant change in the Project in terms of costand construction technology, and although therewas no change in the original objectives orcoverage of the Project, “this change has set thepattern to be followed by other changes tocome.” Here, the Panel also asks whether “suchdrastic change could have been anticipated atthe feasibility study and appraisal stage.”

The changes in the number and sites ofthe treatment plants, and the number of turnkeycontracts evolved during the preparation of thebidding process for the turnkey contracts.Bidding documents were amended by theinsertion of an addendum to permit alternativebids for a single plant site. But this addendumwas not approved by the ADB as required byBank procurement procedures. According to thePanel, “this prior approval procedure would givethe Bank an opportunity to consider theimplications of such changes.” However, thePanel was told that this “procedural defect” wasrectified by the approval of the Bank of theturnkey contract as a whole.

The Panel states that many of thecomplaints of the Requesters can be traced tothe changes in the Project that occurred duringthis period. Since these changes were approvedby the ADB, ADB staff was required toundertake certain responsibilities resulting fromsuch changes, in particular, due to new policiesand policy updates introduced since 1997.

It is not clear to the Panel whether themajor changes in the Project were reviewed byADB management, as is required by proceduresfor major changes in a project. The Panel wastold that changes in the turnkey biddingdocuments were reviewed by the ADB

22

Procurement Committee, whose major concernswere compliance of procurement requirementsand the sufficiency of competition. However,the number of bidders dwindled from 14 to 2and finally only one bidder submitted a price bidand was awarded the largest single turnkeycontract ever financed by the ADB.

Clearly, neither the ADB’s procurements,nor its competition requirements were met. Butthe Procurement Committee seemed to notnotice these issues.

Because of “The lack of clear evidenceon the issue of sufficient attention by the seniorlevel of the Bank managers including theManagement” the Panel questions whether thenecessary experience and policy guidance weremade available to the staff “whose focus wouldbe understandably different from that of thesenior officials of the Bank.”

Is this an attempt to determine whereresponsibility for wrong actions should beplaced? Or does this imply that the entiresystem is unaccountable?

The Panel notes that since 1997, anumber of Operational Manuals (OMs) havebeen issued or updated to deal with the verysame issues that subsequently became the keyconcerns of the community. These new policiesplaced certain responsibilities and requirementson ADB staff. Consequently, compliance withpolicies and procedures issued by the Bankbefore the Supplementary Loan was approved in1998 became “a most crucial issue.”

A Supplementary Loan for the Projectwas appraised and sent to the ADB Board forapproval in December, 1998. This appraisalcovered matters of cost overruns, differentoptions for the Project, and an analysis of theeconomic and financial justifications for therevised Project. Although ADB Managementclaims that the coverage of the appraisal wasappropriate, the Panel finds that theManagement took a position that was“unnecessarily narrow.” According to the Panel,“The judgement to ignore other important issuesin the appraisal was not a sound judgementexpected from a respected professionalorganisation such as the Bank.”

Also, in the submission to the Board forthe review of the Supplementary Loan, it wasindicated in the Preamble section of the draftLoan Agreement that the original ProjectDescription (in the 1995 Loan Agreement) was

amended. However, the Panel was told by Bankstaff that there was no such amendment.According to the Panel: “This raised thequestion whether the Board was misled, orindeed there was a problem of decision-makingprocess in the Bank; neither of which is adesirable development for the Bank.”

Why did the Board did not notice thiswhen they approved the loan?

During the Board discussion on theSupplementary Loan, some Directors of theBoard raised questions regarding theprocurement process and changes in the Project,and how such changes should be reviewed byBank staff and the Board. One ExecutiveDirector said “that a change in a project that hassuch major cost implications should not betreated as a matter of administration. This reallyneeds a detailed assessment to determinewhether the Project, in its revised shape, is stillviable and can be supported by the Bank.”

The Panel notes ADB staff began to havedialogue with the local community only since2000, reflecting the perceptions of the staff thatsuch activities were the responsibility of theexecuting agency (i.e., the Thai Government andthe Pollution Control Department). However,the Panel points out that ADB staff wererequired by the ADB’s policies and proceduresto have undertaken a more proactive approachand resolved certain issues earlier.

In summary, the Panel notes that severalkey events of the Bank’s action or inactiondetermined the course of development of theProject, which affected the people who filed thecomplaint and requested the Inspection:• The feasibility report and the subsequent

Bank report on the outcome of appraisalresulted in incompleteness in meeting therequirements of the ADB’s policies.

• An 87 percent cost increase and otherimportant changes in the Project wereaccepted as a matter of routine before the firstLoan Agreement was signed.

• The ADB did not take the opportunity toconduct a comprehensive review of theProject at the stage of the SupplementaryLoan appraisal. The appraisal was toonarrowly focussed and did not cover thepertinent issues subsequently raised by theRequesters.

• There is a lack of understanding in the Bankof community participation.

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C. Compliance in specific areasIn this section, the Panel examines the

specific issues raised by the Requesters of theinspection.

I. Supplementary financing of costoverruns 6

ADB Management uses policy papersfrom 1983 (Document R 115-83, Revision 1, 29November) and 1989 (Document Sec. M49-89,12 September) to support its claims that thereappraisal should be focussed on financialaspects, and that Project scope and design areonly reviewed to confirm that the Project is stillviable and that the cost overrun cannot beavoided by changes in scope or design. Also,some Bank staff have the view that a costoverrun only referred to the increase in theBank’s financing of the Project; if theGovernment would finance the increased costs,this would not be interpreted as a cost overrun.

However, according the Panel, theseviews were not supported by all Bank staff andare quite different from the definition of costoverrun in the document OM 13, 12 December,1995, which states that: “cost overrun refers tothe excess of the foreign exchange and/or localcurrency expenditures actually incurred orexpected to be incurred by the borrower over thecorresponding project cost estimated atappraisal.”

With regard to the need and scope of areappraisal for a supplementary loan, thedocument OM 13 BP, 12 December 1995 statesthat: “Financing of cost overruns will requirereappraisal of the project concerned.” The OP(Operational Procedure) of this section furtherstates that: “The procedure for processing asupplementary loan, whether by additionalfinancing or by reallocating funds from otherBank-financed projects, is similar to that fornew loans, and includes reappraisal of the entireproject.” And further that the reappraisalmission is required to “obtain all the necessaryinformation to analyse the technical, economic,financial, legal, institutional, social,environmental and other aspects of the revisedproject.”

Such an interpretation of the need for areappraisal of the entire project for thesupplementary loan was confirmed by relevantBank staff during interviews with the Panel.

Therefore, the Panel concludes that by

not carrying out a reappraisal of the entireproject for the supplementary loan proposal,there was non-compliance by the ADB of OM13/BP/OP, 12 December, 1995. According tothe Panel, “This omission became a crucialfactor from which other consequencesfollowed.”

II. Bank’s operational missions 7

Although the ADB Management agreesthat the focus of reappraisal in the case of majorchange in project scope is wider than in the caseof a cost overrun, it argues that there was nomajor change in project scope and therefore afull reappraisal was not necessary.

According to the Panel, this view ofBank Management highlights an issue ofjudgement by the Bank, which had continuingramifications for the way in which the Projectwas managed throughout the period of thesupplementary loan proposal. The growingnumber of changes in the Project-the numberand location of plants, the number of turnkeycontracts, the construction and treatmenttechnologies, the significant cost overrun—wereall considered technical changes by BankManagement and not a major change in thescope of the Project. However, the combinedand cumulative nature of all these changes dideventually result in a major change in theProject.

The Panel points out that according to theADB’s Project Administration Instructions PAI5.05, issued in June 1995 on Changes in ProjectScope or Implementation Arrangements, “amajor change is one that substantially affects theproject objectives, components, costs, benefits,procurement or other implementationarrangements.” And further, “a major change isdefined as any change in Project cost exceeding10 percent.”

Therefore, the Panel concludes that amajor change in the Project had occurred, andthat there was non-compliance with the ADB’spolicy on Operational Missions, OM 32 BP/OP.

III. Environmental considerations in Bankoperations 8

ADB Management argues that in view ofthe “environmental degradation of the generalarea of Samut Prakarn due to industrialisationand extensive shrimp farm development alongthe coastal area, together with the consequent

24

destruction of the mangrove area” the Projectwas not deemed as environmentally sensitiveand an EIA (Environmental Impact Assessment)was not required.

According to the Panel, the key toviolations of environmental polices lie in theBank’s initial catagorisation of the Project. TheProject should have been categorised asEnvironmentally Sensitive (ES), i.e., Category Aor B1. Instead, it was categorised as Category Band as a result, Bank staff did not follow anumber of requirements such as: conducting afull EIA; submitting the EIA to the Board 120days before the Board’s consideration of theproject; requiring that borrower takes the viewsof affected groups and local NGOs into accountin preparing EIA reports; and releasing allenvironmental assessment reports to the Board,NGOs and the public. Since the policy onEnvironmental Considerations in BankOperations, OM 20/O, 7 January 1997 came intoeffect during the course of this Project, all itsrequirements were applicable at the time of thesupplementary loan.

The Panel points out that wastewatertreatment systems are identified as havingsignificant potential to harm the environmentthrough the disposal of the effluent andmanagement of sludge and odour. The Project isa large wastewater treatment facility by anystandards, and the fact that it may be located inan environmentally degraded area does notmean that such a large structure would not haveenvironmental impacts.

The Panel notes that the originalfeasibility study did contain an InitialEnvironmental Examination (IEE) whichconcluded that “a more detailed EIA for anyselected strategy option is recommended” and asuperficial EIA was carried out on the preferredoption for the 1995 Loan. However, when thebidding resulted in an entirely different location,no EIA was conducted.

Further, since project implementation isthrough a turnkey contract, in the Bank’s view,the EIA is the responsibility of the contractor.The EIA, thus, was not viewed by the ADBManagement as a single event early in theproject cycle that could influence the projectdesign. The proposed EnvironmentalManagement Plan (EMP) emerged too late inthe project cycle to have any positive impact onthe design of the project.

