Box 1: New infrastructure-related institutions
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World Without World Bank
Date: 21st April, 2022
Venue: Seminar Hall II, Kamla Devi Complex, India International Centre, New Delhi
Theme: World Bank & International Finance: Legacy, Lessons & Current Struggles
Register to attend: https://forms.gle/AfGiUHjVjZCXgGGz8
The World Bank and IMF are having their Spring Meetings virtually from the 22nd to 24th of April, 2022 where these institutions will go ahead and laud themselves for the achievement of dolling out billions of dollars for supporting economies through the pandemic and in rebuilding. Through these loans it is defining development and reshaping policies and economies and the questions of accountability of these institutions keep getting brushed under the carpet.
Since the past few years, the Working Group on IFIs (WGon IFIs) has been organizing the World Without World Bank campaign where civil society, activists, grassroots movements, trade unions come together to question and challenge Multilateral Development Banks, their influence, policies and investments which. For the past three years, WGonIFIs have been conducting social media campaigns and conducting online webinars questioning and challenging these institutions. Last year, we looked at the role of MDBs in pushing for farm laws(now repealed) and the role of the World Bank and IMF in pushing the agenda of privatization, commodification and corporatization.
Theme: The World Without World Bank will be organized under the theme of World Bank & International Finance: Legacy, Lessons & Current Struggles. As MDBs in the past two years have redefined themselves, they have also used pandemic to bring in new investments and policy loans with very less deliberations on accountability considering the impact and scale of policy changes these investments bring. This exists along with project investments which bring in human rights violations, environmental and social degradation. Despite having accountability frameworks none of these accountability mechanisms have either provided relief or justice to the people. It is time we examine the newer complex ways in which these institutions operate and dodge accountability. This is also an opportunity to look beyond MDB’s and look at the new funding modalities like private equity funds, sovereign wealth funds, pension funds and more and look at the issues of accountability in context of these funds and also explore how we can look at the issues of accountability in context of these changing realities and of traditional project finance where failures and gaps within of accountability systems are more than evident.
As the Financial Accountability Network and Working Group on IFIs we have been addressing, questioning and challenging these developments collectively. This year we are organizing the three panel discussions under the banner of World Without World Bank as a physical event at IIC, Delhi.
On the 21st April, a one-day seminar (3 panels) on accountability in the context of MBDs and changing world of finance. Given the inflow of private funds, bilateral funding, pension funds and many others constantly changing the dynamics of financing and accountability, it’s important for us to collectively understand and strategize as to how we want to monitor and hold financiers accountable in this increasingly complex financing situation.
Register to attend: https://forms.gle/AfGiUHjVjZCXgGGz8
To join virtually:
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Meeting ID: 892 8556 4286
Indian groups submit recommendations for AIIB’s review of their Environmental and Social Framework
The Asian Infrastructure Investment Bank (AIIB), after four years of its operations, is undertaking a review of its environmental and social framework. 30 Indian Civil Society Organizations submitted their recommendations and concerns regarding the process of review and it’s content and scope.
As one of the biggest recipients of AIIB’s funding, this process has significant meaning for India especially, given the context and trajectory of development followed. India, in recent times, has focused on developing massive infrastructure, which require enormous investments. This resulted in India opening itself to mega projects financed by international, national and private financial institutions. In these circumstances, it is essential for Multilateral Development Banks like AIIB to develop robust, comprehensive and strong environmental and social policies which are implemented and monitored well. To merely rely on the country systems is not enough; rather the ESF should go beyond the country system to strengthen them further. At a time when other MDBs are also undergoing review of their policies, AIIB should take a progressive leap as the first MDB from the global south to show its commitment towards building infrastructure through robust policies and with entire commitment towards protecting people and the environment.
In the four years of operation, AIIB’s membership has grown to 102 approved members worldwide and has funded 64 projects across Asia to the tune of USD12.24 billion. India alone has received investments close to USD 3 billion for the 14 approved projects. These projects include investments in energy, transport and water sectors. Of the 14 approved projects 4 are financial intermediary projects and 4 are co-financed projects. Of the current approved portfolio for India, 33.33% projects are co-financed and the other 33% are financial intermediary projects while only 33% constitutes stand alone projects. Co-financed and FI projects with current policies only bring limited liability and accountability for AIIB. The AIIB’s current ESF is not adequate to prevent risk and harm arising from this form of lending. The policy is inadequate and needs to be relooked. In its brief lending history, AIIB has funded several projects of mega scale which are been marred by massive environmental and social concerns like the Mumbai Urban Transport Project – Phase III (MUTP), Bangalore Metro Rail Project – Line R6 both projects of massive scale. The now scrapped Amravati Sustainable Capital City Project, which was being considered by AIIB for financial support as a co-financer along with World Bank as the lead financier, also speaks volume for the need to have multiple checks and balances.
