index of compliance cases - igms project · industry. the company [s initial project, lircay, is a...

Work notes / cases’ synopsis - International Grievance Mechanisms and International Law & Governance (IGMs) project, ERC Grant Agreement no. 312514

CERIC, Joint Research Unit CNRS/Aix-Marseille Université http://www.igms-project.org

CAO

Index of compliance cases

GUATEMALA / REAL LRIF-01/COBAN ................................................................................................................ 1

29 October 2014 ............................................................................................................................................. 1

CHILE / HIDROMAULE-01/SAN CLEMENTE ........................................................................................................ 3

27 October 2014 ............................................................................................................................................. 3

PAPUA NEW GUINEA / AES PNG-01/ROKU VILLAGE ......................................................................................... 5

29 September 2014 ........................................................................................................................................ 5

MALAYSIA / BILT PAPER B.V-01/SIPITANG ....................................................................................................... 7

13 September 2014 ........................................................................................................................................ 7

ARMENIA / LYDIAN INTL3-01/GNDEVAZ & JERMUK ......................................................................................... 9

16 April 2014 .................................................................................................................................................. 9

HONDURAS / DINANT-03/AGUAN VALLEY ..................................................................................................... 11

25 July 2014 .................................................................................................................................................. 11

HONDURAS / DINANT-02/AGUAN VALLEY ..................................................................................................... 13

25 July 2014 .................................................................................................................................................. 13

GUATEMALA / GUATEMALA: TCQ-01/PUERTO QUETZAL ............................................................................... 15

20 March 2014 ............................................................................................................................................. 15

MEXICO / HARMON HALL-08/PUERTO VALLARTA .......................................................................................... 17

14 March 2014 ............................................................................................................................................. 17

PERU / YANACOCHA-06/CAJAMARCA ............................................................................................................ 19

6 February 2014............................................................................................................................................ 19

ALBANIA / ALBANIA HYDROS-01/TIRANA ...................................................................................................... 21

14 January 2014 ........................................................................................................................................... 21

INDIA / LAFARGE SURMA CEMENT -01 ........................................................................................................... 23

6 January 2014 ............................................................................................................................................. 23

MEXICO / HARMON HALL-03-06/PUERTO VALLARTA AND MERIDA CAMPESTRE ........................................... 25

14 October 2013 ........................................................................................................................................... 25

HONDURAS / CAMIF-01/ INTIBUCÁ ................................................................................................................ 27

9 October 2013 ............................................................................................................................................. 27

MEXICO / HARMON HALL-02/PUERTO VALLARTA .......................................................................................... 29

6 September 2013 ........................................................................................................................................ 29

HONDURAS / FICOHSA-01/ CAO VICE PRESIDENT REQUEST ........................................................................... 31

21 August 2013 ............................................................................................................................................. 31


http://www.igms-project.org/

International Grievance Mechanisms and International Law & Governance (IGMs) project ERC Grant Agreement no. 312514 CERIC, Joint Research Unit CNRS/Aix-Marseille Université http://www.igms-project.org

25 June 2013 ................................................................................................................................................. 41

SOUTH AFRICA / TSODILO-01/BADPLAAS ....................................................................................................... 43

22 April 2013 ................................................................................................................................................ 43

INDIA / VIZHINJAM-03/MULLOOR ................................................................................................................. 45

12 April 2013 ................................................................................................................................................ 45

UGANDA / BUJAGALI ENERGY-06/BUJAGALI .................................................................................................. 47

3 April 2013 .................................................................................................................................................. 47

CAMEROON / AES SONEL-02/DOULA ............................................................................................................. 49

21 February 2013.......................................................................................................................................... 49

INDIA / TATA TEA-02/ASSAM ......................................................................................................................... 51

2 February 2013............................................................................................................................................ 51


22 November 2012 ....................................................................................................................................... 53

INDIA / VIZHINJAM-02/KERALA ..................................................................................................................... 55

23 September 2012 ...................................................................................................................................... 55

SOUTH AFRICA / LONMIN-01 / CAO VICE PRESIDENT ..................................................................................... 57

21 August 2012 ............................................................................................................................................. 57

INDIA / VIZHINJAM-01/KERALA ..................................................................................................................... 59

21 August 2012 ............................................................................................................................................. 59

COLOMBIA / ECO ORO-01/BUCARAMANGA ................................................................................................... 61

13 June 2012 ................................................................................................................................................. 61

INDIA / TATA TEA/CAO VICE PRESIDENT REQUEST ......................................................................................... 63

1 May 2012 ................................................................................................................................................... 63

HONDURAS / DINANT-01/CAO VICE PRESIDENT REQUEST ............................................................................. 65

17 April 2012 ................................................................................................................................................ 65

MEXICO / HARMON HALL-01/MEXICO ........................................................................................................... 71

2 December 2011.......................................................................................................................................... 71

PERU / QUELLAVECO-01/MOQUEGUA ........................................................................................................... 73

26 November 2011 ....................................................................................................................................... 73

COLOMBIA / AVIANCA-01/COLOMBIA ........................................................................................................... 77

14 November 2011 ....................................................................................................................................... 77

INDONESIA / WILMAR GROUP-03/JAMBI ....................................................................................................... 83

9 November 2011 ......................................................................................................................................... 83

PHILIPPINES / MINDORO RESOURCES-01/JABONGA ...................................................................................... 85

16 September 2011 ...................................................................................................................................... 85

REPUBLIC OF KOSOVO / KOSOVO KEK-01/PRISHTINA .................................................................................... 87

25 August 2011 ............................................................................................................................................. 87

PAPUA NEW GUINEA / PNG SEZ-01/MADANG PROVINCE .............................................................................. 91


12 July 2011 .................................................................................................................................................. 91

INDIA / TATA ULTRA MEGA-01/MUNDRA AND ANJAR ................................................................................... 93

14 June 2011 ................................................................................................................................................. 93

PANAMA / PANAMA CANAL EXPANSION-01/GATÚN ..................................................................................... 97

13 May 2011 ................................................................................................................................................. 97

INDIA / INDIA INFRASTRUCTURE FUND-01/DHENKANAL DISTRICT ................................................................ 99

15 April 2011 ................................................................................................................................................ 99

UGANDA / BUJAGALI ENERGY-04/BUJAGALI ................................................................................................ 101

21 Mars 2011.............................................................................................................................................. 101

ECUADOR / PRONACA EXPANSION-01/SANTO DOMINGO DE LOS TSACHILAS ............................................. 105

8 December 2010........................................................................................................................................ 105

MOZAMBIQUE / MOZAL-01/MATOLA AND MAPUTO .................................................................................. 107

1 October 2010 ........................................................................................................................................... 107

GHANA / TULLOW OIL, KOSMOS ENERGY & JUBILEE FPSO-01/CAO VICE PRESIDENT REQUEST .................... 111

19 August 2010 ........................................................................................................................................... 111

INDONESIA / PT WEDA BAY NICKEL-01/WEDA BAY ...................................................................................... 113

6 July 2010 .................................................................................................................................................. 113

PERU / MAPLE ENERGY-01/NUEVO SUCRE AND CANAÁN ............................................................................ 115

6 April 2010 ................................................................................................................................................ 115

PANAMA / PANDO MONTELIRIO-01/CHIRIQUÍ ............................................................................................ 117

27 January 2010 ......................................................................................................................................... 117

URUGUAY / ORION-02/GUALEGUAYCHÚ-ARGENTINA ................................................................................. 119

5 August 2009 ............................................................................................................................................. 119

PERU / AGROKASA-01/ICA ........................................................................................................................... 121

2 June 2009 ................................................................................................................................................. 121

INDIA / SN POWER-01/CAO VICE PRESIDENT REQUEST ................................................................................ 125

1 December 2008........................................................................................................................................ 125

INDONESIA / WILMAR GROUP-02/SUMATRA .............................................................................................. 127

1 December 2008........................................................................................................................................ 127

PERU / COMPANIA MINERA ANTAMINA S.A.-03/HUARMEY ........................................................................ 129

1 June 2008 ................................................................................................................................................. 129

KAZAKHSTAN / LUKOIL OVERSEAS-03/BEREZOVKA ...................................................................................... 131

1 May 2008 ................................................................................................................................................. 131

GEORGIA / BTC PIPELINE-31/NAOKHREBI .................................................................................................... 133

28 February 2008........................................................................................................................................ 133

RUSSIA / RUSSKIY MIR II-02/TAMAN ............................................................................................................ 135

1 February 2008.......................................................................................................................................... 135

INDIA / RAMKY-03/GUMMIDIPOONDI ......................................................................................................... 137


19 October 2007 ......................................................................................................................................... 137

RUSSIA / RUSSKIY MIR II-01/TAMAN ............................................................................................................ 139

1 October 2007 ........................................................................................................................................... 139

INDONESIA / WILMAR GROUP-01/WEST KALIMANTAN ............................................................................... 141

1 July 2007 .................................................................................................................................................. 141


1 April 2007 ................................................................................................................................................ 145

INDIA / MAHINDRA FARM SERVICES-01, 02, 03, 04/CONFIDENTIAL ............................................................. 147

23 October 2006 ......................................................................................................................................... 147

GEORGIA / BTC PIPELINE-27/TBILISI ............................................................................................................. 149

15 January 2006 ......................................................................................................................................... 149

GEORGIA / BTC PIPELINE-26/KRSTANISI ....................................................................................................... 151

12 December 2005...................................................................................................................................... 151

URUGUAY / CELULOSAS DE M'BOPICUA (CMB) & ORION-01/ARGENTINA & URUGUAY ............................... 153

1 September 2005 ...................................................................................................................................... 153

DEMOCRATIC REPUBLIC OF CONGO / ANVIL MINING CONGO, SARL-01/WORLD BANK PRESIDENT REQUEST ..................................................................................................................................................................... 157

1 July 2005 .................................................................................................................................................. 157

BRAZIL / AMAGGI EXPANSION-01/IFC EXECUTIVE VICE PRESIDENT REQUEST .............................................. 159

1 November 2004 ....................................................................................................................................... 159


1 September 2004 ...................................................................................................................................... 165

BOLIVIA / COMSUR V-01/BOSQUE CHIQUITANO .......................................................................................... 167

1 July 2003 .................................................................................................................................................. 167

PERU / COMPANIA MINERA ANTAMINA S.A.-01/HUARMEY ........................................................................ 171

1 September 2000 ...................................................................................................................................... 171

ASSESSMENT EN COURS, A SURVEILLER .............................................................. ERREUR ! SIGNET NON DEFINI.

Ukraine / Axzon-01/Halych and Kalush .................................................................. Erreur ! Signet non défini.

NO COMPLIANCE AUDIT BUT INTERESTING ......................................................... ERREUR ! SIGNET NON DEFINI.

Uganda / Bujagali Energy-05/Bujagali ................................................................... Erreur ! Signet non défini. Chile / Empresa Electrica Pangue S.A.-02/Upper Bio-Bio Watershed .................... Erreur ! Signet non défini.

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Guatemala / Real LRIF-01/Coban

29 October 2014

→ To documents

Complainant – local NGOs: Colectivo Madre Selva and the Consejo de Pueblos de Tezulutlan, on behalf of several community members downstream and upstream of the project Concerns –Impacts on water, livelihood, indigenous peoples, lack of information and consultation, social and environmental due diligence June 2015: although LRIF and HSR expressed willingness to engage in a CAO facilitated dispute resolution process, the complainants however indicated a preference for the case to be handled by CAO Compliance function. 31 Jul. 2015: appraisal finds an investigation is needed Open – Compliance investigation ongoing Project Information Institution - IFC Project Name & Number - Real LRIF 31458 Department - Private Equity & Investment Funds Company - Latin Renewables Infrastructure Fund, L.P, a ten-year closed-end private equity fund set up to invest in eight to twelve infrastructure projects in the renewable power and energy efficiency sectors of Latin America and the Caribbean. The fund is managed by Real Infrastructure Capital Partners, a New York-based fund manager that was established in 2010. Sector - Power Environmental Category FI1 Commitment - US $15 million equity investment Background In October 2014, CAO received a complaint regarding IFC's investment in the Latin Renewables Infrastructure Fund, L.P. (LRIF), a 10-year closed-end private equity fund to invest in 8-12 infrastructure projects in the renewable power and energy efficiency sectors of Latin America and the Caribbean. As stated in IFC’s disclosure webpage, the Fund has invested in the Santa Rita Hydroelectric Power Plant, a 23.2MW run-of-the-river hydro project in Coban, Guatemala. The complaint was submitted by two local organizations, Colectivo Madre Selva and the Consejo de Pueblos de Tezulutlan on behalf of several communities downstream and upstream of the Santa Rita project. The complaint raises concerns regarding a range of environmental and social issues related to IFC due diligence, project information disclosure and consultation, impacts to local water sources, displacement, indigenous people, and security concerns. The complainants have requested that their individual names be confidential. CAO Action CAO found the complaint eligible for further assessment in November 2014 and has started an assessment of the complaint. During the assessment, although LRIF and HSR expressed willingness to engage in a CAO facilitated dispute resolution process, the complainants however indicated a preference for the case to be handled by CAO Compliance function. In June 2015, the case was referred to CAO Compliance for appraisal of IFC's environmental and social performance with regard to the project. CAO’s appraisal of the case, issued on 31 July 2015, considered IFC’s pre-investment review and supervision of its investment in the Fund and the identification and management of E&S

http://www.cao-ombudsman.org/cases/document-links/links-227.aspx

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risks related to the Fund’s sub-projects. CAO has concluded that the issues raised warrant further investigation. Status The ToRs of a compliance investigation are being drafted.

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Chile / Hidromaule-01/San Clemente

27 October 2014

→ To documents

Complainant – Individuals: members of the Rodriguez family Concerns – land rights, compensation, environmental permitting processes May 2015: no dispute resolution can be conducted 25 Jun. 2015: appraisal finds an investigation is not needed Closed Project Information Institution - IFC Project Name & Number - Hidromaule 25568 Department – Infrastructure Company – Hidromaule S.A Sector - Utilities Environmental Category B Commitment - $6.2 million A Loan for IFC’s own account, a $10.0 million syndicated B Loan for the account of participants, and a $3.5 million subordinated C Loan for IFC’s own account Background FC has an active project with Hidromaule S.A., a start-up hydropower generation company owned by an Italian-Chilean consortium of professionals with experience in the hydropower generation industry. The company’s initial project, Lircay, is a 20 Megawatt run-of-river hydropower project located along the Lircay River in the VII Region of Chile, approximately 30 km to the northeast of the city of Talca. The complaint was submitted to CAO filed by a local individual on behalf of himself and several members of his family. The complaint raises concerns about the land acquisition process in the Lircay project, claiming that some owners were not properly recognized or compensated for two tracts of land used for the project. Irregularities around the land acquisition and environmental permitting processes are also cited. CAO Action CAO found the complaint eligible for further assessment in November 2014. During the assessment, although the complainants expressed willingness to engage in a CAO facilitated dispute resolution process, the Company however indicated a preference for the case to be handled by CAO Compliance function. In accordance with CAO's Operational Guidelines, the case was referred to CAO Compliance for appraisal of IFC's environmental and social performance with regard to the project. Status and Findings On 25 June 2015, CAO published a Compliance appraisal report regarding IFC's investment in Hidromaule. IFC considered the client’s approach to land acquisition as part of its pre-investment E&S review of the project, concluding that its client had or would acquire most of the land required through negotiated agreements. Although land acquisition was not considered a major risk, IFC incorporated requirements based on PS5 in the legal agreements and ESAP for the project. On the basis of the information available, however, CAO is unclear how IFC assured itself that the client’s approach to the acquisition of land through negotiated agreements met the requirements of PS5. The client’s success in reaching negotiated settlements with landowners is, however, cited at multiple points and appears to have given IFC confidence that a fair market price was being offered.


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In this case, is not apparent that the land dispute raised in the complaint is indicative of substantial concerns regarding the potential E&S outcomes of the project and/or issues of systemic importance for IFC such that would merit a compliance investigation in accordance with CAO’s Operational Guidelines. CAO has thus decided to close this case at appraisal. In reaching this conclusion, CAO makes no judgment on the merits of any ongoing disputes between the complainants and the IFC client.

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Papua New Guinea / AES PNG-01/Roku Village

29 September 2014

→ To documents

Complainant – Individuals: Kuriu Clan of Roku Village Concerns – land rights, compensation, indigenous people, natural habitats March 2015: the company indicated that, having cancelled their engagement with IFC, they did not wish to engage in a CAO dispute resolution process 27 Apr. 2015: appraisal finds an investigation is not needed Closed Project Information Institution - IFC Project Name & Number - AES PNG 32750 Department – Infrastructure Company - Avenell Engineering Systems Ltd Sector - Port and Harbor Operations Environmental Category B Commitment - US$4 million loan Background Avenell Engineering Systems Ltd. (AES or “Company”) was established in 1997 as an electrical engineering business in East New Britain Province of Papua New Guinea (“PNG”) specializing in power generation supply and assembly. The Company has subsequently diversified its interests into plant and machinery hire, civil, construction and port development and operations. IFC committed a US$4 million loan to the company to fund AES’s project of a capital expenditure program which includes the acquisition of plant and equipment for port operations and civil, its construction activities as well as completion of the wharf construction. The IFC loan was never disbursed and has been cancelled. In September 2014, Mr. John Samar lodged a complaint with CAO on behalf of the Kuriu Clan of Roku Village in Papua New Guinea. The complainants raise concerns about the illegal occupation of their customary land by AES and IFC’s Due Diligence process which they argue failed to appropriately identify them as the legitimate land owners. CAO Action CAO found the complaint eligible in October 2014 and commenced an assessment of the complaint. During assessment, the company indicated that, having cancelled their engagement with IFC, they did not wish to engage in a CAO dispute resolution process, which requires voluntary agreement to participate by the complainants and company at a minimum. Status and Findings In April 2015, CAO completed a compliance appraisal with regard to the AES PNG 01 complaint. In this case, CAO has concerns as to the adequacy of IFC’s E&S review prior to its investment in the company. Given that the complainants assert: (a) to be the customary owners of land acquired by the company, and (b) to have been involved in a long running dispute over the land in question, CAO has questions as to whether IFC properly considered the application of Performance Standard 7 (Indigenous Peoples) to this investment. However, CAO notes that the IFC loan was never disbursed and was ultimately canceled at the company’s request in December 2014. In conclusion, considering

http://www.cao-ombudsman.org/cases/case_detail.aspx?id=228

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that IFC is no longer involved in the project, and that no investment was made, CAO decides that an investigation of IFC’s performance is not an appropriate response to the issues raised in the complaint.

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Malaysia / Bilt Paper B.V-01/Sipitang

13 September 2014

→ To documents

Complainant – Individual (ID confidential) Concerns – Water quality, land, acquisition, loss of biodiversity 16 Mar. 2015: given that CAO was no longer able to reach the complainant after a first contact, case transferred to compliance 13 Jul. 2015: appraisal finds no investigation is needed Closed Project Information Institution - IFC Project Name & Number - Bilt Paper B.V 34602 Department - Global Manufacturing & Services Company – Ballarpur International Graphic Paper (BILT) Sector - Agribusiness Environmental Category A Commitment - $250 million debt and equity investment in the client and its subsidiary – Sabah Forest Industries (SFI) Background IFC has approved an investment consisting of debt and equity in Ballarpur International Graphic Paper Holdings (BIGPH), a company incorporated in the Netherlands. BIGPH owns subsidiaries which are pulp and paper manufacturers in India and Malaysia. BIGPH is a subsidiary of Ballarpur Industries Limited (BILT), which is headquartered in India and is a previous IFC investee company. Part of the investment proceeds may be directed to Sabah Forest Industries (SFI), whose operations are located in Sabah state of Malaysia. In September 2014, a local individual filed a complaint with CAO in relation to the project’s Sabah state operations. The complaint raises concerns that project operations are having an adverse effect on water quality of local rivers that the complainant and his community depend on. The complaint also mentions concerns around improper takeover of community land, loss of biodiversity and other environmental impacts. The complainant has requested confidentiality. CAO Action CAO found the complaint eligible for further assessment in October 2014 and the assessment of the case commenced. However, a detailed assessment was not possible as CAO was unable to reach the complainant after the initial contact during the eligibility phase. CAO facilitated dispute resolution process requires voluntary agreement to participate by the complainants and company at a minimum. As this requirement could not be met and in accordance with CAO's Operational Guidelines, the case was referred to CAO Compliance for appraisal of IFC's environmental and social performance with regard to the project. Status In this case, the complaint raised broad issues regarding the impact of the project on local communities and the environment. However, the complainant identified as being affected only by the project’s impacts on water quality in local rivers. As such this compliance appraisal focuses on the water quality concerns. In conducting the compliance appraisal, CAO was unable to make further contact with the complainant. As a result this appraisal is based primarily on IFC’s project documentation. CAO notes that this is a category A project meaning that it has potential significant


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adverse E&S risks and/or impacts as recognized by IFC. However, considering the limited information on the impacts of the project available from the complainant, CAO has not identified substantial concerns regarding E&S outcomes of the project and/or issues of systemic importance to IFC such that would warrant a compliance investigation in accordance with CAO’s Operational Guidelines. Absent further information from the complainant, CAO has decided to close this case. CAO notes that this decision does not preclude a future complaint that provides more details in relation to the issues raised by the complainant or other potential E&S impacts of the project.

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Armenia / Lydian Intl3-01/Gndevaz & Jermuk

16 April 2014

→ To documents

Complainant – Members of Gndevaz and Jermuk villages and Local NGOs: EcoLur Informational, EcoRight, Save Teghut, Pan-Armenian Environmental Front, Center for Jermuk Development, Center for Bird Lovers, Armenian Women for Health and Healthy Environment Concerns – Water pollution, biodiversity, endangered species, violation of national laws 11 Dec. 2014: After additional information, requesters want the case transferred to compliance appraisal 27 Apr. 2015: appraisal finds an investigation is needed Open – Compliance investigation ongoing Project Information Institution - IFC Project Name & Number - Lydian Inlt 3 27657 Department - Infrastructure Company – Lydian International Sector - Oil, Gas and Mining Environmental Category B Commitment - US$16 million in stages since 2007 Background In April 2014, a complaint was submitted to CAO by residents of the Gndevaz and Jermuk villages in Armenia with support from nine NGOs with regard to IFC's investment in Lydian International Limited, a junior mining company sponsoring the exploration of the Amulsar gold project. According to IFC, the project is at an advanced feasibility stage, subject to completion of a bankable feasibility study, and environmental and social impact studies. Subject to obtaining all outstanding permits, the project is expected to move into the development and construction stage, targeting first gold production in 2016. IFC is a 7.9% shareholder and has invested over $16 million in stages since 2007. The complainants highlight concerns about project impacts on the local water basins' quality, red-listed species and a local tourism center. Other issues raised include criticisms of the EIA conducted and alleged violations of IFC’s Performance Standards and national regulations. In July 2014, a similar complaint with the same requesters was submitted to the EBRD PCM: case no. 2014/02, DIF Lydian (Amulsar Gold Mine) CAO Action CAO found the complaint eligible for further assessment in April 2014. During the assessment, CAO held several informational sessions with the parties where clarity on CAO’s mandate, functions and services was provided. Ultimately, the complainants informed CAO that they believe their interests and those of the Armenian public would be best served by CAO Compliance. Hence, in accordance with CAO’s Operational Guidelines, the complaint has been referred to CAO’s Compliance function for appraisal of IFC’s environmental and social due diligence with regard to the project. Status As per CAO's Operational Guidelines, CAO formally transferred the case for appraisal on December 11, 2014. In April 2015, CAO completed a compliance appraisal with regard to the Lydian 01 complaint. CAO concludes that the complaint raises substantial concerns about a range of potential or actual E&S impacts of the project. In reaching this conclusion CAO notes that IFC has, to date, only funded


http://www.ebrd.com/work-with-us/project-finance/project-complaint-mechanism/pcm-register.html

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activities that are preparatory to the construction of the mine, and that no decision on whether to fund construction of the mine has been made. Nevertheless, IFC’s investments in the company have the clear objective of enabling construction of the mine which is expected to move forward within a short period of time. Given that IFC’s E&S requirements extend to the preparatory activities funded to date, CAO finds that the concerns raised by the complainants are relevant to IFC’s performance in relation to this investment. CAO has also identified questions regarding IFC’s review and supervision of its E&S requirements in relation to the project. On the basis of the compliance appraisal, CAO decided to conduct a compliance investigation into IFC's investment in Lydian International Ltd.

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Honduras / Dinant-03/Aguan Valley

25 July 2014

→ To documents

Complainant - Movimiento Unificado Campesino del Aguan Concerns - Evictions, security concerns, land conflict Open – Ombudsman Assessment (postponed) Project information Institution - IFC Project Name & Number - Dinant 27250 Department - Agribusiness Company - Corporación Dinant Sector - Agribusiness Environmental Category B Commitment - US$30m (A loan) Background IFC provided Corporación Dinant -a vertically-integrated palm oil and food company in Honduras- with a corporate loan to enable it to develop young palm oil plantations, increase production capacity in its snacks and edible oils divisions, expand and upgrade its distribution network, and build a biogas facility to generate electricity for own and third-party consumption. The total project cost was estimated at $75 million, and IFC’s proposed investment was a $30 million loan. Dinant is headquartered in Tegucigalpa, Honduras. It owns palm oil plantations across the Aguan and Lean Valleys and operates two palm oil mills and an edible oil refinery near the cities of Tocoa and La Ceiba. The company also operates a port storage facility at Puerto Castilla; owns vegetable greenhouses and a food processing plant in the Comayagua Valley; and has a snacks plant in San Pedro Sula. In July 25 2014, the Movimiento Unificado Campesino del Aguan filed a complaint with CAO on behalf of its members in the Aguan Valley. The complaint raises a number of issues related to land disputes, displacement of communities, violence, use of security forces, and environmental impacts which the complainants link to Dinant’s palm oil operations in the Aguán Valley. CAO Action CAO found the complaint eligible in August 2014 and has initiated an assessment of the complaint issues with the relevant parties, specifically the complainants and IFC client. Concurrently, CAO is monitoring IFC’s actions to address findings from a CAO investigation of IFC’s environmental and social performance with regard to its investment in the client. CAO’s investigation report in the Dinant-01 was released in January 2014. Status An assessment is ongoing.


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Honduras / Dinant-02/Aguan Valley

25 July 2014

→ To documents

Complainant - Movimiento Campesino Refundación Gregorio Chávez Concerns - Evictions, security concerns, land conflict Open – Ombudsman Assessment (postponed) Project information Institution - IFC Project Name & Number - Dinant 27250 Department - Agribusiness Company - Corporación Dinant Sector - Agribusiness Environmental Category B Commitment - US$30m (A loan) Background IFC provided Corporación Dinant -a vertically-integrated palm oil and food company in Honduras- with a corporate loan to enable it to develop young palm oil plantations, increase production capacity in its snacks and edible oils divisions, expand and upgrade its distribution network, and build a biogas facility to generate electricity for own and third-party consumption. The total project cost was estimated at $75 million, and IFC’s proposed investment was a $30 million loan. Dinant is headquartered in Tegucigalpa, Honduras. It owns palm oil plantations across the Aguan and Lean Valleys and operates two palm oil mills and an edible oil refinery near the cities of Tocoa and La Ceiba. The company also operates a port storage facility at Puerto Castilla; owns vegetable greenhouses and a food processing plant in the Comayagua Valley; and has a snacks plant in San Pedro Sula. In July 25 2014, the Movimiento Campesino Refundación Gregorio Chavez filed a complaint with CAO on behalf of its members in the Aguan Valley. The complaint raises a number of issues related to land disputes, displacement of communities, violence, use of security forces, and environmental impacts which the complainants link to Dinant’s palm oil operations in the area. CAO Action CAO found the complaint eligible in August 2014 and has initiated an assessment of the complaint issues with the relevant parties, specifically the complainants and IFC client. Concurrently, CAO is monitoring IFC’s actions to address findings from a CAO investigation of IFC’s environmental and social performance with regard to its investment in the client. CAO’s investigation report in the Dinant-01 case was released in January 2014. Status An assessment is ongoing.


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Guatemala / Guatemala: TCQ-01/Puerto Quetzal

20 March 2014

→ To documents

Complainant – Sindicato de Trabajadores Organizados del Puerto Quetzal (STOPQ) Concerns – Violation of national law, consultation, EIA, labor concerns 10 Sept. 2014: Assessment report takes not of the fact the client does not think a dispute resolution is possible. Case transferred to compliance appraisal 20 Mar. 2015: appraisal finds no investigation is needed Closed Project Information Institution - IFC Project Name & Number - TCQ 32763 Department - Infrastructure Company - Terminal de Contenedores Quetzal S.A. (TCQ) Sector - Port and Harbor Operations Environmental Category B Commitment - A Loan of $35 million and a $9.7 million equity Background IFC has an active project (#32763) with Terminal de Contenedores Quetzal (TCQ) to construct and operate a new dedicated container terminal within Puerto Quetzal. The Terminal will operate under a 25-year Usufruct Agreement on leased land owned by Empresa Portuaria Quetzal, the state owned company that owns and administers Puerto Quetzal. The Project is estimated to cost approximately US$177 million. IFC has approved a US$35 million A loan and a $9.7 million equity investment. In March 2014, CAO received a complaint from a labor union at Empresa Portuaria Quetzal, who alleges that the TCQ project and its Usufruct Agreement violate national law, and were approved without consulting some appropriate sectors of civil society and based on an unduly processed EIA. The union contends that their members’ economic wellbeing and that of the communities that neighbor the port zone will be negatively affected. CAO Action CAO found the complaint eligible for assessment in April 2014, and conducted a field visit in May to discuss options for addressing the complaint with the relevant parties. The parties indicated an initial willingness to explore the possibility of a dispute resolution process. However, after weighing its decision the company ultimately decided it did not see the necessary conditions for dialogue and declined participation. The case has been referred to CAO Compliance for appraisal. Status and Findings In relation to the complainant’s concerns about the project’s compliance with national laws, CAO notes that IFC conducted due diligence and received advice from local counsel on key legal compliance issues. This represented good practice. In relation with IFC’s social and environmental due diligence, IFC identified gaps in the client’s social impact assessment as well as its approach to stakeholder engagement. IFC required the client to fill in those gaps. However, it appears that the complainants’ key concerns were not considered by IFC in a structured manner, as these fell outside IFC’s understanding of the social impacts of the project. In relation to the issues raised by the complainants, CAO has not identified substantial concerns regarding the E&S outcomes of IFC’s investment or issues of systemic importance to IFC such that a compliance investigation would be the appropriate response. As a result, CAO has decided to close this case. In reaching this conclusion,


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CAO notes that IFC’s interpretation of the requirement to consider the social impacts of the project did not extend to analyzing potential adverse impacts of the project on: (a) employment at other enterprises such as Empresa Portuaria Quetzal, or (b) government revenue. It is unclear to CAO whether this interpretation was justified in the circumstances. Absent evidence of significant adverse outcomes, however, CAO concludes that this question alone does not merit a compliance investigation.

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Mexico / Harmon Hall-08/Puerto Vallarta

14 March 2014

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Complainant - Former teacher Concerns - employment rights, benefits, compensation, and fair and respectful treatment for workers March 2014: both parties do not want a negotiated solution Case transferred to compliance appraisal 13 Apr. 2015: appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Harmon Hall 29753 Department - Health & Education Company - Harmon Hall Holding, S.A. de C.V. Sector - XX - Other Environmental Category B Commitment - $7.9 million equity Background Harmon Hall is a large English language school chain in Mexico, with a network of 110 English schools in 63 cities and over 40,000 students in the entire system. Harmon Hall also has two K-12 schools and plans to grow this business line. The International Finance Corporation (IFC) provides Harmon Hall with an equity investment that consists of two components: (i) the purchase of a selling shareholder’s shares and (ii) a capital increase in Harmon Hall to finance the expansion plans of the company over a period of 18 months. IFC will provide a $7.9 million equity investment. In March 2014, a former teacher of Harmon Hall Puerto Vallarta School lodged a complaint with CAO. The complainant argues that he was a full time employee (“nomina”) as opposed to being self-employed (“asimilados”) as Harmon Hall claimed. As such, the complainant contends that Harmon Hall owes him benefits withheld for his two years’ service with the school. CAO Action CAO found the complaint eligible in March 2014 and conducted an assessment of the issues with the relevant parties. The parties did not agree to participate in a voluntary dispute resolution process and in accordance with CAO's Operational Guidelines, the case was transferred to CAO's Compliance function. For the purpose of the compliance appraisal, Harmon Hall complaints 02-06 were merged with complaint 08. Status and Findings From 2011 to 2014, a total of 24 complaints relating to Harmon Hall were lodged with the CAO. The first CAO case, Harmon Hall-01 was filed with CAO in December 2011. It addressed 17 labor related complaints regarding the company. These complaints triggered a CAO-led dispute resolution process in which the company and 15 complainants agreed to a set of remedial measures designed to resolve issues similar to those raised in the current set of complaints. The two unresolved complaints from Harmon Hall-01 were transferred to the CAO compliance function and closed after appraisal in August 2013 on the basis that they did not raise substantial concerns regarding the E&S outcomes of the project or issues of systemic importance that justified a compliance investigation. In September 2014, an additional complaint (Harmon Hall-07) was resolved through a separate CAO-led dispute


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resolution process. This appraisal pertains to six complaints from current and former employees of the company lodged with CAO between September 2013 and March 2014. These complaints are referred to as CAO cases Harmon Hall 02-06 and 08. Some of the issues raised in these complaints arise from allegations that remedial measures agreed as part of the resolution of the Harmon Hall-01 complaints have not been implemented. CAO acknowledges that IFC conducted a review of the project’s E&S risks and impacts, and identified issues related to the company’s labor practices. Remedial actions to effectively manage these issues were included in an ESAP prior to commitment. However, given the gaps identified in the company’s HR systems, CAO has questions as to whether IFC’s E&S review of PS2 issues was commensurate to risk, whether it adequately considered the company’s track record in relation to labor issues and more generally whether it provided sufficient assurance of the company’s ability to meet the requirements of PS2 over a reasonable period of time. In the course of supervision, CAO notes that IFC identified issues in relation to the company’s labor practices and has engaged to address these. Particularly, in 2013, IFC updated its ESAP for the company incorporating remedial actions that had been negotiated through the CAO-led dispute resolution process. Further, in 2014, IFC commissioned a labor compliance verification audit and developed a related corrective action plan, though at the time of writing a final corrective action plan had not yet been agreed. In these circumstances, continued active supervision of labor related issues will be needed. More generally, CAO notes questions as to the rigor and timeliness of IFC’s supervision given the number of labor related complaints that have been filed with CAO starting in 2011. Absent aggravating circumstances, disputes between an employer and individual employees around issues of pay and benefits will not raise substantial concerns regarding the E&S outcomes of an IFC investment such that would merit a CAO compliance investigation. While CAO has identified questions as to IFC’s appraisal and supervision of its investment in the company, CAO also notes that IFC is supervising this investment with a focus on the implementation of Performance Standard 2 (Labor and Working Conditions). In particular, this involved the conduct of a labor compliance verification audit and the development of a related corrective action plan in 2014. In conclusion, given the nature of the complaints, and considering IFC’s ongoing engagement with the company in relation to the implementation of Performance Standard 2, CAO finds that a compliance investigation is not the appropriate response in this instance.

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Peru / Yanacocha-06/Cajamarca

6 February 2014

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Complainant - Former employee Concerns - Labor March-July 2014: mediation fails 29 May 2015: appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Yanacocha 2983 Department - Oil, Gas, Mining, & Chemicals Company - Minera Yanacocha S.A. Sector - Mining Environmental Category A Commitment - 5% equity stake Background Minera Yanacocha S.R.L. is a large open-pit gold mine located in the Andes mountains in the Department of Cajamarca, Peru. The Company is engaged in the exploration and production of gold. Over a period from 1993 to 1999, IFC committed two loans to finance the capital expenditure programs for three of the company’s mines, Carachugo, Maqui Maqui, and La Quinua. In parallel, IFC made an equity investment for a 5% ownership stake in the Company, which it continues to hold. In February 2014, CAO received a complaint from a former employee of Yanacocha who raises concerns about employment termination and the lack of due process, along with other labor issues. CAO Action CAO found the complaint eligible for assessment in March 2014, and met with the relevant parties on several occasions. While the complainant expressed his willingness to participate in a dispute resolution process, the company preferred that the case be resolved through the judicial processes initiated by the complainant. As per CAO’s Operational Guidelines, the complaint has been referred to CAO Compliance for appraisal of IFC’s performance. Status and Findings CAO notes that the Yanacocha-04, -05 and -07 complaints relate to three distinct land disputes involving the IFC client; each with its own history and each raising particular issues of fact and law. While CAO’s appraisal process has identified questions as to IFC’s due diligence and supervision in relation to its client’s approach to land acquisition, it is not apparent from the material at hand that the land disputes raised in these complaints are indicative of substantial concerns regarding the environmental and social outcomes of the project or issues of systemic importance for IFC such that would merit a compliance investigation in accordance with CAO’s Operational Guidelines. Compliance Appraisal Report – Yanacocha Complaints-04, 05, 06 and 07, Peru. The labor-related complaint can be summarized as follows: Yanacocha-06 (February 2014): Complaint from a former employee working at the client’s La Quinua mine. The Complainant raises concerns about the circumstances around his employment including allegations of wrongful termination and negative effects to his health due to the working conditions at the project site. CAO acknowledges the


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seriousness of the issues raised by the complaint at an individual level. However, after careful consideration of the information at hand, it is not apparent that the labor issues raised by the Yanacocha-06 complainant are indicative of substantial concerns regarding the environmental and social outcomes of the project or issues of systemic importance for IFC that would merit a compliance investigation in accordance with CAO’s Operational Guidelines. On the basis of these considerations, CAO has determined to close the four complaints at appraisal and without further investigation. In reaching this conclusion CAO stresses that it makes no finding on the merits of any ongoing disputes between the complainants and the IFC client.

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Albania / Albania Hydros-01/Tirana

14 January 2014

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Complainant - EDEN (Environmental Center for Development Education and Networking) Concerns - Social & environmental impacts of privatization Dispute resolution not sought after by complainants March 2014: Compliance appraisal, no audit needed on the basis of available info Closed Project Information Institution - IFC (Advisory Services) Project Name & Number - Albania Hydros 583387 Department - Environment & Social Development Company - Government of Albania Sector - Power Environmental Category N/A Commitment N/A Background As per IFC, the Government of Albania (Government) seeks to liberalize its energy sector so as to enhance private sector participation and to monetize/realize the value of its generation assets. IFC has been appointed by the Government on the privatization of a series of hydropower plants (HPPs): 1) Ulza HPP and Shkopeti HPP on River Mat; 2) Bistrica I HPP and Bistrica II HPP on River Bistrica; and 3) Lanabregas HPP. IFC is assisting the Government to maximize privatization proceeds from the sale of the HPPs and also to ensure the plants are rehabilitated and efficiently operated by the new owner so as to improve the country’s generation system. IFC is managing roughly $820,000 in trust funds for the project. In January 2013, a complaint was filed with CAO by the Environmental Center for Development Education and Networking (EDEN) in Albania. The complaint raises specific concerns about perceived resultant impacts of privatization of the formerly Government-operated hydropower plants. It is claimed that the privatization will potentially lead to a reduced pool of energy for direct disposal to the national electricity utility, Korporata Electroenergjetika Shqiptare (KESH) and subsequently force KESH to start buying energy on the global market to meet consumers’ demand. The resultant impacts of the privatization project cited in the complaint include, but are not limited to: continued energy shortages and blackouts; an inevitable rise in electricity tariffs for consumers; and negative environmental impact of the operations of the private steel company, which they believe has now acquired the HPPs. Furthermore, the complainants argue that IFC’s due diligence of the Advisory Services project is flawed. They are of the opinion that IFC did not conduct appropriate social and environmental impact assessments of the project and the process(s) lacked transparency. CAO Action CAO found the complaint eligible for further assessment in January 2013 and conducted an assessment of the complaint with the relevant parties. Having finalized the assessment, CAO confirmed that the Complainant wished to trigger CAO’s compliance function in addressing the complaint. This decision was made with a clear understanding of both options available, and having due regard to the current political climate in Albania.


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Status and Findings CAO completed the appraisal in March 2014. On the question of the E&S impact of the Project, IFC identified high E&S risks in the course of implementation. It is, however, not apparent to CAO that this implies evidence of potentially significant adverse E&S impacts on the Complainant. On questions of compliance with IFC’s policies, procedures and standards, CAO notes that IFC had not completed its pre-implementation planning and approval process prior to executing the FASA (Financial Advisory Services Agreement) with the client. As a result, CAO is concerned that opportunities were missed for early engagement with the client on what was later recognized as a project with high E&S risks. This sequencing of work also meant that opportunities may have been missed to incorporate additional E&S provisions in the FASA, which in turn may have increased IFC’s leverage during implementation of the AS project. Nevertheless, in relation to the issues raised by the Complainant, this CAO Compliance Appraisal reveals no indication that IFC’s advice on the identification and management of potential E&S impacts, was other than consistent with the requirements of the Performance Standards (2012). In particular CAO notes the commissioning of an E&S due diligence report on the HPPs that was structured around the Performance Standards, as well as the incorporation of E&S information and reference to the Performance Standards in the tender documentation. Further, CAO notes recommendations and tools provided to the GoA in relation to stakeholder engagement processes which referenced the requirements Performance Standard 1. On the question of whether IFC’s policies provide an adequate level of protection in relation to the E&S impacts that stem from its projects, CAO has a number of observations. These build on the findings of CAO’s audit of IFC’s Advisory Services Project with the Korporata Energjetike e Kosovës (KEK) in Kosovo, and include concerns that: a. underassessment of E&S risk in the pre-implementation stage of the Project may have led to late engagement with the client in relation to E&S issues and a failure to incorporate appropriate E&S provisions in the FASA; b. IFC may not have adequate procedures in place for assessing a client’s capacity and commitment to execute a project (in relation to which IFC is giving advice) in accordance with the Performance Standards; and c. IFC may not have adequate procedures in place to ensure that advice is provided in relation to whether an eventual purchaser of privatized assets has the capacity and commitment to carry out its E&S commitments under the purchase agreement. In making these observations, CAO acknowledges the work that IFC’s AS unit is doing to develop its approach to the identification and management of E&S risk in its projects. Recent steps in this regard include the development of an early risk screening tool which guides AS staff to consider a range of factors including sector risk, project specific risk, host country regulatory risk and client capacity in conducting their initial AS project E&S risk categorization. Another development is the inclusion, in the IFC’s standard FASA language, of “a clause stating that IFC will advise clients in a manner consistent with the Performance Standards” and that IFC “has the right to terminate the FASA … if IFC determines that it would not be able to continue advising the Client in connection with the Project in a manner that would be materially consistent with the Sustainability Policy.” In relation to projects with significant potential E&S impacts, and where E&S impacts will not be realized until after IFC exits the project, however, CAO has questions as to the ability of the IFC AS business line to deliver against IFC’s higher level commitments under the Sustainability Policy. In particular CAO refers here to IFC’s commitment to “do no harm” principles and its commitment to “ensuring that the costs of economic development do not fall disproportionately on those who are poor and vulnerable [and] that the environment is not degraded in the process…” (Sustainability Policy (2012) para. 8). In highlighting these more general questions CAO notes that, in this case, IFC’s financing of Kürüm (the purchaser of the HPPs) provides a basis for ongoing supervision of the project in accordance with the Sustainability Framework. On the balance of considerations, CAO concludes that further investigation in relation this Complaint is not warranted. As such CAO will close this case at Appraisal.

