January 16, 2008

World Bank loans misused in five Indian health projects

An internal World Bank inquiry has uncovered a multimillion-dollar scandal involving five health projects in India worth $569 million.

The bank has found significant indicators of fraud and corruption in the projects, which appear to have affected, to varying extents, the projects' implementation and outputs.

The bank's Department of Institutional Integrity conducted a Detailed Implementation Review (DIR) of the projects and submitted a report last week, which has been accessed by The Wall Street Journal.

"The probe has revealed unacceptable indicators of fraud and corruption," World Bank President Robert B. Zoellick said in a press release. "The government of India and the World Bank are committed to getting to the bottom of how these problems occurred."

The Indian government said it would prosecute those behind the reported corruption, according to a release by the finance ministry.

In the $54-million "Food and drug capacity building project", for which money is still being disbursed, the investigation found "questionable procurement practices, some of which indicate fraud and corruption, in contracts representing 87 per cent of the number of pieces and 88 per cent of the total value of equipment procured."

For the $194-million "Second national HIV/AIDS control project", the inquiry discovered that "some of the test kits supplied by particular companies often performed poorly by producing erroneous or invalid results, potentially resulting in the further spread of disease."

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In the $114-million "Malaria control project", the review found "numerous indicators of poor product quality in the bed nets supplied by the firms."

In the $125-million "Tuberculosis control project", the bank discovered "bidders sharing the same address and telephone numbers, unit prices showing a common formula, and indicators of intent to split contract awards among several bidders."

And in the $82-million "Orissa Health Systems Development Project", "implementation and procurement of the project's civil works and equipment components exhibited significant indicators of fraud and severe deficiencies in buildings certified as complete," the report said.

Moreover, the DIR, which was initiated in mid-2006, observed inadequate project financial, audit and internal control systems.

These findings will result in a number of investigations by the World Bank into specific cases of possible fraud and corruption, The Wall Street Journal said in its article titled "World Bank Disgrace".

Investigators haven't yet concluded whether the corruption involves World Bank staff, Indian government officials or other parties.

The bank and the Indian authorities have promised stricter oversight of the nine health projects remaining in the bank's India portfolio. Four of the five projects have already been completed.

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