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. 

The complaint was submitted to CAO by a former employee of the Karot project. The complaint raised concerns about the lack of payment of exit wages, as well as discrimination against local workers in relation to access to drinking water, accommodation conditions, and transportation at the project site. Irregularities regarding employment contracts and salary increases are also mentioned.

On August 3, 2020, the complaint was found eligible for further assessment. During the assessment process, CAO lost contact with the complainant and was unable to re-establish communication and advance the process. Since the dispute resolution process requires the respective complainant and the IFC client to voluntarily agree to participate in mediation, this case was referred to the Compliance function, in line with the 2013 Operational Guidelines.  

In January 2022, CAO conducted an appraisal (available in English and Urdu) of the case under the 2013 Operational Guidelines, based on the transitional arrangements agreed upon in the adoption of the 2021 CAO Policy. CAO conducted a preliminary analysis of the concerns raised by the complainants regarding labor issues. 

In December 2024, CAO merged this case with the ongoing Karot-03 and Karot-04 investigation process in relation to issues of unfair dismissal practices and forced resignation. 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.