World Bank Investigation Confirms Serious Problems at Yacyretá Dam

Monday, May 10, 2004

(São Paulo) Following an 18–month investigation of the troubled Yacyretá dam on the Paraguay–Argentina border, the World Bank’s Inspection Panel has concluded that the project violates four separate World Bank policies on 14 different counts. The policies cover environmental assessment, involuntary resettlement, and project supervision, monitoring and evaluation.

This is the Inspection Panel’s second critical review of the Bank’s failure to comply with its own policies on Yacyretá, which received World Bank loans totaling $878 million between 1979 and 2002.

The Panel’s investigation is the result of a complaint by an organization representing 4,000 Paraguayan families affected by the project. The World Bank Board of Executive Directors discussed the Panel’s findings and the Bank management’s official response to them in Washington on Thursday May 6.

The presidents of Argentina and Paraguay have declared their intention to complete the filling of the Yacyretá reservoir in the coming months, a decision that puts 50,000 more people at risk of flooding. The Panel’s report also coincides with an investigation by the U.S. Senate Foreign Relations Committee into corruption in World Bank projects, including Yacyretá.
" The Inspection Panel’s review strengthens the case of the Paraguayan and Argentinean citizens’ groups who oppose filling the Yacyretá reservoir," according to Glenn Switkes, Latin America Program Director of Berkeley–based International Rivers Network. The reviews also shows yet again the Bank’s inability to manage water megaprojects. The Bank’s Board of Directors should heed the lessons of this report and rein in the staff who are pushing loans for a new generation of huge dams."

Among the Panel’s findings are that the census of affected people omits a significant number who should be eligible for compensation, and that compensation measures are insufficient to restore affected peoples’ livelihoods. The Panel also found resettlement sites to be shabby, with poor quality houses, roads and storm drainage systems.

Yacyretá was intended to operate with a reservoir level of 83 meters above sea level (masl), and with an eventual installed capacity of 3,200 MW. In 1994, with civil works completed but environmental and social protection measures still in the planning stages, the World Bank and Inter–American Development Bank, which together loaned nearly US$2 billion for the project, agreed to permit the project authorities to fill the reservoir to an initial level of 76 masl, so the plant could begin operation. A decade later, with mitigation measures still largely unimplemented, the reservoir remains at 76 meters, and Yacyretá generates only 60% of its potential. If completed, the project would displace a total of over 80,000 people.

The Inspection Panel also confirmed that the reservoir has been routinely operating at one meter above its "official" level, adversely affecting still–unresettled riverbank communities.

The persistent allegations of massive corruption at the $11 billion project are now under investigation by official commissions in both Paraguay and Argentina. The US Senate Foreign Relations Committee, headed by Republican Richard Lugar of Indiana is including Yacyretá in an investigation of corruption in World Bank–funded projects. In an April 20th letter to World Bank President James Wolfensohn, Senator Lugar noted Yacyretá’s $8 billion cost overrun and asked if the World Bank has "considered ordering an internationally–accepted financial audit of the Yacyretá Dam project"?

" Perhaps the crucial issue involving Yacyretá – its sordid history of corruption – was dodged by the Inspection Panel", says Glenn Switkes. "It difficult to imagine that the World Bank did not know that billions of dollars was being siphoned off from the project, when they had to approve all contracts with consultants and construction companies. An independent investigation of the role of international banks and corporations in the financial aspects of the project is urgently needed."

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The complete Panel Report and the Bank Management’s response will be available at