A Community is left to pay a hefty price for the IFC to “Learn Free Lessons”
A COMMUNITY IS LEFT TO PAY A HEFTY PRICE FOR THE IFC TO “LEARN FREE LESSONS”
TITAN ALEXANDRIA, EGYPT
Written by: Amy Ekdawi
Nestled on the Northern Egyptian Coast, Wadi al-Qamar is a small neighborhood in western Alexandria. Most of its 60,000+ residents belong to the tribes that long ago settled on the northwestern coast of Egypt and Libya.
In 1948, The Alexandria Portland Cement Company (APCC) established a cement plant in an industrial area adjacent to Wadi al-Qamar. The Egyptian government owned APCC until it was privatized in 2000, and in 2008, Alexandria Development Limited (ADL), a holding company of Titan Cement International, became its sole owner.
In November 2009, the International Financial Institution (IFC) approved an equity investment of up to EUR 80 million to ADL (Titan) to expand its operation in APCC and build a new cement plant in Beni Sueif, in the southern part of Egypt.
APCC had four kilns/furnaces until 2002, when the company built a fifth one very close to the residential area of Wadi al Qamar. The plant’s smokestack and homes are separated by an area of no more than ten meters, while the Mediterranean coast is only 100 meters away. Since the winds in this coastal area are largely northwesterly, the residential area lies right in the path of the plant’s emissions. The fifth kiln is the only one operational; the other older kilns were unused and thus demolished. The company couldn’t obtain a proper permit from the Egyptian authorities to operate this fifth kiln because of its proximity to the residential area. However, it could obtain a temporary one renewed several times, during which the cement plant transitioned from natural gas to coal in 2015.
The residents have suffered from pollution caused by the high emission and cement dust for years. Many of them, including children and infants, have developed lung diseases, mainly pulmonary fibrosis. The heavy equipment and the grinders’ operation cause severe noise and have been forceful enough to cause cracks in many buildings. The community of Wadi al-Qamar has engaged in peaceful protests and filed lawsuits against the company, including lawsuits contesting the legality of the plant’s license. The media covered these lawsuits before the IFC decided to invest in the company and throughout its active investment.
The company had also eliminated many of its permanent workers and replaced them with temporary workers through a labor supply company. Moreover, many of the required safety procedures for this industry were not implemented, thus compromising workers’ health. After many failed attempts to negotiate with the company, the workers organized many peaceful sit-in protests in which community members joined. In one incident in 2011, the company sought help from national security to disrupt the protesters. The security forces unleashed dogs on the protesters, and many were injured. In another incident, the company accused the protesters of igniting a fire inside the plant. Many protesters faced the threat of prison because of this accusation, even though the court later cleared them.
In 2015 Wadi al Qamar community members and several former and current workers at APCC submitted a complaint to the Compliance Advisor and Ombudsman (CAO- the IFC’s accountability mechanism), arguing that the IFC failed to comply with its policy. They asked for the relocation of the kiln; end of the use of coal; compensation to the residents for the health and economic damage; implementation of occupational health and safety standards, end of discriminatory treatment between permanent and contract labor, reinstatement of the fired workers, and completion of the disbursement of all benefits, as per the Egyptian labor law, for the workers who were forced to early retirement.
In early 2020, while the CAO was finalizing its investigation report, the complainants and the civil society organizations that supported them were surprised to learn that the IFC had discreetly exited its investment in Alexandria Development Limited to Titan Cement International.
The CAO concluded its investigations in July 2021 and validated all the issues raised by the complaints. The CAO found that the IFC’s pre-investment review of project environmental and social impacts was not commensurate to risk in light of the plant’s location and that although the IFC was aware of the client’s contested licensing status and related media coverage, it relied on the client assurances that permit and license requirements were being met. The IFC also didn’t ensure the client’s Environmental and Social Action Plan (ESAP) reflected the consultation outcomes with the affected communities. The IFC’s initial appraisal and supervision of community engagement issues fell short of the relevant requirement for disclosure and consultation with the affected community and establishing an adequate grievance mechanism. This was “of particular concern in the context of a facility where there have been community protests and armed security responses [that were widely covered by the media] during the IFC investment period.”. IFC monitoring of the project implementation was inadequate to the risks, and the IFC has not been effective in ensuring that the client complies with the IFC requirements. Persistent delay in implementing the proper pollution control measures had prolonged impacts and cumulative health effects on the local community.
When conducting its pre-investment review, the IFC was aware of the labor issues’ disputes but did not consider them a legacy issue or explore remedial measures with its clients. The IFC’s due diligence and early supervision did not assess the client’s compliance with its labor requirements for working conditions, freedom of association, and health and safety.