Currently, 5 projects worth USD1.7 billion are proposed for financing in India. These include energy, water and transport sector Projects. Chennai Metro Rail Phase 2 Project – Corridor 4 is one of them, which is a co-financed project. The other to proposed project to watch out for is Karnataka Rural Water Supply Project (KRWSP) worth UDS 400 million which will basically promote Public-Private Partnership (PPP) models in water supply and sanitation.
Read the full statement
In a press release issued early last week, the World Bank has announced that the review of its independent accountability mechanism, the Inspection Panel, has been completed and that a few major reforms were added to the Inspection Panel. Accordingly, a new accountability mechanism – an “expanded” one as the Bank says, called ‘World Bank Accountability Mechanism’ will be in place from September 2020 and will constitute two separate roles – the Inspection Panel (IPN) will focus on the review of compliances of projects with Bank’s operational policies and a separate Dispute Resolution Mechanism (DRS) will resolve the grievances of affected communities, in a time bound manner, instead of compliance review. While housed under one umbrella, the DRS will organisationally be separate from the IPN to ensure its effectiveness and to avoid conflict of interests.
New Roles, Governance Structure
Independent Accountability Mechanisms (IAMs) of Multilateral Development Banks have different governance structures and varied roles with assigned functions. It is necessary to see the new reforms of WB’s IPN in comparison to the previously established roles of both Compliance Advisor Ombudsman (CAO) of the International Finance Corporation (IFC) and Accountability Mechanism (AM) of Asian Development Bank (ADB), since most of the complaints from Indian communities have been registered with these IAMs.
There were only four IAMs that offered both compliance review and dispute resolution services – namely CAO of IFC, the Complaints Mechanism (CM) of European Investment Bank (EIB), AM of ADB, and Independent Review Mechanism (IRM) of African Development Bank (AfDB). Now WB’s new IAM will also offer both compliance review and dispute resolution.
The CAO reports to the President of the World Bank Group, while the dispute resolution component or ‘problem solving function’– the Office of the Special Project Facilitator in ADB’s AM report to the Bank President, and the compliance review component – Compliance Review Panel in AM report to the Board of Directors. The new IAM of WB will be governed by an ‘Accountability Mechanism Secretary’ (AM Secretary) who will be appointed by and report directly to the Bank’s Executive Directors. While administratively integrated in this new mechanism, the IPN members will remain fully independent and continue to report directly to the Board on all compliance investigation matters. Which effectively means, the DRS staff will report to the AM Secretary who then will report to the Board, whereas the IPN will directly report to the Board (Whereas, the CAO staff along with its three functions – dispute resolution, compliance and advisory- report to the CAO Vice President).
Organisationally in the new IAM, the IPN will have no role in DRS. The IPN will continue to be constituted and operate as established in the IPN Resolution.
Operationally, the new IAM will apply the existing eligibility criteria of IPN for compliance for its dispute resolution function. There will be no change to the current practice of recommending eligibility, when a complaint is registered, based on the IPN’s current eligibility criteria. During the eligibility phase, the IPN recommends eligibility for compliance. After the Board has approved the eligibility for compliance, the AM Secretary will offer an opportunity for dispute resolution to the parties. If Borrower and Requesters voluntarily agree to go for a dispute resolution, the case will be referred by the AM Secretary to the DRS. The AM Secretary will inform the Board, the IPN and Management of the parties’ decision. In case the parties agree to use the DR process, the compliance process of the IPN will remain in abeyance. If the parties do not agree, the AM Secretary will inform the Board, the IPN and Management and the case will be taken up by the IPN for a compliance investigation. The Parties to the DR process would be the Requesters and the Borrower’s relevant project implementing agency.
While ADB’s AM has a slightly different approach – one can approach its problem solving function office – the Office of the Special Project Facilitator and file a complaint regardless of whether ADB operational policies and procedures have been violated ( this mandate is required only if one is approaching the Office of the Compliance Review Panel).
Meanwhile, the CAO’s Ombudsman function responds to dispute resolution complaints and if they are not solved, they are transferred to the compliance review function.
Extended Eligibility time limit for Requesters to file Complaints
Except the IPN, almost all other IAMs had established their own mechanisms much earlier. They all have longer eligibility time periods for complaints registrations than the IPN. Yet, In the case of the CAO, the eligibility ends when the institution’s engagement with the client or the project ends. Whereas for AM, the latest date by which a complaint can be filed is 2 years after the loan or grant closing date. This date is known in advance, disclosed to the public, and can be found on the ADB website. Their brochure also shows the timeline in which a complaint is processed and responded to.