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India / Lafarge Surma Cement -01

6 January 2014

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Complainant – 3 individuals, IDs confidential Concerns – information, consultation, tribal land, compensation April 2014: CAO Assessment finds that a dispute resolution is possible 11 July 2014: Dispute resolution did not work, case transferred to compliance appraisal 14 Oct. 2014: Compliance appraisal finds an investigation is not needed Closed Project information Institution -IFC Project Name & Number - Lafarge Surma Cement 8035 Department - Manufacturing & Services Company - Lafarge Surma Cement Limited Sector - Construction and Real Estate Environmental Category A Commitment - Up to $35 million A loan, $10 million B Loan, and equity of $10 million in 1998, and invested in 2003 Background The IFC’s project with Lafarge Surma Cement Ltd. (LSC), the parent company of LUMPL (Lafarge Umiam Mining Pvt. Ltd.), involves the construction and operation of an integrated, dry process cement plant in the far north-east corner of Bangladesh. This plant is very close to the Indian state of Meghalaya, from where the limestone is sourced. LUMPL, the wholly owned Indian subsidiary of LSC, owns and operates a limestone quarrying and crushing operation located in Meghalaya, India which serves the cement plant in Chhatak, Bangladesh, owned and operated by LSC. An overhead conveyor belt connects the two centres of operation. Surma Holding BV., a company registered in The Netherlands, holds 58.87% shares of LSC. Lafarge of France and Cementos Molins of Spain own 50%-50% shares of Surma Holding BV. As per the Annual Report 2012, the shareholdings of LSC were as follows: - Surma Holding B.V. 58.87 % - International Finance Corporation 1.94 % - Sinha Fashions Limited Bangladesh 3.02 % - Islam Cement Limited Bangladesh 2.75 % - Other Shareholders – Bangladesh & NRB 33.42 % In 1998, IFC approved an A Loan of $35 million, a B Loan of $15 million and equity of $10 million, and invested in 2003. In January 2013, a complaint was filed by a number of individuals on the Indian side of the project. The complaint raises concerns about the legitimacy of the land acquisition and use process for the project’s limestone quarrying operation close to the villages of Shella and Tynger in Meghalaya. The complainants further state that as Khasi indigenous people they have been deprived of their land, their livelihood has been impacted, and their customary land rights and systems have not been respected. The complainants have requested confidentiality. CAO Action CAO found the complaint eligible for further assessment in January 2014. During the assessment, CAO found no agreement among the key parties to proceed with a dispute resolution process under


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CAO auspices. Therefore, the complaint has been transferred to CAO’s Compliance function for appraisal, per CAO Operational Guidelines. Status and Findings Given the requirements of the loan agreement and ODs 4.20 and 4.30, it is unclear to CAO that IFC’s supervision of the project was sufficient. In particular, based on the documentation available, CAO is unclear as to the adequacy of IFC’s review of the India SIA (Social Impact Assessment.) It is similarly unclear to CAO whether IFC adequately supervised its client’s commitment to carry out a program of independent external monitoring as set out in the India SIA. When IFC became aware of the complainants’ specific concerns about land acquisition, IFC determined that it was appropriate to await the outcome of court proceedings before taking further action. In complex operating environments, grievances such as those discussed in this report are to be expected and are not necessarily indicators of poor project performance. Nevertheless, in accordance with the ESRP, supervision may require IFC to assure itself that a client’s response to complaints is consistent with its E&S requirements. In this context, it is unclear to CAO whether IFC’s response to the issues raised by the complainants was sufficient. More generally, CAO notes that the ESRPs (Environmental and Social Review Procedures) do not provide substantive guidance to IFC staff on how to respond to complaints about client E&S performance. A key question in determining whether CAO triggers an investigation in relation to an IFC project is whether the complaint raises “substantial” or “potentially significant” concerns regarding a project. The primary concerns of the complainants in this case relate to the company’s acquisition of agricultural land that they claim to own. While a just resolution of these issues is no doubt important for the parties, the information available does not support the conclusion that they raise substantial or potentially significant concerns about environmental and/or social outcomes of the project. CAO also notes the complainants’ concerns about the adequacy of IFC’s engagement with the project’s impact on indigenous people. Absent a complaint from a broader group of project-affected people, however, CAO is reluctant to pursue an investigation on this basis. This Compliance Appraisal raises a number of questions about the adequacy of IFC’s preparation and supervision of E&S aspects of the project. These alone, however, are not found to be of sufficient systemic importance to justify an investigation, particularly given that the project was processed under superseded policies and procedures. On the balance of these considerations, CAO thus decides to close this case.

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Mexico / Harmon Hall-03-06/Puerto Vallarta and Merida Campestre

14 October 2013

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Complainant - Current and Former Employees Concerns - Unfair treatment, lack of management engagement, poor management systems and withheld benefits Joint assessment with Harmon Hall-02 March 2014: both parties do not want a negotiated solution Case transferred to compliance appraisal 13 Apr. 2015: appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Harmon Hall 29753 Department - Health & Education Company - Harmon Hall Holding, S.A. de C.V. Sector - XX - Other Environmental Category B Commitment - $7.9 million equity Background Harmon Hall is a large English language school chain in Mexico, with a network of 110 English schools in 63 cities and over 40,000 students in the entire system. Harmon Hall also has two K-12 schools and plans to grow this business line. The International Finance Corporation (IFC) provides Harmon Hall with an equity investment that consists of two components: (i) the purchase of a selling shareholder’s shares and (ii) a capital increase in Harmon Hall to finance the expansion plans of the company over a period of 18 months. IFC will provide a $7.9 million equity investment. On October 14, 19, 22 and November 6, 2013, CAO received four new complaints regarding Harmon Hall: • Harmon Hall-03/Puerto Vallarta: A current teacher at Harmon Hall lodged the complaint with CAO. The complainant raises concerns about fair treatment of teachers, inadequate wages and lack of compensation for extensive working hours. The complaint also alleges that several of the agreements made in response to the first complaint are not being implemented at the school. • Harmon Hall-04/Puerto Vallarta: The complaint was filed by a current sales representative at Harmon Hall. The complainant raises concerns about withheld compensation and changes made to work schedules without prior notification or consultation. • Harmon Hall-05/Puerto Vallarta: The complaint was filed by a current teacher. The complainant raises concerns about inadequate wages and lack of compensation for extensive working hours. Furthermore, the complaint also alleges that several of the agreements made in response to the first complaint are not being implemented at the school. • Harmon Hall-06/Merida Campestre: A former teacher at Harmon Hall lodged the complaint with CAO. The complainant raises concerns about general unfair treatment and non-payment of social security. CAO Action CAO determined the complaints eligible in November 2013 and initiated an assessment to explore options for addressing the issues with the parties. During the assessment, the complainants expressed concerns about inadequate implementation of the remedial actions agreement which


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resulted from CAO’s involvement in Harmon Hall-01, proper implementation of which, they believe, would have either prevented or addressed their current concerns. Harmon Hall stated that continuous efforts are being made to fully implement the remedial actions agreement and they expressed a preference to handle all outstanding complaints through their internal grievance mechanism. However, as the complainants and Harmon Hall could not agree to engage in a collaborative dispute resolution process, CAO is concluding the assessment of the complaint and the case is being transferred to CAO Compliance function for appraisal, as per CAO’s Operational Guidelines. IFC has stated its commitment to follow up with Harmon Harmon on its implementation of the previously agreed remedial actions as part of its routine project supervision. Status and Findings From 2011 to 2014, a total of 24 complaints relating to Harmon Hall were lodged with the CAO. The first CAO case, Harmon Hall-01 was filed with CAO in December 2011. It addressed 17 labor related complaints regarding the company. These complaints triggered a CAO-led dispute resolution process in which the company and 15 complainants agreed to a set of remedial measures designed to resolve issues similar to those raised in the current set of complaints. The two unresolved complaints from Harmon Hall-01 were transferred to the CAO compliance function and closed after appraisal in August 2013 on the basis that they did not raise substantial concerns regarding the E&S outcomes of the project or issues of systemic importance that justified a compliance investigation. In September 2014, an additional complaint (Harmon Hall-07) was resolved through a separate CAO-led dispute resolution process. This appraisal pertains to six complaints from current and former employees of the company lodged with CAO between September 2013 and March 2014. These complaints are referred to as CAO cases Harmon Hall 02-06 and 08. Some of the issues raised in these complaints arise from allegations that remedial measures agreed as part of the resolution of the Harmon Hall-01 complaints have not been implemented. CAO acknowledges that IFC conducted a review of the project’s E&S risks and impacts, and identified issues related to the company’s labor practices. Remedial actions to effectively manage these issues were included in an ESAP prior to commitment. However, given the gaps identified in the company’s HR systems, CAO has questions as to whether IFC’s E&S review of PS2 issues was commensurate to risk, whether it adequately considered the company’s track record in relation to labor issues and more generally whether it provided sufficient assurance of the company’s ability to meet the requirements of PS2 over a reasonable period of time. In the course of supervision, CAO notes that IFC identified issues in relation to the company’s labor practices and has engaged to address these. Particularly, in 2013, IFC updated its ESAP for the company incorporating remedial actions that had been negotiated through the CAO-led dispute resolution process. Further, in 2014, IFC commissioned a labor compliance verification audit and developed a related corrective action plan, though at the time of writing a final corrective action plan had not yet been agreed. In these circumstances, continued active supervision of labor related issues will be needed. More generally, CAO notes questions as to the rigor and timeliness of IFC’s supervision given the number of labor related complaints that have been filed with CAO starting in 2011. Absent aggravating circumstances, disputes between an employer and individual employees around issues of pay and benefits will not raise substantial concerns regarding the E&S outcomes of an IFC investment such that would merit a CAO compliance investigation. While CAO has identified questions as to IFC’s appraisal and supervision of its investment in the company, CAO also notes that IFC is supervising this investment with a focus on the implementation of Performance Standard 2 (Labor and Working Conditions). In particular, this involved the conduct of a labor compliance verification audit and the development of a related corrective action plan in 2014. In conclusion, given the nature of the complaints, and considering IFC’s ongoing engagement with the company in relation to the implementation of Performance Standard 2, CAO finds that a compliance investigation is not the appropriate response in this instance.

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Honduras / CAMIF-01/ Intibucá

9 October 2013

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Complainant - Consejo Cívico de Organizaciones Populares e Indígenas de Honduras (COPINH) Concerns - Indigenous Peoples rights, human rights protection, and environmental sustainability Dec. 2013: the contested sub-project no longer considered for an investment 9 Jan 2014: Closed Project information Institution - IFC Project Name & Number - CAMIF 26590 Department - Infrastructure Company- Central American Mezzanine Infrastructure Fund LP Sector - XX - Other Environmental Category FI Commitment $40 million Background IFC is an investor in the Central American Mezzanine Infrastructure Fund (CAMIF), a mezzanine fund that invests in operating and new medium-sized companies/projects in infrastructure and related sectors in Central America, Dominican Republic, Mexico and Colombia. The Fund will be managed by EMP Latin American Management LLC, part of the network of EMP Global, an independent private equity fund manager based in Washington, DC. The target size of the fund is between $150 and $300 million. IFC’s investment is US$40 million. In October 2013, a Honduran indigenous movement known as the Consejo Cívico de Organizaciones Populares e Indígenas de Honduras (COPINH) filed a complaint with the CAO regarding one of CAMIF’s sub-projects. The complainants claim that the ancestral lands of the Lenca community have been improperly seized in order to make way for the sub-project, and that lack of consultation with indigenous people means the concession has been granted illegally. The complainants believe their land, water resources, livelihood and culture are in jeopardy. They further contend that since voicing their opposition to the project, the area has been militarized and the Lenca communities and their leaders have been forcefully persecuted, criminalized and suppressed – often with the involvement of security forces. CAO Action CAO found the complaint eligible for further assessment in November 2013 and began an assessment of the complaint. After learning from the IFC and CAMIF that as of December 2013 the sub-project was no longer being considered for investment, CAO has concluded its involvement in the case as it no longer falls within CAO’s mandate. Status This case was closed on January 9, 2014.


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Mexico / Harmon Hall-02/Puerto Vallarta

6 September 2013

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Complainant - Former Employee Concerns - Fair treatment, compensation March 2014: both parties do not want a negotiated solution. 13 Apr. 2015: appraisal finds no investigation is needed Closed Project information Institution - IFC Project Name & Number - Harmon Hall 29753 Department - Health & Education Company - Harmon Hall Holding, S.A. de C.V. Sector - XX - Other Environmental Category B Commitment - $7.9 million equity Background Harmon Hall is a large English language school chain in Mexico, with a network of 110 English schools in 63 cities and over 40,000 students in the entire system. Harmon Hall also has two K-12 schools and plans to grow this business line. The International Finance Corporation (IFC) provides Harmon Hall with an equity investment that consists of two components: (i) the purchase of a selling shareholder’s shares and (ii) a capital increase in Harmon Hall to finance the expansion plans of the company over a period of 18 months. IFC will provide a $7.9 million equity investment. In September 2013, a former teacher of Harmon Hall lodged a complaint with CAO. The complainant raises concerns around the circumstances of his dismissal and his severance package. This is the second complaint received by the CAO relating to the Harmon Hall Project. The complaint further alleges that several of the agreements made in response to the first complaint are not being implemented in his school. CAO Action CAO determined the complaint eligible in October 2013 and initiated an assessment to explore options for addressing the issues by the complainant. This assessment was conducted jointly with the assessment on Harmon Hall complaints 03 – 06. However, as the complainant and Harmon Hall could not agree to engage in a collaborative dispute resolution process, CAO is concluding the assessment of the complaint and the case is being transferred to CAO Compliance function for appraisal, as per CAO’s Operational Guidelines. Status and Findings From 2011 to 2014, a total of 24 complaints relating to Harmon Hall were lodged with the CAO. The first CAO case, Harmon Hall-01 was filed with CAO in December 2011. It addressed 17 labor related complaints regarding the company. These complaints triggered a CAO-led dispute resolution process in which the company and 15 complainants agreed to a set of remedial measures designed to resolve issues similar to those raised in the current set of complaints. The two unresolved complaints from Harmon Hall-01 were transferred to the CAO compliance function and closed after appraisal in August 2013 on the basis that they did not raise substantial concerns regarding the E&S outcomes of the project or issues of systemic importance that justified a compliance investigation. In September 2014, an additional complaint (Harmon Hall-07) was resolved through a separate CAO-led dispute


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resolution process. This appraisal pertains to six complaints from current and former employees of the company lodged with CAO between September 2013 and March 2014. These complaints are referred to as CAO cases Harmon Hall 02-06 and 08. Some of the issues raised in these complaints arise from allegations that remedial measures agreed as part of the resolution of the Harmon Hall-01 complaints have not been implemented. CAO acknowledges that IFC conducted a review of the project’s E&S risks and impacts, and identified issues related to the company’s labor practices. Remedial actions to effectively manage these issues were included in an ESAP prior to commitment. However, given the gaps identified in the company’s HR systems, CAO has questions as to whether IFC’s E&S review of PS2 issues was commensurate to risk, whether it adequately considered the company’s track record in relation to labor issues and more generally whether it provided sufficient assurance of the company’s ability to meet the requirements of PS2 over a reasonable period of time. In the course of supervision, CAO notes that IFC identified issues in relation to the company’s labor practices and has engaged to address these. Particularly, in 2013, IFC updated its ESAP for the company incorporating remedial actions that had been negotiated through the CAO-led dispute resolution process. Further, in 2014, IFC commissioned a labor compliance verification audit and developed a related corrective action plan, though at the time of writing a final corrective action plan had not yet been agreed. In these circumstances, continued active supervision of labor related issues will be needed. More generally, CAO notes questions as to the rigor and timeliness of IFC’s supervision given the number of labor related complaints that have been filed with CAO starting in 2011. Absent aggravating circumstances, disputes between an employer and individual employees around issues of pay and benefits will not raise substantial concerns regarding the E&S outcomes of an IFC investment such that would merit a CAO compliance investigation. While CAO has identified questions as to IFC’s appraisal and supervision of its investment in the company, CAO also notes that IFC is supervising this investment with a focus on the implementation of Performance Standard 2 (Labor and Working Conditions). In particular, this involved the conduct of a labor compliance verification audit and the development of a related corrective action plan in 2014. In conclusion, given the nature of the complaints, and considering IFC’s ongoing engagement with the company in relation to the implementation of Performance Standard 2, CAO finds that a compliance investigation is not the appropriate response in this instance.

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Honduras / Ficohsa-01/ CAO Vice President Request

21 August 2013

→ To documents

Complainant - CAO Vice President Request Concerns – IFC supervision of E&S risks associated with Ficohsa’s portfolio and client base, IFC assessment of client’s capacity and commitment to manage those risks 9 Dec 2013: Compliance appraisal decides IFC’s environmental and social performance with regard to its investments in Ficohsa merits further enquiry 13 June 2014: Investigation report completed (released 11 Aug. 2014) Open – Compliance monitoring ongoing Project information Institution - IFC Project Name & Number - Ficohsa 26394, 27341, 29257 Department - Global Financial Markets Company - Banco Financiera Comercial Hondureña S.A. Sector - Banking Environmental Category FI Commitment - $20m, $35m, $70.1m Background Ficohsa is the largest bank in Honduras and one of Central America’s top ten banks. IFC made its first investment with Ficohsa in May 2008 (project # 26394). The initial loan of US$20 million supported Ficohsa’s small and medium sized enterprise (SME) and middle to low income mortgage portfolio. In July 2008, IFC approved Ficohsa’s inclusion in the Global Trade Finance Program (GTFP) with an initial credit line of US$15 million (project # 27341). In late 2009, IFC initiated discussions with Ficohsa about an equity and subordinated debt investment (hereafter the “equity investment”). In May 2011, the IFC Board approved a US$32 million equity investment and a US$38 million subordinated debt investment in Ficohsa. This investment was funded by the IFC Asset Management Company (IFC-AMC) through its Global Capitalization Fund. As a result IFC-AMC acquired a 10 percent equity stake in Ficohsa. In the course of CAO’s compliance process in relation to Dinant, CAO became aware that Dinant is one of Ficohsa’s largest borrowers and as a result IFC had a significant exposure to Dinant through its equity stake in Ficohsa. As a result, the CAO Vice President initiated a compliance appraisal of IFC’s investment in Ficohsa addressing the following questions: a. how IFC has reviewed and supervised Environmental and Social (E&S) risks associated with

Ficohsa’s portfolio and client base; b. how IFC assessed the commitment and capacity of its client to manage these risks; and c. whether E&S issues associated with Corporación Dinant (Dinant) and known to IFC were

adequately communicated within IFC. CAO Action In its appraisal report, released December 2013, CAO concluded that IFC’s environmental and social performance with regard to its investments in Ficohsa merited further enquiry. In accordance with its Operational Guidelines, CAO proceeded to a compliance investigation of IFC. CAO’s investigation was conducted with input from an external panelist and focused on IFC’s performance. As such, the investigation does not make findings in relation to Banco Ficohsa. The report describes material shortcomings in the way that IFC discharged its environmental and social obligations in relation to the Ficohsa investment.


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Findings CAO’s final investigation report and IFC’s response were released by CAO on August 11, 2014. CAO will monitor IFC actions in response to the CAO findings. Applicable standards Relevant policies, standards, guidelines and procedures in this case included IFC Policy on Social and Environmental Sustainability (2006 & 2012), 4 IFC’s Performance Standards (2006), IFC’s Policy on Disclosure of Information (2006), the IFC Environmental and Social Review Procedures (as updated from time to time) and various legal agreements between Ficohsa and IFC. Policy on Environmental and Social Sustainability (2006) IFC’s Policy on Social and Environmental Sustainability (Sustainability Policy) expresses the Corporation’s mission in terms of promoting sustainable private sector development. The Sustainability Policy (2006) was applied to IFC’s investment in Ficohsa at appraisal. The Sustainability Policy (2006) underscores IFC’s commitment to ensuring that the “projects it finances are operated in accordance with the requirements of the Performance Standards.” The Sustainability Policy also notes that IFC’s efforts to carry out its investment operations in a manner that “do no harm to people and the environment” are central to its development mission. This, the Policy provides, means avoiding negative impacts wherever possible and ensuring that unavoidable negative impacts are reduced, mitigated or compensated for appropriately. IFC’s E&S Requirements in relation to financial intermediaries (FIs) are expected to be “proportional to the level of potential risk” associated with an investment. IFC requires its FI clients to “establish and maintain a Social and Environmental Management System (SEMS) to ensure that its investments meet IFC’s [E&S] requirements.” IFC monitors the performance of the FI client on the basis of the management system. Performance Standards on Social and Environmental Sustainability The Performance Standards (PS) detail IFC client E&S responsibilities. IFC’s 2011 subordinated debt and equity investments with Ficohsa were prepared under the Performance Standards (2006), and Ficohsa’s commitment to these standards was incorporated into its subordinated debt and shareholders agreements with IFC. Environmental and Social Review Procedures The IFC’s Environmental and Social Review Procedures (ESRP) outline the process through which IFC implements its commitments to social and environmental sustainability. Unlike the Sustainability Policy and the Performance Standards, which are approved by the IFC Board, the ESRPs are issued at IFC Director level and are updated more regularly. IFC’s appraisals of its first loan and trade finance agreement with Ficohsa were completed under ESRP v.2 (July 2007). The ESRPs related to appraisal and supervision of FIs were updated in August 2009 (ESRP v.4). While the ESRPs have been updated in subsequent years, the procedures as they relate to FIs have not changed significantly since August 2009. As such the 2009 ESRP applies to the appraisal and supervision of IFC’s equity and subordinated debt investments in Ficohsa. Environmental and Social Due Diligence This section addresses IFC’s E&S due diligence in relation to its equity investment in Ficohsa up until the point of commitment. In the course of its pre-investment due diligence, IFC identified that Ficohsa was exposed to high risk sectors (including agriculture, construction and energy). As a result, IFC properly determined that its client would be required to screen projects against the Performance Standards. IFC also properly included provisions in its investment agreements which provide for IFC to be notified, and upon request, review documentation, should Ficohsa consider financing projects or clients that present significant E&S risks. At the same time, CAO finds a number of non-compliances with the Sustainability Policy, the ESRPs and the Disclosure of Information Policy in relation to IFC’s pre-investment E&S review of Ficohsa.

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IFC took insufficient measures “to identify activities” where Ficohsa was “exposed to social and environmental risk” as required by the Sustainability Policy In relation to these requirements, CAO finds that IFC E&S staff correctly identified that Ficohsa was providing corporate finance in relation to clients operating in high risk sectors. Given the risk profile of Ficohsa’s business, E&S governance challenges at the country level, and the nature of the new investment (equity vs. SME), however, CAO finds that a more intensive E&S review was required. In particular, CAO finds that IFC relied overly on the results of prior supervision, and a rapid review of Ficohsa’s sectoral exposure, in assessing the E&S risk profile of the new investment. In this context, CAO notes E&S staff observations that there is no guidance on when more detailed due diligence at the sub-project level is required. Further, CAO finds that the E&S review process failed to capture the risk attached to Ficohsa’s exposure to Dinant, even though IFC was aware of significant E&S risks attached to the agribusiness client at the time key decisions in relation to the FI investment were made. In terms of underlying causes, CAO notes the primacy of financial considerations in IFC decision making. In this context CAO notes that it was not IFC practice to review FI sub-client E&S risk in the same depth as sub-client credit risk was reviewed. Had IFC included a review of Ficohsa’s largest clients as part of its E&S review (as was done in relation to the credit review process), the E&S risk around Dinant would likely have been identified. CAO also notes a siloing of information with the result that relevant information was not shared among key members of the team. IFC did not conduct an adequate review of Ficohsa’s SEMS (Social and Environmental Management System) or adequately identify actions that Ficohsa would need to undertake to address gaps in its SEMS. Documentation of IFC’s E&S review in relation to the Ficohsa equity investment suggests a process that was limited in scope and depth. Inputs prior to IFC’s key internal decision point, the Investment Review Meeting (IRM), were prepared on the basis of a quick review of outdated information. Subsequent to the IRM, IFC E&S staff updated the ESRD (Environmental and Social Review Document) and language for the Board Paper for the project clarifying that an upgrade to the client’s SEMS would be required in order to meet the requirements of the Performance Standards. As a result, the legal agreements between IFC-AMC (IFC Asset Management Company) and Ficohsa included a SEMS plan which required Ficohsa to revise its SEMS to include screening projects against applicable IFC Performance Standards within three months of disbursement. The systematic analysis of the adequacy of the SEMS to “implement the applicable performance requirements” required by the ESRPs was not present. CAO finds that IFC lacked a structured approach to assessing its client’s commitment and capacity to meeting the SEMS requirements of the equity investment. Accordingly, IFC was not in a position to adequately “identify SEMS gaps” or “identify SEMS actions” as required by the ESRPs. IFC did not require that gaps in Ficohsa’s SEMS be closed as a condition of disbursement. In cases where an FI is “engaged in projects with either potentially significant E&S risks or risk exposure to IFC,” the ESRP provides that gaps in the SEMS should be closed prior to IFC Commitment or as a condition of disbursement. In this case, IFC was aware of high risk exposures in the Ficohsa portfolio. IFC was also aware that Ficohsa’s SEMS was inadequate to manage these risks in accordance with the Performance Standards. However, IFC required an upgraded SEMS only three months after disbursement. According to the ESRPs, this approach is only acceptable for FIs “with either relatively low E&S risks or no immediate financing activities in such risky areas.” On this point, CAO notes feedback from senior IFC staff with direct knowledge of the project that the requirement to develop a SEMS appropriate to implement the Performance Standards within three months was impossible. When asked what length of time might be reasonable, one senior staff member opined that it would generally take no less than three years and given the particular difficulties of Honduras as an operating environment, no less than five. A bank which is in the initial stages of developing and implementing a SEMS, particularly in a challenging country context or where its portfolio

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carries high E&S risks, is likely to need extensive capacity building to develop and effectively introduce procedures and processes to manage E&S risk. For FIs with significant exposure to E&S risk, however, according to current IFC requirements, such support must be provided in advance of, and not concurrent with an equity investment. IFC did not meet the requirements of its Disclosure Policy in that it did not ensure that material changes in client E&S requirements were made public at least 30 days prior to Board approval. IFC disclosed its Summary of Project Information (SPI) for this project on August 31, 2010. In the SPI as disclosed, IFC indicated that the client would be required to implement a SEMS to ensure that all sub-borrowers comply with the IFC Exclusion List and the environmental and social laws of Honduras. In September 2010, IFC E&S staff determined that the client would also be required to apply the Performance Standards to high risk projects. As per the Disclosure Policy, CAO finds that this represented a “significant change” to the information contained in the SPI, and as such, the SPI should have been updated. No such update was made. Further, CAO finds that absent this update, the E&S information contained in the SPI was “materially deficient.” The above shortcomings, taken together, represent a material failure of IFC’s pre-investment E&S review process. As a result IFC acquired an equity stake in a client with exposure to high risk sectors and clients. The client, however, lacked capacity to implement IFC’s E&S requirements within agreed timeframes. The absence of an E&S review process that was commensurate to risk meant that key decision makers (senior management of IFC’s FI department and members of the IFC Board) were not presented with an adequate assessment of the risks that were attached to this investment. This included additional exposure to Dinant, a company which IFC knew to be affected by a violent land conflict, as well as exposures to a number of other investments with potentially significant, but unassessed, E&S risk. Disbursement This section addresses IFC-AMC’s decision to make disbursements to Ficohsa under its subscription and subordinated debt agreements. In particular, it considers whether IFC obtained adequate evidence of compliance with the agreed conditions of disbursement. According to the ESRPs, the IFC E&S Specialist assigned to an FI investment should clear any E&S conditions of disbursement (CODs). When such clearance is sought, the ESRPs provide that “information will be obtained and reviewed as required to evidence [compliance with the CODs] and provide the clearance.” The E&S Specialist undertakes this review and informs the IFC team if any E&S conditions of disbursement have not been complied with. Any waivers of E&S CODs must be processed by a manager in the CES department (IFC’s Environmental and Social Development Department) and be documented in the ESRD. For the purposes of the discussion below, IFC’s general requirements for review of “conditions of disbursement” (in the case of a loan) are understood to apply equally to “conditions of obligation” to consummate the subscription (in the case of an equity investment). As a result CAO uses these terms interchangeably. In considering whether Ficohsa’s CODs had been met, IFC E&S staff confirmed that the client had designated an E&S Officer, and that IFC had received Ficohsa’s 2010 Annual Environmental Performance Report (AEPR.) Based on available evidence it does not appear that IFC conducted a substantive review of the 2010 AEPR until after both investments were disbursed. In these circumstances, CAO finds that IFC disbursed against its subscription and sub-ordinated debt agreements without assuring itself that Ficohsa had submitted the E&S information that was required as a condition of subscription. In particular, CAO finds that IFC did not assure itself that the 2010 AEPR contained “all relevant information with respect to … Client Operations involving high environmental and social risks” or “described in reasonable detail, … implementation and operation of the S&E Management System; and … the environmental and social performance of the Clients.” In making this finding, CAO notes that the AEPR format as provided to Ficohsa by IFC was not fit for

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purpose in terms of the detail that it required regarding the environmental and social performance of borrowers, in particular those with high environmental and social risks. Further, CAO finds that IFC E&S staff did not review the ongoing validity of Ficohsa’s E&S representations and warranties prior to disbursement. Specifically, there is no evidence that IFC E&S staff reviewed the client’s representation that: “there are no material social or environmental risk or issues in respect of the Company Operations.” Rather the continued validity of the representations and warranties COD was cleared on the basis of the client’s Disbursement Request of October 18, 2011. CAO notes that IFC’s clearance of disbursement was given at a time when Dinant (a major client of Ficohsa) was listed on IFC’s Corporate Watch List, and in the context of a worsening security environment in Aguán Valley, where Ficohsa had more than one major agricultural client. For the reasons set out above, CAO finds that IFC’s review of the CODs did not comply with the ESRP requirement that E&S staff clear any E&S CODs following a review of evidence of compliance with the CODs. Project Supervision This section addresses IFC’s supervision of its investment in Ficohsa, in particular whether IFC adequately assured itself that its client’s E&S obligations including reporting obligations were being fulfilled. General supervision requirements As per the Sustainability Policy, IFC monitors an FI client’s performance on the basis of its SEMS. In practice, the primary source of information for IFC FI project supervision is the client’s AEPR. In addition, IFC E&S staff may determine the need for a supervision visit where it is considered necessary to further review the client’s performance or verify compliance. In reviewing a client’s AEPR, IFC E&S staff are guided to focus on: - The client’s performance against the Applicable Performance Requirements as determined during project review and appraisal; - The status of the client’s implementation of the Social and Environmental Management System (SEMS) Action Plan and timeline if relevant; - Performance against the performance indicators; - Previous SEPR [AEPR] reviews and Environmental and Social Risk Rating (ESRR) scores; - Key performance or information gaps relating to the client’s performance and the SEMS; - Key steps the client may need to take to improve performance; and Advising the Portfolio Officer on the pending issues to follow up with the client. Based on this review, IFC E&S staff are required to determine whether or not: - The nature of the client’s business has changed significantly to indicate different performance requirements from IFC; - There is sufficient evidence that the client is operating the SEMS as envisaged at the time of appraisal; [and] - There is sufficient evidence that the client has applied the Applicable Performance Requirements to their sub‐projects; … IFC E&S staff then complete an AEPR Review and provide an E&S risk rating (ESRR) on a four point scale from F1 - Excellent, F2 – Satisfactory, F3- Partly Unsatisfactory, and F4- Unsatisfactory. A summary of this review is provided to the client including any actions to address performance gaps and other issues of concern. Project Specific Supervision Requirements IFC-AMC’s investment agreements incorporate Ficohsa’s E&S commitments in an enforceable framework, setting out covenants and reporting requirements. These include the client’s commitment to: a. Comply with the E&S requirements, which include the Performance Standards.

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b. Assess and manage all existing and future financing operations in accordance with the E&S requirements (which include the Performance Standards). c. Implement the SEMS Plan (which includes a requirement to revise the SEMS to screen projects against the Performance Standards within three months of disbursement). d. Ensure continuing operation of the SEMS to identify, assess and manage the E&S performance of its client in compliance with the E&S requirements. (All Category A and B projects are required to be reviewed, contracted and monitored to ensure compliance with the E&S requirements.) e. If any existing client becomes a Category A, ensure that the SEMS has sufficient capacity to review E&S issues as relate to that client. f. In instances where a client is not operating in accordance with the E&S requirements, agree on corrective measures to remedy the breach and if such action is not possible, use reasonable efforts to dispose of the investment g. Obtain, review and investigate any information available in the public domain that relates to potential negative E&S impacts associated with an investment. h. Provide IFC with an AEPR 90 days after the end of the financial year in order to confirm compliance with SEMS plan and E&S requirements. (This report should describe in reasonable detail the SEMS and the E&S performance of clients). i. On becoming aware of any E&S incidents related to a client that could have a material impact on a client’s ability to operate in accordance with the Performance Standards, inform IFC within three days and note measures the client is taking in response. j. Notify IFC when considering financing any Category A activity or client. k. Notify IFC when becoming aware of any E&S claim against any category A or B client. (IFC’s standard AEPR template, as annexed to this agreement) Findings IFC’s supervision of its investments in Ficohsa was out of compliance in key respects. CAO finds that IFC did not assure itself in an adequate or timely manner that Ficohsa was “operating the SEMS as envisaged at the time of appraisal” or that Ficohsa had “applied the Applicable Performance Requirements to its sub-projects.” CAO notes that even implementing the requirement of compliance with national E&S law represents a significant challenge in Honduras. Beyond this, Ficohsa staff explained to CAO that meeting the requirements of the Performance Standards in the Honduran context would be very difficult. In particular, CAO finds that IFC’s June 2012 supervision Environmental and Social Review Document (ESRD) was deficient in that it did not address the E&S requirements of the 2011 equity investment, instead focusing on those of the earlier SME loan. As a result, IFC was able to rate Ficohsa’s E&S performance as Satisfactory meaning that Ficohsa was found to be in material compliance at a time when it was out of compliance with IFC’s E&S requirements. By way of contrast, engagement with the client has improved since the IFC E&S team supervising the Ficohsa investment became aware of the gravity of the concerns regarding Dinant. Since early 2013, IFC has in effect conducted the gap analysis of Ficohsa’s SEMS that was required at appraisal in 2010. As a result, IFC has also been able to support the development of a corrective action plan to upgrade Ficohsa’s SEMS. This again should have been done at appraisal in 2010. Despite these steps, CAO finds that capacity and country governance challenges mean that supervising compliance with the E&S requirements of the 2011 investment agreements presents a significant long term challenge. At a more systemic level, CAO finds that there is a disconnect between the client reporting structures provided by IFC for Ficohsa and the covenants and reporting requirements that were written into the investment agreements. Thus, for example, IFC has not developed a reporting protocol in relation to the requirement that Ficohsa inform its shareholders when it commences due diligence in relation to a Category A activity or client in accordance with the investment agreements. As a result, while IFC went beyond what was required in terms of negotiating a right to review E&S documentation regarding high risk sub-projects prior to approval, a lack of follow up has meant that this requirement has not been implemented. Ensuring prior reporting and review in relation to high

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risk exposures would have been most relevant in relation to the ongoing financing provided by Ficohsa to Dinant, and to ensuring adequate E&S risk management across Ficohsa’s significant portfolio of high risk projects and clients. Similarly, CAO notes that Ficohsa itself was required by the Shareholders Agreement to comply with the E&S Requirements (which include the Performance Standards). As interpreted by IFC, this led to supervision of Ficohsa’s labor practices against the requirements of PS2. The broader application of the Performance Standards to Ficohsa’s business was, however, not supervised. As a result, CAO finds that Ficohsa’s PS1 obligations were not adequately supervised. Of particular relevance here is the requirement to “establish a grievance mechanism” which is “readily accessible … to affected communities” and about which affected communities are informed. As noted by CAO elsewhere, disclosure of investment related information is a central tenet of accountability in development finance. The lack of disclosure of information about projects financed by IFC Banking clients, such as Ficohsa, is thus a matter of concern. In making these observations, CAO notes IFC’s view that there are regulatory constraints preventing public disclosure of information regarding projects that IFC’s commercial banking client’s finance. As part of this compliance process, CAO requested information from IFC on regulatory constraints to disclosure that would apply in the Honduran context. At the time of writing CAO had not received a response on this point. CAO notes that Ficohsa has on occasion, for marketing purposes, disclosed the identity of its largest clients. In this context, it is unclear to CAO why IFC cannot require regular disclosure in relation to FI sub-projects, in accordance with PS1. Also of concern, CAO finds a lack of robustness to the AEPR reporting that IFC used as the basis for its regular supervision of Ficohsa. This reporting did not meet IFC’s requirement that the client describe in “reasonable detail” its “implementation and operation of the SEMS; and the E&S performance of its clients.” As noted above, CAO finds that IFC’s AEPR reporting format was not fit for purpose in terms of the detail that it required regarding the E&S performance of borrowers. In particular CAO notes the absence of a structure that requires the FI client to provide even the most basic data on borrower E&S performance, for example: E&S categorization; E&S risk rating; information on whether the client has agreed to the Performance Standards as a condition of the loan; or information on whether relevant disclosure requirements have been met in relation to the loan. Absent more substantive documentation requirements and increased accountability (both downwards to affected communities and upward to the IFC as a financier) CAO finds that SEMS reporting can become what CAO has described elsewhere as a “mechanistic” or “box ticking” exercise rather than a means for enhancing E&S outcomes. A system that relies on self-reporting without robust ground-truthing, even in relation to high risk projects, CAO finds is at risk of generating an environment in which IFC clients, and sub-clients, perceive E&S risk management to be a formulaic exercise. In relation to Global Trade Finance Program (GTFP) supervision, CAO notes that IFC does not generally consider the circumstances under which the goods being exported are produced. Through limiting the E&S review to a screening of goods against the IFC Trade Finance Exclusion List, IFC opens itself to trade finance in relation to goods, the production of which has significant unmitigated E&S risks and impacts. As such, it was possible for IFC to approve trade transactions through Ficohsa with Dinant as late as November 2013. As is indicated in relation to Ficohsa’s financing of Dinant, CAO finds IFC’s blanket categorization of trade finance transactions as low-risk to problematic. Conclusion This concluding section summarizes CAO’s findings and places them in the context of CAO’s Audit of IFC Investments in Third Party Financial Intermediaries completed in October 2012. This report describes material shortcomings in the way that IFC discharged its environmental and social obligations in relation the Ficohsa investment. Prior to investment CAO finds that IFC took insufficient measures to identify activities where Ficohsa was exposed to environmental and social risk through its existing portfolio. This is of particular concern given background E&S risk that

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emerges from the regulatory and governance context in which Ficohsa was operating. Further, CAO finds that IFC did not conduct an adequate review of Ficohsa’s social and environmental management system (SEMS) or its capacity to implement IFC’s environmental and social requirements. This weakness in analysis was compounded by the decision to structure the investment in a way which allowed disbursement to Ficohsa in advance of actions to close gaps in the SEMS. As a result IFC acquired an equity stake in a bank with significant exposure to high risk sectors and clients, but which lacked capacity to implement IFC’s environmental and social requirements. The absence of an environmental and social review process that was commensurate to risk meant that key decision makers (senior management of IFC’s Financial Institutions department and members of the IFC Board) were not presented with an adequate assessment of the risks that were attached to this investment. This included additional exposure to Dinant, a company which IFC knew to be affected by a violent land conflict, as well as numerous other loans with potentially significant, but unassessed, E&S risk. It also meant that Ficohsa was not provided with the urgent and intensive support that it needed to upgrade its SEMS. In relation to the decision to disburse, CAO finds that IFC’s review of the applicable conditions of disbursement did not comply with the requirement that E&S staff clear any E&S conditions following a review of evidence of compliance. In particular, CAO finds that IFC cleared disbursement against the subscription and sub-ordinated debt agreements, without assuring itself that Ficohsa had submitted the environmental and social information that was required. Further, CAO finds that IFC environmental and social staff did not review the ongoing validity of Ficohsa’s environmental and social representations and warranties prior to disbursement. In relation to project supervision, CAO finds that IFC did not assure itself in an adequate or timely manner that Ficohsa was “operating the SEMS as envisaged at the time of appraisal” or that Ficohsa had “applied the Applicable Performance Requirements to its sub-projects.” At a more systemic level, CAO finds that there is a disconnect between the client reporting format provided by IFC to Ficohsa and the environmental and social covenants and reporting requirements that were written into the investment agreements. In this context, CAO finds that the AEPR format as provided to Ficohsa by IFC was not fit for purpose in terms of the detail that it required regarding the environmental and social performance of borrowers, in particular those with high environmental and social risks. As a result, IFC had and has, at best, a superficial understanding of the environmental and social risks that are attached to Ficohsa’s client base. These concerns notwithstanding, CAO finds that IFC’s supervision of this investment has improved since late 2012 when the IFC E&S team working on Ficohsa became aware of the gravity of the issues regarding Dinant. At this point IFC conducted the gap analysis of Ficohsa’s SEMS that was required at appraisal in 2010. As a result, IFC has supported the development of a corrective action plan for Ficohsa’s SEMS. Despite these steps, CAO finds that capacity and country governance challenges mean that supervising compliance with the E&S requirements of the 2011 investment agreements presents a significant long term challenge. In relation to Dinant, CAO finds that highly relevant information on the conflict and related E&S risks surrounding Dinant, that was held by members of IFC’s Dinant investment team, was not shared with key members of its Ficohsa team, even though there were staff working across both teams. It is important to note that CAO finds no indication that IFC pursued its equity investment in Ficohsa with the intention to provide additional financing to Dinant. By waiving a key financial covenant and then taking an equity position in Ficohsa, however, IFC: (a) increased its exposure, and (b) facilitated a significant ongoing flow of capital to Dinant, outside the framework of its environmental and social standards; and this at a time when IFC management was aware of serious unmitigated environmental and social risks regarding its agribusiness client. In relation to the underlying causes of the non-compliance identified in this report, CAO observes a primacy of financial considerations in IFC’s decision making. As a result, it is not IFC practice to review the E&S risk attached to the portfolios of its banking clients in the same depth as portfolio credit risk is reviewed. CAO also notes a siloing of information with the result that relevant information was not shared among key members of IFC’s Ficohsa team. In this context, IFC E&S staff did not ask about Ficohsa’s exposure to high risk sub-clients and their regionally based investment

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colleagues, who were aware of the issues, did not tell. In terms of the adequacy of IFC’s policies, procedures and standards, CAO finds that the shortcomings identified in this investigation are inter-related. They are indicative of a system of support to FIs which does not support IFC’s higher level environmental and social commitments. In a context where IFC maintains that this project was processed in accordance with prevailing practice, CAO’s findings raise concerns that IFC has, through its banking investments, an unanalyzed and unquantified exposure to projects with potential significant adverse environmental and social impacts. Absent disclosure of information related to these projects, this exposure is also effectively secret and thus divorced from systems which are designed to ensure that IFC, and its clients are accountable to project affected people for delivery on their environmental and social commitments. The underlying fault lines thrown into relief by this investigation, resonate with the findings of CAO’s 2012 Audit of IFC Investments in Third Party Financial Intermediaries, and suggest the need for a reassessment of IFC’s approach to the identification and management of environmental and social risk in its financial institutions business.