Therefore, the Panel concludes that theADB did not comply with its policy onEnvironmental Considerations in BankOperations, OM Section 21, 21 December 1992and the succeeding OM 20/OP, 7 January 1997.

IV. Involuntary resettlement 9

The Panel notes that the loan agreementfor the first loan contains a clause which statesthat “if the acquisition of land for the purpose ofthe Project displaces any land-owners oroccupiers, the Borrower shall ensure that thePCD prepares a resettlement plan in respect ofsuch displaced persons, in accordance with theBank’s policy on involuntary resettlement, forthe approval of the Bank.”

The Panel questions how the Bankensured that no people were displaced for thepurpose of the Project. The Klong Dan site wasnot included in the 13 options that werecompared in the feasibility study, nor was itincluded in the Social Impact Assessment (SIA)of the Project Preparation Technical Assistance(PPTA). It appears that the choice of Klong Danas the location for the Central Treatment Facility(CTF) was defined by the availability of landunder the turnkey contract that emerged fromthe bidding process.

The Panel states: “The Panel has noevidence that supports the assertion of theManagement that the need for minimization ofdisplacement of people also was a factor in theselection of the Klong Dan area. In the end, theBank approved the turnkey contract, includingthe choice of Klong Dan as the site of the CTF,without conducting an Initial Social Assessment(ISA).”

The Panel concludes that had the Bankconducted a full reappraisal of the project for thesupplementary loan, an SIA would have to havebeen conducted, in line with the Bank’s policyon involuntary resettlement. The failure by theBank to comply with its policy onsupplementary financing of cost overrunstherefore also led to a non-compliance with theBank’s policy on involuntary resettlement.

V. Good governance 10

According to the Panel, ADBManagement is applying a narrow and legalisticconcept of governance. The introduction to theBank Policy on Governance reads “from theBank’s point of view, governance is concerned

25

directly with the management of thedevelopment process.” (OM section 54/BP,paragraph 1; issued 13 January, 1997). Thepolicy further states that “In essence, it concernsnorms of behavior that help ensure thatgovernments actually deliver to their citizenswhat they say they will deliver” (OM section 54/BP, paragraph 3). The Policy then goes on tolist four “basic elements” of good governance:1) accountability; 2) participation; 3)predictability; and 4) transparency. The Policyalso states that these four elements are closelylinked and mutually reinforcing (OM section 54/BP, paragraph 4).

Interesting that the policy does notoutline “norms of behavior” to help ensure thatthe ADB delivers to people what it says it willdeliver. Governance, then, is an issue only forgovernments, but not for the ADB.

The Panel notes that from interviewsconducted with Bank staff and theManagement’s response to the InspectionRequest, it is clear that the Bank retains theopinion that the scope and objective of theProject did not change. However, the Panelunderstands that the complaint of the Requestersis that the villagers of Klong Dan are confrontedwith the establishment of a CTF in theirimmediate vicinity, while both the type of plantand the location thereof were different at thetime of original loan approval. The Panel pointsout that the issue of contention here is not somuch whether there was a fundamental changein the Project, but how Project changes werehandled, in short, the governance process.

The Panel also notes that the Bank’sgovernance policy does not speak ofconsultations, but of participation:“Participation implies that governmentstructures are flexible enough to offerbeneficiaries, and others affected, theopportunity to improve the design andimplementation of public policies, programs,and projects” (OM Section 54/BP, paragraph 7).The Panel did not get any evidence that theRequesters and the Klong Dan community weregiven such an opportunity. The current efforts atcommunity consultation are too late since theProject is already at an advanced stage.

Therefore, the Panel concludes that theBank failed to ensure that the basic element ofparticipation was properly taken care of. TheBank’s OM on governance states that the four

elements of good governance are closely linkedand mutually reinforcing. Thus, the Bank failedto comply with its policy on governance.

VI. Incorporation of social dimensions 11

The Panel observes that the ADB’sPolicy on the incorporation of social dimensionsin Bank operations (OM Section 47, issued 7January 1997) overlaps with the Bank’s Policyon involuntary resettlement. Both policiesrequire an Initial Social Assessment (ISA) forevery development project.

The Policy on incorporation of socialdimensions not only requires an identification ofpotential beneficiaries and people likely to beadversely affected right at the stage of projectidentification, but requires “this to continue withmore and more refinement in the succeedingstages of project processing” (OM Section 47/OP, paragraph 5). However, the ADBManagement’s response to the InspectionRequest indicates that consultations by theexecuting agency with Klong Dan residentshappened for the first time in March 1999.

The mid-term review of the Project,carried out in June 1999 reflects the concerns ofsome Bank staff regarding this issue. The AideMemoir for the mission (7-18 June 1999)registers the potential for “further delays whilethe MAC (MOSTE Advisory Council) conductsits investigations, possibly leading to contractualconcerns (Aide Memoir of the Mid-TermReview Mission, 7-18 June 1999, paragraph 32).The same document also reports on the intentionto strengthen the Public Relations Sub-unitwithin the Project, “to respond to recentcommunity protests from the residents of KlongDan, adjacent to the treatment plant site, andfrom unlicensed aquaculture farmers who usethe coastal area at the site of the proposedoutfall... A number of other ongoing PCDinvestigations will help address and allay theconcerns of the local community” (Aide Memoirof the MRM, paragraph 56).

The Panel notes that in the ADB’sAnnual General Meeting (AGM) in Chiang Maiin May 2000, community residents addressedtheir concerns directly to the Bank. It was onlyafter the AGM that a special loan reviewmission met with the Klong Dan community,and raised some awareness within the Bank ofthe state of community-PCD relations. It wasonly by the end of 2000, in response to rising

26

tensions regarding the Project, that the Bankfinally commissioned a study on communityassessment and development for the Project(TA-3517). The Technical Assistance (TA)study has not been concluded yet.

The Panel notes that a major complaintof the Requesters is that the ADB persists in itsfailure to take community concerns intoaccount. Considering the overall process ofincorporation of social dimensions in Bankoperations in the case of the SPWMP, the Panelagrees with this complaint. It also observes thatwhile the OM is clear in its requirements for aninitial social assessment right from the start of aproject, the Bank failed to carry out suchassessments for the SPWMP.

For the above reasons and followingfrom the Bank’s failure to comply with its policyon supplementary financing of cost overruns,the Panel concludes that the ADB did notcomply with its policy on incorporation of socialdimensions (OM Section 47, 7 January 1997) inBank Operations.

VII. Benefit monitoring and evaluation 12

In its response to the Requesters’complaint, ADB Management claims thatbenefit monitoring and evaluation plan is builtinto the Project, and that baseline conditions willbe established at the time of commissioning ofthe treatment facilities.

The ADB’s Policy on Benefit Monitoringand Evaluation (OM 22, 7 January 1997) statesthat “Benchmark information comprisesquantitative and qualitative information aboutimportant social and economic characteristics ofindividuals and groups affected by the proposedproject... Benefit monitoring makes availableinformation that will help in assessing whetheradverse effects of Bank intervention have beenadequately mitigated” (paragraph 3).

The Operational Policy (OP) of the samepolicy states that “where possible STPs (socio-technical profiles are prepared either duringproject formulation or prior to the approval ofthe loan by the Bank. In projects where it is notpossible to prepare an STP before approval ofthe loan, the STP would be prepared during theearly stages of project implementation prior tothe detailed engineering design” (paragraph 4).

The Panel agrees with the Requesters’opinion that the monitoring process also refersto those negatively impacted by a project as well

as the beneficiaries. The Panel notes: “The factthat with the decision to locate the treatmentplant in the Klong Dan area, there exists anothergroup of legitimate stakeholders who potentiallycould be adversely affected by downstreamimpacts of the Project, appears to have escapedattention until very late in the process, indeednot until the affected community started voicingtheir concerns.”

The Panel does not dispute theManagement’s claim that the Project “willdirectly benefit about one million residents, aswell as businesses, industries, and institutionswho will gain from better health and welfarearising from improvements in water quality andresource cost savings.” However, the Panelnotes, the EMP released in August 2001“contains only a brief overview of the socio-economic situation of the Klong Dan area andthere is little evidence in the monitoringschedule of any intent for on-going monitoringof the socio-economic parameters of acommunity whose livelihood may be potentiallyimpacted.” According to the Panel, “Once theprecise location of the treatment plant had beenestablished, baseline data should have beenobtained as soon as possible to set down reliablebenchmarks as once the proposed facility startsto become a reality, the baseline data can shiftquite dramatically.”

Therefore, the Panel concludes thatefforts to establish reliable benchmarks for amonitoring program were made at a late stage,and this is not fully in compliance with the spiritof the policy as laid down in OM 22, 7 January1997.

VIII. Economic analysis 13

The Panel finds that in reviewing theeconomic justification of the Project, ADB staffhad complied with the requirements of theBank’s policies and procedures. In this caseADB staff did perform the required tasks andthe conclusion reached was a professionaljudgement of the staff. In the absence of anyalternative study to refute the work of the staff,the Panel does not dispute the professionaljudgement of the Bank.

IX. Confidentiality and disclosure 14

In response to the Requesters’ complaint,ADB Management states that Bank disclosurepolicy “categorizes what documents can or

27

cannot be disclosed to interested parties upontheir request.” The Bank maintains that it hasmade documents available upon request and hasexplained the reasons in case of non-disclosure.

According to the Panel, it has not beenable to follow up with the Requesters on theissues of specification of instances that the Bankwithheld information. Therefore the Panelconcludes that “Subject to verification of suchissues, the Bank did comply with itsconfidentiality and disclosure policy (R 134-94,18 August, 1994).

X. Internal audit policy 15

In general, the Panel assessed that loanreview missions systematically reported on thecompliance with the covenants of the loanagreement. According to the Panel, “It iscommon knowledge that the OGA (Office of theGeneral Auditor) did conduct an internalinvestigation on the allegations of corruption inthe Project. However, issues relating to theanticorruption policy of the Bank are outside thescope of the TORs of the Panel. Since a reporton the internal investigations has not yet beenpublished, the panel decided not to comment oncorruption investigations.”

When was this investigation conducted?Will the community and the Thai public getaccess to the complete findings of thisinvestigation?

