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Is World Bank above the law? Aggrieved Gujarat fishermen find out it is

Nihar Gokhale | Updated on: 25 February 2020, 15:37 IST

The problem

  • World Bank arm IFC funded a 4,000 MW Tata power plant in Mundra, Gujarat
  • Local fishermen allege the coal-based plant is destroying their livelihoods, health and the environment

The case

  • US-based NGO ERI filed a case on behalf of the fishermen against the IFC, alleging it was not following its own conditions
  • A Washington DC district court ruled in favour of the IFC, as it enjoys the same immunity accorded to foreign govts

More in the story

  • How did IFC get immunity from legal action, and is it only valid in the US?
  • Why ERI is confident that the appellate court will overturn the district court\'s judgement

Is the World Bank immune to legal action? At least one of its arms, the International Finance Corporation (IFC), might be.

In a recent order, a district court in Washington DC said the IFC cannot be sued, as it enjoys immunity privileges as per a 1945 Agreement that led to its formation.

The case relates to Tata Power's 4,000 megawatt power plant in Mundra, Gujarat, which the IFC has partially funded. Fishermen from the vicinity allege that the coal-based plant has adversely affected their livelihoods, health and environment.

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A suit had been filed on behalf of the fishermen against the IFC, alleging that it gave the $450 million loan to the project despite knowing about these impacts.

The judgement has dashed the hopes of the fishermen for now, although they say they will appeal the decision.

Turning a blind eye

The IFC gives loans to private sector projects in developing countries. The loans are granted on the condition that local communities do not face adverse social and environmental impacts, and the IFC is supposed to monitor these conditions.

In the present case, a suit was filed on behalf of fishermen in the plant's vicinity by a US-based NGO, EarthRights International (ERI), in 2015.

It was filed before a federal district court in Washington DC, where IFC is headquartered.

Tata Power runs a 4,000 MW power plant in Mundra, Gujarat, which the IFC has partially funded

ERI claimed IFC was aware "from the start" about the "significant and potentially irreversible" impacts of the plant on local communities and the environment.

The suit alleged that the coastal power plant has caused saltwater to enter groundwater reserves, and reduced fish catch. It said fly ash from the power plant contaminated agricultural land and caused respiratory problems.

The IFC ignored the decision of its own ombudsman. In July 2012, the Compliance Advisor Ombudsman (CAO), agreed with most of the fishermen's contentions.

The suit said the IFC extended the loan while knowing that its own environmental and social conditions were not being followed on the ground.

Court agrees with IFC stand

The IFC's immunity can be traced back to its origins. The IFC, under the World Bank Goup, is an international organization with 184 member countries. These nations have to follow the Articles of Agreement, which were finalised in 1945.

Article VI, Section 3 of the Articles of Agreement codifies the immunity IFC has. Each member country had to ratify the agreement as law.

India, too, carries the same section as law - the International Finance Corporation (Status, Immunities And Privileges) Act, 1958.

In his judgement on 24 March, US district judge John D Bates stated that the World Bank (and the IFC) had previously waived its immunity for certain types of cases, so as to "enhance its credibility". This includes cases where the Bank or its arm has a "direct commercial relationship".

But the case filed by the fishermen is not so, the court order said.

In its arguments before the court, the IFC said allowing its immunity to be waived off in this case would "open a floodgate of lawsuits" from "alleged aggrieved complainants from around the world".

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The fishermen contended that the resultant accountability would only help improve IFC's credibility among other communities.

The court recognised this, but turned this logic against the fishermen. It held that better IFC governance is a "marginal benefit" that does not weigh against the costs of too many lawsuits.

'Danger' posed by precedents

ERI is confident of winning an appeal of the decision, because of previous cases decided by the US Supreme Court.

"The IFC's sweeping claims of immunity are deeply problematic, both from a policy perspective, and in light of recent Supreme Court case law (precedents). We feel confident that the appellate court will agree," Rick Herz, ERI's litigation coordinator, said in a statement.

It remains to be seen if the court order survives the appeals. If it doesn't, it sets a dangerous precedent. Many projects financed by the World Bank have run into controversy regarding social and environmental impacts.

Fishermen allege the coal-based power plant has adversely affected their health and the environment

The most famous is the Narmada dam case. There, protesters eventually appealed to the World Bank's ombudsman, and the Bank withdrew from the project on its own.

An investigation published in 2015 found that in many instances, the Bank funded large projects without applying its own policies to ensure safety of local populations. According to the investigation, over 33 lakh persons worldwide have been displaced by World Bank-funded projects. More than 10% of these, about 3.8 lakh, have been displaced in India.

Edited by Shreyas Sharma

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First published: 30 March 2016, 16:04 IST
Nihar Gokhale @nihargokhale

Nihar is a reporter with Catch, writing about the environment, water, and other public policy matters. He wrote about stock markets for a business daily before pursuing an interdisciplinary Master's degree in environmental and ecological economics. He likes listening to classical, folk and jazz music and dreams of learning to play the saxophone.