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25 June 2013

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Complainant - The Cerna Sanchez Family Concerns - Land compensation and land rights July 2014: mediation fails 29 May 2015: appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Yanacocha 2983 Department - Oil, Gas, Mining, & Chemicals Company - Minera Yanacocha S.A. Sector - Mining Environmental Category A Commitment - 5% equity stake Background Minera Yanacocha S.R.L. is a large open-pit gold mine located in the Andes mountains in the Department of Cajamarca, Peru. The Company is engaged in the exploration and production of gold. Over a period from 1993 to 1999, IFC committed two loans to finance the capital expenditure programs for three of the company’s mines, Carachugo, Maqui Maqui, and La Quinua. In parallel, IFC made an equity investment for a 5% ownership stake in the Company, which it continues to hold. In May 2013, CAO received a complaint from several members of a family in Cajamarca who are concerned about lack of compensation for lands owned by their family, which they claim has prevented them from reaping its benefits. The complainants also state that the company never provided compensation for said lands. See also cases Yanacocha-04 and 07 (similar concerns) CAO Action CAO found the complaint eligible for assessment in May 2013. The assessment concluded in October 2013 with the family and the company agreeing to engage in a voluntary dispute resolution process facilitated by CAO. In preparation for dialogue, CAO held separate capacity building workshops with the parties, and helped them design a joint process for addressing the issues in the complaint. The parties set up a smaller working group which included representatives of the family and the company, and met on a monthly basis to review documentation and establish facts. In May 2014, the working group reported that they had reached an impasse. As there was no agreement by the parties on how to overcome the impasse, or reach a common understanding, the dispute resolution process was brought to an end. Status and Findings CAO notes that the Yanacocha-04, -05 and -07 complaints relate to three distinct land disputes involving the IFC client; each with its own history and each raising particular issues of fact and law. While CAO’s appraisal process has identified questions as to IFC’s due diligence and supervision in relation to its client’s approach to land acquisition, it is not apparent from the material at hand that the land disputes raised in these complaints are indicative of substantial concerns regarding the


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environmental and social outcomes of the project or issues of systemic importance for IFC such that would merit a compliance investigation in accordance with CAO’s Operational Guidelines. Compliance Appraisal Report – Yanacocha Complaints-04, 05, 06 and 07, Peru. The labor-related complaint can be summarized as follows: Yanacocha-06 (February 2014): Complaint from a former employee working at the client’s La Quinua mine. The Complainant raises concerns about the circumstances around his employment including allegations of wrongful termination and negative effects to his health due to the working conditions at the project site. CAO acknowledges the seriousness of the issues raised by the complaint at an individual level. However, after careful consideration of the information at hand, it is not apparent that the labor issues raised by the Yanacocha-06 complainant are indicative of substantial concerns regarding the environmental and social outcomes of the project or issues of systemic importance for IFC that would merit a compliance investigation in accordance with CAO’s Operational Guidelines. On the basis of these considerations, CAO has determined to close the four complaints at appraisal and without further investigation. In reaching this conclusion CAO stresses that it makes no finding on the merits of any ongoing disputes between the complainants and the IFC client.

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South Africa / Tsodilo-01/Badplaas

22 April 2013

→ To documents Complainant - Director of the Cradle of Life initiative Concerns - Environmental impact to biodiversity and cultural heritage of protected area Sept. 2013: no agreement to proceed with a dispute resolution process 22 Aug. 2014: compliance appraisal finds no investigation is needed Closed Project information Institution - IFC Project Name & Number - Tsodilo 29378 Department - Oil, Gas, Mining, & Chemicals Company - Tsodilo Resources Sector - Mining Environmental Category B Commitment - Up to US$10.47 million equity Background Tsodilo is a publicly listed exploration company currently exploring for diamonds, base and precious metals in Botswana and other parts of southern Africa. In the company’s March 2013 Annual Meeting of Shareholders report, Tsodilo presents the Barberton Au project around Barberton, South Africa as a new project for which they are processing a Prospecting Right Application. The land covered in the application is immediately adjacent to, and may overlap the Badplaas area. IFC has an approximate 14% equity stake in the Tsodilo that was invested in June 2010. In April 2013, the CAO received a complaint from the Director of the Cradle of Life initiative which aims to conserve the Badplaas protected area and pursue sustainable eco-tourism initiatives. The complaint raises concerns about mining exploration licences being granted over this area in South Africa which is protected and already hosts eco-tourism efforts through the Cradle of Life organization. The complainant contends that mining activities and their potential environmental impact is incompatible with sustaining the biodiversity and cultural heritage of the protected area. CAO Action CAO found the complaint eligible for further assessment in May 2013 and an assessment was conducted in July 2013. Following discussions with the key parties, CAO found no agreement to proceed with a dispute resolution process. In line with CAO Operational Guidelines, the case was referred to CAO Compliance for appraisal of IFC. Status and Findings CAO finds no indication that IFC’s pre-investment review of the Company’s Botswana operations was other than commensurate to risk. CAO also notes that IFC supervised the E&S requirements of its investment including requiring the preparation of an HSEC Policy which would apply to all exploration activities. Further, CAO notes that IFC has put in place requirements that require any prospect developed by the Company or its subsidiary to be pursued in accordance with IFC’s Performance Standards as well as a requirement to conduct an ESIA prior to the commencement of ground based exploration activities. This Appraisal also considers the question of whether IFC put in place measures to ensure that it would be notified of any plans the Company might develop to pursue areas of new business not foreseen at the time of IFC Board approval, as required by IFC’s 2012 Sustainability Policy. On this question, CAO notes that IFC’s 2012 Subscription Agreement with


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the Company did not provide for a legal requirement for notification to enter into a new business area in South Africa. As a result, IFC did not become aware of the Barberton Gold Project until more than a year after the Company had submitted its prospecting rights application. Further, once IFC received notification of the Company’s plans to pursue the Barberton Gold Project (in 2013), CAO is unclear as to whether IFC responded as required by the Sustainability Policy – namely by assessing whether the new business activity would pose E&S risks and requiring any necessary adjustments to the client’s E&S systems. On the question of adverse impact, CAO notes that while the lodging of a prospecting rights application may have adverse impacts, any potential significant E&S impacts of the Barberton Gold Project would likely be contingent on the approval of a prospecting rights application and subsequent exploration activities. In this context, CAO notes steps taken by IFC to assure itself that the Company has in place E&S policies and procedures appropriate to identify and mitigate the impacts of mineral exploration activities. Having considered available information on the potential E&S impact of this project in light of the issues raised by the complainant and the application of relevant IFC policies, standards, and procedures, CAO concludes that further investigation in relation to this complaint is not warranted. Acknowledging the risks that attach to extractive industries projects in sensitive habitats, however, CAO reserves the right, in line with its Operational Guidelines, to consider further appraisal of this investment should the Company proceed to develop the Barberton Gold Project in a manner that raises significant concerns regarding impacts on communities or the environment.

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India / Vizhinjam-03/Mulloor

12 April 2013

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Complainant - Local Residents of Mulloor Village Concerns - Access to water and impact on farmlands Apr.-Sept. 2013: Complainants would have liked Dispute Resolution but VISL do not want to meet the CAO 1st Jun. 2015: appraisal finds an investigation is needed. Joint compliance investigation with Vizhinjam 01 and 03 complaints Open – Investigation ongoing Project information Institution - IFC Project Name & Number - Kerala Port, Vizhinjam 28991 Company - Vizhinjam International Seaport Limited (VISL) Sector - Port and Harbor Operations Environmental Category N/A Commitment N/A Background Vizhinjam International Seaport Limited (VISL), a special purpose government company fully owned by the State Government of Kerala (GoK), is developing a multi-purpose seaport at Vizhinjam, 16 kilometers south of the state capital, Trivandrum (Thiruvananthapuram). IFC has been hired as the Transaction Advisor to assist VISL in structuring and implementing the project; and seeking private sector partner(s) to implement the plan in collaboration with the State Government Ports Department. IFC is managing roughly $1.6 million in trust funds for the project. In April 2013, a complaint was lodged to CAO by local residents of Mulloor Village, one of the eleven villages along the coast of the Vizhinjam Port location. The complainants raise concerns about the newly built port construction access road that runs through Mulloor village to the Vizhinjam port area, as they believe it to be impeding aquifer recharge in the area. Furthermore, they contend that dumped construction waste on their land has aggravated the water retention issues and impacted their farmlands. CAO Action CAO found the complaint eligible for further assessment in April 2013. In initial conversations between CAO and the complainants, the complainants expressed a willingness to engage in a collaborative process convened by CAO to address their concerns. VISL declined an initial interview with the CAO assessment team, and subsequently told CAO it did not wish to meet with the CAO team, or to engage in a facilitated dialogue. The complaint will therefore proceed to CAO Compliance appraisal. Status On 1 June 2015, CAO released a joint Compliance appraisal for cases Vizhinjam 01, 02 and 03. On the basis of available information, CAO considers that the complaints raise potentially significant concerns about the E&S impacts of this project. The complaints also raise questions about the application of IFC’s E&S requirements to the project. These include: a.) whether IFC’s advice in relation to E&S issues was consistent with the Performance Standards, particularly regarding the: assessment of the environmental and social impacts of land-based infrastructure associated with the project; application of Performance Standard 5 as it applies to economic displacement; and


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application of Performance Standards 1 and 6 as they apply to stakeholder consultation and project impacts on ecosystem services. b.) whether IFC’s policies, procedures, and practices as they were applied to the selection and structuring of this AS project provided an adequate level of guidance and protection in the context of IFC’s broader commitments to sustainable development. On the balance of considerations, CAO has decided to conduct a compliance investigation of IFC’s E&S performance in relation to this AS project.

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Uganda / Bujagali Energy-06/Bujagali

3 April 2013

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Complainant - Former Bujagali construction workers Concerns - Unpaid wages Nov. 14: unsuccessful dispute resolution process closes 8 Apr. 2015: appraisal finds an investigation is needed Open - Compliance investigation ongoing Project information Institution - IFC & MIGA Project Name & Number - Bujagali Energy Ltd 24408 (IFC) & 6732 (MIGA) Company - Bujagali Energy (IFC); World Power Holdings (MIGA) Sector - Utilities Environmental Category A (IFC) Commitment: $100m A & C loans (IFC), $115m guarantee (MIGA) Background The Bujagali Energy project involves the development, construction, and maintenance of a run-of-the-river power plant with a capacity of up to 250 MW on the River Nile in Uganda. Bujagali Energy Limited also manages the construction of approximately 100 kilometers of 132 kV transmission line on behalf of the Uganda Electricity Transmission Company Ltd. to improve transfer of electricity from the plant. Bujagali Energy Ltd is owned by Industrial Promotion Services (Kenya) Ltd. – the industrial development arm of the Aga Khan Fund for Economic Development and SG Bujagali Holdings, Ltd., an affiliate of Sithe Global Power LLC (US). IFC and MIGA are supporting the $750 million project along with several other international financial institutions, including the International Development Association, African Development Bank and European Investment Bank. IFC’s investment comprises $100 million in A and C loans, and MIGA issued a $115 million guarantee to World Power Holdings Luxembourg S.à.r.l., a subsidiary of Sithe Global Power, for its investment in the project. The complaint was filed by the Chairman of an informal association of former Bujagali construction workers acting on behalf of himself and over 300 workers at the construction camp and dam site. The complainants raise concerns about unpaid wages and benefits from as far back as 2008. CAO Action CAO found the complaint eligible for further assessment in April 2013. The assessment concluded in November 2013 with the parties agreeing to engage in a voluntary dispute resolution process facilitated by CAO. During the discussions on the dispute resolution process design, it became apparent that the parties were unable to reach consensus on how to move forward. Given this impasse, CAO brought the dispute resolution process to a close in November 2014. In accordance with CAO’s Operational Guidelines, the case has been referred to CAO Compliance for appraisal of IFC’s/MIGA’s performance with regard to the project. Status In April 2015 CAO completed a compliance appraisal with regard to the Bujagali 04 and 06 complaints, which have been merged for the purpose of the compliance process. On the basis of the appraisal CAO decided to conduct a compliance investigation into IFC's investment in Bujagali. The CAO investigation will assess whether IFC reviewed and supervised labor-related aspects of the project, in particular occupational health and safety issues, as required by Performance Standard 2.


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The investigation will also consider IFC’s approach to the issues of workers’ compensation given the commitments to “avoid […], minimize, mitigate prevent or compensate for adverse impacts on workers” set out in in its Policy on Social and Environmental Sustainability and Performance Standard 1.

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Cameroon / AES Sonel-02/Doula

21 February 2013

→ To documents Complainant - Individual Concerns – labor Dispute Resolution Process concluded 9 Jan. 2014. 26 June 2014: Compliance appraisal report finds no audit is needed Closed Project information Institution - IFC Project Name & Number - AES Sonel 11579 Department - Infrastructure Company - AES Sonel Sector -Power Environmental Category B Commitment -EUR 70 m Background AES Sonel is the privatized integrated national electric utility of Cameroon. Upon privatization in 2001, AES Corp. purchased 56% of the shares of the company, and AES Sonel was granted a 20 year concession for distribution, transmission, and generation of electricity throughout Cameroon. IFC has invested EUR 70 million in AES Sonel to renew and refurbish the power company’s existing generation, transmission, and distribution assets. The project has been financed partly through a EUR 240 million facility from a syndicate of Development Financial Institutions comprising AfDB, DEG, EIB, Proparco, Central African Development Bank and IFC. CAO received a complaint in February 2013 raising labor issues, specifically regarding demotion during employment and related benefits that the complainant believes are due. CAO Action CAO found the complaint eligible in March 2013. Following an assessment of the issues with the relevant parties, the company and the complainant engaged in a voluntary mediation process, starting with a joint meeting in June 2013. CAO continued to seek resolution through this process through December 2013. The substantive points of the mediation are confidential in nature. However, the dispute resolution process concluded on January 9, 2014 and the case was transferred to CAO Compliance for appraisal. Status and Findings CAO’s appraisal of the case considered IFC’s due diligence and mandate with respect to the project and whether IFC acted consistently with its policies and performance standards in identifying and responding to environmental and social risk in relation to the investment. The report notes that while the issues raised by the Complainant as referred to CAO Compliance are no doubt important at an individual level, the information available does not support the conclusion that the project raises substantial concerns regarding environmental and/or social outcomes. Similarly, CAO’s review of IFC’s approach to the appraisal and supervision of this project has not identified issues of systemic importance to IFC that would warrant an investigation. Having considered the issues raised by the complainant, and the application of relevant IFC policies, standards and procedures, CAO has not identified substantial concerns regarding environmental and/or social outcomes, and/or issues of systemic importance to IFC/MIGA of the type that would warrant a compliance investigation.


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Therefore, CAO decides that an investigation is not warranted and closed the case. The case was officially closed June 26, 2014.

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India / Tata Tea-02/Assam

2 February 2013

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Complainant – 3 local NGOs: People’s Action for Development (PAD), Promotion and Advancement of Justice, Harmony and Rights of Adivasis (PAJHRA) and the Diocesan Board of Social Services (DBSS) on behalf of workers (IDs confidential). Concerns – Labor, health, freedom of association Nov. 2013: no agreement, no dispute resolution 6 Feb. 2014: Compliance appraisal finds an audit is needed Open – Compliance audit ongoing Project information Institution - IFC Project Name & Number - Tata Tea 25074 Department - Agribusiness Company - Amalgamated Plantations Private Limited (APPL) Sector - Agribusiness Environmental Category B Commitment- $7.87m Equity Background IFC’s project with Amalgamated Plantations Private Limited (APPL) is to enable the setting up of a company which would acquire and manage the 24 tea plantations located in Assam and West Bengal currently owned by Tata Tea Limited (TTL) and implement a sustainable “worker-shareholder” model, in which the management and employees would have a significant shareholding. The total project cost including capital expenditure and working capital is estimated at $87 million; the IFC investment comprises an equity investment of $7.8 million. In February 2013, three local NGOs filed a complaint on behalf of tea workers working and living in the company’s tea plantation areas. The complaint raises concerns about labor and working conditions at three different plantations, specifically citing long working hours, undue compensation, poor hygiene and health conditions, and a lack of freedom to association among plantation workers. Furthermore, the complainants question the worker share-buying program, contending workers have been pressured into buying shares, often without proper information about the risks of such an investment. The complainants have requested confidentiality. CAO Action CAO found the complaint eligible for assessment in February 2013 and an assessment of the issues raised in the complaint was initiated. Given that CAO was not able to find agreement among the stakeholders on a dispute resolution process, the case was transferred to CAO compliance in November 2013. On February 6, 2014 CAO completed a compliance appraisal in relation to this complaint. The compliance appraisal determined that CAO would conduct a compliance investigation of IFC’s E&S performance in relation to its investment in APPL, considering both the issues raised by the current complaint and those discussed in its January 2013 compliance appraisal (India / Tata Tea/CAO Vice President Request, 1 May 2012).


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Status CAO has another case open under its Compliance function related to IFC's involvement in APPL (India/Tata Tea/CAO Vice President Request) The terms of reference posted under this cover both cases. The Compliance Investigation is ongoing.

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22 November 2012

→ To documents

Complainant - Local family Concerns - Land compensation and land rights Sept. 2013-Feb. 2014: mediation fails 29 May 2015: appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Yanacocha 2983 Department - Oil, Gas, Mining, & Chemicals Company - Minera Yanacocha S.A. Sector - Mining Environmental Category A Commitment - 5% equity stake Background Minera Yanacocha S.R.L. is a large open-pit gold mine located in the Andes mountains in the Department of Cajamarca, Peru. The Company is engaged in the exploration and production of gold. Over a period from 1993 to 1999, IFC committed two loans to finance the capital expenditure programs for three of the company’s mines, Carachugo, Maqui Maqui, and La Quinua. In parallel, IFC made an equity investment for a 5% ownership stake in the Company, which it continues to hold. In November 2012, CAO received a complaint from several members of a family in Cajamarca who are concerned about a lack of compensation for lands owned by their grandfather. The complainants state that the company never provided compensation as had been promised, and is currently acting to deny the family’s rights to just compensation over said land. See also compliance case Yanacocha-07 (similar concerns) CAO Action CAO found the complaint eligible in December 2012. Following an assessment in early 2013, the parties agreed to engage in a dispute resolution process facilitated by CAO. After initial meetings in May 2013, the mediation started in September 2013. Several rounds of mediation meetings took place between September 2013 and February 2014. As part of the process, a working group comprising of family and company representatives was convened to discuss the technical aspects of the disputed lands. However, neither the work of the working group, nor the attempt at direct negotiations led to an agreement between the parties. The mediation finally came to an end in February 2014 and CAO’s dispute resolution process was therefore brought to a close. Status and Findings CAO notes that the Yanacocha-04, -05 and -07 complaints relate to three distinct land disputes involving the IFC client; each with its own history and each raising particular issues of fact and law. While CAO’s appraisal process has identified questions as to IFC’s due diligence and supervision in relation to its client’s approach to land acquisition, it is not apparent from the material at hand that the land disputes raised in these complaints are indicative of substantial concerns regarding the environmental and social outcomes of the project or issues of systemic importance for IFC such that would merit a compliance investigation in accordance with CAO’s Operational Guidelines. Compliance Appraisal Report – Yanacocha Complaints-04, 05, 06 and 07, Peru. The labor-related


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complaint can be summarized as follows: Yanacocha-06 (February 2014): Complaint from a former employee working at the client’s La Quinua mine. The Complainant raises concerns about the circumstances around his employment including allegations of wrongful termination and negative effects to his health due to the working conditions at the project site. CAO acknowledges the seriousness of the issues raised by the complaint at an individual level. However, after careful consideration of the information at hand, it is not apparent that the labor issues raised by the Yanacocha-06 complainant are indicative of substantial concerns regarding the environmental and social outcomes of the project or issues of systemic importance for IFC that would merit a compliance investigation in accordance with CAO’s Operational Guidelines. On the basis of these considerations, CAO has determined to close the four complaints at appraisal and without further investigation. In reaching this conclusion CAO stresses that it makes no finding on the merits of any ongoing disputes between the complainants and the IFC client.

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India / Vizhinjam-02/Kerala

23 September 2012

→ To documents

Complainant - Kerala Swathantra Malsya Thozhilali Federation (Kerala Independent Fish Workers Federation) Concerns - Impacts to marine biodiversity, loss of livelihood, possible displacement of local fishing community members, project benefits Complainants would have liked a Dispute Resolution but VISL does not want the CAO to do it 1st Jun. 2015: appraisal finds an investigation is needed. Joint compliance investigation with Vizhinjam 01 and 03 complaints Open – Investigation ongoing Project information Institution - IFC Project Name & Number - Kerala Port, Vizhinjam 28991 Company - Vizhinjam International Seaport Limited (VISL) Sector - Port and Harbor Operations Environmental Category N/A Commitment N/A Background Vizhinjam International Seaport Limited (VISL), a special purpose government company fully owned by the State Government of Kerala (GoK), is developing a multi-purpose seaport at Vizhinjam, 16km south of the state capital, Trivandrum (Thiruvananthapuram). IFC has been hired as the Transaction Advisor to strategically assist VISL in structuring and implementing the project; and seeking private sector partner(s) to implement the plan in collaboration with the State Government Ports Department. IFC is managing roughly $1.6 million in trust funds for the project. In September 2012, a complaint was filed by a local community fishing group, Kerala Swathantra Malsya Thozhilali Federation (Kerala Independent Fish Workers Federation). The complainant raises concerns about negative impacts of the proposed port project, such as pollution from port operations, damage to marine biodiversity, possible displacement of fisherman and their families from the area, and loss of livelihood for fishing communities within the vicinity of the project site. In addition, the complainant is asking for information regarding project benefits for the fishing community members, especially employment opportunities. This is the second complaint received by the CAO relating to the Vizhinjam port project. CAO Action The CAO found the complaint eligible in October 2012 and initiated an assessment of the issues. After discussions and consultations with the CAO team, VISL declined CAO’s offer of facilitating a voluntary collaborative process to resolve the complaint issues under the auspices of CAO’s Dispute Resolution function, stating that they were fully aware of the needs of fisher folk and were putting in efforts to address these through their own channels. Therefore, the complaint has been transferred to CAO’s Compliance function for appraisal, per CAO Operational Guidelines. The complainants requested CAO to note that they were willing to engage with VISL to address the complaint issues in a collaborative manner through CAO’s Dispute Resolution function. Status and Findings On 1 June 2015, CAO released a joint Compliance appraisal for cases Vizhinjam 01, 02 and 03.


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On the basis of available information, CAO considers that the complaints raise potentially significant concerns about the E&S impacts of this project. The complaints also raise questions about the application of IFC’s E&S requirements to the project. These include: a.) whether IFC’s advice in relation to E&S issues was consistent with the Performance Standards, particularly regarding the: assessment of the environmental and social impacts of land-based infrastructure associated with the project; application of Performance Standard 5 as it applies to economic displacement; and application of Performance Standards 1 and 6 as they apply to stakeholder consultation and project impacts on ecosystem services. b.) whether IFC’s policies, procedures, and practices as they were applied to the selection and structuring of this AS project provided an adequate level of guidance and protection in the context of IFC’s broader commitments to sustainable development. On the balance of considerations, CAO has decided to conduct a compliance investigation of IFC’s E&S performance in relation to this AS project.

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South Africa / Lonmin-01 / CAO Vice President

21 August 2012

→ To documents Complainant - CAO Vice President Concerns - Labor dispute, project due diligence and supervision 30 Aug. 2013: Compliance appraisal report finds an audit is not needed Closed Project information Institution - IFC Project Name & Number - Lonmin 24803 Department - Oil, Gas, Mining & Chemicals Company - Lonmin plc Sector - Mining Environmental Category A Commitment - March 13, 2007 Background In December 2006 IFC approved an investment and advisory service project to support Lonmin’s multi-year expansion program at its platinum operations. The project consists of i) the development, expansion, and mechanization of Lonmin’s South African mines; ii) the financing of planned transactions regarding broader and more equitable ownership of South

African businesses through Black Economic Empowerment (BEE) participation in Lonmin’s development programs; and

(iii) through an IFC Advisory Service project, a comprehensive, large-scale community and Local Economic Development Program (LEDP) for the community of about 350,000 people living on and around Lonmin’s main operations.

CAO Action In light of the reports of serious violence which resulted in the deaths of Lonmin workers and members of the South African police August 2012, the CAO Vice President triggered a compliance appraisal of IFC’s investment in Lonmin plc. In particular how IFC reviewed, interacted and advised its client on matters related to work force, labor conflicts, labor unions, broader social impacts of unattended labor unrest/ latent conflict, and how IFC has assured itself of implementation of relevant IFC policy provisions. Status and Findings At appraisal IFC determined that its Performance Standards were applicable for this project. However, IFC did not convert the Performance Standards into a contractual requirement as would be expected under the Sustainability Framework for category A projects. Further, due to its status as a publically listed company, Lonmin was not required to report specifically on compliance with the Performance Standards. As such, IFC’s ability to “monitor the client’s social and environmental performance throughout the life of IFC’s investment” (Sustainability Policy) and assure itself that it (IFC) was meeting its commitments under the Sustainability Policy was limited. This compliance appraisal also raises concerns as to the adequacy of IFC’s supervision of E&S issues around the project. In particular CAO is concerned that IFC’s E&S supervision reports do not adequately engage with industrial relations and worker security issues which were publically reported in the 18 months prior to the violence of August 2012. This compliance appraisal was triggered by CAO following reports of serious violence which resulted in the deaths of Lonmin workers and members of the


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South African police. Based on a review of documentation and interviews with IFC staff, this appraisal raises concerns as to the adequacy of IFC’s E&S performance in relation to this investment. It also identifies potentially more systemic issues regarding the way in which the Sustainability Framework was applied to an equity investment in a publically listed company, over which IFC had limited leverage. Absent a complaint from affected workers, however, CAO finds that the nexus between the E&S performance issues outlined in this appraisal and the tragic outcomes of the August 2012 dispute is insufficiently established. Therefore, CAO decides that an investigation is not warranted and will close the case.

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India / Vizhinjam-01/Kerala

21 August 2012

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Complainant - Local residents and tourism workers/businesses Concerns - Access to water, project due diligence, loss of livelihood, possible displacement of local community members, inadequate compensation Spring 2013: no agreement, end of ombudsman assessment 1st Jun. 2015: appraisal finds an investigation is needed. Joint compliance investigation with Vizhinjam 02 and 03 complaints Open – Investigation ongoing Project information Institution - IFC Project Name & Number - Kerala Port, Vizhinjam 28991 Company - Vizhinjam International Seaport Limited (VISL) Sector - Port and Harbor Operations Environmental Category N/A Commitment N/A Background Vizhinjam International Seaport Limited (VISL), a special purpose company fully owned by the State Government of Kerala, is developing a multi-purpose seaport at Vizhinjam, 16 kilometers south of the state capital, Trivandrum (Thiruvananthapuram). IFC has been hired as the Transaction Advisor to strategically assist VISL in structuring and implementing the project; and seeking private sector partner(s) to implement the plan in collaboration with the State Government Ports Department. IFC is managing roughly $1.6 million in trust funds for the project. In August 2012, a complaint was filed to the CAO by local tourism workers/businesses and other local residents, with the support of the Kerala branch of Exnora International, the Kerala Hotels and Restaurants Association, and the People’s Resistance Committee in Vizhinjam. The complainants raise concerns about detrimental impact of the port project on tourism and fishing communities situated along the coast of the area. The impacts cited in the complaint include, but are not limited to, water scarcity, loss of livelihood, loss of land and inadequate compensation. Also, the complainants specifically question IFC’s due diligence and contend that IFC failed to undertake a thorough review of documentation on the project’s environmental, social and economic impact assessments. CAO Action The CAO found the complaint eligible for further assessment in September 2012. At the request of the complainants, CAO extended the 120-day assessment period in March 2013. Ultimately, CAO found no agreement among the key parties to proceed with a dispute resolution process under CAO auspices. Therefore, the complaint has been transferred to CAO’s Compliance function for appraisal, per CAO Operational Guidelines. Status On 1 June 2015, CAO released a joint Compliance appraisal for cases Vizhinjam 01, 02 and 03. On the basis of available information, CAO considers that the complaints raise potentially significant concerns about the E&S impacts of this project. The complaints also raise questions about the application of IFC’s E&S requirements to the project. These include: a.) whether IFC’s advice in


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relation to E&S issues was consistent with the Performance Standards, particularly regarding the: assessment of the environmental and social impacts of land-based infrastructure associated with the project; application of Performance Standard 5 as it applies to economic displacement; and application of Performance Standards 1 and 6 as they apply to stakeholder consultation and project impacts on ecosystem services. b.) whether IFC’s policies, procedures, and practices as they were applied to the selection and structuring of this AS project provided an adequate level of guidance and protection in the context of IFC’s broader commitments to sustainable development. On the balance of considerations, CAO has decided to conduct a compliance investigation of IFC’s E&S performance in relation to this AS project.

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Colombia / Eco Oro-01/Bucaramanga

13 June 2012

→ To documents Complainant - Comité por la Defensa del Agua y el Paramo de Santurbán, national, and international NGOs Concerns - Water quality and quantity, environmental degradation, project due diligence, community consultation and information disclosure November 2012: Ombudsman is not possible June 2013: Compliance appraisal finds a compliance audit is needed Open – Compliance Project information Institution - IFC Project Name & Number - Eco Oro 27961 Department - Extractive Industries Company - Eco Oro Minerals Corp. Sector - Mining Environmental Category B Commitment - US$9.6 million Background Eco Oro Minerals Corp (formerly Greystar Resources Ltd) is a publically listed junior mining company headquartered in Canada. Eco Oro owns 100% of the Angostura gold and silver exploration project near Bucaramanga, in the Santander region of Colombia. IFC is supporting the feasibility study, environmental and social impact assessment (ESIA) and other needed ground works to prepare for the project development stage. In June 2012, CAO received a complaint from local civil society committees in Bucaramanga, with the support of several international NGOs. The complainants raise concerns about the development of the gold mine in the Santurban Paramo. They contend that the mine development would have adverse impact on the quality and quantity of drinking water downstream and around the Paramo, which is the major source of water for the Bucaramanga region. The complainants are also concerned about what they see as irreparable environmental damage to the unique ecology of the Paramo. Furthermore, the complainants are of the opinion that the project is in violation of IFC’s social and environmental policies, and should not have received project approval. The complainants originally requested that CAO keep their identities confidential. Subsequently, the complainants decided to publicly release the complaint and their identities. CAO Action CAO found the complaint eligible for further assessment in July 2012. A CAO team conducted a field trip in October 2012 to meet with the relevant stakeholders and discuss options for addressing the issues in the complaint. During the assessment process, CAO understood from the complainants that pursuing a dispute resolution process was not an option at this point in time. The complainants were not willing to participate in a voluntary dispute resolution with Eco Oro, convened by CAO. The company has expressed its interest and willingness to participate in a collaborative process with the complainants if the opportunity presents itself. CAO released its Assessment Report and the case was transferred to CAO’s compliance function for appraisal of IFC in November 2012. On the basis of the Compliance Appraisal, which was completed in June 2013, CAO will conduct a Compliance Investigation into IFC’s investment in Eco Oro. As the possibility for a discussion of outcomes is limited by the current stage of development of the Project, the CAO compliance process will


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necessarily focus on IFC’s approach to E&S review and supervision. Questions which arise in this context include whether IFC’s approach to the definition of the Project and the assessment of its E&S risks and impacts was adequate. This is a central question as the assessment of risk and impact at project appraisal guides IFC’s approach to E&S categorization, the level of E&S review required, as well as the extent of community consultation which the client must undertake. CAO will also investigate whether the structure of this investment and the approach taken to its supervision paid sufficient regard to the potential long-term E&S impacts of the investment, and the way in which its risk profile was likely to change over time. The objectives and scope of the investigation will be defined in a Terms of Reference, which will be disclosed on this page in due course. Status and Findings CAO has issued Terms of Reference for a Compliance Investigation of IFC’s investment in Eco Oro Minerals Corp covering the above issues. The Compliance Investigation is ongoing.

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India / Tata Tea/CAO Vice President Request

1 May 2012

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Complainant - CAO Vice President Request Concerns - Labor issues and worker health, safety, and security Open – Compliance audit ongoing Project information Institution - IFC Project Name & Number - Tata Tea 25074 Department - Agribusiness Company - Amalgamated Plantations Private Limited (APPL) Sector - Agribusiness Environmental Category B Commitment - $7.87m Equity Background This case relates to labor related aspects of IFC's investment in Amalgamated Plantations Private Limited (APPL), a company which manages tea plantations in the Northeast of India. The compliance appraisal of IFC's investment in APPL was initiated by the CAO Vice President in May 2012 based on unresolved concerns submitted by the International Union of Food Workers (IUF) to IFC's Communication Portal for Performance Standard 2 (PS2). Concerns in relation to the investment were triggered by incidents on two APPL plantations in 2009/10 which led to disputes with unions representing APPL workers. CAO Action Dispute resolution became impossible when TTL became aware that Accountability Counsel and Nazdeek, who were some of the advisors of the complainants, released and distributed a July 5, 2013 media press release regarding the CAO process. From the company’s perspective, the press release was drafted to have a negative impact on the Tata Group, and did not mention APPL at all, despite the company’s interactions with the three local NGOs. Moreover, the company believed this type of media engagement was not in line with the good faith that they expected for continued engagement between the NGOs and the company. The company expressed that given this type of media statement, and the fact that they were made by two organizations that were unknown to the company and were not part of the joint meeting, and with whom the company has never directly communicated, the company no longer felt it was in their best interest to continue the engagement with the NGOs. CAO concluded its appraisal of the case in January 2013. Having held discussions with the IFC team and reviewed relevant documentation, CAO has questions as to the extent of implementation of IFC's policies and procedures, in particular requirements to: • conduct an Environmental and Social (E&S) review that is “commensurate with the level of social and environmental risks” of the project (Policy on Social and Environmental Sustainability, 2006, para. 13); • assess whether the client's E&S Assessment meets the requirements of PS1, and if not request that the client undertake additional assessment(s) (Sustainability Policy, 2006, para 17); • identify any gaps between the client's assessment, the Performance Standards in the Environmental and Social Review Summary (ESRS), and where gaps exist, develop an Environmental and Social Action Plan (ESAP) to close these gaps (E&S Review Procedure, 2006, para. 3.2.12);


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• ensure that Annual Monitoring Reports (AMRs) provide adequate information to assess the client's performance against the requirements of the investment agreement and the Performance Standards; and that • follow up to ensure that the root causes of serious incidents are being investigated and appropriate corrective action is taken to prevent reoccurrence (E&S Review Procedure, 2009, para 6.2.8). At a more general level, CAO finds that this case demonstrates challenges in the assessment and supervision of PS2 risks that emerge from the nature of the relationships between an IFC client, its workers and the unions that represent them. Thus, in accordance with its Operational Guidelines, CAO will develop Terms of Reference for a compliance audit/investigation with regard to the following issues: • whether IFC exercised due diligence in its review and supervision of the PS2 risks attached to the Project; • whether IFC policies, procedures and staffing structures provide a robust framework for the advancement of the objectives of PS2 in its clients; and • whether IFC policies and procedures provide sufficient guidance to staff on how to respond effectively to complaints regarding clients' E&S performance. (= very similar terms than in Colombia/Avianca, 2011 complaint) While CAO has assumed for the purposes of the current appraisal that the E&S review process should have been conducted under IFC's 2006 Sustainability Framework, this question will remain open as part of the compliance audit/investigation. Status and Findings CAO has another case open under its compliance function related to IFC's investment in APPL (India/Tata Tea-02/Assam). The terms of reference posted cover both cases. The Compliance Audit/Investigation is ongoing.

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Honduras / Dinant-01/CAO Vice President Request

17 April 2012

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Complainant - CAO Vice President Request Concerns – forced evictions, security, due diligence, E&S risks 13 Aug. 2013: Compliance appraisal finds audit is needed 20 Dec. 2013: Compliance audit report (released 10 Jan. 2014) Open – Compliance Monitoring Project information Institution - IFC Project Name & Number - Dinant 27250 Department - Agribusiness Company - Corporación Dinant Sector - Agribusiness Environmental Category B Commitment - US$30m (A loan) Background IFC provided Corporación Dinant, a vertically-integrated palm oil and food company in Honduras, with a corporate loan to enable it to develop young palm oil plantations, increase production capacity in its snacks and edible oils divisions, expand and upgrade its distribution network, and build a biogas facility to generate electricity for own and third-party consumption. The total project cost was estimated at $75 million, and IFC’s proposed investment was a $30 million loan. Dinant is headquartered in Tegucigalpa, Honduras. It owns palm oil plantations across the Aguan and Lean Valleys and operates two palm oil mills and an edible oil refinery near the cities of Tocoa and La Ceiba. The company also operates a port storage facility at Puerto Castilla; owns vegetable greenhouses and a food processing plant in the Comayagua Valley; and has a snacks plant in San Pedro Sula. In April 2012, the CAO Vice President informed IFC that CAO was initiating an appraisal of IFC’s investment in Corporación Dinant in response to concerns raised in a letter to the World Bank president in November 2010 and subsequent discussions between CAO and local NGOs. Key allegations in relation to the project are as follows: • that IFC’s client (Dinant) conducted, facilitated or supported forced evictions of farmers in the Aguan Valley; • that violence against farmers on and around Dinant plantations in the Aguan Valley occurred because of inappropriate use of private and public security forces under Dinant’s control or influence. • that IFC failed to identify early enough and/or respond appropriately to the situation of Dinant in the context of the declining political and security situation in Honduras, and specifically in the Aguan Valley, following the ouster of President Zelaya in June 2009. CAO Action Having conducted a preliminary appraisal of IFC’s investment in Dinant, CAO found that IFC’s social and environmental performance warranted further enquiry. Thus, in accordance with its Operational Guidelines, in August 2012, CAO prepared terms of reference for a compliance audit with regard to the following questions: • whether IFC exercised due diligence in its review of the social risks attached to the Project;


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• whether IFC responded adequately to the context of intensifying social and political conflict surrounding the project post commitment; and • whether IFC policies and procedures provide adequate guidance to staff on how to assess and manage social risks associated with projects in areas that are subject to conflict or conflict prone. CAO’s audit was conducted with input from two expert panelists. According to CAO’s mandate, the audit focuses on IFC’s performance and does not make findings in relation to the allegations against the IFC client. Findings CAO released the audit report on January 10, 2013 together with a response from IFC. The audit made a number of key findings related to IFC’s environmental and social due diligence and environmental and social performance during supervision. Specifically: Environmental and Social (E&S) Review IFC was aware of the importance of access to land free from conflicts and disputes as crucial to the success of agribusiness projects, however, its staff underestimated risks related to security and land conflict associated with the Dinant investment. IFC’s E&S review was not “commensurate to risk”, and thus did not meet a key requirement of the Sustainability Policy (para. 13). In particular IFC accepted an overly narrow definition of project E&S risk, without adequate consideration of project context or contemporaneously available sources of information regarding land conflict and insecurity in the Bajo Aguán. IFC did not conduct an adequate gap analysis of available project E&S assessment information as required by ESRP (v.2. para. 3.1.1). IFC failed to assure itself that the client E&S Assessment met the requirements of PS1; particularly in relation to the definition of an area of influence, the identification of those who would be affected by project risks and impacts, and the establishment of an appropriate social baseline. IFC’s E&S review failed to ensure that adequate consideration was given to relevant risks and impacts around PS4 (Security Personnel) and PS7 (Indigenous Peoples). IFC did not have a reasonable basis on which to conclude that the project could be expected to meet the Performance Standards over a reasonable period of time. The decision to invest was thus not in compliance with the Sustainability Policy (para. 17). IFC’s pre-commitment due diligence in relation to this project was based in large part on a review of an E&S Assessment produced for the client by a consultancy firm in February 2008. It also involved a site visit to Dinant properties by IFC E&S staff in August 2008. Given information that was available to IFC, CAO finds that an E&S review commensurate to risk would have cross referenced the information gathered from the client against independent sources. CAO notes a 2007 report from the World Bank Inspection Panel that deals with the application of the World Bank’s Indigenous People’s policy to Garífuna communities. CAO also notes that the Bank’s response to the Inspection Panel report includes a map of Garífuna settlements around Dinant’s properties in the Bajo Aguán. Absent a review commensurate to risk, and considering the shortcomings of the client’s E&S Assessment, CAO finds that IFC did not have a reasonable basis on which to conclude that the project could be expected to meet the Performance Standards over a reasonable period of time. The decision to invest was thus not in compliance with the Sustainability Policy (para. 17). Integrity Due Diligence IFC was or should have been aware of a series of public allegations and negative perceptions in relation to its client that went significantly beyond those that were considered in the course of its integrity due diligence process. As a result, CAO found that the more detailed six part integrity due diligence process should have been adhered to. IFC’s failure to do this was out of compliance with the relevant procedure. Integrity Due Diligence (IDD) provides a framework for identifying risks associated with unethical or illegal activities around projects. IFC conducted an IDD review in relation to Dinant’s owner, in October 2008. Replicating the news agency searches required under the IDD procedure, CAO found a number of current and previous allegations and negative perceptions about Dinant’s owner, which were not dealt with as required by the IDD procedure. These include

