Application of ADB Private Sector Operations to Inspection Policy

ADB is a development institution with "poverty reduction" as its overreaching objective adopted in 1999. ADB lends approximately 600 billion yen (US$5 billion) annually to countries in the Asia pacific region, and Japan has been the top donor country of the ADB. As you may already know, the ADB receives numerous protests by local residents of its projects, as it threatens the environment and the local people's livelihood through the projects in various fields, ranging from construction of dams, roads, and water treatment facilities, to privatization of water services. The ADB is currently reviewing its Inspection Policy under which residents could lodge an objection concerning social and environmental harm due to ADB projects. The ADBs operations consist of two sectors: public sector operations, which lends to governments, and private sector operations, which provides direct loans without government guarantee and equity investments to private enterprises. Currently, private sector operations occupy less than 10% of ADBs total lending amount; however, we foresee that private sector will be increasingly powerful and utilized in the name of development aidﾓ not only by the ADB but also among development institutions around the world. Our concern is that the ADBs Inspection Policy has only been for the public sector and not applied to private sector. Such exemption means that the ADB neglects objections by project-affected people regarding harm due to its private sector projects. We consider that securing means, such as the ADBs Inspection Function, to incorporate and reflect voices of the civil society to private sector operations as absolutely crucial and our urgent task. Therefore, we strongly feel that private sector operations must be included on the Inspection Policy. Moreover, clarification in operational procedure including process of social and environmental assessment, and improvement in information disclosure of private sector operations are necessary for the Inspection Policy to work effectively. ADB has issued the first draft of a working paper of the Inspection Policy in May 2002, and has held several consultations (on June 11, 2002, in Tokyo). However, description on private sector operation in the second draft issued in the end of July has not fundamentally changed from the first draft. The ADB is considering the application of the Inspection Policy in private sector operations in some form; however, we are greatly concerned that the Inspection Function will be of lesser extent for private sector operation than that of the public sector operations, as ADB has suggested a function that is "not completely same as the public sector operations," and "simplified." Reasons for such modification that ADB listed in the drafts concern only protection of private sector and the ADB. We have also heard that there is a resistance from the Private Sector Operations Department, which is strongly linked to the private enterprises, against the application. Therefore, our voices from civil society in support of the application of proper Inspection Policy to private sector are crucial.

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