For IPN, this time requirement will be changed so that any request filed up to fifteen months after the closing date of the loan financing the project can be accepted by the IPN. This requirement will be applicable only to new projects approved by the Board after these changes take effect.
Formal recognition of the Inspection Panel’s advisory role
Advisory services focus primarily on the lessons that the IAMs learn about the functioning of MDB operational policies. The advice can be given as recommendations in specific compliance reports, lessons learned sections in annual reports and in other publications. The CAO has a robust advisory policy, where the CAO provides independent advice to the President of the World Bank Group and management of IFC and MIGA. CAO advice focuses on broader social and environmental concerns, policies, procedures, strategic issues, and trends. CAO’s focus is on preventing future harm and improving IFC/MIGA’s performance systemically as their policy states,
The IPN did not have explicit advisory authority. The IPN does provide informal advice through statements in its compliance reports and its publications, including its annual report and Emerging Lessons series. The press release states that this advisory role has been formalised from 2018.
Formalization of the Inspection Panel’s practice of coordinating with co-financiers’ accountability mechanisms on joint complaints
The World Bank engages in co-financing arrangements with other MDBs. In these cases, requesters could file requests for investigations regarding the same set of issues with the IAMs at two institutions. This always led to two challenges. The first challenge arises when one IAM receives a request regarding a project whose agreements stipulate that the policies of another institution govern the project, like the case is with Asian Infrastructure Investment Bank (AIIB). The second arises from differences in the procedures of the two IAMs, such as different time limits for eligibility and different rules on sharing draft reports with the requesters. None of the IAMs have developed any explicit policies or practices on how to deal with these situations. Instead, they have dealt with these situations by signing a case-specific MOU detailing how they will cooperate in investigating the same project. The World Bank is yet to clearly state whether these challenges have been addressed or they remain the same, irrespective of formalising arrangements with co-financiers’ IAMs.
Sharing IPN report with requesters before consideration of the Board
This procedure came into effect from 2018, but is officially declared now under the enhancements for IPN. Earlier, IPN’s investigation report was not shared with the requesters until after the Board had approved it. The requesters maintain that this had created two problems. First, the practice was unfair because requesters were being treated differently from Management. Second, requesters lack the knowledge to engage effectively with Management about the action plan.
Independent and proportionate risk-based verification of Management Action Plans
All the IAMs, except the IPN, are expressly authorized to monitor the implementation of the management action plans (MAPs) developed to address the IAMs findings of non-compliance and the outcomes of dispute resolution procedures. All IAMs that engage in dispute resolution have authority to monitor the implementation of the outcomes of the dispute resolution if the parties so request. In addition, the IAMs including CAO and those at the AfDB, ADB, EIB, EBRD and IDB have authority to monitor the implementation of management action plans developed in response to findings of noncompliance. The authority of the IAMs does vary. In some cases, the IAMs are authorized to monitor all cases in which they have made findings of non-compliance. This is the case with CAO and ADB’s CRP. In the case of the AfDB’s IRM and the IDB’s MICI this authority requires prior Board authorization. It is usually given at the time the board approves the IAM findings on compliance and is based on a recommendation from the relevant IAM.
From September 2020, the IPN can now verify MAPs in those cases where proportion and risk criteria will include (i) urgency of redress, (ii) risk of repetitive harms, (iii) number and vulnerability. The IPN recommendation, generally, will be made after substantial implementation of the MAP or, if the monitoring report indicates lack of implementation, at any stage of implementation. In exceptional cases, upon IPN recommendation, with input from Group Internal Audit, the Board can discuss and assign verification at the stage of approval of the MAP or shortly after. This process will avoid an automatic “one-size-fits-all” approach. The benefit of this option is that the Board would be assured of receiving independent reports on the adequacy of the management action plans, but restricted to few cases only.
How the procedures fell short
The World Bank’s Inspection Panel was the first accountability mechanism (1993) of its kind for the development finance institutions, which was established as a result of people’s struggles against the Sardar Sarovar Dam Project on river Narmada in India. The tenacious campaign around this project led to the formation of the Morse Commission, which strongly criticized the World Bank’s performance in the areas of environment and resettlement of people displaced by the construction of energy projects. Over the years, the Panel has played a major role in trying to adhere to accountability at the Bank and attempting to secure redress of grievances in some cases. Though established as an independent mechanism from the Bank management, the Panel majorly reported the eligibility of the complaint to the Board of Directors of the Bank and did not possess strong recommendatory powers.
When the review of IPN was first announced officially in 2017, Indian peoples movements, civil society and affected communities had called out to the Bank to keenly call forth to strengthen the IPN mandate. While appreciating the World Bank on this effort for a review on the occasion of Inspection Panel’s 25th Anniversary, the CSOs criticised the Bank for giving less than a fortnight to seek comments on this issue. They demanded to extend the deadline by at least two months in the interest of the sanctity of the process. They further stressed that wider publicity should be given to ensure better participation in the process. “The current consultation is designed and carried out to exclude affected communities, for whom the Inspection Panel is established,” the signatories said with much disappointment.