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allegations in relation to: (a) misuse of political influence; (b) involvement in the murder of an environmental activist ; (c) his having been the subject of warrant for arrest in relation to environmental crimes; (d) involvement in multiple land disputes, and (e) the use of his properties as a staging post for drug trafficking. CAO thus finds that IFC staff either knew about these allegations and perceptions and failed to deal with them as required by the IDD procedure – or did not conduct of the required news agency searches. As a result CAO finds that information relevant to E&S risk was not brought to the attention of E&S staff during the review process. Environmental and Social Categorization of the Project IFC’s E&S review process provided the IFC team with insufficient information to categorize the project appropriately. IFC justified this categorization on the basis that a limited number of specific E&S impacts had been identified that could be avoided or mitigated by adhering to good international industry practice. In explaining the categorization decision IFC also noted that land acquisition was on a willing buyer-willing seller basis; that there would be no involuntary displacement of people; and that there are no indigenous peoples’ ancestral lands in the area. Had the IFC team subjected the proposed investment to the required level of review, CAO finds that the project would properly have been classified category A (potential significant adverse E&S impact). Disclosure & Consultation IFC’s failure to disclose the Dinant E&S Assessment was not compliant with its Policy on Disclosure of Information (para. 13). IFC remains non-compliant on this point. IFC supported a breach of PS1 (paras 20 & 26) by: (a) accepting the client’s disclosure of a modified translation of the ESRS in the place of the E&S Assessment, and (b) failing to assure itself that the client’s ESAP was disclosed to affected communities in an accessible form. IFC supported a breach of PS1 (paras 20 & 26) by: (a) accepting the client’s disclosure of a modified translation of the ESRS in the place of the E&S Assessment, and (b) failing to assure itself that the client’s ESAP was disclosed to affected communities in an accessible form. IFC failed to ensure that the Dinant E&S Assessment met the consultation requirements set out in Performance Standard 1 (para. 21). With regard to consultation, CAO finds no evidence that the communities living most proximate to Dinant’s properties were consulted during the preparation of the E&S Assessment, or in relation to the ESAP. The rationale for foregoing consultation as explained by IFC was that the project did not pose adverse impacts to local communities, and therefore that consultation was not required. Given the risks described in the E&S Assessment and acknowledged by IFC in applying E&S category B to the project, CAO finds that consultation was required as part of the E&S Assessment process. In not ensuring that this occurred, IFC failed to properly apply the Sustainability Policy, which requires IFC to ensure that its client’s E&S Assessment meets the requirements of PS1. IFC’s Environmental and Social Performance During Supervision In relation to supervision, the audit considers whether IFC responded adequately to the context of intensifying social and political conflict surrounding the project. More specifically, it focuses on two questions: (a) whether IFC exercised due diligence in its assessment of developments around the investment between April 2009 (commitment) and November 2009 (first disbursement); and (b) whether IFC’s response in the post disbursement period was sufficient given the violent nature of the conflict that was playing out around the Dinant properties. Adequacy of Review of Conditions of Disbursement IFC failed to adequately assess its client’s performance against the full range of ESAP CODs (conditions of disbursement) that had fallen due prior to making its November 2009 disbursement to Dinant. Events in Honduras and in the Bajo Aguán developed significantly in the course of 2009. This included the occupation of one Dinant property by peasant groups in May 2009, and the expropriation of another in June 2009. At the same time President Zelaya established a Technical Judicial Commission charged with reviewing the land claims of the peasant movement in the Bajo

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Aguán. Following initial meetings, one of the negotiators representing the peasant movement is alleged to have been shot on June 23, 2009. The following week President Zelaya was removed from office. In August 2009 Dinant informed IFC that mortgages over two more of its properties could not be completed due to the presence of asset freezing orders. On November 5, 2009 IFC made its first disbursement of USD15 million to Dinant. IFC investment staff did not keep E&S staff appraised of developments in relation to land disputes, and occupations around the client’s plantations of which they were aware. IFC investment staff processed the November 2009 disbursement on the basis of representations made by the client five months earlier, without adequate analysis of the impact of intervening events on the validity of those representations. As a result, IFC did not comply with ESRP requirements that any E&S CODs are met by the client prior to disbursements. General Supervision (post-disbursement) Land related conflict in the Bajo Aguán escalated following national elections at the end of November 2009. This led to the occupation of three Dinant properties in December 2009, a fact which Dinant reported verbally to IFC at the time. In February 2010 a clash between occupiers and Dinant security guards is alleged to have led to the death of five guards. In the following months occupations and evictions were interspersed with attempts by the Government of Honduras to broker a resolution to the conflict. According to civil society sources there were at least 102 killings of people affiliated with the peasant movement in the Bajo Aguán between January 2010 and May 2013, with specific allegations being made linking 40 of these to Dinant properties, Dinant security guards or its third party security contractor. Allegations in relation to the killing of at least 9 Dinant security personnel by affiliates of the peasant movement have also been made. In this context, IFC failed to “develop and retain the information needed to assess the status of [its client’s] compliance with the Performance Standards (PSs)” during supervision as required by the ESRP (ESRP 6. v.5, para. 1). IFC did not adequately supervise its client’s PS4 obligations: (a) to investigate credible allegations of abusive acts of security personnel (para. 15); and (b) not to sanction the use of force by security personal other than for “preventative and defensive purposes in proportion to the nature and extent of the threat” (para. 14). IFC failed to require an adequate root cause analysis in relation to the serious incidents that were occurring around the project (ESRP 6. v.5, para 2.2.). There were gaps in the supervision of this project at critical times. IFC did not give due consideration to the requirement that IFC “exercise remedies where appropriate” in a situation where a client does not or is not able to re-establish E&S compliance (Sustainability Policy, para. 26). IFC Policy, Procedure and Practice Despite a lack of specific guidance, the overall approach outlined in the Sustainability Framework is one which CAO finds to be applicable in conflict and non-conflict scenarios. IFC non compliance as identified in this report was due in large part to problems with the interpretation and application of existing policies and procedure. IFC’s handling of its investment in Dinant raises questions as to the robustness of its decision making structures around E&S issues in high risk contexts. The combination of client relationship, operational and compliance functions within project teams can generate conflicts of interest and conflicting incentives for staff and management. These problems are well illustrated by the failure of either the pre-investment IDD or E&S review processes to generate robust analysis in relation the significant risks that were attached to the project. They are equally illustrated by the ongoing breaches of IFC’s disclosure requirements and the lack of critical attention that the project received even after IFC became aware of the violence that was playing out around its client’s properties. In CAO’s view these deficiencies in performance may be seen as a by-product of what has [been] described as a culture of risk aversion at the Bank. In a risk-averse setting, accountability for results defined primarily in financial terms may incentivize staff to overlook, fail to articulate, or even conceal potential environmental, social and conflict related risks. The result, however, as seen in this audit is that the institution may underestimate these categories of risk. At a time when the Bank Group is being challenged to expand its risk appetite, CAO finds it crucial to also invest in structures that that provide management with assurance that E&S risk is being rationally identified

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and managed in the context of the Bank Group’s pursuit of development outcomes. As indicated by the findings of this audit, a failure to do this can lead the institution to take uninformed risks with serious consequences for people, the environment and/or the Bank Group’s reputation. Monitoring The Government of Honduras has announced the creation of a special investigative unit, with resources from the Attorney General and National Police, to carry out criminal investigations of the violence and deaths that took place over the past four years in the Aguán Valley. 2 April 2014: Management’s Dinant Enhanced Action Plan Following IFC Management’s Response to the CAO Audit of IFC’s Investment in Corporación Dinant (January 3, 2014), IFC received substantial feedback from stakeholders, including civil society and its Board of Directors, with respect to the Action Plan presented in the response. After taking this feedback into account, and with additional engagement with Dinant, the CAO, Board members, and other stakeholders, the Action Plan has been further enhanced. This Enhanced Action Plan will serve as a “consultation draft” and the basis of engagement with affected communities in the coming months. IFC has received Dinant’s commitment to the implementation of this draft Action Plan. The Enhanced Action Plan may be further revised based on feedback received, and once finalized, will become part of a revised and legally binding Environmental and Social Action Plan (ESAP) which will be publicly disclosed. IFC committed to review and strengthen its approach to the management of environmental and social (E&S) risks in fragile and conflict-affected situations. In addition, IFC will review its procedures related to the processing and documentation of waivers and conditions of disbursement, and continue process improvements related to integrity due diligence.

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Mexico / Harmon Hall-01/Mexico

2 December 2011

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Complainant - Confidential Concerns - employment rights, benefits, compensation, and fair and respectful treatment for workers Ombudsman until July 2013 but two unresolved cases go to compliance appraisal August 2013: Compliance appraisal report does not find an audit is needed Closed Project information Institution - IFC Project Name & Number - Harmon Hall 29753 Department - Health & Education Company - Harmon Hall Holding, S.A. de C.V. Sector XX - Other Environmental Category B Commitment $7.9 million equity Background Harmon Hall is a large English language school chain in Mexico, with a network of 110 English schools in 63 cities and over 40,000 students in the entire system. Harmon Hall also has two K-12 schools and plans to grow this business line. IFC provided Harmon Hall with a $7.9 million equity investment. In December 2011, the CAO received a complaint raising concerns regarding employment rights, healthcare, compensation, and fair treatment for workers employed by Harmon Hall. Specifically, the complainants contend that poor working conditions, inadequate wages, and extensive working hours are contrary to Mexican legal regulations and employment law. The complainants requested confidentiality. CAO Action CAO accepted the complaint in January 2012, and initiated an assessment to explore options for addressing the issues raised with the parties. During the assessment, both parties agreed to a collaborative problem-solving process facilitated by the CAO to develop corrective actions in response to concerns raised in the complaint. CAO assumed a monitoring role for a period of six months after the agreed actions were developed and implemented. However, two individual cases within the complaint remain unresolved. Hence, CAO’s dispute resolution function concluded its involvement and a compliance appraisal of the two unresolved cases was initiated on July 23, 2013. Status and Findings CAO completed the appraisal in August 2013. In relation to the pre-commitment phase of the project cycle, the key question for CAO is whether IFC exercised due diligence in its review of and response to the client’s assessment of the project’s E&S impacts, particularly in relation to labor issues. In this case, questions arise relating to IFC’s assessment of Harmon Hall’s track record with regard to PS2 issues, and its commitment and capacity to meet the requirements of PS2. A preliminary IFC review of E&S issues around the Harmon Hall investment dated May 2010, identifies labor practices and terms of employment as potential risks that need to be assessed. An Environmental Specialist carried out an appraisal mission on the second half of May 2010, visiting various facilities and meeting with various corporate level directors


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at Harmon Hall. On labor issues, IFC’s Environmental and Social Review Summary (ESRS), also dated July 15th, 2010 points out that “The company does not currently have a Human Resources policy.” the Environmental and Social Review Summary states that benefits around insurance, vacation and salary “[are] found to be compliant with Mexican labor regulations” and that the “[t]he termination procedure establishes the employee’s right to payment according to Mexican regulations.” The basis on which these findings of compliance are made is, however, unclear. In terms of labor relations or disputes, the ESRS points out that “[a]ccording to the interviewed teachers, they are paid all the hours they work.” The ESRS notes the lack of a formal grievance mechanism, with facility directors considering themselves in charge of addressing employees’ disputes. It also notes that “[t]he employees interviewed … were not aware of a formal process in place, and that should they have a concern, they would present their complaint to the facility director or to the academic supervisor.” No further labor dispute or employees’ concern is reported in this document. The Environmental and Social Action Plan (ESAP) includes a number of actions related to PS2 that were due “six months after signing the loan agreement.” Required actions include the finalization of the Human Resources Policies and the establishment of an Internal Grievance Mechanism, as well as actions to make employees aware of these developments. No conditions of disbursement are listed in relation to PS2. Following commitment, IFC’s obligation is to monitor the client’s E&S performance in accordance with its Sustainability Policy and ESRPs. Harmon Hall communicated the completion of all actions regarding PS2 under the ESAP on December 2011, 10 months after they were due. Harmon Hall also produced an internal procedure regarding compensation at the end of the work relationship, dated February 2011, which asserts to calculate such compensation according to the Mexican Labor Law. In the same communication, Harmon Hall includes a copy of the internal announcement informing employees of the new human resources policies and the internal grievance mechanism. In response to the ongoing CAO dispute resolution process, Harmon Hall launched an independent grievance mechanism called Programa de Asistencia al Empleado (PAE). Moreover, Harmon Hall incorporated a number of systemic changes around the company’s human resources management systems aimed at addressing some of the concerns voiced during the dispute resolution process. In February 2013, CAO notes that Harmon Hall decided to replace the PAE by a strengthened internal complaints response. The complaints forwarded to CAO compliance provide no indication that this project raises substantial concerns regarding environmental and/or social outcomes. While this appraisal raises some questions as to the robustness of IFC’s approach to the review and supervision of PS2 issues, CAO finds no indication of issues of systemic importance to IFC/MIGA of the type that would warrant a compliance investigation.

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Peru / Quellaveco-01/Moquegua

26 November 2011

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Complainant - Local NGO and local water users association Concerns - Water quality and quantity, pollution control, community health & safety, EIA, community consultation and information disclosure, E&S risks July 2012: no negotiated solution possible 15 May 2013: Compliance appraisal = audit is needed and might better inform the application of policies (or other Compliance Investigation criteria) to future projects 29 Aug. 2014: Compliance audit report released Open – Compliance Monitoring Project information Institution - IFC Project Name & Number - Quellaveco 3823 Department - Oil, Gas, Mining, & Chemicals Company - Anglo American Quellaveco S.A. Sector - Mining Environmental Category B Commitment - $60 million equity (currently divested) Background Currently in the pre-construction stage, Quellaveco is a large scale copper mining concession located in the Department of Moquegua in southeastern Peru. The concession was nationalized in the 1960s, and was the first copper prospect to be privatized in 1993. That same year, the IFC Board approved an equity investment in Anglo American Quellaveco for the acquisition and feasibility work of the mining company, comprising a 20 percent equity stake in the company. By 2011, IFC maintained an 18 percent equity stake, which was sold in February 2012. In November 2011, the CAO received a complaint from a local environmental NGO raising concerns about the mine’s anticipated impacts on local populations and the environment. As part of its eligibility screening, the CAO requested documentation verifying the participation of project-affected groups, which was received in March 2012. At this point, CAO accepted the complaint, informed all stakeholders, and started its assessment process. Collectively, the complainants raise concerns regarding impacts to water quality and quantity in an arid area characterized by rising competition over water sources. The complaint also questions the proposed handling of toxic wastes and the impact this could have on communities’ health. Other issues in the complaint reference IFC’s due diligence including the quality of the EIA, community consultation and disclosure of project information. CAO Action The CAO found the complaint eligible in March 2012, and a CAO Ombudsman team explored options for resolution with the relevant parties. Following the assessment, a collaborative resolution to the complaint convened by CAO was not found to be possible and a final assessment report was released. In accordance with CAO’s Operational Guidelines, the case was transferred formally to CAO's compliance function in December 2012 to ascertain whether there were any outstanding concerns regarding IFC’s compliance with applicable requirements. The appraisal, completed on May 15 2013, concluded that a review of certain aspects of this project, which relate to its nature as an early equity mining investment, might better inform the application of policies (or other Compliance Investigation criteria) to future projects. Therefore, CAO will conduct a Compliance Investigation into this project with a focus on the following questions:


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· Are IFC’s policies and procedures regarding environmental and social categorization of projects, as applied to its investment in Quellaveco, effective to reflect the magnitude of project risks and impacts? · Are IFC’s policies and procedures in relation to rights issues, as applied to its investment in Quellaveco, consistent with IFC’s commitment to ensure that the business activities it finances are implemented in accordance with relevant environmental and social standards? · Do IFC’s policies and procedures regarding divestment from projects, as applied to its investment in Quellaveco, ensure appropriate consideration of environmental and social aspects prior to exiting? Status and Findings General findings CAO recognizes that this investment was initiated at a time when IFC E&S procedures were relatively underdeveloped. CAO also recognizes that the Project was seen by IFC as having limited environmental and social risks as it was envisaged as supporting a series of feasibility studies and pilot activities ahead of the decision to proceed with the construction of a mine. Nevertheless, CAO finds that IFC omitted to include necessary E&S requirements in the Shareholders Agreement which formed legal basis for the investment. This resulted in a significant gap in terms of the Company’s E&S obligations, particularly given IFC’s undertaking to its Board of Directors in March 1993 that the Project would “comply with all applicable World Bank environmental and occupational health and safety guidelines.” CAO finds that the absence of E&S requirements in IFC’s investment agreement made E&S supervision difficult. Notwithstanding the absence of E&S requirements, CAO finds that IFC supervised the Project with reference to IFC’s evolving E&S standards and policies. During supervision, IFC identified a range of social concerns regarding land acquisition and resettlement, the Project’s impact on Indigenous Peoples and the adequacy of public consultation. IFC also identified potential environmental impacts, including the adequacy of the water resources needed to service the mine, and the potential for water pollution. This represented good practice. CAO finds that IFC’s engagement with the Company around E&S issues was generally appropriate to the stage of development of the Project. However, CAO also finds that key E&S issues identified by IFC in project supervision were not translated into corrective action plans. CAO also finds that certain information presented by IFC to its Board in the course of this Project was incomplete. This includes statements that: (a) the Project would comply with the World Bank’s environmental standards (in a context where the legal agreement did not include such requirements); and (b) exploration activities were “fully compliant with the Performance Standards,” (in a context where IFC had documented gaps in compliance with the Performance Standards and was concerned about the readiness of its client to further develop the Project in accordance with these Standards). More generally, this compliance investigation raises questions about IFC’s application of the Sustainability Framework and associated procedures to the long-term E&S risk associated with early equity investments in the mining sector. Environmental and Social Categorization In 1993, when IFC bought its equity stake in the Company, it was acknowledged that the development of the mine would be a category A project. At the time of investment, IFC believed that the likelihood of the Project leading to a commercial development was ‘high’ with the expectation that the construction of a mine could begin as soon as 1997. However, the Project was categorized as B on the basis that it was focused on feasibility and pilot activities. CAO finds that there are good reasons for considering longer-term risks and impacts when IFC makes a decision on the E&S categorization of an early equity mining investment. First, this approach is consistent with the wording of the Sustainability Policy which requires IFC to consider “potential” (as opposed to actual, direct, or immediate) adverse E&S impacts of a project when making a decision on categorization. Second, IFC explains the rationale for its early equity business line on the basis that it is not a speculative or short term investor, but a long term partner for mining projects that have a strong possibility of being developed. This approach suggests that the prospect for development of a mine,

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with associated E&S risks, is significant. Finally, CAO finds that there may be advantages for IFC and its clients in terms of managing community expectations and concerns if the long term E&S risks attached to early equity mining investments are seen as being fully acknowledged rather than underplayed. CAO finds that the concerns raised above would most effectively be addressed if IFC provided guidance that the decision as to how an early equity mining project should be categorized is to be determined on a case-by-case basis, taking into account the potential E&S impacts of the project (both immediate and long term), as well as its likelihood of development. Applying this approach, CAO finds that IFC’s Quellaveco investment would properly have been categorized A at the outset, given: (a) the magnitude of the potential impacts of the proposed mine; (b) IFC’s view that it had a high likelihood of moving forward to development; and (c) the potential E&S risks and impacts of the Project in the pre-development phase, in particular potential impacts on Indigenous People. Further, CAO finds that policy guidance is required in relation to the re-categorization of IFC projects as their risk profile develops. Participation in rights issues As an equity holder, IFC had the opportunity to participate in rights issues to provide the Company with capital needed to finance its ongoing project development activities. In addition to an initial investment of $6 million in 1993, IFC contributed an additional $54 million to the Project through rights issues between 1996 and 2011. 78.5 percent of this amount was committed after IFC adopted its E&S Performance Standards in April 2006. CAO finds that IFC complied with existing procedures for participating in rights issues in the Company. CAO, however, also notes that there are significant risks involved in providing additional finance to a project that has inadequate or outdated E&S obligations, or where there is evidence of non-compliance with existing E&S obligations. Given these risks, consistency with IFC’s policy commitment to “ensure that the projects it finances are operated in a manner consistent with the requirements of the Performance Standards” would require IFC’s participation in a rights issue to be contingent upon an appropriate review of project E&S risk. To harmonize the procedures for participating in rights issues with the higher level goals of the Sustainability Policy, IFC would need to ensure that appropriate consideration of the current status of a client’s E&S obligations and compliance is required before rights issues are processed. Consideration of E&S risk prior to participation in rights issues will be particularly important in relation to: (a) projects that extend over a significant period of time; (b) projects which are operating under superseded E&S requirements; and (c) projects where E&S risk increases over time due to the changing nature of a business activity (such as when an early equity mining investment progresses towards development). Divestment Unlike a loan which is repaid according to a pre-agreed schedule, IFC must take an active decision to divest from a project in which it holds an equity stake. IFC’s Operational Procedures require an analysis of whether the investment’s purpose has been “substantially fulfilled” prior to divestment. In circumstances where IFC’s additionality is framed in terms of E&S issues (as was the case in relation to Quellaveco), this requires an analysis of E&S achievements and future risks. CAO finds no evidence that such analysis informed IFC’s decision to divest from the Company. CAO finds that it would be consistent with both the Operational Procedures on Equity Sales and IFC’s broader commitments to E&S sustainability for E&S considerations to be structured in to IFC’s decision making around divestment. This would allow IFC to determine whether a project has significant outstanding E&S risks, and determine how these should best be managed in the context of a potential divestment. In practice this might mean a requirement to analyze the current state of E&S obligations and compliance, and take this into account when making the decision to divest. Reference to the current status of E&S compliance, and the approach taken by IFC to mitigating post divestment E&S risk might also be required in the Equity Sale Memorandum. In conclusion, CAO acknowledges steps taken by IFC E&S staff to supervise emerging risk in relation to the Quellaveco project, despite IFC’s investment being made outside the framework of its E&S

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requirements. At the same time, CAO finds that a more robust framework for considering E&S issues when decisions were made in relation to rights issues and divestment may have put IFC in a better position to respond to the issues raised by the complaint.

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Colombia / Avianca-01/Colombia

14 November 2011

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Complainant – 2 Colombian labor unions, with the support of global trade unions Concerns - Labor standards, rights of free association, due diligence Feb.-May 2012: the Company does not want a negotiated settlement 8 Jan. 2013: Compliance appraisal finds a compliance audit is needed 21 Jul. 2014: Compliance investigation completed 18 May 2015: Compliance report released Open – Monitoring Project information Institution - IFC Project Name & Number- Avianca 25899 Department - Infrastructure Company - Aerovias del Continente Americano S.A. (Avianca) Sector - Transportation Environmental Category B Commitment- $ 50 million corporate loan Background Aerovias del Continente Americano S.A. (Avianca) is a commercial airline based in Colombia providing air transportation services to domestic and international destinations. Avianca plans to renew its fleet over the period 2008-2012 to reduce costs, improve efficiency and safety as well as provide better passenger service. The company has negotiated the purchase of 42 aircraft over this period to achieve these goals. The IFC will provide a $50 million corporate loan to the company and its subsidiaries to help finance the implementation of the company’s fleet renewal program. In November 2011, a complaint was submitted to the CAO by the International Trade Union Confederation/Global Unions Washington Office with supported by the International Transport Workers’ Federation as well as the AFL-CIO Solidarity Center on behalf of three Colombian labor unions representing Avianca civil aviation and airline workers. The complainants raise various concerns related to labor rights violations at Avianca, as well as violations surrounding the right of free association. The complaint also articulates issues regarding IFC’s due diligence on the project, particularly as it pertains to performance standards on labor and working conditions. CAO Action The CAO found the complaint eligible for further assessment in December 2011 and a CAO Ombudsman team traveled to the field in February 2012 to meet with the relevant parties to discuss available options for addressing the issues raised in the complaint. During the assessment process, the CAO understood from the company that pursuing a dispute resolution process was not an option at this point in time. Given the voluntary nature of a dispute resolution process, the CAO Ombudsman team finalized its assessment report and concluded its involvement in the case. The assessment report is available at the below links in English and Spanish. As per CAO's Operational Guidelines, the case was formally transferred to compliance for appraisal on June 19, 2012. CAO completed the appraisal in January 2013. Status and findings The Compliance investigation report, released in May 2015, notes that, as IFC’s investment in the client was processed in 2007/2008, the IFC Policy on Social and Environmental Sustainability (the


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Sustainability Policy, 2006) applied at the time of approval. Issues of IFC’s duty to disclose information relating to the project were governed by the Policy on Disclosure of Information (2006). In addition IFC has Environmental and Social Review Procedures (ESRPs), which are updated from time to time. The ESRPs describe in further detail IFC’s approach to the implementation of its Sustainability Policy and Performance Standards. IFC’s Performance Standards (2006) were incorporated into the loan agreement and define the client’s Environmental and Social (E&S) obligations. Given the nature of the complaint to CAO Performance Standard 2 (PS2) on Labor and Working Conditions is of particular relevance. Environmental and Social Review In relation to the pre-commitment phase of the project cycle, the key question for CAO is whether IFC exercised due diligence in its review of the project’s Environmental and Social (E&S) impacts. In this case, specific questions arise regarding IFC’s review of PS2 issues. The underlying principle established by the IFC Policy on Social and Environmental Sustainability (the Sustainability Policy, 2006) in this respect is that “IFC does not finance new business activity that cannot be expected to meet the Performance Standards over a reasonable period of time”. In conducting its pre-project due diligence, IFC is required to conduct an E&S review “commensurate with the level of the E&S risks” of the Project (Sustainability Policy 2006). In conducting this review IFC should consider both the “E&S risks as assessed by the client” and “the commitment and capacity of the client to manage expected impacts”. IFC should also consider whether the “client’s E&S assessment meets the requirements of PS1” and if not, require additional assessment. Given this framework, a brief discussion of client requirements under PS1 is also important. These include the requirement of the client to conduct a process of Social and Environmental Assessment (the Assessment) that will consider in an integrated manner “all relevant E&S risks and impacts of the project … including the issues identified in Performance Standards 2 through 8…” “and those who are likely to be affected by such risks and impacts”. PS1 specifies that “the Assessment” be “adequate, accurate and objective” and prepared by appropriately “qualified and experienced persons”. In terms of process, PS1 requires “effective consultation” with “affected communities.” Effective consultation, PS1 provides, “should be based on the prior disclosure of relevant and adequate information, including draft documents and plans” and should begin early in the … Assessment process”. Once final, the IFC client is required to “publically disclose the Assessment document”. IFC’s Environmental and Social Review Summary, published in June 2008 reported that all employees were free to unionize and had the right to collective bargaining. It also noted: “… some complaints with regard to labor aspects have been raised by external organizations. Avianca will provide IFC with status reports on these complaints, including measures implemented or planned to ensure compliance with PS2 (…) In order to be in line with best practices, Avianca will amend, as necessary, its HR policies and agreements with contractors and cooperatives and suppliers to ensure non-employee workers are retained in a manner consistent with this PS”. In August 2008, as part of the investment approval process, IFC concluded that the client was in compliance with PS2 as all employees were free to unionize and had the right to collective bargaining. IFC also noted the complaints before the ILO and committed to ensuring that a Labor Assessment would be performed in order to have a detailed review of the unresolved cases and monitor continuous compliance with PS2. In discussions with CAO, IFC staff indicated that once they became aware of the complaints to the ILO they spoke to representatives of the client’s management, ILO and the ITUC [International Trade Union Confederation]. These discussions, together with a review of the complaints to the ILO and a review of the client’s human resources policies, formed the basis for the description of the labor issues associated with the project. CAO finds that IFC did not adequately understand the PS2 (ie. labor related) risk attached to its investment prior to commitment. This was a product of a number of factors including: (a) shortcomings in IFC’s review of its client’s E&S Assessment process; (b) insufficient analysis of country or sector level PS2 risk as applied to the project; (c) a failure to ensure that PS1 E&S Assessment, disclosure or consultation requirements were implemented in relation to labor issues;

http://www.ilo.org/dyn/normlex/en/f?p=1000:50001:0::NO:50001:P50001_COMPLAINT_FILE_ID:2897278

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and (d) the lack of a structured assessment of client commitment and capacity in relation to PS2 issues. Further CAO finds that IFC did not adequately analyze its client’s “commitment and capacity” in relation to PS2 compliance. IFC staff responsible for the project expressed concerns about these issues to CAO. As one IFC staff member with direct knowledge of the project explained: “there should have been acknowledgement from day one that there was an issue … we were naïve in relation to PS2 … it would have been better to say frankly to the Board ‘this company will not comply to PS2.’” Once aware of complaints to the ILO regarding its client, IFC acted by identifying the need for a Labor Assessment. This measure responded to the lack of an Assessment covering PS2 issues in a context of significant potential risk. However, given ongoing disputation between the client and some of its unions; significant country governance risks in relation to Freedom of Association; and in the absence of consultation with the complainant unions as part of project preparation – CAO finds that it would have been consistent with the IFC Sustainability Framework to require detailed assessment of PS2 issues prior to commitment. Postponing the Labor Assessment until after commitment meant that IFC concluded the loan agreement absent a detailed understanding of the PS2 related risks that attached to the investment. As a result, IFC lost the opportunity to negotiate more detailed PS2 related requirements in the loan agreement. Moreover, the requirement to undertake a Labor Assessment did not sufficiently address either the issue of client commitment or that of whether there had been effective consultation with workers and their representatives. Disbursement According to the ESRPs in place at the time of first disbursement (v.2, 2007) IFC’s role in project supervision includes “ensuring that any E&S Conditions of Disbursement (CODs) are met by the client prior to disbursements”. The Lead E&S Specialist (LESS) assigned by IFC to a project is responsible for obtaining requisite information from the Transaction Leader to determine the status of any E&S CODs; informing the Transaction Leader if there are any E&S CODs not complied with; and providing clearance of E&S CODs. E&S CODs are set out in the September 2008 Loan Agreement between IFC and its client. These include, as a condition of any disbursement, satisfactory completion of a Labor Assessment in accordance with attached TOR. Fieldwork for the initial Labor Assessment was conducted in December 2008. IFC’s first disbursement was processed on January 22, 2009. The client submitted a final version of the Labor Assessment to IFC on February 26, 2009, one month after first disbursement. A review of relevant documentation and interviews with IFC staff reveal no indication that satisfactory completion of the Labor Assessment was considered as a condition of the January 2009 disbursement. In this context, it is also notable that IFC E&S expressed dissatisfaction with the initial Labor Assessment, describing it as being of low quality. The extent of engagement with the complainant unions was identified by IFC E&S as a particular shortcoming with the initial Labor Assessment. As a result when a second Labor Assessment was commissioned in 2010, IFC required that it be carried out by a different consulting firm. The client’s request for second disbursement was received on July 10, 2009 and disbursement was processed on July 16, 2009. The request for disbursement as received from the client includes a statement that the initial Labor Assessment had been conducted to IFC’s satisfaction. IFC did not consider satisfactory completion of the initial Labor Assessment as a requirement of first disbursement although it was set out as a condition of any disbursement in the Loan Agreement. As explained by IFC, this was due to a lack of clarity in the drafting of the Loan Agreement and the intent of the parties was to give the client up until second disbursement to complete the Labor Assessment. In relation to the second disbursement (July 2009), IFC appears to have satisfied itself of completion of the initial Labor Assessment without clearance from IFC E&S. CAO finds that there were shortcomings in the completeness and quality of the Labor Assessment that were evident to IFC E&S at the time. A review of the Labor Assessment, was however, not documented. In these circumstances, CAO finds that IFC did not meet the E&S clearance requirements as specified in ESRP (Environmental and Social Review Procedures) 6.2.1 in relation to the second disbursement. CAO further finds that IFC did not give appropriate consideration to the

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adequacy of the initial Labor Assessment required as a condition of disbursement. As a result, the basis for IFC’s engagement with its client around PS2 issues was significantly weakened. The absence of a rigorous review of the unions’ allegations of breaches of Freedom of Association and anti-union discrimination against the requirements of PS2, meant that - at the point of disbursement - IFC was not in a position to make an informed judgment as to the likelihood that the investment would meet the requirements of PS2. General Supervision Following commitment, IFC’s obligation is to monitor the client’s E&S performance in accordance with its Sustainability Policy and ESRPs. Relevantly, this includes the requirement to review project performance on the basis of the client’s commitments in the investment agreement and Action Plan and, in cases where a client fails to comply with these commitments, to work with the client to bring it back into compliance. IFC’s April 2010 supervision document concludes that the client has implemented some labor practices which could be used to deter union membership. In particular, it notes that differences in benefits between workers under different contract types can be interpreted as discriminatory (against unionized labor). A continued series of labor assessments (every six months) is proposed until these concerns have been addressed. At this point, IFC also recommends that the labor assessment process be expanded to include Taca Airlines (El Salvador) which had recently been acquired by the client. The April 2010 supervision document also identifies what are described as failures in relation to the initial Labor Assessment, particularly insufficient engagement with the unions as part of the Assessment process. As a result, IFC E&S recommends that a different consultant be contracted to undertake the next labor assessment. The second recorded supervision activity occurred following a site visit in September 2010. This took place at the same time as fieldwork for the second Labor Assessment. Based on meetings with unions and management and preliminary results of the labor assessment, the supervision documentation finds that there were questions about project performance in relation to PS2 issues including compliance with at approval requirements. At this point IFC gives the project an E&S Risk Rating (ESRR) of 4 (Unsatisfactory). Following the second Labor Assessment, in August 2011, IFC firmed in its view that the client needed to do more to address PS2 compliance issues (including Freedom of Association). As a result, in August 2011, IFC management conveyed to the client that it was out of compliance with PS2. This led to what the IFC team saw as a positive response from the client and, in November 2011, a new Action Plan from regarding labor issues. In December 2011, as a result of what IFC saw as an agreement to a robust action plan and management changes in the client’s human resources department, IFC upgraded its assessment of project ESRR from 4 (Unsatisfactory) to 3 (Partially Unsatisfactory). To advance what is an increasingly technical discussion around PS2 compliance, the 2012 supervision documentation notes that IFC commissioned advice from local counsel in relation to Freedom of Association issues at the client. In relation to the 2011 AMR (Annual Monitoring Report), IFC again notes that the client has not provided required information in relation to labor issues. Project supervision experienced further delays in 2013. The Labor Assessment of Taca, which was scheduled for December 2012, was completed in June 2013. The opinion that IFC had requested from local counsel that was described as pending in the November 2012 supervision document, was finally delivered in September 2013. Neither the Taca Labor Assessment nor the opinion from local counsel had been incorporated into IFC’s record of supervision activities at the time this CAO investigation report was written (March 2014). In relation to the advice from local counsel received in September 2013, CAO notes IFC’s view that this should not be disclosed on the basis that it is subject to attorney-client privilege. IFC’s review of its client’s 2012 AMR was recorded in October 2013. At this point, IFC maintained the client’s ESRR at 3 (Partially Unsatisfactory) on the basis that the client had not presented sufficient information to demonstrate compliance with the IFC Performance Standards, in particular agreed PS2 indicators. As explained to CAO by IFC staff assigned to the project, the sense of the team was that if IFC were to push too hard on PS2 issues, the client would pre-pay the loan, a result which was not desirable in relation to a client which had an above average level of credit worthiness. In these circumstances, it was explained that absent

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“blatant non-compliance,” IFC would continue to work through the issues with the client. In relation to a customer service business like the airline industry, it was explained that the airline’s growth and profitability did not suggest a major problem in terms of staff / management relations. Finally, CAO notes that in December 2013, 2 years ahead of schedule, the client fully repaid its loan to IFC. As a result, at the time of writing, Avianca was no longer an IFC client. Lacking adequate information on which to assess the status of the client’s compliance, absent effective leverage and without appropriate tools at its disposal, CAO finds that IFC made limited progress in addressing the issues which formed the basis of the unions’ complaint to CAO. Disclosure and Consultation Concerns around the adequacy of disclosure and consultation were raised in the unions’ complaint to CAO regarding this project. In particular, the complaint argued that Avianca and/or IFC should have disclosed its client’s Labor Assessments and resulting Action Plans. IFC and its clients are committed to disclose certain information as part of the project cycle. While recognizing that transparency is fundamental to fulfilling its development mandate, IFC also respects the confidentiality of certain business information. Applicable requirements were set out in the Performance Standards and the Policy on Disclosure of Information (both 2006). In this case, IFC disclosed an ESRS in June 2008. The ESRS notes that the client will provide IFC with status reports on “measures implemented or planned to ensure compliance with PS2”; however, no Action Plan or E&S impact assessment documentation is disclosed on the IFC website. As explained by the IFC team, this was because no E&S Impact Assessment or Action Plan was prepared prior to disclosure of the ESRS. In contrast to the current Access to Information Policy (2012), the IFC team explained that, in its understanding, the Policy on Disclosure of Information (2006) did not require “post board” disclosure of Action Plans or Assessment documentation by the IFC. Regarding the client’s disclosure requirements, the IFC team indicated that the client would only be required to disclose Assessment documents and Action Plans in cases where significant adverse effects to affected communities are identified. Therefore, given that the Project objective was the upgrading of client’s airline fleet which affected no community, it is the IFC team’s view that the client was not required by PS1 to disclose any E&S documentation. CAO finds that IFC complied with the disclosure requirements under the 2006 Policy on Disclosure of Information. Under this (now superseded) Policy post-Board disclosure was the obligation of the client, with IFC in a monitoring role. As such IFC was not required to disclose the client’s Labor Assessments or its agreed Action Plans related to labor issues. On the other hand, CAO finds non-compliance in relation to IFC’s supervision of its client’s consultation and disclosure requirements under PS1. CAO does not concur with IFC’s view that the requirement to disclose Assessment documents and Action Plans under PS1 was properly interpreted to exclude labor related issues. Indeed the contrary is suggested both by the structure of PS1 which requires integrated assessment and management of E&S risks and impacts including those covered by PS2 (Labor and Working Conditions), and by PS2 which refers back to PS1 in terms of assessment and management requirements (which include consultation and disclosure). Similarly, CAO is unable to support IFC’s argument that disclosure is discretionary in cases where a client has contentious relationships with its workers or their union representatives. Indeed, disclosure and consultation, while difficult, may be most important in such circumstances. CAO also notes that the presence of a confidentiality agreement between IFC and its client has limited the extent to which CAO has been able to refer to the client’s Labor Assessments and Action Plans in this report. Extent to which IFC policies, procedures and staffing structures support PS2 objectives The TOR for this audit asked whether IFC policies, procedures and staffing structures provide a robust framework for the advancement of the objectives of PS2 in its clients. The TOR for this audit also asked CAO to analyze the immediate and underlying causes of any non-compliance identified. CAO notes that IFC’s E&S department is comprised primarily of environmental specialists. The second primary area of expertise is social development with social specialists generally having expertise

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across one or more of the following fields: resettlement, indigenous issues and community engagement. Deep expertise in labor issues was and continues to be rare among E&S staff. Responding to the need for staff with deeper expertise on PS2 issues, the IFC E&S department has designated three social specialists as regional PS2 focal points with a role to provide advice and backstopping support to other E&S staff on labor issues. In addition, in 2013, IFC contracted with a consultancy firm specializing in labor issues. This contract provides a framework for the firm to provide advice to IFC in relation to investments with complex PS2 issues. This is a significant new initiative which could be used to respond to a range of findings from this investigation. IFC’s approach to this project suggests that its methodology for identifying and monitoring PS2 compliance issues is underdeveloped. The IFC Labor Toolkit prepared initially in 2006 and revised in 2008 provides useful guidance for IFC staff on identifying and assessing PS2 related risk, particularly as relates to Freedom of Association. However, it appears that the approach outlined in the Toolkit has not been fully incorporated into IFC practice and procedures. As set out in the IFC Labor Toolkit, “Freedom of Association is one of the most difficult labor issues for which it suggest definitive methods of moving towards compliance.” This is the case “on account of the different legal systems that are in place throughout the world and also as a result of the political complexities that can be associated with this issue.” CAO endorses these observations. In an investment such as this, IFC’s approach to supervision – relying heavily on a series of Labor Assessments and resulting Action Plans – presented at best a partial solution to a complex problem. CAO notes that weaknesses in IFC’s timely review and feedback on the Labor Assessments, which were commissioned in the course of the project, hindered effective supervision of the project. Disbursing fully before any substantive actions were required to address the PS2 issues identified in the immediate pre and post commitment phase of the project, meant that IFC had limited leverage in its subsequent discussions with the client around implementation of agreed Action Plan items. This issue was compounded by the fact that the Action Plans agreed with IFC following the Labor Assessments were not incorporated into the loan agreement and therefore not legally binding. IFC could require advance repayment of the loan – but only if the client was out of compliance with its obligations under loan agreement. And this appeared to the IFC team to be a drastic and unwarranted measure given the client’s strong financial performance, its willingness to engage with IFC in relation to the ongoing PS2 concerns, and a lack of what was characterized as “blatant non-compliance.”

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Indonesia / Wilmar Group-03/Jambi

9 November 2011

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Complainant – 20 representatives of community groups, and local and international NGOs Concerns – indigenous people, livelihood, land, forced evictions, human rights, displacement, compensation, security In April 2013, Wilmar International sold its stake in PT AP. At this stage in the CAO process, several dialogue meetings had taken place between PT AP and different community groups, and some interim agreements had been achieved. End-July 2013, Wilmar has fully pre-paid all of its outstanding loan obligations to IFC. In late September 2013, PT AP, under new management, informed CAO of their decision to withdraw from the CAO process. 25 June 2014: Compliance appraisal finds a compliance audit is needed Open – Compliance audit ongoing Project information Institution - IFC Project Name & Number - Wilmar Group 25532 & 26271 Department Agribusiness Company - Wilmar Trading Pte. Ltd. Sector - Agriculture and Forestry Environmental Category C Commitment - $33.3 million (Guarantee) & $17.5 million (Loan) Background The Wilmar Group is a large agribusiness conglomerate specializing in the production and trade of palm oil, operating in Asia, Eastern Europe, and Africa. Since 2003, IFC has undertaken four investments in the Wilmar Group, two of which are currently active. In November 2011, signatories from community groups, and local and international NGOs lodged a complaint with the CAO. The complaint relates to unresolved land disputes between local communities and PT Asiatic Persada (PT AP), a majority-owned subsidiary of Wilmar that owns and operates palm oil plantations. The complainants allege that the company invoked government forces to dismantle a settlement on disputed land, which they say is contrary to previous agreements established between the community, government representatives, and the company. Further, they contend that the company’s actions are in contradiction to IFC’s Performance Standards. This is the third complaint received by the CAO relating to IFC's involvement with the Wilmar Group. CAO Action The CAO found the complaint eligible for further assessment and traveled to the field to meet with the relevant stakeholders in December 2011. The five different community groups identified during the assessment subsequently reached an agreement with the company to engage in a dispute resolution process. Per mutual agreement of the parties, the dialogue was governed by a common set of ground rules, and was led by a Joint Mediation team, composed of CAO consultants and local government officials. A first round of meetings produced some early steps around capacity building for the participants and joint land mapping. In April 2013, Wilmar International sold its stake in PT AP. At this stage in the CAO process, several dialogue meetings had taken place between PT AP and different community groups, and some interim agreements had been achieved. In late September 2013, PT AP, under new management,


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informed CAO of their decision to withdraw from the CAO process, opting to engage in a government-led process. Due to the voluntary nature of mediation processes, company withdrawal signified the end of the mediation. As CAO was unable to obtain company response to requests for a closure meeting, CAO closed the case in December 2013 and a Conclusion Report was issued. Subsequently, in line with CAO's operational guidelines, the case was transferred to CAO's compliance arm to appraise whether the case warrants a CAO investigation of IFC’s handling of the investments in question. A previous complaint (Wilmar-01) to CAO led to an audit of IFC's investments in the Wilmar Group which was completed in June 2009. In June 2014 CAO completed a compliance appraisal with regard to the Wilmar-3 complaint. On the basis of the appraisal CAO decided to conduct a Compliance Investigation into IFC's investment in Delta-Wilmar. The investigation will consider whether IFC supervised its investments in Delta-Wilmar in accordance with its E&S requirements. In particular, and in relation to the issues raised by the complaint, CAO will consider whether IFC adequately assured itself that the environmental and social conditions of disbursement of its loans to Delta-Wilmar were met prior to the disbursement of US$47.5 million to Delta-Wilmar in January 2010. In relation to these issues CAO will examine IFC’s actions only with respect to its supervision of its Delta-Wilmar investments in the period after the finalization of CAO’s June 2009 audit report. Given the issues raised by the complaint the investigation will also restrict itself to the supply chain impacts of the Delta-Wilmar investments in Indonesia. Status and Findings CAO has posted Terms of Reference for a compliance investigation of IFC investments in Delta-Wilmar. The compliance investigation is ongoing.

