Albania – Integrated Coastal Zone Management and Clean-Up Project: 

Management Response to the Inspection Panel Investigation Report 

February 17, 2009 

U.S. Position 

The United States is deeply troubled by the Inspection Panel findings on the Albania 

Coastal Zone Management Project. The United States expects Bank Management to take 

swift and appropriate action to hold those responsible accountable for their actions and, 

more broadly, address what is being done to prevent such serious failings in future 

projects. 

The United States also requests that Management provide clarification on a number of 

troubling issues: first, how and why the Board and the Inspection Panel were repeatedly 

misinformed about material facts; second, why the project design was significantly 

flawed; and third, why the Bank did not act more promptly to address the problems. 

These governance and transparency issues are separate, though not unrelated, to the harm 

that was done to the families in the coastal community of Jale, Albania, whose homes 

were demolished, and how the Bank should proceed in its engagement with Albania on 

this project, and the lending program as a whole. 

Inspection Panel’s Findings 

The Panel’s investigation has revealed examples of safeguards violations, gross 

mismanagement, dysfunctional communications, gaps in the official record, and 

misrepresentations to both the Board and the Inspection Panel, which are of great concern. 

The Panel’s finding that the Bank failed to comply with BP 10.00 on Presentation to the 

Board is disturbing. Crucial, factual information was withheld from the Board when this 

project was presented on June 21, 2005 – notably, that the PAD contained an incorrect 

sentence and there was in fact no Albanian Government commitment to impose a 

moratorium on future demolitions. This essential sentence was the basis on which many 

Executive Directors decided to support the project. Had the Board not been misled that 

day, the project might not have been approved in the first place. 

There has been a cascading series of missteps on the part of Bank Management, from the 

significant omission in Management’s presentation to the Board on June 21, 2005; to the 

failure to communicate and respond effectively to the April 2007 demolitions; to the 

highly flawed approach to reconciling the error in the PAD by issuing an ill-advised PAD 

Corrigendum over the Labor Day 2008 holiday weekend; to the unscheduled November 

11, 2008 discussion of the Legal Note that attempted, unconvincingly, to justify the 

actions taken to correct the PAD. None of these events should have occurred. 

Also troubling is the Panel’s finding that Management failed to comply with OP/BP 

13.05 on Project Supervision. It is difficult to understand how staff could have failed to 

recognize the risks of demolition at the outset of the project. The fact that staff did not 

see the connection between the Bank’s assistance to the Construction Police and the 

demolitions also strains credulity. The clearest explanation for this failure is that the 
Bank project team ignored known conflicts of interest in the selection process for the 

Project Coordinator. This design error was compounded when locally-based staff 

neglected to inform Management about the uproar caused by demolitions, as evidenced 

by the chorus of news reports and parliamentary hearings. The United States shares the 

Panel’s concerns regarding this system breakdown, which has implications far beyond 

this particular project. 

There are conflicting assessments as to the applicability of OP/BP 4.12 -- Involuntary 

Resettlement. While Management has focused on the ambiguity of footnote 8, and 

whether coastal zone management is subject to this portion of the Involuntary 

Resettlement safeguard, we find it difficult to understand how the loss of one’s home 

cannot be construed as “involuntary resettlement”. The United States expects that the 

forthcoming Guidance Note from OPCS will clarify the applicability of OP/BP 4.12 to 

land zoning projects. Furthermore, whether the safeguard itself is triggered or not, the 

Bank’s reputation demands that staff exercise sound judgment in these situations to 

minimize harm. 

Staff Responsiveness to the Inspection Panel 

The United States is deeply concerned by the Panel’s report on the nature of the staff’s 

response to Panel inquiries. It is incumbent on management to convey to all Bank staff 

the importance of cooperating fully with Inspection Panel investigations. In this regard, 

the United States is pleased that President Zoellick tasked the Department of Institutional 

Integrity (INT) to conduct an Accountability Review to determine what happened and 

whether there was actionable staff misconduct. Starting next month, such matters will be 

referred to the Office of Ethics and Business Conduct (EBC), as the Volcker Panel 

recommendations are implemented. 

Inspection Panel Process 

Although not a formal part of the process, the Board has heard from the Albanian 

Government through the letter from Finance Minister Bode which was circulated by a 

colleague at the request of his authorities. Management has formally tabled this letter 

through the Management Response. In the case of the Panel’s Bujagali investigation, the 

United States heard informally from Requesters ahead of the Board discussion. The 

United States considers outreach by both countries and requesters appropriate to help 

inform the Board’s deliberations on Inspection Panel reports and Management Action 

Plans. 

Notwithstanding U.S. support for the important role of the Panel, the United States shares 

the concerns voiced by Albania regarding the need for the Panel to remain within the 

scope of its mandate. The United States understands the Panel’s intention in reporting 

allegations of corruption, but great care needs to be exercised in presenting such 

information. 

Looking Forward 
The United States appreciates the seriousness with which Senior Bank Management has 

treated the issues and errors raised by this Inspection Panel investigation, and welcomes 

the candid and forthright tone taken in Management’s Response. The United States 

expects that same spirit will be present as these issues continue to be addressed, including 

when Management reports back to Board in three months’ time on progress in 

restructuring this project and in addressing the supervision and other deficiencies 

identified by the Panel’s investigation. 

With respect to the fate of this particular project, the United States can support 

Management’s proposed response to reduce the scope of the project to exclude land 

management, to strengthen supervision of the remainder of the project, to support 

petitioners’ attempts to seek satisfaction through domestic procedures but reserve the 

right to make them whole directly. It would be helpful to know whether the requestors 

were consulted on this proposal. 

The United States also welcomes Management’s decision to undertake a comprehensive 

review of the 1,550 active projects in the Bank portfolio in response to the errors revealed 

in this operation. Although this portfolio review has reportedly revealed no errors as 

egregious as the case before us today, seven projects have been referred to Managing 

Directors for further investigation and an additional 75 projects had discrepancies 

between the PAD and the legal loan document. The United States has requested 

additional details on these seven problem projects from OPCS, and would appreciate an 

inventory of the 75 projects with a description of each discrepancy. Going forward, steps 

must be taken to ensure that the PAD and the legal agreement are consistent, and 

Management should so certify to the Board. 

Today’s discussion raises broader issues of Board-Management trust and internal 

governance, which merit further discussion. It is imperative to safeguard the integrity of 

the documents on which the Board makes vital fiduciary decisions. This is particularly 

important as the Board is asked to consider increased delegation of authority and 

devolution of decision-making to country offices. The accuracy of Board documentation 

is critical to the Board’s ability to discharge its fiduciary responsibilities in reviewing 

projects and assessing and overseeing compliance with Bank policies. 

This report poses significant reputational risks to the Bank at a time when its 

effectiveness is absolutely critical. The Bank needs to show strong leadership in 

addressing these challenges. The United States looks forward to a timely and effective 

communications strategy, executed jointly between Management and the Panel, to 

disclose the key outcomes of this investigation. 

In closing, the United States commends the Inspection Panel for its extensive work on 

this complex and sensitive matter, and thanks the Inspection Panel for its diligence in 

pursuing the facts in this case and presenting a clear and coherent report. This matter 

underscores the importance of an independent Inspection Panel in identifying lapses in 

compliance with Bank policies, to help ensure that World Bank Group projects achieve 

their development objectives.