Indonesia: Financial Intermediary-01

Date Filed
31 Oct 2019
Status
Closed
Phase
Compliance
Country
Indonesia

Case Tracker

Eligibility
Eligibility
Assessment
Transferred
Assessment
Dispute Resolution
Compliance
Appraisal
January 19, 2022-July 08, 2022
Closed
Status as of July 08, 2022
CURRENT Status
Closed (COMPLIANCE)
Status as of July 08, 2022

Complaint Overview

Complainant

Community members living near the DPM mine in North Sumatra, Indonesia 

Concerns

Consultation and information disclosure; fear of reprisals; pollution and natural resource impacts; infrastructure impacts on people; risks to life, people and the environment.

Cross-Cutting Issues
Risk Management Resource Efficiency Air Water Access to Information Policy Indigenous Peoples Community Health and Safety

Project Information

Region
East Asia & the Pacific
Institution
IFC
Name & Number
PSBC Equity (#35461)
Company
Postal Savings Bank of China
Sector
Financial Markets
Department
Financial Institutions Group
Category
FI
Commitment

US$286 million equity investment 

Synopsis

Project Overview

In December 2015, IFC invested equity in Postal Savings Bank of China (PSBC), the fifth largest commercial bank in the People’s Republic of China. IFC made a US$286 million equity investment in the financial intermediary. The stated purpose of the investment was to help promote access to finance for those without access. The majority of PSBC’s borrowers are micro, small and medium sized enterprises and individuals, but the bank also has a portfolio of corporate lending to larger businesses. IFC’s initial investment equated to a 0.69 percent equity stake in PSBC, declining to an approximately 0.26 percent stake as of February 2022. Through its investment in PSBC, IFC became exposed to environmental and social risks related to PSBC’s lending activities and investments.

Complaint

In October 2019, CAO received a complaint from two local residents on behalf of themselves and other community members living in the vicinity of the Dairi Prima Mineral (DPM) project. DPM is a zinc and lead mine under development in the Dairi Regency of North Sumatra province, Indonesia. The complainants are supported by an international NGO, Inclusive Development International (IDI), and other organizations based in Indonesia, including Perhimpunan Bantuan Hukum dan Advokasi Rakyat Sumatera Utara (BAKUMSU).

The complainants alleged that the DPM mine will adversely impact neighboring communities. They expressed particular concern over the potential failure of the mine’s planned tailings dam, which would present significant—and potentially irreversible risks—to people and the environment. The complainants assert that the design of the tailings dam is inadequate for the extreme climate and seismicity of the site, and is inconsistent with good international industry practice. Additional allegations regarding the mine include risks of water contamination from the tailings dam, inadequate stakeholder engagement and information disclosure, failure to recognize potentially affected communities as Indigenous Peoples, and risks to social cohesion and community health and safety.

The complainants also alleged that IFC was exposed to the DPM mine through its financial intermediary investments in Postal Savings Bank of China (PSBC) and another commercial bank.

CAO Action

In March 2020, CAO found the complaint eligible for assessment, specifically regarding IFC’s investment in PSBC through the bank’s lending activities to the majority owner of the DPM mine and its parent company. However, the complaint was found ineligible regarding the other commercial bank involved.

During the assessment process, CAO engaged the complainants, PSBC, and IFC. CAO attempted to contact the project operator, DPM, to include their views in the assessment report but did not receive a response. Ultimately, the parties did not reach consensus to engage in a dispute resolution process and the complaint was transferred to CAO’s Compliance function for appraisal of IFC, in line with CAO’s Policy.

CAO completed the compliance appraisal process in July 2022, and decided not to initiate a compliance investigation. This decision was made considering that IFC no longer has financial exposure to DPM through PSBC, and based on CAO Policy provisions regarding IFC’s exit from investments. CAO noted that the complaint otherwise met the three criteria for a compliance investigation. First, CAO found indications of preliminary harm to the complainants, particularly in relation to the mine’s planned tailings dam design and the associated risks of failure, considering site risks related to seismic activity, high rainfall, and the foundation conditions underlying the dam’s proposed location. Second, CAO found indications of IFC’s non-compliance with its environmental and social requirements regarding its due diligence and supervision of PSBC’s environmental and social performance. Third, CAO found indications of a plausible link between the non-compliance and the harm.

When CAO finalized the appraisal report, IFC held an active investment in PSBC. However, PSBC reported during the appraisal process, that it no longer had active loans with the mine’s majority owner or its parent company. The ending of these financial relationships triggered the provision for “IFC Exit” under CAO’s Policy. In cases where IFC is no longer exposed to a project at the time of appraisal, CAO Policy requires CAO to consider whether there will be particular value in terms of accountability, learning, or remedial actions, in initiating a compliance investigation despite the exit of IFC. In this case, CAO concluded not to investigate and closed the case after the appraisal process.

Status

CAO closed this case on July 8, 2022, after a compliance appraisal process. The compliance appraisal report is available in English and Bahasa Indonesian below, along with other case-related documents.

 

Status as of July 8, 2022

Case Documents

  • Intake & Assessment

    Complaint
    PSBC-01 Complaint
    Oct 29, 2019
    English
    PSBC-01 Complaint
    Assessment Report(s)
    PSBC-01 Assessment Report
    Jan 19, 2022
    English
    PSBC-01 Assessment Report
    PSBC-01 Assessment Report
    Jan 19, 2022
    Bahasa (Indonesian)
    PSBC-01 Assessment Report
  • Appraisal Report(s)
    Compliance Appraisal Report - Indonesia PSBC
    Jul 08, 2022
    English
    Compliance Appraisal Report - Indonesia PSBC
    Compliance Appraisal Report - Indonesia PSBC
    Jul 08, 2022
    Bahasa (Indonesian)
    Compliance Appraisal Report - Indonesia PSBC