KOSOVO: WORLD BANK'S IFC INVOLVEMENT IN KOSOVO C

C O N F I D E N T I A L PRISTINA 000469

SIPDIS

SIPDIS

DEPT FOR EUR/SCE, EUR/ACE, EEB/CBA
USAID FOR EE/ECA AND EE/DGSR
NSC FOR BRAUN
USDOC FOR CEEBIC, 4232/ITA/MAC/EUR/OEERIS/CEED/SSAVICH
USDOC ALSO FOR ADVOCACY CENTER - PATRICIA NUGENT
TREASURY FOR BILL LINDQUIST AND ERIC MEYER

E.O. 12958: DECL: 06/13/2017
TAGS: EINV ENRG ECON PGOV PREL AID YI
SUBJECT: KOSOVO: WORLD BANK'S IFC INVOLVEMENT IN KOSOVO C
PROJECT RAISES CONCERNS ABOUT INTEGRITY AND TRANSPARENCY

REF: (A) 06 PRISTINA 545 (B) PRISTINA 260

Classified By: Chief of Mission Tina Kaidanow for reasons
1.4 (B) and (D).


1. (C) Summary. The proposal from the World Bank's
International Finance Corporation (IFC) to take a 10 percent
equity stake in one of the consortia short-listed to compete
for the Kosovo C energy sector development tender has raised
concerns within UNMIK, the PISG and USOP about the fairness,
integrity and transparency of the project. The IFC's
involvement in this project has created the perception of a
potential conflict of interest given that the World Bank is
paying for transaction, legal and environmental advisors to
help develop and manage the Kosovo C tendering process. This
issue could adversely impact the other bidders' perceptions
about the integrity and transparency of the tendering
process, raising the possibility that they might, if the IFC
moves forward with its plans, consider withdrawing from the
Kosovo C project. USG interests in this matter are twofold:
the overall importance of developing Kosovo's energy sector
in the context of USAID assistance to the Ministry of Energy
and Mining and to the KEK utility, but even more important
the commercial interest involved in the Kosovo C project,
where three American companies are partners in the three of
the four interested consortia. At a June 12 meeting of the
Kosovo C project steering committee (PSC),where USAID sits
only as an observer, it was agreed that UNMIK would write a
letter to the World Bank Acting President to ask that the
Bank look into the IFC matter as a matter of urgency, come up
with a remedy to avoid the appearance of conflict of
interest, and notify the relevant consortia to protect the
integrity of the process. End Summary.

IFC's INVOLVEMENT IN KOSOVO C PROJECT RAISES CONFLICT OF
INTEREST CONCERNS


2. (C) On June 8, Minister of Energy and Mining (MEM) Ethem
Ceku sent a letter to USOP to highlight IFC's negotiations
with one of the short-listed consortia, SENCAP (American
company Contour Global/Greek Power Corporation/Italian
company ENEL/European Bank for Reconstruction and
Development, which has a 10 percent equity stake),to obtain
a 10 percent share in this consortium, which is one of four
competing for the energy sector development project known as
Kosovo C (ref A). Ceku noted that this situation raises
potential conflict of interest concerns for the other
bidders; his letter also underscored the importance of
preserving the integrity and transparency of the project and
called for a meeting of the Kosovo C Project Steering
Committee (PSC) on June 12 to discuss this situation with
local World Bank representatives and to review further steps.
On June 11, World Bank Resident Representative Ranjit Nayak
called COM to review the situation from his perspective;
though he tried to defend the Bank by claiming that all four
of the Kosovo C consortia had been approached by the IFC but
only SENCAP expressed an interest in IFC assistance, he
readily acknowledged that the optics of this situation were
problematic and implied that he had known nothing about the
IFC activities until just recently.


3. (C) On June 12 COM met with PDSRSG Steve Schook, UNMIK
Office of Legal Affairs (OLA) Senior Legal Officer Ernst
Tschoepke, and USAID Mission Director Farbman and his staff

SIPDIS
to discuss this issue. All agreed that the IFC's involvement
in this project has created the perception of a potential
conflict of interest given that the World Bank is paying for
transaction, legal and environmental advisors to help develop
and manage the Kosovo C tendering process and retains "no
objection" rights over all material actions recommended by
the PSC. Schook expressed concerns about how this might
adversely impact the other bidders' perceptions about the
integrity and transparency of the tendering process, and he
worried that they might ultimately consider withdrawing from
the Kosovo C project. Schook and Tschoepke said they would
propose to the PSC that UNMIK write a letter to the World
Bank Acting President to ask that the Bank review the IFC
issue and propose a remedy for eliminating the perceived
conflict of interest, as well as notify the other three
consortia about this matter to protect the perception of
fairness and integrity of the process. Subsequently, the PSC
agreed to this course of action; the letter was sent out on
June 13.

IFC BELIEVES IT CAN MAKE ITS INVOLVEMENT IN KOSOVO C WORK


4. (C) In a June 14 telecon with USAID Mission Director
Farbman initiated by the IFC technical staff working on the
SENCAP transaction, Farbman was told that the IFC believes
that it can make a non-conflicting deal with SENCAP. IFC
staff claimed they have encountered similar problems - e.g.,
IFC-supported investors bidding on World Bank-supported
competitive tenders - elsewhere, and have overcome them with
creative legal techniques and firewalls separating the
decision-making of the two organizations, and by making
available to all prospective bidders the same offer of
assistance. IFC staff were clear they did not to want to
cancel the deal with SENCAP and wanted to discuss with their
Bank colleagues the feasibility of a proposed firewall
solution before they try to persuade Kosovo C stakeholders.
IFC staff are scheduled to be in the region (Istanbul)
beginning June 15 and will offer to come to Pristina to
discuss options with the PSC or other stakeholders, if asked,
at the convenience of UNMIK and the PISG.


5. (C) Comment: We are very concerned about the appearance
of conflict of interest in IFC's involvement with the SENCAP
consortium given the World Bank's deep involvement in the
Kosovo C process. It is not clear that simply putting up
"firewalls" would substantially alter the perception of a
conflict of interest. Expedient public action taken by the
World Bank to quickly clarify and resolve this matter would
be a welcome step by USOP, UNMIK, the PISG and especially the
bidders to ensure the integrity and transparency of Kosovo C,
ameliorate tenuous relations between the Bank and Minister
Ceku, and dispel any Kosovar or international notions that
"the fix is in" for one particular consortium rather than the
fair, competitive process we are working hard to achieve.
End Comment.
KAIDANOW