During the deliberations in a symposium organised in India at the 25th year of IPN, in which both the Inspection Panel and Compliance Ombudsman Advisor (CAO) participated remotely, the inadequacy of IAMs in functioning independently and efficiently; lack of capacity and powers to promote and ensure accountability; failure in intervening timely to ensure that the voices of the affected people are adequately heard, addressed and issues resolved; and lack of powers to stay the progress of project construction in cases of extreme violations, were highlighted.
A brief look into the newly released report of the Bank, ‘Report And Recommendations On The Inspection Panel’s Toolkit Review’ (March 05, 2020) shows that the external review “did not make recommendations but provided options in seven areas: (i) advisory services, (ii) Bank Executed Trust Funds (BETFs), (iii) co-financing, (iv) sharing findings with Requesters, (v) problem solving/dispute resolution, (vi) time limit on eligibility for requests and (vii) monitoring of Management Action Plans (MAPs)”. And that subsequently, a Working Group of the Committee on Development Effectiveness (CODE) that included members from all Executive Directors’ offices, was established to consider the areas identified by the Review.
When the Bank announced in 2018 that CODE was inviting submissions from relevant stake holders, the Indian civil society had strongly asked for transparent and wider consultative processes with extended time period for affected communities. Opening up the process; adhering to the principle of free, informed and prior consent; adequate time; holding consultations widely and not in national capitals/metros alone; unmasking the ritual format of such processes; IPN having suo moto powers; IPN having suo moto powers for timely intervention – even during the early stages of project appraisal; IPN having a pro-active role even to delay the progress of any project until the violations of the project have been comprehensively corrected and compensated; IPN having monitoring function; IPN having punitive powers and measures for demanding for a fresh Environmental and Social Impact Assessment (ESIA) wherever erroneous ESIA have been found, were the recommendations from the Indian groups.
During both times, the Bank did not acknowledge the receipt of the submissions from India. Despite the recorded exhaustive measures which were being adopted by the Bank to see through this review, this process has been quite the opposite in nature– opaque, extremely limited opportunities for concerned civil society stakeholders and especially for the affected communities to share relevant inputs. The information available in the public domain was restricting in its scope and the final draft proposal was not shared, despite requests being sent by concerned groups from outside India to the Bank. This was a striking drawback, especially in the wake of IFC having faced defeat at the United States Supreme Court on the Immunity Verdict last year, on the case filed by Indian farmers and fishworkers on serious violations caused by IFC-funded Tata Mundra Ultra Mega Power Project in Gujarat India.
With the assistance of the IPN and Management, CODE identified eleven projects whose stakeholders had experience in the IPN process within the last seven years to provide feedback. The selected projects took into consideration regional representation and included projects that had gone through all the different steps of the IPN process. The procedures for arriving at this decision and who all were the stakeholders from these eleven projects is not in the public domain. This tunnel vision and consequent decision making is flawed.
The entire process lacked transparency and inclusivity.
It is further stated in the recommendations that the new Mechanism will be headed by an “Accountability Mechanism Secretary” (AM Secretary) who will be appointed by and report directly to the Bank’s Executive Directors. The AM Secretary will be responsible for planning and overseeing the processes of the Accountability Mechanism in line with agreed procedures and will be responsible for keeping the records of the AM proceedings. She/He will also oversee the Dispute Resolution Service. All staff of the Accountability Mechanism will report to the Accountability Mechanism Secretary with the exception of the Inspection Panel members, who will continue reporting to the Board of Directors. The DR process would have a one-year time limit in order to provide assurance that the process is not prolonged and incentivize the parties to reach an agreement. This administrative challenge is going to present problems with the affected communities who would find it challenging – in the first place to finish the eligibility process of their complaint in English language, the wait during delayed timeline of these complex processes and now having to identify whether they need a compliance review or a dispute resolution.
