IFC Board Approves Action Plan in Response to CAO Investigation of IFC’s Advisory Services to Panama’s State Electricity Transmission Company, ETESA

Washington, D.C., June 10, 2022 — The IFC Board of Executive Directors has approved IFC's Management Action Plan in response to a compliance investigation of IFC's Advisory Services to Empresa de Transmisión Eléctrica, S.A (ETESA), Panama's state-owned electricity transmission company, for a transmission line project on the Atlantic coast. The investigation was conducted by the Compliance Advisor Ombudsman (CAO), IFC's independent accountability mechanism. 

IFC has advised ETESA to help structure and tender a public-private partnership (PPP)  for the financing, construction, operation, and maintenance of a transmission line project (Transmission Line IV) on the Atlantic coast of Panama . The expected cost of the transmission line is approximately US$700 million and represents the first public-private partnership for ETESA and for the electricity transmission sector in Panama. The approximately 330-kilometer project crosses biologically diverse natural habitats and Indigenous Peoples lands.

Transmission Line IV was initially tendered in December 2018 but not awarded as the bids received in March 2019 did not satisfy the bidding requirements. A re-tendering process is ongoing. IFC was the transaction advisor to ETESA in 2017-2018 in charge of preparing the first tender and was hired again by the new government in November 2020 for a second tender.

CAO's investigation responds to a June 2018 complaint from community members, with support from local, national, and international NGOs, raising concerns about the consultation process ETESA conducted with the Indigenous communities. The complainants allege that the transmission line would lead to land displacement and destruction of biodiversity and livelihoods of Indigenous communities in the vicinity of the project. They also said that some impacted Indigenous communities had not been consulted about the transmission line and its potential impacts. CAO's investigation reviewed IFC's advice to ETESA, particularly in relation to the process of Free, Prior, and Informed Consent (FPIC) and engagement with Indigenous Peoples.

CAO's investigation found that IFC's advice to ETESA was not fully consistent with IFC's Performance Standards in relation to the need for stakeholder analysis and engagement planning before ETESA started the FPIC process for the project. Key shortcomings in IFC's advice related to the exclusion of some potentially affected Indigenous groups from the FPIC process and the design of a consultation process that was insufficiently inclusive of traditional authorities, project-affected communities, and women.

"We acknowledge the concerns of the communities reflected in the report and agree with CAO's recommendations. We will continue to support ETESA to make the improvements outlined in the action plan.," said Stephanie von Friedeburg , IFC Senior Vice President of Operations.." We draw additional lessons from this case which will guide us as we continue to improve our E&S approach to Advisory projects in general."

The Board-approved Management Action Plan developed by IFC in agreement with ETESA, and including consultation with the complainants, outlines areas of improvement in response to CAO's recommendations. IFC will:

• Provide ongoing advice to ETESA to carry out the Environmental and Social Impact Assessment (ESIA) and the FPIC process in accordance with IFC's Performance Standards.
• Provide ongoing advice to ETESA on necessary measures to align the ongoing stakeholder engagement process for the project with the requirements of Performance Standard 1 on Assessment and Management of Environmental and Social Risks and Impacts and Performance Standard 7 on Indigenous Peoples.
• Advise ETESA to identify and undertake an engagement process with all impacted Indigenous Peoples that is consistent with IFC's Performance Standards.
• Hold a workshop with ETESA and its selected E&S consultant to explain in more detail the requirements of Performance Standards to be used in the Environmental and Social Impact Assessment.
  

IFC management will supervise the implementation of the Action Plan and report progress to CAO and the Board every six months. 

In addition to the commitments included in the Management Action Plan, IFC has agreed to report on several measures that will be monitored by CAO. These include IFC reviewing the outputs of the project's Environmental and Social Impact Assessment and FPIC process to ensure consistency with the Performance Standards. To address the underlying causes of the compliance issues identified by CAO, IFC is also developing guidance for staff on IFC's role when providing advice on projects with environmental and social risks or impacts, such as FPIC or land acquisition, that emerge during the course of an IFC Advisory Services engagement.

We welcome IFC's commitment to provide ongoing advice to ETESA on how to develop this project in accordance with IFC's standards—particularly advising ETESA on an inclusive and culturally appropriate consultation process leading to Free, Prior, and Informed Consent (FPIC) from impacted Indigenous communities," said Janine Ferretti, CAO Director-General. "  "FPIC is enshrined in IFC's policies and is critical to the legitimacy of projects impacting the ancestral lands, customs, and resources of Indigenous Peoples."

CAO will monitor effective implementation of IFC's actions and publish IFC's progress reports on its website.

More information about this case, including CAO's Investigation Report and IFC's Management Action Plan, are available here.

About CAO

The Compliance Advisor Ombudsman (CAO) is the independent accountability mechanism of the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), members of the World Bank Group. CAO's mandate is to address complaints from people affected by IFC and MIGA projects in a manner that is fair, objective, and constructive, improve environmental and social outcomes, and foster accountability and learning to reduce the risk of harm to people and the environment. For more information, visit www.cao-ombudsman.org.

About IFC

IFC, a member of the World Bank Group is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise and influence to create markets and opportunities in developing countries. In fiscal year 2021, IFC committed a record $31.5 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of the COVID-19 pandemic. For more information, visit www.ifc.org.