Thirteen years after communities from Odisha’s Dhenkanal district filed a complaint at the International Finance Corporation’s (IFC) accountability mechanism, the Compliance Advisor Ombudsman (CAO) against IFC’s lending to GMR Kamalanga Energy Limited (GKEL), the case is now closed, despite CAO reporting that IFC failed in implementing the Environment and Social Action Plans in response to CAO’s investigation.
The Kamalanga project was unique in many ways. In 2007, IFC invested in a financial intermediary (FI), the India Infrastructure Fund (IIF), a private equity fund focused on various infrastructure sectors in India. One of IIF’s portfolio investments is GKEL, a special purpose vehicle established by GMR Energy Limited. GKEL’s primary objective was to develop and manage a 1400 MW coal-based power plant located near Kamalanga village in Dhenkanal district, Odisha.
This was the first complaint on an FI that CAO had ever received.
At the time of financing this project, IFC’s nearly half of investments were through financial intermediaries. Lending through FIs was IFC’s way of obfuscating its obligations towards transparency and accountability. At the time of lending, IFC was not obliged to reveal details of the subprojects financed by the FI. Nor the FI was mandated to share details of their subprojects. FIs were not required to comply the Performance Standards of IFC – its social and environmental safeguard policies applicable in direct lending to projects. With communities negatively impacted by the subprojects having no information, their access to any remedy was even more remote.
The project was located in a Revenue Block that the Ministry of the Environment classified then as 7th of the 88 most polluted hot spots in the country. GKEL acquired 1200 acres of mostly prime agricultural land irrigated by the Rengali Canal System. The 900 acres private land acquired used to feed and employ nearly 1,300 families in 4 villages. With no livelihood restoration plan in place and with many affect families getting no proper land compensation, hundreds have lost their land, crops, trees and other properties. Those economically displaced include the agricultural labourers and share croppers, the Khaira tribe and the dalits.
Company, in collusion with the administration, used force and other tactics to intimidate the affected communities. Women and men were randomly arrested and implicated in false cases. Some were beaten, tortured and intimidated by the police before their release. A climate of fear engulfed the community.
It is in the context, communities from Dhenkanal, with the help of researchers who followed the money trail from IFC to IIF and to GKEL, filed a complaint to CAO in April 2011.
The key points raised in the complaint were:
- Failure to disclose fundamental information – Under the cover of being funded by a FI, GKEL failed to provide fundamental information on potential impacts on communities, stakeholder engagement process, the grievance mechanism, and action plan for redress and risk mitigation.
- Social and environmental problems and publicly undisclosed risks – 1300 families have been affected in 4 villages who have lost land, crops, trees, etc. Land was purchased at prices below market value. Apart from already existing concerns, GKEL has not even attempted to make known or address the grave environmental and health impacts that their 1400 MW thermal power plant will have once it starts its operations.
- Harassment and Intimidation – The police and the local administration have been used by the company to intimidate people to physically vacate lands and habitat. The police along with the private security guards hired by GKEL intimated, threatened and also arbitrarily arrested villagers.
Soon after filing the complaint, CAO initiated the mediation process, a process of bringing both the parities together and finding a way out. GKEL took it as a cover to buy time to complete the construction of the project. A year later, the company just walked away from the process, with no consequences.
In towards the end of 2015 CAO released its investigation report. It found fault with IFC’s pre-investment Environment & Social (E&S) due diligence. CAO critiqued the non-development of a structure for E&S risks. It reported about non-compliance with regard to IFC’s supervision of the investment, and exposed IFC India management’s inability to take timely decisions in safeguarding community’s environmental & social fabric. It also said that IFC is at fault for continuing to fund GMR project, despite non-compliance. IFC on their part accepted most of the non-compliance findings of CAO, but came up with a rather non-starter action plan and continued to not consult the community or take them into confidence.
A monitoring report by CAO in 2019 found remedial actions far from adequate to address the findings of non-compliance in its original report of 2016. In the second and the last monitoring report of May 2024, CAO noted that “IFC has failed to provide evidence of adequate implementation of the client E&S Action Plan, and available evidence indicates that PS (Performance Standard) gaps persisted at the Kamalanga project”. What are the larger learnings from this process? Despite CAO reporting that IFC’s repeated failure in complying with its own policies, they are not taken to task; IFC continued to undermine the mandate of CAO, buy continuously ignoring their findings, with a confidence that they can get away doing that. This has happened not just in this case, it happened in other cases as well, as in Tata Mundra.
The powers of CAO are heavily curtailed that it cannot make recommendations for course correction. It relies on IFC, whose non-compliance was the reason for the CAO complaint, to rectify those. Upon reporting repeated non-compliance, CAO cannot take any action on the erring management.
From a promising beginning three decades back, independent accountability mechanisms in multilateral banks have reduced to, at best, mere record keepers of social and environmental violations of those institutions in the projects they are investing, without providing adequate redressal.
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