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dam-l (Fwd) Privatization & corruption/LS
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Date sent: Thu, 14 Oct 1999 09:12:50 -0700
From: lori@irn.org (Lori Pottinger)
Subject: Privatization & corruption/LS
To: irn-safrica@igc.org
Sowetan 14/10/99
Privatisation often leads to corruption
By David Hall
As the Transparency International (TI) 9th International Anti-
Corruption
Conference takes place in Durban, it is time to recognise that the
mother
of much recent corruption is privatisation.
It gives lucrative business to multinationals, and provides great
economic
incentives to corruption.
Most of the multinationals involved in the recent dam scandal in Lesotho
are based in Europe – a continent where corruption has become entrenched.
Politicians in the UK, France, Italy, Spain, and Belgium have been
convicted in scandals associated with bribery in the last decade. The
entire European Commission had to resign this year over corruption.
Multinationals are so used to using bribes to obtain contracts that they
do it to each other. Oil group BP started prosecuting construction
multinationals for bribing their officials to obtain contracts.
It is well known that concessions are a major source of corrupt practices
by groups intent on winning favourable terms. A report by the French audit
commission, the Cour des Comptes, in January 1997, said that the system of
privatised concessions had led to widespread corruption – both
Suez-Lyonnaise and Vivendi have been convicted of this.
Even the World Bank acknowledges “…the privatization process itself can
create corrupt incentives.” All around the world there are reports of
corruption allegations where multinationals are seeking such contracts. In
Indonesia, the public authorities in electricity and water are insisting
that the contracts given to multinationals under the old dictatorship were
corrupt, and based on extortionate profits. Yet the multinationals,
supported by their OECD governments and the World Bank, insist on the
sanctity of these contracts.
One former official of the Lesotho Highlands Water Project has been
charged with taking R12m in bribes from a dozen international companies
over 10 years. According to the charge sheet, the official "did
unlawfully, intentionally and corruptly accept bribe moneys, over the
period February 1988 to December 1998, from Lesotho Highlands Water
Project contractors". The charge sheets list the precise amounts of all
the bribes supposed to have been received by this official have been
published, naming the contractors from which the money came.
None of these multinationals are being prosecuted for paying bribes. The
South African minister has said that the companies will keep their
contracts. None of their OECD home countries are taking any action against
the companies. Most of these multinationals have a previous record of
involvement in corrupt contracts.
Instead, many of these multinationals are gaining new, profitable business
from privatisation. Bouygues subsidiary SAUR, for example, is being given
a water concession on the Dolphin Coast.
If this happened in Singapore, these multinationals would be prosecuted –
and on conviction they, and all their subsidiaries, would be banned from
bidding for any public sector contracts for 5 years.
James Wolfensohn, the World Bank’s director, makes fine speeches about the
Bank’s opposition to corruption. But the practice of the bank is quite
different.
It forms partnerships with multinationals which have been convicted of
corruption. One example is Aguas Argentinas, where the Bank, through its
International Finance Corporation (IFC), is an equity partner alongside
Lyonnaise des Eaux (now Suez-Lyonnaise) and Générale des Eaux (now
Vivendi), both of which have had executives convicted of bribing French
public officials to win contracts (in Grenoble, Réunion, and Angoulême).
The Bank helps companies keep contracts which may have been obtained
corruptly. Hubco, Pakistan’s largest power company, is accused by the
government of obtaining its contract corruptly. The World Bank has
insisted that Hubco’s contract to sell electricity should not be affected
by this, whatever the result of the investigation, and asked the IMF to
hold back a loan to Pakistan until the bank was satisfied that Hubco’s
contract would not be cancelled because of the corruption proceedings.
In 1996 Wolfensohn announced that he had hired an international inspection
company, Société Générale de Surveillance (SGS) of Switzerland, to audit
bank projects for evidence of corruption in three countries - Poland,
Kenya and Pakistan’.
But within months the Financial Times reported that “SGS has admitted that
it paid a substantial commission to a Geneva lawyer… for ‘assistance’ in
negotiating a pre-shipment inspection services contract with Pakistan...”
In April 1999, the former prime minister of Pakistan, Benazir Bhutto, was
found guilty of accepting bribes worth US$9m from SGS, was sentenced to
five years in prison, and banned from holding a seat in parliament for
seven years. But SGS have not been tried for any offence in Pakistan or
Switzerland, and have not been banned by the World Bank.
The Bank also insists on privatisation as a condition for loans –
regardless of corruption allegations. In Uganda, the Bank’s IFC is
financing 80% of a $500m hydropower scheme involving multinational AES and
has also agreed to guarantee the scheme against political and other risks
– on condition that the Ugandan government agrees to privatise the Ugandan
Electricity Board. But the Bank has ignored all allegations of corruption
over the power purchase agreement on which the scheme depends – in April
1999 the minister for energy resigned because he was accused “of
bribe-taking in his brokering of the power purchase agreement between the
American/British AES and government”
South Africa can lead the world by using the opportunity of the
Transparency International conference to announce that it will:
* prosecute all multinational bribe givers, and follow the example of
Singapore in imposing 5-year bans on all convicted groups and their
subsidiaries and their partners;
* place a moratorium on privatisations, and a complete ban on any
‘negotiated’ concessions;
* observe the framework agreement and prioritise the public sector
option.
The conference in Durban should:
* urge South Africa and other countries to prosecute multinational
bribe-givers and ban offenders from public sector contracts;
* urge the World Bank to refuse grants or partnerships to multinationals
who have been convicted of bribery – anywhere;
* restore its credibility and balance by publishing a list of
multinationals involved in bribery; and
* call on the World Bank and governments to impose a moratorium on
privatisations and concessions.
It is time to end the international scandal of bribery and corruption.
(The writer is Director of the Public Services International Research Unit
(PSIRU), which maintains a database and publishes papers on privatisation
worldwide.)
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Lori Pottinger, Director, Southern Africa Program,
and Editor, World Rivers Review
International Rivers Network
1847 Berkeley Way, Berkeley, California 94703, USA
Tel. (510) 848 1155 Fax (510) 848 1008
http://www.irn.org
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