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Philippines / Mindoro Resources-01/Jabonga

16 September 2011

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Complainant - Mamanwa communities with consent of traditional leadership, and support from local and international NGOs Concerns - Cultural heritage, ancestral lands, natural resources (forests, land, and water), information disclosure, and community consultation Dispute resolution not possible October 2012: CAO appraisal report finds IFC’s actions raise issues but in the light of Mindoro Resources Ltd (MRL) decision to suspend exploration operations in the contested area, and IFC’s legal leverage with regard to resuming operations, CAO closed in Oct. 2012. Closed Project information Institution - IFC Project Name & Number - Mindoro Resources 26987 Department - Oil, Gas, Mining, & Chemicals Company - Mindoro Resources Ltd. Sector - Mining Environmental Category B Commitment - $9.5 million equity investment Background Mindoro Resources Ltd (MRL), a junior mining company headquartered in Canada, plans to build an exploration and mining company in the Philippines with focus on nickel, copper and gold. Mindoro’s primary asset is the 75% interest in the Agata nickel laterite deposit on the Northern Mindanao Island of the Philippines. IFC is supporting the company’s resource drilling, feasibility and other studies, and exploration activities for nickel, copper and gold prospects with an approx. $9.5 million equity investment. In September 2011, two indigenous communities filed a complaint to the CAO. The two communities belong to the ethno-linguistic group of Mamanwas and live in the settlements of Dinarawan and Bunga. Their concerns relate to areas within the Tapian Extension EP. The complainants voice concerns that IFC failed to acknowledge them as Indigenous People and claim that the company’s mining exploration is being conducted in their ancestral lands. The complainants also contend that MRL did not provide sufficient information and contend the extent and quality of consultations with the communities; activities being conducted without prior consent; undue influence on the Free, Prior, and Informed Consent process; and concerns regarding potential social and environmental impacts of future mining activities in contested areas. CAO Action The CAO found the complaint eligible for further assessment in September 2011 and a CAO Ombudsman team traveled to the field in December 2011 and February 2012 to meet with relevant parties to discuss available options for addressing the issues. During the assessment process, the CAO understood from community members that pursuing a dispute resolution process was not an option at this point in time. Status and Findings In line with CAO's Operational Guidelines, the complaint was transferred to CAO Compliance for appraisal in May 2012 to determine whether or not an audit of IFC’s role in the project was merited.


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CAO's appraisal report, completed October 2012, found indications of shortcomings with regard to IFC’s environmental and social performance. CAO acknowledges that extractive industry projects, even at the exploration stage, can have significant social impacts on indigenous communities, particularly when sites of religious or cultural importance are involved. While not in a position to make detailed findings as to the claimants’ allegations vis-à-vis MRL (Mindoro Resources Ltd), CAO finds that the immediate risk of adverse outcomes to the complainants was mitigated by MRL’s decision to suspend exploration in the contested area. Regarding the longer term risk, CAO considers it positive that IFC negotiated covenants in its 2012 subscription agreement that prevent MRL from proceeding with operations in the contested area absent a waiver from IFC. Appropriately supervised, CAO finds that these covenants provide IFC with an improved basis to ensure that any future operations are conducted in accordance with the Performance Standards, in particular as they relate to indigenous people and cultural heritage. CAO finds indications of shortcomings with regard to the implementation of IFC’s policies and procedures. This case raises questions regarding the effectiveness of IFC’s policies, procedures and standards in managing the necessarily undefined downstream risks that may emerge from early stage investment in mining ventures. Further, having reviewed IFC’s handling of the issues raised by the complainants, CAO questions whether IFC policies and procedures provide sufficient guidance to staff on how to respond to complaints from project affected communities in a balanced manner. Having reviewed the available documentation, and recalling that the focus of CAO compliance auditing is IFC’s performance, CAO finds that the conclusions set out in this appraisal are unlikely to be materially advanced by the conduct of a compliance audit at present. Acknowledging the potential E&S risks that attach to extractive industries projects in indigenous communities, however, CAO reserves the right in line with its Operational Guidelines, to reconsider this decision should MRL’s nickel operations progress in a manner that raises significant concerns regarding impacts on communities or the environment. In reaching these findings CAO acknowledges that the complainants are aggrieved by what they perceive as past wrongs and an ongoing lack of respect for their community by MRL, both of which they see as fueling anger and conflict, and that these points of grievance remain unaddressed. The case was closed in October 2012.

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Republic of Kosovo / Kosovo KEK-01/Prishtina

25 August 2011

→ To documents Complainant – IDs confidential Concerns – disclosure of information, social & environmental impacts of privatization, national law, international law such as International Labour Organization (ILO) conventions guaranteeing labor and associational rights, as well as the UN Human Rights Council’s guidelines for business and human rights, E&S risks Jan. 2012: complainants seek a compliance investigation, case transferred to compliance appraisal May 2012: Compliance appraisal finds an audit is needed 12 Feb. 2013: Compliance audit report 23 Jan. 2015: Compliance Monitoring Report Closed PROJECT INFORMATION CASE INFORMATION Institution: IFC Project Name & Number: Kosovo KEK (#29107) Company: Kosovo Energy Corporation (KEK) Sector: Advisory Services Commitment: US$2,022,508 Background IFC Advisory Services is assisting the Government of Kosovo with the possible unbundling and privatization of the electricity distribution functions of Kosovo Energy Corporation, the country’s publicly owned utility (known by its Albanian acronym, KEK) via private sector participation (PSP). The objective of the project is successful completion of the bidding process, with selection of a reputable private operator. The project was approved by IFC in December 2009, and disclosed in January 2010 with an estimated total budget of just over US$2 million. In August 2011 the CAO received a complaint regarding the privatization of KEK’s electricity distribution functions. The complainants contend that access to information regarding the privatization was not adequate enough to allow people to address potential adverse impacts of the process, and that failure to conduct an appropriate Social and Environmental Assessment did not take into account project impacts on relevant members of the community and workforce, and the environment. The complainants requested that CAO keep their identities confidential. CAO Action In September 2011 the CAO found the complaint eligible for further assessment and CAO’s Ombudsman team conducted two field trips to Pristina in November 2011. Numerous stakeholders affirmed their willingness to engage in a collaborative process to address the issues raised in the complaint. However, after a thorough discussion of the CAO mandate, functions, services, and processes, the complainants informed CAO that they considered their interests (and those of the Kosovar public) would be best served by CAO’s compliance function. Therefore, the CAO Ombudsman concluded its involvement and the case was formally transferred to CAO’s compliance team in January 2012. CAO Compliance conducted an appraisal to ascertain whether an audit of IFC's environmental and social due diligence for the project is merited. CAO's appraisal report, completed April 2012, found that the complainants’ concerns related to IFC's due diligence were initially identified by IFC. However, at initial review, disclosure of information and community consultation were not highlighted by IFC as an issue of concern (nevertheless, IFC endeavored to foster communication

http://www.cao-ombudsman.org/howwework/documents/OfficeoftheComplianceAdvisorOmbudsmanAbouttheCAOHowWeWorkPublicationsContactUs.htm

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between the Government of Kosovo and local NGOs). At appraisal, it was unclear whether appropriate guidance existed as to ensure that IFC delineates the scope of Advisory Services projects, and the scope of its due diligence review, so that the subsequent impacts and outcomes of Advisory Services projects are consistent with the desired effects of IFC policy provisions. The CAO found that a compliance audit could yield information or findings that might better inform IFC on guidance to staff and application of policies to future IFC Advisory Services projects. Status and Findings CAO’s audit report and IFC’s response were released to the public on April 12, 2013. The audit report states that when IFC commenced the Advisory Services project with the GoK (Government of Kosovo), it was operating under the 2006 Policy on Social and Environmental Sustainability (PSES). This policy is not explicit as to the applicability of the Performance Standards for IFC Advisory Services projects. “The Purpose of this Policy” section states that “IFC seeks to ensure that the projects it finances are operated in a manner consistent with the requirements of the Performance Standards.” The “IFC Roles and Responsibility” section outlines the roles of IFC and the client. With respect to the client, the section states: “In its operations, IFC expects clients to manage the social and environmental risks and impacts of their projects. This entails the client’s assessment of these risks and impacts, and implementation of measures to meet the requirements of the Performance Standards.” With respect to IFC, the section states that IFC’s role “is to review the client’s assessment; to assist the client in developing measures to avoid, minimize, mitigate or compensate for social and environmental impacts consistent with the Performance Standards.” Under the Advisory Services section, other wording is utilized: “When IFC is providing advice for large-scale investment projects, the Performance Standards are used as a reference in addition to national laws.” At the time the Advisory Services project was initiated, no explicit project governance procedures existed for Advisory Services. CAO understands that procedure-like guidance was usually provided by the Vice President or Director in charge. This guidance, the Technical Assistance and Advisory Services Approval Process, was provided in 2005 and updated in 2006. Following extensive internal and external consultation, IFC issued a revised Sustainability Framework, including revised versions of the Performance Standards and Access to Information Policy, that are effective for activities processed after January 2012. The most significant change for AS projects is the change from the requirement that “When IFC is providing advice for large-scale investment projects, the Performance Standards are used as a reference in addition to national laws” to the following: “Should the review result in the identification of environmental and/or social risks, the advice provided to clients shall be consistent with the Performance Standards as a framework of good international industry practice (GIIP).” While IFC’s Policy on Disclosure of Information (2006) encourages disclosure of information, there was no clear requirement for public disclosure of information concerning any IFC Advisory Services project. Disclosure requirements are binding on the establishment and funding of new Technical Assistance and Advisory Services programs or facilities 30 days after IFC approval. IFC’s Sustainability Framework, as outlined in the PSES, requires IFC to ensure “that the projects it finances are operated in a manner consistent with the requirements of the Performance Standards.” However, the applicable ESRPs did not provide clear guidance as to how to incorporate the Performance Standards in an Advisory Service project. Furthermore, there were no formal procedures to carry out E&S risk assessments for AS projects. CAO finds that IFC’s procedures were not prescriptive as to how IFC’s sustainability agenda, or E&S requirements, should be applied when providing advice. As pointed out in the CAO’s compliance appraisal of this case, IFC’s due diligence identified concerns related to the generation of power being distributed through the network and anticipated a significant decrease in the workforce. In addition, the IFC team responded during the execution of their project to the concerns regarding perceived lack of transparency on behalf of their client. Specifically, IFC engaged proactively with civil society organizations and NGOs in Kosovo.

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IFC’s definition of the scope of the project in terms of the privatization of the electricity distribution network supported the team in their decision to not let the power generation part of KEK overly influence their engagement and approach to the project. Hence, these broader potential impacts of the project were not considered in relation to the environmental and social review. The power generation and the distribution network in this instance are exclusively and mutually dependent on each other. Further, the privatization of the distribution company has been argued to be a condition for new power generation to proceed. In this context, the CAO finds that a more expansive consideration of the project’s risks and impacts would have been appropriate particularly in consideration of the World Bank’s involvement in power generation projects in Kosovo. Such an approach would have led IFC to engage with the otherwise unanalyzed reputational risk that existed due to the association of the project with the nature of power generation in Kosovo. IFC’s formal leverage with its client is limited in all instances where specific requirements or conditions have not been built into agreements before signing the legal documentation. When providing Advisory Services under the current IFC approach, the client is free to take on board IFC’s advice or discard it. In this case, there was no requirement of the client to accept IFC’s advice, and no evidence in the Advisory Services legal documentation between IFC and the client to incorporate more substantiated covenants in the final sale purchase/implementation agreements regarding incorporation of IFC’s sustainability agenda. Accordingly, the CAO finds that IFC was mainly leaning on informal leverage when advising the client on issues like transparency and sustainability. The outcomes on the ground as regard environmental and social issues related to IFC’s advisory project are that the client has ensured that the entity operating the grid will not lay off staff from KEDS for a period of three years, and that the client required the entity to adhere to the Equator Principles and the related technical guidance. The reason the client referred to the Equator Principles and not the IFC PS was, according to IFC, the concern that referring to provisions owned by one specific potential financier would send a message that the client was biased toward accepting financing from IFC, compared to other potential financiers. CAO finds that IFC did not have any structured approach to assess the commitment or capacity of the client to implement IFC’s sustainability agenda, and thus had no way of assessing the likelihood that the informal leverage would be sufficient in ensuring adoption of IFC’s Performance Standards. Conclusions With an exception regarding the sequencing of some internal IFC documentation, CAO finds IFC to be in material compliance with the procedures applicable at the time. CAO acknowledges the significant challenges that faced the IFC team, and the skills and resources needed and allocated to complete the engagement. CAO considers that if IFC had to a greater extent contextual assessed the environmental and social implications of power generation facilities in the scope of the Advisory Services project, it might have provided greater clarity to external stakeholders regarding IFC’s scope. These shortcomings do not constitute a breach of the applicable IFC procedures, mainly because the procedures applicable at the time were not prescriptive. However, it leads CAO to raise concerns of the effectiveness of IFC’s E&S requirements and IFC Sustainability Framework when applied to IFC’s Advisory Services. IFC’s 2012 Sustainability Framework states that all advice given by IFC will be consistent with the Performance Standards, and that the Performance Standards help IFC’s advisory clients manage and improve their environmental and social performance. The 2006 & 2012 Sustainability Framework commits IFC to seek positive development outcomes in its activities. However, there is no structured approach on how to assess the commitment of an Advisory Services client and the likelihood that they will take on IFC’s sustainability agenda. It is ultimately at the discretion of the client to take on board IFC’s advice or to disregard it. CAO concludes that due to IFC's lack of formal leverage, and absence of structured assessments of its “informal” leverage, when providing Advisory Services to a client, IFC is unable to assure itself beforehand to what degree it is likely that its engagement will lead to improved environmental and social outcomes, or meet its policy commitment to “do no harm.”

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IFC’s response includes a number of revisions to its Advisory Services procedures that provide staff with greater guidance in assessing E&S risks. IFC’s response also references updates to procedures and practices that will allow IFC staff to better determine a client’s commitment and capacity to manage E&S risks, as well as changes to IFC’s legal templates that will provide IFC with increased formal leverage in relation to its Advisory Services clients. These changes provide IFC the opportunity to assess E&S risks earlier in the Advisory Services project cycle. CAO released its Compliance audit monitoring report on 23 January 2015. While the Monitoring Report acknowledges CAO’s and IFC’s different views on the finding related to the assessment of E&S risks based on the definition of scope employed in this project, CAO notes IFC has taken actions to provide guidance on what constitutes the scope of an Advisory Services project and related implications for E&S risk assessment and management. CAO acknowledges these steps, but is of the view that there is a need for a broader consideration of the project’s E&S risks and impacts. Although CAO remains concerned that the existing guidance may be overly narrow as it relates to this project, CAO does not view this as a rationale to keep the audit open. Overall, CAO finds that IFC’s commitments and actions constitute a constructive approach to address the conclusions reached in the Audit Report. CAO determines that it has sufficient basis to close the audit at this stage.

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Papua New Guinea / PNG SEZ-01/Madang Province

12 July 2011

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Complainant - Bismarck Ramu Group (BRG) on behalf of 105 local signatories Concerns - Community consultation, environmental planning, impacts to fish, reefs and lagoons, and wider social and environmental impacts Feb. 2012: Parties agree for dispute resolution 31 July 2014: reached agreements not fully implemented. Case transferred to a compliance appraisal 29 Aug. 2014: CAO appraisal report finds an audit is not needed Closed Project information Institution - IFC Project Name & Number - PNG SEZ 564427 Company - Department of Commerce & Industry, PNG Sector - XX - Other Commitment - Advisory Services Background The Government of Papua New Guinea incorporated the concept of Special Economic Zones (SEZs) into its overall economic development strategy and, in 2008, asked IFC for assistance in developing the legislative framework that would allow SEZs to be established in the country. As part of its Advisory Services, IFC approved the project in April 2009. In the earlier stages of the project, IFC’s plans included assisting with the site selection of the Pacific Marine Industrial Zone (PMIZ) in Madang Province and looking at implementing guidelines for SEZs. However, the government took the lead in selecting the site and IFC’s involvement was no longer required. Since then IFC has drafted a legal model that provides a general framework for the development and operation of SEZs and has submitted the model legislation to the Department of Commerce and Industry for consideration. In July 2011, the CAO received a complaint from a local NGO and elected representatives on behalf of several villages in Madang Province. The complaint raises concerns about the impact of the PMIZ – meant to be the first SEZ to be established by the Government of Papua New Guinea – on local populations and the environment. The complainants are particularly concerned about the lack of local consultation with landowners in the area, the lack of environmental planning, and the implications of the SEZ for fish populations, reefs and lagoons, as well as wider environmental and social impacts of an industrial zone in that area. CAO Action The CAO found the complaint eligible for further assessment in July 2011. A CAO team travelled to the field in September and October 2011 and February 2012 to discuss the issues with the parties and other key stakeholders. As a result, the government and the complainants have agreed to undertake a dispute resolution process to address the issues in the complaint with CAO's assistance. This is captured in CAO's Assessment Report which was released in February 2012. In October 2012, a multi-stakeholder meeting was convened, bringing parties together to discuss options for addressing issues raised in the complaint. The result of these meetings was a Memorandum of Understanding signed by all parties, including government representatives. An action plan was also agreed-upon as part of the memorandum. During CAO’s monitoring of the agreement implementation, community members and Madang Provincial Government expressed concern that the Ministry of Commerce and Industry was not following through on the agreed actions. Despite


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multiple inquiries and requests for meetings, CAO was unable to obtain a response from the Ministry of Commerce and Industry. Therefore, CAO was unable to continue with the dispute resolution process and its monitoring role. One agreed item that was implemented was the establishment of the Environmental Office in Madang which will act as a monitoring agent on environmental concerns. As the agreements were not fully implemented, the case was transferred CAO Compliance on July 31, 2014 in line with CAO’s Operational Guidelines. Status and Findings CAO notes that IFC’s AS Project focused on the provision of advice in relation to the legal framework for SEZs (Special Economic Zones) in PNG (Papua New Guinea). While the initial Project description envisaged a component to support the development of the PMIZ (Pacific Marine Industrial Zone, meant to be the first SEZ to be established by the PNG Government), IFC restructured the project and dropped this component before giving any substantive advice in relation to the PMIZ. Further, as at the date of writing, IFC’s advice in relation to the legal framework for SEZs had not been incorporated into legislation. As a result, CAO finds it difficult to establish a link between the IFC’s AS Project and the potential adverse E&S impacts raised by the complainants. In relation to IFC’s E&S performance, CAO has questions as to whether IFC met the requirements of the ESRP in terms of assessing the E&S risk attached to the project prior to approval. IFC has, however, subsequently acknowledged that an E&S specialist should have been engaged early in the project cycle with a particular view to analyzing risks related to land and environmental impacts. Given the challenging nature of E&S issues raised by the Project, CAO has questions as to IFC’s conclusion that the Project, with its focus on inputs to the regulatory framework, would have no E&S impact. On the contrary it is widely acknowledged that policy and regulatory reforms may have E&S impacts. In this context CAO has questions as to whether IFC’s approach to the Project was supportive of the institution’s higher level sustainability commitments including its commitment to encouraging IFC AS clients to enhance opportunities to promote good E&S practices. On the question of the adequacy of IFC’s E&S requirements, CAO notes the relatively undeveloped policy framework which prevailed in relation to IFC’s AS work at the time this project was processed. In making this observation, CAO acknowledges subsequent work that IFC has done to articulate its approach to the identification and management of E&S risk in AS projects. Recent steps in this regard include the development of an early risk screening tool which guides AS teams to consider a range of factors including sector risk, project specific risk, host country regulatory risk and Client capacity in conducting their initial AS project E&S risk categorization. CAO also notes IFC’s development of more detailed ESRPs for AS projects and the incorporation of E&S risk management aspects into IFC’s AS Project Governance Procedures. In conclusion, while this Appraisal raises a number of questions as to IFC’s E&S performance, absent indications of significant adverse outcomes stemming from the AS Project, CAO finds that a compliance investigation is not warranted. As a result, CAO has decided to close this case.

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India / Tata Ultra Mega-01/Mundra and Anjar

14 June 2011

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Complainant - Machimar Adhikar Sangharsh Sangathan (MASS – Association for the Struggle for Fishworkers’ Rights) Concerns - social impact assessment, resettlement, loss of livelihood, biodiversity, cumulative impacts, pollution, health June 2011-Feb. 2012: assessment but complainants prefer a compliance audit 27 June 2012: Compliance appraisal report finds an audit is needed 22 Oct. 2013: Compliance audit report January 2015: 1st Monitoring report Open – Monitoring Project information Institution - IFC Project Name & Number - Tata Ultra Mega 25797 Department - Infrastructure Company - Coastal Gujarat Power Limited Sector - Power Environmental Category A Commitment - $450 mil A loan Background Coastal Gujarat Power Limited (CGPL or the company) is building, and will operate a 4,000MW ‘ultra mega’ imported coal and supercritical technology based power plant at the port city of Mundra in the state of Gujarat in India. The project will source imported coal from mines of Indonesia and other countries. IFC’s is investing in the project through an A Loan of US$450 million. In June 2011, a complaint representing various potentially affected fishing communities was filed with the CAO. The complaint raises issues related to the project’s social and environmental impact on fishing communities, specifically: deterioration of water quality and fish populations, blocked access to fishing and drying sites, forced displacement of fishermen, community health impacts due to air emissions, and destruction of natural habitats, particularly mangroves. The complainants also believe the impacts to their fishing communities were not adequately identified and mitigated, and the cumulative impact of the project was not adequately assessed. CAO Action The complaint was deemed eligible for assessment in June 2011. A CAO Ombudsman team visited the site in August and October 2011 to engage with the relevant parties to discuss options for resolution of the issues raised in the complaint. After a series of meetings and discussions with CAO, the complainants decided that they preferred that CAO transfer the complaint to its compliance function. CAO's ombudsman team concluded their involvement in the case and released an assessment report in English and Gujarati. The case was formally transferred to CAO Compliance in February 2012. On July 27, 2012, the CAO concluded the compliance appraisal, which found that a number of issues raised by the Complainants merit further enquiry.


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Status and Findings The CAO compliance audit/investigation was made public on October 22, 2013. While acknowledging much diligent work done by IFC and CGPL in relation to E&S aspects of what is a large and complex project, the CAO compliance audit/investigation validates key aspects of the MASS complaint. At the outset, CAO recognizes that much diligent work has been done by IFC and CGPL in relation to E&S aspects of what is a large and complex project. CAO also recognizes the collaborative and transparent manner in which both IFC and CGPL staff have engaged with the CAO audit process, and the Tata Group’s reputation as a national leader in relation to sustainable business. Further, CAO acknowledges detailed comments that the IFC team provided on the draft audit report in June 2013. The nature of a CAO audit process, means that this report focuses on the concerns raised by the complainants. It may not therefore reflect the views of other affected groups that have different experiences than the complainants. This context notwithstanding, CAO finds evidence that validates key aspects of the MASS complaint. Key findings: CAO finds that the complainants, who are from a religious minority and occupy a socially marginal position given their migrant traditions, were not adequately considered as the E&S risks and impacts of the project were considered and addressed. IFC has contributed to this situation to the extent that its review of CGPL’s E&S assessments was not commensurate with project risk as required by its Sustainability Policy. CAO also finds that IFC has failed to address E&S compliance issues during supervision. CAO finds an absence of social baseline data in relation to the fisher people who reside seasonally on Tragadi and Kotadi bunders. CAO also finds that IFC failed to ensure that its client’s E&S assessments adequately considered the risks and impacts of the project on these fisher people. Inadequate consideration of the impact of the project on these communities had flow-on effects in terms of the approach that was taken to consultation and disclosure (which was neither effective nor timely). Absent a baseline study or impact assessment that considered the circumstances of these communities, CAO finds that IFC was not in a position to ensure the proper application of Performance Standard (PS) 5 (Land Acquisition). Further, CAO finds IFC paid inadequate attention to the requirement of PS6 (Biodiversity Conservation) that the client’s E&S assessment document the project’s impact on “ecosystem services” taking into account “the differing values attached to biodiversity by specific stakeholders” and its (para. 4). In relation to the airshed, CAO finds that IFC successfully used its influence at appraisal to ensure that IFC’s overall plant emissions guidelines would be met. However, IFC has not ensured that its client correctly applied the World Bank’s Thermal Power: Guidelines (1998) in that the project airshed has not been defined as a degraded airshed—a classification that brings with it a requirement that there will be no net increase in the total emissions of particulates or sulfur dioxide within the airshed. In relation to the marine environment, CAO finds that IFC’s process of E&S review was not appropriate to the nature and scale of the project or commensurate to risk as required by the Sustainability Policy. As a result, CAO finds that important opportunities were missed to: (a) request more detailed baseline information on the marine environment of the affected area; (b) incorporate deeper analysis of the potential marine (and associated social) impact of the project into design considerations and the client’s E&S management system; and (c) develop a framework to support meaningful marine impact monitoring. More specifically, CAO finds that IFC has not assured itself that the plant’s seawater cooling system will comply with applicable IFC Environmental, Health and Safety (EHS) Guidelines. Projections that the thermal plume from CGPL’s outfall channel will extend a distance of kilometers into the shallow waters of the gulf and surrounding estuaries suggest inadequate mixing/cooling, with significant risks of social and ecological impact. Further, the audit addresses the issue of cumulative impact and whether IFC policies and procedures provide adequate guidance to staff on how to manage E&S risks associated with projects in areas that are in the process of undergoing rapid industrial development. On this topic, CAO finds that IFC’s

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E&S review paid inadequate attention to ensuring that the project’s risks and impacts were “analyzed in the context of [its] area of influence,” as required by PS 1, including “areas potentially impacted by cumulative impacts…from project-related developments that are realistically defined at the time the E&S assessment is undertaken.” While recognizing that CGPL’s leverage with regard to neighboring developments may be limited, in accordance with PS1, CAO finds that, IFC should have advised its client that third-party E&S risk emerging from the project’s proximity and relationship with Mundra Port and Special Economic Zone needed to be better assessed, with mitigation measures developed commensurate to CGPL’s level of influence. In these circumstances, CAO finds IFC staff may benefit from guidance that, in cases of doubt, its policies on third-party risk and cumulative impact should be interpreted in ways that further the institution’s higher level commitments to do no harm principles and the avoidance of negative E&S impacts where possible. Taken together, CAO finds that the above weaknesses in IFC’s E&S review of CGPL did not support the formation of a robust view as to whether the project could be expected to meet the requirements of the Performance Standards over a reasonable period of time, the threshold question in terms of IFC’s decision to invest. Weaknesses in IFC’s E&S review process also meant that required opportunities to consider alternative project designs to avoid or minimize E&S impact were missed. In relation to issues of supervision, CAO notes that IFC has documented regular reviews of CGPL’s monitoring reports. In addition to conducting at least nine supervision visits since committing to the project, IFC is in regular communication with CGPL regarding E&S issues. This represents a commitment of resources beyond that required by its Environmental and Social Review Procedures (ESRPs). CAO also notes that CGPL was required to engage a Lenders E&S consultant to report on the status of the project’s E&S compliance. Nevertheless, CAO finds that CGPL’s E&S commitments are expressed in terms that are difficult to monitor. CGPL has produced an Environmental Management Plan that addresses these concerns to some extent, however, CAO has concerns that a framework for managing E&S impact that can be audited and monitored has yet to be established: the lacking elements being a consolidated statement of the requirements against which performance is monitored, using verifiable data. Absent such a framework, CAO finds that IFC is not in a position to demonstrate either that its client’s monitoring is commensurate to risk (as required by PS1) or that its supervision allows it to meet the stated purposes of supervision as set out in the ESRPs: namely, the development and retention of information needed to assess the status of E&S compliance. Confidence among the IFC team in the client’s E&S capacity and commitment, combined with a view that the project is performing well from an E&S perspective, have meant that IFC has not treated the complainants’ concerns as compliance issues. In accordance with the CAO Operational Guidelines, this audit will remain open and subject to CAO monitoring until CAO is assured that IFC has moved back into compliance with its E&S commitments. On November 25, 2013, IFC provided CAO with a statement including action plan items in relation to this audit/investigation. In January 2015 CAO completed its first monitoring report in relation to this audit. While acknowledging the actions reported by IFC, CAO does not find them sufficient to address the findings of the audit at this stage. In particular, CAO notes that a number of its findings suggest the need for a rapid, participatory and expressly remedial approach to assessing and addressing project impacts raised by the complainants. Such measures are not well developed in IFC’s reporting which focuses on the commissioning of technical studies as well as corporate social responsibility measures implemented by the client. CAO also notes technical non-compliance findings regarding the application of pollution control standards that have not yet been addressed. Specifically, CAO refers here to the World Bank’s Environmental, Health and Safety Guidelines in relation to: (a) new power stations in areas with degraded airsheds; and (b) the thermal emissions of the project’s cooling system which releases warm water into the sea.

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The audit will remain open for monitoring.

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Panama / Panama Canal Expansion-01/Gatún

13 May 2011

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Complainant - Gatún Lake Defense Committee (Comité ProDefensa del Lago Gatún) Concerns - health and safety concerns due to the dam’s site close to seismic fault lines, relocation, impacts to the marine ecology and water sources Feb. 2012: parties do not want a negotiated solution June 2013: Compliance appraisal finds no compliance audit is needed. There are issues but the IFC is working on them. Closed Project information Institution - IFC Project Name & Number - Panama Canal Expansion 26665 Department - Infrastructure Company - La Autoridad del Canal de Panama Sector - Transportation Environmental Category A Commitment - $500 million A Loan Background IFC’s Panama Canal project is designed to increase the capacity and efficiency of the Panama Canal. The project includes construction of a third set of locks, including two lock facilities with water-saving basins at the Atlantic and Pacific ends of the Canal; the deepening of the Pacific and Atlantic entrances of the Canal; and the deepening and widening of the navigational channels of the Gatún Lake, the deepening of the Culebra Cut, and the elevation of Gatún Lake’s maximum operational level. IFC’s $500 million investment (of a total $5.25 billion project costs) was approved in November 2008 and is pending disbursement. The project is Category A. In May 2011, the CAO received letters of complaint from several local and national environmental and citizens’ rights organizations. The complainants cited concerns related to IFC’s due diligence process in assessing and approving the project and outlined specific environmental and social concerns related to community health and safety due to the dam’s site close to seismic fault lines, impacts to the marine ecology and water sources, and issues related to the relocation of communities. CAO Action CAO accepted the complaint for further assessment in July 2011 and initiated an assessment, traveling to Panama in October 2011 to explain CAO’s work to the key stakeholders and listen to their views on the issues. A complaint on the same project was also filed with the complaints mechanisms of the European Investment Bank and Interamerican Development Bank, with whom CAO coordinated. During the assessment process, CAO understood from community members, civil society organizations, and the company that pursuing a dispute resolution process was not an option at this point in time. In line with CAO’s Operational Guidelines, the complaint was transferred to CAO's compliance function for appraisal. Status and Findings CAO completed the appraisal in June 2013. Having considered the complaint and conducted a review of documentation related to the investment, CAO found that the identification and management of environmental and social risks and impacts around this project has generally been commensurate to its risks and impacts. Nevertheless, CAO identified some questions on specific issues, in particular:


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(a) whether IFC adequately assured itself that salinity levels at Gatun Lake would remain below the fresh water limit given the information available at the time of appraisal; (b) upon the update of the salinity studies post commitment, whether IFC adequately assured itself that salinity levels at the Paraiso water intake station near the Pacific locks would remain below the fresh water limit; (c) whether IFC adequately reviewed the availability of water for canal operations in the medium to long term; (d) whether IFC adequately assured itself that ACP responded to the land related impacts of the rise in water level of Gatun Lake in accordance with the Performance Standards; and (e) whether IFC adequately assured itself of support for the project among directly impacted communities. These issues notwithstanding, CAO decided to close this case at appraisal. This decision was reached on the basis that: (i) the client has a well developed E&S management and monitoring systems; (ii) the issues of concern relate significantly to future risks which may or may not eventuate; (iii) these risks (should they manifest) could appropriately be addressed during supervision; and (iv) IFC has undertaken to monitor these risks in supervision. In these circumstances, CAO found limited value in conducting a compliance investigation. CAO officially closed the case on June 26, 2013.

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India / India Infrastructure Fund-01/Dhenkanal District

15 April 2011

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Complainant - Odisha Chas Parivesh Surekhsa Parishad & Delhi Forum Concerns – Human rights, indigenous people, information disclosure, consultation, project categorization, EIA, cumulative impacts, pollution, health, land acquisition Sept. 2011-March 2012: Assessment March 2012: Complainants give verbal commitment=Dispute Resolution Jan. 2013: Dialogue blocked 26 June 2013: CA compliance appraisal report finds an audit is needed Open – Compliance audit ongoing Project information Institution - IFC Project Name & Number - India Infrastructure Fund 26237 Department - Global Financial Markets Company - India Infrastructure Fund Sector - Finance & Insurance Environmental Category FI Commitment - $100m equity investment Background The IFC-supported India Infrastructure Fund (IIF) is managed by the Infrastructure Development and Finance Company Limited (IDFC)’s Project Equity Company, a wholly owned subsidiary of IDFC. The IIF is based in Mumbai and makes equity investments in energy and utilities, transport infrastructure, telecommunications, and other infrastructure solely in India. The target size of the Fund is US$1 billion and IFC's equity investment is $100 million (2007). A portfolio investment of the IIF is GMR Kamalanga Energy Limited (GKEL), a part of the GMR Group. Kamalanga Energy is a special purpose vehicle set up by GMR Energy Limited to develop and operate a 1400 MW coal based power plant near Kamalanga village in Dhenkanal, a district of Odisha state. In April 2011, Odisha Chas Parivesh Surekhsa Parishad (Odisha Agriculture and Environmental Protection Council), a grassroots organization, together with the Delhi Forum, an Delhi based advocacy and research organization, filed a complaint with the CAO on behalf of people affected by the project. The complaint voices concerns about disclosure of project information and transparency about potential environmental and social risks and impacts of Kamalanga Energy in Odisha, and more broadly, IFC's financing role. CAO Action The CAO found the complaint eligible for further assessment in May 2011 and conducted several field visits to meet the parties and discuss options for addressing the issues raised in the complaint. The assessment period was extended for this case beyond the original 120 days. In May 2012, the complainants and the company expressed their commitment to addressing the concerns in the complaint through a dialogue process facilitated by CAO. CAO trained community and company representatives in dispute resolution skills and discussed the parameters for the dialogue process, and worked with the parties to design a dialogue process. An Assessment Report was shared with the parties in November 2012. A first meeting between the parties was convened in January 2013 at which the parties did not find mutually acceptable parameters for dialogue going forward. The case was formally transferred to CAO Compliance in March 2013.


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Based on the Compliance appraisal, CAO will conduct a Compliance investigation into IFC's investment in the India Infrastructure Fund. The Compliance investigation will focus on whether IFC's investment in the Fund (in the context of the Fund’s investment in GMR Kamalanga Energy Limited) was appraised, structured, and supervised in accordance with applicable IFC policies, procedures and standards. It will also consider whether IFC's Policy and Performance Standards on Environmental and Social Sustainability and Policy on Disclosure of Information provide adequate levels of protection in relation to the issues raised in the complaint. Status and Findings CAO has issued Terms of Reference for a Compliance Investigation of IFC’s investment in the India Infrastructure Fund covering the above issues. The Investigation is ongoing and the Investigation Report will be posted on this website when complete.

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Uganda / Bujagali Energy-04/Bujagali

21 Mars 2011

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Complainant - Former employees of project contractor Concerns - Worker health & safety; compensation December 2013: 86 out of 93 individual workers cases solved by Dispute Resolution. Other transferred to compliance appraisal 8 Apr. 2015: appraisal finds an investigation is needed Open – Compliance investigation ongoing Project information Institution - IFC & MIGA Project Name & Number - Bujagali Energy Ltd 24408 (IFC) & 6732 (MIGA) Department - Infrastructure Company - Bujagali Energy (IFC); World Power Holdings (MIGA) Sector - Utilities Environmental Category A (IFC) Commitment - $100m A & C loans (IFC), $115m guarantee (MIGA) Background The Bujagali Energy project involves the development, construction, and maintenance of a run-of-the-river power plant with a capacity of up to 250 MW on the River Nile in Uganda. Bujagali Energy Limited also manages the construction of approximately 100 kilometers of 132 kV transmission line on behalf of the Uganda Electricity Transmission Company Ltd. to improve transfer of electricity from the plant. Bujagali Energy Ltd is owned by Industrial Promotion Services (Kenya) Ltd. – the industrial development arm of the Aga Khan Fund for Economic Development and SG Bujagali Holdings, Ltd., an affiliate of Sithe Global Power LLC (US). IFC and MIGA are supporting the $750 million project along with several other international financial institutions, including the International Development Association, African Development Bank and European Investment Bank. IFC’s investment comprises $100 million in A and C loans, and MIGA issued a $115 million guarantee to World Power Holdings Luxembourg S.a.r.l., a subsidiary of Sithe Global Power, for its investment in the project. In March 2011, eleven former employees involved in the construction of the plant filed a complaint with the CAO on behalf of themselves and more than 30 former employees. The complainants believe they have not been properly compensated by the plant’s sub-contractor after they suffered injuries sustained in the course of their work. The complainants also raise concerns regarding the transparency of the compensation process and intimidation against workers requesting their benefits. CAO Action The CAO found the complaint eligible for further assessment in March 2011. During the assessment, the company and the complainants agreed to undertake a collaborative process to address the issues in the complaint with the assistance of the CAO. Out of a total of 93 individual cases, 86 were resolved: - 55 were settled through the MAB (Medical Arbitration Board, convened under Ugandan law and housed in the Ministry of Labour, to determine disputes related to work place injury, medical assessment and levels of compensation). - 19 were resolved through CAO facilitation/mediation - 9 were settled directly by the EPC contractor with their former employees - 3 went to court.


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Of the seven unresolved, one worker could not be traced. The six remaining cases were transferred to CAO Compliance in line with CAO’s Operational Guidelines Status In April 2015 CAO completed a compliance appraisal with regard to the Bujagali 04 and 06 complaints, which have been merged for the purpose of the compliance process. On the basis of the appraisal CAO decided to conduct a compliance investigation into IFC's investment in Bujagali. The CAO investigation will assess whether IFC reviewed and supervised labor-related aspects of the project, in particular occupational health and safety issues, as required by Performance Standard 2. The investigation will also consider IFC’s approach to the issues of workers’ compensation given the commitments to “avoid […], minimize, mitigate prevent or compensate for adverse impacts on workers” set out in in its Policy on Social and Environmental Sustainability and Performance Standard 1. See also:

Uganda / Bujagali-02/Bujagali Falls Complainant - National Association of Professional Environmentalists (NAPE) & Save Bujagali Crusade Date Filed - June 19, 2001 Case Status – Closed (ombudsman) Complaint IFC's support for the Bujagali Falls Hydroelectric Power Plant involved the design and construction of a power plant at Bujagali Falls in Jinga province, Uganda to sell electricity to Uganda’s state owned Electricity Board. The project also included the construction of power transmission lines, associated substations and a reservoir. At its full supply level, the project’s reservoir would inundate 80 hectares of land and 308 hectares of area previously occupied by the Victoria Nile River. This inundation raised serious concern amongst local populations in relation to cultural and spiritual effects. In June 2001, the National Association of Professional Environmentalists (NAPE) and Save Bujagali Crusade lodged a complaint with CAO. This was the second complaint lodged to CAO by NAPE regarding the Bujagali project. The first, in November 2000, was deemed ineligible for assessment by CAO. The second complaint raised issues related to: 1. Consultation and information disclosure 2. Environmental Impact Assessment, including consideration of alternative energy sources, approval of transmission lines, and cumulative impacts of a cascade of dams 3. Compensation and resettlement of project-affected people 4. Spiritual significance of the Bujagali Falls 5. Comprehensive management plan for the Nile and diversion of river course 6. Guidelines of the World Commission on Dams CAO referred issues raised in the complaint relating to bribery and corruption to the World Bank's Office of Institutional Integrity. CAO Action Acres International was commissioned by the World Bank Group to undertake a comprehensive assessment and least-cost analysis of all practical alternatives for meeting Uganda’s future power requirements, which identified a hydroelectric plant at Bujagali as the least-cost option. Public consultations were held widely before and after the release of the Environmental Impact Assessment in April 2001. However, significant criticism resulted from the assessment in relation to the exhaustiveness of the consultation process with local communities. This project aroused serious interest by many stakeholders including industry, NGO, Government of Uganda (GOU), civil society and impacted persons. Status In the Assessment Report, completed in September 2001, CAO stressed its limitation to the issues raised and accepted in its Ombudsman role, however reiterated its awareness of the broader concerns that relate to the Bujagali Hydropower project. It was found that despite the project remaining in the pre-Board approval stage, it believed that IFC had been diligent in ensuring compliance with IFC Safeguard Policies. “[However, t]here remain outstanding issues: 1. The lack of a conclusive economic analysis of the project by the WBG/IFC continues to raise doubts about the economic viability of the project, and the answers provided on the environmental/social issues are subsumed by the overarching question of economic viability. 2. At a time when IFC has no direct financial interest in this project, IFC has little leverage over the implementation of the resettlement program by the sponsor. 3. The issue of the hydrological flow rates risks and the cost to Uganda remains an issue.

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4. The question of affordability of electricity to the poorer sectors and the least cost alternative remains. 5. A comprehensive study of the cumulative impact of a cascade of dams along the Nile remains a problem, because those impacts have only been partially addressed in the EIA for the hydropower facility and technical appendices. In addition, the use of the LAC approach in the Strategic Impact Assessment remains a problem because of its methodology. 6. With regard to the moving of spirits, whilst the IFC may be satisfied that the Cultural Properties Management Plan complies with IFC safeguard policies, the traditional understanding and practice of “moving spirits” has its own deeper cultural dimensions which remain an issue for many in the community. 7. The lack of a comprehensive management plan for the Nile raises long-term management issues for the river, people and environment. Suggested path forward or recommendations The CAO is aware that there is a request to the Inspection Panel. The CAO now needs the Complainant to consider the assessment of the Ombudsman and comments by IFC management [under the CAO’s Advisory role] and request further intervention, if necessary. The CAO does not see a role for facilitation or mediation at this stage because the IFC has not made a final decision to participate in the project.” The complaint was closed in January 2005. The closing letter sent to the complainants states that “As stated in the CAO’s Operational Guidelines, we have the discretion to determine that further action would not likely be useful or productive, and are exercising this discretion now”.

