Three weeks after lodging a complaint, the Compliance Advisor Ombudsman (CAO), an independent audit body of the World Bank’s private sector lending arm,International Finance Corporation (IFC), deemed the case eligible for investigation. The complaint raises social and environmental concerns by affected communities over the GMR Kamalanga Energy Limited (GKEL) project, a 1050 MW (stepped up with an additional 350 MW) coal-based thermal power plant located at Kamalanga village, Dhenkanal district, in Odisha.
This is the first time a sub-project, financed under the financial intermediary (FI) lending instrument of the IFC, will come under formal inspection. This public scrutiny comes at a time when about half of all IFC financing is now channeled through FIs. In India, some of the key FIs accessing IFC money are the Infrastructure Development Finance Corporation (IDFC), India Infrastructure Fund and Macquarie SBI Infrastructure Trust, which in turn invest their borrowing in large, yet risky energy and infrastructure projects.
A ‘concealed’ lending operation
The IFC has an equity investment of $100 million to India Infrastructure Fund (IIF), a financial intermediary (FI), which then sub-lends the money to various companies engaged in energy generation, oil and gas pipelines, and other power infrastructure. GKEL is one of the companies identified to have accessed this loan to construct a thermal power project in one of the most polluted regions.
The challenge with this lending arrangement is that project development is done in an opaque, almost invisible and unregulated manner, which precludes information disclosure to affected communities, and accountability. Safeguards, check and risk mitigation, and accountability that apply to IFC’s direct investment loans are not required in FI loans.
“Inability to secure the most fundamental information about financial intermediary subprojects is not consistent with IFC’s supposed commitment to transparency. There are no basic minimum standards or guideline that needs to be met in case of FI subprojects. The Performance Standards which would apply in IFC’s direct lending are not applicable to FI projects. This would also be the case even if subproject is a high risk project according to categorization of IFC Projects,” cited Vijayan MJ of Delhi Forum who is one of the complainants.
Pitfalls of FI lending
After months of independent research and connecting the dots, complainants discovered a can of worms that IFC and its client are concealing.
One, IFC does not want the public to know that its FI investment is located in a Revenue Block that the Ministry of the Environment classifies as 7th of the 88 most polluted hot spots in the country.[1] The project site is highly uninhabitable as industrial wastes that run into the water streams contain high deadly fluorine. In 2010, the Environmental Ministry issued a moratorium for constructing new projects in the area [2].
Had this been a direct IFC investment, safeguards, check and risk mitigation such as environmental impact assessment, pollution abatement and community health and safety, should have applied. But by concealing the basic information from the public, IFC is seen to be perpetuating the disasters now engulfing the agricultural and water resources of tribal, dalit and poor farming communities.
Amulya Nayak, Convenor of the Odisha Chas Parivesh Surekhsa Parishad (Parishad) and complainant to CAO revealed: “The company never shows any regard for community health. It ignores villagers’ requests to not dump its garbage to adjacent agricultural lands. GKEL employs dynamite blasting at the project site, which causes cracks in nearby houses and primary school building. Project also extracts huge water volume and we witness in our bore wells the depleting water level, which is the main source of drinking, cooking and washing for thousands of families.”
Two, the IFC holds back facts about the economic displacement resulting from this FI loan. Although public hearing is legally mandated for any kind of land acquisition process in India, the company did not comply with it prior to constructing the plant. 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 until today, hundreds have lost their land, crops, trees and other properties. Those economically displaced include the agricultural laborers and share croppers, the Khaira tribe and the dalits.
Company, in collusion with the administration, uses force and other tactics to intimidate people. Women and men are randomly arrested and implicated in false cases. Some were beaten, tortured and intimidated by the police before their release. A climate of fear now engulfs the community as Police continues with its random arrest, threats and high-handedness.
Asks Bhakta Bandhu Behera, a project affected person from Manibeda village and member of Parishad, “are these the types of information the IFC does not want to share with us and the greater public because it will jeopardize the interest of its client? Will the World Bank Group remain mum to safeguard its borrower? What about the real dangers we now face?”
Risks are risks
The clear and present dangers uncovered demonstrate the major flaws of IFC’s assumption that by protecting its client companies from public scrutiny and transferring responsibility to borrowers do their due diligence, development objectives will be met.
“Quite the contrary,” counters Vijayan. “In fact, isolating the project information from public eye creates more havoc than solution, because there are no strong disclosure and safeguards standards that the company is bound to follow. It then spares the company from any accountability and engenders more livelihood, precipitates insecurities and violence.”
The complaint signifies that there could possibly be similar risks in other FI sub-projects in India, which now constitutes about a third of its current and proposed lending portfolio. Risks in direct investments are no different from risks in FI loans.
While some of the previous experiences of communities in India with CAO have not been promising, we expect the CAO to be impartial and forthright with the investigations and the conclusion in this case. This complaint pertains to the financing of the project. We will continue with our struggle with the company and the State on all other issues, as in the past.
Contacts:
Amulya Nayak: +91.9861409290Vijayan M.J.: +91.9868165471
Odisha Chas Parivesh Surekhsa Parishad (Odisha Agriculture and Environment Protection Council) is a grassroots organization, which deals with the social and environmental issues of people affected by industrial projects in the Dhenkanal and Angul districts of Odisha state. Parishad works on environmental sustainability, farmers’ and agricultural security and development project issues through peoples’ organizing and public education. Since 2007, Parishad has been working with the people affected by the GMR project.
Delhi Forum (DF) is an advocacy, research, media, networking and documentation support organization based in New Delhi. DF work with people’s movements across the country and provides strategic and analytical services to local organizations combating the social and environmental problems with sectorial polices, and the human rights violations engendered by industrial projects, including coal based thermal power projects. The mission is to reinforce peoples’ organizations’ struggles to protect their rights.
[1] Comprehensive Environmental Assessment of Industrial Clusters (2009) Central Pollution Control Board Pg 24
[2] Office Memorandum J-110113/5/2010-IA.II(I), Ministry of Environment and Forests; dated 13th January, 2010