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ADB Accountability Mechanism : Proposal for a New ADB Accountability Mechanism: A Two-Step Approach of Consultation and Compliance Review
C. Specific Issues Related to the New ADB Accountability Mechanism37. The following specific issues relating to the mechanism received significant comments during the internal and external consultations: (i) relationship between the consultation phase and the compliance review phase; (ii) application to private sector operations; (iii) cost implications; and (iv) site visits. 1. Relationship between Consultation Phase and Compliance Review Phase38. Complaints relating to an ADB-assisted project under the proposed accountability mechanism will first go to the consultation phase without seeking to establish ADB's accountability under the compliance review phase. The reasons for this sequence are as follows: (i) the filing of complaints about a project is not necessarily contingent upon the alleged noncompliance by ADB with its operational policies and procedures, and (ii) the objectives of the consultation phase are to listen to complaints from the project-affected people and to facilitate the resolution of the problem on the ground, whereas the objectives of the compliance review phase are to establish whether the direct and material harm complained of by the project-affected people is the result of ADB's failure to follow any of its operational policies and procedures in the course of the formulation, processing, or implementation of the project. 39. Since the objectives of each phase are different from the other phase, it is theoretically possible to run the consultation phase and the compliance review phase in parallel, allowing project-affected people to make a choice. Nevertheless, the proposed accountability mechanism places the consultation phase first for the following reasons: First, the project-affected people are more interested in having their complaints addressed first rather than focusing on the establishment of ADB's accountability, which may not necessarily result in a satisfactory resolution of the complainant's problem on the ground. Second, it is more urgent to address the alleged direct and material harm complained of by the project-affected people than to deal with the question of compliance, which will remain irrespective of the resolution of the problem. Third, it is in the interest of economy and efficiency to have the consultation phase proceed before the compliance review phase in terms of the urgency of addressing alleged direct, material harm and ADB's resources, as ADB is not in a position to conduct two separate processes at the same time right from the outset when the complaint is filed. 40. Fourth, in any event, eligibility and fact-finding must be undertaken under either phase, and such information gathered under the consultation phase will be shared with CRP under the compliance review phase. Fifth, the time taken in accessing the accountability mechanism will be minimized so that the complainant is free to file a request for compliance review as soon as possible. The complainant can file a request either when the complaint is found ineligible by the SPF (at the end of step 3 of the consultation process) or in the event of an eligible complaint, when the complainant receives the SPF's findings on his/her review and assessment of the complaint, and decides not to proceed with the consultation phase (at the end of step 4 of the consultation process). 41. Finally, the informal and flexible consultation is a more conducive forum and should be carried out first to address the problems of the complainants in view of the limited remedies available under the compliance review phase, which may not necessarily resolve the complainant's problem on the ground. Although the proposed mechanism contemplates the filing of a request for compliance review even before the completion of the consultation phase, a request for compliance review is not an appeal to a higher body of authority in the form of an appellate jurisdiction. Irrespective of whether a problem on the ground is resolved or not to the satisfaction of the parties concerned, the question of accountability remains. The filing of a request for compliance review is, therefore, a separate process altogether for that purpose. 42. On occasion, there could be serious concerns on compliance issues from a complainant who also wishes to file a request for compliance review while carrying on with the consultation process. To accommodate these concerns, the complainant may also file a request for compliance review at any time during the implementation of the course of action (step 7 of the consultation process). Proceeding to file a request for compliance review will still be consistent with the purpose of the new ADB accountability mechanism in first addressing the problems of the complainants on the ground, followed by a compliance review. 2. Application to Private Sector Operations43. The current Inspection Function excludes ADB's private sector operations, which represent less than 5% of ADB's lending activities. In establishing the Inspection Function, the Board stipulated that the application of the inspection procedures to ADB's private sector operations should also be considered in the review of the Inspection Function. 44. The same objectives for enhancing accountability and ensuring compliance exist with respect to private sector operations as with public sector operations. Private sector projects financed by ADB can have similar impacts on project-affected people as public sector projects. Most of ADB's operational policies apply to its private sector operations, with some variations in operational procedures to reflect differences in private sector project cycles. Unlike public sector operations, judicial actions against private sector project sponsors are not barred by ADB immunity, and thus project-affected people may be able to bring their claims for harm in domestic courts (although ADB's immunity will be raised to defeat the affected people's action against ADB). Appendix 6 gives an account of the specific issues on the application of an accountability mechanism to private sector operations that were raised during the consultations. 45. IFC and MIGA focus on private sector operations. The IFC/MIGA CAO Office has three roles (ombudsman, advisory, and compliance). The compliance audit cannot be triggered directly by affected persons, but through ombudsman investigations, at the request of management or at the CAO's initiative. In addition to public sector operations, the IDB independent investigation mechanism applies to private sector operations such as loans and guarantees but not to equity operations. The IDB mechanism has limited experience with private sector claims involving IDB loan funding. The EBRD mechanism applies to both public sector and private sector operations. 46. The new ADB accountability mechanism will apply to private sector operations (loan, guarantee, equity investment to the extent that ADB's operational policies and operational procedures are covered by it, or technical assistance [TA] grant). 