Argentina: World Bank Board Discusses Yacyreta Hydroelectric Project

WASHINGTON, May 7, 2004— The World Bank Board of Executive Directors Thursday discussed the findings of the independent Inspection Panel review of the Yacyretá Hydroelectric Project, and also management’s official response to the review.

The Inspection Panel review of the Yacyretá project was in response to a request from the Federación de Afectados por Yacyretá de Itapúa y Misiones (FEDAYIM), a Paraguayan non-governmental organization representing around 4,000 families who believe their lives and environment are being harmed by the project.This group 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 Bank’s Executive Directors commended the Inspection Panel’s report, and approved the action plan put forward by management as a first step toward addressing the problems identified by the Panel,”said World Bank President James D. Wolfensohn. “Management committed to report back to the Board in 90 days on what further steps need to be taken, and what parts of the action plan have already been implemented.

Edith Brown Weiss, Chairperson of the Inspection Panel, noted that the “Yacyretá investigation has been the most complex ever undertaken by the Panel.”In her address to the Board, she stated that “it is essential for affected people to have an impartial forum to address their concerns.” Brown Weiss went on to highlight the Panel’s findings, which concluded that the Bank complied with its policies and procedures in some areas of concern, but not in many others.

Concerning the major environmental issues raised in the request, the Panel found that the Yacyretá project reservoir did not cause flooding of urban creeks, contaminate the Parana River, or spread diseases. The Panel found, however, that the dam was at times being operated at a slightly 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 problemsremainat the resettlement sites. In particular, there was inadequate evaluation of the environmental impacts of roads, water, sewerage and drainage facilities at the resettlement sites.

On social issues, the Panel said that the Bank fell short on implementing itspolicy on the resettlement of families and businesses affected by the Yacyretá project. In particular, the Panel found 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 report also highlighted a need for improved project supervision, better census and survey data, wider public disclosure of information, and more effective consultations with affected groups.

Bank management noted that some of the project’s problems stemmed from a series ofextended 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 preventingthe project operator, Entidad Binacional Yacyretá (EBY), from completing the project and realizing the full energy-generating capacity from the dam.

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

The Action Plan proposed by management has three key themes:

Support of EBY’s social communication program aimed specifically at clarifying what compensation schemes are available to affected communities, reducing uncertainty of those awaiting resettlement, and providing a forum for people to get information and express opinions.Assist in development of a dispute resolution mechanism that would provide a suitable means of addressing concerns, without undermining the appropriate role of the judiciary as the last resort for dispute settlement.An improved supervision and monitoring framework that would include twice-yearly Bank supervision missions to Yacyretá, expanded documentation of subjects raised by affected communities, suitable budget capacity for high levels of supervision, and the addition of a civil society specialist and an urban planner to the project team.

The 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 grievance procedures;What the Inter-American Development Bank (IDB) is doing with respect to Yacyretá, and how the IDB and the Bank have been collaborating on issues identified during the Inspection;What decisions have been taken with respect to the reservoir’s water level, and their potential impacts.

The Inspection Panel is an independent entity within the World Bank that reports directly to the Board of Executive Directors. Its mandate is to ascertain, in response to requests related to specific projects, whether the Bank has complied with all applicable policies and procedures with respect to project design, appraisal and supervision.

The complete Inspection Panel Investigation Report and the Management Report and Recommendations in Response to the Inspection Panel report, will be available at:

Inspection Panel website:www.inspectionpanel.org

World Bank Argentina website:www.worldbank.org/ar