IFC Response and Management Action Plan (MAP)
In its response to the CAO’s investigation report, the IFC argued that hadn’t the IFC invested in the company, the problems would have been much worse; that the IFC had learned valuable lessons that would be applied to future investments; and that this case will be valuable for its review of “its investment operations policies and procedures as they relate to aspects of exit, and identifying opportunities for procedural engagements in considering environmental and social impacts when IFC seeks to exit investments proactively.”
As for its proposed action plan, the IFC noted that it had lost its leverage by exiting the investment. The only action that the IFC could commit to was the disclosure of the environmental and social assessment documents that should have been disclosed more than a decade ago. The other actions included in its MAP were proposals whose implementation would be subject to the company’s approval. Such actions included disclosing information, including documents on its community engagement efforts and grievance mechanism, and assessing the noise sources.
Back to the Complainants
The harms that were the subject of the complaint and the complaints’ recommended remediation actions were left out. When they submitted the complaint, the complainants risked their safety and lives, hoping to get a remedy for the harm they endured. They did not submit the complaint for the IFC to learn free lessons for its future investments.
POLICY GAPS HIGHLIGHTED BY THIS CASE
By investing in a project that causes harm to the environment and the community, IFC risks its reputation as a developmental institution. By exiting from a project before ensuring that remedy was provided in full to those harmed by this investment, IFC is simply washing its hands from the mess it contributed to and losing its credibility as a development institution. The following policy gaps, if addressed, would have saved IFC’s reputation and addressed the harms caused by Titan Alex.
- IFS should conduct proper due diligence on the client’s capacity and willingness to comply with the IFC’s Environmental and Social requirements before deciding to invest in a project. The fact that there were active court cases raising questions about Titan’s environmental and labor practices should have raised red flags for the IFC. Addressing these issues should have been a prerequisite for IFC’s investment.
- IFC should properly monitor, and verify with the community, the implementation of Environmental and Social requirements in its funded projects. IFC should have sought input from the protesting workers and community members to verify the implementation reports it received from Titan.
- IFC should respond to environmental and social violations the same way it responds to financial violations. IFC currently enlists clients who commit financial violations, but not environmental and social violations, on a public debarment list. Debarment affects the client’s reputation and borrowing ability. The threat of debarment for environmental and social violations would reinforce IFC leverage and would have led Titan to properly implement IFC environmental and social requirements.
- IFC should not exit a project associated with an open complaint or when the monitoring process highlights unsatisfactory Environmental and Social performance. When IFC funds a project that causes harm, IFC becomes a contributor to the harm and thus should be a contributor to remedy. IFC decided to invest in Titan regardless of the contested legality of the company’s license and the unresolved labor issues. Thus IFC knowingly contributed to the harm endured by the residents of Wadi al-Qmar and the workers of the Titian plant. It was irresponsible for the IFC to discreetly exit this investment before remedying the harm it contributed to.
- IFC should adopt a policy for remedy actions that properly remediate the harms and addresses the non-compliance gaps to avoid future potential harms. Here are the actions the complainants were hoping the IFC, as a development institution, would take to remedy the harms highlighted in their complaint:
- IFC would apologize to the community of Wadi al- Qmar and the workers who have been suffering for years.
- IFC would compensate the residents for their cracked homes because of the grinder’ noise.
- IFC would compensate them for the medical expenses they had to incur over the years since the IFC became involved and cover all future medical expenses.
- IFC would use its leverage to get the company to move the furnace deep into its premises and away from the residential area, thus enabling the company to get a proper license from the Egyptian authorities.
- IFC would compensate the workers for the lost income and benefits and work with the company to adopt a labor policy that complies with international labor standards.
- IFC should work with the client, and in consultation with the impacted community, to prepare an exit plan to uphold the environmental and social requirements. IFC can plan for exit only after ensuring the remedy is fully provided. A responsible exit would require that the IFC announce its decision as early as possible, assess Titan’s environmental and social performance in consultation with the impacted community, facilitate the development of an exit plan with Titan, and in consultation with the impacted community, that upholds the environment and social commitment and post publicly an exit notice and the action plan.
At the end of a long process that took almost seven years, instead of the IFC providing a remedy to the complainants, the complainants discovered that they were taking additional, unpaid labor to teach the IFC needed lessons. They did not care about teaching lessons to the IFC when they submitted their complaint; they risked their safety because they wanted a remedy, but instead found themselves burdened with teaching a global development institution how to do a better job with its future investments.