IFC has an active project with Karot Power Company Limited (KPCL), a special-purpose vehicle incorporated in Pakistan and majority-owned by China Three Gorges South Asia Investment Limited (CSAIL). The project involves providing a long-term corporate loan facility of up to US$100 million to support the construction, operation, and maintenance of a 720MW run-of-the-river hydropower plant being developed on the Jhelum River in Pakistan. Construction began in January 2016, with Three Gorges Technology and Economy Development Co., Ltd. (TGDC) as the engineering, procurement, and construction contractor. The project achieved commercial operations on June 29, 2022.

In May 2022, CAO received a complaint submitted by eight community members of the Azad Jammu and Kashmir (AJK) community, citing concerns related to labor issues, including unfair hiring practices, unfair dismissal, and forced resignation of those who were employed by the Karot project.

In March 2023, CAO found the complaint eligible for assessment. At the complainants' request, the case was referred to the IFC. 

In August 2023, the complainants expressed their desire for the complaint to be referred back to CAO. During the assessment, both parties expressed interest in engaging in a dispute resolution process to address the issues raised in the complaint. The Assessment Report is available in English and Urdu. 

In August 2023, CAO conducted in-peson capacity-building sessions with the complainants and the company to prepare them for a CAO-facilitated dispute resolution process. Between October 2023 and February 2024, the parties held three joint sessions and 18 bilateral meetings to discuss the issues raised in the complaint and potential solutions. Despite the parties' efforts, no consensus was reached on how to resolve the issues in the complaint, and the dispute resolution process ended. The Dispute Resolution Conclusion Report is available in English and Urdu. 

In September 2024, in accordance with the CAO Policy, the case was transferred to CAO’s Compliance function for appraisal to determine whether an investigation of IFC’s environmental and social performance was warranted concerning the issues raised in the complaint.

In December 2024, CAO completed its compliance appraisal. CAO’s appraisal concluded that the issue of unfair hiring practices would be closed at the appraisal. Regarding the issues of unfair dismissal practices and forced resignation, CAO determined that the complaint met the criteria for a compliance investigation. For the purposes of investigating the outstanding issues, CAO decided to partially merge the Karot-04 case with the ongoing Karot-02/03 compliance investigation process. The Terms of Reference for the investigation are outlined in Annex C of the Karot-02/03 Appraisal Report available in English and Urdu. 

In December 2025, CAO finalized its compliance investigation (available in English and Urdu) and submitted it to the IFC Board. The investigation, which was conducted for the Karot Hydro 02, 03, and 04 complaints, found that IFC failed to comply with provisions of its Sustainability Policy during both pre-investment due diligence and project supervision of the Karot Hydropower Project in Pakistan. CAO found that IFC did not adequately assess labor risks during due diligence and failed to adequately assure itself of compliance with Performance Standard 2 (PS2) on Labor and Working Conditions during supervision.

Specifically, CAO found shortcomings in IFC’s supervision of labor issues, including the treatment of Pakistani workers, freedom of association, and terms of employment and retrenchment. CAO found indications of harm related to unequal treatment of workers, limitations on workers’ ability to organize and bargain collectively, and adverse impacts associated with terms of employment and retrenchment. CAO found IFC compliant regarding occupational health and safety and supervision of the workers’ grievance mechanism.

On July 6, 2026, the IFC Board approved IFC's Management Report Management Action Plan (MAP) in response to CAO’s investigation. The MAP includes measures to strengthen worker accommodation and non-discrimination practices, improve termination and retrenchment procedures, and expand the project’s grievance mechanism to allow former workers to raise concerns related to severance, overtime, and benefits. IFC also committed to an independent review of MAP implementation 18 months after Board approval.

At the systemic level, IFC outlined actions to strengthen labor risk assessment, procedures linking supervision findings to accountability and the application of leverage, and a workshop in Pakistan to build client capacity on PS2 compliance. 

CAO and IFC issued a joint press release following Board approval of the MAP.  

CAO will monitor the implementation of the actions set out in IFC’s MAP and report on progress.