IFC Board Approves Action Plan in Response to CAO Investigation Related to IFC’s Investment in the Karot Hydropower Project in Pakistan 

Washington, D.C., July 10 — The IFC Board of Executive Directors has approved IFC’s Management Action Plan in response to a Compliance Advisor Ombudsman (CAO) investigation of IFC’s investment supporting the Karot Hydropower Project in Pakistan.

IFC’s support for the project included a 15 percent equity investment of US$125 million in China Three Gorges South Asia Investment Limited, approved in 2014, and a US$100 million loan to Karot Power Company Limited, approved in 2016. The project consists of a 720-megawatt hydropower plant on the Jhelum River that began commercial operations in June 2022 and contributes to Pakistan’s energy security by generating renewable energy for an estimated 3.8 million residential customers. Consistent with IFC's standard portfolio management approach following completion of the construction phase, IFC exited its equity investment in 2023. IFC's loan to Karot Power Company Limited remains active, and IFC continues to supervise the project's environmental and social performance in line with its Performance Standards.

CAO’s investigation responded to three complaints submitted between 2019 and 2022 by workers, union representatives, and local community members. The complaints raised concerns about discrimination against local Pakistani construction workers; restrictions on freedom of association; occupational health and safety; employment terms, including alleged improper dismissal and forced resignation; and the effectiveness of worker grievance mechanisms. CAO merged the complaints for purposes of the compliance process because they raised substantially related labor issues associated with the project during its construction phase.

CAO’s investigation found IFC noncompliant in both its pre-investment environmental and social due diligence and supervision. CAO found that IFC did not adequately assess contextual labor risks in Pakistan, including risks related to terms of employment and freedom of association, and did not sufficiently evaluate the client’s labor-related policies and procedures against IFC Performance Standard 2. During supervision, CAO found that IFC did not achieve timely resolution of persistent labor-related gaps related to discrimination, freedom of association, and terms of employment. CAO concluded related harm and indications of harm to complainants linked to IFC noncompliance in these areas. CAO did not find harm related to IFC compliance with respect to occupational health and safety or supervision of the workers’ grievance mechanism. 

IFC takes the findings of the CAO seriously and is committed to accountability and transparency. The Board-approved Management Action Plan (MAP) sets out concrete steps to address identified gaps and further strengthen labor and working conditions at the Karot Hydropower Project:

• Key measures include a new Worker Accommodation Plan, enhanced grievance mechanisms, and updated procedures to ensure fair and transparent employment practices for all workers. 
• The grievance mechanism will be temporarily expanded to allow former workers to raise concerns about past employment, including severance and benefits, for a 12-month period. 
• Ongoing training and awareness programs will reinforce non-discrimination, freedom of association, and workers’ rights. 
• An independent review will assess progress on project-level actions after 18 months. 
• At the systemic level, IFC has strengthened its internal procedures, staff training, and client capacity-building, including a Contextual Risk Tool and the hiring of labor specialists, to ensure higher labor standards and more effective risk management in future projects. 

CAO will monitor effective implementation of the actions set out in the MAP and will publish IFC’s progress reports on its website and in its regular compliance monitoring report. 

More information about this case, including the CAO Investigation Report and IFC Management Action Plan, is available here: 

• Pakistan: Karot Hydro-02/Jhelum River
• Pakistan: Karot Hydro-03/Jhelum River
• Pakistan: Karot Hydro-04/Jhelum River
• CAO Investigation Report (English | Urdu)
• IFC Management Action Plan

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.