Titan Cement Plant in Alexandria, Egypt: A Story that Sums Everything that Could Go Wrong with the IFC Accountability System

Titan Cement Plant in Alexandria, Egypt: A Story that Sums Everything that Could Go Wrong with the IFC Accountability System

Timeline summary of major events

IFC invested in Titan

The complaint is submitted to the CAO

CAO decided that the case should be investigated

investigations started

IFC divested

CAO is finalizing the investigation report

The investigation report submitted to the board for approval

#ViolationsFact  #ESS_before_financial

Written by: Amy Ekdawi, Arab Watch Coalition

In 2010 the International Finance Corporation, the arm of the World Bank Group that invests in private sector, invested a total of US$120.26m in Titan’s expansion plan in Egypt ($30.06 in loan and $90.19 in equity). Titan International Group operates two cement plants in Egypt, one in Alexandria (on the Mediterranean coast) and the second in Beni Sueif (in southern/upper Egypt). [1]

The plant in Alexandria is in a populated area called Wadi al Qamar. The plant is in close proximity to the residential area. For years the residents have been suffering from pollution caused by the high emission and the cement dust. Many children have been suffering of lung diseases. The operation of the heavy equipment and the grinders causes sever noise and has been forceful enough to cause cracks in many buildings. The company also operates a coal fired electricity generation in its premises. The residents filed court cases against the company alleging that it did not have a proper environmental license to operate since the distance between the plant and the residential area was less than what was allowed by the Egyptian law.

The problems with Titan were not limited to the suffering of the surrounding population. The company violates international labor standards. Titan eliminated a big proportion of its permanent workers and replaced them by temporary workers through a labor supply company. Moreover, many of the required safety procedures for this type of industry were not implemented and thus the workers’ health was compromised. After many failed attempts to negotiate with the company, the workers organized many peaceful and sit-in protests. In one incident in 2011, the company sought help from the national security to disrupt the protesters. The security forces unleashed dogs on the protesters, and many were injured. In another incident company accused the protesters of ignited fire inside the plant. Many of the protesters faced the threat of prison because of this accusation but the court later cleared them.

In 2015, the community of Wadi al Qamar and the plant’s workers submitted a complaint to the Compliance Advisor and Ombudsman- the accountability mechanism of the IFC. They understood that the process might take a long time and that they would be facing the threat of retaliation from the powerful company leaders, but for them it was a risk worth taking. They were hoping justice would be made and their grievances would be properly addressed.

The complaint went through the different phases as per the procedures applied by the CAO. Throughout this long process the company continued to reject the CAO offer to sit and negotiate with the complainants. In 2016 the CAO decided to investigate the compliance of the IFC management with its Performance Standards in Titan Alexandria. The investigations process started in early 2017. It is worth to be noted that the CAO’s investigations, as per its mandate, are meant to verify the compliance of the IFC management, and not the clients (Titan in this specific case) with the Performance Standards, even though the clients have the primary responsibility for compliance with these standards and the IFC role is to monitor and ensure the compliance of the clients. [3]

Throughout the long process the CAO team and experts visited Egypt several times to meet with the company and the complainants. With each visit the complainants were taking risks meeting with the CAO team and experts. They were afraid to be seen in public with the CAO and they asked to meet in discrete locations.

The investigations report took more than 2 years to be finalized by the CAO. Towards the end of the investigations, in late 2019, the IFC decided to divest from Titan. This divestment decision was not announced by the IFC but rather by Titan. The company announced in November 2019 that it had bought back the shares owned by the IFC and had paid the loan in full. [4] The reasons behind this decision, as per the IFIC policy, were not, and will never be, made public to protect the clients’ interests and reputation. This divestment further derailed the finalization of the investigation report. As per the CAO policy, the report should be accompanied by the management action plan in response to the findings. Since the IFC became no longer involved in Titan, and thus had no leverage on the company, there were little that could be done, and the investigation report had to be updated to reflect the recent development with the investment.

Finally, in late July 2021, the investigation report as well as the IFC management response and action plan were finalized and submitted to the Board of Directors for approval on a non-objection basis. The Board approved both documents for disclosure in late September 2021. [5]

As expected, the investigation report validated almost all of the complainants’ concerns, he but the response and the action plan by the IFC management are simply saying we did everything we could do and we are out of there, we washed our hands. In the response, the IFC management alleged that it had been working with Titan to improve the situation and address the issues raised by the complainants, and that improvements had be recorded before the IFC decided to divest. Going forward the IFC listed the lessons learned from this case and promised to disclose some of this investment’s environmental assessment documents that were not made public in time. The management also suggested that Titan company would continue working on these issues and would, at Titan’s discretion, disclose documents on the progress made towards addressing these issues of concern.