The Panel concludes that subject toverification, Bank staff did comply with theBank’s Internal Audit Policy (OM Section 51,16 October 1996).

XI. Other issues 16

In the ToRs of the Panel, a number oflaws of Thailand were listed for the Panel toexamine to the extent that they are directlyrelevant to the ADB’s compliance withoperational policies and procedures. However,once the Panel concluded that there was non-compliance with a number of the ADB’s policiesand procedures, the Panel observed that therewas no need to pursue the same issues under theLaws of Thailand.

The Panel did not examine ADBcompliance with its Urban Sector Strategy sinceit is “not a policy that has been approved by theBoard of Directors, nor is it in the OM of theBank.” The Panel also did not look intocompliance with the ADB’s Poverty Reduction

Mandate since the Poverty Reduction Strategywas approved after the approval of thesupplementary loan. The ToRs of the Panel didnot cover examination of ADB compliance withits Policy on Fisheries and AnticorruptionPolicy.

In the case of the Policy on Fisheries, thePanel notes that the policy was approved by theBoard on 25 September 1997, which is wellbefore the approval of the supplementary loan.However, since the Policy has not yet beenincorporated into the OM, it was deemed outsidethe scope of inspection. But in onceincorporated into the OM, ADB staff have toimplement the policy, the Panel considered itappropriate to make some comments on theissue, as raised by the Requesters.

How many other such policies have theBoard approved, but which have not beenincluded in the OM? Why then bother at all toapprove a policy, or have an OM?

The Panel does not dispute that theProject has the potential to have an overallbeneficial effect on the water quality of theUpper Gulf of Thailand by reducing the diffusesource of pollution. But the Panel notes that“The fact remains that the marine outfall willitself be a site of point source pollution withresultant effects on the aquatic biota in itsvicinity and the potential for impact would havebeen apparent at the time of finalization of theProject design in August 1997.” And further,“There is no evidence that the Bank’s FisheriesSpecialists were consulted on this Project.”

D. Assessment of direct andmaterial harm 17

The Panel notes that according to theADB, the benefits to Samut Prakarn Provincefrom the Project are so significant that anynegative impacts can be justified. And also thatthe EMP prepared by the PCD contains all thenecessary mitigation measures. However, thePanel points out that the EMP appeared very latein the process and was not developed throughconsultations with the community or with thereview of the Independent Review Team (IRT).The Panel states that “local knowledge andexperience of the community cannot be replacedby laboratory modeling.”

The Panel goes on to state that “the earlyrecognition and early involvement in project

28

planning of those people who may be negativelyaffected is crucial for the avoidance,minimization and mitigation of potentialimpacts.” The Panel concludes that the actual orpotential for direct and material harm on thecommunity of Klong Dan could have beenminimised and even avoided “if compliancewith the Bank’s policies and procedures hadbeen carried out at an early stage of the Projectcycle with adequate assessment of social andenvironmental factors and appropriateparticipation by the community.”

Thus the Panel concludes that “theBank’s inaction by not ensuring earlycommunity participation has resulted in directharm to the community.” The Panel furtherelaborates on the harm to the communities asdescribed below:a) The rights and interest of the people with

regard to consultation and participation havebeen adversely affected;

b) The rights and interests of the people whoselivelihood depends upon the activities in theEEZ (Economic Exclusion Zone) have beenadversely affected due to being excludedfrom engaging in their economic activities.Here, the Panel also states that “It is unclearhow many are affected and it appears that theEEZ has been established without localconsultation. The Panel was informed thatreparation for some of the farmers hadalready occurred but has no evidence that thecommunity has been involved in thenegotiation process over the issue ofcompensation.”

c) The rights and interests of some of thepeople whose livelihood depends upon theactivities in the vicinity outside the EEZcould also be adversely affected due to thepotential problems caused by the dilution ofsalinity, release of heavy metals or othertoxic materials.

d) The rights and interests of people who are inthe vicinities of the treatment plan could beadversely affected by the odor, loweringproperty value and the potential problemscaused by existence of heavy metals, toxicmaterials and the management of sludge.

E. Conclusions andrecommendations18

The Panel states “The Panel has not been

able to complete the inspection process for theProject.” This statement refers to the inability ofthe Panel to have direct access to Projectaffected communities, who are the Requesters ofthe inspection. The Panel goes on to say. “Notbeing able to fulfill the expectations of allstakeholders at this stage is not conducive forthe integrity of the Bank’s Inspection Policy.”

The Panel notes that it is “aware of thesevere limitations of the inspection process andthat it does not have the full picture.” The Panelthen goes on to summarise its findings oncompliance on ADB policies and procedures,and assessment of direct and material harm (asdescribed in the earlier sections).

Given the strong conclusions of the Panelin relation to Bank compliance with policies andprocedures and assessment of direct andmaterial harm, the recommendations of thePanel are disappointingly weak andunconnected with its own findings.

The Panel recommends that the ADBacknowledge non-compliance with some of itspolicies “in order to establish an environment oftrust with the people of Klong Dan.” The Panelnotes that the restoration of confidence amongall involved parties requires mutual recognitionthat the process of consultation and participationneeds to be improved.

The Panel recommends that “negotiationsin good faith be instituted as soon as possiblewith the Klong Dan community” on thefollowing issues:1. The degree and extent of actual and potential

damages and appropriate and adequatecompensation to those affected;

2. The remedial action programmes for theimmediate and longer term solutions;

3. The participation of the local community inthe management and the operation of thetreatment plant so as to minimize any futurepotential adverse effects on the community.Specifically, it would be “useful” toestablish :• accurate baseline data for the socio-

economic parameters of the communityso that impacts can be monitored throughthe commissioning and operation of thetreatment plant;

• mechanisms for meaningful communityinvolvement in the risk assessment offuture problems;

29

• mechanisms for timely notification ofactual exceedances of limits for odor andeffluent parameters so that appropriateaction can be taken.The Panel states that the Bank “should be

an active participant” in the above efforts.However, the Panel does not mention any

disciplinary steps or reprimands for thoseresponsible for non-compliance of policies andprocedures, and thus implicated in causingdirect and material harm to the communities.The final message of the Panel’srecommendations appear to be that it is okay forADB staff and Management to violate their ownpolicies and procedures, as long as they cantake mitigative action subsequently.

The Panel does not recommendsuspension of the Loan disbursement by theADB for the Project. According to the Panel,“..at this stage of Project implementation,suspension should not be recommended.”19

The Panel’s failure to recommendsuspension of the loan disbursement is the mostdisappointing part of the report. Are we tounderstand that if the inspection had beencarried out an earlier stage of projectimplementation, the Panel might haverecommended suspension of the loan? Or areInspection Panels simply not inclined to makesuch recommendations? Or are there inherent(even unconscious) biases on the part of suchexperts regarding what they consider sunk andnon-recoverable costs, and what they consider“mitigatable” costs?

The Panel justifies this decision by notingthat the Requesters say that they have neverchallenged the importance of havingappropriate wastewater treatment facilities tohelp deal with the pollution problems in SamutPrakarn. The Panel believes that problemsrelated to the negative impacts from its newlocation can be mitigated with the remedialrecommendations mentioned above.

However, by making such an argument,the Panel contradicts the spirit and substance ofits own findings. The Panel has noted at severalplaces in the report that changes in the Projectcumulatively amounted to a major change in theproject scope that called for full reappraisal asin the case of a new project. Clearly, evenwithout visiting the Project site, the Panel seemsto hold the view that the Project in its currentform, scope and location is not the same project

that the original PPTA and loan agreementdescribed. To then argue that such majorchanges can be mitigated through greaterparticipation in the future from local residents indeveloping socio-economic indicators and riskassessments, and timely notification ofimpending toxic pollution, is both inconsistentand contradictory.

1 Paragraph 13

2 Paragraph 18

3 Paragraph 32

4 Paragraphs 37-45

5 Paragraphs 46-65

6 Paragraphs 70-75

7 Paragraphs 76-82

8 Paragraphs 83-94

9 Paragraphs 95-103

10 Paragraphs 104-109

11 Paragraphs 110-118

12 Paragraphs 119-126

13 Paragraphs 127-130

14 Paragraphs 131-133

15 Paragraphs 134-137

16 Paragraphs 138-149

17 Paragraphs 150-155

18 Paragraphs 156-168

19 Paragraph 167

30

IntroductionThis document summarises the report of

the Asian Development Bank’s (ADB)Inspection Committee to the Board of Directorsof the ADB on the results of the inspectionprocess of the Samut Prakarn WastewaterManagement Project (SPWMP). The full reportof the Inspection Committee contains theCommittee’s views on the Inspection PanelReport and the ADB Management’s response tothe Inspection Panel’s report, and theCommittee’s recommendations to the ADB’sBoard of Directors about further actionregarding the SPWMP inspection results. Thefull report can be obtained directly from theADB.

In this document, key conclusions andobservations in the Committee’s are summarisedand highlighted in bold typeface. Comments bythe author are in brackets and italics.

Summary of Key Points

A. Rationale for Inspection FunctionThe Inspection Committee states that

paragraph 5 of the ADB’s inspection policymakes it clear that the purpose of inspection ismuch broader than a legalistic determination ofwhether ADB staff followed all inspectablepolicies and procedures. Very importantobjectives of the Inspection Function are the

“fostering of trust and offering a fair hearing ofthe views of the affected group.”

