Nepal Nepal-India Electricity Transmission and Trade Project Redacted Report July 2019 Statement of Use and Limitations This Report was prepared by the World Bank Group (the “WBG”) Integrity Vice Presidency (“INT”). It provides the findings of an INT administrative inquiry (the “Investigation”) into allegations of corrupt, fraudulent, collusive, and/or coercive practices, as defined by the WBG for purposes of its own policies, rules and procedures (the “WBG’s Framework regarding Anti-corruption”), in relation to the WBG-supported activities. The purpose of the Investigation was to allow the WBG to determine if the WBG’s Framework regarding Anti-corruption has been violated. This Report is being shared to ensure that its recipients are aware of the results of the INT Investigation. However, in view of the specific and limited purpose of the Investigation underlying this Report, this Report should not be used as the sole basis for initiating any administrative, criminal, or civil proceedings. Moreover, this Report should not be cited or otherwise referred to in the course of any investigation, in any investigation reports, or in any administrative, civil, or criminal proceedings. This Report is provided without prejudice to the privileges and immunities conferred on the institutions comprising the WBG and their officers and employees by their respective constituent documents and any other applicable sources of law. The WBG reserves the right to invoke its privileges and immunities, including at any time during the course of an investigation or a subsequent judicial, administrative or other proceeding pursued in connection with this matter. The WBG’s privileges and immunities cannot be waived without the prior express written authorization of the WBG. 2 Background The Nepal-India Electricity Transmission and Trade Project (“Nepal-India Electricity Project” or “Project”) seeks to establish cross-border transmission capacity between India and Nepal of about 1000 MW to facilitate electricity trade between the two countries as well as increase the supply of electricity in Nepal by the sustainable import of at least 100 MW. The Project is financed by the World Bank’s International Development Association (“IDA”). It became effective in September 2011. The implementing agency (the “Agency”) issued a bidding document for a Project services contract under international competitive bidding (the “Contract”). Company A, in a joint venture with another company (“Company B”) (collectively, the “JV”), submitted their bids for the Contract. The JV was notified that it was awarded the Contract. JV representatives signed the Contract for approximately USD 50 million. Allegations & Methodology The World Bank Integrity Vice Presidency (“INT”) received allegations that the qualification criteria for procurement under the Nepal-India Electricity Project were too restrictive and may be favoring certain bidders. INT conducted audits of Company A, Company B, and a local agent of the JV (the “Agent”). Findings 1. Evidence indicates that Company A paid approximately 5% of the Contract value to government employees via the Agent in exchange for contract award. Evidence indicates that Company A paid approximately 5% of the Contract’s value to government employees involved in the evaluation of the Contract. The Contract value was approximately USD 50 million. Evidence indicates that Company A made these payments through the Agent. Evidence indicates that the approval process for these payments went from Company A’s General Manager to a Company A’s Senior Vice President, and then eventually to Company A’s President & Managing Director Company A for final approval (collectively, “Company A Senior Management”). According to evidence found during INT’s audit of Company A, the purposes for the payments included: (i) ensuring that the contract went from the government employees to the World Bank for approval; (ii) ensuring that the bid qualification requirements conformed to Company A’s requirements; (iii) obtaining confidential information about the bid evaluation process; and (iv) ensuring Contract award. 4 Evidence indicates that Company A received confidential bid evaluation information from government employees during the bid evaluation stage of the Contract, including: (i) the timing of bid evaluation; (ii) a Bid Evaluation Committee report recommending the JV being sent to the Agency Director for approval; (iii) a copy of pages from the Bid Evaluation Report recommending the JV; (iv) the JV being recommended to the World Bank for approval; (v) the World Bank clearing the JV award; and (vi) the World Bank providing its no objection letter and the Agency receiving a copy of it. 2. Evidence indicates that Company A misrepresented both the role of the Agent as well as the amount of payments it made to the Agent. Company A Senior Management, during interviews with INT, stated that the Agent’s role was to handle logistics and local conditions in Nepal for Company A and to set up meetings with government employees on an ad-hoc basis regarding issues with bid preparation. They described his/her work as setting up transportation and hotel bookings during visits, informing them about local customs, practices, and politics, and setting up meetings with government employees involved in the tender process to solve questions they had regarding the bid preparation. The evidence described above indicates that the role of the Agent was, in fact, much broader, including making payments to government employees. In its bid, Company A was required to disclose “commissions, gratuities, or fees with respect to the bidding process or execution of the Contract.” Company A’s only disclosure in its bid was that they were paying the Agent “.25%” for “Liasioning.” In fact, evidence indicates that the Agent received approximately 5%, which was to be channeled to government employees. 3. Evidence indicates that Company A and Company B misrepresented their respective roles in their bid to be awarded the Contract. Evidence indicates that Company A and Company B executed and signed two agreements in connection with the Nepal-India Electricity Project: (i) an internal agreement (the “Internal Agreement”), which was not submitted to the Agency for consideration; and (ii) the Joint Venture Agreement (the “JV Agreement”), which was submitted as part of its bid, regarding the roles and expectations of the parties involved. Evidence indicates that the Internal Agreement was designed and understood to supersede parallel parts in the JV Agreement. Evidence indicates that the JV Agreement represented that decisions with respect to the execution of the contract would be taken together; that Company A would be responsible for 75 percent of the work and Company B, 25 percent. Evidence indicates that the Internal Agreement stipulated that Company A would make all decisions regarding the Project, including those related to the operation of the JV’s bank account, and would do all the work under the Project. 5 Additional evidence indicates that Company A and Company B agreed that Company B’s role would be limited to providing their experience and/or credentials to qualify for the tender but would have no responsibilities with respect to contract execution. 4. Evidence indicates that Company A recklessly submitted a falsified report to the Agency during Contract implementation. To fulfill its obligations under the Project, Company A outsourced the preparatory testing required by the Contract to another company (“Company S”). Evidence indicates that senior management at Company A were aware of a substantial and unjustifiable risk that the report Company S produced was not authentic, yet did not take adequate steps to ensure the accuracy of the report. Evidence indicates that despite this awareness, senior management submitted Company S’s falsified report to the Agency. Corrective Actions The World Bank imposed a sanction of debarment with conditional release on Company A, Company B, a senior manager working for Company B, and the Agent. These sanctions extend to any legal entity that is directly or indirectly controlled by the sanctioned entities and individual. 6