Complex projects | Dealing with multiple dilemmas

In November 2019, the NGO Human Rights Watch (HRW) published a critical report concerning one of our investments in Feronia, a palm oil producer for the domestic market in the Democratic Republic of Congo (DRC). Given the remoteness of the plantations, the fluctuation of palm oil prices and legacy issues dating back more than 100 years, Feronia is one of the most complex investments we have in our portfolio.

In the beginning

When Feronia, a Canadian agribusiness, acquired its palm oil business, Plantations et Huileries du Congo (PHC) in 2009, they knew that there were many operational challenges that required serious attention and that it would be difficult to put the company and the surrounding communities on a sound footing. These nearby populations, together comprising around 100,000 people, rely on the company as a primary source of employment. In 2015, FMO and other lenders provided a long-term loan facility to rehabilitate the plantations to maintain valuable employment in the region.

A balancing act

Several of the conclusions drawn in the HRW report did not come as a surprise. The findings of the report represent some of the dilemmas we face in our daily line of work. Every investment we make comes with conditions, as stipulated in the loan agreement. We monitor all our investments, and sometimes, due to realities on the ground, we are required to make difficult choices especially in fragile states like DRC. For example, what happens when the company is truly committed to execute an Environmental and Social Action Plan (ESAP), but budgets are simply unavailable because of depressed commodity prices? Or what if the company has to deal with many urgent items at the same time? Which spending commitments, within the available resources, should take priority over others? These are not easy choices, especially when they have a direct impact on the daily lives of people in the area.

Confronting a dilemma: Palm Oil Mill Effluent

One of the HRW findings concerned the disposal of Palm Oil Mill Effluent (POME). This is an organic mix of natural wastewater, oils and fats which have been discharged into the rivers since the plantations began operation in the early 1900s. The installation of treatment plants for POME at the company's three sites, represents a multimillion-dollar investment. When deciding upon the loan agreement, the company and the lenders chose to allow the status quo regarding the discharge of POME to continue for a limited time. We absolutely accept that the discharge of organic waste materials from the palm oil extraction process is undesirable. In other words, priority was set to get the plantations running first and the POME treatments plants to be built from the moment that the more pressing social issues (health, education, wages, community relations) have been properly dealt with. This decision was made after ensuring that POME discharge into rivers does not cause any health hazards to local communities, and that additional sources of clean water would be made available via the drilling or renovation of boreholes or wells with 72 safe water sources completed to date.

The lenders felt that other urgent and pending matters such as health care and the continuation of payment of both salaries and pensions should take priority over the construction of treatment plants for POME.

How to move forward?

Despite all efforts by Feronia management and its shareholders, we recognize much more needs to be done to safeguard the sustainability of the company and hence the employment of the surrounding communities.

At the moment, the shareholders are drafting a turnaround plan towards financial self-sufficiency. This is a challenge in itself due to low palm oil prices, as well as Feronia’s remoteness and resulting in high operating costs. For these reasons, the construction of treatment plants for POME is not scheduled for the immediate future.

In light of the HRW report, we have asked the management of the company to take steps to further investigate the impact of POME at specific sites, to present recommendations to address community concerns, to improve the monitoring of POME disposal through an appropriate water quality monitoring program, and to configure effluent discharge points to avoid impacting local communities.

For more information on the actions for Feronia in response to the report, please read the the joint statement from CDC Group, BIO, DEG and FMO on the long-term role of Development Finance Institutions in poverty-stricken regions of the world on our website.