Guatemala: CIFI-01/ Hidro Santa Cruz
Local residents of Santa Cruz
Community health & safety, information disclosure & consultation, indigenous people, cultural heritage
$20 million A loan & $10 million equity investment
Corporación Interamericana para el Financiamiento de Infraestructura (CIFI) was established in 2001 as a non-banking financial institution to provide financing to small and medium infrastructure projects across Latin America and the Caribbean. IFC made equity and debt investments in CIFI in 2008. CIFI made an investment in the Hidro Santa Cruz (HSC) for the construction of the Canbalam hydropower plant (“the project”) in Santa Cruz Barillas, Huehuetenango, Guatemala in 2011. Project construction commenced in early 2012, however, it was suspended soon afterward following an escalation of community protests. CIFI ended its investment in late 2015, and the project was abandoned in December 2016.
In July 2015, a group of community representatives filed a complaint on behalf of themselves and other community members in Santa Cruz Barillas, alleging that the project was never properly consulted with the indigenous communities and that community members’ opposition to the project had been met with violence and repression on the part of the company and the government. In particular, they note a violent incident on May 1, 2012, where one community member was shot dead and two others injured. The complainants maintain that one of the perpetrators was a security guard hired by the project. HSC acknowledges that one of the two individuals who was charged in relation to the shooting had worked for the project’s security contractor but denies any involvement in the incident. The May 2012 incident led to a violent protest involving hundreds of local people following which the Government of Guatemala declared a state of siege in Santa Cruz Barillas and mobilized police and military to the area for almost three weeks.
CAO found the complaint eligible for further assessment in August 2015 and an assessment visit was conducted in October 2015. During the assessment, the company expressed its willingness to participate in a dispute resolution process convened by CAO, however, the complainants felt that it was not worth initiating a new dialogue process with the project operator in light of the violent events and damages suffered. In accordance with CAO’s Operational Guidelines, the case was referred to CAO’s compliance function.
CAO released a compliance appraisal report in August 2016. The compliance appraisal concluded that an investigation was warranted in response to this complaint.
CAO completed its compliance investigation in December 2018 when it was sent, together with IFC’s response, to the President of the World Bank Group for clearance. CAO’s report and IFC’s response were discussed at a meeting of the IFC Board in February 2020 subsequent to which IFC revised its response. IFC’s revised response to the investigation is dated April 2020, The April 2020 response includes information that was not presented to CAO in the course of the investigation.
In June 2020, CAO’s compliance investigation report and IFC’s response were cleared for release by the President of the World Bank Group. In its report, CAO made several non-compliance findings in relation to IFC’s review and supervision of its investment including its response to the sub-project incident.
IFC Pre-investment Review
CAO found that IFC’s pre-investment environmental and social (E&S) review of the company’s E&S management system (ESMS) was not commensurate to risk. CAO identified shortcomings in IFC’s assessment of: (a) the client’s track record of ESMS implementation; and (b) the client’s capacity to implement its ESMS to IFC standards.
IFC Response and Support to the Client in relation to the Sub-project
IFC’s lack of oversight in ensuring the client was implementing an adequate ESMS—one that was sufficient to assess and monitor risks and impacts arising from investments in projects such as Canbalam I—contributed to a situation in which project activities were allowed to commence in advance of an adequate risk assessment and implementation of mitigation measures envisaged by the Performance Standards.
Following the violent incidents of May 2012, the client suspended disbursements to the project and notified IFC. Where IFC is notified of a serious incident at the project level, IFC has a duty to respond as per its own E&S procedures. This includes requirements to ensure that the root cause of the incident is assessed, and measures put in place to prevent reoccurrence.
IFC, however, did not engage with the client in relation to the project or the violent incident as required by its E&S procedures. CAO finds that IFC did not comply with its procedures on responding to serious incidents, nor did it take measures needed to ensure that the client’s response reflected Performance Standards requirements to address project impacts throughout the project cycle including at project closure.
Ultimately, in November 2015, CIFI terminated its loan to the project developer, and the project was abandoned in December 2016.
The 2006 Sustainability Policy which was in force at the time of investment provides that efforts to carry out its investment activities in a manner that “do no harm” to people or the environment are central to IFC’s development mission. The Policy also commits IFC to “ensuring that the costs of economic development do not fall disproportionately on those who are poor and vulnerable.” Where adverse project impacts do occur, the Policy and PS1 provide that IFC will work with its client to ensure that impacts are assessed, reduced, mitigated or compensated for, as appropriate.
The complainants maintain that the project has resulted in adverse social impacts on their communities. In particular, they claim that the project led to the escalation of project related conflict, resulted in the death of one community member, left two community members seriously injured, and led to the detainment of seventeen other community members. They assert that traditional access to land and natural resources remains limited due to the construction of a perimeter fence around the project site.
While the project was abandoned in December 2016, available evidence supports the complainants’ assertion that residual impacts remain. Though aware of these impacts during the period of financing, IFC did not engage with its client to ensure that residual impacts of the project were assessed, reduced, mitigated, or compensated for, as appropriate, including at project closure, as required by IFC's Performance Standards and Sustainability Policy.
On June 10, 2020, CAO released its compliance investigation report and IFC’s response. IFC provided a Spanish version of its exective summary on August 12, 2020. On September 23, 2020, CAO published a summary of the investigation report in Q'anjob'al. All project reports are available via the "view documents" link below.
CAO is monitoring IFC’s response to the non-compliance findings made in this investigation.
Status as of September 23, 2020