World Bank Panel Details Problems at Yacyretá Dam

WASHINGTON, DC, May 10, 2004 (ENS) - The World Bank funded Yacyretá Hydroelectric dam on the Paraguay-Argentina border has harmed the lives and environment of about 4,000 families, a nongovernmental organization representing them has complained to the Bank. In response, the Bank asked an independent Inspection Panel to review the project. On Thursday, the panel reported that the families have legitimate grievances.

The group, the Federación de Afectados por Yacyretá de Itapúa y Misiones (FEDAYIM), claimed the Bank violated its own policies and procedures in relation to the design and implementation of the Yacyretá project, which received World Bank loans totaling $878 million between 1979 and 2002.

The World Bank Board of Executive Directors Thursday discussed the panel's findings, and also management’s official response to the review.

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The Yacyretá Hydroelectric dam controls the Parana River on the Paraguay-Argentina border. (Photo courtesy Entidad Binacional Yacyretá)
Edith Brown Weiss, who chairs the Inspection Panel, said that the “Yacyretá investigation has been the most complex ever undertaken by the panel.”

Brown Weiss told the Board that the Bank complied with its policies and procedures in some areas of concern, but not in many others.

On the major environmental issues raised in the FEDAYIM request, the panel found that the Yacyretá reservoir did not cause flooding of urban creeks, contaminate the Parana River, or spread diseases.

But the panel did agree with FEDAYIM that the dam was at times being operated at a higher level than provided for in the project’s legal agreements.

While the panel found that the biophysical impacts from the major dam and reservoir were being managed competently, the panel stated that a number of important environmental problems remain at the resettlement sites.

There was inadequate evaluation of the environmental impacts of roads, water, sewerage and drainage facilities at the resettlement sites, the panel found.

On social issues, the panel said that the Bank fell short on implementing its policy on the resettlement of families and businesses affected by the Yacyretá project. The project will require the relocation of infrastructure and resettlement of a total of about 33,000 people on both banks of the river.

The panel determined that a number of people were omitted from a 1990 census used to establish compensation and resettlement benefits.

Alternative resettlement sites were not considered; there was no transparent and independent procedure for hearing grievances, and the impacts of resettlement sites on adjacent areas were not fully assessed, the panel determined.

The report highlighted a need for improved project supervision, better census and survey data, wider public disclosure of information, and more effective consultations with affected groups.

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Power lines leading from the Yacyreta dam (Photo courtesy Entidad Binacional Yacyretá)
Bank management noted that some of the project’s problems stemmed from a series of extended economic and political crises in Argentina and Paraguay, and "resulting delays and uncertainties that have significantly increased the cost of the project."

Currently, a lack of funds is preventing the project operator, Entidad Binacional Yacyretá (EBY), from completing the project and realizing the full generating capacity of the dam.

"The inspection panel's review strengthens the case of the Paraguayan and Argentinean citizens' groups who oppose filling the Yacyretá reservoir," said Glenn Switkes, Latin America program director of California based International Rivers Network.

"The Inspection Panel also confirmed that the reservoir has been routinely operating at one meter above its 'official' level, adversely affecting still unresettled riverbank communities, and possibly generating additional energy than officially accounted for," Switkes said.

“We are extremely grateful for the work of the Inspection Panel, and the positive relationship we have enjoyed during this process," said David de Ferranti, World Bank vice president for Latin American and the Caribbean. "Its findings are constructive, and we believe the Action Plan we have put together responds to the issues raised in the panel’s report.”

The action plan proposed by the World Bank management has three themes:

The Bank's Executive Directors approved the management action plan, and welcomed management’s decision to provide them with a progress report that will detail what further measures will be taken to address problems identified by the panel. The Inspection Panel will review management’s action plan and implementation measures for the Board.

This report, which will be provided within 90 days, will include progress made in the implementation of the Bank’s action plan and additional measures identified, including social and economic impacts of the project and measures taken with respect to the 2,416 families already relocated and the 6,000 families waiting to be relocated in Paraguay.

Progress on implementing grievance procedures for affected people will be covered as well as decisions taken with regard to the water level in the reservoir and its potential impacts.

The report will also address what the Inter-American Development Bank (IDB) is doing with respect to Yacyretá, and how the IDB and the World Bank have been collaborating on issues identified during the inspection.

But this approach does not go far enough to address the underlying problem of corruption, government and nongovernmental sources say.

The persistent allegations of massive corruption at the $11 billion project are now under investigation by official commissions in both Paraguay and Argentina.

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Senator Richard Lugar of Indiana chairs the Senate Foreign Relations Committee. (Photo courtesy OFfice of the Senator)
The U.S. Senate Foreign Relations Committee, headed by Senator Richard Lugar, an Indiana Republican, is including Yacyretá in an investigation of corruption in World Bank funded projects. The first public hearing is due to open on May 13.

The Bank welcomed the committee's review, and Bank officials said they will cooperate with Senate officials.

In a letter to World Bank President James Wolfensohn date April 20, Senator Lugar noted Yacyretá's $8 billion cost overrun and asked if the World Bank has "considered ordering an internationally accepted financial audit of the Yacyretá Dam project."

"Perhaps the crucial issue involving Yacyretá - its sordid history of corruption - was dodged by the Inspection Panel," says Switkes.

"It difficult to imagine that the World Bank did not know that billions of dollars was being siphoned off from the project, when they had to approve all contracts with consultants and construction companies. An independent investigation of the role of international banks and corporations in the financial aspects of the project is urgently needed."