While it is appreciated that requesters of complaint can submit their grievances beyond project closure (for new projects with effect to the new change in IPN), a distinct DRS will be operational in six months, and an independent and proportionate risk-based verification of Management Action Plans would be established as an additional assurance, they still do not address the fundamental questions ever posed at the Bank by the communities. Will these changes impact the affected people in any positive way? The tight schedules and methodologies lacked a genuine effort for meaningful consultation. Currently, the onus of identifying Bank’s lending to a particular project, understanding the Bank Operational/Safeguard Policies, knowing about the existence of IPN and developing a complaint in a manner acceptable to IPN is on affected communities. This structure disempowers the communities for they are never consulted in advance with full disclosure of impacts, lenders and of compensation/rehabilitation for their losses in most of the projects. Hence in projects, IPN has knowledge about serious impacts, it should have powers to take suo moto investigation as well as actions. Particularly in cases of high risk or ‘Category A’ projects, knowing the potential irreparable consequences, the IPN should proactively look out for the involvement of the potentially affected communities and facilitate their observations/complaints. Sadly, none of these reflect in the “enhancements” mentioned in the review report for the mechanism which boasts of 27 years’ wealth of documented information and engagement with affected communities and civil societies all around the world.
For Immediate Release
इस सेक्टर में निजी क्षत्रे को आकर्षित करने के लिए सरकार ने 2016 में इस पर चर्चा शुरू की कि नवीकरणीय ऊर्जा के क्षत्रे को और विस्तृत किया जाए ताकि 25 मेगावाट क्षमता से अधिक के जलविद्युत स्टेशन भी उसमें शामिल किए जा सके। इससे सरकार को 2022 तक 175 मेगावाट नवीकरणीय ऊर्जा उत्पादित करने के लक्ष्य को हासिल करने में मदद मिलेगी।
Ulka Mahajan on the Context of the Role of IFIs in the Development Agenda
Jesu Rathnam, Convenor, Coastal Action Network, on the coastal infrastructure and fishers struggle in India
By Tani Alex
Representatives from civil society organizations from all over the world have written a letter this week to the AIIB, drawing urgent attention to rising concerns of AIIB’s investments through Financial Intermediaries (FIs). This is in context of AIIB developing its strategy to invest more in equity and funds, without formulating robust policies and systems around FI investments regarding transparency, accountability and efficient channels of communication with all stakeholders. FI investments mean a “hands-off” or third-party lending, with which comes potential risks – the clients of FIs are not held accountable for the environmental and social safeguards.
The letter urges AIIB to learn from International Finance Corporation’s (private lending arm of World Bank Group) lessons on FIs from the recent past. The Compliance Advisor Ombudsman (CAO), which is IFC’s accountability mechanism, and various CSOs had submitted their own findings regarding the high risk of lending through FIs. Accordingly, the CAO addressed the highly problematic relationship between IFC and the FIs’ clients, wherein it is not assured whether the FIs’ clients ESMS is leading to the implementation of the Performance Standards (of IFC) at the subproject level. IFC’s CEO has already announced that IFC has cut its high-risk lending from 18 to just 5 investments, and has committed such projects to climate mitigation and women-owned SMEs.
Studies carried out by CSOstracking IFC investments in FIs support these findings. The letter explains that the study examined a small segment IFC’s FI portfolio, wherein more than 130 projects and companies funded by two dozen FIs are causing/likely to cause critical environmental harms and human rights violations. The projects spread over 24 countries come from a range of high-risk sectors which includes private military contracting, mining, infrastructure, energy, industrial agriculture, transport and infrastructure. Few of the demands put forth in the letter to AIIB on policy, investment decision-making and contracts with FIs include: high scrutiny on project portfolio, track record of ESF policy, aligning with AIIB’s own ESF even for sub-projects, monitoring FIs’ clients’ ESF due diligence and ensuring project-affected communities have access to redress including the AIIB’saccountabilitymechanism. Moreover, FIs should also adhere to disclosure of its investments, which should reflect in AIIB’s website. A provision for this should also be included in AIIB’s upcoming Public Information Policy. The letter concludes reminding AIIB of its promise delivered by its VP DJ Pandian to CSOs during the AGM Meet at Jeju in 2017, that AIIB will disclose high-risk sub-projects supported by equity funds.
Among the FIs, AIIB has approved and invested in India is India Infrastructure Fund, targeting investments in infrastructure, energy and transport sectors. This project is partnered with the General Partner and its investment team, a global infrastructure investment and management platform, for a period of eleven years. AIIB has approved 150 mn USD, out of the total project cost of 750 mn USD. Another FI project in the pipeline for India is the National Investment Infrastructure Fund(NIIF), considering to invest in roads, airports, ports, power and urban infrastructure. NIIF is established by the Government of India (GoI) who owns 49% stake. Out of the target project fund of 2.1 bn USD, AIIB is considering to invest 200 mn USD, over an implementation period of 19 years, while GoI invests 1 bn USD.
By Nancy Alexander
This year, the G20 Finance Ministers and Central Bank Governors’ Meeting on October 12-13 overlapped with the IMF-World Bank annual meeting on October 13-15 in Washington, DC.
