Draft Environmental and Social Review Summary
KuAz Energy Eff (Russia) [27928]

Overview of IFC Scope of Review:

The review of this project consisted of appraising technical, environmental, health, safety and social information submitted by the project sponsor, and field visits in March 2009. The environmental and social (E&S) appraisal team visited KuAz manufacturing complex located in Togliatti, Samara Region, Russian Federation. The E&S team held meetings with KuAz management team, walked through the major manufacturing processes, and interviewed local environmental nongovernment organization.

Project Description:

Kuibyshevazot Open Joint Stock Company (“KuAz” or the “Company”), located in Togliatti, Samara region and a strategic IFC client in Russia, is the leading Russian manufacturer of caprolactam (the raw material for synthetic fibers, engineering plastics, automotive and other downstream products) and one of the top five Russian producers of ammonia and nitrogenous fertilizers. The proposed investment is a loan to KuAz, to help finance the Company’s 2009 energy efficiency and cleaner production projects, including
(i) modernization of the alkaline waste burning unit of the caprolactam production plant; (ii) installation of 6 MW steam turbine; (iii) modernization of two sections of cooling tower for water re-circulating system; and (iv) installation of a wastewater treatment unit for the ammonium nitrate plant.

Identified Applicable Performance Standards:

• PS1: Social and Environmental Assessment and Management Systems
• PS2: Labor and Working Conditions
• PS3: Pollution Prevention and Abatement
• PS4: Community Health, Safety and Security

There is no land acquisition for this project. No protected species or natural protected area is identified at or near the project site. There are no indigenous Peoples were not identified in the project area. Cultural Heritage was not identified in the project area.

E & S Categorization Rationale:

This is a Category B project according to IFC’s Environmental and Social Review procedures because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

The project is for energy efficiency and cleaner production improvement, and does not involve production expansion. The project site is located inside a large chemical industry zone, and there are emission controls, wastewater treatment, emergency response plans at KuAz. During the appraisal for the previous KuAz projects, environmental and Social Action Plans (ESAP) were proposed to mitigate the potential environmental and social impacts. Most of the items in the previous ESPA have been implemented. Additional actions for this proposed project are identified and detailed in a new ESAP. The previous IFC projects with KuAz are also categorized as B.

Description of Key Environmental and Social Issues and Mitigation:

The key environmental and social issues for this project include the following:

- Wastewater effluents and air emissions
- Occupational health and safety
- Operation hazard and emergency response
- Energy efficiency
- Greenhouse gas generation from nitrous oxide

KuAz has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with the environmental and social requirements - the host country laws and regulations and the IFC Environment and Social Performance Standards and the World Bank Group (WBG) environmental, health and safety guidelines. The information about how these potential impacts will be addressed by KuAz is summarized in the paragraphs that follow. Further information is provided in the attached ESAP, which is agreed upon by IFC and KuAz and will address the compliance gaps with IFC’s requirements.

1. Social and Environmental Assessment and Management Systems

Land and natural environment: KuAz manufacturing site is located in a large industry zone in Togliatti. KuAz and the nearby manufacturing plants were built in early 1960s. The residential communities are a few kilometers away at urban area of Togliatti. KuAz operations have no direct social impacts to the community. There is no natural protected area or protected species at or near the KuAz site.

Environmental and Social Assessment: All significant facilities upgrades and expansion projects undergo mandatory environmental impact assessment studies in accordance with the local regulations. The EIA’s are disclosed to the public via local administrations and public hearings are held on the results of EIAs where local community members and other interested parties are informed of the Company’s activities, can make further information inquiries and voice their concerns about the impacts of company’s activities and environmental protection measures. No EIA is required for this proposed project.

Environmental, health, and safety (EHS) management and organization: KuAz has a fully established EHS management system. The deputy chief engineer leads the EHS department and report to the chief engineer who is in charge of the overall operation. There are two divisions under the deputy chief engineer, environmental division and occupational health and safety (OHS) division. The urea, yarn, polyamide plants have got ISO 14001 and OHSAS 18001 certificates. The caprolactam, ammonia, and nitric acid plants are scheduled for ISO 14001 and OHSAS 18001 certification in June 2009.

Training, monitoring, and reporting: Required by its EHS management system, KuAz has various management programs and implementation procedures for its EHS training, monitoring, and reporting. KuAz has an established program to provide necessary training for all its employees in the field of environmental and social performances related to its operations. KuAz also conducts routine environmental, health and safety monitoring for its operations. In accordance with the ESAP, KuAz will improve and optimize its EHS data management and reporting programs to ensure that the management could get access to key updated data and information in time.

2. Labor and Working Conditions　

Human Resources Policy and Management: KuAz has prepared an integrated Human Resource Policy that incorporates recruitment, training, and retention of employees. The policy includes strict adherence to the Russian Labor Code and implementation of a grievance committee to respond to any issues raised by the work force. The HR department is responsible for implementation of the Policy and the Board as well as the local representative of the chemical industry trade union who also oversees the compliance with the policy. All recruited workers are familiarized with terms of employment, their terms of reference, general company conformation and undergo a multi-level OHS training before starting their employment.

