SEPTEMBER 1999 · VOLUME 20 · NUMBER 9

Follow your own rules, and stop doing business with corrupt companies.

That is the message of the International Rivers Network, the Environmental Defense Fund and other environmental groups as they called on the World Bank in September to debar companies accused of bribing the former head of a major and controversial Bank-funded dam project in Southern Africa [see "Making the Earth Rumble: The Lesotho-South African Water Connection," Multinational Monitor, May 1996].

Between 1988 and 1998, a dozen major international dam-building companies allegedly bribed the former head of the Lesotho Highlands Water Project (LHWP), Africa's largest infrastructure project, allegedly depositing over $2 million in bribes into his Swiss bank accounts.

The bribes were revealed in July in a court case brought by the Lesotho government against the official, Masupha Sole, and were reported in the July 29 edition of Business Day, a South African newspaper.

The list of companies involved reads like a who's who of the dam-building industry. The reported bribes ranged from a low of $2,456 (Diwi Consulting, Germany) to as high as $733,404 (Highlands Water Venture, an international consortium which includes the French firm Bouygues). Other well-known companies include the Swedish/Swiss ABB ($40,681), France's Spie Batignolles ($119,393), Acres International of Canada ($185,002), Impregilo of Italy ($250,000) and ED Zueblin of Germany ($447,000).

The World Bank's procurement guidelines state it will "declare a firm ineligible, either indefinitely or for a stated period of time, to be awarded a bank-financed contract" if the firm is found to have "engaged in corrupt or fraudulent practices in competing for, or in executing, a bank-financed contract."

World Bank spokesperson Richard Uku told Multinational Monitor that the bank is currently conducting its own investigation. The "Bank will definitely take concerted action one way or another" after it has finished its investigation," he says.

"We also think it's important to emphasize that this [the LHWP] is a great project because it will bring water to millions of people," Uku adds.

The LHWP involves five dams, miles of tunnels dug through the Lesotho mountains and a small hydropower component. The project is intended to deliver water from Lesotho to South Africa's biggest urban area, including Johannesburg and Pretoria.

A World Bank-supported social fund intended to help affected communities in Lesotho "has been and continues to be a tool of opportunistic politicians," according to the Transformation Resource Centre and other Lesotho NGOs representing people impacted by the dam.

"Punishing the corrupt multinationals involved with the LHWP and closely monitoring the implementation of the project's social fund would reassure us of the World Bank's concern," the groups said in a statement.

Environmental groups have been harshly critical of the LHWP.

Diverting a huge amount of water "has had an extremely negative impact on the vulnerable rural highlands communities who have lost fields, grazing lands and access to fresh water sources due to the construction of the project," says Korinna Horta of the Environmental Defense Fund in Washington, D.C.

Environmentalists also point out that South Africa could meet its water needs through a modest application of conservation measures by rich white heavy users, making the Lesotho diversion completely unnecessary.

Although the Bank maintains a list of ineligible firms and has debarred seven firms since its new policy on corruption was approved in 1997, so far the Bank has indicated that its rules may not apply to this high-profile case because the alleged bribes are not directly tied to Bank project funds.

Bank officials have pointed out that its contribution (a $150 million loan) only makes up 5 percent of the financing towards the project.

"The Bank was supposed to be responsible for financial management of the project, not just their own funds," responds Patrick McCully of the International Rivers Network.

"At a time when there's a lot of rhetoric coming from the Bank about addressing corruption," McCully says, "they should at least be taking action on this case, which is the clearest-cut dam corruption case in the world, though by no means the worst."

Critics also point out that while the Bank claims it only provided a small portion of the actual project financing, Bank officials used the project loan agreement to threaten legal action and try to block the Lesotho government from dismissing Sole in late 1994. The Bank insisted that his dismissal would "seriously jeopardize the progress of the project." Sole was dismissed in 1995.

All of the companies implicated in the scandal are from countries that have signed the Organization for Economic Cooperation and Development's convention on corruption and bribery, which obliges signatories to adopt national legislation similar to the U.S. Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act makes it a crime for U.S. citizens or corporations, or their subsidiaries or agents, to bribe foreign public officials. None of the OECD countries have ratified the convention, which in any case would not apply retroactively.

"The tragedy is that the only one who suffers may end up being the guy who takes the bribe while all these companies get off," McCully says.

If the Bank were to debar the companies involved, it would have major implications for the structure of the international dam industry. Impregilo, for example, is currently working on at least seven World Bank-supported dams.