Questions & Answers

Questions & Answers

FMO's involvement in Plantations et Huileries du Congo

1 Why did FMO decide to get involved with PHC?

In 2015, FMO - via Building Prospects (Dutch Government Fund managed by FMO) - provided a long-term loan facility of USD 16,5 million to PHC for rehabilitating three 106-year-old former Unilever plantations in the DRC (est. 1911). The Lokutu, Yaligimba, Boteka plantations are so-called brownfield operations with zero deforestation or people displacement for growth. The loans of FMO and other European Development Finance Institutions (DFIs) are used to finance investments into replanting, equipment, fertilizer, and environmental and social governance in the area. FMO invested in PHC because we believe in palm oil as a local food ingredient and in the role of the company to provide a livelihood and healthcare and education facilities to the 100,000 people that depend on them.    

2 What is the role of FMO?

As Development Finance Institutions (DFIs), our principle purpose is to deploy long-term investment in some of the poorest and most challenged regions to bring about positive social, environmental and economic change. DFIs often invest in circumstances where commercial lenders and investors are unwilling or unable to help.

We strive to create sustainable impact in developing countries. Before we invest and during the investment period, we carefully research the financing opportunity and assess its wider impact on local communities, the environment and society to mitigate risks as much as possible.

FMO clients do have a contractual obligation to meet FMO Environmental and Social (E&S) requirements, including to keep FMO, and other Lenders, informed on developments and progress related to the Environmental and Social Action Plan (ESAP).

Throughout the lifetime of the investment we monitor our client’s financial performance as well as progress on the environmental, social and governance requirements. We receive annual or more frequent financial reports, conduct (ESG) audits with the help of local consultants and visit them, depending on the nature of the project, every other year. If needed, we support our clients with capacity development and technical assistance to improve their business and identify new opportunities.

3 Why invest in an existing palm oil plantation?

When Feronia acquired PHC, the primary objective was to bring back the plantations from decay and to maintain valuable employment in the region. Without the European DFIs’ investments in PHC, thousands of jobs would likely have been lost.
Palm oil plays a vital part in the traditional diet of the Congolese. In the DRC, palm oil is used as an ingredient to cook food in and in the manufacturing of foods, soaps and cosmetics. By investing in palm oil, FMO contributes to local food security and thereby increases the availability of high-quality edible oil and palm oil products for people in the DRC. All production of PHC is sold locally in DRC which helps decrease reliance on import and improves access to staple foods and basic hygiene products.
Furthermore, PHC contributes to economic diversification and improved livelihoods in a remote and underdeveloped region by further restoring and developing social infrastructure, including health facilities, employee housing, schools, water supplies and roads at each of the three plantation sites.

4 How will the local communities benefit from the investment?

We steer our investments towards business and projects that create local prosperity. We support the steps Feronia and PHC are taking to realize efficiency gains and implement sustainable living conditions for the people in the DRC. Since 2015, PHC made repairs to 2,100 km of operational roads and ca 3,800 houses for employees. Also 95 schools, 4 hospitals, 17 dispensaries and 6 health centers were refurbished, all essential infrastructure, ready to receive the local government’s health and education professionals. When Feronia acquired the palm oil business in 2009, the primary objective was to save the plantations to maintain valuable employment in the region. The areas are home to many tens of thousands of people who live under socio-economic circumstances typical of rural DRC. In 2009, 3,500 local workers were permanently employed, and an estimated 100,000 people were indirectly dependent of the palm oil business.

5 What is FMO doing in order to ensure that the workers are paid a fair salary?

FMO’s approach on realizing Decent Work and Economic Growth (SDG 8) is integrated in the Sustainability Policy. FMO requires our clients to apply IFC PC 2 (Labor and Working Conditions) and the ILO Declaration on Fundamental Principles and Rights at Work.

FMO actively works together with its clients to improve labor conditions and provides technical assistance to promote decent work. FMO and other lenders have included in the ESAP that wages needed to be increased step by step, alongside the 13th and 14th month salary that was already implemented by PHC for their workers. Since 2013, minimum wages for PHC staff have more than doubled and are now substantially above the minimum wage in DRC.

We have also aligned the salaries of the casual workers with the people that are permanently hired by PHC, formalized in the pay scale which identifies several scales for different roles and responsibilities. Our goal is to let the company eventually use living wage as a benchmark.

