PRESS RELEASE

Cambodia: World Bank Releases New Statement and Update

June 6, 2006

PHNOM PENH, June 6, 2006 - As a follow up to statements made regarding the World Bank's program in Cambodia on May 28, 2006 and June 4, 2006, the World Bank issued the following update today:

Following completion of last year's Fiduciary Review, which the World Bank and Government of Cambodia conducted as a joint effort, the World Bank's Institutional Integrity Department (INT) has now investigated contracts under several projects and has found problems in seven projects.  Two of these projects – the (ongoing) Biodiversity and Protected Areas Management Project (BPAMP) and the (closed) Flood Emergency and Rehabilitation (FERP) – were investigated as a follow-up to last year's Fiduciary Review.  Investigations into the other five projects were based on referrals by individuals to INT in Washington.  These additional projects were the Agricultural Productivity Improvement Project (APIP); Forestry Concession Management and Control Pilot Project (FCMCPP), both of which have been completed; Land Management and Administration Project (LMAP); Provincial and Rural Infrastructure Project (PRIP); Provincial and Peri-Urban Water Supply and Sanitation Project (PPWSP), all of which are ongoing.

It is important to note that the Fiduciary Review and the recent INT investigations are different.  The Fiduciary Review was undertaken jointly with Government and was intended to detect weaknesses in systems, help Government develop an action plan to address these and reduce the opportunities for corruption.  At that time, no prior complaints had been received for any of the four projects that were included in that Review (Road Rehabilitation, Rural Investment and Local Governance, Flood Emergency and Rehabilitation, Biodiversity and Protected Areas).  The more recent INT investigations were in-depth investigations into contracts alleged to have been affected by corruption in the seven projects.

The investigations by INT over the past year have uncovered sufficient evidence to substantiate allegations of fraud and corruption under certain contracts in each of these World Bank-funded projects.  Such irregularities need to be corrected and measures need to be taken to minimize fiduciary risks in the future.

The World Bank has now decided to suspend disbursements with respect to part of three ongoing projects (LMAP, PRIP, PPWSP), given the problems found in contracts under these projects – and has issued letters officially informing the Government of this decision.  The Biodiversity project will not be suspended as little procurement remains to be done before it closes in December 2006. 

Suspension is a remedial measure available under all World Bank loan agreements.  It can be exercised by the World Bank in a number of situations, including when the borrower is not fulfilling its obligations under the loan agreement.  Suspension entails a temporary freeze on the World Bank's financing of implementation; it does not mean that the World Bank withdraws from the concerned project.  On the contrary, the World Bank steps up its supervision, dialogue and other activities to help the Government in its efforts to meet the conditions for lifting the suspension.

Suspending disbursements on these three projects has been an important but difficult decision.  The World Bank has found that these projects are having a development impact; all three aim to assist some of the poorest people in Cambodia.  Nearly 400,000 people have received land titles through the land project, adding to their income security.  Through the provincial road project, 66 kilometers of roads have been repaired and improved in the first year of project implementation, expanding access into rural areas and better linking Cambodians to markets and services; by the end of the project a total of 300km of secondary roads and 100km of tertiary roads will have been rehabilitated and maintained.  And in the case of the water supply and sanitation project, 30 towns and communities now have access to safe water and improved sanitation services.

The World Bank recognizes, as indicated in the Government's press release of June 3, that suspension of disbursements under these three projects will directly affect implementation of the projects.  But the World Bank has also concluded that the important work of these projects cannot continue until the fraud and corruption problems that have been identified are addressed.

This is all the more important because corruption hurts the poor disproportionately – as they are more reliant on publicly provided services, are less able to pay for such services and less able to resist corrupt officials and practices.  Corruption also distorts the relationship between the poor people and those with authority and undermines people's confidence in politicians and the judicial system.  For these reasons, it is vital that the Government addresses the problems that have been identified with these projects and deals head-on with corruption.

The suspension is designed to allow the Government the opportunity to address the problems identified, so the valuable work of the projects can resume.  Each suspension would be lifted after the Government has implemented an action plan, agreed with the World Bank, to introduce new measures for each of the three projects.  The action plan would detail the necessary remedial measures to correct abuses made in the past and also to minimize fiduciary risks in the future.  Before any new project in the same sector could be considered for possible World Bank support, it will be important that the Government is able to demonstrate a significant track record of performance with respect to the implementation of these action plans.

In addition, the World Bank has declared that a number of contracts have been misprocured under the three suspended projects.  Misprocurement occurs when a World Bank-financed contract is not awarded in accordance with the procedures agreed between the World Bank and its borrowers, and departs from the conditions reflected in the legal agreement.  The consequence is cancellation from the World Bank credit/grant of the amounts allocated to such contract and a World Bank request to the Government for repayment of credit/grant amounts already disbursed in respect of such contract.  

In the case of the Provincial and Peri-Urban Water and Sanitation Project, the World Bank has declared seven contracts misprocured because of corruption and $1.8 million equivalent will be cancelled from the World Bank credit.  In the case of the Provincial and Rural Infrastructure Project, the World Bank has declared six contracts misprocured because of corruption and $5.1 million equivalent will be cancelled from the World Bank credit.  And in the case of the Land Management and Administration Project, the World Bank has declared seventeen contracts misprocured because of corruption, and $0.7 million equivalent will be cancelled from the World Bank credit.  For all concerned contracts, the World Bank is asking the Government to promptly refund to the World Bank any credit/grant amounts that have already been disbursed against such contracts.  In addition, the World Bank is finalizing its review of contracts that have been investigated under the other four projects (APIP, FCMCPP, BPAMP, FERP), and will be informing the Government shortly of the actions that need to be taken with respect to these contracts.

Three years ago the World Bank agreed with the Government and other donors to make governance a central focus of our program, in our Country Assistance Strategy.  Today our activities focus on strengthening governance and minimizing corruption both at the project level and more broadly in the country.  The World Bank expects to continue engaging with Cambodia by: taking appropriate action to address the INT findings, strengthening the fiduciary systems for future operations and supporting the Government more broadly in strengthening its own fiduciary systems, and continuing to focus new financial support and analytical work on systemic governance reforms that support progress towards building transparent and accountable institutions.

The World Bank believes that transparency is a key ingredient to fighting corruption in Cambodia, and is working to respond to many public requests for more information about the investigations.  However, given that the investigation process is still underway and that due process needs to be followed, we cannot release a lot of detailed information.  Information about the specific contracts and the nature of the problems substantiated has been provided to the Government.  Information about companies may be released if they are debarred from participation in future World Bank-financed projects as a result of the investigation.  Information about government officials can only be given by the Government of Cambodia – and further action, if warranted, would be handled by the country's own judicial processes.  To date, there has been no evidence to suggest that World Bank staff have been involved in these irregularities; and if there were to be such evidence, the World Bank requests that such evidence be provided immediately to its Department of Institutional Integrity at investigations_hotline@worldbank.org or http://www.worldbank.org/integrity.

Media Contacts
In Bangkok
Kimberly Versak
kversak@worldbank.org
In Washington
Melissa Fossberg
mfossberg@worldbank.org

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