Worker’s Organization: A branch of the Russian chemical industry labor union is established in the company, in accordance with the Russian labor code and close to 100% of the employees are members of this union. Labor union representatives are elected at the annual general meeting of the employees and are hired by the Union. The Union carries out multiple functions including participation in resolving workers grievances, legal help to its members, conflict resolution, prioritizing and distributing social funds provided by the company among its workers, HR actions in respect to hiring, compensation, promotion and retrenchment. The Union represents the workers in negotiating with the management the term of a Collective Bargaining Agreement. The Union is ultimately responsible for monitoring the implementation of the collective agreement and protecting workers rights.

Non-Discrimination and Equal Opportunity: Hiring is conducted in accordance with the Russian Labor Code and there is a policy against discrimination based on gender, race, age or ethnicity. As a result, KuAz has a multiethnic force consisting of more than 30 ethnic groups.

Grievances mechanisms: In the case of grievances raised by employees, according to the Russian Labor code and Company’s policy, a grievance committee is formed from representatives of the HR department, management and the Union. The committee investigates grievances and informs the complainants and the management about necessary corrective actions (if any) and monitors their implementation. For informal grievances, employees have open access to their departmental management, HR representative, or top company’s management as well as to trade union representatives.

Protecting the Work Force: Protection of the work force in Russia is provided through legislation, in particular the Labor Code. The Labor Code was updated in 2006 to provide extensive protection for workers and ensure that OHS standards are strictly adhered to and a large array of social benefits must be provided by the company. KuAz complies with the Russian Labor Code and is audited on a regular basis by the Samara State Labor Inspection. OHS standards on the workplaces are to undergo certification and inspection by the Labor Inspection and adherence to the local standards of air quality, noise, vibration and radiation pollution is established for all workplaces.

Retrenchment: There is no retrenchment anticipated for this project. The company plans to retain all its employees despite the current unfavorable financial and business environment and has developed appropriate plans to provide resources to make this commitment viable.

Occupational health and safety (OHS): The OHS Division leads the OHS works at KuAz. Operation safety is highly emphasized in the operation. There are effective OHS procedures and adequate personal protection equipment for each position in KuAz, which are implemented strictly during operations. No new OHS procedures are required for this proposed project. There are routine OHS trainings including annual refreshers for its employees. KuAz also records all the OHS accidents and monitor statistical trends for minor OHS accidents. KuAz has a comprehensive workplace noise and air quality monitoring program. All the monitored parameters meet the local regulatory requirements and good international industrial practices, with the exception of benzene, which exceeds limit of the good international industrial practices at various benzene pumping stations for the existing operations. As stated in the ESAP. KuAz will increase the benzene pump maintenance frequency and increase the local ventilation system to reduce workplace benzene concentrations at benzene pumping stations. KuAz also proposes to replace benzene with cyclohexane if feasible.

3. Pollution Prevention and Abatement

Raw materials and resource consumption: Major raw material and energy consumption rate at KuAz are water (20 million ton/y), benzene (141,600 ton/year), phenol (32,000 ton/year) natural gas (1.1×109 m3/year), and electricity (1,060,000 MWhr/yr). The water is supplied by local government. Approximately 5% of the power is generated onsite, and the remaining is purchased from grid. KuAz has a corporate-wide energy saving program, which consists of reduction targets for each year and monitored closely by management. The proposed project will reduce approximately 4.7 MW energy consumption. Besides IFC project, KuAz also has its own programs to further reduce energy consumptions.

Environmental Compliances: KuAz generates approximately 1,200 t/d process wastewater and 24,000 t/d cleaning and contaminated rain/snow wastewater, which are pretreated onsite before discharged to local municipal wastewater treatment plant. The wastewater discharging stream meets WBG/IFC guideline requirements. In accordance with the ESAP, KuAz will establish water-saving program with targets to reduce consumption of cleaning water. The ambient noise and air quality conditions meet both local regulatory requirements and WBG/IFC guideline limits. The monitoring air emission parameters at KuAz meet both local regulatory requirements and WBG/IFC guideline limits, with the exceptions of ammonia and soda dust from various processes, which exceed WBG/IFC guideline limits. As required in the ESAP, KuAz will propose a practical plan to mitigate the ammonia and soda dust emissions. After the completion of the proposed project, nitrogen oxide emission, ammonium in the liquid effluent, and wastewater load will be reduced.

Solid and hazardous wastes: KuAz generates various industrial solid and hazardous wastes from its production and demolition, including used catalysts, waste synthetic/mineral oils, construction wastes, metal scraps, etc. KuAz has a detailed management plan for these solid and hazardous wastes. All the wastes are properly stored onsite. Used catalysts are sent back to the manufacturers for regeneration; waste synthetic/mineral oils and other hazardous wastes are sent to government approval waste management company for recycle, treatment and disposal; metal scraps and other raw materials are recycled; construction wastes and other solid wastes are sent for recycle or to the government approved landfill for disposal. There are asbestos in a few old buildings. KuAz has the plan to gradually replace and dispose of the asbestos. As stated in the ESAP, KuAz will mark the asbestos locations in the old buildings and restrict unnecessary access to the buildings. The proposed project has no impact to the waste management.