This case highlights everything that could go wrong with the accountability system of the IFC. Let us have a close examination in the following sections.

In 2009, when the IFC was doing the pre investment assessment, they did not do a thorough one otherwise they would have found that the environmental license for this Titan plant was disputed, that there were many labor concerns, and that the surrounding communities were suffering.

Throughout the year since 2009 and until a complaint was officially submitted in 2015, there were many protests against the company that were covered by many media outlets. These incidents included the workers sit-in that was dispersed by the national security forces. However, the IFC, even though it had an office and employees in Cairo, did not act on these incidents and were satisfied by the written reports they received from the client. The incidents that were covered by the media did not incite the IFC to verify what was reported by the company.

IFC clients have the responsibility to comply with the IFC Performance Standards. Adhering to these standards are among the contractual commitments between the IFC and its clients. However, to protect the interests of its clients, the IFC do not hold them accountable, at least publicly, to the violation of these standards. The World Bank Group, including the IFC has a Sanctions System that includes suspension and debarment of individuals and companies that have committed sanctionable misconduct.[6] Debarred entities are ineligible to do business with the IFC for a specific period of time, and notice of such debarment is posted online.[7] However, sanctionable misconducts are all related to mishandling of money. The IFC does not consider the violation of its own standards misconduct worthy enough to be sanctionable.

After years of sustained damage, the IFC, as a responsible investor, should have stayed involved to ensure it had the needed leverage to address the grievances of the impacted communities and workers. Ironically, the IFC was the one championing the topic of ‘Impact Investment’, and spearheaded the development of the ‘Operating Principles for Impact Management’ that the IFC launched in 2019, just a few months before its divestment from Titan.[8] Interestingly enough, one of these nine principles, namely principle number 7, calls on investors to consider the effect of exits on sustained impact when they decide to divest.

Although the IFC learned lessons from this case, and might do better with future investment, justice was not done for the complainants. They were not even compensated for the long-term damage to their health and livelihood. The IFC does not have a remedy fund, nor it requires its clients to establish such a fund.

However, there are still some measures the IFC can take either to address the grievances of the complainants or to really translate the learned lessons into policies and practices.

Although the IFC has lost its hard power by divesting from the investment, it still enjoys soft power. Titan is a big international company that needs to maintain a good relationship with the IFC and other international investors. One of these investors is the European Bank for Reconstruction and Development (the EBRD) that has an active investment in Titan International and as such the latter has to comply with the EBRD policies that are similar to the IFC standards. Although Titan Alexandria is a subsidy of Titan International, it still carries Titan legacy and as such should comply with the same standards. The IFC could use its soft power with Titan and use its leverage and working relationship with the EBRD to ensure that the company is addressing the grievances of the community and workers.

If the IFC is serious and has learned lessons from this case, many of the gaps in its accountability system that were highlighted by this complaint have to be discussed the institutions and the needed policies should be developed. There should be clear guidelines for responsible divestment and the IFC should not divest when a complaint is under investigation especially if the damage has been going on for a long period of time. The IFC should also address the issue of accountability of its clients and hold them accountable for complying with all their contractual commitments, including the Performance Standards. And finally, a remedy fund should be in place.

[1] https://disclosures.ifc.org/project-detail/SII/30274/titan-egypt

[2] https://www.cao-ombudsman.org/sites/default/files/downloads/Combinedcomplaint.pdf

[3] The Performance Standards are a set of do no harm policies and procedures that should be followed in any IFC investment to protect people and their environment. Click here for more details on the Performance Standards.

[4]  https://www.athexgroup.gr/documents/10180/5657427/1427_9506_2019_English_2.pdf/9baaae8f-d81b-4487-b7db-72bf9b042a2a

[5] The investigation report; The Management Response ; The Management Action Plan

[6] Two-Tier-Sanctions-brochure-Final.pdf (worldbank.org)

[7] Procurement – World Bank Listing of Ineligible Firms and Individuals

[8] Invest for Impact | Operating Principles for Impact Management (impactprinciples.org)

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