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The Pangue/Ralco hydroelectric projects in Chile's Alto BíoBío caused severe disruptions to the Mapuche/Pehuenche people's semi-nomadic lifestyle and cultural ecosystem. The project sponsor, Endesa, and the Chilean government are accused of violating indigenous land rights and environmental laws, while the IFC faced criticism for failing to oversee social and environmental standards. After a decade of struggle and legal battles in Chilean courts and before the Inter-American Human Rights Commission (IACHR), a 'friendly settlement' was reached in 2003, providing reparations to affected families and commitments from the Chilean government to strengthen indigenous rights and environmental protections in the region.

The Inter-American Commission on Human Rights (IACHR) approved a friendly settlement on October 17, 2003, between the State of Chile and Mapuche Pehuenche families affected by the Ralco Hydroelectric Project. The dispute centered on the flooding of ancestral lands and the application of electrical laws over indigenous land laws. The final agreement includes commitments for constitutional recognition of indigenous peoples, the ratification of ILO Convention 169, the creation of a new commune in Alto Bío Bío, and specific land and financial compensations for the affected families.

The document argues that the State of Chile violated the fundamental rights of the Mapuche-Pehuenche communities of Ralco-Lepoy and Quepuca Ralco through the construction of the Ralco hydroelectric plant, which led to the destruction of ancestral lands, cemeteries, and ceremonial spaces. It contends that domestic legal remedies in Chile have been ineffective, illusory, or subject to unjustifiable delays, thereby satisfying the requirements for the admissibility of the petition before the IACHR. The text further argues that the project was economically inefficient and driven by the monopolistic interests of the company Endesa rather than public interest. Additionally, it details systemic discrimination against indigenous peoples in Chile's political and judicial systems, including the use of anti-terrorist and state security laws to criminalize indigenous demands.

This evaluation report by the Office of the Compliance Advisor Ombudsman (CAO) examines a complaint regarding the Pangue hydroelectric project in Chile. The report analyzes the International Finance Corporation's (IFC) role as a minority shareholder and lender, focusing on social mitigation failures, lack of transparency, and the cumulative environmental impacts of the Pangue and Ralco dams.

The complaint argues that the State of Chile facilitated the forced eviction of Mapuche-Pehuenche communities from their ancestral lands in the Alto Bío Bío region to allow ENDESA to build the Ralco Hydroelectric Project. The petitioners claim that the state bypassed the Indigenous Law (Ley 19.253) and environmental conditions set by CONAMA, which required voluntary land swaps (permutas) approved by CONADI. Instead, the state used the 'Electric Law' (Ley Eléctrica) to impose flood easements and monetary compensation, which the petitioners describe as a form of 'ethnocide' that destroys their cultural, spiritual, and physical existence. They further allege a denial of justice by Chilean courts, which they claim have been ineffective or biased in favor of the company.