Uganda / Bujagali-03/Canada Complainant - Ugandan citizen in Canada Date Filed - July 01, 2001 Case Status – Closed at assessment stage Complaint The Bujagali Falls Hydroelectric Power Plant involved a project to design, build and operate a power plant at Bujagali falls in Jinga province, Uganda to sell electricity to Uganda’s state owned Electricity Board. The project also included the construction of power transmission lines, associated substations and a reservoir. At its full supply level, the project’s reservoir would inundate 80 hectares of land and 308 hectares of area previously occupied by the Victoria Nile River. This inundation raised serious concern amongst local populations in relation to cultural and spiritual effects. In July 2001, Mr Alfred Bageya, a Ugandan born Canadian, lodged a complaint with CAO claiming that the grave of his grandfather and other graves, which were located on Dumbell Island, would be submerged during construction of the Bujagali Falls Reservoir. The complainant alleged that the Bujagali Falls in general, and his grandfather’s site in particular, were in fact sacred sites that ought to be preserved. Finally, the complainant asserted that the project failed to comply with World Bank Group policies in relation to burial sites and protection of indigenous culture and traditions. The complainant’s contention that his grandfather was buried on the island, despite being unaware of the exact location of the gravesite, was based on his recollections from attending a ceremony in the area when he was a young boy. CAO Action This project aroused serious interest by many stakeholders including industry, NGO, Government of Uganda (GOU), civil society and impacted persons. According to IFC Environmental and Social Review Procedures, IFC reviewed the company’s Resettlement and Community Development plan and concluded that it complied with IFC safeguard policies. A house-by-house consultative process to best determine how to deal with spiritual and cultural matters during all phases of the project was undertaken. Surveys were also undertaken to identify graves and cultural property in the project area, including Dumbell Island, which uncovered no grave sites. Status CAO concluded, in its Assessment Report of September 2001, that the evidence provided to CAO by IFC contradicted the issues raised by the complainant. Despite recommending that the complainant present individuals who could corroborate the information he provided, CAO later concluded that the evidence provided by the complainant could not be verified. Accordingly, the complaint was closed in January 2005 (in the list of documents on the CAO website, the close out report is dated 2002. Date is impossible to check as the link to the close out report is broken.)

Uganda / Bujagali Energy-05/Bujagali Complainant - Local community members Date Filed - May 16, 2011 Concerns - Land acquisition, compensation, impacts to health and infrastructure Case Status - Open - Ombudsman Complaint The Bujagali Energy project involves the development, construction, and maintenance of a run-of-the-river power plant with a capacity of up to 250 MW on the River Nile in Uganda. Bujagali Energy Limited also manages the construction of approximately 100 kilometers of 132 kV transmission line on behalf of the Uganda Electricity Transmission Company Ltd. to improve transfer of electricity from the plant. Bujagali Energy Ltd is owned by Industrial Promotion Services (Kenya) Ltd. – the industrial development arm of the Aga Khan Fund for Economic Development and SG Bujagali Holdings, Ltd., an affiliate of Sithe Global Power LLC (US). IFC and MIGA are supporting the $750 million project along with several other international financial institutions, including the International Development Association, African Development Bank and European

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Investment Bank. IFC’s investment comprises $100 million in A and C loans, and MIGA issued a $115 million guarantee to World Power Holdings Luxembourg S.à.r.l., a subsidiary of Sithe Global Power, for its investment in the project. In May 2011, several community members residing in the Bujagali affected area submitted a complaint to the CAO. The complainants’ concerns relate to compensation for assets during the land acquisition process, damage to houses and impacts to health related to blasting during construction, and compensation for loss of livelihoods. CAO Action The CAO found the complaint eligible for further assessment in June 2011. An Ombudsman team has met with the relevant stakeholders on several occasions. The company and the complainants have agreed to undertake a collaborative process to address issues in the complaint with the assistance of the CAO. An Ombudsman assessment report was completed in December 2011. A complaint raising some of the same issues was also submitted to the Complaints Mechanism of the European Investment Bank (CM-EIB). CAO is coordinating closely with CM-EIB throughout the Ombudsman intervention. Status Agreements have been reached between BEL and informal tourism operators, which resolved the complaint issues related to impacts on their livelihood. An EIB-led mediation has resulted in agreements on the blasting-related complaints, and those agreements are currently in implementation. A mediation process initiated in March 2012 and facilitated by the European Investment Bank Complaints Mechanism (EIB-CM) involving five Parties namely; Government of Uganda (represented by Ministry of Energy and Minerals Development (MEMD), Bujagali Energy Limited (BEL), National Association of Professional Environmentalist (NAPE), National Environment Management Authority (NEMA) and European Investment Bank (EIB-CM), has concluded successfully by resolving to repair cracks in 240 buildings within the Bujagali Hydropower Project area in the villages of Wakisi and Budondo sub counties of Buikwe and Jinja districts as the Settlement to the Complaints. The mediation process was spearheaded by Alex Muhweezi of Future Dialogues International Ltd as an independent mediator. The mediation process considered 842 complainants registered with BEL/SALINI, 105 complaints who petitioned IFC/CAO and 688 complaints who petitioned EIB-CM through NAPE, Counterbalance and Sherpa. In December 2012, the mediation process received an additional 231 complaints from the Associations of the Dam Affected People. The mediation process involved five formal meetings of the mediation Parties, consultations with affected people through their Associations, verification of existence of cracks and distances from cracked building to blasting points, technical appraisal of blasting records, estimated costs for conducting repairs and, assessment of socio-political issues pertaining to the complaints. The mediation process took into account the following principles in order to conclude the settlement of the complaints: a. Technical merits of blasting effects: Mediation Parties noted that the blasting standards that were approved for use in Uganda were complied with by BEL and the likely effects on buildings in form of formation or propagation of cracks beyond 500m were expected to be minimal or no impacts. In this regard, Mediation Parties adopted the European Blasting Standards for fragile constructions to determine the likely cut off distance where blasting vibration could cause an effect such as cracks on fragile buildings. b. Social and political landscape in the project area: the Mediation Parties considered the need for ensuring continued harmonious co-existence between the Bujagali HEP and neighbours as well as between the Government of Uganda and its citizens. On the basis of the above considerations, the mediation process concluded that complainants of alleged cracks on buildings whose names appeared in the three registers and whose locations fall within a distance of 1.8km from the blasting points would be eligible for settlement. Further, Mediation process recommended in kind settlement in form of repairing cracks of the approved buildings. The Government of Uganda approved a budget for supporting repairs of approved cracks as a Bujagali project cost. The implementation of the mediation settlement is underway and Mediation Parties will monitor the implementation and ensure effective and transparent implementation. CAO continues to work with all other parties to help them resolve the remaining issues raised in the complaint.

Uganda / Bujagali Energy-06/Bujagali 3 April 2013 Complainant - Former Bujagali construction workers Concerns - Unpaid wages Nov. 14: unsuccessful dispute resolution process closes Open - Compliance appraisal

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Ecuador / Pronaca Expansion-01/Santo Domingo de los Tsachilas

8 December 2010

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Complainant - Local community members (confidential) Concerns - Air, soil, & water pollution; community health & safety; EIAs and environmental licenses; biodiversity June 2011: no ombudsman possible 3 November 2011: CAO compliance appraisal report finds that IFC actions to address deficiencies seem satisfactory and that no audit is needed Closed Project information Institution - IFC Project Name & Number - Pronaca 26535 & 21901 Department - Agribusiness Company - Procesadora Nacional de Alimentos C.A. - PRONACA Sector - Food & Beverages Environmental Category B Commitment - $20 mil A loan; $10 mil B loan and $20 mil C loan Background In April 2004, IFC approved its first project with Procesadora Nacional de Alimentos C.A. (Pronaca), the biggest producer of poultry and pork in Ecuador, with facilities in Quito, Bucay, Valle Hermoso, and Santo Domingo de los Tsachilas. The US$20 million loan to expand and upgrade the company’s facilities was followed by a second IFC project in July 2008, which comprised $30 million in loans for general investment purposes. In December 2010, local stakeholders in the area of Santo Domingo de los Tsachilas filed a complaint with the CAO. The complainants believe that the pork processing facilities in the province are polluting water sources, soil and air quality, including negative environmental impact to a protected forest. The complainants also state that the processing facilities lack the required environmental licenses to operate and that appropriate environmental assessments were never undertaken by the company. The complainants requested to the CAO that their identities remain confidential. CAO Action The complaint was deemed eligible for assessment in January 2011, and a CAO Ombudsman team has explored options for resolution with the relevant parties. In late February and early March, a CAO team visited Santo Domingo to meet with local stakeholders and the company as part of the assessment. Following an Ombudsman assessment, a collaborative resolution to the complaint was not found to be possible. A final assessment report was released and, in accordance with the CAO’s Operational Guidelines, the case was transferred to CAO's compliance function. Status and Findings The CAO compliance appraisal was completed in November 2011. The compliance appraisal found evidence of a productive relationship between IFC and Pronaca, where IFC has worked with its client to address deficiencies and implement improvements in environmental performance. Progress has also resulted from the use of IFC’s Advisory Services expertise and external consultancy services. The


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appraisal found that improvements can be made in Pronaca's reporting of data to IFC (for example, in its Annual Monitoring Reports) in order to provide IFC full assurance that operations are in compliance with applicable IFC guidelines. IFC recognizes this deficiency and it is the subject of proposed future action by IFC. The CAO concluded that the case does not merit an audit of IFC’s due diligence and monitoring of its involvement in Pronaca's operations, and the case was closed with no further action in November 2011.

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Mozambique / Mozal-01/Matola and Maputo

1 October 2010

→ To documents

Complainant - Justiça Ambiental, Livaningo, Liga Moçambicana dos Direitos Humanos, Centro Terra Viva, Kulima, and Centro de Integridade Pública Concerns - Air emissions, community health & safety, consultation, information disclosure, environmental management plans. 2011: Ombudsman. In the end, agreement not reached 24 July 2012: Compliance appraisal report finds an audit is needed on the issue of the corrosion of fume treatment centers 12 April 2013: Compliance audit report Monitoring of compliance audit consequences until 30 June 2014 Closed Project information Institution - IFC & MIGA Project Name & Number - Mozal 7764 and 10323 Department - Oil, Gas, Mining, & Chemicals Company - Mozambique Aluminium S.A.R.L Sector - Primary Metals Environmental Category A Commitment - Up to $135 million in quasi-equity and loans Background In October 2010, a coalition of local and national NGOs representing themselves and other locally affected people filed a complaint to the CAO regarding the Mozal project in Mozambique. Mozal, located 20 km west of Maputo, is an aluminum smelter with a production capacity of 250,000 tons per year. IFC has two active investments in the project: the first, approved in 1997, supported the construction and operation of the smelter, and the second, approved in 2001, supported doubling its production capacity. BHP Billiton, a publicly traded international mining and metals group, is the primary sponsor of Mozal. The complaint to CAO relates to the public health impacts of increased emissions that resulted from the bypass and rebuild of fume treatment centers (FTCs) in Mozal’s anode bake furnaces during the period November 2010 to March 2011. The bypass and rebuild was necessary due to corrosion in the FTCs which had been a problem since 2001. The complaint also raises questions about the environmental and social due diligence undertaken by IFC in approving the bypass operation, and the adequacy of access to and disclosure of information around the process. CAO Action The CAO deemed the complaint eligible for assessment in October 2010 and an ombudsman team traveled to the field in December 2010 to meet with the complainants, company representatives, and IFC team working on the project. The ombudsman assessment aimed to understand the perspectives of all the parties and explore options for resolution of the issues raised. In January 2011, the CAO conducted a second trip to discuss the draft assessment report with the parties and next steps. The company and complainants agreed to pursue a CAO dispute resolution process to attempt to resolve the issues raised and jointly agreed to ground rules outlining the suggested topics for discussion during the dialogue meetings. As part of the dispute resolution process, the parties met on several occasions between February and June 2011. The ground rules paved the way for an initially successful negotiation that resulted in the drafting of several proposals. The process did bring the


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parties closer to an understanding of one another’s concerns and potential solutions and Mozal agreed to disclose information with the coalition about the bypass program. Although the parties worked toward a final agreement on all the issues, an agreement was not reached in the end and the NGO coalition requested that the complaint be referred to CAO's compliance function. The case was formally transferred to CAO Compliance in December 2011. Status and Findings The appraisal concluded that once the risk of structural failure of the fume treatment centers (FTCs) was reported in 2010, IFC responded to assure itself that reasonable and practical steps were being taken by Mozal to identify, assess, and rectify the plant failure. Similarly, though advance measures to engage with communities around the bypass were lacking, the appraisal finds that IFC took appropriate action once this issue was identified. While ambient air quality remained mostly within relevant limits during the rebuild, the appraisal finds that studies conducted provide sufficient evidence that, from a public health perspective, polyaromatic hydrocarbon emissions from the plant should be minimized both in concentration and duration. However, the appraisal process did not allow CAO to reach a conclusion as to whether IFC was sufficiently proactive in monitoring the corrosion risk in the FTCs, particularly given that it was aware of a previous need for repairs to the FTCs due to corrosion. As such the complaint was referred for audit. A CAO audit was released together with a response from IFC on April 12, 2013. CAO recognizes that IFC has limitations on the scope of its engagement with clients. In particular it is noted that the IFC Sustainability Framework does not establish a general obligation for IFC to supervise process operational risks encountered by its clients. Nevertheless, IFC is committed to investing in such a way that negative E&S impacts are avoided where possible (Sustainability Policy, para 8). Reflecting this commitment, CAO finds that in cases where a piece of equipment or system that is essential to delivering on a client’s E&S commitments is known to have failed, or to be at significant risk of failure, the approach to supervision outlined in paragraph (f) above would require IFC to advise its client that such risks need to be assessed, monitored and reported on in accordance with the Performance Standards. Further, if future failure of said equipment or system can reasonably be anticipated, the same approach to supervision would require IFC to advise its client to develop contingency plans that are commensurate with the nature and magnitude of the identified risk. In the case of Mozal, CAO acknowledges the steps IFC took to assure itself that the engineering designs for the project met or exceeded good international industry practice at the time of its investment. In particular, CAO notes IFC’s position that the design work was done by Fluor, considered one of the leading global engineering firms for this application; that the latest Pechiney technology was selected; and that a highly reputable global process plant consultancy, Hatch, was the lender’s Engineer. While acknowledging the position of the IFC team that it would be unreasonable to expect IFC, as a lender, to question the validity of the conclusions reached by the client and its highly qualified design team, CAO finds that the history of issues around the functioning of the FTCs gave rise to a situation in which it would have been appropriate for IFC to take a more proactive approach to the supervision of risks associated with the failure of the FTCs. In relation to this history, CAO notes that repairs to corrosion in the FTCs required the plant to run on FTC bypass between September and November 2001 (a fact that was reported to IFC in Mozal’s 2002 AMR). Subsequent to this event, CAO notes that the FTCs required major repair work in 2005, 2006, 2007 and 2008; as well as tests conducted in 2007 which predicted that the FTC cooling tower would reach critical thickness within two years (facts which were only reported to IFC once Mozal had identified the need for the FTC rebuild in 2010). In this context CAO also notes statements attributed to the Asset President for Mozal at BHP Billiton that identified the causes of the failure of the FTCs in suboptimal engineering, overproduction and inadequate repairs. While CAO accepts IFC’s position that this history demonstrates Mozal’s ongoing attention to the problem, CAO also finds that it indicates a risk of failure of the FTCs that could reasonably have been anticipated well before the need for a rebuild was communicated to IFC. In these circumstances CAO finds that it would not have

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been an unreasonable imposition for IFC, after it became aware of the 2001 corrosion incident, to have requested that Mozal assess, monitor and report regularly on its approach to the management of risks associated with the possible future failure of the FTCs. Further, and here CAO and the IFC team agree, with a view to facilitating interactions with local communities and given the history of corrosion problems and equipment failure, it would have behooved Mozal and IFC to have communicated earlier with regard to the impacts on ambient concentrations of key pollutants in the case of total failure of the FTCs. Analyzing the reasons why engagement with these risks did not feature as part of E&S supervision, CAO finds that both IFC and Mozal assumed that the risk of failure of the FTCs was outside the scope of their reporting relationship so long as agreed FTC uptime and point emission targets were being met. This suggests to CAO an unduly narrow interpretation of the Sustainability Framework; and one that could be clarified in a way that enhanced IFC’s approach to the management of environmental and social risk without placing unrealistic expectations on IFC staff or its clients. CAO finds that IFC’s supervision of E&S risks associated with the failure of the FTCs at Mozal fell short of that required by the policies and standards summarized above. In particular CAO finds shortcomings in the way IFC carried out its duty under the Policy on Social and Environmental Sustainability (2006, para 26) to work with the client to address E&S risks that emerged with changing project circumstances in the period between becoming aware of the 2001 bypass operation and the need for the 2010/11 FTC rebuild. While ambient air quality around the Mozal plant remained mostly within relevant limits during the rebuild, the facts surrounding this complaint give rise to more general concerns regarding the existence of systems to ensure that a client’s PS1 duty to proactively identify and respond to emerging E&S risks during implementation is appropriately supervised (2006, para. 24). Having in place systems for identifying and responding to such risks, CAO finds, is crucial to delivering on IFC’s commitment to minimizing the adverse environmental and social impacts of its investments. While asserting that IFC staff took reasonable action timely action consistent with its policies and procedures, IFC acknowledges the importance of the issue raised by the audit; specifically the reporting of incidents relevant to a client's environmental and social performance (particularly in mature investments). In subsequent communications with CAO IFC has pointed to the addition of the following language in the Environmental and Social Review Procedure (ESRP) as responding to this issue: “2.4 Special reporting requirements: In those circumstances when specific aspects of the project rise significant E&S concerns IFC may request supplemental project information in addition to the AMR and on a quarterly or even monthly basis depending on the nature of the issue and its potential E&S consequences. These special reports will allow IFC to monitor more closely those specific aspects. In these cases additional supervision site visits may be required too (ESRP 6: 04/15/2013).” In accordance with its Operational Guidelines, CAO has monitored IFC's commitment to review its reporting requirements with a view to better capturing emerging environmental and social risk during project supervision. On 30 June 2014, CAO has released a Compliance Monitoring report of its investigation of IFC with regard to Mozal. It states that in October 2012, Mozal submitted an Annual Monitoring (AMR) report to IFC covering the period July 2011 to June 2012. IFC’s review of the AMR identified no major issues and rates the project’s E&S performance satisfactory. In April 2013 Mozal informed IFC of further damage to one of the FTCs caused by fire. As a result Mozal informed IFC that it would be necessary to operate the FTC unit on bypass mode for a total of 5 weeks. In May 2013 IFC E&S staff conducted a site supervision visit to Mozal which included a visit to the FTCs and selected air monitoring sites. IFC’s back to office report (BTOR) from the supervision visit articulates Mozal’s analysis of the causes of the damage to the FTCs. The BTOR outlines mitigation measures proposed by Mozal to prevent reoccurrence of the problem and relates that no ambient air parameters were exceeded during the fire event. The BTOR also reports that Mozal communicated with its stakeholders including employees, the government, its lenders and stakeholders in the surrounding industrial zone. In October 2013, Mozal prepaid the remainder of its loan to IFC.

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The monitoring report points out that 2013 addition to the ESRP cited above provides that IFC may request supplemental project information if specific aspects of a project raise significant E&S concerns. This provision does not address the issues raised by the CAO audit of IFC’s investment in Mozal either in terms of: (a) IFC’s approach to supervision of changes in project E&S risk or, (b) client reporting requirements in relation to such changes. CAO discussed additional measures with IFC such as the revision of client E&S reporting formats and staff training that might address the findings of the Mozal audit but IFC did not take these up. CAO thus rates IFC’s response to this audit Unsatisfactory. Nevertheless, as IFC’s investment in Mozal is no longer active, and as the CAO audit did not identify project level compliance issues which require remedy, CAO has decided to close this compliance process.

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Ghana / Tullow Oil, Kosmos Energy & Jubilee FPSO-01/CAO Vice President Request

19 August 2010

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Complainant – CAO Vice President Concerns - IFC’s procedures and standards for deepwater offshore oil and gas exploration projects June 2011: Compliance appraisal report finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Tullow Oil, Kosmos Energy, and Jubilee FPSO 27918, 28798 & 27550 Department - Oil, Gas, Mining, & Chemicals Company - Tullow Oil, Kosmos Energy Finance & Jubilee Ghana Sector - Oil and Gas Environmental Category B Commitment - $265 mil A loans, $519 mil B loan & $60 mil equity Background In light of the unprecedented events of April 2010 in the Gulf of Mexico involving deepwater offshore exploration of oil and gas, in which the Macondo well blew out resulting in fatalities onboard the platform and a major oil spill, the CAO Vice President initiated an investigation to assess IFC’s procedures and standards when appraising investments in deepwater off shore oil and gas exploration projects. As of September 2010, IFC was involved in deepwater offshore oil and gas development of the Jubilee Field in the waters offshore of Ghana. In 2007, Tullow Oil plc (“Tullow”), Kosmos Energy and their partners discovered the Jubilee oil field offshore of Ghana. The field is located approximately 63 km from the Ghanaian coastline at a water depth of 1,000-1,700 meters, with oil reservoir objectives in the field ranging from 3,150-3,755m in depth. The Project supports the first phase of development of the Jubilee field. It involves the drilling of 17 wells (nine production wells, five water injection wells, and three gas injection wells), subsea production installations, the installation of subsea production facilities and the leasing of a floating production, storage, and offloading (“FPSO”) vessel for processing, storing, and handling crude oil. Estimated gross production capacity is 120,000 barrels of oil per day initially; production will increase as the field is further developed and more reserves are proven. The total cost of the project was estimated at approximately $3.2 billion. IFC's total investment comprised US$265 million in A loans, a $519m B loan and $60m equity. All the above investments were assessed under the 2006 IFC Performance Standards. The environmental and social review included Tullow and Kosmos, subsidiaries to Tullow, as well as MODEC Inc., the contractor constructing the FPSO. All three reviews were done under the Category B provisions as defined in IFC’s procedures. Status and Findings The CAO finds nothing that indicates that IFC did not diligently review and assess the issues related to a potential well blowout and its consequences in line with standards, guidelines, and industry practice that were applicable at that time. The CAO also finds that in light of an international recognition of inadequate good international business practices, the IFC guidelines do not necessarily provide the adequate level of protection. However, it cannot reasonably be expected that IFC’s requirement go beyond international good business practice.


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The CAO concludes that this appraisal highlights the need for the IFC to assess the relevance and applicability of the current standards and Environmental, Health, and Safety (EHS) Guidelines when the client is involved in deepwater offshore oil and gas exploration, and to update such standards and guidelines to reflect new developments in good international business practices. The CAO finds that an audit of IFC’s due diligence of the investments related to the Jubilee Field, against the policy provisions applicable at that time, would yield limited information and be of limited value beyond what this appraisal has identified. The case is closed.

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Indonesia / PT Weda Bay Nickel-01/Weda Bay

6 July 2010

→ To documents Complainant - Confidential Concerns – Environmental and social impacts, pollution, land acquisition and compensation, biodiversity, forests, cultural heritage, consultation, grievance mechanism Jun. 2011: Ombudsman refused by complainants Oct. 2011: Compliance appraisal: satisfied with MIGA answers Closed Project information Institution - MIGA Project Name & Number- PT Weda Bay Nickel 8113 Company - PT Weda Bay Nickel (WBN) Sector -Mining Indonesia Environmental Category A Commitment - Proposed $207 million guarantee Background PT Weda Bay Nickel (WBN) is proposing to develop a nickel and cobalt mine and a hydrometallurgical processing plant in Central Halmahera and East Halmahera Regencies in the North Maluku Province of eastern Indonesia. In August 2010, MIGA issued a guarantee of $207 million to Strand Minerals for its equity investment in the PT Weda Bay Nickel Project. Strand Minerals is jointly owned by Eramet SA of France and Mitsubishi Corporation of Japan. In July 2010, a complaint from Indonesian NGOs and concerned citizens was filed with the CAO. The signatories of the complaint comprise both national NGOs, local NGOs and directly affected people living in Halmahera Island. Broadly, the most important issues raised in the complaint are environmental impacts to forests, fields, and bodies of water on which communities in the area depend. The complainants have requested confidentiality. CAO Action The complaint was deemed eligible for assessment in August 2010. In January 2011 the 120-day assessment period was extended, with the agreement of the parties. The additional time was requested by the complainants and was needed in order to allow the CAO Ombudsman team to meet and communicate with the local community complainants in a manner that protected their identities. The CAO Ombudsman team spent significant time working with all parties to assist them in understanding and exploring their options for resolving the complaint issues. Ultimately, the complainants informed the CAO that they would not participate in or support a dispute resolution or dialogue process convened by the CAO and they reiterated the request to keep individual community-member complainant identities confidential. In June 2011, the CAO Ombudsman concluded its involvement in the case and released its Assessment Report. Status and Findings The compliance appraisal aimed to establish whether MIGA assured itself that it diligently reviewed and assessed the environmental and social risk and potential impacts of the project. Specifically, whether there is evidence of risk of significant adverse social and environmental outcomes arising from MIGA's guarantee and the related project that indicates that policy provisions failed to provide an adequate level of protection. The CAO appraisal did not find this to be the case.


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The appraisal also investigated whether a compliance audit of MIGA could yield information that may improve the application of policies (or other audit criteria) to future projects. The CAO found that an audit of MIGA’s due diligence of the guarantee related to the engineering and feasibility phase of developing the project, against the applicable policy provisions, would yield limited information and would be of limited value beyond the findings already identified in the appraisal. 1) The appraisal found that during its due diligence of the guarantee, MIGA classified the project as

Category A under MIGA’s Environmental and Social Review procedures. MIGA did not expect impacts on critical habitats or on biodiversity or the consequences of pollution to be significant during the engineering and feasibility phase. However, MIGA identified several significant potential impacts during the construction and operations phase, such as: potential erosion; impacts on biodiversity; effects of disposal of solid residues; and consequences of population influx. MIGA stated that these impacts could be irreversible if not addressed properly.

2) MIGA identified Performance Standards 1-8 as relevant and applicable to the engineering and feasibility phase.

3) MIGA also identified that, in order to assess the impacts of construction and operations, the client had committed to conduct further work and studies related to: terrestrial biodiversity; marine biodiversity and the ecology of the Sagea Lagoon; community social assessment; public consultation and disclosure plan; community and indigenous people development plan; cultural heritage preservation plan; land acquisition and compensation plan; greenhouse gas emissions assessment; metals background study; residue management impact assessment; karst limestone deposit analysis; Kobe River watershed study; and population influx.

4) MIGA stated that the project sponsors had committed to comply with MIGA Performance Standards and the Equator Principles; the World Bank Group Environmental, Health and Safety Guidelines; the World Business Council for Sustainable Development Mining Guidelines; and the International Council on Metals and Minerals (ICMM) Sustainable Development Framework, and that third party ISO 14001 certification of the managements system would be sought.

The CAO concluded that the case did not merit an audit of MIGA at the current stage, and the case was closed in October 2011.

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Peru / Maple Energy-01/Nuevo Sucre and Canaán

6 April 2010

→ To documents Complainant - Community members of Nuevo Sucre and Canaán, Loreto, Peru Concerns – Information, consultation, impacts to community health and the environment, pollution, human rights Until Aug. 2011: Ombudsman. Oilspill + financing of envtl and health studies = end of ombudsman May 2012: Compliance appraisal: satisfied with IFC’s actions Closed Project information Institution IFC Project Name & Number - Maple Energy 26110 Department - Oil, Gas, Mining, & Chemicals Company - Maple Energy Plc Sector - Oil, Gas and Mining Environmental Category B Commitment - Up to $10 million equity Background In July 2007, the IFC approved a Category B project with Maple Energy, a privately-held integrated energy company with operations in Peru. The project will finance the company’s capital expenditure program in the short-to-medium term, which includes drilling and well work-over programs and related activities to extend production of existing hydrocarbon fields; exploration and related activities in hydrocarbon concessions; and development of a greenfield ethanol project. In April 2010, a complaint was filed with the CAO from local community members of Nuevo Sucre and Canaán in Loreto, Peru with the assistance of national and international NGOs. The two Indigenous communities are located on the Ucayali River in the lower Ucayali region of Loreto, in proximity to the company’s two mature crude oil producing properties. The complaint cites several social and environmental concerns, among them negative impacts to the communities’ health and to the environment, and human rights abuses in Nuevo Sucre by forcing community members to clean up the April 2009 spill without training or protective equipment. CAO Action In April 2010, the CAO accepted the complaint. An Ombudsman team conducted an assessment of the issues through a series of conversations and visits with the stakeholders to discuss options for the parties to resolve their concerns. In June 2010, the parties expressed interest in pursuing a collaborative process facilitated by the CAO. By February 2011, the parties had determined conditions under which they would meet, and designed ground rules that would govern their engagement. Between April and August 2011, the company and community representatives met four times in a CAO-facilitated dialogue process that resulted in three signed agreements and the implementation of several agreed action points. The dialogue was designed to address community access to safe drinking water, improving communication between the parties, development of environmental and health studies, and options for community monitoring. (Not all action points were completed as the communities chose to withdraw from the process in August 2011.) On July 10, 2011, one month before the fourth dialogue table was convened, an oil spill of approximately two barrels occurred close to the community of Nuevo Sucre, according to the company’s reporting to the Government of Peru. The company engaged several members of Nuevo Sucre to participate in the clean-up efforts. At the next dialogue meeting in August 2011, it became clear that the parties


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had divergent views on the amount of oil spilled, the effectiveness of the company’s response to the spill, whether community members had been exposed to health risks, and what the company’s next steps should be. Further, the parties reached an impasse regarding the financing of the environmental and health studies. These two areas of disagreement proved insurmountable, and the communities decided to withdraw from the dialogue process. In accordance with the CAO's Operational Guidelines, the case was transferred to CAO Compliance for appraisal. Status and Findings CAO completed the compliance appraisal in May 2012. The Appraisal finds that during IFC’s due diligence process, IFC identified and assessed all the major concerns that relate to the direct impacts of the project that were later raised by the complainants. Throughout the various project investment phases, IFC worked with Maple to improve its information disclosure, community participation, and environmental and social protections. CAO’s review of IFC's project documentation indicates that IFC committed resources to ensure that periodic site visits were conducted and Maple’s environmental performance was reviewed. With each site visit and performance review, IFC documented Maple’s implemented actions and repeatedly flagged pending actions for Maple to undertake. The IFC project documentation reviewed by the CAO indicates that IFC identified and acted upon what it considered a concern regarding the pace at which Maple implemented recommended actions. Since IFC identified and acted upon this concern, it does not constitute a failure on IFC’s part to assure itself of the performance of its client. CAO finds that an audit of IFC’s due diligence and monitoring of the investments related to Maple against the applicable policy provisions would yield limited information and be of limited value beyond what this appraisal has identified. The CAO concluded that this case does not merit an audit of IFC and closed the case with no further action in May 2012.

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Panama / Pando Montelirio-01/Chiriquí

27 January 2010

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Complainant - 16 local civil society organizations, Chiriquí province Concerns - Consultation, cumulative impact assessment, water October 2010, CAO and MICI formalize their joint facilitation of the dialogue process April 2011: no collaborative process, end of the Ombudsman Feb. 2012: CAO compliance appraisal report finds that IFC actions are satisfactory and that no audit is needed Closed Project information Institution - IFC Project Name & Number - Pando Montelirio 27975 Department - Infrastructure Company - Electron Investment S.A. Sector - Power Environmental Category A Commitment - $25 mil A Loan, $15 mil C Loan, $5 mil IFC swap Background The Pando Monte Lirio project, approved by IFC on February 4, 2010, consists of two run-of-river hydroelectric power plants to be operated in cascade on the Chiriquí Viejo River in Western Panama. The plants, totaling 85 MW in installed capacity (Pando, 33 MW and Monte Lirio, 52 MW), are being developed by Electron Investment, S.A. a joint venture between Inveravante Inversiones Universales S.L. of Spain, and the Panamanian entity Grupo Eleta. The total project cost is estimated to be US$291.7 million. In January 2010, sixteen community and environmental organizations based in the Chiriqui province filed a complaint with CAO citing a number of social and environmental concerns, including: lack of participative consultation process with communities; lack of a cumulative impact assessment; possibility of flooding to communities downstream; endangering of fish and other species; over-exploitation of water resources and the river; limited community access to water; high levels of sedimentation that affect water quality and downstream water treatment facilities (such as Baru); and negative impacts on the natural landscape and on mangroves located near the mouth of the river in the Gulf of Chiriqui. CAO Action To better understand views and perspectives of the parties, a CAO Ombudsman team traveled to Panama in June 2010 to conduct a field assessment with complainants, company, community members, and local and national authorities. In July, the team returned to the field to discuss the draft assessment report and next steps with the stakeholders, who agreed to continue working with the CAO Ombudsman to address the issues raised through a facilitated dialogue process. The complainants also submitted the same complaint to the Inter-American Development Bank’s (IADB) Independent Consultation and Investigation Mechanism (MICI, by its Spanish acronym). CAO has coordinated closely with IADB staff and MICI throughout the Ombudsman intervention. In October 2010, CAO and MICI formalized their joint facilitation of the dialogue process. The CAO-MICI team held several working meetings with the complainants, company, IFC, IADB, and other stakeholders, including additional local community members, municipal authorities, other lenders, and national government regulators. CAO-MICI also convened two information sharing sessions in October 2010 for the complainants, company, and local and national governmental


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authorities (National Environmental Authority, National Authority for Public Services, and the Bugaba Mayor’s Office). For the next five months, in preparation for the Dialogue Table, CAO-MICI met and communicated with the parties intensively to help them reach an agreement on the complaint issues. By March 2011, the parties were still unable to reach an agreement. Since the company and complainants were unable to resolve the issues raised in the complaint through a collaborative process, CAO Ombudsman concluded its involvement in the case and released a conclusion report summarizing the Ombudsman process in April 2011. In accordance with CAO’s Operational Guidelines, and to provide assurance that there are no outstanding concerns regarding IFC's compliance with applicable social and environmental requirements related to the project, the case was transferred to CAO Compliance for appraisal. Status and Findings CAO's appraisal report, completed February 2012, found that IFC identified and assessed all the major concerns raised by the complainants that related to the direct impacts of Pando Monte Lirio project. The CAO finds that IFC, at the time of appraisal, identified a number of further actions to be undertaken, including further assessment of terrestrial and hydro-biological baseline data in order to design appropriate mitigation measures, further consultation on subsequently updated assessments, and development of a cumulative impact assessment. The CAO finds that IFC was well aware of, and identified, the same issues raised by the complainants regarding the available documentation. IFC identified and defined actions to close the knowledge gaps and initiate consultation around the outcomes. However, IFC made a judgment call that the information available in November 2009, including the preliminary cumulative impact assessment, the draft EIA for the transmission lines, and the studies on aquatic baseline data and archeological sites, gave them confidence that the environmental and social impacts of the Project, as well as its contribution to potentially cumulative impacts on the CVR basin, were manageable and defensible given IFC’s policy provisions. IFC also confirmed the client’s commitment to a detailed environmental and social action mitigation plan. The CAO finds that IFC identified and assessed all the major concerns raised by the complainants that related to the direct impacts of Project. The CAO finds that IFC identified and, based on the information available, assessed the Project’s contribution to the potentially cumulative impacts of future development. The CAO finds that at the time of the investment decision, details about the potential cumulative impact of the development of the entire CVR basin were not defined. The situation and approach taken raises the systemic question of whether to proceed with private sector development in an environment where the information needed to fully assess the rationale behind larger strategic development decisions taken by third parties, or host governments, is not available. This leads to challenges not only in the context of assessing risk to the particular project, but also as to how IFC can assure itself that meaningful consultations around potential impacts have taken place/will take place, when the impacts of such large developments have yet to be fully assessed. The CAO finds that in this specific case, IFC argues that the cumulative impacts attributable to the IFC-sponsored Project are not significant, and that the direct impacts of the Project are manageable. Could a compliance audit yield information or findings that might better inform the application of policies (or other audit criteria) to future projects? The question is whether IFC has strategic guidance in order to make judgment calls on overall engagements that are aligned with the desired effect of the policy provisions. A compliance audit at this stage of IFC’s engagement in the Pando Monte Lirio project would yield limited information to that effect. The CAO concludes that this case does not merit an audit of IFC’s due diligence of its involvement linked to the Pando Monte Lirio project.

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Uruguay / Orion-02/Gualeguaychú-Argentina

5 August 2009

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Complainant - Environmental Civic Assembly of Gualeguaychú (Assamblea Ciudadana Ambiental de Gualeguaychú), Argentina Concerns – environmental, health and social impacts Jan. 2010: no ombudsman possible 15 March 2010: Compliance appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Orion 23817 Department - Global Manufacturing & Services Company - Botnia S.A. Sector - Pulp & Paper Environmental Category A Commitment - up to $200 million in A & B loans Background The Orion project is a greenfield eucalyptus kraft pulp mill in Uruguay, adjacent to the international boundary between Uruguay and Argentina. This complaint was submitted by the Environmental Civic Assembly of Gualeguaychú, an Argentine civic association/non-governmental organization that represents the interest of residents of Gualeguaychú. It raises concerns about the environmental monitoring of the project and its’ credibility regarding odors and air emissions emanating from the plants, water pollution, impacts to community health, and trans-border issues. Furthermore, complainants argue that what they feared as potential impacts are currently being manifested and experienced across the international boundary. This is the second complaint CAO received regarding this project. The first was filed in September 2005 by the Centre for Human Rights and Environment, an Argentine non-governmental organization, and triggered an audit: see Celulosas de M'Bopicua (CMB) & Orion-01/Argentina & Uruguay. CAO Action The Ombudsman assessment involved interviews with key stakeholders, and reviewed of current status of this case in other international fora. Based on the information provided by both parties during the assessment period, CAO Ombudsman concluded that the situation was not amenable to joint fact finding, mediation or alternative dispute resolution approaches. In January 2010, the case was transferred to CAO Compliance for appraisal. Status and Findings CAO released the appraisal on March 15, 2010, with the following findings: “Emissions to air, including odorous emissions have been thoroughly addressed during the assessment phase, and the monitoring and reporting demonstrate that IFC assured itself of the Projects performance against applicable requirements. CAO does not see any indication of failure on the behalf of IFC, and how IFC assured itself of the Project’s performance and compliance with applicable IFC criteria.” “Emissions to water have been thoroughly addressed during the assessment phase, and the monitoring and reporting demonstrate that IFC assured itself of the Project’s performance against applicable requirements. Documentation demonstrates that IFC has followed up on all monitoring reports, including assessing specific reports, and addressing concerns raised by




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external stakeholders.” “There is no indication that IFC did not assure itself that the independent verification of the monitoring fulfilled the applicable IFC requirement and, in addition, fulfilled IFC’s public commitment to commission independent verification of the monitoring of the pulp plant’s performance. There are no indications that IFC failed to assure itself of the applicability of OP 7.50” (international waterways). “CAO does not find that this case fulfills the criteria for further investigation in the form of an audit of IFC involvements in the Orion Pulp Plant, and CAO does not find than an audit would be an appropriate response to the issues raised.” CAO has closed appraisal of this case with no further action.

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Peru / Agrokasa-01/Ica

2 June 2009

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Complainant - Junta de Usuarios de Rio Seco, Junta de Usuarios de Aguas Subterraneas del Valle de Ica, and other stakeholders who requested confidentiality Concerns - Depletion of Ica aquifer, water quality, drilling throughout the valley, licensing of wells and water transfer projects, disclosure of information Ombudsman until April 2011 March 2010: Issues that parties are not willing to negotiate transferred to compliance appraisal June 2010: Compliance appraisal reports finds an audit is merited December 2011: Compliance audit report 20 June 2013: End of monitoring Closed Project information Institution - IFC Project Name & Number - Sociedad Agricola Drokasa S.A. 26821 (withdrawn by client) Department - Agribusiness Company - Sociedad Agricola Drokasa S.A. Sector - Agriculture and Forestry Environmental Category B Commitment - Up to $10 million (withdrawn by client) Background Agrokasa, an IFC client since 1999, is a leading Peruvian grower and exporter of fresh asparagus, table grapes, and avocados. The company operates three farms, two of which -Santa Rita and La Catalina - are located 300 km south of Lima in the Ica valley. Between 1999 and 2006, IFC approved three investments in Corporacion Drokasa, a leading Peruvian agricultural and industrial conglomerate, and its wholly owned subsidiary Agrokasa. The initial investment, in 1999, directly financed Agrokasa’s expansion of its agricultural operations in the Ica Valley, south of Lima. The second investment, in 2004, involved refinancing of Corporacion Drokasa. The third investment (the second in Agrokasa), in 2006, expanded asparagus growing operations through the acquisition and upgrading of a farm north of Lima. These investments were appraised under IFC’s 1998 Environmental and Social Review Procedures and Safeguard Policies. In 2009, a fourth investment (the third in Agrokasa-Agrokasa III) was circulated for approval by the IFC Board under IFC’s streamlined procedures. The project objective specifically was to further develop Agrokasa’s operations in the Ica Valley—the first direct IFC investment in the Ica Valley operations since 1999. The investment was to partly restructure Agrokasa’s debt obligations, develop one of the Ica Valley farms, and support “hydraulic improvements” for its other Ica Valley farm intended to provide water where it was most needed and “reduce stress” on the aquifer. The project was described as including an intra-aquifer water pipeline and, if approved by the government, new wells and/or surface water intake(s). This investment was to be the first for this client applying the IFC 2006 Performance Standards. While seeking IFC Board approval, IFC management became aware of unresolved issues identified during its due diligence, as well as the receipt by the CAO of, as yet, unassessed complaints regarding the social and environmental impact of the project. IFC management decided to withdraw the investment proposal from Board consideration. In June 2009, six complaints were filed by various stakeholder groups regarding the impact of Agrokasa’s operations on the Ica aquifer. Two of the complaints were signed by ground-water users’ associations - one by the Junta de Usuarios de Rio Seco, and one by the Junta de Usuarios de Aguas


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Subterraneas del Valle de Ica (JUASVI). One complaint was signed jointly by the NGOs Progressio and Water Witness International, but was later formally withdrawn by Progressio’s executive director. Three of the complaints requested confidentiality. The complaints raised concerns about depletion of the aquifer due to excessive drilling throughout the valley, and question the legality of some of Agrokasa’s operations. Several of the complaints also question the licensing and permitting process for an Agrokasa water transfer project, and state that complete information about the project was not disclosed to other growers and municipalities in the region. CAO Action In July 2009, a CAO team traveled to Peru to meet with key stakeholders in Lima and Ica to conduct an assessment of the situation and assess options for resolution of the issues with the parties. In an assessment report distributed to the parties in December 2009, the CAO team identified areas of common ground shared by all the parties, and recommended they undertake a process of assisted negotiation to address the area’s critical water situation collaboratively. The CAO team also identified several issues the parties were not willing to negotiate, and recommended those be transferred to CAO Compliance for appraisal. After a period of assisted negotiation, two ground-water users’ associations launched in March 2010 a Working Group involving two other water users’ associations (who depend primarily on surface water) and two local water authorities from the Ica and Rio Seco sections of the valley. As a member of JUASVI, Agrokasa participated in and supported the Working Group’s efforts to jointly address the shared concerns regarding the water situation – including the concerns raised in the complaints. A CAO Dispute Resolution team facilitated monthly meetings of the Water Working Group until November 2010, at which time it concluded its role as facilitator and undertook a process of monitoring the group’s agreements and progress toward implementing its goals. The Working Group’s aim is to jointly develop short- medium- and long-term strategies for managing the water resources in the Ica basin. In April 2011 CAO’s Dispute Resolution team concluded its involvement with the complainants. Issues that the parties were not willing to negotiate were transferred to CAO Compliance in March 2010 for appraisal. CAO's appraisal, disclosed June 2010, determined that an audit of IFC's investments in Agrokasa and Corporacion Drokasa was merited. This decision was made on the basis that CAO found it unclear whether IFC's policy provisions had been applied properly, and whether the IFC policy provisions provided an adequate level of protection. Findings and Outcomes CAO released its Audit Report in December 2011. The Agrokasa audit noted that the focus of IFC’s technical and financial due diligence on the proposed Agrokasa III investment was on whether the client would be able to repay the loan. By pursuing this investment before an adequate environmental assessment (EA) was prepared and reviewed, CAO found that IFC would have proceeded without taking into account potential negative long-term and wide-ranging development impacts on other more vulnerable users: impacts that could cause economic displacement, impoverishment, and loss of access to potable water. CAO concluded that this course of action was inconsistent with and in violation of commitments made within IFC’s Policy on Environmental and Social Sustainability and its role as a development institution. At the more strategic level, CAO found that IFC did not ensure that water resource issues were adequately and more broadly considered before the potential investment decision. CAO found this to be a possible indication that IFC struggles to align its strategic involvement in these issues with its investment practices. CAO concluded that IFC should assess how it applies its strategic understanding of sustainability issues at the investment level. The basis for IFC’s B categorization of the project was heavily predicated on the production of an adequate EA and its disclosure. CAO found that the initial categorization of the project as B by IFC’s Environmental and Social department (CES) was supportable, but this was heavily dependent upon the production of an adequate EA addressing the key issues identified, particularly the sustainable use of water resources.