6 Why has Feronia been unable to attain a profit to date in the domestic palm oil market?

Production at Feronia has increased by over 500% since the time of our initial investment and processing facilities have been restored.Like in much of SE Asia, palm oil is an important part of cooking and preparing food in DRC. However, imported palm oil is expensive and thus Feronia was able to sell locally-made palm oil at a significant discount whilst still making strong revenues. However, the global price of CPO has fallen by over 30% in recent years and in addition the local market premium for Feronia was further eroded by an increase in illegal cross-border imports. These factors meant that the predicted revenue from selling locally-sourced palm oil was unable to match the significant capital costs of rebuilding the plantations, mill and supporting workers and their communities.

7 Did people get paid in kind?

Workers are offered the opportunity to buy palm oil for domestic use against discounted rates. This is below the price at which PHC sells to its industrial customers and well below the price of equivalent oil in local markets. The oil they choose to buy is settled against their salaries.

8 How was the land acquired?

Land use rights in DRC are determined by the government through concessions. The long term leases to the plantation have been with PHC – and its predecessors - since 1911 – although a few leases came 15 to 20 years later. The leases are not transferred to Feronia, PHC became owned by Feronia. There is no intention of leasing new portions of undeveloped land for the foreseeable future. Its business model is to rehabilitate previously planted areas.

We are aware of the unrest regarding the land reform issues and monitoring this closely. We always do extensive research into land rights, sometimes even more than international standards require us to. We act in accordance to the applicable law in the country and where possible facilitate in the resolution of legacy land issues.

9 How do you ensure human rights of the people directly involved are respected?

We have and feel the duty to respect human rights. Under the UNGPs this implies that FMO has the responsibility to avoid causing or contributing to adverse human rights impacts through their own activities and address such impacts when they occur.

FMO’s investment process entails a comprehensive environmental and social risk management approach. This is executed by FMO’s team of environmental and social experts and often supported by external experts. FMO clients do have a contractual obligation to meet FMO Environmental and Social (E&S) requirements, including to keep FMO, and other Lenders, informed on developments and progress related to the Environmental and Social Action Plan (ESAP).

In 2017, FMO updated its policy universe and introduced the FMO Sustainability Policy (Sustainability Policy, January 2017) and the Human Rights Position Statement (HuRi PS, September 2017). The Human Rights Position Statement re-emphasizes FMO’s commitment to respect human rights. This commitment is operationalized by making the Human Rights lens more explicit in our investment process, as part of our E&S risk management approach. We use the UN Guiding Principles for Business and Human Rights as our compass and the IFC Performance Standards as our operating tool.

10 How do you ensure workers safety?

Realizing improvements to working conditions and community infrastructure is central to DFIs’ engagement with Feronia and PHC. From the start of the DFI investment in PHC, the Company has spent well over $300,000 on protective equipment and all workers have received training on its use. In 2013 workers had no personal protective equipment (PPE) and often worked the fields while barefoot. Today PPE use is mandatory.

We will continue to engage with Feronia to ensure that workers will receive additional training and training materials in relation to agrochemicals; that medical checks are conducted on all agrochemical operators every six month and results are communicated to them; that company medical staff will provide feedback and guidance to workers on their health checks and advise on indications of agrochemical exposure; that company health care professionals provide training to workers on agrochemical application and safety; that appropriate washing facilities are constructed for workers, their clothes and PPE to be cleaned after the use of agrochemicals; and that Feronia undertakes a review on the appropriateness, availability and actual use of PPE.

11 Was security sufficient to prevent theft form the plantations?

Regrettably, there has always been widespread incidents of theft, despite significant investment in security. The company has also strived to bolster its relationship with local communities which has reduced incidents of theft. There is always a balance to be struck in security operations between protecting company assets and maintaining cordial relationships with local communities.

12 How is the production of palm oil compliant with your ambitions on climate action?

Palm oil has a poor reputation because of unsustainable practices, e.g. deforestation, the displacement of people and animals, and the destruction of ecosystems. However, when grown responsibly, palm oil can be the most sustainable and efficient vegetable oil crop, as well as an important source of income for people in the plantation area. PHC is operating on long-established brownfield sites, meaning that PHC only operates in areas that have already been disturbed by the previous operations (prior to 2009) and has no intention to extend into previously unplanted areas of the concessions. There is zero deforestation and all produce is sold locally.