IFC is advising Panama’s state transmission company, Empresa de Transmisión Eléctrica S.A. (ETESA), on the structure and tender of its first public-private partnership project. The project will finance, construct, and operate a 330-km transmission line project, Transmission Line IV (PL IV), in northern Panama. PL IV was initially tendered in December 2018 but not awarded as the bids received in March 2019 did not satisfy the bidding requirements. IFC was the transaction advisor to ETESA in 2017-2018 in charge of preparing the first tender and was hired again by the new government in November 2020 for a second tender. Since November 2020, IFC has advised the new government on the second tender process. The 2020 agreement has since expired and is being renegotiated.

In June 2018, CAO received a complaint from community members with the support of local, national, and international NGOs. The complainants allege that the transmission line would lead to land displacement and destruction of biodiversity and livelihoods of the Indigenous communities in the vicinity of the project.  The complainants indicated that the Indigenous communities, whose territory has not been officially recognized by the Government of Panama, have not been consulted about the transmission line and its potential impacts. They also raised concerns regarding the consultation process being conducted by ETESA with the Indigenous communities of the Ño Kribo region of the Ngöbe-Buglé Indigenous territory (Comarca).

In July 2018, CAO found the complaint eligible for assessment and initiated the assessment process. During the assessment, the parties could not reach consensus on engaging in a dispute resolution process. In accordance with the CAO Policy, the case was then transferred to CAO’s Compliance function for appraisal. CAO issued its Assessment Report in April 2019 (available in English and Spanish), along with IFC’s response (available in English).  

In December 2019, CAO completed its compliance appraisal, noting that a key requirement for an IFC Advisory Services project is to provide advice consistent with the requirements of IFC’s Performance Standards (PS). Given the questions identified in the appraisal concerning IFC’s compliance with its environmental and social standards and the potential for resulting adverse impacts on communities, CAO determined that a compliance investigation in response to the complaint was warranted. The Appraisal Report (available in English and Spanish) described the scope of the investigation.

CAO’s compliance investigation reviewed IFC’s advice to ETESA, particularly in relation to the process of Free, Prior, and Informed Consent (FPIC) and engagement with affected Indigenous Peoples. Finalized in March 2022, the investigation found that IFC’s advice to ETESA was partially consistent with IFC PS requirements. CAO concluded that IFC had helped move the development of the PL IV project toward alignment with PS requirements for consultation with Indigenous Peoples. However, CAO also identified key shortcomings in IFC’s advice to ETESA related to: (a) the exclusion of several Indigenous communities, including those from the Norte de Santa Fé region and the Annex Areas in the Bocas del Toro province from the FPIC process; and (b) the design of a consultation process that is insufficiently inclusive of traditional authorities, project-affected communities, and women. Further details are described in CAO’s Investigation Report (available in English and Spanish).

In June 2022, in response to CAO’s investigation, the IFC Board approved IFC’s Management Action Plan (MAP) (available in English and Spanish). The Board-approved MAP outlined areas of improvement related to CAO’s recommendations, including:

• Provide ongoing advice to ETESA to carry out the Environmental and Social Impact Assessment (ESIA) and the FPIC process in accordance with IFC’s PS.
• Provide ongoing advice to ETESA on necessary measures to align the ongoing stakeholder engagement process for the project with the requirements of PS 1 on Assessment and Management of Environmental and Social Risks and Impacts and PS 7 on Indigenous Peoples.
• Advise ETESA to identify and undertake an engagement process with all impacted Indigenous Peoples that is consistent with IFC’s PS.
• Hold a workshop with ETESA and its selected environmental and social consultant to explain in more detail the requirements of PS to be used in the ESIA.

Additionally, Board approval was granted based on IFC’s commitment to report on the following points as part of the MAP implementation. CAO’s monitoring includes both the MAP actions as well as these additional commitments:

• Reviewing the various outputs of the ESIA process, starting with the consultant’s work plan, to provide recommendations on closing Performance Standard gaps, including recommending supplemental consultant expertise and/or resources as necessary to carry out the ESIA in accordance with the Performance Standards and achieve FPIC;
• Continuing to advise ETESA and its consultant on stakeholder engagement and FPIC (beyond the initial two-day workshop), particularly reviewing the design documentation for, and outputs of, the FPIC process for consistency with the Performance Standards; and
• Updating CAO on actions being taken to address systemic recommendations from the investigation report that will develop guidance for staff on IFC's role when providing advice on projects with environmental and social risks or impacts, such as FPIC or land acquisition, that emerge during the course of an IFC Advisory Services engagement.

As part of the MAP implementation, IFC completed its first management progress report in January 2023 (available in English and Spanish). In May 2023, CAO published its first monitoring report on the case, included in CAO’s Omnibus Case Report: Q4 FY23 (available in English and Spanish). CAO noted that while IFC has completed some actions outlined in the MAP and additional items approved by the Board, the client continues with the project in a manner not consistent with IFC’s advice or its obligation under its agreement with the institution and that additional measures should be taken to ensure compliance with IFC’s PS.

In November 2023, IFC finalized its second management progress report covering ongoing implementation of the MAP (available in English and Spanish). In response, in May 2024, CAO completed its second monitoring exercise in relation to this case. CAO reiterated its concerns about the significant risks of failing to achieve intended PS7 objectives due to the inadequate application of PS7 in the ESIA and FPIC processes. CAO contends that IFC should consider the reputational risk of continuing to provide its advisory services given the lack of uptake of IFC’s E&S advice. Details are described in CAO’s Omnibus Case Report: Q4 FY24 (available in English).