World Bank Dam "Monument To Corruption"

Were Argentina and Paraguay to try to sell the Yacyreta dam today, that is how their newspaper ad might read.

The two countries began constructing the dam, one of the world's largest, nearly 20 years ago. They hoped it would generate electricity and potentially expand lucrative energy exports.

Nine years behind schedule and billions of dollars over budget, the asset has long since turned into a massive liability, fuelling a campaign to sell it off to the private sector, most likely, at a hefty loss.

Let the buyer beware: An internal World Bank document obtained by IPS confirms reports by media and non-governmental organizations (NGOs) that the project has proven an economic, ecological, and social disaster.

When the Yacyreta project started 16 years ago, it was expected to cost around $2.6 billion. Recent estimates put the likely cost on completion, slated for 1998, at between $11 billion and $12 billion.

"The new price tag makes it the world's second most expensive dam, with the second highest cost overruns, after the Itaipu dam just upstream," according to Glenn Switkes, Latin America program director of the California-based International Rivers Network (IRN).

Runaway project costs moved Argentine President Carlos Menem to dub Yacyreta a "monument to corruption."

Between them, the World Bank and Inter-American Development Bank (IDB) have loaned the project some $1.6 billion since 1979. The money has gone to a binational commission, the Entidad Binacional Yacyreta (EBY), established to manage the project under a 1973 treaty.

The dam seemed doomed from the beginning, according to an Aug. 19 World Bank audit report.

Although the first loan was signed in November 1979, a contract for construction was not signed until October 1983 because "a dispute on the procurement of the major civil works began in late 1980," the Bank document states.

But in 1982, before the work had begun, "the actual demand for electricity was already lagging 25 percent behind the original forecast, and there was no sign of a swift demand recovery. There was no longer the same urgency to build Yacyreta," according to the audit report.

At the same time, the existence of large gas reserves in Argentina were confirmed. In contrast to the rigidity of a massive dam, these reserves could be tapped to generate power in small increments as actual demand grew.

"Given the size of the project and the changing economic and technological conditions making loan cancellation and a gas-based alternative more attractive, (economic analysis and appraisal) the dam should have been redone thoroughly in the early 80s, before procurement started and as late as 1988," the document states. Yet, "the Bank did not act decisively when confronted with the facts," it adds.

Rather, "the Bank accepted repeated violations of major covenants and continued to associate totally with an unsatisfactory financial and operating performance," the document says.

What is the price of neglect? "The plant's output cost per kilowatt-hour at completion will be more than three times the competitive price for EBY's output," the Bank states. "The ensuing economic and financial losses are huge."

The Bank's auditors estimate that "Yacyreta amounts to a loss of close to $8 billion in present value (almost $1 billion year around the year 2000)." But by their own admission, the loss could be closer to $11 billion.

Engineering costs alone are four times what was originally anticipated. Administrative costs are seven times the original estimates.

Yet, this "dwarfs the Bank's good performance in other respects," the auditors continue. They point to "unheeded advice to government and EBY" on financial matters and the tricky question of population resettlement.

Luis Jacobo, a local ombudsman in the Argentine city of Posadas, 100 kilometers upstream, told a Canadian television crew last year that townsfolk had hoped the dam would bring jobs and other economic gains. These never materialized. Yet, the poor waterfront neighborhoods of Posadas will be submerged.

Across the river, in the city of Encarnacion, even the middle class is feeling the effects of flooding. One in three residents of Paraguay's third largest city will be affected, and 500 businesses will be flooded out, along with schools, churches, and government buildings.

In all, some 50,000 people will have to be evacuated.

Apart from the two cities, some 16,000 square kilometers of wildland and 300 islands will be flooded when the sluice gates are fully closed in 1998. Many of these islands are home to species of wildlife found only there.

Among other things, the auditors conclude: "The Bank should continue to monitor carefully the execution of the Yacyreta project, particularly its resettlement component, and prepare a thorough evaluation of the economic, social, and environmental impact shortly after project completion."

But if the dam is sold before then, NGOs and community leaders fear that the EBY, the World Bank, and IDB will have shrugged off their responsibility to mitigate environmental and social damage.

The Argentine senate last month approved plans to sell the dam under a privatization program begun in the early 1990s, soon after Menem came to power. The plan faces opposition in Argentina's lower house and the Paraguayan Congress. The buyer could be required to earmark a portion of operating profits to meet the costs of social and environmental mitigation.

If the dam is sold, as one staffer pointed out, the World Bank's responsibility, along with the conditions tied to its loans, will be "moot."

Whatever happens, the Bank and IDB are guaranteed repayment.