Ukraine: Galnaftogaz (GNG)-01/Kiev
Environmental risks; compliance with local laws and regulations; lack of public consultation; use of force and unlawful prosecution
US$ 60 million A loan total
As per IFC’s project disclosures, IFC has three active projects with Galnaftogaz (GNG), a Ukrainian chain of gas stations. All three projects aim at supporting Galnaftogaz in the construction/refurbishing and operation of gasoline filling stations under the OKKO brand in Ukraine.
The complaint to CAO was filed by twenty community members with the support of Ecoaction, a local NGO. The Complainants, who allege to be residents of Revutskoho street in Kiev, raise concerns about environmental impacts and compliance with Ukrainian regulations related to a gas filling station being built in their neighborhood. Concerns about community consultation around the construction of the gas filling station and use of force against protesters during a 2017 demonstration against the development are also cited.
CAO found the complaint eligible for further assessment in August 2018. The CAO team conducted an assessment trip in October 2018. During CAO’s assessment, the parties decided to have the case referred to CAO’s Compliance function for appraisal of IFC’s due diligence.
CAO completed its compliance appraisal of the case in April 2020, which determined that an investigation is not warranted in regard to this case. Per CAO’s operational guidelines, CAO thus decided to close the case.
CAO’s appraisal found indications that IFC’s review and supervision of the project may not have complied with relevant E&S requirements. A key concern as raised in IFC’s supervision documentation is that construction of a gas filling station such as the Revutskoho street development falls outside of the client’s responsibility because it was being constructed by a separate company. CAO has questions about this approach considering Performance Standards provisions that require clients to consider and manage third party risk, including risk that arises through contracting arrangements.
CAO noted that, although IFC itself is not expected to review and supervise every construction project carried out by a client or its contractors, IFC is expected to review and supervise the client’s environmental and social management system (ESMS) and ensure that it addresses the full range of the client’s business activities.
Following the 2017 protests, IFC took steps to gather information about the Revutskoho Street filling station and the client’s filling station business generally. CAO has questions as to whether IFC’s approach provides a basis to conclude that the client’s management of risk associated with the construction of new filling stations (including the Revutskoho Street station) is consistent with the Performance Standards.
In November 2019, GNG announced that it had terminated its agreement with the developer to buy or lease the Revutskoho Street station. CAO concluded that, were GNG pursuing construction of the station, the combination of concerns regarding compliance and E&S outcomes might be sufficient to trigger a compliance investigation. However, given that GNG appears to have abandoned the development, CAO concluded a compliance investigation was not warranted. Further, in the course of the appraisal IFC reported that it had begun working with its client to revise its stakeholder engagement policy. IFC also undertook to ensure that the client incorporates Performance Standards requirements into its construction and site development agreements in future. CAO noted that these actions go some way to addressing CAOs concerns regarding IFC’s supervision of the client’s ESMS as it relates to the construction of filling stations more generally.
All documents related to this case are available at the ‘View Documents’ link below.
The case was closed following compliance appraisal in April 2020.
Status as of June 30, 2020