As of December 1, 2017, Argentina becomes G20 President with the past and future Presidents (Germany and Japan, respectively) as part of the G20 Troika. At the October G20 meeting, Argentina announced that it’s two key G20 Finance Track priorities will be the Future of Work (shared with the Sherpa Track and possibly looking at automation, education, and womens’ entrepreneurship as well) and Infrastructure Financing, especially through financialising infrastructure as an asset class. The priorities of the Argentine Sherpa Track will be announced at the final German Sherpa Meeting on 9-10 November in Berlin.
The individual G20 member countries hold the overwhelming majority of votesat the IMF and World Bank, so it is not surprising that G20 priorities are often identical to those of the institutions they dominate. For example, infrastructure financing has been a G20 development theme since 2010 and a powerful Finance Track theme since 2014, except under Germany, when infrastructure issues were dealt with by the Sustainability Working Group and under the Compact with Africa.
Since 2010, the G20 has focused urging the Multilateral Development Banks to standardize, scale-up, and replicate mega-projects, especially public-private partnerships (PPPs) in emerging and developing countries. Indeed, the G20 encouraged the strengthening of existing and start-up of new Project Preparation Facilities (PPFs) with the capability of accelerating mega-project preparation — especially for trade facilitation in the energy, water, transportation and ICT sectors. In each geographical region and subregion, Master Plans for Infrastructure in these four sectors have already been designed.
Especially since 2014, the G20 has tried to solve the problem of how countries can attract private investors, particularly long-term institutional investors (pension and insurance and mutual funds and sovereign wealth funds) which hold over $100 trillion in savings. While the G20 and the MDBs have not succeeded in mobilizing much additional financing for PPPs from investors, efforts to overcome remaining obstacles are described in Boxes 1 and 2.
Until the German Presidency, there was no effort to promote infrastructure that would be environmentally and socially sustainable. Even under the German Presidency, the officials leading the powerful Finance Track said that sustainability is the job of the (less powerful) Sherpa track. Infrastructure contributes approximately 60% of greenhouse gases (GHG) emitted to the atmosphere; therefore, it is crucial that urgent steps be taken to curtail infrastructure that locks-in carbon-intense technology and ensure that infrastructure meet criteria for mitigation of GHG and adaptation to the effects of global warming. At present, all such criteria are voluntary whereas the rights of investors are legally protected in trade/investment agreements and the PPP contracts that include investment provisions.
Box 1: New infrastructure-related institutions
The G20 has directed each multilateral development bank to expand infrastructure financing for years, especially by “crowding in” the private sector. At the Hamburg G20 Summit in July, Leaders adopted principles to achieve this. These principles underpin the theme presented at the IMF/World Bank annual meetings — namely “Maximizing Finance for Development” (also known as the “Cascade” or “billions to trillions”). The October 14 Communique of the Development Committee emphasizes this theme, which is actually a relatively new paradigm for financing infrastructure.The IMF and World Bank’s two papersfor the Development Committee meeting describe this paradigm and its implementation.
While the World Bank is tasked with expanding private investment in infrastructure, the IMF’s Infrastructure Policy Support Initiative provides tools to help countries assess the macroeconomic and financial implications of various investment programs and improve their institutional capacity.
The gist of the “Maximizing Finance for Development” paradigm is that nothing should be publicly financed if it can be commercially financed AND that if commercial financing is NOT forthcoming for a project, a country must promote a more investment-friendly environment and/or private sector guarantees, risk insurance and other inducements should be provided. My blog criticizes the paradigm, which relies heavily on expanding the launch of PPPs, including by packaging them in portfolios for trading.
There are Cascade pilots in nine countries (Cameroon, Côte d’Ivoire, Egypt, Indonesia, Iraq, Jordan, Kenya, Nepal and Vietnam) which are intended to introduce private sector solutions in energy, transportation, and other infrastructure sectors. The pilots will gradually expand to include other sectors and countries.
The “Maximizing Finance for Development” paradigm responds to the G20 interest in attracting private investors, especially long-term institutional investors such as pension and insurance and mutual funds as well as sovereign wealth funds. As it is, OECD pension funds ($30 trillion) and insurance funds face staggering gaps and potential insolvency unless they can get higher yields on their savings. Many long-term institutional investors, such as pension funds, will work with hedge funds and private equity funds to deploy their assets under management (AUM) in infrastructure portfolios for these higher yields.
The idea of this paradigm is for the public sector to take high risks at the early stages of project identification, design and construction and the long-term investors to take a revenue stream over 20 or 30 years. To counter this agenda, a Global Campaign Manifesto on PPPswas launched by 152 national, regional and international civil society organisations, trade unions and citizens’ organisations from 45 countries to “sound the alarm on dangerous PPPs.
