Funds Frozen as World Bank Alleges Misuse

The Ministry of Finance has suspended funding for three projects supported by the World Bank and worth more than $64 million after the Bank discovered irregularities in contracts and misuse of funds in a total of seven major projects. Disbursement of World Bank funding has been suspended for the Ministry of Land Management’s $24.3 million Land Management and Administration project; the Ministry of Rural Development and the Ministry of Public Works and Transport’s $20 million Provincial and Rural Infrastructure project; and the Ministry of Industry’s $19.9 million Provincial and Peri-Urban Water and Sanitation project, according to documents obtained.

The grants and loans for the three projects total $64.2 million out of $243.92 million now being spent on active World Bank-funded projects in Cambodia.

Finance Minister Keat Chhon announced the suspensions in letters dated May 19 to Land Management Minister Im Chhum Lim and Rural Development Minister Lu Laysreng.

“I would like to inform Your Excellency that regarding the Land Management and Administration project, the World Bank has informed us that there is an irregularity in the implementation of this project,” Keat Chhon wrote to Im Chhum Lim.

“The World Bank also informed us that this problem is serious and could lead to complete annulment and the Royal Government of Cambodia must pay back all budget to the World Bank for the amount of money that had been offered through the wrong contract,” he wrote.

Keat Chhon wrote that the Finance Ministry moved to suspend the withdrawal of budgetary funds from the National Bank account designated for the project “in order to avoid the loss of financing and negative impact on policy.”

Identical wording was used by Keat Chhon to inform Lu Laysreng of the World Bank’s findings in the Provincial and Rural Infrastructure project and the suspension of its financing.

A separate May 22 letter from Keat Chhon to National Bank of Cambodian Governor Chea Chanto orders the accounts on all three projects to be frozen.

Lu Laysreng acknowledged on Sunday the detection of an irregularity within his ministry’s project but laid at least part of the blame on the World Bank.

“I admit that there is some irregularity inside the ministry’s spending, but whatever we have spent and bidding were made by consent between the ministry and [World Bank] consultant,” he said.

“Why did the consultant fail to report about the irregularity since the beginning? The consultant was involved,” he alleged.

Lu Laysreng said that he had met with World Bank country manager Nisha Agrawal and told her that the problem was due to the Bank’s consultant, who he claimed was paid a massive salary.

“I request that the consultant return back all that amount of money,” he said.

“I would like to stop accepting foreign consultants,” he added.

Industry, Mines and Energy Minister Suy Sem could not be reached for comment, however the secretary of state in charge of waterworks said that the Bank’s investigation was due to confusion.

“The suspension is a first step in an investigation, the project will continue after the investigation is finished,” Phork Sovannarith said.

“It was due to confusion. When the investigation is finished then the truth will have been found and the project will continue as usual,” he said.

In a response to detailed questions sent to the World Bank on Thursday, World Bank Country Director Ian Porter said in an e-mail message on Sunday that seven projects in Cambodia were found to have problems. He did not name the projects.

“A total of seven projects were investigated by the Bank’s Integrity Department (four current projects, three which had already been completed), and problems were found in certain contracts in each of the projects,” Porter wrote.

“The problems included misuse of funds and misprocurement (meaning that guidelines for paying for goods and services were not adhered to),” he wrote.

“The Government has taken immediate action and suspended disbursements on three of the current projects in order to limit the damage,” he added.

Porter wrote that the government and World Bank are considering a number options in response to the findings of irregularities including “seeking repayment of funds that were misused and suspending or closing the projects involved.

“The Government and the Bank are in the process of discussing these options…to reduce the likelihood of further corrupt acts,” he said.

Agrawal said on Sunday that answers to detailed questions about the investigationÑincluding the government contracts involved, dollar amounts lost to misuse, and whether World Bank employees were somehow involvedÑwould have to wait as the investigation is unfolding.

In June 2003, misprocurement was identified by the World Bank in a project to demobilize 30,000 RCAF soldiers. The government repaid the Bank $2.8 million following warnings by the Bank that failure to do so could threaten funding for other projects.

A senior official at the Ministry of Land Management confirmed that the ministry received the notification from Keat Chhon. “The minister alone handles this project,” the official said. Keat Chhon and Im Chhum Lim could not be reached for comment on Sunday.

Both Finance First Secretary of State Kong Vibol and Finance Secretary of State Chea Peng Chheang declined to comment.   Yim SovannÑthe Sam Rainsy Party lawmaker who chairs the Home Affairs, Defense and Anti-Corruption Commission at the National AssemblyÑsaid that officials involved in corruption should be prosecuted and those involved in misusing donor funds should be reprimanded.

“The government has never prosecuted corrupt officials and there is impunity,” he said. “As the chairman of the National Assembly commission on anti-corruption, I will look carefully into this case and press the government to investigate fully.”

Yim Sovann called for the long-delayed Anti-Corruption Law to be passed immediately, adding that Cambodia’s image abroad is being damaged by the revelations of the misuse of donor funds.

“Infrastructure is crucial to the alleviation of poverty in this country and land titling needs to be accelerated, and this could slow it down. The rich and powerful are seizing a lot of land,” he said. “Cambodians will suffer because of this.”

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