Given the limitations of the inspectionprocess, including the narrowed scope of theTerms of Reference (ToR) of the InspectionPanel and the lack of contact between theInspection Panel and communities, theseobjectives have clearly not been met

B. Compliance with operational policiesand procedures

Supplementary financing of cost overruns on

Bank-Financed Projects (OM 13)

The Inspection Committee supports theconclusion of the Inspection Panel that the ADBdid not comply with this policy. It points outthat an analysis of the language of OM 13supports the “common sense view that a fullreappraisal of the of the Samut Prakarn projectwas required at the time and preparation of thesupplementary loan.” The Committee thereforesupports the Panel’s conclusion that in notcarrying out a reappraisal of the entire projectfor the supplementary loan proposal there wasnon-compliance by the Bank of OM 13/BP/OP.1

The Inspection Committee rejects theADB Management’s response, particularly theargument by the Management that only thosepolicies that are included in the OperationsManual (OM) are subject to inspection, and thatthe scope of reappraisal was limited by an

* Summary prepared by Shalmali Guttal, Focus on the Global South (s.guttal@focusweb.org)

Summary of the Report and Recommendationof the Inspection Committee to the Board of Directors

of the Asian Development Bank on Inspection Request

Samut Prakarn Wastewater Management Project, SamutPrakarn, Thailand, 28 February, 2002*

31

earlier Board paper (1983) on supplementaryfinancing of cost overruns of Bank-financedprojects. The Committee points out that theManagement is inconsistent in first using theOM to limit the scope of the inspection, andthen arguing that not the OM, but the underlyingpolicies (as outlined in the 1983 paper) are therelevant documents. The Committee clearlypoints out to the Management that if there areinconsistencies between underlying policypapers and the OM that results from these policypapers, this would represent a failure of theManagement itself.2

The Inspection Committee examined theearlier policy document invoked by theManagement (R 115-83) and concludes that thedocument is very clear on reappraisal:“Financing of cost overruns will be consideredon a case-by-case basis after reappraisal of theproject concerned...” and further, “Theprocedural arrangements for processingsupplementary loans would be similar to thoseapplicable to new loans, including thereappraisal of the whole project.”3

Agreement within the ADB about whetheror not the Project should have been reappraisedat the time of the supplementary loan in 1998 isbeing manipulated by ADB Management.Management argues that the OM never includedthe required instructions for reappraisal forsupplementary financing for cost overruns,although a policy about reappraisal in suchcases had already been approved and passed bythe Board. The Committee’s position seems tobe that updating the OM and making sure thatstaff know which policies to follow is the work ofManagement. The Committee points this out inthe report: “...members of the Board, as well asthe President, expressed serious concern at thetime that the Samut Prakarn inspection wasauthorised on 10 July, 2001, that some ADBpolicies had never been included in the OM atall. In this context, the Committee had observedin its recommendation to the Board, dated 20June 2001 (Sec. M35-01) that it is importantthat Management examine this issue as a matterof urgency.” So now, staff and Management arethrowing the blame at each other and no onewants to take responsibility.

ADB’s Operational Missions (OM 32/OP)

The Inspection Committee supports theInspection Panel’s conclusion that the ADB didnot comply with its policy on OperationalMissions (OM 32/OP). According to the Panel,the failure to carry out a full project reappraisalin accordance with the relevant policy onsupplementary financing of cost overruns (asdiscussed above) became a crucial factor fromwhich other factors followed. The InspectionCommittee agrees with the Inspection Panel andpoints out that changes in the scope andimplementation arrangements of the project andcost overruns demanded a full reappraisalmission.4

ADB Management argues that since noneof the Project’s most critical parameters changedas a consequence of the cost increase, theyjudged that a reappraisal was not required. TheInspection Committee does not accept thisargument. It points out that a sudden increase of$ 441 million in a recently approved ADBproject is significant and that this massive costincrease resulted from a change in a criticalparameter of the project, namely, the technologyon which the project was originally appraised.According to the Committee, “...one cannotseriously argue that such a fundamental and far-reaching change in technology did not constitutea basic, major, substantial change inimplementing arrangements.”5

Environmental Considerations (OM Section 21 and

OM 20/OP)

The Inspection Committee is unable toreach a firm conclusion about whether or not theADB complied with its policy on EnvironmentalConsiderations. However, it accepts theInspection Panel’s recommendations that arebased on the Panel’s conclusion that the ADBdid not comply with this policy.6

The Inspection Committee does not agreewith the Management about its response to theInspection Panel’s conclusion: “If an inspectionwould demonstrate that a particular projectwould have clearly adverse effects on theenvironment, while being classified asenvironment category B, the Panel couldcertainly question the original classification.”7

Here, it seems that the InspectionCommittee agrees that the policy was notcomplied with in the broader and more usefulinterpretation of the policy. But for some reason,

32

the Committee seems unable to come out andsay this clearly, and seems constrained by thetechnically narrow language on environmentalcategorisation.

Involuntary resettlement

The Inspection Committee supports theInspection Panel’s conclusion that the ADBManagement did not comply with this policy.The Committee also disagrees with theManagement’s view the involuntary resettlementpolicy was not applicable in this case.8

Good governance

The Inspection Committee was unable toreach a conclusion about non-compliance withthis policy. However, it notes that consultationprocesses should have started earlier and thatManagement acknowledges this point.9

The Inspection Committee’s inability toreach a clear conclusion on this issue rises quitedirectly from the way the policy is worded.According to the Committee, “In the case of thispolicy, it is not easy to extract operationallyuseful and measurable parameters for theimplementation of principles expressed innecessarily broad terms.”10 But the InspectionPanel was able to reach the conclusion that thispolicy was violated. What is the use of such apolicy, if the ADB’s Inspection Committee itselfis unable to use it?

Incorporation of social dimensions

The Inspection Committee accepts theInspection Panel’s finding that there was non-compliance with this policy.11

Benefit monitoring and evaluation

The Inspection Committee accepts theInspection Panel’s finding that there was non-compliance with this policy.12

In summary, the Inspection Committeeagrees that ADB’s failure to comply with theabove policies resulted in importantconsequences for the project. However, theCommittee accepts the Management’s responsethat in many cases the effect of these failureswas diminished by “sound projectadministration” and the “quality of theproject.”13

C. Direct and material harmThe Inspection Panel accepts the

conclusion of the Inspection Panel that arelevant group has suffered direct and materialharm as a result of ADB’s non-compliance withoperational policies and procedures.14

D. Discussion of the panel’srecommendations

The Inspection Committee notes that theADB Management disagrees with the InspectionPanel’s findings and recommendations, andargues that there was “no failure on the part ofthe ADB staff to interpret and administer ADBpolicies correctly.” However, the Committeesupports the Panel’s finding of non-compliancewith the above policies.15

ADB Management challenges theInspection Panel’s recommendation that ADBstart negotiations with the Klong Dancommunity on the grounds that it is based on “aseries of misconceptions.” However, theInspection Committee accepts all therecommendations of the Inspection Panel.16

ADB Management refuses to accept thePanel’s recommendation that the ADBacknowledge that there has been non-compliance with some of its policies. However,the Committee feels that Management’sresponse is “unfortunate” in light of the broaderobjectives of the Inspection Policy.17

The Inspection Committee agrees withthe Management’s position that the ThaiGovernment is obliged by Thai law, the loandocuments and ADB’s resettlement policy tomake appropriate arrangements for thecalculation and payment of adequatecompensation to those affected by the Project,and that it is ADB’s job to ensure that ADB’sresettlement policy is complied with. Followingfrom this, the Committee believes that ADBshould continue to monitor resettlement effectsand ensure that all legitimate concerns withrespect to consultation with and participation byaffected peoples are met.18

E. Observations on management’s responseThe Inspection Committee notes that the

Management has provided a detailed response tothe Inspection Panel’s report and at times hasseverely criticised the findings and methodology

33

of the Inspection Panel. In light of the broaderobjectives of the Inspection Policy, theCommittee has doubts about whether this is a“fruitful approach.”19 Further, the Committeestates that it is not correct for ADB’sManagement to criticise the findings of thePanel on questions of fact, methodology orreasoning process. The Panel has not made anyfinding that is contrary to the evidence before it,or that is untenable.20

The Committee points out that thepurpose of the Inspection Function is to“encourage transparency, beneficiaryparticipation, offering a fair hearing andfostering greater confidence and support for theADB.” 21 And also, that “a modern multilateraldevelopment bank must have an inspectionprocess that is fair, speedy and inexpensive. Itmust do justice to the Requesters, ADB and allinterested stakeholders.” Following from this,the Committee indicates that by criticising thePanel’s report, the ADB can be perceived by theoutside world as trying to discredit theinspection process. If this is permitted, theultimate sufferer will be the ADB itself sinceeminent persons will refuse to serve on theADB’s inspection panel in the future.22

The Inspection Committee also questionsthe Management’s position on the inability ofthe Inspection Panel to visit the project site.One of the conditions laid down by the ThaiGovernment for the Panel to visit the project sitewas that the ADB must shoulder all financialliability that might arise from the inspectionvisit. The Committee reminds the Managementthat in a letter dated 12 September, 2001, itrequested Management to respond to thequestion of financial liability. The Committeefeels that only Management could have providedclarity on whether or not the ADB could orshould assume such financial liability. To date,despite reminders, Management has still notresponded to the Inspection Committee’s requestand letter. According to the Committee,Management’s failure to provide the requiredclarity put the Inspection Panel and theCommittee in a very difficult position vis-á-visthe Thai Government.23

Finally, the Inspection Committee rejectsattempts by the Management to blame theInspection Panel for shortcomings in theinspection process and the Panel’s findings andreport.24

From the Inspection Committee’s viewson the Panel’s recommendations and ADBManagement’s response, it seems quite clearthat the Inspection Committee is not happy withthe manner in which Management has tried toundermine the inspection process. TheCommittee also seems a bit surprised thatManagement is so defensive about admitting itsown culpability in the mismanagement of theProject.