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CAO found that the issue of overexploitation of the Ica aquifer and the extent of local concern was well known to IFC throughout its due diligence. Substantive concerns were raised internally and the Environmental and Social Review Summary (ESRS) documented potential noncompliances with multiple Performance Standards. Nonetheless, CAO found that IFC proposed to seek Board approval in this sensitive situation without an appropriate EA — and therefore without appropriate information disclosure and consultation with potentially affected parties. Without an underlying baseline assessment and understanding of the scale of aquifer depletion that would be provided by an EA, CAO found that information disclosure and consultations were rendered inadequate with respect to this central issue. This was crucial because, by the time the EA would have been be completed and available for consultation with affected parties, the project would have been constructed. CAO found IFC’s course of action to be inconsistent with Performance Standards 1, 4, 5, and 6 and the Disclosure Policy. CAO also found that the failure to require an EA early in the process prevented a proper discussion and analysis of alternative strategies for the client from taking place. CAO found that the final Board Paper did not correctly reflect the outcome of IFC’s due diligence in that it did not adequately represent the water issues discussed and the sensitivity. CAO therefore concluded that in this regard, the Board paper was incorrect. CAO found that the scope and quality of environmental and social (E&S) due diligence undertaken by CES was appropriate to the level of risk identified, but that against a backdrop of community objection, commercial pressure to expedite the project, and an absence of effective support by CES Management, the E&S specialists’ professional advice was overruled. CAO found that no clear mechanism or process seemed to exist to reconcile professional differences, and/or bring them to a final conclusion. IFC management did not play its role in seeking ways to broker agreement and consensus within the project team to establish the position to be adopted. CAO concluded that the IFC strategy and procedures for developing and maintaining client relationships were unclear. CAO found that CES staff were clear in their recommendations regarding the investment. In the face of resistance from the IFC’s agribusiness department (CAG) and commercial pressure to move ahead with funding of an existing client, CAO found that CES Management were complicit in sidelining specialist(s) assigned to the investment who intensified their concern about the sustainability of the situation in the Ica Valley and had pointed out inconsistencies in the apparent permitting of water extractions. The concerns of CES specialists relating to the environmental and social impacts of groundwater extraction in the Ica Valley were not reconciled by consecutive layers of IFC Management through engagement with the project team. The resulting capitulation on the requirement for an EA in advance of taking the project to the Board exposed IFC to increased risk and was inconsistent with IFC’s procedural and disclosure requirements. CAO concluded that CES Management did not play an effective role in supporting the professional judgment of CES specialists, in protecting the broader interests of the IFC in applying its standards, and in protecting the interest of weaker parties in the emerging water conflict over scarce water resources in the Ica Valley. This, in combination with mismanaged client communications, produced an incoherent IFC approach, undermining and fragmenting IFC’s position. The consequence was that the issues became external, IFC lost control over the process, and IFC damaged a client relationship. IFC strategy and procedures for developing and maintaining the client relationship were unclear. It was crucial that as an existing client, Agrokasa should have been clearly advised of enhanced due diligence requirements that IFC had to apply because of the adoption of the 2006 Performance Standards. CAO concluded that due to the lack of clarity and transparency around IFC’s internal processing, the potential investment was circulated for Board streamlined approval with identified risks left unattended. Following discussions with IFC in June 2013, CAO released a Monitoring and Closure Report. This report noted changes in IFC’s policies, procedures, and practice designed to address the findings of the CAO audit. The CAO report led IFC to change the approach to categorization to include risks in

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addition to impacts; new early risk assessment tools have been developed; evaluation of supply chains for high risk commodities has been completed and will inform future engagements in the agricultural sector; revised Performance Standards put a new focus on resource efficiency; IFC Advisory Services is expanding its program of support for clients, and relevant stakeholders, to assist in meeting industry environmental and social standards; information disclosure has been expanded under the revised IFC Access to Information Policy approved in May 2011. Further, CAO noted IFC’s assertion that should a situation similar to the one encountered in the Agrokasa audit arise today, it would lead to a higher assessment of E&S risk, and thus increased due diligence and E&S assessment requirements prior to approval. While anticipating that challenges will remain for IFC in implementing changes in policies, procedures and practices, CAO determined that it had sufficient basis to close the audit. The case was officially closed on June 20, 2013.

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India / SN Power-01/CAO Vice President Request

1 December 2008

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Complainant- CAO Vice President Concerns - Health and safety issues December 2009: Compliance appraisal finds no audit is needed June 2010: Closed Project information Institution - IFC and MIGA Project Name & Number - AD Hydro Power Ltd 11632; Ambuklao-Binga 26996; Magat Hydro 26041; La Confluencia 25472; La Higuera 21315; Norvind S.A. 26207; Himal Power Ltd 1297 Department - Infrastructure Company - SN Power Group Sector - Power Countries: Chile, India, Nepal, The Philippines Environmental Category A and B

Synopsis Background IFC and MIGA have supported a number of projects with SN Power, a commercial investor and developer of hydropower projects. In 2004, the CAO received complaints from locally impacted communities regarding the Allain Duhangan project in India, in which both IFC and SN Power hold a share (see AD Hydro Power Limited-01/Himachal Pradesh, Ombudsman role). CAO Ombudsman facilitated dialogue and agreements between the parties from 2004 to 2008, and concluded its involvement in the case in March 2008. During the ombudsman assessment, issues related to worker safety and labor conditions were raised that were not part of the original complaint. CAO Ombudsman concluded that these issues had been addressed and verified through enhanced supervision by IFC. In October 2008, independent statements made by SN Power indicated that several of its hydropower projects struggled to implement effective health and safety actions. The acknowledgements by SN Power and its owner companies raised concerns of the effectiveness of both IFC’s due diligence and supervision, in terms of specific projects and SN Power, as a repeat client. In December 2008, the CAO Vice President requested a compliance appraisal of IFC's/MIGA’s due diligence and supervision of health and safety issues on all projects where SN Power was involved. CAO Action CAO Compliance reviewed the health and safety reporting of seven IFC/MIGA involvements with SN Power in Chile, India, Nepal, and the Philippines, and released its appraisal report in December 2009. Status and Findings CAO concludes that “There was evidence of potentially significant adverse social and environmental outcomes in the past, but not now or in the future. There are indications that a policy and other audit criteria have not been adhered to due to implementation problems. There is no evidence that indicates that IFC/MIGA’s provisions, whether or not complied with, have failed to provide an adequate level of protection. CAO does not find that this case fulfills the criteria for further investigation in the form of an audit of IFC/ MIGA’s specific involvements with SN Power. CAO does however find that this case highlights a systemic concern regarding IFC’s approach as to how it engages and how it assures itself of implementation of its standards and requirements, when



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investing in, or, as a minority shareholder in a joint venture type project. CAO does not find that project specific audits of IFC/ MIGA’s involvements with SN Power will necessarily be the most appropriate means to address this issue.” Based on the above conclusions, CAO closes this appraisal case with no further action, “but during 2010 CAO will conduct a project site visit to the Allain Duhangan site to verify the accuracy of the reporting.” In May 2010, IFC conducted a site inspection with CAO as observer. CAO found no indications that the IFC reporting has been inaccurate. CAO found IFC’s site inspection diligent, and the earlier and current reporting reflective of the situation on site, and closed the case.

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Indonesia / Wilmar Group-02/Sumatra

1 December 2008

→ To documents Complainant - Communities, local and international NGOs Concerns - adverse environmental and social impacts, customary lands, displacement, compensation and security issues Ombudsman closed, partly successful (Riau communities) Agreement not reached in Jambi, turned into Wilmar 3 (compliance) Closed Project information Institution IFC Project Name & Number - Wilmar Group 25532 & 26271 Department - Agribusiness Company - Wilmar Trading Pte. Ltd. Sector - Agriculture and Forestry Indonesia Environmental Category C Commitment - $33.3 million (Guarantee) & $17.5 million (Loan)

Background The Wilmar Group is a large agribusiness conglomerate specializing in the production and trade of palm oil, operating in Asia, eastern Europe, and Africa. Since 2003, IFC has undertaken four investments in the Wilmar Group. In December 2008, a second complaint was lodged with the CAO by various community groups and international NGOs. This complaint raises similar issues to the original complaint from July 2007, regarding adverse environmental and social impacts of Wilmar Group operations: 1. Land clearance without appropriate community approval or completion of Environmental Impact

Analysis (EIA) processes; 2. Violation of national regulations and laws as well as the certification protocols of the Roundtable

on Sustainable Palm Oil; 3. Inadequate compliance with IFC operating procedures and due diligence requirements. The

complainants are concerned about environmental and social impacts being experienced by local communities caused by wholly owned subsidiaries (other palm oil plantations) of the Wilmar Group.

CAO Action Two community groups agreed to a facilitated mediation process, which is described in detail in the CAO's Assessment report. The role of the CAO in these cases was to provide guidance, mentoring and support as an observer to the processes. The CAO was not the facilitator of the disputes, but supported local mediation entities selected by the parties. The dispute between Pangean community groups and the Cipta Riau Sarana (CRS) company in Pekanbaru, Riau: This dispute was mediated by the local NGO, Scale-Up, involving 583 hectares of land in two villages of Giri Sako and Kuantan Sako. Parties reached a provisional settlement. The agreements are between the community group and the company. A portion of the disputed land remains unresolved as a result of differences involving the local and national government. The company has granted 147.5 ha of planted land to the community group. The granted land is already covered by a productive oil palm plantation which is 3-7 years old and free from claims. The community and


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company have created a framework for mutual-benefit collaboration. The company buys oil palm from "Perisai Lestari", a Pangean community smallholder cooperation unit. The monthly transaction is about 195 tons of oil palm. Scale-Up, District Government, Law Aid Institute of Pekanbaru. The CAO remains involved to monitor these agreements. Disputes between Asiatic Persada (AP) Company and community groups in Jambi: These disputes were being mediated by a local NGO, Setara. They relate to two separate community groups, SAD Mat Ukup and SAD 113, and involve approximately 154 ha and 3,750 ha of disputed land respectively. Agreement was reached between Asiatic Persada and the SAD Mat Ukup community group. Meanwhile some progress has been made between the company and the SAD 113 community group. Through participatory mapping, both parties agreed to enclave 241 ha of land for the community. The remaining 3,500 ha of disputed land are still in negotiation, but despite considerable investment of time and resources by all of the parties, a final resolution has not yet been reached. Status The process described above led to an agreement between the parties in Riau, while in Jambi, the parties had not reached a satisfactory settlement at the time CAO received the third Wilmar complaint in November 2011. The two SAD community groups involved in the Jambi process re-filed their claims to the CAO in this third complaint and their concerns are now being addressed through the CAO dispute resolution process documented under Wilmar 3. As a result, CAO has closed the Wilmar 2 case, and simultaneously released the Wilmar 2 Closure Report.

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Peru / Compania Minera Antamina S.A.-03/Huarmey

1 June 2008

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Complainant - Federation of Fishery Captains and Employers of Peru Concerns – changes to the groundwater level Sept. 2008: compliance appraisal: no MIGA failure Closed Project information Institution - MIGA Project Name & Number - Compania Minera Antamina 732 Company - EDC, Teck Corp, Rio Algom Ltd and Noranda Inc. Sector - Mining Commitment - $67.5 million Background Compania Minera Antamina operates an open-pit mine and a milling and ore concentrating facility in the municipality of San Marcos in the Ancash region of Peru. The concentrates extracted from the mine are transported via an underground pipeline through the Department of Ancash to Punta Lobitos in the Municipality of Huarmey. At Punta Lobitos, the water is separated from the concentrate and loaded onto ships to be transported to global markets. In June 2008, CAO received a third complaint related to Minera Antamina relating to changes to the ground water level. CAO had received the first complaint related to the project in 2000, the second complaint in May 2005, and the third complaint in 2008. CAO Action Given that it was the 3rd complaint on this project and also that Minera Antamina cancelled all guarantees with MIGA in early 2007 and since then, MIGA has had no involvement with the project, the CAO Vice President requested CAO Compliance to initiate an appraisal with the objective of deciding on a subsequent audit of MIGA’s involvement in Minera Antamina. Status and Findings "The 2001 CAO audit of MIGA addressed the issues related to MIGA’s review prior to issuing guarantees. This audit was closed by the CAO in 2005. In January 2006, the CAO Ombudsman asked MIGA a number of questions related to MIGA’s process of assuring itself of compliance, and MIGA provided a response. There was no further follow up by the CAO." MIGA took quite a number of measures to ensure the follow-up of the potential problems noted in the CAO ombudsman assessment report. Therefore, "MIGA may arguably have been remiss in not detecting Minera Antamina’s incorrect judgment about the evapotranspiration rate. This is a technical design question, and the argument that MIGA assured itself of performance by verifying the monitoring program is valid. The monitoring program did detect the rise in ground water levels and changes in ground water quality. MIGA followed up on the promised ground water report, reviewed the report, and planned a follow up visit swiftly (within two months). MIGA officially lost the possibility to follow up when the guarantees were cancelled. (...) There are no indications of any failures by MIGA to address social or environmental issues as part of its review process that resulted in outcomes that were contrary to the desired effect of the policy provisions." Based on the above, CAO Compliance closes this appraisal of a compliance audit of MIGA


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Kazakhstan / Lukoil Overseas-03/Berezovka

1 May 2008

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Complainant - Crude Accountability, and Green Salvation Ecological Society Concerns - IFC’s compliance, legality of the Kazakh government’s reduction of a Sanitary Protection Zone, resettlement and compensation Jan. 2009, while the assessment is still on-going, Lukoil Overseas ends its contractual obligation to IFC by pre-paying its outstanding balance. Despite the pre-payment, the CAO Ombudsman remained engaged with the parties to help them determine how to resolve the complaint. April 2009: After 8 month of assessment, NGOs not willing ombudsman and request compliance appraisal 16 Oct. 2009: CAO compliance appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Lukoil Overseas 9953 Department - Oil, Gas, Mining, & Chemicals Company - Lukoil Overseas Karachaganak B.V. Sector - Oil, Gas and Mining Environmental Category A Commitment - $50 mill (A), $75 mill (B) & $25 mill (C) loans Background In 2002, IFC provided US $150 million in loans to Lukoil Overseas Karachaganak B.V. to fund a portion of its share in the development of the Karachaganak oil and gas condensate field in Western Kazakhstan Oblast. The project is operated by Karachaganak Petroleum Operation B.V. (KPO), a joint venture. In May 2008, two non-governmental organizations (Crude Accountability and Green Salvation Ecological Society) lodged a complaint with CAO on behalf of residents of Berezovka, Kazakhstan, regarding impacts of the project. This was the third complaint filed by the same NGOs against the project. It raises issues regarding IFC’s compliance with policies and guidelines in place at the time of the loan, and the legality of the Kazakh government’s reduction of a Sanitary Protection Zone that encompasses the field. To resolve the complaint, the signatories demanded that the 1,300 residents of Berezvoka be resettled, and that they be compensated for hardships endured since the filing of the first complaint. CAO Action An Ombudsman assessment involved nearly eight months of meetings and discussions with the key stakeholders, including a visit to the region in November 2008. In January 2009, while the assessment was still on-going, Lukoil Overseas ended its contractual obligation to IFC by pre-paying its outstanding balance. Despite the pre-payment, the CAO Ombudsman remained engaged with the parties to help them determine how to resolve the complaint. Based on the assessment findings and history of the dispute since the filing of the first complaint, the Ombudsman proposed that the parties undertake a multi-stakeholder meeting, facilitated by an independent, neutral facilitator contracted through CAO, in an effort to reach common understanding of their perspectives, interests, and ideas for resolution. In response to the Ombudsman’s proposal, KPO supported the approach of a facilitated dialog to attempt to resolve the key issues. However, the NGOs did not support the proposal to engage collaboratively with the company, and instead requested a third CAO Compliance appraisal to determine whether an audit was merited. Because the parties were unable


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to agree on a process for jointly resolving the complaint, the CAO Ombudsman concluded its involvement and transferred the complaint to CAO Compliance. Status and Findings Re-sizing of the sanitary protection zone and Violations of National Legislation: “the question is limited to how IFC assured itself that the project complied with national requirements. IFC did assure itself that as soon as any national requirement had relevant legal standing, IFC would assure itself that the Project complied with such a requirement as stated in IFC’s policies.” Violations of IFC’s policies and operating standards: “IFC did assess and address O.D. 4.30 when engaging with the Project. IFC assured itself that at the time of the investment, there were no involuntary resettlements as a consequence of the activities of the Project at that time. (…) During the period of IFC’s investment in the Project, neither IFC nor the Project was aware of any relevant relocation or resettlement decision being presented by Kazakhstan authorities that had relevant legal standing. Decisions made by the Kazakhstan authorities regarding re-sizing of the sanitary protection zone, a re-sizing that is solely a consequence of national legislation, do not fall under the IFC requirements for community consultation and disclosure. Therefore, CAO Compliance does not find that IFC policies on disclosure are directly applicable to disclosure of information that pertains to changes in a nationally defined zone, when there in addition are no provisions for such a zone in IFC’s environmental or social policies or guidelines.” Relocation of villagers: “Relocation of villagers is in this case related to national decisions, legislation, and/or requirements, and not to IFC’s performance, or IFC’s requirements or conditions for involvement. There are no provisions in IFC’s policies or guidelines for removal of receptors as a solution to potential pollution, when source control and monitoring is a viable option. Relocation is contrary to the general IFC approach of source control.” Based on the above, CAO closes this appraisal with no other further action.

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Georgia / BTC Pipeline-31/Naokhrebi

28 February 2008

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Complainant - 2 representatives (the head of a community association called “Pobresi”, and a legal representative) of villagers in Naokhrebi, Akhalsikhe District Concerns –land rights, registration of lands and implementation of a purchase agreement. Case considered before Georgian courts. April 2008: CAO proposition of an off-the-court settlement. BTC Co. declines, fearing precedent Nov. 2008: CAO compliance appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Baku Tbilisi-Ceyhan Pipeline 11251 Department - Oil, Gas, Mining, & Chemicals Company - Baku Tiblisi-Ceyhan Pipeline Sector - Oil, Gas and Mining Countries - Georgia, Turkey and Azerbaijan Environmental Category A Commitment - $125 million (A loan) $125 million (B loan) Background The Baku-Tbilisi-Ceyhan (BTC) oil and gas pipeline is a 1,768 km long crude oil pipeline stretching from the Caspian Sea to the Mediterranean Sea. It is the second longest oil pipeline in the world and passes through Azerbaijan, Georgia and Turkey. The project is operated by BTC Co., which comprises a consortium of 11 partners. IFC has invested $250 million since 2003. The project is operated by BTC Co., which comprises a consortium of 11 partners. The estimated aggregate cost of the BTC project is US$3.7 billion, the financing of which will include total debt of approximately US$2.4 billion, funded by the IFC, the EBRD (loans up to $250 million) and export credit agencies (ECAs). The ECAs include USExim, JBIC (Japan), ECGD (UK), Hermes (Germany), COFACE (France) and SACE (Italy). To date, CAO has received 33 complaints in relation to the project ranging from individuals to communities to local organizations. On February 28, 2008, CAO received a complaint filed on behalf of villagers in Naokhrebi, Akhalsikhe District, lodged by two representatives – the head of a community association called “Pobresi”, and a legal representative of the population. The complaint raises issues about residents’ land rights and describes a long-running dispute over registration of lands and implementation of a purchase agreement. CAO Action On March 5, 2008, the CAO determined the complaint meets its eligibility criteria for further assessment. In April, the CAO Specialist Ombudsman traveled to Naokhrebi to work with the parties and discuss options for resolution. The dispute involves the villagers’ claim that they were never compensated for land purchased from the state by BTC Co. for the construction and permanent operation of a gas treatment facility. BTC Co. claims it purchased the land legally and at fair market price from the appropriate Georgian government authorities, whose maps and pre-purchase documentation confirmed the land was state-owned and not in use for agricultural or other purposes. Complainants have been disputing the terms of the purchase agreement for three years, saying they are the rightful owners and users of the land. During CAO’s visit, the complainants produced maps and other land ownership documents which they say contradict BTC Co’s assertion. The case is currently being considered in the Georgian courts. The complainants had requested that


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the CAO Ombudsman assist them in making an out-of-court settlement offer to resolve the matter, which the CAO drafted and presented to BTC Co. during the April 2008 assessment trip. BTC Co. declined the offer on the grounds that the case would set a precedent for other similar claims which they believe have no merit, or that they underscore a lack of accountability within the Georgian government. As a result of BTC Co.’s unwillingness to pursue a negotiated settlement through the CAO Ombudsman, the Naokhrebi complaint was transferred to CAO Compliance for appraisal to determine whether an audit is warranted. Status and Findings CAO finds that IFC assured itself that relevant policy provisions were reflected in the applicable documentation guiding the Project, and that IFC assured itself of their implementation at Project level. CAO finds that IFC monitored the outcome and reacted on monitoring results. The CAO concludes that this case does not fulfill the criteria for further investigation in the form of an audit of how IFC assured itself that it adhered to its social and environmental policy provisions.

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Russia / Russkiy Mir II-02/Taman

1 February 2008

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Complainant - Local resident (farmer). Confidentiality requested Concerns – health and safety, relocation, compensation February 2009: Complainant notifies that the NGO Save Tama! does not represent him anymore and wants the handling of the complaint to end. End of the ombudsman role. CAO nevertheless wants to make sure about IFC compliance and joins Russkiy Mir II-01 and -02 in a joint compliance appraisal. 16 Oct. 2009: CAO compliance appraisal finds no audit is needed Closed

Project information Institution - IFC Project Name & Number - Russkiy Mir II 23870 Department- Infrastructure Company - JSC SFAT Sector - Transportation and Warehousing Environmental Category B Commitment - $45 million (A Loan) & $55 million (B Loan) Background The Russkiy Mir II project involves an IFC loan of up to $100 million to develop and build the Taman LPG/Fuel Oil terminal and port in the Black Sea, to purchase and expand rail maintenance facilities, to purchase locomotives and rail cars, and to purchase a wheel-making / spare-parts manufacturer and other rail-related infrastructure. In February 2008, a farmer living next to the project site lodged a complaint with CAO expressing concern about the proximity of a gas pipeline near his home. The complainant believes that the location of the pipeline violates Russian legislation and jeopardizes the safety and well-being of his family. He requested that the company relocate him to a new location, or that it compensate him for suffering endured as a result of the situation. CAO Action A CAO Ombudsman team conducted an assessment and site visit in March 2008, and held meetings with the complainant and his family to discuss the concerns. An NGO representing the complainant – Save Taman! – committed to assisting the complainant in scheduling a meeting directly with Russkiy Mir management so that the parties could discuss the situation directly. CAO monitored this verbal agreement, and reported the outcome to Russkiy Mir management. Status and Findings Several months following the Ombudsman assessment trip, the complainant reported to CAO that the NGO no longer represented his interests, and requested a withdrawal of his case from the CAO complaint handling process. In order to ensure there are no outstanding issues regarding this complaint, the CAO transferred the case to CAO compliance for appraisal. The appraisal of the case was joined with the appraisal of the first complaint, Russkiy Mir II-01/Taman submitted to CAO in October 2007. Incorrect categorization: "The complainants state that there are several irreversible project impacts on both environmental and social conditions in the Taman Peninsula. However, the CAO finds that IFC assured itself that there were no unprecedented or irreversible social and environmental impacts." Inadequate consultation: "It is evident from existing due diligence documentation that IFC



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assured itself that the client had publicly disclosed project documents in accordance with the project’s environmental categorization and that the company had held public consultation meetings with community stakeholders." Violations of IFC’s policies and operating standards and Adverse Impacts: "Based on the existing project documentation, it is evident to the CAO that IFC assured itself that the project ESIA and Environmental and Social Action Plan identified and assessed the relevant social and environmental issues, and the mitigation plans that these issues entailed. IFC’s due diligence has specifically taken into consideration plans for oil spills, emergency response, chance finds, community consultation and disclosure, environmental monitoring, compliance with national legislation, and community investment, all of which are raised as issues for concern by the complainants. Given the extent of the documentation, the issues identified and the mitigation plans monitored by the IFC, the CAO finds that the environmental and social due diligence of the project was compliant with IFC’s Safeguard Policies and the relevant policy requirements. The health and safety issues in this case are related to the location of the pipeline corridor, of which there are several in the area including some belonging to other projects. IFC has assured itself that the location of the project’s pipeline, particularly in regards to its proximity with local farming installations, is compliant with best international practice and IFC’s requirements." Based on the above, CAO closes this appraisal with no other further action.

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India / Ramky-03/Gummidipoondi

19 October 2007

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Complainant - Gummidipoondi village and Corporate Accountability Desk Concerns – permission not granted by the community, incomplete EIA March 2008: no agreement on an Ombudsman exercise June 2008: Compliance appraisal report finds not audit is needed (a modification to IFC’s proposed commitment with the client resulted in no further affiliation with hazardous or municipal waste management) Closed Project information Institution - IFC Project Name & Number - Ramky Infrastructure 23966 Department - Infrastructure Company - Ramky Infrastructure Ltd. Sector - Construction and Real Estate Environmental Category B Commitment -$3 million (Equity) Background In August and September 2005, CAO received two complaints (Ramky-01 and Ramky-02) which were subsequently deemed not eligible for assessment. However, in October 2007 a group of residents from the Gummidipoondi village and Corporate Accountability Desk, a non-governmental organization, lodged a third complaint (Ramky-03) with CAO. The complainants asserted that the project violated municipal laws and IFC regulations as a result of the following: 1. Statutory permission had not been granted to the company by the local community to proceed with the project; and 2. The submission of an incomplete Environmental and Social Impact Assessment (EIA) caused the environmental permitting process to be flawed. CAO Action The complaint related to an integrated hazardous waste treatment facility operated by the Ramky Group in the State Industries Promotion Corporation of Tamil Nadu (SIPCOT) Industrial Area near Gummidipoondi village. The purpose of this project was to design, build and operate hazardous municipal waste facilities at various locations around India. In March 2008, CAO concluded that the complaint was not amenable to resolution through a negotiated process. As such, CAO compliance conducted an appraisal for audit of the project to determine whether the case merited an audit of IFC. Status and Findings The Appraisal Report for Audit, completed in June 2008, highlighted that a modification to IFC’s proposed commitment with the client resulted in the investment shifting to engineering, procurement and construction signifying no further affiliation with hazardous or municipal waste management. This raised the issue of non-deliverance of promised development outcomes; however IFC was no longer linked to the site near Gummidipoondi. Accordingly, CAO concluded that the complaint did not merit an audit of IFC and closed the case in June 2008.


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Russia / Russkiy Mir II-01/Taman

1 October 2007

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Complainant - Save Taman! and North Caucasus Environmental Watch Concerns – environmental and social impacts, categorization of the project June 2008: parties unwilling negotiated solution The CAO joins Russkiy Mir II-01 and -02 in a joint compliance appraisal. 16 Oct. 2009: CAO compliance appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Russkiy Mir II 23870 Department- Infrastructure Company - JSC SFAT Sector - Transportation and Warehousing Environmental Category B Commitment - $45 million (A Loan) & $55 million (B Loan) Background The Russkiy Mir II project involves an IFC loan of up to $100 million to develop and build the Taman LPG/Fuel Oil terminal and port in the Black Sea, to purchase and expand rail maintenance facilities, to purchase locomotives and rail cars, and to purchase a wheel-making / spare-parts manufacturer and other rail-related infrastructure. A complaint filed in October 2007 by two NGOs – Save Taman! and North Caucasus Environmental Watch – raises concerns about the impacts of the project, and about IFC’s due diligence prior to Board approval of the loan. The NGOs believe the company’s activities pose a number of threats to the natural and social environment in the region surrounding the Taman Peninsula. They also question IFC’s environmental categorization of the project as “B” – rather than “A”, and believe that the environmental review process failed to comply with IFC performance standards. CAO Action In March 2008, a CAO Ombudsman team conducted an assessment and found that many project-impacted stakeholders who did not sign the complaint regard the issues of social development and community engagement as a high priority. Those stakeholders expressed their support for a facilitated community engagement process to address issues of social development and investment in the future of the peninsula. However, because those issues were not the focus of the complaint filed with the CAO by the two NGOs, the signatories requested that CAO’s involvement focus exclusively on the question of IFC’s categorization of the loan to Russkiy Mir, and requested a transfer of the case to CAO Compliance for appraisal. In accordance with CAO Operational Guidelines, the CAO Ombudsman concluded its assessment of the complaint and transferred it to CAO Compliance. A second case Russkiy Mir II-02/Taman was submitted to CAO in February 2008. The Audit appraisal of the 01 and 02 cases were joined. Status and Findings Incorrect categorization: "The complainants state that there are several irreversible project impacts on both environmental and social conditions in the Taman Peninsula. However, the CAO finds that IFC assured itself that there were no unprecedented or irreversible social and environmental impacts." Inadequate consultation: "It is evident from existing due diligence documentation that IFC



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assured itself that the client had publicly disclosed project documents in accordance with the project’s environmental categorization and that the company had held public consultation meetings with community stakeholders." Violations of IFC’s policies and operating standards and Adverse Impacts: "Based on the existing project documentation, it is evident to the CAO that IFC assured itself that the project ESIA and Environmental and Social Action Plan identified and assessed the relevant social and environmental issues, and the mitigation plans that these issues entailed. IFC’s due diligence has specifically taken into consideration plans for oil spills, emergency response, chance finds, community consultation and disclosure, environmental monitoring, compliance with national legislation, and community investment, all of which are raised as issues for concern by the complainants. Given the extent of the documentation, the issues identified and the mitigation plans monitored by the IFC, the CAO finds that the environmental and social due diligence of the project was compliant with IFC’s Safeguard Policies and the relevant policy requirements. The health and safety issues in this case are related to the location of the pipeline corridor, of which there are several in the area including some belonging to other projects. IFC has assured itself that the location of the project’s pipeline, particularly in regards to its proximity with local farming installations, is compliant with best international practice and IFC’s requirements." Based on the above, CAO closes this appraisal with no other further action.

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Indonesia / Wilmar Group-01/West Kalimantan

1 July 2007

→ To documents Complainants - Various community groups, local and international NGOs Concerns – project categorization, indigenous people, cultural heritage, biodiversity, information, consultation, resettlement, EIA, violation of national law, violation of RSPO rules Ombudsman exercise involving claimants + Wilmar Compliance audit of CAO due diligence (monitoring of the changes IFC committed to: closed April 2013) Monitoring of the Ombudsman’s outcomes until 2 July 2014. Closed Project information Institution IFC Project Name & Number - Wilmar Group 25532 & 26271 Department - Agribusiness Company - Wilmar Trading Pte. Ltd. Sector - Agriculture and Forestry Indonesia Environmental Category: C Commitment - $33.3 million (Guarantee) & $17.5 million (Loan) Background The Wilmar Group is a large agribusiness conglomerate specializing in the production and trade of palm oil, operating in Asia, Eastern Europe, and Africa. Since 2003, IFC has undertaken four investments in the Wilmar Group. In July 2007, 19 signatories from community groups, and local and international NGOs lodged a complaint with the CAO raising the following concerns about adverse environmental and social impacts of Wilmar Group operations with particular reference to Indonesia: 1. Land clearance without appropriate community approvals, legally required permits, or completion

of Environmental Impact Analysis (EIA) processes; 2. Violation of national regulations and laws as well as the Principles and Criteria of the Roundtable

on Sustainable Palm Oil; 3. Inadequate compliance with IFC operating procedures and due diligence requirements. CAO Action CAO Ombudsman conducted an assessment of the issues raised in the complaint and encouraged Wilmar and community members to agree to a dialogue process to help resolve the conflict. A moratorium on further land clearance was announced by Wilmar Group, and the CAO team worked with the communities and Wilmar to build capacity for representation and negotiation. A settlement agreement was announced in late 2008 which contained the following provisions: • Agreement for community access and use of land that had not been converted to plantations; • Compensation for households for appropriation of land; • Enhanced community investment funds for collective benefits and access to development opportunities for the broader community. A joint Monitoring and Evaluation (M&E) team has been established to ensure implementation of these agreements. Questions relating to IFC’s due diligence were transferred to CAO Compliance for appraisal. In September 2008, based on the findings of the appraisal, the CAO determined that an audit of IFC was merited to examine whether IFC had complied with its standards and procedures.


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Findings and Outcome The CAO released its audit report in August 2009, together with IFC's official response. The audit concluded that IFC had failed to apply its own standards, and that its actions were counterproductive to its mission and mandate and to its commitment to sustainable development. The CAO finds that the direct effect of IFC‘s category C decision was that it excluded the assessment and monitoring of the development outcomes and impacts in the supply chain. IFC‘s environmental and social department (CES) initially assigned a Category B to this investment. The CAO also notes that differences in opinion existed between CES and the Investment Department on the required scope of the assessment of project impacts and on the categorization. The position of the Investment Department that the investment be categorized a Category C project prevailed. The CAO finds that IFC‘s categorization and approach to environmental and social due diligence was inconsistent with IFC‘s own analysis of this project‘s identified projected outcomes, including the sensitivity of the environmental and social issues inherent in the sector and country. IFC therefore failed to meet the intent of its policies and its project specific promises to the Board. The CAO therefore finds that this investment was incorrectly categorized as a Category C project. As regards the rules of the RSPO, in 2005, RSPO was a newly formed, member-regulated industry association. IFC notes that the establishment of the RSPO was an important consumer-driven development, and that Wilmar became a member and supported the RSPO principles. The CAO finds that Wilmar‘s stated support of the RSPO principles cannot substitute the application of IFC‘s policies, procedures, and standards. The IFC‘s Performance Standards are more comprehensive, and provide safeguards in areas that the RSPO principles do not address. RSPO had no established independent verification process in operation to verify performance on the ground at the time of the investments. With regard to IFC's Wilmar Group investments, the CAO found that IFC applied a de minimis approach toward assessing each project‘s supply chain, and that commercial pressures were allowed to prevail and overly influence the categorization of the project, as well as the scope and scale of IFC’s environmental and social due diligence. In addition, IFC did not assess the Wilmar plantation operations compliance with national laws in its due diligence of its Wilmar projects, since IFC decided to exclude the plantation operations from the scope of the due diligence. The CAO finds that in November 2007 and January 2008, IFC and Wilmar acknowledged shortcomings in how its policies were applied on the ground. This included acknowledgment of failure by the plantation operations to comply with national legal requirements related to permits and standards, and disclosure of environmental impact assessments (EIA). Because IFC excluded legal compliance of the plantation operations from its due diligence reviews, IFC failed to identify legal non-compliance issues. IFC acknowledged the shortcomings identified by CAO in its official response, and communicated an action plan to CAO on how to address them. As part of the action plan, IFC committed to develop a comprehensive strategy for oil palm investments, with specific focus on Indonesia. In September and October 2009, the World Bank Group President instructed IFC and the World Bank Group to suspend financing of oil palm projects until such a strategy had been developed. Subsequently, in March 2010, IFC embarked on a global consultation to inform its strategy and its future involvement in the oil palm sector. IFC also immediately changed its procedure for processing single commodity trade finance, embarked on re-assessing its exposure in Indonesian Oil Palm, and committed to report back to CAO on a quarterly basis on progress toward address the shortcomings identified by the CAO audit. In April 2010, CAO released a monitoring and update report of IFC's response to the audit. The CAO also participated in IFC’s global strategy consultations as an observer until IFC concluded the consultation process in February 2011. In April 2013, CAO released a final monitoring report based on information provided by IFC as of March 2013. CAO finds that IFC’s commitments and actions constitute a substantial approach to addressing the conclusions reached in the CAO Audit Report. CAO finds that, at this stage, it has

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seen evidence that the adopted strategic approach is implementable, that IFC has reviewed its involvement in the Indonesian palm oil sector, that Advisory Services projects have been defined, and that IFC is following through on its commitment to resolve the identified shortcomings regarding its categorization process. CAO has determined that the audit can therefore be closed. CAO closed the compliance audit of IFC with regard to this case in April 2013. CAO's dispute resolution team remained engaged for several more years to support monitoring and implementation of agreements by the parties. Once the parties signaled that the final agreement has been substantially implemented during M&E team activities in June and July of 2013, CAO started to conclude its involvement. CAO planned to close the case in early 2014 utilizing a formal process of engagement with the relevant stakeholders to reflect on the process to date. With insufficient interest by key stakeholders regarding such a process, CAO determined to go ahead and close the case without such an engagement in June 2014.

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1 April 2007

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Complainant - Green Salvation Ecological Society Concerns – pollution, air emissions and quality of drinking water, environmental protection, relocation of villagers Nov. 2007: Parties unwilling ombudsman Jan. 2008: Compliance appraisal = issues related to the resizing of the sanitary protection zone and the relocation of villagers do not fulfill CAO’s criteria to conduct an audit. The issues related to air emissions and violations of IFC policies satisfy CAO criteria. Audit joined to the audit of the 1st complaint, Kazakhstan / Lukoil Overseas-01/Berezovka Closed January 2008 Project information Institution - IFC Project Name & Number - Lukoil Overseas 9953 Department - Oil, Gas, Mining, & Chemicals Company - Lukoil Overseas Karachaganak B.V. Sector- Oil, Gas and Mining Environmental Category A Commitment - $50 mill (A), $75 mill (B) & $25 mill (C) loans Background The Lukoil Overseas Project is an IFC-financed investment to develop the fields and increase crude oil and condensate production in the Karachaganak Oil and Gas Condensate Field in the Western Kazakstan Oblast. CAO has received three complaints in relation to this project. In April 2007, Green Salvation Ecological Society, a civil society organization based in Kazakhstan, lodged a complaint with CAO on behalf of villagers in Berezovka. This second complaint raised the following concerns: 1. Resizing of the sanitary protection zone and relocation of villagers; 2. Violations of both IFC policies/operating standards and national and environmental protection

laws and national covenants; 3. Emissions to air. CAO Action The issues raised in this second complaint were broadly similar to those raised by community groups in the first complaint lodged in September 2004. It raised concerns about the same impact of the project on villagers’ health and on their quality of life as the first complaint, but in the context of the legality of the national permissions and licenses under which the project operates. CAO Ombudsman determined that the parties were unwilling to seek resolution through a collaborative process. In November 2007, an Assessment Report was released and the case was transferred to CAO Compliance for appraisal. Status and Findings Resizing of the sanitary protection zone: "the question is limited to how IFC assured itself that the project complied with national requirements. The complainants state that there is an ongoing national legal process that attempts to address, or partly address, the claimed irregularities. IFC has assured CAO that as soon as any national requirement has relevant legal standing, IFC will assure itself that the Project complies as required by IFC’s policies." Relocation of villagers: "Relocation of villagers is in this case related to national decisions, legislation, and/or requirements, and not to IFC’s


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performance, or IFC’s requirements or conditions for involvement. There are no provisions in IFC’s policies that generally allow relocation of receptors as a solution to a potential pollution." Thus, issues related to the resizing of the sanitary protection zone and the relocation of villagers do not fulfill CAO’s criteria to conduct an audit. In contrast, the issues related to air emissions and violations of IFC policies do satisfy CAO criteria. Given the similarities exhibited by this complaint, CAO Compliance referred the matter to its audit of IFC in relation to the first complaint concerning this project. Accordingly, the complaint was closed in January 2008.



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India / Mahindra Farm Services-01, 02, 03, 04/Confidential

23 October 2006

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Complainant – Confidential Concerns – loss of livehood for the franchisees and loss of income for the farmers No agreement on a Dispute Resolution March 2008: transferred to Compliance June 2008: Compliance appraisal report finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Mahindra Farm Services 11230 Department - Agribusiness Company - Mahindra Shubhlabh Services Limited Sector - Agriculture and Forestry Environmental Category B Commitment - $2.2 million (Equity) Background The Mahindra ShubhLabh Services Ltd (MSSL) project was intended to be an agricultural services project in multiple states of India. IFC held $2.2 million in equity in MSSL, a subsidiary of Mahindra & Mahindra Ltd., India’s largest farm equipment company. Between October 2006 and February 2007, CAO received four complaints regarding the project and requesting confidentiality. The complaints asserted that the business practices of MSSL caused a loss of livelihood for franchisees of the company’s Agricultural Service Centers (ASC) and a loss of income for the farmers the ASC’s were intended to serve. CAO Action Despite extensive negotiations undertaken by the CAO Ombudsman between the company and the individual complainants, it was determined that the complaint was not amenable to resolution. This impasse centered on a divergence of opinion as to how the case ought to be closed- arbitration or mediation. As such, the case was transferred to CAO Compliance for appraisal in March 2008. CAO Compliance conducted an appraisal for audit of the project, which concluded that the case did not merit an audit. MSSL in fact shifted its business from ASCs to the retail sale of agrichemicals, which the complainants believe are environmentally hazardous rather than ecofriendly, as the original IFC-supported project committed. Status and Findings The Appraisal Report for Audit, completed in June 2008, determined that non-deliverance of potential positive financial outcomes for the ASCs could not be deemed a loss of livelihood. Nevertheless, the Report highlighted that the question as to whether small businesses that signed the franchise agreement were misled by projections or whether they fully understood the commercial implications of the project could not be answered through an audit of social and environmental outcomes. The complaint was closed in June 2008.


