India: World Bank Admits Failure of Coal Project

World Bank officials have admitted failure in the bank's latest loan project in India, conceding that the project "has exacted a severe toll on
citizens whose lives ultimately were supposed to have been made better by economic development," today's Wall Street Journal reports.

According to the report, thousands of villagers in eastern and central India received no compensation after state-owned Coal India used a $530 million loan from the World Bank in 1997 to raze their homes in a coal mine
modernization scheme. Although resettling, compensating and retraining farmers as entrepreneurs was part of the loan deal, Coal India had no experience in these activities and was unable to carry them out. Finally, in a "face-saving" attempt, Coal India executives last month requested that the loan be canceled. With only half of the funds disbursed, the World Bank readily complied, said the report.

"We thought we could make a real difference in this project," said World Bank Director in India Edward Lim. "We've been disappointed with the project on a number of fronts." While Coal India says that it is mining record amounts of coal and its modernization enables miners to produce 21% more per shift compared with four years ago, peasants are reluctant to leave their homes, lack new farmland to move to and are resisting retraining programs. According to the report, Coal India blames local governments and the farmers themselves whose "laziness" caused problems in its resettlement scheme.

Shashi Kumar, the Coal India engineer responsible for the resettlement, says wealth from the project would eventually trickle down to the poor anyway. "If coal production doesn't increase, the power plants won't come. If the power plants don't come, the expansion of industry won't take place. And if industry doesn't expand, employment along the chain won't be produced," he said.

The report says that the World Bank knew Coal India had no experience
resettling people before it made the loans. But according to Lim, the $11.5 billion in 79 other bank loans to India will remain unaffected by the
problems (Michael Phillips, Wall Street Journal, 14 Aug).

• 107 Energy
• 194 World Financial Institutions