F. Conclusions and recommendationsThe Inspection Committee once again

supports the Inspection Panel’s conclusions thatthe ADB did not comply with its policies onsupplementary financing of cost overruns,operational missions, involuntary resettlement,incorporation of social dimensions, and benefitmonitoring and evaluation. The Committeestates that it has not been able to reach aconclusion on whether policies on governanceand environmental considerations werebreached.25

The Committee notes that ADBManagement feels that ADB had not failed tocomply with any of its policies and thatManagement does not accept the InspectionPanel’s recommendation that ADB acknowledgenon-compliance. Management does howeveraccept the second part of the Panel’srecommendation and is willing to do whatever itcan to restore confidence between thecommunity, the Executing Agency and theADB.26

ADB Management acknowledges themerits of improving community participationand notes that the Pollution Control Division isworking on a compensation mechanism in linewith ADB’s resettlement policy. Managementalso indicates that community liaison groupswill be established through the EnvironmentManagement Plan (EMP) for the wastewatertreatment plant to foster greater communityinvolvement in the management and treatmentof the treatment plant. Management alsoindicated that work has already started toestablish baseline data for socio-economicparameters, a mechanism for communityinvolvement in risk assessment of futureproblems, and for timely public notifications.27

34

G. Recommendations of the committee28

The recommendations made by theInspection Committee to the Board are weak anddisconnected from its own conclusions in thereport, and those of the Inspection Panel. Therecommendations merely reiterate the actionsthat Management already agreed to take, assummarised in the above two paragraphs.There is no recommendation to the Board thatthe ADB acknowledge its non-compliance,attempt to alleviate the harm its actions haveresulted in, or initiate any kind of action toreprimand ADB Management and staff forbreach of policy. So this gives us a hint of whatthe final outcome of an ADB inspection processis: no matter how much evidence of wrongdoingmight be there, and how clear are theconclusions of the Inspection Panel, no one inthe ADB takes any responsibility for anywrongdoing...

1 Paragraph 33

2 Paragraphs 26-29

3 Paragraphs 30-31

4 Paragraphs 34-35

5 Paragraphs 37-38

6 Paragraph 44

7 Paragraph 43

8 Paragraph 45

9 Paragraph 46

10 Ibid.

11 Paragraph 47

12 Paragraph 48

13 Paragraph 49

14 Paragraph 51

15 Paragraph 52

16 Paragraph 53

17 Paragraph 54

18 Paragraph 57 and 59

19 Paragraph 66

20 Paragraph 69

21 Paragraph 67

22 Paragraph 68

23 Paragraph 72 and 75

24 Paragraph 76

25 Paragraph 79

26 Paragraph 80

27 Paragraph 81

28 Paragraph 83

35

Alternate Director representingThailand, Malaysia, Myanmar,Nepal and Singapore :Mr. Bhattarai

18. Alternate Director Bhattarai: Pleaseallow me to begin my intervention by thankingthe members of the Board Inspection Committee(BIC) who have contributed their time and effortin the deliberation and the finalization of thevery first inspection report in ADB’s history.We admire the spirit of the members of the BICand the Inspection Panel as they have carried outtheir work with enthusiasm and dedication. Wealso extend our appreciation and thanks tot hestaff and management to have dedicatedextensive time and effort in clarifying thevarious issues pertaining to the Samut PrakarnWastewater Management project.

19. This chair is well aware that thisinspection function is the first experience of itskind to both the members of the BIC, themanagement and staff of ADB. There is noprecedent and experience to refer to whichmade the task all the more difficult and alsoadded unspoken burden a the decisions that aremade inthis regard could be taken as an examplein the further future. We do continue to believethat well conducted inspection function is in thebest interest of stake holders, the host

government and the ADB itself.

20. The most important task of the boardwas to determine whether the ADBs policies andprocedures had been followed in implementingthe Samut Prakarn Wastewater ManagementProject. This aspect has also been highlighted inparagraph 12 of the report and recommendationof the Board Inspection Committee. However,this chair finds that in several important areas,this requirement has not been met. There areimportant facts that have been overlookedwhich, in our view, had significant bearing inthe final outcome of the report. The report hasbeen made on several perceptions and the Panelhas not been able to overcome thoseperceptions.

21. This chair has observed thedevolpments relating to the inspection processwith great patience. While we appreciate thework done by everybody involved, we have tosay that this chair as well as the Thai authoritiesare not all satisfied with the way the inspectionfunction of the Samut Prakarn Project wasundertaken. We do not find any legitimatereason that can convince us to support therecommendations of the BIC. Our seriousconcern relates to both the Reports of the BICand the panel that many critical issues havearisen from their conclusions and

Interventions byDirectors representing variousCountries at the ADB Board

meeting held on 25th of March 2002Excerpts from the Minutes of the Board

Meeting*

* the paragraphs are numbered as they appear in the original document

36

recommendations. This Chair categorizes theminto four major areas, namely, (i) sovereignty ofthe borrower country, (ii) credibility andreputation of the ADB, (iii) financial borrowingsand (iv) others.

Sovereignty of the borrowercountry

22. For whatever reason, the Inspectionof the Samut Prakarn Wastewater ManagementProject did not give due importance to the roleof the Thai Government. This, we believe, hasled to wrong conclusions by both the BIC andthe Inspection Panel. The Inspection Policy, infact, is quite clear about the role of theBorrower. Paragraph 41 of the 1995 InspectionPolicy Paper recognizes the right of the ProjectOwner or the borrowing country by saying that:‘The borrowing member country to which aBank project under inspection relates, and theDirector representing that country, shall beconsulted during the inspection and given anopportunity to record its views. Any part of theinspection to be conducted by the Panel or itsconsultants in the territory of a borrowingcountry will be carried out only if the countryhas no objection. If the country raises anobjection, the inspection nevertheless willcontinue to the extent feasible on the basis ofreports and other information otherwiseavailable to the Bank’.

23. The Inspection Policy has made anunambiguous provision that the borrowingcountry and the Director representing thecountry should be consulted and given anopportunity to record their views. For therecord, under the Inspection of the SamutPrakarn Project, this Chair would like to informyou that aside from the correspondence aboutthe site visit and the Terms of Reference (TORS)of the Inspection Panel which were providedbefore the actual Inspection convened, there hasnot been any consultation made with Thailandand my office during the inspection, nor anopportunity was given to this Chair to record itsviews. Our office was advised not to participatein the meetings of the BIC due to perceivedconflict of interest. Furthermore, this Chair wasadvised that should any one from my officeattend the BIC meetings, he or she could onlymake general statements and not specifically

refer to the Samut Prakarn Project. This Chair,therefore, as well as the Thai authoritiesseriously doubt the fairness of the Inspection, asthe Interim and the Final Reports weredeveloped and finalized without anycommunication with us.

24. Still dwelling on the issue ofcommunication and discussion, the PollutionControl Department (PCD), the ExecutingAgency of the Borrower, had expressed itsinterest in paying a visit to Manila to discusswith the Inspection Panel in order to clarify itsposition as well as other related matters. Suchoffer was expressed directly to the Chairman ofthe BIC during his visit to Thailand on 6November 2001 and in the PCD’s comments onthe Inspection Panel’s Site Visit, which wasattached to the letter from the Thai Governmentdated 14 November 2001. However, there wasno interest from the BIC and the InspectionPanel to this request and Thailand was thusdenied the opportunity to be heard.Surprisingly, this fact was not mentioned at allin the report of either the Panel or the BIC.Even after the submission of the InspectionPanel’s Final Report to the Management, thisChair had to wait for one and a half monthsbefore receiving a copy from the BIC, which is avital document for consultations between myconstituency and the BIC in accordance withparagraph 44 of the Inspection Policy.

25. Paragraph 41 of the Inspection Policyhas also clearly stated that any part of theInspection to be conducted by related parties inthe territory of the borrowing country would becarried out only if the country has no objection.Under the Inspection Policy, it is evident thatdue importance is given to preserve thesovereignty of the borrowing country. However,past correspondences and the conduct of theInspection Panel on the Samut PrakarnWastewater Management Project have raisedsome questions as to whether respect for suchsovereignty has been kept in accordance withthe terms of the Inspection Policy.

26. Please allow me to elaborate a littlemore on the perception of my Thai authoritieson the whole issue of the proposed site visit.Had the BIC and the Panel taken a morepragmatic approach to the site visit without

37

politicizing the event, it would have probablybeen more effective. The premature informationrelease to the press, the welcoming flags in theKlong Dan community on 12 September 2001,and the anticipated date of the Panel’s site visit,all indicate a beginning of an unhealthy patternand display of lack of professionalism. Moreseriously, the applied pressure shows disregardof the Thai authorities and their assessment ofthe potential adverse impact of a site visit, andlack of respect for the sovereign rights ofThailand.

27. Although a site visit to a project maybe desirable, but we feel that it is not crucial andthere are numerous ways to get around the issue.Sovereign decisions must be respected withoutquestion and not be subjected to undue pressure.

28. A third matter that has given rise tothe issue of sovereignty is the recommendationof the BIC in paragraph 83, page 16 of thePaper, which also refers to the InspectionPanel’s recommendation in paragraph 166. ThisChair believes that both the recommendationseither reflect apparent lack of awareness of thework which the Thai Government has alreadyinitiated or the BIC and the Panel have found itconvenient to ignore the efforts made by theGovernment. In fact, the Inspection Panel’sreport and assessments itself has admitted thatno actual damages have occurred. This Chairwonders why the BIC and the Inspection Panelsaw it mandatory that a discussion on acompensation package be instituted in thecommunity if no actual damage has been done.

29. Paragraph 55 of the Management’sResponse, as well as the views of ExecutiveDirector Mankad, as expressed in his memodated 12 March 2002, indicate that the contentof the Panel’s recommendation in paragraph 166can be taken as a disregard of the ThaiGovernment’s authority. Although I personallybelieve that such recommendation could havebeen made in good faith, we should be cautiousnot to create the notion that ADB isunnecessarily mingling in the internal affairs ofits borrowers.

Credibility and reputation of theADB

30. This Chair, like some other Chairs,are uncomfortable with the recommendationsgiven in paragraph 83 of the BIC Reportrequesting the Board to “confirm” and “instruct’Management on certain matters. This Chair isconcerned that the recommendation will set anew practice and the Board of Directors may bedragged into micro management which hasneither been envisaged by the Charter nor is itdesirable to do. The BIC’s recommendationmay give the impression that the Bank’s Boardof Directors is not fully confident of itsManagement. If that happens, it could rapidlyerode the organizational efficiency for which weare all proud of.

31. The BIC’s view as mentioned inparagraph 69 of the Paper is another area thatcan adversely affect the Bank’s credibility, ThisChair is concerned on the BIC’s opinion that itis not a correct approach for ADB’sManagement to criticize the findings of theInspection Panel on the basis of facts,methodology or reasoning processes. Thisstandpoint seems to send out a signal from theBIC that it will appreciate Management’sresponse only if the latter is in favor of theInspection Panel’s report. I hope I am wrong onthis issue.