Megaprojects and PPPs are not inherently dangerous, but when their design fails to produce adequate social and environmental co-benefits and heap risk on governments, they become so. When risk is heaped onto governments, PPPs tend to increase inequality by privatizing gains and socializinglosses. The World Bank “Guidance on PPP Contractual Provisions” proves how heavily the World Bank proposes heaping risk on governments as well as introducing “stabilization” procedures that would inhibit the right to regulate/legislate in the public interest. Motoko Aizawa summarizes key critical pointson the Guidance and links to the legal analysisof the Guidance by the firm Foley Hoag. Despite major problems with the “Guidance” – it will be launched in Cape Town, Kuala Lumpur, and possibly Abidjan — unless the process is stopped in order to radically revise it.
|In Africa, the “Compact with Africa” report by the Africa Development Bank, World Bank, and IMF (March 2017, Baden Baden) describes how public utilities would be taken “off balance sheet” and user fees and domestic resources would be mobilized, along with aid, to shoulder public risks and, meanwhile, development banks would offer guarantees and liquidity facilities to offset risks to the private sector.
The heavy policy conditionalities proposed by the G7/G20 for each African country participating in the “Compact” include requirements that governments use the World Bank’s “Guidance on PPP Contractual Provisions” which would impose enormous risks on governments while hobbling their capacity to protect the public interest. The conditions also require that governments develop Systematic Investor Response Mechanisms (SIRMs) to satisfy investor grievances before they reach international tribunals (Investor-State Dispute Settlement). Concerns for investors are not matched by concerns for citizens who often lack even basic information about the development of projects that will affect their lives.
In light of the heavier push for financialising infrastructure, we have a recent NEPAD announcement which calls for African asset owners to raise the percentage of assets under management for infrastructure from 1.5% to 5%. This strategy is aggressively promoted by Africa’s Continental Business Network (CBN), which issued a communique in September calling for the adoption of this strategy at the AU Summit in January 2018 with a roadmap presented to the African Finance Ministers meeting in March 2018 as well as the G7 and G20 Summits later in the year.
Box 2: G20 compact with Africa
The G20 will measure the performance of each MDB by the extent to which it leverages private investmentand, in turn, the MDBs will measure the performance of many countries by how effectively they leverage private investment.
In conclusion, the “Maximizing Finance for Development” approach would create greater reliance on commercial financing and reduce the need for World Bank lending to governments, as would the Trump/Mnuchin push to reduce World Bank lending operations to creditworthy countries (See FT 10/13/17 “US Demands China loan rethink as condition of World Bank cash”). If these approaches are implemented, the World Bank could shrink as the Asian Infrastructure Investment Bank (and others) expand. Potentially the finance available for public goods (stable finance, sustainable development and climate goals, urban infrastructure such as sanitation…) would become even more scarce. Privatization and deregulation would give market players, even the predators, freer rein.
By Maju Varghese
The Constitution of India has accorded the Parliament the supremacy among the three organs of the Union government viz legislature, executive, and judiciary. Parliament not only makes the laws but also enables the citizens to participate in controlling the government. The Parliament applies various oversight mechanisms to ensure transparency and accountability in the system. The two mechanisms available in our country are questions and debates on the floor of the house and various committees which scrutinise the public finances and policies.
The budget session of the Parliament was held between January 31 and April 12, 2017. The session had a recess between Feb 10 and March 8, 2017, during which the standing committees examined the demand for grants from various ministries. The session was convened in the context of upcoming assembly elections and also of post demonetisation distress.
This session was important for many reasons. The budget was introduced on February 1 instead of the last working day of February as per the tradition. The government claims that advancing the presentation will result in necessary legislative approval for annual spending plans and tax proposals could be completed before the beginning of the new financial year. According to eminent economist Arun Kumar, early presentation of Budget will help the entire exercise to get over by 31 March, and expenditure, as well as tax proposals, can come into effect right from the beginning of new fiscal, thereby ensuring better implementation.
Besides advancing the date, the government decided from this year to merge Union Budget and Railway Budget. Earlier, Railway budget was presented first followed by the general union budget. Another interesting development this year is doing away with the distinction of the plan and non-planned expenditure in the budget-making monitoring difficult on capital infusion in developmental planning.
The budget session held 29 sittings for 178 hours in total in which 24 bills were introduced, and 23 bills were passed. Members raise 560 starred questions and 6440 un-starred questions during this session.
Some Major debates in the Parliament
The budget session saw the introduction of some major bills and discussions around those. These are: The Finance Bill, 2017; The Specified Bank Notes (Cessation of Liabilities) Bill, 2017; Bills related to Goods and Service Tax; The Payment of Wages (Amendment) Bill, 2017; the Maternity Benefit (Amendment) Bill, 2017; the Mental Health Care Bill, 2017; and the Employee’s Compensation (Amendment) Bill, 2017.