3. Cost Implications47. The costs associated with an ADB accountability mechanism are of widespread concern-not only the direct costs of operating the accountability mechanism but also the indirect costs of staff time and the potential increases in costs of implementing projects. The cost estimates for the first inspection authorized by the Board in the Samut Prakarn Wastewater Management Project were approximately $1.7 million in ADB staff time and resources, and $200,000 for the ADB panel. The cost estimates for the inspection request on the Southern Transport Development Project in Sri Lanka are about $160,000 in ADB staff time. These estimates do not include BIC costs related to the inspections. 48. By comparison, in 2001, the WB panel's budget allotment was $2.0 million and its expenses were about $1.8 million. In 2002, the WB panel's budget allotment was about $2.5 million and its expenses were about $2.4 million. In some years, the WB panel utilizes all the funds, but in slower years it has had a surplus. The expenses are directly related to the number of inspections that are carried out within a given year. WB management has also expressed concern about costs in terms of staff time. For example, the management estimated that the China Western Poverty Reduction Project (Credit No. 3255-CHA and Loan No. 4501-CHA) inspection-probably the most expensive and controversial claim under the WB system-cost $1.5 million in staff time and resources. 49. By contrast, the 2001 operating budget for the IDB mechanism was $236,500, of which $45,000 was spent due to the small workload. 50. In 2002, the IFC/MIGA CAO Office had an annual operating budget of about $1.6 million. Although several of the CAO's complaints have been handled with minimal resources, a full mediation process can be labor intensive and costly. The ongoing mediation involving Peru's Yanacocha mine, for example, has reached $2.5 million in costs (at least 80% of which is being paid by the company, which has received the value of increased dialogue with the affected community). The President of the WB Group has agreed to contribute more funds if needed. 51. Also significant are the costs relating to time spent by the ADB Board and BIC on inspection matters. BIC's investment in the inspection process requires extensive time and resources. If other requests come in, BIC members may not have time to fulfill their other Board duties. Currently, BIC has one professional staff member and one administrative staff member, both on a part-time basis. BIC has no extra resources or staff for assisting with the workload. Since WB, IDB, and the IFC/MIGA CAO Office do not have Board committees with this role, no comparisons can be drawn in this regard. 52. DMC governments, in particular, have also expressed concerns that an accountability mechanism may directly or indirectly increase the costs of projects financed by ADB as the result of project delays or change in project design. Experience with other MDB accountability mechanisms suggests that project delays and significant changes in project design as a direct result of inspections are relatively rare. Moreover, any remedial changes suggested by OSPF or CRP that would result in changes in project design would have to be made in consultation with the concerned DMC and Management, and will have to be approved by ADB in accordance with its procedures. In any event, the filing of a complaint with the SPF or a request for compliance review with CRP will not affect project processing or implementation. 53. Some indirect costs related to policy compliance in projects may be unavoidable if one assumes that an independent compliance review panel is effective in improving compliance with ADB's operational policies and procedures. These costs reflect the costs of doing business under policy frameworks adopted by the Board in enhancing ADB's development effectiveness and project quality. 54. The new ADB accountability mechanism will entail significantly more direct costs than the current system. It will require the SPF at the equivalent level of director general and three CRP members. The SPF will be full time, and the chair of CRP will be full time for a minimum of 1 year. The consultation process and the compliance review panel will each have a full-time secretariat (one professional staff member and two administrative staff/national officers for the consultation phase, and two professional staff members and three administrative staff/national officers for the compliance review phase). 4. Site Visits55. Site visits in borrowing countries under the inspection policy have become a particularly controversial issue that affects the independence as well as effectiveness of the panel investigation. In both the internal and external consultations, there were strong voices saying that site visits are essential for the effectiveness of compliance review, stakeholder participation, and independent verification of facts and alleged policy violations. As a result, some stakeholders have suggested that ADB must insist on site visits in the new mechanism; otherwise, the process will be compromised. Some of these stakeholders suggest that site visits and general cooperation with the panel should be included in the conditions of loan agreements for all projects, similar to the requirement that member governments permit entrance to ADB representatives, including its officials and staff. On the other hand, DMC governments have legitimate concerns that they should be able to schedule and condition site visits based on the local context. In part, DMCs are concerned that the inspection process creates a misperception that the DMC government has done something wrong and is being inspected. Some argue that requiring site visits unconditionally infringes on the DMC's sovereignty, and that DMCs have every right to turn down a site visit, both legally and within the current procedures. 56. If, as many stakeholders believe, site visits are important to the compliance review process, then a sensible approach is to enable site visits to take place in consultation with the borrowing country. When the Board approves the proposed mechanism, the policy and procedures should assume the good faith cooperation of all parties in the compliance review process, including the borrowing country. This would also contribute to a collaborative spirit of improving ADB accountability and policy compliance. Seeking prior consent of the borrowing country, under an operating assumption that such consent would be routinely given, would be preferable to the heavy-handed approach of including conditions in the loan agreement. For this reason, ADB does not propose at this time any changes regarding site visits during panel investigation. ADB expects that site visits will be a routine and noncontroversial aspect of the accountability mechanism in the future, and that the ADB accountability mechanism personnel and borrowing countries will cooperate with each other to enhance the effectiveness of the compliance review process.
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