Cost implications of the inspection32. This Chair tried to get some idea

about the direct cost implications of theInspection Process. It has been roughlyestimated that financial implications for the staffand management during December 2000 andFebruary 2002 involves approximately 1,900staff days, which cost approximately 1.5 millionUS dollars. We believe that the process hasbeen, costly and less effective, the burden ofwhich the borrowers themselves have to bear.

Others33. Many government changes have

occurred in Thailand since the Project wasinitiated. Each successive government hascontinued to support the Samut PrakamWastewater Management Project, whichsufficiently indicates that the country is fullycommitted to and owns the Project. Over

38

600,000 people will be benefited by this Project.It is common that the process of economicdevelopment may have an unsettling effect.However, we must also bear in mind that noproject can satisfy everybody. We urge ourBoard colleagues to see this Protect in this largercontext.

34. Under the Inspection, unlike the ThaiGovernment, the requesters were offered anopportunity to express their views through aninvitation extended by the Inspection Panel forthem to come to Manila as evidenced by theletters sent by the BIC and the Inspection Panelon 10 October 2001, 18 October 2001, and 12November 2001, respectively. In spite of theavailability of the opportunity and the facilities,the requesters did not pay interest to visit Manilato clarify their position. This fact was mentionedin passing by the BIC in its report but withoutany comment. The refusal of the requesters tocome to Manila shows that they might havebeen more interested in making headline newsrather than in sorting out various issues.

35. The arguments put forward by thePanel and Management to justify theirrespective positions highlight a lack of clarity inthe relevant clauses of the Inspection Policy. Itis interesting to note that even the expertsfamiliar with the procedures and policies of theBank do not agree on a single interpretation.Given the fact that the issue of whether ADB’spolicies and procedures have been breached is atthe core of the Inspection Process, this Chairand my Thai authorities feel that theinvestigations should have given greater focuson the clarification of this ambiguity rather thanon other issues such as the site visits or whethermore community action is needed.

36. Here, it is also pertinent to recall thememo dated 6 March 2002 by ExecutiveDirector Julian Payne and the response to it byGeneral Counsel Gerald H. Sumida on 13 March2002 as well as the memo of Executive DirectorP. G. Mankad dated 12 March 2002 and thememo of Executive Director Patrick Thomasdated 14 March 2002. Their contents sufficientlyreveal various issues relating to the Reportwhich need further clarification.

37. As you are aware, Mr. Chairman, theviews of my Thai authorities on the InspectionProcess relating to the Samut PrakarnWastewater Management Project are reflected intheir letter dated 21 February 2002 addressed tomy office, a copy of which had already beencirculated to all members of the Board. We donot intend to reiterate their views here thismorning. To put it briefly, my Thai authoritiesare disappointed with the conduct of theInspection Panel and its Report and feel that thewhole exercise has done little to enhance theImage of the Bank amongst its borrowers andraises more questions than it answers. In fact, itcreates doubt in the mind of the Government asto whether the whole inspection process wasmeant to be fair and transparent and whether thewhole process was used to justify apredetermined set of findings. The requestersseem to have far more credibility than theimplementers of the Project and the Bank’sManagement. In short, the conduct of theInspection was questionable. However, let mereiterate that my Thai authorities are not againstthe spirit of the Inspection Function. It is in thebest interest of all the stakeholders that ADBlistens to the views of all and maintains acooperative relationship among its members.

Summary and conclusions38. The Samut Prakam experience

clearly demonstrates that there is a fundamentalweakness in the Inspection Policy. Under thePolicy, the Inspection Panel must find fault onADB’s management in order for it to look morecredible. In turn, the Management is made toreact and aggressively to defend itself.Therefore, the stage is set for a conflict.Accordingly, this Chair suggests that the policyand procedures be reviewed to reduce thepotential for conflict in future inspections. Weare confident that the Management will take thisinto account in the review process of theInspection Policy, which is currently beingundertaken.

39. In conclusion, this Chair is not in aposition to support the recommendations of theBIC and the Inspection Panel and thus wishes tobe recorded as opposing the recommendationsof the BIC as proposed in paragraph 83 of theReport, for the reasons expressed above.

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Director representing China :Mr. Zhao Xiaoyu

57. Director Zhao:This inspection caseof Samut Prakarn has been haunting this Bankas well as this Board for quite a long time.Theoretically, I should be happy today becausethe dragging process is finally drawing to aconclusion. But, after reading the big report andthe Inspection Panel Report, I found myself notrelieved at all. I must say I am seriouslydisturbed by and profoundly disappointed bywhat has come out of the process. The BICReport raises more questions than answers onthe Inspection Panel’s Report in this particularcase as well as on the Inspection Function ingeneral.

58. The Panel Report and BIC Reportstrengthened this Chair’s belief in only onething, that is this Board made a serious mistakeby approving the establishment of an InspectionPanel to inspect the Samut Prakarn Project.

59. I have several concerns on theinspection process. The first one is on thefairness of the investigation process. This Chairhas serious doubt on the way the InspectionPanel and BIC were constructed during theSamut Prakarn review process. The InspectionPanel was composed of three persons; two ofthem representing transnational advocacyinterest. One of them a lawyer previouslyworking for IBRD. There is a natural tendencyfor the Panel to steer towards views against theBank and the Thai Government.

60. Next observation is on the BICstructure. The BIC members were appointed bythe President after careful consideration ofbalances from various perspectives. But, on thefirst day of BIC considerations on the case, theDMC Chair who represented the ThaiGovernment in the Committee was excluded onthe presumption of conflict of interest. Here Iwould like to remind my colleagues around thetable of one thing. The Panel was mandated tosee if the Management, not the Government, hadfollowed the Bank’s policies and procedures. Inthat sense, I do not believe there was an issue ofconflict of interest since the said DMC memberonly represents himself on professional ground.Someone may argue that this matter was writtendown as a rule establishing the BIC, but the rulewas put in place only by the Committee itself.

The Board noted it, not approved it, as a rule.

61. The BIC decision cannot be labeledas unanimous in this fashion. From the outset, ithas become a crippled process. Such structure ofthe Panel and BIC effective ensuringimbalanced investigation and will excludeunbiased considerations of viewpoints fromeither the management or the Government, inthis case the Government of Thailand.

62. As a matter of fact, the Panel hasnever undertaken any formal directconsultations with the Host Government, thesubject community, the senior Management, orthe related constituency. It is interesting to notethat, at one point near the end of last year, thePanel offered to fly some complainants intoManila but the complainants refused. Then, lateron, the Government expressed wishes andwillingness to send PCD officials to Manila todirectly consult with the Panel and the BIC boththrough letter communications to the BIC andthrough face-to-face discussions with the BICmember visiting Bangkok. But BIC just brushedaside this gesture of goodwill. Basically, almostall views, comments, and conclusions of thePanel were derived from closed-doordeliberations here inside this building by smallgroups of people with almost preset inclinations.

63. I do not know how my Boardmembers feel about this. For me, I do not feelcomfortable at all. Conclusions andrecommendations so brewed in backroomswould naturally be skewed. This Chair cannottrust, let alone support, results out of suchskewed decision-making process.

64. Maybe, for some people, what isnow presented on the table is a nicely cookedcourse of dish. It may be a bit overcooked. But itis still considered a nice piece of steak. But tome it is a lousy course of dish. It is overcookedin a wrong procedure like putting the salt beforethe cooking oil. The simple chooses (sic) thetasty Chinese cuisine is only possible when theright cooking procedures is followed. The sameis true to all good cuisines.

65. My second concern is on the scopeof the investigation by the Inspection Panel. Asrecognized by the BIC in its report, the Panel’s

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job was to determine whether ADB hascomplied with these operational policies orprocedures in processing or implementing theSamut Prakarn Project in Thailand. But the finalreport delivered by the Panel went well beyondthe terms of reference. One example was thePanel’s decision to suspend the inspection.Instead of addressing the governmentslegitimate concerns about the law and ordersituation with respect to the proposed visit, thepanel wrongly interpreted the governmentsconditions as objections to a site visit. The Panelwent further on to declare the suspension ofinspection. Such decision is clearly against theBank’s Inspection Policy. Our Policy allows theGovernment concerned to state an objection to avisit. The Inspection procedures provide clearguidelines on how to complete the inspection insuch a case. But the Panel did not follow theprocedure. Instead, it stated that the conditionsimposed by the government of Thailandfundamentally undermine the effectiveness andsoundness of the inspection system. Aselaborated on page 16 of the Managementresponse, the Panel has exceeded its mandate inthis respect. The adequacy of ADB’s policy ismatter of the Board to decide and is outside thescope of an inspection.

66. My third concern is on the BICrecommendations. There are threerecommendations on the BIC report. The firstone begins by asking the Board to confirm theBank’s commitment to being an activeparticipant in the discusssion with the KlongDan community or negotiation. The second halfof the sentence then asks the Bank to confirmthe bank’s commitment to all the effortsmentioned in Para 166 of the Panel report. Fromthe way the sentence is structured the BIC reportis in effect implicitly saying that the Bank hasnot been committed to the discussion to theKlong Dan community. This Chair does notbelieve this assertion is a true presentation ofthe situation and therefore cannot support.

67. As for the reference to Para 166 ofthe Panel report, this chair finds it even harder toaccept. Para 166 is closely related to itspreceding paragraph—para 165. —which assertsnoncompliance of the Bank. Paragraph 165flows on from the assertion of noncomplianceby requesting the Bank to make efforts to

correct its wrong doings. But where are thewrong doings? The Panel did not build aconvincing case against the Management,neither did the BIC Report. Based on thisobservation, this Chair cannot accept this firstrecommendation.

68. Recommendations 2 and 3 may lookfine in the first sight, but they are in effect justsaying what the Bank is already doing for thesubject Project. In other words, with or withoutthe Board intervention, the scenario does notchange. The recommendations are redundant inthis sense. There is no point in asking the Boardto confirm what is being done anyway by theManagement. Moreover, the actionsrecommended are micro-management. I do notbelieve it is advisable for the Board to bedirectly involved in micro-management. Basedon these observations, this Chair cannot supportrecommendations (ii) and (iii).