Analysis of Questions in Parliament
During the budget session, about 6440 un-starred questions and 560 starred questions were admitted in the parliament. However, the lack of interest in the functioning of the IFIs was evident as just 7 questions asked on the topic in Lok Sabha out of 5203 questions, and 7 in the Rajya Sabha from the total 5064 questions. The break-ups of the questions are given below.
|IFI Name||Lok Sabha||Rajya Sabha|
Rising NPA’s and Parliament
The debate on Non-Performing Assets continued to be debated in the parliament with many parliamentarians raising the issue through questions. There were about 18 questions asked in the Rajya Sabha and 21 questions in Lok Sabha. K.V Thomas, then chairman of the standing committee on public accounts, said that the current non-performing assets stood at 6.8 lakh crore or 6.8 trillion of which 70% are those of big corporate houses. There were debates on the bad bank and how the banks could be cleared of the mounting NPAs. Interestingly, the same bankers who were asking the state to take care of their bad debts came against debts being waived off for farmers who are facing an acute crisis due to a variety of reasons leading to suicide deaths.
New trend of undermining democratic institutions
The Parliament is witnessing a new trend of bypassing Rajya Sabha in important matters including amendment of acts where both Lok Sabha and Rajya Sabha is responsible. The introduction of the Finance Bill first with 10 amendment of acts and later to change 40 different acts including Reserve Bank of India Act as well as the Representation of the People Act was according to opposition first in the history of Parliament itself. This act has robbed the Parliament its right to refer the bill to a standing committee or to scrutinise it clause by clause as to every amendment and the power of Raja Sabha to discuss, propose and incorporate amendment.
The very fact that the finance bill is a money bill gives the option of not incorporating Rajya Sabha view in the bills. All the five amendments passed in the Rajya Sabha was not incorporated into the finance bill, and it was passed as such. Centre has got 22 Money bills passed in Lok Sabha ignoring the Rajya Sabha, and this has kept a bad president for the functioning of the democracy as such.
Executive legislation through Ordinance rather than legislation
The ordinance is an independent legislation brought out by the Executive; it is the wisdom and authority being exercised by the Executive. An Ordinance can only be done in extraordinary situations when the houses are not in session or a critical condition. The Ordinance encroaches the right of the parliament in law making.
The government seems to issues ordinance after ordinance despite the fact that this could be brought before the parliament for legislation in the first instance. According to the PRS Legislative, the government in the last three years has promulgated 27 ordinances, including the ones on land acquisition, demonetisation, payment of wages bill, etc. Many of the ordinances were promulgated multiple times. It is interesting to read the observation of the Constitution Bench of the Supreme Court observation in Krishna Kumar Vs State of Bihar delivered on January 2, 2017, that promulgation of ordinances is a fraud on the Constitution and a subversion of democratic legislative processes. The latest subversion is the Banking Ordinance, on which the finance minister refused to share details of the ordinance before Presidential assent.
While there were interesting debates in the parliament this session, it seems some of the issues are not being captured in the discussions. This includes life and livelihood issues of people who are getting displaced/ affected by development projects, investments of bilateral and multilateral agencies including World Bank, Asian Development Bank, IFC and new development banks like New Development Bank, Asia Infrastructure Investment Bank, etc. A point to make in this regard is about New Development Bank, a multilateral Bank initiated by BRICS nations. There seems to be no real engagement of the Parliament in influencing the nature of the Bank given that Mr K. V. Kamat is the chief of the Bank. The Bank is in the process of developing its policies with regards to the environmental and social framework, disclosure policy, etc in their lending.
The other major lack of oversight is on negotiations in the trade policy. India is Negotiating a free trade agreement, Regional Comprehensive Economic Partnership – RCEP  in the Asia Pacific region. According to India FDI Watch, “In the past four years and to this day, no text has been made available to members of the public, parliamentarians, civil society or media,”. The trade negotiations are happening under a veil of secrecy where Parliament and parliamentarians are kept in the dark.
Parliament does not have an institutional space like Standing Committee where trade negotiations, Indian investment abroad and Multilateral and Bilateral investments to India and its effects on Indian policy environment is being discussed. The failure of the Standing Committee to come out with a report on the demonetisation in this session with full facts and figures were a let down on the process particularly when it was announced that it would come out before the end of the budget session.
 The finance bill is for ordinarily introduced to give effect to financial proposals of the Government of India for the following fiscal year and not to make permanent changes in the existing laws unless they are consequential upon or incidental to the taxation proposals.
 RCEP is a 16-nation trade pact that includes the Association of Southeast Asian Nations (ASEAN), along with China, Australia, India, Japan, South Korea and New Zealand, a region that accounts for 46 percent of the world’s population and that produced nearly 30 per cent of global GDP in 2016.