THE World Bank has confirmed it is investigating contracts worth $6 million in the

controversial $42 million demobilization program. Demobilization was designed to

retire tens of thousands of soldiers from the bloated military, which would allow

more money in the budget to be spent on social issues.

The Cambodian country office of the World Bank refused all comment on the issue,

but a spokesman based outside the country said the multilateral was looking into

the procurement process.

"I can confirm that the World Bank has declared misprocurement on a $6 million

component of the demobilization project. I am not able to give any more information

at this time," the spokesman said.

The Bank's website defines the term 'misprocurement' as "expenditures for goods

and works which have not been procured in accordance with the agreed procedures in

the Loan Agreement".

It goes on to state that Bank policy is to "cancel that portion of the loan

allocated to the goods and works that have been mispro-cured", and hints at

other unspecified measures.

One Phnom Penh-based diplomat expressed "concern" at the implications.

He was aware that some investigation had been done "on a confidential basis",

but said the country had to learn to respect international standards, particularly

on contract bids.

"Procurements are a problem. Due process is very important and we are following

that," he said on July 3. "If irregularities are found, then who knows

[what will happen]?"

The government's capacity to stick to the procurement procedures contained within

the Bank's $18.4 million loan had already raised concerns. A Bank report, likely

written in 2002, rated the risk of the government misusing procurement funds on demobilization

as "high".

The report flagged weaknesses within the Council for the Demobilization of Armed

Forces (CDAF), which is the government body overseeing the process. It found that

CDAF lacked "adequate capacity and experienced staff to handle the procurement

satisfactorily" and pointed out "inconsistencies between national and Bank

procurement guidelines". The Bank hired an external consultant to address that.

One of the Bank's main concerns was that the government tended to pay more than expected,

if the bids for contracts were unreasonably priced, and did not try to negotiate

better terms.

The Bank's website also notes that when misprocurement is suspected, the Bank will

send a letter outlining its concerns to the government before declaring misprocurement.

CDAF's general secretary Svay Sitha said he did not know of a notification letter

or any problems with procurement contracts: "If you have anything to talk about,

talk to the chairman, Mr Sok An."

Sok An, who also heads the Council of Ministers (CoM), confirmed on July 3 that he

had received a letter from the Bank on the subject. He had passed the letter to government

lawyers and said he was waiting to hear from them. He gave no further comment.

The current status of the demobilization program is unclear. It has been effectively

stalled for months, and it is not certain whether it has now been suspended, canceled

or will continue. More obvious is that corruption has blighted the process in the

past.

Demobilization was controversial from the start-there were reports that government

officials had stuffed the military list with false names, creating 'ghost soldiers',

to cream off the proceeds of the multi-million dollar project. That was confirmed

in a World Bank report in October 2002.

The problem was worsened by donors' inability to cross-check the database used by

CDAF with that used by the Ministry of Defense, which contributed to the Bank's inability

to check the extent of the ghost soldiers.

Another problem noted in the Bank's report was that soldiers wanting to leave the

army were paying their commanders to get on the demobilization list. There were also

extensive delays in getting reintegration packages to many demobilized soldiers.

Co-Minister of Defense, Prince Sisowath Sirirath, told the Post on July 3 that the

demobilization program was not under the control of his ministry. He expressed hope

that the next government would continue with the process.

"I think it is very important for our national budget to scale down the armed

forces, and Cambodia cannot demobilize our armed forces without support from the

World Bank and the international community," he said.

CoM under-secretary of state Sum Manit, who heads the anti-corruption unit, told

the Post that the unit had not received any complaints about the program.

"I am not dealing with demobilization ... and I know nothing about it,"

he said, adding that he dealt only with administration reform.

The demobilization program was set up in a bid to streamline the country's bloated

and inefficient military. Around 31,500 soldiers were expected to be demobilized.

A pilot program in 2000 saw 1,500 leave, while another 15,000 went in late 2001.

The rest were meant to be demobilized this year, but disputes between the government

and the Bank delayed that.

The political ramifications of the corruption scandal are as yet unclear, but it

could prove highly embarrassing for the ruling Cambodian People's Party (CPP), as

several of its senior members are involved in demobilization.

The government's auditing watchdog is the National Audit Authority (NAA), which was

established with assistance from the Asian Development Bank (ADB).

But Chan Tani, NAA deputy secretary-general, denied the agency had any responsibility

to vet purchases under the Bank loan.

ADB country head Urooj Malik disagreed: "The NAA is empowered by law to audit

any private sector transaction. The whole idea is to ensure transparency in public

financial management."