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Georgia / BTC Pipeline-27/Tbilisi

15 January 2006

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Complainant – One resident of Tbilisi Concerns - land compensation issues BTC Co. not willing ombudsman Apr. 2007: CAO compliance appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Baku Tbilisi-Ceyhan Pipeline 11251 Department - Oil, Gas, Mining, & Chemicals Company - Baku Tiblisi-Ceyhan Pipeline Sector - Oil, Gas and Mining Countries - Georgia, Turkey and Azerbaijan Environmental Category A Commitment - $125 million (A loan) $125 million (B loan) Background The Baku-Tbilisi-Ceyhan (BTC) oil and gas pipeline is a 1,768 km long crude oil pipeline stretching from the Caspian Sea to the Mediterranean Sea. It is the second longest oil pipeline in the world and passes through Azerbaijan, Georgia and Turkey. The project is operated by BTC Co., which comprises a consortium of 11 partners. IFC has invested $250 million since 2003. The project is operated by BTC Co., which comprises a consortium of 11 partners. The estimated aggregate cost of the BTC project is US$3.7 billion, the financing of which will include total debt of approximately US$2.4 billion, funded by the IFC, the EBRD (loans up to $250 million) and export credit agencies (ECAs). The ECAs include USExim, JBIC (Japan), ECGD (UK), Hermes (Germany), COFACE (France) and SACE (Italy). To date CAO has received 33 complaints in relation to the project ranging from individuals to communities to local organizations. On June 15, 2006, CAO received a complaint from a Tbilisi resident regarding land compensation issues. BTC Co. has occupied the complainant’s land for pipeline construction since April 2004. The complainant alleges that the amount offered to him by BTC Co. for his land is inadequate. CAO Action The CAO attempted to facilitate a settlement between the parties, but BTC Co. was unwilling to negotiate further with the complainants. On September 7, 2006, the CAO Ombudsman closed the case and transferred it to CAO Compliance for appraisal. Status and Findings The parties do not dispute the facts, other than the suitability of the land for growing roses for commercial sale. The core of the dispute in this case is therefore whether the Resettlement Action Plan should apply when one party claims that the other did not enter in good faith. The CAO sees no indications that the Resettlement Action Plan has failed in providing provisions in this case, or that IFC has failed in assuring itself that the provisions were followed. The CAO sees no indications that the Project have not followed the provisions stated. The CAO is not an appeals court or a substitute for national court systems in the land of operation. The CAO does conclude that the Project has followed the provisions in the national legislation. The provisions in the national legislation are in this case not contradictory to IFC’s policy provisions. The CAO concludes that this case does not fulfill the


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criteria for further investigation in the form of an audit of how IFC assured itself that its social and environmental policy provisions were adhered to.

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Georgia / BTC Pipeline-26/Krstanisi

12 December 2005

→ To documents Complainant - residents of Krstanisi Concerns - pipeline safety, water supply, dust annoyance and compensation for trees. BTC Co. not willing ombudsman Feb. 2007: CAO compliance appraisal finds no audit is needed Closed Project information Institution - IFC Project Name & Number - Baku Tbilisi-Ceyhan Pipeline 11251 Department - Oil, Gas, Mining, & Chemicals Company - Baku Tiblisi-Ceyhan Pipeline Sector - Oil, Gas and Mining Countries - Georgia, Turkey and Azerbaijan Environmental Category A Commitment - $125 million (A loan) $125 million (B loan) Background The Baku-Tbilisi-Ceyhan (BTC) oil and gas pipeline is a 1,768 km long crude oil pipeline stretching from the Caspian Sea to the Mediterranean Sea. It is the second longest oil pipeline in the world and passes through Azerbaijan, Georgia and Turkey. IFC has invested $250 million since 2003. The project is operated by BTC Co., which comprises a consortium of 11 partners. The estimated aggregate cost of the BTC project is US$3.7 billion, the financing of which will include total debt of approximately US$2.4 billion, funded by the IFC, the EBRD (loans up to $250 million) and export credit agencies (ECAs). The ECAs include USExim, JBIC (Japan), ECGD (UK), Hermes (Germany), COFACE (France) and SACE (Italy). To date CAO has received 33 complaints in relation to the project ranging from individuals to communities to local organizations. On December 12, 2005, CAO received a complaint from residents of Krstanisi that raises issues about pipeline safety, water supply, dust annoyance and compensation for trees. CAO Action The CAO Ombudsman worked with the parties to assess opportunities for a negotiated settlement. After several months, BTC Co. decided it was unwilling to pursue such a settlement, and on June 23, 2006 the case was transferred to CAO Compliance for appraisal. Status and Findings CAO Compliance determined that the issues raised in the complaint did not meet the criteria for an audit (not enough indications that the case has substance). The appraisal was completed and published in April 2007. Both the appraisal and the complaint are closed. The BTC pipeline project has given rise to 33 requests before the CAO, 2 complaints before the Independent Recourse Mechanism of the EBRD, 5 complaints before the UK National Contact Point of the OECD Guidelines on Multinational Enterprises


http://www.ebrd.com/work-with-us/project-finance/project-complaint-mechanism/irm-register.html

https://books.google.fr/books?id=yRw7qYBn1D4C&pg=PA124&lpg=PA124&dq=btc+pipeline+complaints&source=bl&ots=bnTSwjXcAt&sig=zp0L8aVLKkO6vPD2GQO3QJ6aanY&hl=fr&sa=X&ved=0CD4Q6AEwBDgKahUKEwj7m5-Dh6vHAhXBaRQKHeHUCWU#v=onepage&q=btc%20pipeline%20complaints&f=false

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Uruguay / Celulosas de M'Bopicua (CMB) & Orion-01/Argentina & Uruguay

1 September 2005

→ To documents

Complainant - Centre for Human Rights and Environment, Argentina Concerns – International Waterways, Environmental Assessment, Disclosure Policy, violation of international, bilateral, and national laws, failure to adopt the least environmentally damaging technology mandated by the World Bank Pollution Prevention and Abatement Handbook (Pulp and Paper mills) No agreement could be reached Nov. 2005-March 2006: compliance audit Closed Project information Institution - IFC Project Name & Number - Celulosas de M'Bopicua 23681 Department - Global Manufacturing & Services Company - Empresa Nacional Celulosa Espana Sector - Pulp & Paper Environmental Category A Commitment - $50 million (A Loan) & $150 million (B Loan) Background Both the Orion and Celulosas de M'Bopicua Projects are Greenfield eucalyptus kraft pulp mills. In September 2005, the Centre for Human Rights and Environment, an Argentine non-governmental organization, lodged a complaint with the CAO on behalf of the stakeholders in relation to the two proposed IFC projects. The claimants argued that the proposed projects posed serious social risks to the livelihood of local communities as well as detrimental environmental damage. Furthermore, they also sought a transparent and fair consultation process that gave all stakeholders the opportunity to raise concerns and have those concerns effectively addressed. CAO Action The CAO assessed the complaint in order to ascertain opportunities to negotiate a settlement. Given that a resolution could not be reached, a preliminary assessment report was produced and distributed to stakeholders. In November 2005, the CAO Vice President commenced a compliance audit surrounding internal due diligence in order to ensure greater clarity in the implementation of social and environmental appraisal procedures by both IFC and MIGA. In particular, the audit focused on public disclosure of environmental and social documentation. Status and Findings The compliance audit was completed on 22 February 2006. CAO does not discuss the efficacy of IFC’s decision to commission a Cumulative Impact Study (CIS) in July 2005, and within the scope of this audit only seeks to identify possible explanations for the divergence of opinion between IFC and MIGA concerning the need for a CIS. Having taken the decision to commission an additional study of the cumulative impacts in July 2005, IFC essentially signaled that there had been a short-coming in its earlier due diligence. However, IFC gave no public clarity about the extent to which the CIS might influence project decision-making, by neither


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acknowledging that there had been a short-coming in its earlier due diligence, nor by making a clear commitment to consultation on the CIS, nor a clear commitment to restart the disclosure period. IFC’s due diligence to satisfy itself that the EAs were complete in all material respects prior to disclosure was inadequate and not in compliance with the organization’s Disclosure Policy, resulting in disclosure of EAs that were not complete as: - Up to (and after) disclosure on Orion in April 2005, IFC was working from incomplete versions of the EA. - Given that subsequent to disclosure of the Orion EA in April, IFC determined that the EA inadequately addressed cumulative impacts (and that earlier consultations might therefore be inadequate), IFC should have clearly signaled this to stakeholders by committing to consider further consultation on the CIS and to commit to re-starting the pre-Board disclosure period when the EA was complete. - There was an inherent contradiction in disclosing the CMB EA, and thereby signaling that it was complete in all material respects, without qualifying the basis for its disclosure and the link to the forthcoming CIS, given that the IFC-commissioned CIS had already been committed to. In addition to the inadequacy of the due diligence pertinent to this specific EA, CAO concludes that IFC's ESRPs more generally are not currently supportive of compliance with IFC's Disclosure Policy requirements. In other words, although the procedures are followed, they are not rigorous or robust enough to sufficiently support an outcome that is in compliance with the Disclosure Policy. For example, CES is not currently obliged to record the basis for determining that an EA is complete in all material respects. Similarly, the procedures provide insufficient guidance to staff in the event that they discover a requirement for the client to undertake additional EA work after public disclosure has taken place. - For the Orion project, there was no documentation that systematically showed how and why the decision was made that the EA was complete in all material respects and therefore ready for disclosure. There was no documentation recording the basis on which the decision was made that no PCDP was required for this project. - For the CMB project, there was no documentation that systematically showed how the inadequacies identified in the project EA were addressed to IFC’s satisfaction, prior to disclosure. CAO makes the following observations: - The absence of explicit procedures for deciding how to handle circumstances in which a need for additional information is identified after public disclosure has begun, results in the process being unnecessarily unpredictable for stakeholders and project sponsors. - IFC and MIGA initially collaborated effectively with respect to the Orion project, however, when IFC identified a need for, and took the decision to commission, an additional study of cumulative impacts, the collaboration was less evident. - EA documentation was not publicly available through the InfoShop Web site several weeks after it was officially disclosed. Based on this audit: - CAO recommends that IFC systematically document its appraisal of the adequacy of clients’ social and environmental processes and documentation prior to public disclosure of EA documents, so that IFC in detail outlines the findings of its environmental and social due diligence. - CAO recommends that procedures be implemented in both organizations that clearly define the process to be followed where short-comings are identified in the client’s social or environmental documentation or processes after disclosure. - CAO recommends that where IFC and MIGA are involved in the same project there should be clearly defined procedures for collaboration, including the sharing of information and the documentation of the rationale for key decisions.

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- CAO recommends that IFC and MIGA implement procedures to verify that the documentation posted on the external Web sites is accessible, correct, and consistent during the entire disclosure period.

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Democratic Republic of Congo / Anvil Mining Congo, SARL-01/World Bank President Request

1 July 2005

→ To documents Complainant - Request of President of World Bank Group Concerns – security and human rights November 2005: Compliance audit Closed (Feb. 2006) Project information Institution - MIGA Project Name & Number - Anvil Mining Congo, SARL 5054 Company - RBM International (Dublin) Limited Sector - Oil, Gas and Mining Environmental Category - A Commitment -$13.6 million (Guarantee) Background Dikulushi is a copper-silver mine located in the Katanga province of the Democratic Republic of Congo. The project was developed by Anvil Mining, a Canadian company, and had been in production since 2002. In October 2004, the town of Kilwa, 50 kilometers from Dikulushi, was taken over by a small rebel group. In response to a direct request, Anvil Mining provided logistical support to the armed forces of DRC. In order to regain control over the town, the armed forces allegedly killed civilians, looted and carried out other crimes such as extortion and illegal detention. CAO Action In July 2005, Rights and Accountability in Development, a UK-based non-governmental organization wrote to the President of the World Bank Group, Paul Wolfowitz, on behalf of a number of NGOs, alleging a number of failures in the due diligence undertaken by MIGA. Subsequently, former President Wolfowitz requested that CAO audit MIGA’s due diligence with a particular focus on security and human rights. The CAO’s audit focused on security and conflict; adherence to MIGA’s environmental and social review procedures; and new commitments under the Extractive Industries Review (EIR) Management Response. Findings and Status: CAO’s audit addressed the following three aspects and related questions: 1. Security and Conflict: MIGA’s ‘core business’ due diligence as Political Risk Insurers: - Did MIGA’s underwriting or risk management due diligence provide a framework through which security and conflict issues could have been identified and addressed? - To what extent were these issues addressed? 2. Adherence to MIGA’s Environmental and Social Review Procedures (ESRPs): - Did MIGA follow its ESRPs? - Did the ESRPs provide a framework through which broader social issues, including security and conflict, could have been identified and addressed - To what extent were these issues addressed? 3. New commitments under the World Bank’s EIR Management Response:


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- Was MIGA’s due diligence responsive to applicable commitments of the World Bank’s EIR management response on enhancing the development benefits of extractives projects and addressing Security and Human Rights concerns? The primary focus of CAO’s audit is on MIGA’s due-diligence processes, as opposed to Anvil’s management systems. The CAO audit did not consider compliance with the OECD Guidelines for Multinational Enterprises or the UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, as MIGA does not require client companies to adhere to these standards. Furthermore, the audit did not address certain other issues raised by RAID, including Anvil’s relationship with Mr. Katumba Mwanke, which were outside the CAO’s mandate. These matters have been referred to the World Bank’s Department of Institutional Integrity (INT). The compliance audit, completed in November 2005 and released in February 2006, made the following findings: - CAO found that MIGA adequately followed its underwriting and risk management due diligence, but that these core business processes did not address whether the project might either influence the dynamics of conflict or whether security provision for the project could indirectly lead to adverse impacts on the local community. CAO found that while MIGA’s initial adherence to its Environmental and Social Review Procedures (ESRPs) was adequate, its follow-through on some social aspects was weak. CAO also found that weaknesses in the ESRP due diligence, and on conflict and security issues specifically, echo a number of concerns that were the subject of CAO’s recommendations in its 2002 review of MIGA’s ESRPs. - Regarding security and human rights, CAO found that MIGA did not fully understand the implications for its client of implementing the Voluntary Principles on Security and Human Rights (as required by the Management Response to the Extractive Industries Review), nor did it assess whether its client had the capacity to properly implement them. Neither MIGA nor Anvil recognized the critical distinction between conventional security, which deals with securing the safety and well-being of personnel and assets, and the Voluntary Principles, which recognize that conventional security provision can, in and of itself, present risks to the well-being of communities. - CAO also noted that in its due diligence, MIGA included provisions in the Contracts of Guarantee to reinforce the potential local benefits. MIGA rapidly responded to CAO’s recommendations and started to address the issues raised. Recommendations CAO considers it essential that steps are taken to try and limit the risk of future incidents where the military or armed groups commit human rights abuses in the Dikulushi/Kilwa area, and to eliminate as far as possible the risk of Anvil’s equipment being used by any armed groups at risk of committing human rights abuses. Accordingly CAO recommends that: - MIGA should support Anvil in its ongoing efforts to fully implement the Voluntary Principles. - MIGA should retrospectively address the shortcomings with respect to its social due diligence on the Dikulushi project. More generally, and of relevance to Dikulushi and other MIGA projects: - CAO recommends that in situations where conflict, Security and Human Rights are of concern, MIGA require clients to systematically apply the Voluntary Principles - In light of MIGA’s role as political risk insurer and strong presence in conflict prone countries, CAO recommends that MIGA play an active role in implementing the Voluntary Principles within the World Bank Group. - At the screening stage, MIGA should ensure that all projects are reviewed by a social specialist. In the case of extractive industry projects, this should be by a social specialist with experience of this sector. - MIGA should expand its use of specific social and environmental contractual provisions to ensure, where relevant, adherence to commitments such as the Voluntary Principles The audit was closed in February 2006.

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Brazil / Amaggi Expansion-01/IFC Executive Vice President Request

1 November 2004

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Complainant: At request of IFC Executive Vice President (Peter Woicke) Concerns – categorization of the project, environmental and social adverse impacts, deforestation, supply chain May 2005: Compliance audit report Closed Project information Institution - IFC Project Name & Number - Amaggi Expansion 22561 Department - Agribusiness Company - Amaggi Exportaçao e Importaçao Limitada Sector - Agriculture and Forestry Environmental Category - B Commitment - $30 million (A loan) Background The Amaggi Expansion Project was a soybean investment sponsored by a Brazilian company, Grupo André Maggi Participaçoes Limitada and located in the Brazilian state of Mato Grosso. At the time the project loan was approved, Amaggi was an existing client of IFC (having received a prior loan of US$30 million in September 2002). This project attracted considerable criticism from various community organizations in relation to the issue of categorization of adverse environmental impacts. Criticism of IFC’s categorization of the project primarily rested on the indirect impacts of Amaggi’s third-party soybean suppliers on deforestation in Mato Grosso. CAO Action In November 2004, the Executive Vice President of IFC requested that CAO audit IFC’s environmental categorization of the Amaggi Expansion Project. During the IFC’s project review process, the Amaggi Expansion was categorized with a Category B rating as opposed to a Category A rating, which signifies the potential for significant adverse environmental impacts. In contrast, a project is assigned to Category B ‘if its potential adverse environmental impacts on human populations or environmentally important areas (…) are less adverse than those of Category A projects’. Various community organizations considered the project ought to have been categorized as Category A due to possible ‘sensitive, diverse or unprecedented adverse’ environmental consequences. The scope of the audit is confined to an independent audit of the Amaggi Expansion Project's environmental categorization. Categorization occurs at an early stage in IFC's project review process and is an internal IFC decision made without reference to the client. Status and Findings The compliance audit was completed in May 2005. Categorization occurs during IFC’s internal process of ‘Project screening’, the purpose of which is to decide on the nature and extent of the environmental assessment (EA) needed for the project. The initial decision about project categorization occurs at a very early stage in IFC’s project cycle. The rationale for categorization, including environmental and social issues and any policy concerns, are documented to assist management in decision-making. During Project Appraisal, IFC conducts a detailed assessment of the project, including environmental and social concerns. At this stage, IFC assures itself that its client has undertaken an appropriate level of Environmental Assessment (EA)


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and has in place the requisite capacity to deliver on environmental and social commitments. An IFC internal procedure (Quality System Instruction # 8) provide for projects to be re-categorized during appraisal (or at a later stage), in the event that project appraisal reveals a significant factor that was not available at the time of the initial categorization. The re-categorization process also provides for situations where projects may significantly change from the original proposed to IFC. Categorization also has a bearing on, among other things, the level of public consultation and disclosure required of IFC and its client. For category A projects and B projects where there are “special issues of concern”, IFC’s clients can be required to implement additional measures such as meaningful consultation with relevant stakeholders. IFC’s loans to Amaggi and environmental & social due diligence IFC has made two loans to Amaggi, the first of which was approved in 2002 (Investment number 11344). This loan of $30 million was directed to similar purposes as IFC’s 2004 investment: (i) increasing permanent working capital; (ii) providing necessary liquidity levels to support the group's increasing annual crop and grower pre-financing requirements; and (iii) funding minor capital investments. The loan was assigned a category B rating, environmental and social due diligence commenced with a field visit in February 2002, and involved a significant level of effort until Board approval on June 25, 2002. IFC’s environmental and social appraisal explicitly recognized civil society concerns regarding the rapid expansion within the sector and the perceived linkages to cerrado and tropical moist forest conversion. It also identified a number of other concerns, such as the need to reinforce occupational health and safety controls, and referred Amaggi to all applicable environmental and social policies and guidelines at an early stage. IFC placed a strong emphasis on, and invested considerable efforts in, ensuring that Amaggi’s own-managed farms and soy export and processing infrastructure complied with IFC’s environmental and social requirements. As a condition of disbursement, IFC required Amaggi to develop and implement an Environmental and Social Management System (ESMS), for its own operations and critically, to extend this to its 900 prefinanced farms. In this respect, IFC took the creative approach of treating Amaggi’s pre-financing activities as analogous to an IFC financial intermediary client’s on-lending activities. Amaggi’s Environmental Management System includes 13 management programs, dealing with aspects such as: the legal and regulatory framework; worker health and safety; occupational health; and environmental evaluation. One of these management programs specified requirements for the environmental orientation of pre-financed suppliers. This addressed aspects such as: conducting technical inspections of pre-financed suppliers; training of pre-financed suppliers; and ensuring compliance with IFC’s environmental and social requirements. IFC documents reviewed indicate that 35% of suppliers (900 in total) were pre-financed, and supplied 65% of the total volume of soy originated by Amaggi (based on 2001 estimates). Amaggi’s own-managed farms supplied 7.5% of soy originated, and the balance of 27.5% came from third-party farms that were not pre-financed. IFC’s environmental and social professionals recognized that there may be environmental or social issues associated with the latter. They took the decision however, that neither IFC nor Amaggi had sufficient leverage to impose any special requirements on other third-party suppliers of soy, in light of the highly competitive commodity market situation that Amaggi operates within. IFC’s environmental and social staff and Amaggi’s Senior Management recognized the potential value in broader engagement with NGOs in helping to bring about a wider sectoral commitment to responsible soy farming. In this regard, the IFC team engaged with the World Bank’s Brasilia office during appraisal of the first loan, specifically on establishing a dialogue with NGOs around broader soy sectoral issues of mutual concern. Initial meetings with NGO’s formed the basis for IFC’s Corporate Citizenship Facility’s (CCF’s) November 2003 proposal to Amaggi to broaden its engagement with Brazilian civil society organizations and the soy industry on Best Management Practices, developed in collaboration with IFC’s project team and their counterparts at Amaggi. The second Amaggi project (the Expansion project) was approved in September 2004, with an estimated cost of $125 million. Since the first IFC investment, Amaggi’s permanent working capital

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had doubled, as a result of increased origination volumes and soy prices. Almost 90% of the overall budget for the Amaggi Expansion Project was to support third-party farmer pre-financing, with just 10% providing for additional storage and equipment purchases. Approximately 50% of IFC’s loan went to each activity. IFC investment staff met with Amaggi representatives in December 2003 when the possibility of a second loan was first discussed. At the end of January 2004, IFC initially signaled its willingness to consider a second loan to Amaggi. On a parallel track, IFC’s CCF had moved forward with the proposal for Amaggi/CCF to stimulate a broader dialogue on responsible soy farming in Brazil. In addition, IFC provided support to Amaggi through CCF on developing written materials to promote good environmental practices in the soy production chain, in collaboration with a local foundation (The Mato Grosso Foundation). These materials were distributed at a series of events (“Soy Field Days 2005”) in the cities of Mato Grosso and Mato Grosso do Sur, involving approximately 8,000 persons involved in soy production. An important specific focus of IFC’s appraisal was to obtain a fuller understanding of Amaggi’s implementation of its ESMS, particularly with respect to social aspects. IFC hired a consultant in country to undertake this work, from the consulting firm that Amaggi had contracted to help develop its ESMS initially. The World Bank’s Brasilia office was made aware of the proposed second Amaggi loan in mid-April 2004 during an information-sharing teleconference with IFC. Despite assurances from IFC that Amaggi were in compliance with IFC policies and guidelines and Brazilian legislation, the office registered a number of concerns with IFC. These included concerns that Amaggi’s origination activities may be linked to increasing deforestation in Mato Grosso beyond its own-managed operations. From mid-April 2004 onwards, IFC’s appraisal efforts were undertaken against a backdrop of exchanges with NGOs. As previously outlined, IFC took the view that their due diligence (and that required of Amaggi) and outreach should be tailored to the diminishing level of influence and leverage IFC and Amaggi had at the level of their own managed operations, pre-financed suppliers and other third-party suppliers. Did IFC follow its own procedures on categorization? It is clear to CAO (from the review of project documents and discussions with the IFC Project Team) that IFC followed its own procedures on categorization. In advance of Board approval of the project, civil society organizations had raised concerns that IFC’s own procedures on categorization had not been followed. CAO accepts IFC’s position that “large-scale agro-industry projects” is an indicative category, and that decisions on categorization should always depend on a case-by-case project-specific analysis. This is consistent with the approach outlined in Annex B to the Procedure for Environmental and Social Review of Projects. IFC’s procedures on categorization are loosely defined however, and implicitly rely heavily on professional discretion. As IFC’s procedures do not provide for in-depth public disclosure around decisions on categorization, it is not possible for interested or affected parties to make an informed judgment about IFC’s decision-making process Was IFC’s categorization of the project as Category B justified? Recognizing that the process of categorization involves professional judgment, CAO considers that a B rating could have been justified had IFC adequately assured itself during appraisal that: (cumulative) 1. Amaggi’s own-managed operations were in compliance with IFC’s environmental and social requirements IFC went to considerable efforts to determine whether Amaggi’s own-managed operations were in compliance with applicable safeguard policies and guidelines. Over the course of its engagement with Amaggi, IFC has taken steps to assure itself that the impacts of Amaggi’s own-managed operations are in compliance. In addition, it has encouraged and supported the company to engage in social responsibility initiatives, and the development and dissemination of good practices for soy cultivation.

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2. The potential impacts of new infrastructure (specifically soy storage silos) would be adequately addressed prior to construction As the preferred silo locations had not been identified at the time of loan approval, IFC required Amaggi to commit to producing an assessment study of the proposed infrastructure expansion program. IFC took steps to ensure that the localized impacts of new infrastructure would be addressed. IFC should have more clearly defined the scope for the assessment study and its expectation in terms of issues to be addressed and level of detail required. 3. The ESMS would ensure compliance with IFC’s environmental and social requirements and afford an appropriate level of environmental and social protection IFC invested considerable resources in providing support to Amaggi with ESMS implementation, which continued beyond the approval of the second loan. In particular, IFC ensured that the pre-financing contracts (CPRs) signed for each third-party supplier required farmers to confirm that they did not engage in activities that might have brought them into conflict with IFC’s environmental and social Safeguard Policies. Specifically, pre-financed suppliers had to commit not to: engage in illegal deforestation or grow soybeans on illegally deforested lands; utilize child labor; contravene IFC’s pest management policy; finance farms with land conflicts; adversely affect land belonging to indigenous peoples; or adversely affect conservation units. It is clear to the CAO that IFC had an informed understanding of the broader environmental and social concerns relating to soy expansion, although IFC considered that the specific impacts associated with Amaggi’s pre-financed suppliers would be addressed through the company’s ESMS. IFC emphasized that its investment would not fund any activity directly associated with the expansion of soybean production, as Amaggi operated within a highly competitive market situation. This means that if Amaggi were to cease operations, its competitors would purchase the soy produced by Amaggi’s third-party suppliers, resulting in the same level of soy production taking place as in a “without project” scenario. IFC stated that it has become established practice to apply this logic and approach to categorization when dealing with the supply chain impacts of agribusiness projects, where IFC clients source raw materials from multiple farmers/producers in competitive commodity markets. IFC also makes a distinction between Environmental Assessment (EA) requirements determined through project screening, and its subsequent management of environmental risks. The basic provisions of the ESMS should be sufficient to ensure ongoing compliance with IFC’s environmental and social requirements, subject to: (i) satisfactory progress with implementation of the ESMS (discussed in point 4 below); and (ii) IFC having an informed understanding of pre-financed supplier impacts, for example on natural habitats. Amaggi has undertaken supplier profiling to establish a baseline to be able to monitor continuous improvements achieved through its management system over time. While this served the purpose of the procedural requirements of the ESMS, it did not provide sufficient information to enable IFC to make an informed decision on the nature and magnitude of the potential impacts on natural habitats of land use (and in particular land clearance) by pre-financed suppliers. It did not look at the types, extent of, or significance of habitat loss through a consistent frame of reference using qualified professionals, nor did it provide a consistent assessment of the compliance of prefinanced suppliers with host country laws or IFC’s Safeguard Policies and guidelines. 4. Satisfactory progress had been made with implementing Amaggi’s Environmental and Social Management System (ESMS), required as a condition of IFC’s first loan to Amaggi IFC should have undertaken a more rigorous assessment of the status of implementation of the ESMS as part of its appraisal of a second loan. The consultant report on the ESMS was limited by the TOR established by IFC. This ought to have included visits to/audits of a representative number of Amaggi’s pre-financed suppliers, and considered the extent to which environmental and social provisions of the ESMS were understood, being implemented, and were having the intended outcome in terms of compliance and environmental and social protection. From CAO’s review of a subset of suppliers, it appears that there may well be systemic weaknesses with the

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implementation of the ESMS, which could undermine the ability of the ESMS to provide an appropriate level of environmental and social protection or regulatory compliance. 5. An opportunity had been provided for public consultation, in light of the heightened concerns regarding conversion of natural habitats for soy cultivation Although not mandated for category B projects by IFC’s Procedure for Environmental and Social Review, IFC required Amaggi to prepare and implement a Public Consultation and Disclosure Plan (PCDP). The PCDP: described the expansion project and IFC’s involvement; provided some regulatory context and details of IFC’s environmental and social requirements; presented information on the Amaggi ESMS; outlined the proposed public consultation program and timetable; and outlined the details of the grievance mechanism established by Amaggi as part of its ESMS. Amaggi went to considerable efforts to ensure a broad set of stakeholders were directly invited to and/or aware of these meetings. The consultations presented an adequate opportunity to discuss wider NGO concerns, as informed and aware civil society organizations at the national level were invited to the consultations and in a position to advise local-level organizations of the value in raising concerns locally. On balance, despite some perceived ambiguity regarding the scope of the consultations, they provided a reasonable opportunity for concerns to be raised by civil society participants. In conclusion, CAO recognizes: (i) a continuum rather than a strict boundary between A and B projects inherent in IFC’s Procedure for Environmental and Social Review of Projects; and (ii) that the procedures allow for professional discretion and flexibility in the assignation of a project to a Category based on adequate assurances that expected impacts can be mitigated. On the question of whether IFC followed its own procedures on categorization, CAO finds that IFC did follow its categorization procedures. CAO also finds that IFC: - Has procedures for categorization that are loosely defined and rely heavily on professional discretion; - Has an informal “established practice” on categorization to address the supply chain impacts of agribusiness projects that may not be fully supportive of a robust appraisal process; and - Does not provide for disclosure around categorization decisions that would enable interested or affected parties to make an informed judgment about the adequacy of IFC’s categorization decisions. On the related question of whether IFC’s categorization of the project as Category B was justified, CAO finds that IFC: - Required that Amaggi implement an ESMS in order to mitigate potential adverse social and environmental impacts; - Assured itself that Amaggi’s own-managed operations were in compliance with environmental and social requirements; - Assured itself that the potential impacts of construction of soy storage silos could be adequately addressed through an EA; and - Required Amaggi to provide a reasonable opportunity for meaningful discussion of civil society. CAO also finds that IFC: - Did not adequately assure itself of whether or not the ESMS would afford an appropriate level of environmental and social protection, and ensure compliance with IFC’s environmental and social requirements during project appraisal; - Did not undertake a sufficiently rigorous assessment of the status of implementation of Amaggi’s ESMS as part of its appraisal of the second loan; and - Did not clearly define its expectations of Amaggi as regards issues to be addressed by the assessment of the proposed silo locations and the required level of detail. CAO finds that the Category B rating cannot be fully justified unless these conditions are met The audit was closed in June 2005.

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1 September 2004

→ To documents Complainant - Crude Accountability Concerns – pollution, air emissions and quality of drinking water, environmental protection, relocation of villagers Aug. 2006: parties unwilling a negotiated solution April 2007: Compliance appraisal = the issue related to emissions to air merits further investigation in the form of an audit of IFC. Other issues related to water quality and relocation do not fulfill CAO's audit criteria. 14 March 2008: Compliance audit report Monitoring In January 2009, Lukoil ends its contractual obligations to IFC by prepaying its outstanding balance and therefore ending IFC’s obligations to assure itself of project performance. Nevertheless, IFC remained engaged with the project sponsor to verify compliance. April 2009: Audit closed Closed Project information Institution - IFC Project Name & Number - Lukoil Overseas 9953 Department - Oil, Gas, Mining, & Chemicals Company - Lukoil Overseas Karachaganak B.V. Sector- Oil, Gas and Mining Environmental Category A Commitment - $50 mill (A), $75 mill (B) & $25 mill (C) loans

Synopsis Background The Lukoil Overseas Project is an IFC-financed investment to develop the fields and increase crude oil and condensate production in the Karachaganak Oil and Gas Condensate Field in the Western Kazakstan Oblast. CAO has received three complaints in relation to this project. In September 2004, Crude Accountability, an NGO based in the United States, lodged a complaint with CAO on behalf of residents of Berezovka. The complainants, who are seeking relocation of the village, raised concerns about the health and well-being of Berezovka residents related to air emissions and quality of drinking water. CAO Action CAO’s Assessment Report was completed in April 2005 and found that health and air quality data not made available previously, ought to be released to the public and that without baseline data, it is difficult to distinguish the health and environmental effects of the current project from those unrelated problems caused previously. In February 2006, CAO released a progress report that recommended a process for establishing a multi-party monitoring initiative. Both parties’ responses indicated their lack of willingness to engage in a collaborative process and therefore in August 2006, CAO closed the complaint and transferred the case to CAO Compliance for appraisal. CAO Compliance released the appraisal report in April 2007 determining that the issue related to emissions to air merited further investigation in the form of an audit of IFC. Other issues related to water quality and relocation did not fulfill CAO's audit criteria.


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In the audit report, which was completed in April 2008, the CAO found IFC to be out of compliance on how IFC had assured itself that emissions to air from the project complied with IFC requirements. CAO continued to monitor actions by IFC to ensure that IFC would meet its compliance obligations. In January 2009, Lukoil ended its contractual obligations to IFC by prepaying its outstanding balance and therefore ending IFC’s obligations to assure itself of project performance. Nevertheless, IFC remained engaged with the project sponsor to verify compliance. Following a site visit by the audit team in January 2009, the CAO released a monitoring report that listed outstanding issues related to the project’s performance: reporting of stack emissions; completeness of ambient air quality monitoring programs; and adequacy of the selection of ambient air quality monitoring sites. The project sponsor committed to an action plan to resolve these outstanding issues and, by April 2009, the CAO received confirmation that the action plan had been adhered to. Issues related to IFC's assurance process remained unaddressed. Since the non-compliances related to project performance had been addressed by the project sponsor and IFC's client had ended its contractual relationship, the CAO closed the audit. Status CAO closed the case in April 2009.

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Bolivia / Comsur V-01/Bosque Chiquitano

1 July 2003

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Complainant - Coordinadora de Pueblos Ethnicos de Santa Cruz Concerns - quality of EIA; consultation and disclosure of information to indigenous communities; compensation June 2004: Compliance audit May 2005: Case closed Project information Institution- IFC Project Name & Number- Comsur V 9670 Department - Oil, Gas, Mining, & Chemicals Company - Sinchi Wayra S.A. Sector - Oil, Gas and Mining Environmental Category B Commitment - $10 million Background The Don Mario mine is an operation of Empresa Minera Paititi, S.A., a subsidiary of Orvana Minerals Corporation, in which Compania Minera del Sur (COMSUR) holds shares. In July 2003, the Coordinadora de Pueblos Ethnicos de Santa Cruz, a Bolivian non-governmental organization, lodged a complaint with the CAO on behalf of the communities in the Bosque Chiquitano with the following concerns: 1. An environmental impact study of Don Mario mining project in the Bosque Chiquitano was flawed; 2. Indigenous Peoples were not consulted or provided with adequate information in a timely manner

nor compensated for the project's social and environmental impacts. Mining in a protected area and rare ecosystem, such as the Bosque Chiquitano rain forest, has caused considerable debate for many years, especially in relation to the exploitation of natural gas reserves. Although some social benefits are derived from the pipelines, local people do not have access to affordable gas. This situation had provoked resentment, and delays/uncertainties concerning a social fund caused distrust within the Chiquitano communities. At the time of the complaint, IFC had been involved with COMSUR for over 17 years, holding 11% equity in the company. CAO Action In July 2003, CAO Ombudsman conducted an assessment and concluded that it should commission an independent review of the social and environmental aspects of COMSUR operations. Subsequently, CAO Compliance conducted an audit of IFC’s compliance with its social and environmental commitments relating to the project. Status and Findings The compliance audit was completed in June 2004. IFC’s E&S engagement with COMSUR To some extent, IFC considered the adequacy of COMSUR’s capacity to meet its social and environmental obligations. The focus on capacity, with an explicit link between capacity and performance, was strengthened in the last three years. Pre-investment attention to COMSUR’s


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capacity evolved from an ad-hoc approach with IFC’s earlier investments, to a more substantive and systematic consideration of capacity. Similarly, the attention to capacity during supervision also became more systematic over time. Despite the evolution within IFC of a more systematic approach to assessing and encouraging the reinforcement of COMSUR’s E&S capacity, IFC did not become substantively or directly involved in follow-up initiatives to enhance capacity. Given the unequaled set of experiences that IFC’s E&S professionals have, they are uniquely placed to play a more direct role in the reinforcement of COMSUR’s capacity. IFC should consider more systematically the adequacy of its clients’ capacity at the pre-investment stage and link this to specific requirements to enhance E&S capacity. These can then become a condition of any future loan and be subject to IFC’s routine supervision efforts. COMSUR’s Environmental management capacity COMSUR has assembled a high quality team for the management of environmental issues with strong capacity, a commitment to excellence and high levels of personal responsibility. COMSUR has a strong commitment to going beyond compliance, irrespective of legal obligations, subject to financial performance. The company approach is prevention oriented with a focus on risk reduction or elimination. COMSUR have made genuine efforts to move from the paternalistic approach to community assistance used in the past, to more participatory approaches, and from a reactive to a proactive mode with regards to community engagement. Recommendations Current mechanisms for dealing with complaints are informal, inconsistent and are sometimes undermined by residual paternalism. It is recommended that COMSUR develop and publicize as a matter of priority a complaint resolution process that is transparent and predictable. Where complaints are legitimate, the remedial actions by COMSUR should be clearly communicated as mitigation efforts. Inadequate communication is a recurring theme in several of the review findings, and highlights the need for COMSUR to reinforce information exchange, transparency, and engagement with communities. COMSUR should strengthen its relationships with communities through adopting a more open and transparent approach to engagement on E&S issues of mutual concern. Current emergency response plans do not recognize the need for direct involvement of the local population. COMSUR should examine when and how the local population should be informed, engage with communities to discuss emergency issues of mutual concern, and explicitly integrate involvement of communities into emergency response plans. It is recommended that COMSUR revisit monitoring regimes periodically and systematically, and ensure they are inherently flexible and responsive to the environmental changes that can take place over the life of an operation. Understanding of some of the specific requirements of ISO 14001 needs to be reinforced among environmental staff to support COMSUR in pursuing certification. COMSUR should undertake a gap analysis between current management provisions and ISO 14001 for each operation so that staff can be fully aware of the tasks ahead of them. Additional training should be provided to ensure capacity in any areas identified as problematic. Social criteria are not consistently or effectively integrated into the analysis supporting project decision-making at operations. It is recommended that the SMS and EMS be revised to strengthen the formal integration of social criteria into project decision-making at an early stage, with adequate training for senior and area managers to understand the value and application of such integration. Related training should also be provided to social specialists. Greater consistency and transparency are needed on aspects of COMSUR’s social policy and its implementation in order to improve communication and stakeholder confidence. In order to build trust with communities and facilitate a non-dependent development process, greater clarity is

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needed on a number of issues, such as the identification of social area of influence or responsibility, and criteria for participation in community development programs. IFC is uniquely placed to play a more direct role in the reinforcement of COMSUR’s capacity, depending on its own capacity constraints. While IFC’s experience in managing social issues (in particular) makes it well placed to assist in the development of such capacity, IFC’s social specialists have to contend with the pressing demands of due diligence and supervision. It is recommended that IFC explores the potential to form strategic partnerships to support sponsor learning and innovation on E&S capacity. IFC should consider more systematically the adequacy of capacity at the pre-investment stage and link this to specific requirements to enhance E&S capacity. This is consistent with the recommendations of the 2003 CAO Review of IFC’s Safeguard Policies. By adopting a more systematic consideration of sponsor capacity at the due diligence stage, areas of capacity in need of support could be identified and become a condition of any future loan, and subject to IFC’s routine supervision efforts. IFC should also explore mechanisms for rewarding sponsors that exhibit superior capacity and performance over time, relative to riskier sponsors. Finally, the CAO made recommendations to IFC to ensure that: • COMSUR develops a transparent and predictable complaint resolution process to achieve greater community engagement; • Formation of strategic partnerships to help improve project companies’ social and environmental performance. The audit emphasized deepening the public consultation process to ensure broader, informed participation; participatory community development planning and stronger representation of social specialists at an early stage in project decision-making. The complaint was closed in May 2005.

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Peru / Compania Minera Antamina S.A.-01/Huarmey

1 September 2000

→ Documents not available online Complainant - Local chapter of Federation of Peruvian Fishermen Concerns – consultation, resettlement, disclosure of information Closed

Project information Institution - MIGA Project Name & Number - Compania Minera Antamina 732 Company - EDC, Teck Corp, Rio Algom Ltd and Noranda Inc. Sector - Mining Commitment - $67.5 million Background Compania Minera Antamina operates an open-pit mine and a milling and ore concentrating facility in the municipality of San Marcos in the Ancash region of Peru. The facility produces copper, zinc, lead, bismuth, silver and molybednium. The concentrates extracted from the mine are transported via an underground pipeline through the Department of Ancash to Punta Lobitos in the Municipality of Huarmey. At Punta Lobitos, the water is separated from the concentrate and loaded onto ships to be transported to global markets. In September 2000, a local union chapter of the Federation of Peruvian Fishermen lodged a complaint with CAO. The complaint raised the following concerns: 1. Inadequate consultation with local people and coordination of the resettlement process; 2. Insufficient disclosure in relation to mining activities and the environmental impacts in construction of the concentration plant and loading dock at Huarmey. CAO Action At the time of the complaint, the Antamina mine was the Multilateral Investment Guarantee Agency’s largest project that it had been involved with. MIGA issued six guarantees totaling $107.5 million in support of the project during 1999 and 2000. In September 2000, CAO Ombudsman assessed the complaint and the CAO Vice President requested that a Compliance Review of MIGA’s social and environmental due diligence be undertaken. Status and findings As requested by the CAO Vice President, the case was transferred to CAO Compliance who conducted an audit of MIGA. The CAO audit found non-compliances in the application of policies relevant to indigenous people and resettlement, in addressing related social concerns, and the accessibility for the CAO to relevant MIGA documentation. As such, the complaint was closed in January 2005.