Hazardous materials and operation hazard: KuAz’s raw materials, intermediate products, and products comprise significant amount of hazardous materials. The manufacturing, storage, handling, and transportation of these materials pose serious dangers to the employees. The operation safety is always among the top concerns for KuAz management. There are on-going processes at KuAz to upgrade its various process safety management programs, emergency response, contingency plans, and hazard operability (HAZOP) study for the plant and associated operations to meet the good international practices. KuAz will modify the HAZOP for certain process changes of the proposed project.

Fire prevention and emergency response (ER): There is adequate firefighting equipment onsite with proper maintenance on site. The external fire trucks and ambulance from Togliatti city could reach the site in five to ten minutes. KuAz conducts routine drills for fire fighting and potential chemical explosion/releases. In accordance with ESAP, KuAz will provide material safety data sheets (MSDS) of its hazardous materials to the local fire department and hospital and conduct joint ER drills with the local fire department and hospitals. The proposed project has no impact to the fire prevent and ER.

Greenhouse Gases (GHG): The current GHG emission for KuAz operations is approximately 3.307 million tons/year. KuAz is installing catalyzed decomposing devices for various nitrous oxide emissions. Once completing the works, KuAz will reduce 577,500 ton/year GHG. As required in ESAP, KuAz should fulfill the 577,500 ton/year GHG reduction target by the end of March 2010. With IFC’s investment, KuAz plans various projects to reduce energy consumption, including heat recovery from steam and waste, and equipment modernization. With implementation of all these projects, the GHG generation at KuAz will be reduced to 2.540 million ton/year.

4. Community Health, Safety, and Security

Community health, safety and security: KuAz is located in a large industrial zone, and several km away from the residential area of Togliatti. The routine operations at KuAz have limited direct impacts on the communities in Togliatti. The major raw materials of benzene and natural gas are transferred directly to KuAz site through railroad and pipeline, respectively. The products are also transported out of the site through the railroad system.
Emergency preparedness and response: KuAz has emergency response (ER) plans available and conducts routine drills for fire fighting and potential chemical explosion/releases. As stated in the ESAP, KuAz will provide material safety data sheet (MSDS) of its major raw materials and products to the local fire department and hospital, and conduct joint fire fighting and ER drills with the fire department and hospital

Security personnel: KuAz does not hire external agency for complex security. It has its own security personnel, which conducts routine ID check at the gates and security monitoring. The security personnel do not have any weapon. For serious security issues, KuAz reports directly to the local police station.

Client’s Community Engagement:

All significant facilities upgrade or expansion projects undergo a mandatory environmental and social assessment process and the findings of the environmental impact assessment (EIA) are disclosed locally and discussed with the local population during public hearings. EIA materials are in public domain with open access in the offices of the local administration for at least 30 days before public hearings are held.

The company is engaged in day to day communication with representatives of local stakeholders including local communities, city administration, environmental NGOs, regulatory agencies (Rospotrebnadzor, Rostechnadzor). Additionally, the company has a procedure for receiving and for responding to community grievances and information inquiries. Each grievance is logged in a register and is responded to by the appropriate department. If needed, a recommendation of necessary corrective action is presented to and approved by the management.

The company sponsors a number of social initiatives in the city related to environmental awareness rising. Together with a number of other industrial enterprises in the region, the Company participates in the non-profit project “Togliatti Public Foundation” and holds a seat on its Board. Using this non-profit project, the Company allocates its sponsorship financial resources to the communities and participates in planning and prioritization of social projects in the Togliatti region that are proposed by the communities and the local administration of the city of Togliatti. In addition to the corporate contributions to this fund, the company facilitates its employees’ voluntary private contributions to the fund and to particular programs implemented by the Fund. For awareness raising and to publicly report on its results, the Fund holds annual report meetings before the Company and its employees on Company premises with participation of the management, employees, and the trade union.

Local Access of Project Documentation:

General information concerning the Company’s environmental, health and safety performance, including EIAs for the various components of the project, as well as the copy of the IFC’s Environmental and Social Review Summary and the Environmental and Social Action Plan in the Russian language, is available and can be obtained for review on the Company’s web-site (www.kuazot.ru) or from

Mrs. Larissa Smoleva, Head of Financial and Economics Department
JSC KuybyshevAzot
Novozavodskaya Ul, 6
445007 Togliatti, Samara Region, Russia
Tel: (8482) 561042, 532619
Fax: (8482) 561102

Environmental documents will also be made available at Public Reception of the Togliatti City Administration at the following addresses:

4, Ploshchad’ Svobody
445000 Togliatti, Samara Region, Russia
Russian Federation

or

6, Novozavodskaya St.
445007 Togliatti, Samara Region,
Russian Federation