Fresh Breeze or Last Sigh? Budha Ismail Jam et al v. International Finance Corporation, No 15-cv-00612 (JDB) (D.D.C.)

Posted on May 16, 2016 by Todd D. True

The Tata Mundra “Ultra-Mega” coal-fired power plant on the coast of India north of Mumbai is a behemoth by any measure.  Capable of producing over 4,000 megawatts of electricity from five huge boilers, it can consume over 12 million tons of coal per year and requires millions of gallons of seawater a day for its once-through cooling system.  Indeed, the plant is so large it requires its own coal port, its own water intake channel (nearly 150 meters wide) and its own outfall that discharges warm water equal to almost half the mean flow of the Potomac River.

For generations, the area where the plant is now located supported a system of small fishing villages where fishing families move from inland locations to the coast for several months each year following the monsoon to catch and dry fish which they sell to traders.  This income has supplemented income from agriculture and provided the villages and families with a subsistence living. 

The arrival of the Tata Mundra Plant changed all that:  construction disrupted access to fishing locations; dredging altered the natural systems and the fish disappeared as water salinity and temperature changed; fresh water supplies dwindled as the plant’s water use led to increased saltwater intrusions into groundwater; and a way of life that had sustained families and villages disappeared.

So what does this story of displacement and disruption half way around the world have to do with environmental law in the U.S.?  In today’s world, where it’s clearer day-by-day that everything is connected to everything else, the answer is “more than you might think.” 

The Tata Mundra Plant would not have been built without financing from the International Finance Corporation (IFC) based in Washington.  The IFC is an organization of member states and part of the World Bank Group.  To its credit, the IFC recognized the environmental risks of the project from the outset noting that it had the potential to have “significant adverse social and/or environmental impacts that are diverse, irreversible, or unprecedented.”  And, consistent with its lending policies, it put in place as part of its loan agreement social and environmental performance standards and requirements to mitigate these impacts. 

It all looked good on paper.  But then the plant was built and the IFC looked the other way.  We know this because individual villagers who depended on the resources the Tata Mundra Plant destroyed complained through a local fishing union and village government to the IFC’s ombudsman office.  That office issued a scathing report criticizing the IFC for its multiple failures to ensure implementation of the protective measures in its loan agreement.  The IFC shrugged; the ombudsman’s office has no enforcement powers.

Frustrated with their inability to achieve any meaningful accountability through the IFC, a handful of individual fishers and villagers, a local fishing union, and a village governmental entity filed a complaint against the IFC in the U.S. District Court for the District of Columbia, Budha Ismail Jam et al v. IFC, No 15-cv-00612 (JDB), in April of 2015.  The IFC moved to dismiss the complaint on sovereign immunity grounds.  The IFC is covered by the International Organizations Immunities Act (“IOIA”), which Congress passed in 1945, and is entitled to the “same immunity” in U.S. courts as foreign nations. While the immunity enjoyed by foreign nations has changed significantly since 1945, the IFC asserted that its had not -- and remained near-absolute.

The District Court concluded, in light of longstanding D.C. Circuit precedent dealing with immunity from wage garnishment proceedings for an employee of one of the IFC’s sister international organizations, the Inter-American Development Bank, that it was bound to dismiss the complaint against the IFC on sovereign immunity grounds.  Budha Ismail Jam et al v. IFC, No 15-cv-00612 (JDB), Memorandum Opinion (Mar. 24, 2016 D.D.C.).

This outcome raises serious questions about the accountability of international lending organizations like the IFC that finance potentially environmentally destructive project around the world while professing to follow the most stringent lending practices for protecting people and the environment.  If we are “all in this together,” a serious failure of accountability on the other side of the world is not something we can just shrug off as someone else’s problem.  We live in a global commons – industrial projects built anywhere can affect us all.  The most obvious example is the effects on the climate from the dramatic expansion of fossil fuel-based power generation around the world, much of it built with international financial support, often originating in the U.S.

Nor is the law of sovereign immunity as clear or unfavorable to the plaintiffs as the District Court’s decision suggests.  First, since 1945, sovereign immunity for foreign states has developed a well-recognized exception for commercial activities, activities that do not enjoy immunity.  IFC lending decisions – on which the IFC makes a profit – are nothing if not commercial activity.  Second, and maybe more significantly, sticking with an out-dated, circa-1945 version of sovereign immunity actually undermines the credibility of the IFC itself.  For the IFC to continue enjoying the financial support of its member states, its commitment to responsible lending must be real and reliable, not illusory.  If it continues to finance projects without real environmental accountability, its members may become inclined to withdraw their support because they will not want it lending to their neighbors: environmental harms don’t recognize geo-political boundaries and irresponsible financing for a polluting facility in one country may well harm another.

Because the facts of Budha Ismail Jam et al v. IFC are so stark, because accountability in international finance for major industrial projects is increasingly important both here and abroad in a world facing rapid climate change and its effects, and because the plaintiffs are appealing the District Court’s order of dismissal, this is a case worth watching.  It could be the first whisper of a new breeze in accountability for the environmental effects of international lending decisions -- or the last sigh from beneath a suffocating blanket of sovereign immunity.



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