A U.S. anti-corruption watchdog joined on Thursday a British whistleblower in accusing the World Bank of covering up what they see as gross misuse of a $30 million loan that was meant to upgrade Armenia’s battered water infrastructure.

The loan was part of a 1999 World Bank project designed to quickly improve supplies of drinking water in Yerevan. The Armenian parliament formed in 2003 an ad hoc commission to investigate the effectiveness of these and other large-scale infrastructure projects financed by Western donors.

In its first report made public in March 2004, the commission headed by deputy speaker Vahan Hovannisian concluded that the water scheme has failed to achieve its main objectives due to mismanagement and corruption among government officials and private firms. The report also deplored the fact that 27 percent of the World Bank funds have been spent on project management, overheads and logistics.

The World Bank dismissed the claims at the time, insisting that the project’s implementation has been a success. Earlier this year it was again put on the defensive by Bruce Tasker, a Yerevan-based British engineer who had participated in the 2003-2004 parliamentary inquiry as an expert. Tasker detailed those allegations on his website and effectively implicated the World Bank in the alleged corruption.

The allegations were picked up by the Government Accountability Project (GAP), a Washington-based group that specializes in whistleblower protection and scrutinizes World Bank projects around the world. It urged the bank’s Institutional Integrity Department (INT) to launch an official investigation.

The GAP’s international director, Beatrice Edwards, said on Thursday that she and Tasker spent the past two days meeting with U.S. and British diplomats and the head of the World Bank’s Yerevan office, Aristomene Varoudakis. She said the latter again denied any wrongdoing on the part of his lending institution.

“Mr. Tasker produced two documents that show quite clearly that there was corruption and fraud in the municipal development project, and we were told that these documents signified nothing of importance,” Edwards told a news conference in Yerevan.

“Mr. Vardoulakis told us to go to the Department of Institutional Integrity where we have already been,” she said, adding that the department has told the GAP that the fraud case is a “medium priority” for it. This means that the case will not be investigated by the INT anytime soon, she said.

“The INT basically defends the interests of the bank with respect to this claim. And often there are reprisals against those who make the claims of corruption within the bank,” Tasker charged.

Edwards and Tasker said they also urged the British ambassador to Armenia, Anthony Cantor, to seek criminal proceedings in the United Kingdom against two British nationals which they claim were involved in the alleged embezzlement. They referred to Roger Robinson, the World Bank’s former representative to Armenia, and Richard Walking, the former manager of the Yerevan water network who oversaw use of the loan. They alleged in particular that Robinson withheld key facts relating to the affair from his Washington bosses.

Cantor already urged the World Bank, Armenia’s number one lender, to investigate Tasker’s claims last September.

Edwards and Tasker also said that they wrote to Prime Minister Serzh Sarkisian last month but have still not received a reply from him. Sarkisian last month questioned the credibility of the allegations, saying that Tasker has a personal grudge against a French company that currently manages the Yerevan water network and its Italian predecessor that used the World Bank loan.

The loan’s disbursement was tied to the Armenian government’s sweeping reform and restructuring of the country’s obsolete water and sewerage network. As part of that reform, hundreds of thousands of Armenian households had to buy and install water meters in their homes at their own expense. The government had promised that, as a result, virtually all Yerevan residents will have running water 24 hours a day by 2004. It clearly failed to fulfill the pledge.

Tasker claims that the installation of water meters was a major source of corruption among Armenian and foreign officials as well as private firms involved in the project’s implementation. He says local contractors alone were able to pocket up to $10 profit on the sale of each meter by charging customers for installation.

Veolia Eau, the French utility giant running the Yerevan network, now says that it will need a decade to ensure 24-hour water to the vast majority of local households. The operator argues that as much as 80 percent of drinking waters leaks out of eroding pipes before reaching consumers. The World Bank funds were supposed to significantly reduce the huge losses.