69. Besides the above case’s specificconcerns, this Chair also has some concernsabout the Inspection process in general. The firstconcern is on the cost-incurring pattern of theprocess. Almost every time when we discussabout some development projects in the Bank,cost is one major issue many love to touch on.But, for the inspection process, no one appearsto be concerned at all about the cost implicationsfor the Bank, let alone cost implications to theGovernment concerned. For this process, costappears to be a non-issue. In this open-endedspending pattern, is this open-ended spendingpattern affordable and sustainable? Out ofcuriosity, I tried to get some rough estimationsfrom the Staff on how much we have spent forthe inspection of the subject Project alone. Theanswer was it is already close to $2 million,some say $1.5 million. This is just the cost onthe Bank side. The borrower Government alsospent quite a lot extra sum of concerted effortsor counterpart effort. I was really taken aback bythis estimate. What have we got from spendingthis nearly $2 million worth of preciousresources? We have produced a pile ofgroundless damaging paper. The Bank’scredibility is undermined, the staff isdemoralized, DMC government is fed up, andthe environment improvement project is undulyheld up for two years. The only visible gain isthat a handful of experts and consultants got a

41

fat job for which no one has to worry aboutbeing held accountable. NGOs declare anindication for finger-pointing at MDBs again.What about the Klong Dan community?Because of this exercise, the access of onemillion people to cleaner water has been held upunduly. Is this exercise worth it? I do not thinkso. I urge my fellow Board colleagues toseriously think about the value of this process.

70. The second concern is on thescreening of the legitimacy of complaints. I amnot against complaints handling in a transparentmanner but there should be certain guidelines onlegitimacy screening. Right now, the rule is sorelaxed that everybody and anybody can raise acomplaint for whatever reason they feel like. Noone has to be responsible for legitimacy of theclaims. One thing is ensured though, that is theproject will surely be disrupted. This is 100%free disruption matter. Such a loose system is sotempting that it can be easily hijacked by specialinterest groups with political agenda.

71. My third concern is on the powerassigned to the Inspection Panel. Right now, theauthorization is drastically out of balance withthe Panel’s capacity. The Panel acts in a fashionof a supreme court justice or even higher thanthat because no one can challenge them.Basically, these people are believed to beinfallible. They decide by themselves who totalk to, where to go, and what to do. They do nothave to be held responsible for anything. Buteveryone else must be held responsible foreverything. In this sense, they enjoy a powerequivalent to God Almighty. But do they havean capacity? Are they capable of the job? Arethey credible at all?

72. A typical Bank project preparationrequires hundreds of people in and out of theBank working in a team for one to two years.But our inspection process now, in fact, tells usthe team’s work is less trustworthy than threerandomly picked persons. This group of threepersons can decide what is right or wrong withour projects. To accept such a notion is verydangerous. If you agree with such a notion, whydo we have to employ thousands of staff andconsultants at all? Logically, the next step is tofire all Bank staff and kick them out and kickout the Counsels because these three randomly

selected persons are all important. That is a verybig word. They know what is right or wrong inthe world. They hold the truth. So why do wewaste billions of administrative expenses. Justspend millions to feed the three people isenough. Let them do the job and let us roll upthe Bank. Is that the direction we are asked togo?

73. My fourth concern is on the moraleof the staff, If we say yes to such pointlessexercise, we risk losing the support andcommitment of the staff. We would beencouraging risk averseness of the staff. Fromnow on, the best strategy for the staff is to sitand do nothing because only in this way canthey make sure that they are safe from thecatching of international advocacy groups.

74. Two years ago, the World Bank didits first full-scale inspection. It was on China’sWestern Poverty Project. Most of my colleaguesknow about the Project and the surroundingdebate. China decided to do the Project in itsown way with its own resources and the Projectis proceeding very smoothly and poverty-stricken people are getting out of poverty in theChinese way. What my Board colleagues mightnot know is the after-effect on the MDBs’behavior in their China operations. These days,if you visit the offices of senior MDB officialsworking on China, you will find big China mapson the wall with little red flags pinned here andthere. These are not flags proudly standing forbank activity. They are core reminders to thesenior managers. The marks stand for regionswith ethnic residents and the staff are constantlyreminded to keep away from these places. Theseplaces are the places where poverty is a seriousproblem.

75. If today our Board votes to supportthe BIC Report, I seriously suspect we willbegin to see similar red flags in the rooms of ourown staff reminding them to keep away fromdoing wastewater projects anymore. The resultis clear. Gradually, more and more groups ofpeople or same types of projects will beexcluded from the Bank support. The region’sdevelopment agenda will be hampered.

76. The Board has a responsibility toencourage the staff to take on various

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developmental challenges facing the region. Wecannot encourage risk aversion from staff. If wedo, our staff will be less inclined to exerciseprofessional judgment and our Bank’s capacityto help members reduce poverty will beimpaired. Leaving those people suffering incommunities surrounded by stinking wastewaterand slush is not courage. Such behavior has adifferent name. It is called ... Doing this whilesitting in our leather chairs in airconditionedrooms with clean water on the table also has aname. It is not righteousness. It is calledhypocrisy. In the face of millions of people inneed of Bank’s assistance to help fight povertyand environment challenges, I say no to anymove to bring this Bank down eitherintentionally or unintentionally.

77. My fifth concern comes from onerumor I have heard of recently. Thedevelopment of the Asia region needs this Bank.That is very, very clear and the voice is veryloud in this region. It is the wish of this Bankthat all shareholders will strongly support thisBank’s effort in its fight against poverty.Fighting against poverty is, again, a majoragenda in the recently closed Global FinancingConference in Mexico.

78. But this Chair would be quitedisturbed if any constituency ever attempted, atsome point, to force the Management one wayor the other to accept Panel recommendationscompletely and unconditionally. To me, such abehavior is arrogant, rude, and highlyinappropriate. This Bank is devoted tocontribute to economic development and growthby fighting poverty in the Asia region. By itsCharter and its multilateral nature, it should befree from pressures of political agenda of anymember government or congressionalinstitutions. We wish to believe that the rumoredthreat was, in fact, a rumor only. This Bankshould do business in its own way. The ultimateguidance is its Charter, not anything otherwise.

79. In conclusion, this Chair considersthe inspection exercise fraudulent and theconclusions based on this process groundless.Since there is no evidence that any materialdamage has been done to the complainant, theinspection process should not have beentriggered in the first place. There is no case of

noncompliance on the part of the Management.As the Management is already dutifully doingits part along the right course, this Chairconsiders the BIC recommendations eitherunnecessary or questionable. Based on theseobservations, this Chair strongly opposes theBIC Report.

Director representing Japan: Mr.Osamu Tsukahara

91. Director Tsukahara: First of all, welike to appreciate the Committee Chairman,Director Lockhart, Committee members, and allother relevant people’s efforts to make theinspection process reach the final stage. We cansupport Mr. Payne’s proposal concerning thewording of the Board decision and its Minutes.

92. This Chair also supports therecommendations of this Board paper and asksManagement and Staff to cope with themsincerely. It is incumbent on the Managementand Staff to implement what are recommendedby BIC in close consultation with the ThaiGovernment. And it is important to list up inconcrete what needs to be implemented,together with the schedules. Such works shouldbe completed and outcome should be presentedto the Board as soon as possible. With regard tothe Management’s semiannual reports to becirculated to the Board, this Chair believes it isimportant that the follow-up process should notbe just a one-way process from the Managementto the Board. For example, meetings betweenBoard members and staff should be held, ifnecessary, when we receive these reports.

93. Needless to say, the problems andissues identified through this very firstinspection case, like Panel’s site visit andcoverage of inspection, should be seriouslydiscussing during the ongoing policy reviewprocess. The Japanese Director’s Office willmake a positive contribution to the process. ThisChair would like to remind the Staff that it is ofcritical importance to listen very carefully toNGOs’ and others’ opinions.

94. In our understanding, corruptionclaim with regard to this Project has beeninvestigated by NCCC of Thailand. Accordingto the Bank’s Anti-corruption Policy and para.

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8.03 of the Loan Agreement, the right of theborrower to make withdrawals may beterminated after due process like consultationwith borrower when, with respect to anycontract to be financed out of the proceeds ofthe loan, corrupt or fraudulent practices wereengaged by borrower and others, as theborrower has not taken timely and satisfactoryaction to remedy the situation. NCCC’sinvestigation outcome may have critical effecton this Project. ADB should remind NCCC ofthe need to accelerate the investigation processto reach a conclusion.

95. We have some other comments.There are four of them. First, the Panel Reportand the Board paper before us have made not afew critical points against the Management andStaff like policy noncompliance with regard tothis Project, delay in inclusion of some policiesin the OM, and non-response from theManagement to the BIC’s inquiry. Furthermore,there seems to be criticism from residents andNGOs that they were not treated in a sinceremanner during the inspection process. We askrelevant parties to seriously reflect on what theyshould, and pay due attention in future activities.

96. Second, the Board paper states that itdoes not behoove ADB well for a response toengage in a criticism of the Panel’s Report. IfStaff did have such attitude, it would be aserious issue. If they did not have such intention,we think Management should make it clear.

97. Thirdly, the fact that the Panel didnot make a site visit is an important point interms of the ongoing policy review. In any view,we want to emphasize that smooth relationsbetween the Panel, BIC, or any otherorganization that participates in the inspectionprocedure under the revised new inspectionpolicy, and the borrower has to be establishedwith close consultation during theimplementation process of the inspection.

98. No. 4, some important conclusions ofBIC were virtually made at internal meetingswithout observers. Such process may give rise totransparency issue of the inspection process andwe think this needs to be revisited when wediscuss inspection mechanisms.

