CAO Cases

Arne Hoel, The World Bank

East Asia & the Pacific

Indonesia / Wilmar Group-03/Jambi

Complainant
Community groups, and local and international NGOs
Date Filed
November 09, 2011
Concerns
Customary lands, displacement, compensation and security issues
Case Status
Closed
 

Synopsis

Complaint

The Wilmar Group is a large agribusiness conglomerate specializing in the production and trade of palm oil. The Wilmar Group operates in Asia, eastern Europe, and Africa.  Since 2003, IFC has undertaken four investments in the Wilmar Group. In November 2011, signatories from community groups, supported by local and international NGOs, lodged a complaint with the CAO in relation to two investments that were then active.

 

The complaint related to unresolved land disputes between local communities and PT Asiatic Persada (PT AP), a company that was until 2013 a majority-owned subsidiary of Wilmar that owned and operated palm oil plantations. The complainants alleged that the company invoked government forces to dismantle a settlement on disputed land, which they said was contrary to previous agreements established between the community, government representatives, and the company. Further, they contended that the company’s actions contradicted IFC’s Performance Standards.  This was the third complaint received by CAO relating to IFC's involvement with the Wilmar Group.


 

CAO Action

CAO found the complaint eligible for further assessment and traveled to the field to meet with 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, 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 dispute resolution processes, company withdrawal ended the mediation. CAO was unable to obtain company response to requests for a closure meeting and CAO closed the case in December 2013, issuing a Conclusion Report. Subsequently, in line with CAO's operational guidelines, the case was transferred to CAO's compliance function to appraise whether the case warranted an investigation of IFC’s handling of the investments in question.  

 

In June 2014 CAO completed a compliance appraisal with regard to the Wilmar-03 complaint. On the basis of the appraisal, CAO conducted a compliance investigation into IFC's investment in Delta Wilmar. The investigation considered whether IFC supervised its investments in Delta Wilmar in accordance with its environmental and social requirements.  As a previous complaint to CAO  (Wilmar-01) had led to an audit of IFC's investments in the Wilmar Group,  completed in June 2009, the Wilmar-03 investigation examined 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 also focused on supply chain impacts of the Delta Wilmar investments in Indonesia.

 

CAO’s compliance investigation was released on May 3, 2016. It identified a number of shortcomings in relation to IFC’s disbursement and supervision of the Delta Wilmar loans. Specifically, CAO’s investigation report makes non-compliance findings in relation to:

 

IFC’s Decision to Disburse in January 2010

Although IFC management accepted that there were shortcomings in its supply chain due diligence for the Delta Wilmar loans, IFC did not take action in its engagement with the client to address those issues before disbursing $47.5 million in January 2010. IFC instead sought to address supply chain issues with the parent company, Wilmar International, on a voluntary basis. This decision was inconsistent with IFC’s environmental and social policies.

IFC’ Supervision of the Delta Wilmar Loans
During its supervision of the loans, IFC became aware of serious environmental and social risks in the company’s supply chain, particularly in relation to its Indonesian plantations. However, IFC continued to treat the Delta Wilmar loans as if the supply chain requirements of the Performance Standards did not apply. IFC engaged with the parent company, including by commissioning a review of Wilmar’s Indonesia plantations, but these activities were not sufficient to address the environmental and social risks in the supply chain. 

Disclosure and Consultation
The review commissioned by IFC was not carried out in accordance with the disclosure and consultation requirements of Performance Standard 1, and has never been shared with the affected communities. 

In addition, CAO’s investigation identified several interrelated causes for the non-compliance. Throughout the project, IFC staff presented a persistent belief that the agreements governing the Delta Wilmar loans did not require the client to take any action to address supply chain issues. Further, IFC preferred to address the Indonesia supply chain issues with the parent company on a voluntary basis and outside the framework of the requirements of the Delta Wilmar loans. At the organizational level, there was a disconnect between IFC’s strategy work on palm oil, and the supervision of the Delta Wilmar loans. IFC also displayed insufficient understanding of palm oil supply chain issues in general, and of Wilmar’s supply chain in particular. Finally, CAO identified issues related to the formulation of supply chain requirements in the Performance Standards and their interpretation.

CAO completed a monitoring report in relation to this investigation in June 2018. Overall, CAO found that IFC’s response to the compliance investigation had only partially addressed the findings. Nevertheless, CAO has decided to close the case considering that IFC had no ongoing investment in the company, and in light of IFC’s decision not to engage in a project-level response with its former client or the complainants. 


Status

CAO closed the case in June 2018. The final monitoring report is available in English under “View Documents” below. A translation of the report in Bahasa Indonesian will be available in due course. 


Status as of June 19, 2018

Project information

Institution
IFC
Project Name & Number
Wilmar Group 25532 & 26271
Department
Agribusiness
Company
Wilmar Trading Pte. Ltd.
Sector
Agriculture and Forestry
Region
East Asia & the Pacific
Country
Indonesia
Environmental Category
C
Commitment
$33.3 million (Guarantee) & $17.5 million (Loan)

Case Tracker

Ombudsman

  • Eligible: Completed
  • Assessment Period: Completed
  • Facilitating Settlement: Transferred

Compliance

  • Under Appraisal: Completed
  • Under Audit: Completed
  • Monitoring: Completed

Useful Links