EurasiaNet Business & Economics - Rigged Bid Allegations Halt World Bank Loan

BUSINESS & ECONOMICS

RIGGED BID ALLEGATIONS HALT WORLD BANK LOAN - SOURCES

10/17/02

According to two sources, the World Bank rescinded part of a loan to the Georgia International Oil Company (GIOC) due to allegations of contract rigging. The turn of events is prompting fresh scrutiny of the country’s energy sector development and international financial institution lending practices.

The American Chamber of Commerce in Georgia, which is hosting a business roundtable on October 23, has begun airing grievances about corruption among official Georgian institutions. Around the time that the Chamber formally started trying to document mismanagement in state contracts, EurasiaNet learned of the bid-rigging allegations from an American source who has worked extensively on Georgian energy projects. The source asked for anonymity. He alleged that GIOC had privately told an Italian bidder to promise to hire Georgians to conduct environmental impact assessment on pipeline projects. At the same time, the source says, GIOC told four other bidders that they did not need to include provisions on local hiring practices in their applications.

The World Bank suspended the loan after learning of the unfair practices allegations. Manana Kochladze, who runs a Tblisi environmental advocacy organization called Green Alternative and covers the Caucasus for an advocacy group called CEE Bankwatch, confirmed this story.

The allegations involving GIOC appear to have damaged investor confidence. "The issue was that GIOC essentially gave four other companies also participating in bidding different instructions than to the Italian company," said Kochladze, citing people involved in the bidding process. After receiving complaints from four bidders, Kochladze says, the World Bank renounced the disputed part of the bid.

Georgia has long been troubled by corruption. Peter Shaw, a British executive working for the European Union, was kidnapped in June; some charge that law-enforcement officials were involved in his kidnapping. [For more information see the Eurasia Insight archive]. Fady Asly, the head of the American Chamber of Commerce in Georgia, suffered a grenade attack at his office, supposedly a warning from a rival businessman or an assassination attempt. While it presses for Shaw’s release, the Chamber is also exploring how the Georgian government squanders opportunities to realize tax revenue from oil and gas activity. Its members heard a presentation on this topic on September 27; it appears on the Chamber’s web site. The report concludes that the state collects roughly 25 percent of what it could gain in energy-based tax revenue.

The GIOC allegations are raising broader questions about whether the World Bank allocates project-based aid prudently. The American source says the $9.6 million loan, known as the "Georgia Energy Transit Institution Building Project" and active on the Bank’s project list since March 13, 2001, pays for work that duplicates much more cost-effective efforts by Georgians and other aid agencies. The World Bank did not respond to repeated requests for comment, but groups including Kochladze’s have criticized GIOC for stoking unrealistic hopes of pipeline-related employment or profit among rural Georgians.

With GIOC, the World Bank borrower, facing accusations of offering contracts on corrupt grounds, some critics believe the bank’s lending practices in Georgia should undergo a thorough reexamination. "They are prepared to extend a loan for millions for hiring foreign experts rather than to make sure that citizens are properly compensated," said the American source. "I also hear that they are now trying to make amends after criticism by non-governmental organizations. But in my opinion it is not enough."

The American source said the World Bank could forge meaningful improvement by demanding that its dollars go to efficient and transparent projects. Episodes like the alleged bid-rigging call attention to foreign contracts that "make a mockery of efficiency," the source charges.

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