Vizhinjam International Seaport Limited (VISL), a special purpose company fully owned by the State Government of Kerala, is developing a multi-purpose seaport at Vizhinjam, 16 kilometers south of the state capital, Trivandrum (Thiruvananthapuram). IFC has been hired as the Transaction Advisor to strategically assist VISL in structuring and implementing the project; and seeking private sector partner(s) to implement the plan in collaboration with the State Government Ports Department. IFC is managing roughly $1.6 million in trust funds for the project.

In August 2012, a complaint was filed to the CAO by local tourism workers/businesses and other local residents with the support of the Kerala branch of Exnora International, the Kerala Hotels and Restaurants Association, and the People’s Resistance Committee in Vizhinjam. The complainants raise concerns about detrimental impact of the port project on tourism and fishing communities situated along the coast of the area. The impacts cited in the complaint include, but are not limited to, water scarcity, loss of livelihood, loss of land and inadequate compensation. Also, the complainants specifically question IFC’s due diligence and contend that IFC failed to undertake a thorough review of documentation on the project’s environmental, social and economic impact assessments.

The CAO found the complaint eligible for further assessment in September 2012.  At the request of the complainants, CAO extended the 120-day assessment period in March 2013. Ultimately, CAO found no agreement among the key parties to proceed with a dispute resolution process under CAO auspices. The complaint proceeded to CAO’s Compliance function for appraisal, per CAO Operational Guidelines.In June 2015, CAO completed a compliance appraisal with regard to the Vizhinjam 01, 02 and 03 complaints. On the basis of this compliance appraisal, CAO opened a compliance investigation into IFC's Advisory Services project with Vizhinjam International Seaport Ltd. The CAO investigation assesses whether IFC prepared and implemented the project in accordance with its policies and procedures.

CAO completed its joint compliance investigation for the Vizhinjam 01, 02 and 03 complaints in January 2018. The compliance investigation report makes two broad non-compliance findings in relation to IFC’s involvement in the project:

1. IFC took on the role of lead transaction advisor in relation to the Kerala Port project without a reasonable assurance of the client’s commitment to develop the project in accordance with the Performance Standards; and

2. The Environmental and Social Impact Assessment (ESIA) as delivered by IFC was not fully consistent with the Performance Standards, particularly in relation to land acquisition and project impacts on livelihoods.

CAO’s compliance investigation report further makes a number of specific findings regarding IFC Advisory Services.

CAO finds that IFC staff were aware that the client intended to proceed with land acquisition in a way that was inconsistent with the requirements of Performance Standard (PS) 5 on land resettlement, yet IFC did not advise the client to suspend its ongoing land acquisition activities until the ESIA and other required plans had been completed.

CAO finds that IFC agreed to a narrowing of its environmental and social (E&S) mandate over the period of the project, such that IFC finally oversaw only one component of the project ESIA—an assessment of marine-side port facilities that excluded land-based infrastructure such as road, rail and back-up facilities. This change of scope meant that IFC did not have assurance that impacts on land or cumulative impacts arising from the project were being addressed in accordance with IFC’s E&S requirements.

CAO finds that the marine-side ESIA delivered by IFC to its client lacked certain essential components of an ESIA for a major infrastructure project at the relevant stage of development. In particular, CAO finds that the IFC ESIA lacked adequate socio-economic baseline information on tourism based livelihoods, an assessment of project impacts on tourism based livelihoods and livelihood restoration plans for project impacts on tourism and fisheries as required by PS1 (risk management) and PS5 (land resettlement). CAO also finds that the IFC ESIA did not go through a process of consultation and participation, or disclosure as required by PS1.

CAO sees instances of non-compliance in this case arising primarily from: (a) a lack of structured assessment of the client’s commitment to the Performance Standards as a framework for the development of the port; and (b) an underestimation by IFC of the complexity of producing an ESIA for the project compliant with the Performance Standards.

 IFC’s response to the compliance investigation did not include any engagement with the client, the complainant or any commitment to project-level action. For this reason, CAO focused its monitoring on measures taken by IFC in response to its non-compliance findings at the level of policies, procedures, practice and knowledge.

CAO released a monitoring report in June 2020. CAO found that IFC’s response at the level of its policies, procedures, practice and knowledge is Satisfactory. CAO notes that IFC outlined several changes to its E&S supervision of PPP advisory services projects, including:
 - the assignment of an E&S specialist to every PPP related advisory services project;
 - clearances by E&S staff at key milestones in the project cycle; and
 - provisions included in financial advisory services agreements that require advisory services clients to endeavor to apply the Performance Standards when designing and carrying out the PPP.

In CAO’s view, these changes increase the focus on the identification and management of E&S issues in IFC advisory services projects and potentially increase IFC’s leverage in relation to the client. They should also serve to reduce the risk that IFC will provide advisory services support to, and thus serve as an enabler of, environmentally and social harmful PPP projects.

CAO notes that several changes in practice are pending formalized change to IFC’s Environmental and Social Review Procedures. Nevertheless, CAO has decided to close its monitoring, on the basis that actions taken by IFC are addressing Cao’s compliance findings at a systemcs-level, and considering that IFC no longer has any direct involvement with the Kerala Port project.

All documents relating to this case are available under "View Documents" below.