99. Finally, a couple of personal notes,part of which I am sure I can share with you,Mr. Chairman, and my Board colleagues here.No. 1, I believe most Board colleagues, as wellas Management and Staff, are convincedthrough this experience of Samut Prakarn casethat current ADB inspection procedures have anumber of deficiencies, including a matter ofDMC representation in the BIC as mentioned byDirector Zhao. I would like to urge Managementand Staff that the Review of Inspection Policyshould be speeded up so that the revised policycould be made effective as soon as possible.

100. Secondly, throughout pre-Boardand other discussions with Staff, I learned someof the staff members did not fully understand theimportance of inspection process, not only forthe stakeholders of the Project but also theimportance of inspection process for ADB itself.Needless to say, inspection process or theexistence of inspection mechanism itself ensuresound project implementation, just like theAdministrative Tribunal and other grievanceprocedures ensure sound implementation ofpersonnel welfare and other policies for staffmembers. I remember similar discussion whenthe Administrative Tribunal was proposed toADB, especially discussion against theintroduction from within BPMSD.

101. Therefore, I believe Managementand senior staff members who are present at thismeeting should make every effort so that ADB’sstaff, especially those in the operationaldepartments fully understand the implication ofInspection Policy of ADB, the implication to thestakeholders of ADB projects, implication to theshareholders of ADB, including both DMCs anddonor countries’ capitals, and implication toADB itself and implication to ADB staffthemselves.

102. With these comments, I would liketo reiterate my support for the recommendation.

Alternate Director representingthe United Kingdom, Germany,Turkey and Austria : Mr. FrankBlack

Alternate Director Black: I was verytaken by Director Zhao’s cooking analogy.

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Another well-known phrase came to my mindabout too many cooks and I do have theimpression that around this table, we are 12trying to represent 59 cooks, all trying toproduce the same dish, all using a differentrecipe and none of us have the right ingredients.It is a difficult task. I would also make a plea onbehalf of members of the Inspection Committee.A lot of people have complimented us on ourhard work. I would make a plea to the Board inthe Bank to liberate us from this task as rapidlyas possible. It is an impossible task. It gets us nothanks from anyone and I don’t actually knowwhat value we add.

156. There is another Board paper thathas been circulated and now it is in the publicdomain so I can refer to it on another inspectionrequest, Sri Lankan Southern Highway. DirectorAhmed and myself were asked to produce theInspection Committee response on this. I did thefirst draft, include it with Director Ahmed. Ournames appear on that paper. That paper reachesa different conclusion. We find the BankManagement’s response convincing and we donot recommend an inspection in that case. I amalready waiting for the onslaught of criticalmaybe even abusive e-mails and letters that willhit my desk when that report becomes public.This is a no-win situation. It is a very dubioussystem that places individuals in this kind ofposition. I don’t see why the entire Board, giventhe wisdom that it has couldn’t look at therequestor’s complaint, the Management’sresponse, and make this decision without mehaving to filter it for them, particularly given thereaction to the filtering that we have done onthis case.

157. This Chair, and the authorities werepresent, have watched with concern, somesorrow and some disbelief, as this first ever fullinspection process has played out over the pastmonths. We are keen to know how the Bankwould react to this first ever inspection. Withconfidence, with maturity, with an adherence tothe highest principles of governance? Would itbe able to accept findings by a properlyconstituted independent panel, however hard orunfair the Bank might think those findings were,and show that it could learn from even a difficultadverse situation? Well, no, sadly, it did notprove capable of such a reaction. Rather, as we

have watched events unfold (and as I in mypersonal capacity have served as a member ofthe Inspection Committee), it is too oftenseemed to us that the Bank was in danger ofdigging an ever deeper hole in which thecredibility of its inspection process would beburied. Needless to say we hope that the Bankwill learn from this unfortunate experience, andplace a revised inspection process in placewhich will reflect the highest principles ofgovernance. There are many useful lessons to belearned.

158. For my authorities, again this is avery different perspective from others that haveemerged today, the really fatal error, the point atwhich a bad situation became infinitely worse,was when the Bank’s Management, under coverof a memo signed by you personally, Mr.President, and I will come back to that, rejectedtotally the findings of the independent Panel.This was the point at which alarm bells beganringing loudly in my capital and others, becausethis represented such a departure from the normsby which quasi sovereign internationaladministrations such as this Bank must allowthemselves to be regulated and accountable. TheBank’s sovereign members, its shareholders viatheir representatives serving in their individualcapacities on the Inspection Committee (andultimately in their representative capacities onthe Board), could, indeed, as Director Mankadhas said, have decided that the Panel’s reportwas so clearly and gravely in error that it berejected and that Management perhaps needeven not bother responding to it. Where Idisagree with Director Mankad is in thesubsequent intervention by Management in theform of the memo from the Office of theGeneral Counsel offering a furtherinterpretation, a further stir to the Board withregard to textual and contextual analysis afterthe Inspection Committee had issued its finalrecommendation. Perhaps this was a grave errorof judgment. We believe that this Board wouldhave been perfectly capable of reaching its ownconclusions from an analysis of the paper laidbefore it. The Management should not havecome back at that stage in the process.

159. What we on the inspectionCommittee did, far from finding that the Panel

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report was gravely flawed or in serious error, theInspection Committee with unanimity, felt thePanel had done a very thorough, creditable job,given the constraints and there were many thatthey faced. We asked the Management torespond. Now aside from any interpretations ofaccepted international norms with regard to thefindings of properly constituted independenttribunals or panels, it is clear even from theBank’s own Inspection Policy that there is anexpectation that Management will, howeverreluctantly, accept the Panel’s findings and focuson remedial measures. Paragraph 44 of theBank’s policy paper is very clear: after thePanel’s findings are known, the InspectionCommittee meets with Management and theDirector representing the country concerned todiscuss what remedial measures. There is noplace in the procedures for second guessing thefindings of the independent Panel. The role ofthe Inspection Committee and this Board is thento decide what is feasible and appropriate and toinstruct the Bank to do what is necessary toaddress any failures this Board perceives asbeing finally proven. The Board may welldecide that the Bank, as a learning institution,has already taken adequate remedial measures,and that very little needs to be done. That is, Ithink, largely the case with the Panel’s SamutPrakarn findings. They do not make greatdemands on the Bank. Given this, it is evenmore regrettable that the Bank Managementcould not indicate that, in a spirit of acceptanceof the principles of accountability, transparencyand independence of process which mustunderpin the inspection function, that they couldaccept the Panel’s findings. If they had thengone on in a few lines or even a few paragraphsto indicate where they felt that the Panel had notbeen entirely fair to Management, where itsanalysis was perhaps lacking, I do not think anyof us would have minded. That would have beenperfectly acceptable but the integrity of theprocess would have been preserved. This Bank,or at least its Management, does not seem tohave fully understood from the outset in thiscase, how very important perceptions that thisintegrity of process has been observed are to thestanding of this Bank in the wider internationalcommunity. Mr. President, you will know thatthis principle of accepting the findings of anindependent Panel is one to which my Britishauthorities attach the highest importance, and

you have received appeals from the highestlevels in DFID in recent days to step back evenat this stage, and acknowledge that the BankManagement should, as an important matter ofprinciple, have accepted the Panel’s findings. AsI have said, the Bank could then certainly havecontested some of the detail though not to theextent, or with the language used, in theresponse that Management did send.

160. The Bank enjoys an extraordinarydegree of immunity for the consequences of theactivities it funds under national andinternational law.

161. The Bank is in the even moreprivileged position of determining through itsBoard the extent to which it will be accountablefor its actions, and how they affect ordinarypeople, in the places where they live and work.These are the people, poor people, whoseenhanced welfare and liberation from povertyprovide the overarching reason for the Bank’sexistence. The inspection process is therefore ofvital importance if this Bank takes itscommitment to the poor seriously, and if bydoing so it is willing to be accountable to them,and not just to the governments andshareholders, for its activities.

162. The Bank, to show itsaccountability, transparency and capacity to be alearning institution must have an inspectionprocess which lives up to the highest standardsof governance: these are standards to which theBank has committed itself publicly.

163. It is unfortunate that the SamutPrakarn experience does not show an institutionliving up to these high and necessary ideals. Partof the problem was, as others have said, theinspection procedures to be followed: the flawednature of aspects of these procedures becameapparent only as the Inspection Committee triedto implement them for the first time, and as wedid so, also trying to protect the essentialindependence and impartiality of the inspectionprocess.

164. We agree with Director Payne’scomments that the review of this process mustclearly define the roles and responsibilities of allthe key parties involved in any inspection

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process. This must include not just therequestors, Bank Staff and Management, mustalso include your own role in this, Mr. President.This Chair regards it as essential that, in his dualrole as Chief Executive and Board Chair, andremembering that the Board is the ultimateadjudicator in this process, the President shouldbe seen to be as neutral in his stance as possiblein an inspection process.

165. With this in mind, we would havepreferred to see the Management’s response tothe Panel’s report delegated to, and signed offby, the Operational Vice-President, in order topreserve distance and neutrality. If there are tobe further inspections with the currentprocedures in place and I hope there are not, wewould recommend that this course of action befollowed.

166. While dwelling on learning lessonsfrom Samut Prakarn, some staff, perhaps fromoverzealousness caused by going into thisuncharted territory for the first time have, webelieve, seriously transgressed acceptablebehavior. Some allegations regarding staffbehavior are so disturbing that we will befollowing these up bilaterally and will seek aninvestigation if they are proved to besubstantiated.

167. However, the most importantreaction now is for Bank to live up to our selfproclaimed status as a “learning institution,” tomove on, to absorb the lessons learned fromthese events. We strongly welcome the review ofthe inspection process and the plans to consultwidely about it, including some of ADB’s mostvociferous NGO critics. The Bank, through thisreview, is giving the right signals that it is takinggreat care to learn from the lessons of SamutPrakarn, and from the experience of other,comparable institutions. We are seeking aninspection process for this Bank which willreflect the highest ideals of governance, andwhich will, hopefully, save this Bank from everhaving to sit through another meeting like thisone today. I hope we would all hope not to seethat happen again.

168. To conclude, this Chair fullysupports the report and recommendations of theInspection Committee, and wishes to record itsthanks to the members of the first everInspection Panel to be mandated by the Board ofthis Bank.